Intellectual Property: Trade, Competition, and Sustainable Development

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Page xi →Abbreviations and Acronyms AB AML APEC

Appellate Body (WTO) Antimonopoly Law (Japan) Asia-Pacific Economic Cooperation

BGH German Federal Supreme Court (Bundesgerichtshof) C.A.D.C. District of Columbia Circuit Court or District of Columbia Court of Appeals (U.S.) CBD Convention on Biological Diversity CGIAR CGRFA

Consultive Group on International Agricultural Research Commission on Genetic Resources for Food and Agriculture of the Food and Agriculture Organization (FAO)

CIMMYT Wheat and Maize Improvement Centre COP Conference of the Parties to the Convention on Biological Diversity CPVR Community Plant Variety Right (EC) D.U.S. Distinct, uniform and stable (UPOV) DSU Understanding on Rules and Procedures Governing the Settlement of Disputes (WTO) ECJ European Court of Justice ECT European Community Treaty (Treaty of Rome) EEA European Economic Area EFTA European Free Trade Association EPC European Patent Convention EPO European Patent Office EU European Union FAO Food and Agriculture Organization of the United Nations International Agricultural Research Centers of the Consultative Group on International Agricultural IARCs Research (CGIAR) IBPGR International Board for Plant Genetic Resources ICJ International Court of Justice IPGRI International Plant Genetic Resources Institute IPP Intellectual Property Protection IPRs Intellectual Property Rights IRRI International Rice Research Institute ITC Page xii →IU JFTC LDCs MFN NERA NIAB NICs NIH OECD PBRs

International Trade Commission (USA) International Undertaking on Plant and Genetic Resources Fair Trade Commission (Japan) Least-Developed Countries Most-Favoured Nation Northeastern Regional Association of State Agricultural Experiment Station Directors (US) National Institute of Agricultural Botany (U.K.) Newly Industrialized Countries National Institutes of Health (U.S.) Organization for Economic Cooperation and Development Plant Breeders’ Rights

PGR

Plant Genetic Resources

PGRFA PPA PPMs PVPA

Plant Genetic Resources of Relevance for Food and Agriculture Plant Patent Act (U.S.) Standards of Production, Methods and Processes Plant Protection Act (U.S.)

R&D SCM SGRP

Research and Development Agreement on Subsidies and Countervailing Measures (WTO) Systemwide Genetic Resources Programme

SII SPS

Structural Impediments Initiative (US-Japan) Agreement on the Application of Sanitary and Phytosanitary Measures (WTO)

TBA TBT TIP TK TRIPs UNCED UNESCO UPOV USTR VERs WIPO WTO

Technical Board of Appeal (EPO) Agreement on Technical Barriers to Trade (WTO) Traditional Intellectual Property Right Traditional Knowledge Agreement on Trade-Related Aspects of Intellectual Property Rights (WTO) United Nations Conference on Environment and Development United Nations Educational, Scientific and Cultural Organization International Union for the Protection of New Varieties of Plants United States Trade Representative Voluntary Export Restrictions World Intellectual Property Organization World Trade Organization

Page xiii →Authors and Conference Participants Authors FREDERICK M. ABBOTT, Professor, Florida State University College of Law, Tallahassee, USA; University of California at Berkeley School of Law, Berkeley, USA ROBERT D. ANDERSON, Counselor, Intellectual Property Division, WTO, Geneva, Switzerland CHRISTOPH BAIL, Head of Unit Development and Environment; Directorate-General Environment; European Commission, Brussels, Belgium JOHN H. BARTON, Professor, Stanford University, Stanford, USA SUSETTE BIBER-KLEMM, Senior Lecturer, Faculty of Law, University of Basel, Basel, Switzerland JACQUES H.J. BOURGEOIS, Partner, Akin, Gump, Strauss, Hauer & Feld, Attorneys-at-Law, Brussels, Belgium CARLOS A. PRIMO BRAGA, Senior Manager, Informatics Division, the World Bank, Washington, D.C., USA SUSAN H. BRAGDON, International Plant Genetic Resources Institute (IPGRI), Rome, Italy MARCO C.J.E. BRONCKERS, Professor, University of Leiden, Leiden, The Netherlands; Partner, Wilmer, Cutler and Pickering, Attorneys-at-Law, Brussels, Belgium CARLOS M. CORREA, Director, Maestría en Política y Gestión de la Ciencia y la Tecnología, Universidad de Buenos Aires (Argentina) THOMAS COTTIER, Professor, University of Berne, Berne, Switzerland; Managing Director, World Trade Institute, Berne, Switzerland WILLIAM DAVEY, Professor, University of Illinois College of Law, Champaign, USA PAUL DEMARET, Professor, University of Liège, Liège, Belgium CARSTEN FINK, Economist, Development Research Group, the World Bank, Washington, D.C., USA MARY E. FOOTER, Senior Lecturer, Amsterdam Center for International Law, University of Amsterdam, Amsterdam, The Netherlands MARTIN A. GIRSBERGER, Co-Head Legal Services, Patents and Design; Department of Legal and International Affairs; Swiss Federal Institute of Intellectual Property, Berne, Switzerland INGE GOVAERE, Professor, University of Ghent, Ghent, Belgium Page xiv →JEAN-MARIE GRETHER, Professor, University of Neuchâtel, Neuchâtel, Switzerland ANIL K. GUPTA, Professor, Indian Institute of Management, Ahmedabad, India GEOFFREY HAWTIN, Director General, International Plant Genetic Resources Institute (IPGRI), Rome, Italy ROBERT HOWSE, Professor, University of Michigan Law School, Ann Arbor, USA MARGARET LLEWELYN, Senior Lecturer in Law & Deputy Director, Sheffield Institute for Biotechnology, Law and Ethics, University of Sheffield, Sheffield, UK

MITSUO MATSUSHITA, Professor, Seikei University, Tokyo, Japan PETROS C. MAVROIDIS, Professor, University of Neuchâtel, Neuchâtel, Switzerland INGO MEITINGER, Associate, Baker & McKenzie, Attorneys-at-Law, Zurich, Switzerland JAIME DE MELO, Professor, University of Geneva, Geneva, Switzerland ADRIAN OTTEN, Director, Intellectual Property Division, WTO, Geneva, Switzerland DAVID PALMETER, Partner, Sidley, Austin, Brown & Wood LLP, Attorneys-at-Law, Washington, D.C., USA ERNST-ULRICH PETERSMANN, Professor, European University Institute, Florence, Italy REINHARD QUICK, Verband der Chemischen Industrie, Head of the Brussels Liaison Office, Brussels, Belgium JEROME H. REICHMAN, Professor, Duke University School of Law, Durham, USA KRISTA NADAKAVUKAREN SCHEFER, Senior Research Fellow and Lecturer, University of Berne, Berne, Switzerland JOSEPH STRAUS, Professor, University of Munich, Munich, Germany JAYASHREE WATAL, Visiting Scholar, Center for International Development; Harvard University, Cambridge, USA; Indian Council for International Economic Relations, New Delhi, India WERNER ZDOUC, Counselor, Appellate Body Secretariat, WTO, Geneva, Switzerland Other Conference Participants OLIVIER ARAKI, Research Fellow, University of Berne, Berne, Switzerland Page xv →ROLAND VON BUEREN, President, Swiss Competition Commission, Berne, Switzerland; University of Berne, Berne, Switzerland ALEXANDRA CAPLAZI, Research Fellow, University of Berne, Berne Switzerland ERIK EVTIMOV, Research Fellow, University of Berne, Berne, Switzerland CHRISTOPH B. GRABER, Professor, University of Lucerne, Lucerne, Switzerland MEINHARD HILF, Professor, University of Hamburg, Hamburg, Germany MAX BEAT LUDWIG, Chairman, Silva Casa Stiftung, Berne, Switzerland DAMIEN NEVEN, Professor, Graduate Institute of International Studies, Geneva, Switzerland MARION PANIZZON, Research Fellow, Georgetown University Law Center, Washington, D.C., USA FRIEDER ROESSLER, Executive Director, Advisory Center on WTO Law, Geneva, Switzerland ANDRÉ SAPIR, Professor, Université Libre de Bruxelles, Brussels, Belgium CHRISTOPH SCHELLING, Secretary, Silva Casa Stiftung, Berne, Switzerland THU-LANG TRAN-TI WASESCHA, Counselor, Intellectual Property Division, WTO, Geneva, Switzerland Page xvi →

Page xvii →Preface On August 27 and 28, 1999, participants met for the third World Trade Forum at the University of Berne, Switzerland. The conference attempted to bring together trade lawyers, economists and scientists from different quarters addressing the interrelationship of competition, intellectual property and sustainable development, with a particular focus on the new Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs Agreement) which had emerged from the Uruguay Round of multilateral trade negotiations (1986-1993). The incorporation of intellectual property standards into the World Trading System heralds a new era of global legal developments. More than any other agreement before, TRIPs introduced standards of positive, prescriptive integration, as opposed to traditional modes of negative integration merely defining the boundaries of trade regulation by Members of the GATT and now the WTO. Positive integration raises a number of new and complex issues. Structurally, the relationships of IPRs and GATT and GATS are uncharted waters. The classical relationship of intellectual property rights and competition, in particular the problem of exhaustion of rights and parallel trade, is now being transformed on the level of global governance and addresses old issues in a new perspective. Extensive procedural prescriptions and detailed standards relating to enforcement redefine the relationship of WTO law to traditional fields of national law which, so far, had been absent in international trade regulation. New issues arise in relationship to agreements negotiated and administered in other international fora, such as WIPO, UNEP and FAO. Legal protection of life forms, in particular plant varieties, under the TRIPs Agreement raises complex issues in relation to the goals of protecting and enhancing biodiversity and of assuring wide and open access to plant genetic resources in agriculture. We are indebted to the authors and discussants who provided valuable input to the debates of the conference and made the effort to revise their drafts for publication in due course. We thank the associate editors, Marion Panizzon and Simon Lacey for all their work. We are, again, indebted to the Silva Casa Foundation, Berne, who generously supported the conference. Finally, we thank the University of Michigan Press for allowing us to make the contributions and conclusions accessible to a wider public interested in shaping the twenty-first century global intellectual property regime. The Editors

Page 1 →INTRODUCTION Intellectual Property: Trade, Competition, and Sustainable Development – An Overview Thomas Cottier and Petros C. Mavroidis The advent of the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPs Agreement) in the world trading system of the former GATT and the new World Trade Organization in 1995 significantly contributes to profound structural changes of the global regulatory system relating to international trade. The third volume of the World Trade Forum Series seeks to explore these underlying implications and ramifications. The papers and comments presented at the third Forum held at the University of Berne in August 1999 seek to explore systemic and substantive implications of the TRIPs Agreement and its context of trade, competition and sustainable development. With all these areas overlapping, referring to or involving other agreements and thus difficult to separate, the volume is organized in to three major parts. We first deal with the new quality of rules established under the WTO and made subject and part of the dispute settlement and enforcement system. This issue raises a host of complex basic questions as to the normative quality of IPRs and its implications on decision-making. It addresses the relationship to the GATT 1994 and GATS. It reports on the experiences made in the first five years of its implementation and explores avenues for future strategies as to how tensions and conflicts should be managed and addressed. Second, the Forum then turned to perhaps the most crucial, yet unresolved, issue of IPRs in the multilateral trading system: the problem of parallel trade, further exploring the relationship of intellectual property rights and competition law Page 2 →and policy. As common and harmonized rules on exhaustion of rights are still lacking at a global level, this inquiry addresses the law in different regional and national jurisdictions – the EC, the US, Japan, India and Switzerland as examples – for illustrating diverging rules and underlying interests. Third, the Forum addressed the complex relation of IPRs, genetical engineering, the protection of traditional knowledge within the overall goal of achieving sustainable economic and social development. This topic, still absent during the negotiations of the TRIPs Agreement from 1986 to 1993, today amounts to the most challenging horizon and future chapter of intellectual property regulation. The advent of genetic engineering and demands for greening IPRs raises a host of fundamental yet unresolved problems touching upon the basic equilibrium and thus equity, of both the existing and future generations. The Forum focused on the law of seeds and genetic resources for food and agriculture as a key domain in the triangle of established IPRs. Further addressed were claims for private traditional resource rights and public policies of FAO and the World Bank (CGIAR) in the field. Without conceptual progress, a consolidation of IPRs in the multilateral system is unlikely to be successfully achieved in coming decades. It is at this point that we realize that all the issues dealt with at the Forum (and many more left aside such as copyright and cultural diversity) are intrinsically interrelated. Systemic issues, processes of law-making and adjudication, scope and contents of rules, and both the interaction and relationships with other fora and international instruments, such as the Convention on Biological Diversity, and national laws and regulations, all need to be considered in a holistic manner. The following survey provides brief summaries and abstracts of the main papers of this volume.

Part I: Intellectual Property in the Multilateral Trading System Chapters 1 to 5 CHAPTER 1 addresses basic conceptual issues. Ernst-Ulrich Petersmann introduces the profound systemic implications of the TRIPs Agreement. He highlights the structural differences between traditional rules of GATT, and GATS, the normative qualities of IPRs, being both private rights and part of what is called positive integration, i.e., standard setting. The structure and process of GATT were successfully shaped to explicitly further mutually limiting national sovereignty by providing for non-discriminatory market access (negative integration). The GATT and the WTO are thus not well prepared to deal with and incorporate affirmative

obligations of Member States, of which numerous examples can be found in the TRIPs agreement, addressing both substantive and procedural standards in great detail. These standards were brought about by political pressures. According to Page 3 →Petersmann, the fact that they lack a comprehensive cost-benefit analysis for developing countries, amounts to a constitutional failure of the system. Producer-driven negotiations cannot bring about balanced results in the area of affirmative obligations. The enlargement of the constituencies involved in standard-setting negotiations therefore was an important lesson and is a prerequisite for future successful negotiations. A second theme of this paper relates to the nature of IPRs being private rights. Linking IPRs to human rights and expounding his basic doctrine, the author concludes that affirmative law-making processes must be strengthened by human rights standards which (as he implies) will bring about a proper balance with IPRs. The paper prepared by William J. Davey and Werner Zdouc addresses the complex relationship of the TRIPs Agreement to the GATT 1994 and the GATS. They first deal with commonalities such as non-discrimination, transparency and protection of legitimate expectations which, in case law and academic discourse, was partly held to be unsuitable in the TRIPs context. Building upon the case law of the Appellate Body and generally recognized principles of public international law on the relationship of international agreements, the authors expound the legal relationship of GATT and GATS (as of 1999) and translate these into a discussion relating to the TRIPs Agreement. Such translation is not easy, given the different structure and purpose of the Agreement. Using the example of the problem of parallel trade, they succeed in demonstrating the various and conflicting interpretations and consequently greatly assist in clarifying the issues involved. An excursus on electronic commerce and the potential implications of GATT, GATS and TRIPs further confirms that we are facing a widely unsettled relationship. It will take time, and a case by case approach, to achieve full and mutual integration of all the agreements in WTO. Jacques Bourgeois, discussing Petersmann, conceives the notion of positive integration in different terms of institution building (Tinbergen), but concurs with the view that traditional GATT/WTO processes are no longer suitable to cope with matters, which traditionally belong to the province of national legislation. Accordingly, he proposes to go beyond an advisory WTO social and economic committee, but to include members of national parliaments in the law-making process. He questions the underpinnings on human rights’ doctrine offered by Petersmann and prefers to look at market freedoms in a functional manner, both in the EC and the WTO. Robert Howse focuses on the Davey/Zdouc paper and concurs with the issues set forth on the relationship of different agreements. He takes issue with any application of the doctrine of legitimate expectations in the field of IPRs as it represents – in his view – too much of an intrusion into national autonomy. Page 4 →As to human rights, he misses a concept of equality, which would inform the universal regime of human rights in Petersmann’s approach. Chapters 6 to 8 CHAPTERS 6 TO 8 address the problem of implementation of the TRIPs Agreement. The paper prepared by Adrian Otten offers insight into the operation of the TRIPs Agreement during its first five years. He essentially reports on the process of implementation and efforts at technical cooperation undertaken with developing countries. The peer group review of national legislation amounts to the bulk of work underdone by the TRIPs Council and essentially functions as an instrument of dispute prevention. The paper gives an account of dispute settlement proceedings relating to intellectual property during that period. One of the more interesting observations relates to the fact that in six out of ten of the early cases a settlement could have been reached out of court. The paper then provides a survey of further work, both with the in-built agenda and new items envisaged, at the time of the preparations for the Seattle Ministerial Meeting. None of these issues have been resolved since then within the given framework of out-of-round preparations. The same holds true for the controversial authority empowered to take recourse to non-violation complaints, to which developing countries in particular continue to be opposed. J.H. Reichman offers insights into the negative trends of the first five years. Discussing India-Patents is the

centerpiece of his paper, and he concurs with the constructivist interpretation of the TRIPs Agreement by the Appellate Body. Notions of treaty interpretation are discussed in terms of deference to national law and welcomed. Accordingly, the doctrine of legitimate expectations is conceived to be too intrusive. For the same reasons, he advocates a denial of recourse to non-violation complaints as this would invite one to fill in gaps and the ‘wiggle-room’ of the Agreement. Looking ahead, he anticipates many of the difficulties, which are currently forming the debate. He is critical of many of the new demands put on the table mainly by developing countries. Dispute resolution should avoid the confrontational model of dispute settlement and seek solutions rather through enhanced cooperation of government, the private sector and developing countries. A tripartite approach is better suited to make the transitional period a success. Krista N. Schefer’s comments decline to conceive implementation merely as technical and legal process of adjusting laws and tools, but asks the questions instead as to how far the goals of the Agreement, i.e. the raising of welfare and living standards, have been pursued and discussed. The point refers back to discussions on the legitimacy and welfare benefits derived from IPRs. Her Page 5 →statement anticipates many of the current debates, in particular on the relationship of patent protection and providing adequate health care.

Part II: Intellectual Property Protection, Competition Rules and Parallel Imports The relationship of intellectual property and competition rules and policy is still a matter largely defined by national or regional law. Positive integration has not yet made its way into this complex relationship. WTO law allows Members to take necessary measures to curb restrictive business practices and adopt their own policies on exhaustion of rights under Article 6 of the TRIPs Agreement. They may operate under national or international exhaustion, and may adopt different doctrines for different forms of IPRs. Arguably, the TRIPs Agreement does not exclude implications by other rules, in particular of GATT, on the international legal regime of parallel imports. Overall, the situation is still characterized by controversy; debated before a background of largely varied national or regional legal regimes. Discussions of a future international regime necessarily have to start with, and take into account, national and regional law on what perhaps amounts to the most important, and yet unresolved, trade-related aspect of intellectual property rights. Chapters 9 to 13 CHAPTERS 9 TO 13 offer a series of five papers analyzing the legal regime of parallel imports in the EC, the United States, Japan, India and Switzerland. The papers show a situation of great variance among industrialized countries and developing nations alike. We observe a common trait in that legislators have tended to leave the matter to creative ambiguity and thus to the judicial branch of government. Paul Demaret and Inge Govaere aptly describe the close relationship of trade regulation and parallel imports both within the EC and in third country relations. While the doctrine of regional or Community-wide exhaustion amounts to international exhaustion, the evolution of the relevant case law shows, in an initial phase, the abolition of market segmentation in favor of free movement of goods. A second phase found a proper rebalancing with the essential and legitimate interests of IPRs protection. The EEA Agreement (Norway, Iceland and Liechtenstein) aside, the doctrine of regional exhaustion does not apply to third country relations. The regime results in what corresponds to national exhaustion (conceiving the EC as an entity), thus allowing the influx of parallel imports from third countries, including partners of a free trade agreement. These rules are of a mandatory nature and apply equally to Member States formerly operating under international Page 6 →exhaustion, in particular in trademarks. The paper concludes with an interesting analysis of the implication competition rules have by challenging a rigid doctrine of regional exhaustion and thus unlimited market segmentation in external economic relations. Frederick M. Abbott reports on the evolution of the case law in the United States. As in most countries, jurisprudence on parallel trade is not abundant and leaves important issues unsettled. In trademarks, parallel imports are restricted and only allowed if importation takes place by a common controlled enterprise. Recently, this was further restricted where goods show material differences not sufficiently indicated by labeling failing to indicate such differences to consumers. In copyright, the Supreme Court has not yet ruled on parallel imports of

goods lawfully put on a third country market. Round-trip importation (i.e. goods first sold in the US, then shipped abroad and returned) are lawfully imported as IPRs exhausted when first put on the market. In patents, precedents again are scarce. The Supreme Court banned parallel imports in an early case of unauthorized sale abroad. Lower courts, in a series of cases, have endorsed international exhaustion in the field of patents. Interestingly, judicial policy contrasts – in patents – with the external economic policies of USTR and the State Department which seek to bring about doctrines of national exhaustion into the law of trading partners, a policy goal mainly called for by the pharmaceutical industry. Abbott calls for an approach respecting the options offered in Article 6 of the TRIPs Agreement, and urges those concerned to take into account considerations relating to health care in developing countries. Mitsuo Matsushita provides an account of the case law on parallel imports in Japan. Again, the law is based on a limited number of court decisions. In trademarks, Japan operates – unlike the EC and the United States – a liberal system of parallel imports. In patents, Japan operated a system of national exhaustion for a long time, and turned towards an intermediate approach in 1997. In BBS, the Japanese Supreme Court adopted a concept of qualified international exhaustion. The holder of a Japanese patent is in a position to block parallel imports only to the extent that the first purchaser was notified that the product must not be imported to Japan and that a label to this effect was affixed to the product. International exhaustion is thus presumed. The solution is considered a compromise, which, nevertheless, leaves much uncertainty as the admission of parallel imports depends on intention and contractual arrangements abroad. The author further explores the relationship of IPRs and competition rules in Japan. The use and proper exercise of intangible exclusive property rights is not affected by competition rules. However, a number of practices impairing parallel import and price competition are likely to be considered an abuse of rights. They fall under the Page 7 →Anti-Monopoly Law and are addressed, with regard to trademarks, in the 1991 Distribution Guidelines. Jayashree Watal looks at the problem of parallel trade (including import and export) from an Indian perspective. Indian law does not explicitly address the issues of parallel trade, except for copyright and in a draft law on patent protection. Precedents still need to be established. The author sees a need for international coordination on the subject, as parallel exports and imports need to be dealt with coherently in the international system. However, developing countries are better served to address the problem of anti-competitive conduct under IPRs by prohibiting per se anti-competitive practices, than by remedying a lack of competition by means of parallel imports. After stating the pros and cons of parallel imports, she questions the general wisdom of the notion that international exhaustion is beneficial for developing countries. She particularly addresses parallel exports and notes that such freedom may result in shortages of supplies, in particular in the field of essential medicines. The author notes a lack of empirical evidence and studies in the field before any assessment can be made as to which countries would benefit or lose from global rules on parallel importation as a means to fostering competition and lowering prices in developing countries. Ingo Meitinger returns to the European theatre. He describes the situation under Swiss law which is of particular interest due to recent Federal Court decisions relating to parallel trade in trademarks, copyright and patent law. Situated within Western Europe yet legally outside the common market, Swiss trademark law is characterized by international exhaustion, subject to consumer deception which may result from material difference of the product. The Federal Court upheld this ruling under new legislation, which is remarkable as the new legislation was modeled after the 1977 EC Trade Mark Directive. International exhaustion of rights also applies in the field of copyright. As to patents, the Federal Court – and unlike the United States Supreme Court – ruled in favor of national exhaustion and the right to ban parallel imports was preserved, yet subjected to disciplines against abuses under competition law. The Swiss-EC Free Trade Agreement has had virtually no influence on parallel trade with the Switzerland’s main trading partner. The Swiss are unilaterally more liberal than the EC in external relations regarding copyright and trademarks. They are legally equally restrictive in patents, ignoring differences in the size of the respective markets. As in other countries, the matter is highly controversial in the trade of pharmaceuticals. The author supports a general system based upon international exhaustion, which allows, under the rules of GATT, sectoral restrictions under Article XXd GATT. Page 8 →The comments by Marco Bronckers address the question of which direction the future law of the WTO

should take. Assessing the widely differing views, he is happy that present WTO law does not impose any particular approach on Member States but leaves the matter to national sovereignty. He concurs with Jayashree Watal that empirical evidence is still lacking and does not see, at this stage, a need to create uniform rules within the WTO applicable to all Members alike. He is not convinced that the principles of comparative advantage and free trade are suitable in the field of IPRs. Finally, he cautions that such rules need to be elaborated in negotiations and cannot be left to adjudication and the interpretation of WTO law. Chapters 15 to 16 CHAPTERS 15 TO 16 relate the issue of parallel imports to the broader relationship of IPRs and competition policy. Robert D. Anderson reports on the educational work of the Working Group on the Interaction of Trade and Competition, in particular on the relationship of IPR and anti-trust rules. This relationship is seen in recent writings in a nuanced and mutually supportive manner, not suitable for hard and fast rules, but rather favoring a rule of reason approach. The author also discusses Art. 8.2 and 40 of the TRIPs Agreement concluding that international law is far from defining abuses of IPRs. The paper reports on the main views expressed in the Committee during its first three years of operation on the relationship of IPRs and competition. Again, the issues are far from black and white. It is a matter of striking the proper balance and safeguarding against the excessive use and abuse of market power. This is equally true for the assessment of parallel imports in the Committee. Exhaustion of rights and developing more specific criteria of abuse of IPRs was suggested for further inquiry and work. Drawing from the Committee’s work, the author proposes a number of further comparative studies in the field: licensing agreements, contractual obligations to license (refusal of licensing), essential facilities and the concept of ‘innovation markets’. Further he suggests inquiries be made into the abuse of market power through patent accumulation strategies, and finally, the doctrine of exhaustion. Anderson restates the pros and cons and affirms the lack of empirical studies and evidence in the field. He concludes his paper with the observation that though forming the subject of further studies, these issues are not yet ready for action in international negotiations. David Palmeter, in a short note, cautions against the introduction of competition rules (anti-trust rules) into WTO law. He points to the different purposes motivating the two legal systems and briefly states the reasons for US reluctance to advocate for introducing competition rules into the WTO. An important point relates to procedures. According to him, panels and the Appellate Body would not be in a position to handle anti-trust cases in terms Page 9 →of evidence. Introducing competition rules would require major changes of the present system. It will be interesting to square this view with the implications of the papers in Part III. The Roundtable concluding parts one and two of the volume, offers interesting further insights and clarification of the issues discussed in the first sixteen chapters. We note that the topics of positive v. negative integration, relationship to GATT and GATS, treaty interpretation, the standards of review and fundamental problems of implementing the agreement in many countries of the globe remain at the heart of the challenge to digest the incorporation of IPR standards within the WTO legal order.

Part III: Intellectual Property, Genetic Engineering and Sustainable Development The third part of this book addresses a new and complex issue of growing importance. It transgresses the traditional relationship of competition law and IPRs, and adds a new dimension of increasing concentration in the biotech industries. It transgresses the traditional perceptions of competition and IPRs in yet another way. It places the relationship within the context of sustainable development and intergenerational equity. This adds another layer to this interface, one that poses considerable conceptual challenges in the age of genetic engineering. The papers presented in this part of the Forum mainly relate to and address plant genetic resources for food and agriculture, but also touch upon pharmaceuticals. They are at the very heart of modern issues of trade-related aspects of contemporary and future agriculture situated in a complex relationship between traditional farming, genetic engineering, conservation of resources and corresponding institutional overlaps in WTO, FAO, IPGRI, WIPO and UNEP and other organizations. Chapter 18

In CHAPTER 18, John Barton offers a thought-provoking analysis of the impact of IPRs on the structure of the US pharmaceutical and agricultural/biotechnology industries and global conditions of competition in these sectors. Enhanced protection of intellectual property is found to exert a profound impact on the long-term structure of these two industries, albeit in a different manner. IPR protection has led to a highly complex legal situation among pharmaceutical companies and research institutions. Biotechnology research and development is by now a truly transnational enterprise with most activities taking place in the United States. Patent protection under TRIPs is likely to harm local pharmaceutical production in developing countries and make market entry of new researchbased industries more difficult. This is worrying as the industry does not show any inclination to Page 10 →work on and free resources for developing-world disease research. IPRs have also changed the structure of the agricultural biotech industry. Overlapping and broad patents have fostered the concentration of the industry. As in pharmaceuticals, often unclear IPR constellations lead to start ups being taken over and thus to vertical integration, which results in an oligopolistic market structure. Unlike pharmaceuticals, genetically modified organisms in agriculture do not yet have an integrated market as resistance to their use varies significantly around the world. Also, there is no harmonization in biosafety regulation amounting to levels comparable with the ones achieved in IPRs. The author calls upon all concerned to rethink the intellectual property/antitrust/research support relationship in the field of biotechnology. New antitrust rules are required in IPR-dense sectors, which are currently characterized by a system that entrenches the prevailing corporate structure and fails to link incentives to the most important human needs. The patent system, essential for further development needs to be reassessed. Price discrimination may be beneficial in the marketing of research-intensive goods. The current national systems are anachronistic, and claims and rights which seek to restrict future research are too broadly framed. He concludes by suggesting that different standards for developed and developing countries should be sought. The author suggests focused negotiations to deal with these issues. The WTO should not stand in the way of all these efforts. Chapters 19 to 21 CHAPTER 19 TO 21, in a series of papers, explores the relationship of patent protection and plant variety protection in biotechnology. Margeret Llewelyn carefully expounds the relationship between the Convention on Biological Diversity (CBD) and the requirement of Article 27(3)(b) TRIPs Agreement, which requires the protection of plant varieties either by patents or a sui generis system. The paper describes in detail these options, including the UPOV Convention in its different versions of 1961, 1978 and 1991. WTO Members enjoy considerable flexibility in complying with the basic requirements of Article 27 TRIPs Agreement. She assesses arguments in favor of and opposed to patent protection. While recognizing the importance of patents for industry, she considers the increasing criticism over broad protection in the US and opposition to biotechnology patent protection in the EU, indicating that this approach is perhaps not the best. Upon briefly recalling sui generis approaches (discussed below), she offers an in-depth examination of plant variety protection under UPOV and its different versions and how it relates to patent protection and the goals of protecting biodiversity under the CBD. The author does not consider their respective goals to be incompatible. The author then offers an introduction to protecting Page 11 →Traditional Resource Rights (TRRs) and the implications of regulating access by means of Material Transfer Agreements. She then asks the question as to what conditions might assure compliance with the various obligations under the TRIPs Agreement in the area of so-called Farmers’ Rights as they exist under the FAO International Understanding on Plant Genetic Resources (IU). Both CBD and the IU are strongly influencing the shape of sui generis systems seeking to avoid protection over traditional knowledge and indigenous plant material. How far exclusion can go without impairing the requirement of effective protection remains to be seen. Finally, Llewelyn addresses the prospects of reforming the TRIPs Agreement. She discusses a number of options and recalls that LCDs need to be able to make their own choices. Joseph Straus discusses the European experience with the patenting of life forms. His paper first sets out personal parameters (including access and benefit sharing) under which patent protection is a well-suited instrument to serve biotechnological advances. He recounts the history of exclusionary provisions under Article 53 of the European Patent Convention and how they are applied in practice. The paper offers a detailed analysis and elaborates on the distinction of plant and plant varieties and the practical implications of this distinction. While the

EPO is not an institution of the EC, it is interesting to observe how the Commission and the Council of the EC sought to stabilize and reinforce patenting of life forms in Europe by means of harmonizing national laws. The EPO has implemented the decision of the Administrative Council in 1999, taking effect as of September 1, 1999. Directive 89/44/EC is discussed in detail. It is noteworthy, that the Commission and the Council rejected an amendment submitted by the European Parliament to introduce a prior informed consent requirement in an effort to honor the EC’s obligations under the CBD Convention. The Directive was challenged before the European Court of Justice and the matter is still pending. The author concludes that the European dual and exclusionary system with its resulting differences with the United States is not well prepared for impending biotechnological revolutions and should be abolished. Carlos M. Correa turns to the concept of sui generis protection of plant varieties which, as an option provided for by Article 27(3)(b) TRIPs Agreement, is increasingly sought as a basis in developing countries to bring about an equitable distribution of benefits from granting intellectual property protection to genetically modified organisms. The author sets out goals and objectives to be reached by such regulation. He emphasizes capacity building, food security, stimulation of local research and the preservation and use of farmers’ traditional knowledge. He discusses criteria to comply with the condition of effective protection under the TRIPs Agreement, and the Page 12 →implications of national treatment, MFN and other pertinent provisions of the Agreement, which allow the pursuit of public-interest objectives. Analytically, he distinguishes between informal, transitional and commercial seed supply systems, the first of these (farmer-saved seeds) amounting to some 80% in developing countries while the latter only amounts to some 30% world-wide. Importantly, the introduction of IPRs for the commercial sector should not impair capacities in the informal breeding sector nor misappropriate varieties to be found in the informal sector without consent. The author suggests the creation of a dual system with rules adopted from the commercial sector (perhaps modeled after UPOV), and ones suitable for the informal sector with less stringent requirements. Titles granted would need to be modeled accordingly, not necessarily extending their scope to exclusive rights but rather limited to remuneration. Chapters 22 to 24 CHAPTERS 22 TO 24 widen the scope of the analysis and place the problem in the broader context of the decline of biodiversity and the creation of appropriate strategies to firstly honor traditional innovation systems and secondly bring about enhanced transfer of technology. Anil K. Gupta describes the asymmetries between the informal and the formal sector in creating and bringing about knowledge. His paper develops strategies towards enhancing esteem for traditional-knowledge-rich but economically poor rural societies and of giving their products a better place on world markets. These proposals include important improvements to the IPR system, but go beyond the field of regulation. Three examples of creating trust funds for voluntary benefit sharing demonstrate that initial steps have and can be taken. He describes the Honey Bee network created by the author in order to disseminate traditional knowledge and innovation with a view to fostering self-esteem and future market potentials. He relies upon the use of information technology, the reform of the IPR system to accommodate grassroot innovators, the establishment of green venture promotion funds, enhanced efforts to support local inventions, and to rethinking the role of international financial institutions. The author suggests the establishment of a global registration system for traditional knowledge and its use, which would promote the recording of such knowledge, increase transparency, and would eventually serve as a basis for the golden triangle of investment, entrepreneurship and innovation. As to IPRs, the registry serves to determine prior art. He seeks a system of protection for traditional knowledge based upon the model of geographical indications. Patent applications would need to establish that they have lawfully obtained all data through prior informed consent. As to the review of Article 27 TRIPs, the author proclaims the view that plant variety protection coupled with the protection of farmers’ rights Page 13 →and gene funds will assist in making progress. His paper describes the 1999 India Plant Variety and Farmers’ Rights Bill. He seeks to stimulate a reevaluation of uniformity in plant variety protection in order to support diversity. He concludes his paper by calling for recognition of local contributions of land races, compulsory use of material transfer agreements, and finally the creation of venture capital promotion at low transaction costs.

Carsten Fink and Carlos A. Primo Braga investigate conditions for enhancing the transfer of biotechnology to developing countries. Protection by different forms of intellectual property (plant varieties, patents, trade secrets) is held essential for this rapidly growing industry. So far, developing countries, with few exceptions, have been bystanders in the development and adoption of agri-biotech products. To the extent that they are willing to participate in the process, adequate IPR legislation is required. While agricultural development has long been carried out through a public sector network, agricultural research and co-operation are increasingly relying upon the private sector and its legal institutions. IPRs are an important ingredient for this development. Enhanced participation of research in developing countries requires technology transfer mechanisms as a way of linking knowledge to need. The authors elaborate on current and future difficulties in overcoming barriers to market entry in this sophisticated area. They demonstrate that the bulk of future technology transfer will involve voluntary participation of private actors. The granting of IPRs is of crucial importance as they provide the necessary framework for licensing and legal stability. While granting monopoly rights, they can assist in resolving information asymmetries. The creation of attractive regulatory environments in developing countries is essential to initiate transfers of technology. At the same time, and given the structure of the seed industry, special attention needs to be paid to competition policies and laws with a view to avoiding the abuse of dominant market positions. Finally, public research institutions need to adjust to the new environment and become more sensitive to the potential commercial value of their own research. The restructuring of Embraga in Brazil is a case in point. International organizations should assist in creating effective IPR institutions, in the establishment of clearing houses for agribiotech relevant information as well as providing support to the development of local biotechnology capabilities in developing countries. Jean-Marie Grether and Jaime de Melo agree in their comments that IPRs assist in bringing about transfer of technology, but say nothing on internal distributive effects. Gupta’s institutional concepts are interesting from this point of view as they positively seek to reinforce developing country resources. The commentators turn to the potential of trade theory in the present context to address benefits and disadvantages of TRIPs (and TRIMs) Page 14 →for developing countries. While acceptance of the Agreements reveals a preference for participation, such participation may have been chosen as part of a package deal and only for fears of unilateral retaliation. Measuring welfare effects (gains or losses) of IPRs is difficult and it remains unclear whether transfer of technology and enhanced trade will result in welfare improvements. Similar uncertainties exist in assessing the impact of IPRs on market structures, efficiency and how IPRs shape the conduct of interest groups in relation to establishing or dismantling entry barriers. The contribution also draws on the relationship of IPRs and competition policy and on what level (national, regional, global) the latter should be addressed, taking into account the implications on political lobbying. Studies to this effect are encouraged. Chapters 25 to 30 CHAPTERS 25 TO 30 of this volume turn to organizations, instruments and activities which are separate, but closely related to or interlinked with trade policy and IPR protection within the framework of the World Trade Organization. The papers provide the basis for, and discuss the implications of, the interface between these different institutions and instruments. Geoffrey Hawtin provides an introduction to the goals and work of the Consultative Group of International Agricultural Research (CGIAR) and its network of 16 Centers specializing in the conservation of, and research on, plant genetic resources for food and agriculture, including forages and multipurpose trees. The germplasm collections in 11 Centers in operation today contain some 600,000 samples of crops and their wild relatives. Publicly financed exchange of germplasm (where exchanges were relatively free) significantly contributed to the ‘green revolution’. With the advent of enhanced private research, CGIAR Centers were confronted with issues relating to IPR protection, and adequate policies had to be designed. The ideal of common heritage and trust held in the public domain provides basic guidelines for restrictive recourse to IPR protection by users of collections under material transfer agreements. Conditions are set out in the paper in detail and depend on continued public funding of the Centers. With the advent of the CBD, the Centers were also confronted with basic issues of benefit sharing, which are sought by way of keeping the system open. IPGRI has pioneered work on ethics and equity in this field, the results of which are reproduced in this paper and provide further guidance. The author fears that the

introduction of access legislation by developing countries will render this policy increasingly difficult and a remedy is sought by renegotiating the International Understanding on Plant Genetic Resources (FAO). Page 15 →Susan H. Bragdon provides the background of international plant genetic resources law and develops the interfacing of different instruments: the CBD, the IU and the TRIPs Agreement. The author succinctly describes the genesis, scope and content of these agreements and then turns to discussing the implications for access to plant genetic resources, namely benefit sharing from biotechnological research. The author is particularly skeptical about bilateral approaches and the use of IPRs in the field. Particular attention is paid to the notion or origin in the CBD, which renders localization of crops extremely difficult for most germplasm. Exceptions exist in the field of ethno-botany (pharmaceutical uses). Even where possible, transaction costs are likely to be high and proceeds may not be used for PGR-related activities. From the point of view of food security, an open multilateral system is advocated. Access legislation and prior informed consent requirements represent a potential risk for international exchanges and food security. The ‘access is the benefit’ approach would thus be ideal, but is not likely to obtain substantial support. Increasing concerns of market failure and a pressing need to address the decline of biodiversity are responsible for a heightened realization that assured conservation, better utilization and improved crop varieties under an open international system amount to a major benefit in themselves. Martin A. Girsberger extensively deals with the concept of farmers’ rights, a concept introduced in FAO in order to promote a rebalancing of asymmetrical entitlements between plant breeders, on the one hand, and farmers on the other hand. Generally speaking, farmers should be recognized and compensated for their contribution and work in preservation and development of germplasm in the informal sector. The topic is of interest in the context of discussing IPRs as it provides a case study on the complexity and difficulties to realizing such rights under the umbrella of a system which provides open access and depends on public funding. The author reports in detail on recent negotiations of the International Undertaking of Plant Genetic Resources, which proved to be extremely difficult, and which relegated the formulation and implementation of farmers’ rights to the national level, thus abstaining from offering international regulations. This leaves the discussion with the question as to how the concept relates to the TRIPs Agreement. The author discusses different schools of thought, ranging from implementing and realizing individual farmers rights as part of the TRIPs Agreement and a new type of IPR, to a potential trade off for patenting and finally, as being part of a national sui generis system for protection of plant varieties. Except for the second of these, none of the proposed solutions seem appropriate to this author and he calls upon governments to support funding of national efforts and upon academia to do their homework in this field. Page 16 →Susette Biber-Klemm explores the potential of introducing better incentives to conservation and sustainable development of genetic resources within the world trading system. She draws an important distinction between trade in physical goods (such as plants and timber) and trade in genetic information, which is the topic of her paper. She addresses the issue from the point of view of an environmental lawyer. Upon restating the value of biological diversity and of traditional knowledge for long-term preservation, she in effect ascribes losses of biodiversity to economies of scale and trading activities. Moreover, open access to genetic resources and the information contained therein encourages the neglect of habitats. The principles of sustainability and precaution are the main antidotes in international environmental law. Recognition of traditional knowledge in the CBD provides a further mainstay. Studying official documents, the author detects only marginal concern for these issues in WTO law and while no measures addressing the loss of biodiversity exist within WTO law as such, restrictions are tied to stringent conditions. WTO law, the author argues, underestimates its impact on the problem of diversity. Discussing incentives within the WTO legal order, the creation of new IPRs related to traditional knowledge, so called Traditional Intellectual Property Rights (TIP-Rights) are proposed and discussed. Given the difficulty of allocating property rights, public funding for the protection of traditional knowledge is of paramount importance. Finally, the author discusses instruments related to marketing, in particular labeling (also discussed by Grether and de Melo above) in the context of TBT and SPS regulations. These are important elements of a multilayered approach. Mary E. Footer reviewing the papers of this chapter, draws attention to the substantive and institutional

complexity of international law of genetic resources. Different actors, both private and public, operate, as well as a host of different international institutions. The papers induce the author to make a number of observations. She encourages reviewing not only access, but also partly excessive seed legislation in LDCs. The prospects for funding of an open multilateral system look bleak as long as the CBD does not consider itself responsible for ex situ conservation. Ironically, the investment of farmers’ rights in the international community impaired the development of operational terms. Finally, she demonstrates that recent WTO jurisprudence no longer corresponds to a narrow reading of exceptions and conflicts between trade and environmental policies and may be successfully resolved under GATT 1994 to the benefit of plant genetic resource conservation. Reinhard Quick closes the discussions with a critical comment. Reviewing the papers, he observes a clear shift from free access to regulated access. In the context of private sector involvement, he doubts whether the concept of Page 17 →public trusteeship can be maintained in the CGIAR and whether centers should not rather become owners of the germplasm. As to access, he sees two main benefits: financial compensation and transfer of technology in return for bioprospecting permissions. Practical problems, however, include excessive expectations and the lack of IPR protection and legal expertise in countries concerned. As to sui generis systems and farmers’ rights, the commentator is disappointed by the lack of specific proposals in this volume. In the absence of uniformity, he wishes to see different systems of implementing Article 27(3)(b) TRIPs compete. He rejects the idea that farmers’ rights could amount to a viable trade-off in future negotiations on patenting life forms. Investors will turn to those countries which have the strongest IPR protection. Chapter 31 CHAPTER 31 written by Christoph Bail is well placed as an epilog to this volume. It is evident even from reading this introductory summary of papers that institutional complexities render policy coherence extremely difficult in the present field. The author sets forth a number of proposals as to how this goal could be better pursued in coming years from the point view of the European Union. At the outset, the author recalls two basic conceptions, which dominate the international debate: there is concern by industrialized countries, on the one hand, over access to genetic resources. On the other hand, developing countries are concerned with the allocation of an equitable share of the benefits of modern biotechnology drawn from resources mainly located in their territories. In addition, indigenous communities voice concern over lack of protection of their traditional knowledge. These conceptual gaps can be bridged, to some extent, within the open framework of the CBD. However, a doctrine of mutual supportiveness is necessary with respect to WTO law, and in particular the TRIPs Agreement. As trade and IPRs are instruments and not ends or inalienable rights in their own, they should be adjusted to serving the needs of CBD goals: prior informed consent, protection of geographical indications are proposed. Other fora are equally addressed. New systems for the protection of traditional knowledge should be designed. The reform of the IU will be an important test for the commitment of the international community. But profoundly, it will become important to link the strength of the WTO with the broad, but still weak, framework of the CBD. Policy goals of the WTO need to be adjusted in order to support sustainable development. Competition rules are necessary to accompany intellectual property rights. And the TRIPs agreement offers a number of possibilities to contribute more specifically to the objective of access and benefit sharing agreed under the CBD. All of this will assist in heightening the legitimacy of the WTO and the TRIPs Agreement, which have long been seen as being driven by producer interests. If trade and environment continue Page 18 →to run on a separate track, there will be little hope for constructive negotiations and trade-offs. The Roundtable Discussion on Part III concludes the volume. It first deals with differences between patent and plant variety protection, in particular the notion of derivatives and research exemptions and the origin of plant genetic resources. It entails a debate on the usefulness and possibility of protecting traditional knowledge within the IPRs system.

Page 19 →Part I: Intellectual Property in the Multilateral Trading System Page 20 →

Page 21 →CHAPTER 1 From Negative to Positive Integration in the WTO: The TRIPs Agreement and the WTO Constitution Ernst-Ulrich Petersmann*

1. Introduction: Does WTO Law offer an Adequate Framework for Negotiating and Enforcing ‘Positive Integration Law’? Economists distinguish three alternative business strategies for participating in the international division of labor: (1) ‘trade strategies’ based on production at home and purchases of inputs and sales of final products in the best international markets; (2) ‘licensing strategies’ based on sales and transfers of business know-how and intellectual property rights by means of franchising and licensing agreements that confer rights to use technologies and to produce, buy or sell patented and/or trademarked products and services abroad; (3) ‘foreign investment strategies’ based on foreign direct investments and joint ventures abroad so as to produce and sell products in the best international markets. Each of these ‘internationalization strategies’ is confronted with specific risks and market entry barriers. The post-war trading system based on GATT 1947 favored one-sidedly traditional ‘export strategies’ and ‘negative integration’ based on liberalizing tariffs and non-tariff trade barriers for the exportation and importation of goods. WTO law focuses increasingly also on harmonization of domestic laws and on ‘positive’ government interventions e.g. for the correction of ‘market failures’ and the supply of ‘public goods’. The WTO Agreement on Trade-Related Intellectual Property Rights (TRIPs) illustrates not only the development from ‘negative’ to ‘positive’ integration in the WTO. It also raises constitutional issues: Is the WTO legal system an adequate framework for dealing with TRIPs and positive integration law?

Page 22 →The GATT Concept of ‘Negative Integration’ From a legal perspective, GATT 1947 was essentially based on ‘negative’ prohibitions of tariffs, non-tariff trade barriers, trade discrimination and other governmental trade distortions. Since economic theory teaches that these trade restrictions are sub-optimal policy instruments which tend to reduce economic efficiency and consumer welfare, welfare-maximizing governments could comply with most of their GATT obligations by simply not using such trade restrictions and trade distortions. For instance, GATT 1947 did not require governments to introduce foreign trade laws on antidumping measures, safeguard measures, or subsidies; the Swiss government wisely refrained from introducing any antidumping legislation which might invite protectionist requests for welfarereducing antidumping measures. Most national constitutions protect only freedom of domestic trade and grant governments discretionary foreign trade policy powers to introduce welfare-reducing trade restrictions and trade distortions. By protecting freedom and non-discrimination across frontiers, liberal international trade rules can serve ‘constitutional functions’. Similar to constitutional guarantees, GATT rules prohibit mutually harmful policy instruments which governments should not use anyhow.1 From the point of view of citizens and national constitutions, trade liberalization based on GATT 1947 was obviously welfare-increasing and did not raise serious ‘constitutional problems’. Hence, like the EEC Treaty of 1957, GATT 1947 did not refer e.g. to human rights law. Yet, while the guarantees of freedom and non-discrimination in the EEC Treaty and in many intellectual property conventions are recognized by domestic courts as directly applicable individual rights that complement human rights guarantees of freedom and non-discrimination, most governments and domestic courts deny individual citizens the right to invoke precise and unconditional GATT guarantees for the protection of individual freedom and nondiscrimination among individuals across frontiers.

The WTO Concept of ‘Positive Integration’ The WTO Agreement rests on a broader and more coherent concept of international trade than GATT 1947. The

General Agreement on Trade in Services provides for the progressive liberalization not only of cross-border services but also of ‘establishment services’ and other modes of services – trade linked with cross-border movements of natural service suppliers or service consumers (cf. Art. I GATS). The WTO Agreement on TradeRelated Investment Measures (TRIMs) clarifies the inconsistency with WTO law of trade-restrictive or distortive investment measures, such as local purchase requirements. The worldwide TRIPs guarantees of copyrights and related rights, trademarks, geographical indications, industrial designs, patents, Page 23 →layout-designs of integrated circuits and trade secrets protect private intellectual property rights and promote their international transfer and licensing; the TRIPs provisions also aim at limiting trade in counterfeit goods and anti-competitive abuses of intellectual property rights by right-holders. By liberalizing, promoting and protecting international ‘licensing strategies’ and foreign direct investments, the WTO Agreement contributes – albeit in a still very imperfect manner – to a more balanced treatment of ‘internationalization strategies’ and to the progressive reduction of the competitive distortions and opportunity costs resulting from the one-sided focus of GATT 1947 on liberalization of trade in goods. As in European integration law, the ‘deeper integration’ pursued in the framework of the WTO has led to an increasing number of agreed international minimum standards (e.g. in the WTO Agreements on Sanitary and Phytosanitary Measures, Technical Barriers to Trade, Preshipment Inspection, TRIMS, GATS, TRIPs) for the further reduction of market entry barriers and market distortions and the harmonization of divergent national rules. The ‘built-in agenda’ and work program of the WTO include additional proposals for further harmonization of product and production standards, mutual recognition of professional qualifications, competition, environmental and investment rules. The four pillars of the WTO legal system (i.e. GATT and the Multilateral Agreements on Trade in Goods; GATS; TRIPs; and the Plurilateral Trade Agreements like the Government Procurement Agreement) are based on common ‘constitutional principles’ of freedom, nondiscrimination, rule of law and transparent policy-making. The economics and legal structures of the ‘positive integration law’ in the TRIPs Agreement differ considerably from those of the ‘negative integration law’ e.g. of the GATT. Most economists agree on the mutually beneficial economic effects of reciprocal trade liberalization in the framework of GATT and GATS. The economic and income distribution effects of the TRIPs Agreement, however, are considered by many economists as potentially harmful for less-developed, technology-importing countries in view of the fact that e.g. more than 90% of all patents are registered or owned by persons in developed countries. The legal structures of the TRIPs Agreement differ in many respects from those of GATT law: The TRIPs Agreement includes not only negative prohibitive rules but also a large number of positive affirmative obligations of WTO Members to introduce legislative, executive and judicial measures e.g. for the protection of intellectual property rights (below 2). Among the more than 25 worldwide agreements and understandings listed in the Annexes to the WTO Agreement, the TRIPs Agreement is the only agreement so far that is explicitly designed to protect private rights (below 2). Page 24 →The TRIPs Agreement sets out worldwide substantive and procedural minimum standards for the protection of intellectual property rights in domestic laws which refer to numerous pre-existing worldwide agreements administered by the World Intellectual Property Organization (WIPO). Many of these WIPO guarantees for intellectual property rights are recognized as being directly applicable by courts and individuals in the domestic laws of WTO member countries. Yet, the safeguard clauses in the TRIPs Agreement leave member states broad national discretion to balance the private and public interests involved (below 2). In view of the different intellectual property rights traditions in civil law countries, common law countries and less-developed countries, and given the fact that more than 90% of patents are registered in developed countries or owned by firms in these countries, WTO dispute settlement proceedings over the interpretation and application of TRIPs provisions are likely to raise basic conflicts of interests and new problems of treaty interpretation due to e.g. the character of intellectual property rights as human rights (below 2).2

Constitutional Challenges of Positive Integration Law in the WTO

Should the particular legal structures of the TRIPs Agreement, and the negotiation methods used for concluding the TRIPs Agreement and for making it part of WTO law, serve as a model for future WTO agreements on harmonization of domestic laws based on international minimum standards e.g. for investment laws, competition laws, environmental and social legislation (see below Part 3)? Are intellectual property rights human rights, and the TRIPs Agreement a precedent for mainstreaming additional human rights into WTO law (see below Part 4)? What lessons can be learnt from the experiences with ‘negative’ and ‘positive integration’ in regional integration law, notably in the European Community (see below Part 5)? The answers to these questions depend on the normative premises (e.g. for human rights and trade policy-making) and are bound to remain controversial. From the perspective of welfare economics, both trade liberalization and ‘approximation of laws’ (cf. Articles 94-97 ECT) can be justified in terms of consumer welfare and economic efficiency. Yet, the negotiation and conclusion of the TRIPs Agreement were influenced more by political than by economic reasons; this ‘politicization’ may be viewed as a risk for future WTO negotiations on positive integration law. The legal recognition of intellectual property rights as human rights is not reflected in the TRIPs Agreement. Nor are the moral, political and economic justifications of human rights recognized in WTO law. Does multilateral rule-making on Page 25 →positive integration in the WTO require additional constitutional safeguards in order to protect the general citizen interest in liberal trade against nontransparent and nondemocratic rule-making processes and ‘regulatory capture’ for the benefit of rent-seeking lobbies (see the conclusions below in Part 6)? From a human rights perspective, most legal principles of GATT/WTO law (such as freedom, non-discrimination, peaceful settlement of disputes, rule of law) can be legitimized as a transnational extension of basic constitutional values underlying constitutional democracy: governments derive ethical and democratic legitimacy from promoting maximum individual freedom and equal opportunities of their citizens not only at home but also in transnational economic relations. Since reciprocal trade liberalization enables mutually beneficial welfare gains, and GATT’s exceptions and safeguard clauses (e.g. Articles XIX-XXI, XXIV) give clear priority to non-economic values, trade liberalization under GATT 1947 has not given rise to major constitutional challenges. GATT law helped to limit domestic ‘constitutional failures’, as in the case of the protectionist Smoot-Hawley Tariff Act of the US Congress in 1930 which demonstrated that national legislation based on unlimited legislative discretion, economic ‘rent-seeking’ and political ‘log-rolling’ can trigger protectionist retaliation from other countries, resulting in the worldwide economic depression which led to World War II. GATT 1947 was designed as part of an integrated post-war order in which trade, economic welfare, peace and international law were perceived – in the words of US President Truman - as ‘inextricably linked’.3 Positive integration law raises new constitutional concerns: does collective rule-making in the WTO neglect or undermine the human rights of citizens and the constitutional safeguards of democracies? Is the TRIPs Agreement’s disregard of developing country interests a sign of ‘constitutional failure’ of the WTO’s rule-making mechanisms? Was the one-sided focus of the TRIPs Agreement on developed country interests compensated by other developed country concessions (e.g. in textiles and agricultural trade) as part of the ‘package deal’ at the end of the Uruguay Round negotiations? Positive integration law offers, however, also opportunities for strengthening mutually beneficial international cooperation beyond what has been politically feasible in other worldwide organizations (such as the UN or WIPO) or through unilateral national legislation. For instance, it is widely recognized today that the TRIPs Agreement brought about ‘revolutionary reforms’ of intellectual property law which had never been possible in previous WIPO negotiations. It can also be argued that the WTO’s worldwide legal guarantees of freedom, non-discrimination and peaceful settlement of disputes present legal achievements that are no less important than the utilitarian economic welfare gains made possible through GATT and WTO (just as e.g. the non-economic Page 26 →values of European integration law – such as half a century of ‘democratic peace’ and effective protection of human rights across the EC – are far more important than the economic gains from the EC’s customs union). GATT 1947, notwithstanding its mercantilist focus on liberalizing access to foreign markets, has enabled a mutually beneficial liberalization of tariffs and non-tariff trade barriers in eight successive GATT Rounds of multilateral trade negotiations. In future WTO Rounds on the international harmonization of non-discriminatory

domestic laws, however, the traditional export interests may no longer be an adequate political constituency for enabling and legitimizing the successful conclusion of WTO Rounds. The constitutional challenge is to build up a broader political constituency in support of worldwide liberalization and rule-making in the WTO. This requires, as in European integration law, a progressive ‘constitutionalization’ of GATT and WTO law so as to protect the general citizen interests more effectively. The pursuit of positive integration and harmonization of domestic laws in future WTO Rounds is bound to raise increasing concerns about the democratic legitimacy of WTO rules and the ‘constitutional infrastructure’ of the WTO. The failure of the OECD negotiations on a Multilateral Agreement on Investments is a warning that a one-sided focus on producer interests, without adequate regard to environmental, labor and social interests, risks being strongly opposed by civil society. The main thesis of the present contribution is that the pursuit of positive integration and of international harmonization of domestic laws in future WTO Rounds calls for strengthening individual rights, constitutional safeguards and representative institutions in the WTO (e.g. establishment of an advisory WTO Economic and Social Committee with representatives from all sectors of ‘civil society’).

2. Positive Integration in the WTO: The Particular Legal Structure and Legal Challenges of the TRIPs Agreement TRIPs Requirements to Introduce or Maintain Legislative, Administrative and Judicial Measures in Domestic Laws The TRIPs Agreement includes numerous obligations to introduce or maintain domestic legal rules and procedures for the granting, protection and enforcement of intellectual property rights. Even though ‘Members shall be free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice’ (Article 1:1), many TRIPs provisions include precise and unconditional obligations e.g. for making available under domestic laws effective procedures for the acquisition, maintenance and enforcement of intellectual property rights, including ‘civil judicial procedures concerning the enforcement of any intellectual property right covered by this Agreement’ (Article 42) as well as criminal procedures Page 27 →(Article 61). The domestic implementing laws and regulations are regularly reviewed by the TRIPs Council (cf. Article 71). The minimum standards of the TRIPs Agreement for domestic laws and policies appear, at least in part, less traderelated than most other GATT and WTO rules on domestic laws (e.g. GATT Article X on publication of trade laws and access to courts). Even EC law has not provided for such a far-reaching harmonization of national intellectual property rights laws.4 Are the WTO rule-making processes adequate for negotiations on e.g. intellectual property rights, competition rules and other investment rules? Why is it that – contrary to the GATT 1947 which left intellectual property law, competition law, investment law and environmental law to the legislative discretion of member states provided the national laws were non-discriminatory and did not constitute a ‘disguised restriction on international trade’ (cf. Article XX GATT) – WTO law has prescribed international minimum standards for intellectual property law rather than for competition, investment and environmental law? If the conclusion of the TRIPs Agreement was essentially due to the powerful political and economic pressures from pharmaceutical, chemical and other industries in developed countries which own most of the industrial property rights: are there adequate safeguards that such ‘producer-driven’ trade policy-making processes take into account also consumer, environmental and social interests? Trade liberalization in GATT was based on the constitutional insight that too much democratic and parliamentary control over tariff-making risks to lead to welfare-reducing Smoot-Hawley legislation.5 The 1934 US Reciprocal Trade Agreements Act therefore introduced a three-stage-rule-making process based on (1) legislative authorization of reciprocal international tariff liberalization to be negotiated by the Executive; (2) prohibition of non-tariff trade barriers through GATT rules; and (3) legislative ‘fast-track’ approval of the results of reciprocal trade agreements and parliamentary implementing legislation. Is this particular domestic rule-making process for international trade liberalization also to be preferred to ordinary national legislation and normal treaty-making processes when it comes to WTO negotiations on positive integration law? Does the ‘producer bias’ of trade

policy-making processes require additional competition and environmental WTO rules and more representative WTO advisory bodies (like e.g. the EC’s Economic and Social Committee) so as to balance producer interests with broader societal interests in WTO negotiations at the international level?

TRIPs Guarantees for Substantive and Procedural Private Rights The TRIPs Agreement is not only an international treaty on rights and obligations of WTO Members. The Preamble explicitly recognizes ‘that intellectual property rights are private rights.’ Apart from defining substantive Page 28 →minimum standards, exceptions and legal limits for the individual property rights to be conferred to nationals from WTO member states, the TRIPs Agreement (e.g. Articles 41 to 62) also requires WTO Members to make available under their laws effective civil, administrative, criminal and judicial procedures and legal remedies for nationals of WTO Members. The Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works, and other intellectual property conventions administered by WIPO were criticized long since for their lack of effective dispute settlement and enforcement procedures. The TRIPs provisions on individual legal and judicial remedies, dispute settlement and enforcement are among the most significant achievements and innovations of the TRIPs Agreement. According to Article 9 on copyrights and related rights, ‘Members shall not have rights or obligations under this Agreement in respect of the rights conferred under Article 6bis of [the 1971 Berne] Convention or of the rights derived therefrom.’ This exclusion of ‘moral rights’6 was insisted upon by the United States since the AngloAmerican copyright system differs from the protection of ‘moral rights’ in ‘civil law countries’ and the USA wanted to avoid WTO guarantees of these rights in view of the arguably inadequate protection of moral rights in US law.7 Article 9 does not prejudge the controversial question to what extent intellectual property rights are protected as human rights (as proclaimed in Article 27 of the 1948 Universal UN Declaration of Human Rights) or only as rights conferred by public interest legislation balancing producer and consumer interests.

TRIPs Provisions on Minimum Standards for Harmonization of Domestic Laws Based on Preexisting WIPO Conventions According to Article 1:1 of the TRIPs Agreement, ‘Members may, but shall not be obliged to, implement in their law more extensive protection than is required by this Agreement, provided that such protection does not contravene the provisions of this Agreement.’ The standards set out in the TRIPs provisions on intellectual property rights are thus minimum standards, just as approximation of laws in the EC on the basis of Article 95 of the EC Treaty does not prevent member states from adopting higher standards for non-economic reasons of public interests. Similar to the method frequently used in EC law of basing EC rules on previously agreed international agreements concluded by EC Member States (such as GATT, the WTO Agreement, the UN Charter, the European Convention on Human Rights, multilateral environmental agreements), the TRIPs Agreement refers to numerous intellectual property treaties administered by WIPO and incorporates, modifies or expands some of these treaty provisions. The TRIPs Agreement includes numerous exceptions and safeguard Page 29 →clauses which recognize broad policy discretion of member states to ‘adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development’, and ‘to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology’ (Article 8). The particular legal structures of TRIPs – such as the recognition of intellectual property rights as human rights (e.g. in Article 27 of the 1948 Universal UN Declaration of Human Rights and in Article 15 of the 1966 UN Covenant on Economic, Social and Cultural Rights); the direct judicial application of many WIPO provisions incorporated into the TRIPs Agreement by domestic courts; the broad national government discretion (e.g. under Articles 8 and 40) to prevent private ‘abuses’ of intellectual property rights; or the inadequate competition rules (e.g. in Article 6) of the TRIPs Agreement – generate new legal problems which may require methods of treaty interpretation different from the traditional methods of interpreting intergovernmental GATT rules.

Conflicts of Interests over the Interpretation of TRIPs Provisions Most of the so far (September 1999) 20 invocations of TRIPs dispute settlement procedures were triggered by private right holders in exporting developed countries which challenged different legal traditions and intellectual property rights practices in civil law countries, common law countries and less-developed countries. In contrast to the majority of GATT disputes which involve discrimination against foreign products or foreign traders, the majority of TRIPs disputes involve non-discriminatory practices that may be politically more difficult to change. The fact that more than 90% of patents are registered in developed countries, and regulation of patent abuses is left (e.g. in Articles 8, 40) to national government discretion, offers other reasons why conflicting interpretations e.g. of the broadly framed TRIPs exceptions and safeguard clauses in the TRIPs Agreement appear very likely. The recognition of intellectual property rights as individual rights and, in part, human rights might justify application of interpretation methods for human rights to certain TRIPs provisions on the balancing of private rights and public interests, such as the interpretive principles developed by the European Court of Human Rights for ‘autonomous interpretation’, effective protection of human rights, deference to national regulatory discretion (e.g. by limiting international judicial review to the ‘margin of appreciation’ and by examining the scope of consensus on the basis of comparative law studies), and interpretation with due regard to subsequent international treaties.8 Particular political and legal problems also arise from the coexistence of two international rule-making institutions (WTO and WIPO) with different Page 30 →memberships, constituencies, rule-making processes and in part overlapping jurisdictions. Can WTO dispute settlement bodies take into account the 1996 WIPO Copyright Treaty and the 1996 WIPO Performances and Phonograms Treaty in interpreting related provisions of the TRIPs Agreement even if these WIPO conventions are not incorporated into WTO law? To what extent are the many decades of national and international legal and judicial practice relating to the interpretation and application of WIPO conventions relevant for WIPO provisions incorporated into WTO law? How should the WTO react to the various proposals to negotiate additional intellectual property rights treaties in the WIPO? Does the 1995 Agreement between WIPO and WTO offer an adequate framework for coordinating parallel initiatives for new WIPO and WTO rules e.g. on electronic commerce? Since many WTO Members accepted the TRIPs Agreement as a political ‘trade-off’ in order to benefit from other WTO rules: Will there be a political consensus for integrating new WIPO conventions into WTO – and TRIPs-law?

3. Future WTO Negotiations on Positive Integration Law: Political Lessons from the TRIPs Negotiations Can the particular legal structures of the TRIPs Agreement serve as model or precedent for future WTO negotiations on positive integration rules? Which political lessons are to be drawn from the TRIPs negotiations for future WTO negotiations on multilateral rule-making in the WTO?

Limited Political Relevance of Economic Welfare Arguments for Positive Integration Law in the WTO The economic arguments for the need of positive integration law derive essentially from the economic theories of market failure and ‘institutional economics’: The existence of market power, externalities, public goods and other kinds of market imperfections (such as asymmetries in information) call for rules aimed at correcting such market failures directly at their source, e.g. by means of competition law, environmental law and social legislation, backed up by effective legal and judicial remedies in case of non-compliance with such rules. While competition among national rules may contribute to the discovery and survival of the most efficient rules, international harmonization of divergent national rules can reduce international transaction costs.9 ‘Law and economics’ offer many examples of how transaction costs are influenced by existing legal rules (e.g. on property rights and access to courts); the proper assignment of legal institutions (e.g. liability rules, property rights, independent competition authorities, central banks and courts) can set incentives for welfare-increasing activities (e.g. savings and investments in research and development) and protect people against the costs of legal Page 31 →uncertainty. The negotiations on the TRIPs Agreement were influenced only to a limited extent by such economic welfare

arguments: Intellectual Property Rights as Instruments for Transforming ‘Public Goods’ into ‘Private Goods’ Economists justify intellectual property rights by the ‘public goods character’ of information and of other immaterial goods: Without legal protection of e.g. patents, the industrial inventions for patents might be kept secret; the information embodied in trademarks and labels may be less valuable; and non-paying ‘free-riders’ could not be excluded from using and copying e.g. literary works and computer software. The public interest in the disclosure of inventions and consumer information, and market failures resulting from an under-production of non-protected immaterial goods, are cited as economic arguments for national and international rules on the protection of intellectual property rights.10 Yet, the TRIPs negotiations were concluded without any comprehensive cost-benefit analysis e.g. of the welfare effects of the TRIPs Agreement for less-developed countries and other net-importers of protectable knowledge. TRIPs provisions of particular interest to developing countries – for instance on abuses of intellectual property rights (e.g. Articles 8 and 40), patentability of plants and animals (cf. Article 27), protection of genetic resources and traditional knowledge11 – often remain vague. Most developing countries accepted the TRIPs Agreement, and the opportunity created thereby for intellectual property rights holders in developed countries to appropriate additional economic rents from their property rights, as an inevitable trade-off for additional export opportunities in other areas. Intellectual Property Rights as Economic Incentives and Rewards Intellectual property rights are also justified as incentive for and reward of intellectual innovations.12 Yet, the historical fact that many developed countries began protecting intellectual property rights at a late stage of their industrialization process has not led to the exemption of less- or least-developed countries from the TRIPs disciplines beyond the transitional phase. Notwithstanding the judicial recognition of the incentive and reward theses e.g. in the jurisprudence of the EC Court of Justice,13 empirical and economic evidence continues to remain controversial as to whether intellectual property rights and their temporary grant of exclusivity and monopoly protection confer a net benefit or net loss on society.14 Intellectual Property Rights as Means for Promoting Transfer of Technology Private intellectual property rights in information enable and promote licensing agreements on the use or sale of e.g. patents, trademarks and Page 32 →copyrights and the transfer of technology. Article 7 of the TRIPs Agreements explicitly acknowledges these technology transfer functions of intellectual property rights: ‘The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.’ According to Article 66:2, ‘Developed country Members shall provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer to leastdeveloped country Members in order to enable them to create a sound and viable technological base.’ Yet, especially developing countries criticize that the relatively high minimum standards of the TRIPs Agreement are likely to be more beneficial for the private right holders in developed countries than for developing countries depending on imports of foreign technology for their own industrial and technological development. As regards Article 66:2, a recent communication on behalf of the African Group of WTO Members states: ‘Best endeavor provisions are fundamentally flawed in that they are neither enforceable nor do they constitute a real benefit for developing and least-developed countries. Consequently many developed countries have as yet not demonstrated how they are fulfilling the provisions of this Article.’15 The TRIPs Agreement: an Economic Exchange of IPR Rents’ for Market Access for Agricultural Goods and Textiles? Economic theory offers many reasons for additional international competition, investment, environmental and social ‘positive integration rules’. Yet, the main reason for the acceptance of the TRIPs Agreement by developing

countries and other net importers of protectable knowledge was political: the Uruguay Round agenda derived essentially from the political needs and business pressures in developed countries that ‘concessions’ in traditional GATT areas (such as textiles and clothing, agricultural trade, antidumping and safeguard measures, non-tariff barriers, unilateral actions by the USA) be ‘paid for’ by additional export opportunities for services and stronger protection of intellectual property rights; the fact that the USA enjoyed a positive national balance of international royalty payments on intellectual property, prompted US industries to form a powerful political alliance with other net exporters of intellectual property (notably EC and Japanese industries) and to insist on ‘balancing concessions’ in traditional GATT areas by the inclusion of ‘new issues’, such as the TRIPs Agreement.16 The Uruguay Round was influenced less by theoretical arguments based on welfare economics than by politically more influential, mercantilist export interests (including those of intellectual property rights holders in developed countries). Page 33 →Many developing countries agreed to the TRIPs Agreement only as part of a political ‘package deal’ which offered them advantageous trade-offs in other areas. It seems doubtful, however, whether such ‘trade-offs’, driven by one-sided mercantilist export interests in industrialized countries, are an appropriate way of international rulemaking on positive integration problems which require a much broader balancing of all interests involved.

Need for Enlarging the WTO’s Political Constituency and Constitutional Legitimacy for Future WTO Negotiations on Positive Integration Law? The need for changing the WTO legal framework for future negotiations on positive integration law can also be demonstrated by the economic theory of politics (‘public choice’). Public choice theory proceeds from the premise that both private choices in economic markets and public choices in ‘political markets’ tend to be dominated by individuals interested in maximizing their own utility (e.g. politicians interested in their political reelection and support by interest groups). Just as imperfections in private markets need to be limited e.g. by competition laws and policies, ‘political markets’ and the ubiquity of ‘government failures’ (such as trade protectionism) call for constitutional restraints on abuses of government powers so as to protect the equal rights of the citizens and ‘social justice’. Constitutional economics – by analyzing constitutional rules and procedures for ‘producing public goods’ and limiting ‘government failures’ in ‘political markets’ – offers important insights for constitutional reforms.17 The principles of ‘constitutionalism’ have progressively evolved over more than 2000 years (see Table 1). They represent ‘political inventions’ for limiting abuses of private and public power so as to overcome the inherent tendency of unregulated markets to destroy themselves (‘paradox of freedom’). Public choice theory teaches that consensus on such constitutional constraints to human behavior is easier to achieve behind a ‘veil of uncertainty’ which induces individuals to focus on their common long-term interests (e.g. in mutually beneficial cooperation through trade) rather than on their often conflicting short-term interests (e.g. over the redistributive effects of prices and the assignment of rights). Social contract theories (e.g. from Hobbes, Locke, Rousseau and Kant to Rawls) and modern constitutional economics analyze the substantive principles and procedures for the ‘public choice’ of constitutional rules which promote and protect peaceful cooperation between citizens based on equal freedoms and principles of social justice. Page 34 →Table l. Constitutional Democracy and its Principles Human Respect for individual autonomy and human dignity requires maximization of equal freedoms Rights and other civil, political, economic, social and cultural human rights Government and public law require consent of the governed and democratic legitimization based Popular on an equal political voice of all citizens. Collective sovereignty remains limited by inalienable Sovereignty human rights Publication of constitutional documents and of other legal rules is a prerequisite for their Transparency democratic legitimacy and respect by citizens Limited Governments are given only limited powers listed in and limited by the Constitution and by the Government inalienable human rights retained by the citizens

Self-government by the people through popular election of government officials and Constitutional representative institutions within the limits of inalienable human rights and constitutional Democracy restraints Rule of Law and Limitations of human rights must be based on parliamentary legislation and equality before the ‘Democratic law subject to judicial review Peace’ Checks and Separation, cooperation and mutual control of legislative, executive and judicial branches of Balances government. Federalism and subsidiarity as vertical division of powers Constitutional Constitutional amendments and judicial review enable constitutional change (a ‘living Review constitution’) Source: Petersmann Public choice and constitutional theories have so far only rarely been applied to state-centered international relations, notwithstanding centuries of abuses of discretionary foreign policy powers (e.g. in case of wars, colonialism and trade protectionism).18 Discrimination against foreigners and discriminatory restrictions of transnational freedoms of domestic citizens have become accepted policy instruments of all nation states. Guarantees of nondiscrimination and freedom across frontiers have become politically acceptable, if at all, only on the basis of reciprocal international agreements, such as GATT and the WTO Agreement. For instance: GATT negotiations and GATT rules have made possible reciprocal liberalization of welfare-reducing discrimination against foreign products at the international level notwithstanding the lack of political support for corresponding unilateral reforms at the national levels of policy-making.19 For similar reasons, the limitation of other transnational ‘externalities’ (such as environmental pollution, export cartels) is often politically acceptable only on the basis of international reciprocal obligations rather than by national unilateral legislation.20 Many proposals for additional WTO rules on positive integration Page 35 →refer to ‘government failures’ (such as the lack of competition laws in more than 100 countries) which are difficult to reform unilaterally (e.g. in view of ‘rent-seeking’ opposition against legal limitations of monopolies and market power); even most states in Europe introduced national competition laws only after having previously accepted international competition rules as part of European integration law.21 The TRIPs Agreement illustrates that the ‘public choice’ of international property rules in the Uruguay Round negotiations was strongly influenced by political pressures and negotiation methods analyzed by economic theories of politics. The conclusion of the TRIPs Agreement was essentially due to the following negotiation techniques:22 strong and coordinated political lobbying by American and European industries (notably chemical and pharmaceutical industries), at the national and international levels, in favor of the TRIPs Agreement; threat of ‘aggressive unilateralism’ by the USA and the EC which used their domestic trade laws (e.g. Section 301 of the US Trade Act) for unilateral investigations and sanctions against intellectual property rights violations abroad, as an alternative to ‘multilateralism’; the ‘consensus principle’ and ‘package deal method’ in GATT and WTO negotiations which induced governments to accept ‘trade-offs’, such as the TRIPs Agreement, as a precondition for benefits in other areas; integration of the TRIPs Agreement into the WTO legal system so that acceptance of the WTO Agreement implied acceptance also of the TRIPs Agreement; compulsory jurisdiction of the WTO dispute settlement system for the progressive clarification and enforcement of the often vague compromise provisions in the TRIPs Agreement. One central challenge of new WTO negotiations on positive integration rules will be the need for a broader ‘political constituency’ supporting such WTO negotiations: Export industries in developed countries, which were

the main political driving force behind previous GATT Rounds on the reciprocal liberalization of tariffs, may not be interested in new WTO legal disciplines e.g. on anti-competitive business practices and environmental pollution. Also trade politicians and trade diplomats may be reluctant to support such WTO negotiations for fear that their political influence will be diminished if competition and environmental experts take over the lead in such WTO negotiations. The opposition by US antitrust authorities against WTO Page 36 →negotiations on international competition rules, for instance, appears to be motivated also by their fear of sharing the negotiating mandate with protection-minded trade politicians and illustrates the increasing ‘turf battles’ among national bureaucracies over the exercise of WTO powers. In order to induce and enable consumers, environmental groups and other members of civil society to support WTO negotiations on positive integration rules, the secretive methods of past GATT Rounds, and also the institutional framework of the WTO, may need to be changed. For example, more transparency of WTO documents, and the establishment of an advisory WTO Economic and Social Committee with representatives from all sectors of civil society (on the model of the EC Economic and Social Committee), would better inform and induce consumers, non-governmental organizations and the press to follow and influence WTO negotiations.23

4. Are Intellectual Property Rights ‘Human Rights’? Does the TRIPs Agreement Indicate a Need for ‘Mainstreaming’ Human Rights into WTO Law? Article 27 of the 1948 UN Universal Declaration of Human Rights, and Article 15 of the 1966 UN Covenant on Economic, Social and Cultural Rights, recognize intellectual property rights as universal human rights.24 Are the moral, legal, political and economic justifications of human rights appropriate for intellectual property rights? Has the TRIPs Agreement actually been influenced by the ‘human rights revolution’ of the 1990s? What is the legal relevance of the worldwide trend towards more effective protection of human rights and constitutional democracy for future WTO Rounds on positive integration rules? Are the non-economic ‘constitutional values’ of the WTO legal and dispute settlement system – such as promotion of freedom and rule of-law – less important than the economic objectives of worldwide trade liberalization?

Are Human Rights Relevant for WTO Law? The 1993 Vienna Declaration and Programme of Action, adopted by more than 170 member states at the UN World Conference on Human Rights, recognized that ‘human rights and fundamental freedoms are the birthrights of all human beings; their protection and promotion is the first responsibility of Governments’. ‘The universal nature of these rights and freedoms is beyond question.’ ‘All human rights are universal, indivisible and interdependent and interrelated.’ ‘Democracy, development and respect for human rights and fundamental freedoms are interdependent and mutually reinforcing.’25 Since the inception of GATT 1947, GATT and WTO diplomats have Page 37 →conspicuously avoided any references to human rights law. This may have been due to the fact that, as explained above, ‘negative integration’ under GATT 1947 raised less constitutional concerns than ‘positive integration’ through WTO Rounds. The diplomatic preferences may also reflect the limited expertise and interests of trade diplomats, rather than a considered view of GATT and WTO member states that there is no need for integrating universal human rights into WTO law. The proposals by trade economists for de-linking human rights and other social issues from trade, and their objections against including ‘social’ and ‘human rights clauses’ into WTO law, likewise tend to be based on fears of protectionist abuses and on the economic ‘inefficiency’ of trade sanctions.26 However, just as Sherlock Holmes asked why the dog didn’t bark, citizen’s in the 135 WTO member countries should be rightly concerned why WTO diplomats ignore human rights law, and why WTO Rounds focus so one-sidedly on producer interests (e.g. in WTO antidumping rules) to the detriment of the general citizen interest in maximizing consumer welfare through liberal trade. In order to examine whether human rights are relevant for WTO law, it is necessary to briefly discuss the contending notions of ‘human rights’ and the manifold justifications for the entitlement of human beings to human rights, and to correlative duties of governments:27

Human Rights as Moral Entitlements to Freedom: Moral Justifications of WTO Law? Many religions teach that man was created in the ‘image of god’ with individual dignity, equal rights and the duty to treat all human beings in a just manner. Moral philosophies (e.g. by I. Kant) and natural law theories (e.g. by H. Grotius, J. Locke) likewise emphasize the human dignity of individuals but derive it from their moral and rational autonomy; according to Kant, human rights derive from the moral and rational capacity of the individual to choose his or her ends and to act with ‘human dignity’ according to self-imposed moral and legal norms, consistent with similar freedoms for all; the legal protection of individual freedom, and the treatment of individuals as subjects rather than mere objects of law, were justified by Kant as moral necessities (a universal ‘categorical imperative’) rather than as means for maximizing individual and social utility (as e.g. in the philosophy of J.S. Mill) or for allowing individuals to pursue their ‘individual truths’ in the absence of objectively discernable ‘eternal truths’ (as argued e.g. by philosophers like I. Berlin and F.A. Hayek).28 The 1993 Vienna Declaration affirms the Kantian premise ‘that all human rights derive from the dignity and worth inherent in the human person, and that the human person is the central subject of human rights and fundamental freedoms, and consequently should be the principal beneficiary and should Page 38 →participate actively in the realization of these rights and freedoms.’29 Section 1.5 of the Vienna Declaration also emphasizes the ‘duty of States, regardless of their political, economic and cultural systems, to promote and protect all human rights and fundamental freedoms.’ Yet, the compromise text of the Vienna Declaration does not specify whether this ‘duty of States’ to ‘promote and protect all human rights and fundamental freedoms’ must be construed in the Kantian sense as an obligation to maximize the equal freedoms of the citizens, including their freedom of trade and their individual capacity to make effective use of freedom.30 The Kantian moral justification of maximum individual freedom and non-discrimination offers, however, a moral legitimacy to WTO guarantees of freedom and nondiscrimination which may be politically and democratically no less important than the utilitarian economic arguments in favor of WTO rules. Human Rights as Positive Legal Entitlements to Freedom: Imperfect Legal Concepts of Human Rights and of International Law Guarantees of Freedom of Trade The moral concept of human rights goes far beyond the legal definitions of human rights in national constitutions and international human rights instruments. Today, the national constitutions of almost all states, and numerous regional and worldwide human rights treaties and integration agreements (such as the EU Treaty), commit themselves to the protection of inalienable human rights. The 1993 Vienna Declaration confirms that ‘universal respect for, and observance of, human rights and fundamental freedoms for all’ are commitments which are already part of Articles 55 and 56 of the UN Charter and have become part of general international law.31 Also the indivisibility of civil, political, economic, social and cultural human rights is recognized in numerous worldwide and regional treaties, for instance in Article 5 of the 1989 Lomé Convention between the EC, the 15 EC member states and 71 ACP developing countries: ‘The rights in question are all human rights, the various categories thereof being indivisible and inter-related, each having its own legitimacy: non-discriminatory treatment; fundamental human rights; civil and political human rights; economic, social and cultural rights’ (Article 5:2). National and international constitutions are historical documents that reflect the political concerns and majority views at a particular time and in specific political circumstances. For instance, freedom of international trade is protected as a fundamental citizen right only in a few national constitutions of federal states (e.g. under Articles 2, 12, 14 of the 1949 German Basic Law, Articles 29, 31 of the 1874 Swiss Constitution) which emerged from previous customs union treaties among the component states (e.g. the Swiss Confederation prior to 1848, the German customs union prior to 1867) and Page 39 →from long constitutional struggles for freedom of domestic and transnational trade. In many national and international constitutional systems, the incomplete character of constitutional law and of Bills of human rights is recognized and has prompted national and international courts to protect also unwritten constitutional guarantees and ‘rights retained by the people’ that, even though not listed in the constitutional documents, must be legally protected by governments.32 Constitutional documents often neither explicitly address the ‘indivisibility’ of civil, political and economic freedoms and human rights, nor their different ‘functions’ (e.g. as defensive rights against governmental limitations of individual freedom, rights to participate in the exercise of government powers, rights to benefit from the governmental supply of public goods,

or as constitutive principles for the determination of the ‘public interest’ to be pursued by governments). The dynamic functions of constitutional law, human rights and fundamental citizen rights have prompted many national and international courts (notably in Europe) to adopt functional and teleological interpretations progressively extending the rights and enlarging individual freedoms beyond traditionally more narrow interpretations (e.g. discriminating against women) and across national frontiers discriminating against foreigners. The jurisprudence of the EC Court of Justice on the free movement of goods, services, persons, capital and payments as individual rights of the 380 million EC citizens illustrates the legal, political and economic importance of individual rights and of their judicial protection for international economic integration. Article 300:7 of the EC Treaty also requires all EC institutions and EC member states to comply with international treaties concluded by the EC, such as the 1994 WTO Agreement. According to the EC Court of Justice, ‘the principle of free movement of goods and freedom of competition, together with freedom of trade as a fundamental right, are general principles of law of which the Court ensures observance.’33 This recognition of ‘freedom of trade as a fundamental right’ in EC law illustrates the potential significance of the freedoms recognized in international trade agreements for empowering citizens to invoke and enforce economic freedoms and property rights in transnational relations. Human Rights and Fundamental Citizen Rights as Political Claims: How Should the WTO Respond to Its Criticism by Civil Society Groups? Most ‘Bills of Rights’ (e.g. 1689 in England), ‘Declarations of Independence’ (e.g. 1776 by the 13 American Colonies), or ‘Declarations of the Rights of Man and of the Citizen’ (e.g. 1789 in France) were associated with ‘glorious revolutions’ and, following World War II and the fall of the Berlin wall, with victorious struggles for constitutional democracies. They are based on political claims that have achieved legal recognition. The legal empowerment of Page 40 →individuals by human and citizen rights reflects the universal historical experience that all power risks to be abused; contrary to the naive expectations of natural law theories, governments rarely act as ‘benevolent dictators’, and legal restraints on government powers do no enforce themselves. John Locke justified the individual rights to life, liberty and property as ‘natural rights’ and rational preconditions for individual self-ownership and self-government; according to Locke, citizens had not surrendered these rights in their ‘social contract’ and had mandated governments to protect these rights retained by the citizens. Yet, modern individual rights – e.g. of ‘citizenship of the Union’ (cf. Articles 17 to 22 ECT) and of transnational ‘economic liberties’ guaranteed in the EC Treaty – often resemble more political claims than inalienable ‘natural rights of Man’. EC law and the protection of individual rights by the EC Court of Justice, for instance, confirm that individual freedoms have to be fought for in order to become legally effective, just as human rights had to be fought for in the national ‘human rights revolutions’. The ‘paradox of freedom’ (i.e. its inherent tendency to destroy itself through abuses of economic and political power) cannot be resolved without human or citizen rights as ‘countervailing powers’. The progressive transformation of free trade areas and customs unions into common markets (e.g. in the historical formation of the USA, Switzerland, Germany and the European Union) was achieved in part due to individual access to courts and judicial protection of individuals requesting judicial protection of their freedom of trade.34 The EC Treaty guarantees for ‘every citizen of the Union ... to move and reside freely within the territory of the Member States’ (Article 18 ECT) also illustrate the potential ‘spill-overs’ of freedom of trade towards more general ‘citizenship rights’ and transnational guarantees of individual freedom. Politicians interested in promoting freedom and non-discrimination across frontiers must never forget that, by making the world trading system as responsive as possible to all citizens, ‘we the citizens’ might become their politically most powerful ally in promoting human rights. Economic Theories of Property Rights and Rights-Based Competition Rules: Common Objectives of Economic and Political Liberalism According to me US Supreme Court, ‘antitrust laws ... are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free enterprise system as the Bill of Rights is to the protection of our fundamental freedoms.’35 Competition theory and the economic theory of property rights

explain why the proper functioning of economic and ‘political markets’ depends on the proper allocation and protection of individual rights.36 Empirical evidence confirms not only that markets emerge spontaneously, in response to demand for and supply of scarce goods, wherever citizens enjoy individual freedom and property rights; the relative effectiveness of e.g. EC Page 41 →and US competition laws also illustrates the economic insight that markets depend for their proper functioning on rendering competition ‘self-enforcing’ by the assignment of individual freedoms, property rights and liability rules to all economic actors and scarce resources. Economic theory therefore perceives the protection and enforcement of individual rights as the most effective, decentralized means for reducing transaction costs and limiting market failures (such as ‘external effects’) as well as government failure. For instance, the EC Treaty objective of a common market was largely achieved due to the private and judicial enforcement of the EC Treaty provisions on the free movement of goods, services, persons, and payments as individual freedoms protected by the courts. Conclusion: Human Rights and WTO Law Pursue Complementary Objectives and Should Be Mutually Reinforcing The preceding survey of the moral, legal, political and economic justifications of human rights, and of their constitutional objective of maximizing equal liberties of the citizens so as to protect individual autonomy, has demonstrated the relevance of human rights law for the WTO objective of ‘rolling-back’ the centuries-old traditions of widespread discrimination in national laws against foreign goods, services, traders and producers. The basic objectives of human rights law and WTO law are complementary and similar: to prohibit discrimination among citizens, regardless of their nationalities, and to progressively extend individual freedom and nondiscrimination across frontiers. Both human rights law and international trade law aim at protecting rule of law e.g. by legal guarantees of individual access to courts. Since individual rights are most clearly safeguarded in democracies, it is no coincidence that – as already discovered by Adam Smith more than 200 years ago – democracies with effective protection of individual rights tend to promote more productivity and more economic development than non-democracies. Liberal economic and political markets are indispensable complements of human rights and democracy. Empirical evidence confirms that the effectiveness of competition and liberal trade is largely a function of enabling citizens and domestic courts to invoke and enforce liberal competition and trade rules (e.g. under US antitrust law, EC competition and customs union law). The progressive ‘constitutionalization’ of European Community law also confirms the Kantian hypothesis that mutually beneficial, cosmopolitan integration law can help to progressively constitutionalize also other areas of international law.37 WTO governments should take into account the numerous interrelationships between human rights, national constitutions and international guarantees of freedom of trade and non-discrimination. For example, since foreign trade policy powers are powers to tax and restrict domestic citizens, Page 42 →constitutionalism cannot remain effective with unlimited trade policy powers.38 The human rights approach offers WTO law a moral, constitutional and political legitimacy far beyond the economic and other utilitarian justifications of WTO rules. The more the ‘constitutional functions’ of WTO law for protecting freedom and other individual citizen rights are recognized, the more citizens will be motivated to actively participate in and support the WTO world trade and legal system.

Does the TRIPs Agreement Reflect a Human Rights Approach? According to the Universal Declaration of Human Rights of 1948, as confirmed in numerous subsequent treaties, ‘everyone has the right to own property’ (Article 17), including ‘the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author’ (Article 27:2). What is the legal relevance of the universal recognition of intellectual property rights as human rights? Should future WTO Rounds – for the above-mentioned moral, legal, political and economic reasons – incorporate also other human rights into WTO law? Would such a ‘constitutionalization’ also require integrating other ‘constitutional principles’ (see Table 1 above) into the WTO legal and dispute settlement system? The recognition of intellectual property rights as human rights is not only based on the utilitarian belief – as explained by the above-mentioned economic reward-, incentive-, disclosure- and transaction-functions of

intellectual property – that intellectual property rights advance economic, social and cultural development. The long-standing protection of ‘moral author rights’ in Article 6bis of the Berne Convention, for instance, is also based on the European tradition of perceiving e.g. ‘the right to claim authorship of the work’ as part of the personality rights of authors. However, the fact that human rights are nowhere mentioned in WTO law, and ‘moral rights’ were explicitly excluded from the scope of the TRIPs Agreement (cf. Article 9:1), suggests that the TRIPs guarantees of producer rights and the ‘public interest clauses’ in the TRIPs Agreement were not drafted in terms of human rights law: in line with the traditional ‘GATT pragmatism’, the drafters of the TRIPs Agreement refrained from deciding on the many controversies relating to the human rights character of intellectual property and traditional knowledge.39 The TRIPs clauses on the need to ‘prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology’ (Article 8) likewise reflect an economic approach to the necessary balancing of intellectual property rights with the wider needs of society,40 without references to human rights and constitutional law approaches. Yet, the absence of explicit references to human rights in the TRIPs Agreement does Page 43 →not exclude that WTO dispute settlement bodies and national courts take into account human rights law and its specific interpretation methods in the application of TRIPs provisions.

Positive Integration Law Needs to Be Strengthened by Human Rights The worldwide economic and legal integration and ‘globalization’ of international relations – not only of international production, trade, competition, finance, investments, communications and environmental relations but also of WTO law and human rights law – call for the ‘constitutionalization’ of foreign policy powers and international law based on universally recognized human rights. Future WTO Rounds are likely to go far beyond the traditional GATT negotiations on the liberalization of national discrimination against foreign products and foreign traders. WTO negotiations on competition, investment, environmental and social rules will rather focus, like the TRIPs Agreement, on non-discriminatory national and international rules that affect the freedom and property rights of domestic citizens in more obvious and direct ways. The constitutional insight that unilateral national rule-making processes need to be supplemented by multilateral international rule-making has become politically accepted for both WTO law and human rights law. The persistent disregard, in international human rights instruments, for economic liberty and freedom of trade as preconditions for individual welfare, and the similar disregard in WTO law of human rights, are increasingly outdated. The French Declaration of the Rights of Man and the Citizen of 1789 began with the constitutional insight ‘that ignorance, forgetfulness, or contempt of human rights are the sole causes of public misfortune and government depravity.’ Section 2 of the Declaration emphasized: ‘The final end of every political institution is the preservation of the natural and imprescriptible rights of man. Those rights are liberty, property, security, and resistance to oppression’; according to Section 4, ‘Liberty is the power to do anything which does not harm another; hence the only limits to the exercise of each man’s natural rights are those which secure to other members of society the enjoyment of the same rights.’41 This human rights conception continues to be as ‘revolutionary’ today as it was 210 years ago. Modern constitutional theory recognizes that human rights serve not only the function of conferring individual rights that ‘shall bind the legislature, the executive and the judiciary as directly enforceable law’ (as stated in Article 1:3 of the 1949 Basic Law of Germany); human rights also constitute objective principles of constitutional law that determine the ‘public interest’, as acknowledged in Section 2 of the Declaration of 1789. Since liberty of trade is mutually beneficial and does not ‘harm’ the equal freedom of other citizens (in the sense of Section 4 of the Page 44 →Declaration of 1789), modern constitutional guarantees of freedom of trade (e.g. in the EC Treaty), of ‘economic liberty’ (e.g. in Article 27 of the 1999 Swiss Constitution), or of everybody’s ‘right to the free development of his personality in so far as he does not violate the rights of others’ (Article 2:1 German Basic Law) are increasingly construed by the courts as comprising also freedom of trade across frontiers. Trade liberalization in the WTO should not only be based on utilitarian objectives of ‘welfare maximization’ but also on human rights concepts, such as individual freedom (e.g. from tariff and non-tariff trade barriers), nondiscrimination (e.g. among producers, traders and consumers pursuant to Articles I, III and XIII GATT, Articles II and XVII GATS, Articles 3 and 4 TRIPs Agreement), and rule of law subject to judicial review by

national courts and international adjudication (as provided for e.g. in Articles X GATT, VI GATS, 42 et seq. TRIPs Agreement and Articles 16 to 19 of the DSU).42 GATT 1947 was drafted as an agreement about rights and obligations of ‘governments’ in view of the power-oriented, state-centered tradition of international law and the conclusion of GATT, on the part of the US government, as an ‘executive agreement’ authorized under the Reciprocal Trade Agreements Act of the US Congress. Like GATT, also international human rights law has never considered freedom of trade as a human rights issue, even though most people live by trading their labor, products or income in exchange for other goods and services which they cannot produce themselves and which they buy or import ever more often from abroad. The time has come for recognizing that human rights law offers WTO rules moral, constitutional and democratic legitimacy that may be more important for the parliamentary ratification of future WTO Agreements than the traditional economic and utilitarian justifications. This legitimacy will be especially important for democratic support of future WTO Rounds on ‘positive integration law’. The focus of the TRIPs Agreement on individual property rights, and the inclusion of comprehensive competition rules in the GATS Protocol on Telecommunications, indicate that the traditional reliance in GATT and the WTO on political support from export industries can bring about sectoral ‘constitutional reforms’. But the ‘mercantilist negotiation method’ may fail in other policy areas. The obvious abuses of trade policy powers in antidumping laws and policies, for example, are too arbitrary and too welfare-reducing so as to be left to the narrow perspectives of trade politicians and their rentseeking clientèles. A look at the experience with regional integration law in America and Europe confirms that liberal trade and rule of law across frontiers cannot be achieved without ‘positive integration law’ and without taking human rights more seriously.

Page 45 →5. The Lessons from Regional Integration Law for Future WTO Rounds: Rulemaking for ‘Positive Integration’ Requires Constitutional Safeguards As part of the postwar Bretton-Woods system, GATT 1947 was also designed to pursue political objectives, such as peaceful cooperation and rule of law in international relations. But these objectives were not explicitly mentioned in the text of GATT 1947, in contrast to the 1957 EC Treaty whose preamble emphasizes the political long-term goal of ‘an ever closer union among the peoples of Europe’. The EC’s customs union, common market, economic and monetary union were always perceived as means for the progressive build-up of a ‘political union’ based on ‘principles of liberty, democracy and respect for human rights and fundamental freedoms and of the rule of law’ (Preamble and Article 6 EUT). The drafters of the EC Treaty had not included in the EC Treaty any references to human rights law in the erroneous belief that a common market could be established without legal safeguards in Community law for human rights. In EC practice, however, the frequent challenges of EC regulations, EC directives and EC decisions before national and EC courts prompted the EC Court to construe the EC Treaty as a ‘constitutional charter’ with comprehensive, written and unwritten guarantees of rule of law, human rights and constitutional democracy. The ‘constitutional’ interpretation by the EC Court of Justice of the EC Treaty guarantees of equal economic freedoms as individual rights operated as a powerful incentive for EC citizens and courts to enforce these economic freedoms against the political resistance of EC governments. Article 295 of the EC Treaty – according to which ‘this Treaty shall in no way prejudice the rules in Member States governing the system of property ownership’ – was supplemented by Community law guarantees of private property and other Community law limitations on private monopolies and state trading monopolies in member states. The legislative, executive and judicial Community powers were progressively strengthened and subjected to horizontal and vertical ‘checks and balances’, such as the Community law principles of rule-of-law, democracy, subsidiarity, and the ‘institutional equilibrium’ between the various EC institutions.43 The economic freedoms of the EC Treaty for the free movement of goods, services, persons, payments and capital were enlarged by non-economic rights of ‘every citizen in the Union ... to move and reside freely within the territory of the Member States’ (Article 18), with the objective of enhancing the democratic support and legitimacy of EC law and developing ‘the Union as an area of freedom, security and justice, in which the free movement of persons is assured in conjunction with appropriate measures with respect to external border controls,

asylum, immigration and the prevention Page 46 →and combating of crime’ (Article 2 EUT, Articles 62 et seq. ECT). The human rights guarantees of the 1950 European Convention on Human Rights and of the 1961 European Social Charter were explicitly incorporated into Community law (see Preamble and Article 6 EUT). The political goals of European integration law are also reflected in the limitation of EU membership to constitutional democracies that respect human rights (cf. Articles 6, 7,49 EUT). The development of the EC Treaty from a customs union agreement to a ‘constitutional charter’, supplemented by general European constitutional law, have enabled a historically unique period of economic integration and ‘democratic peace’ not only among the 15 EC member states but also in the framework of the ‘Europe agreements’, ‘association agreements’ and free trade agreements concluded by the EC with almost all other European countries.

6. Conclusion: Time for Constitutional Reforms of WTO Law Just as primary and secondary Community law provisions were challenged before national courts and the EC Court on grounds of human rights law and constitutional law, WTO rules (e.g. on compulsory licensing of patent rights pursuant to Article 31 of the TRIPs Agreement) and WTO dispute settlement rulings on ‘positive integration’ (e.g. concerning environmental measures) risk to be challenged in national parliaments, courts, human rights groups and civil society. The parliamentary ratification by national legislatures of ‘package deal agreements’ negotiated in GATT and the WTO, which has sometimes been only a matter of a few hours,44 is no democratically sufficient safeguard to ensure the consistency of WTO law and WTO practices with human rights and democratic constitutions. Similar to the progressive transformation of the EC Treaty into a constitutional charter, positive integration in the WTO calls for a progressive constitutionalization of WTO law for the benefit of the citizens and their human rights. As in the EC, this ‘constitutionalization’ can come about only gradually by adapting WTO rules and their judicial interpretations to the requirements of constitutional democracies (see Table 1). ‘Constitutional interpretations’ of WTO law (e.g. of the GATT exceptions and ‘public interest clauses’ in Article XX GATT and the corresponding GATS exceptions in Article XIV GATS) in conformity with universal human rights, or with the 1998 ILO Declaration on Fundamental Principles and Rights at Work, offer less controversial means man proposals for including a ‘human rights clause’ or ‘social clause’ into WTO law. Even though the practical economic impact of such constitutional reforms may be limited and needs to be protected against ‘protectionist capture’, democratic support for the WTO could be enhanced considerably. The driving forces for such constitutional reforms will not be trade politicians but rather national parliaments in Page 47 →constitutional democracies, national and international judges, non-governmental groups and individual plaintiffs interested in the protection of human rights and rule of law. The globalization of international production, trade, investments and environmental problems needs to be coordinated and integrated in the WTO with the globalization of human rights and constitutional safeguards so that globalization does enlarge, rather than undermine, individual freedom, nondiscrimination and social welfare, subject to democratic and judicial controls. Human rights law offers moral, legal and political legitimacy to WTO rules far beyond their traditional economic and other utilitarian justifications; it calls for rights-based liberal trade rules which, as in regional integration law and in the intellectual property conventions administered by WIPO, should be protected by national courts for the benefit of the citizens. The current ‘constitutional infrastructure’ of WTO law does not yet meet the requirements of constitutional democracy and does not yet ensure that WTO rulemaking on ‘positive integration law’ promotes, rather than undermines, the human rights of citizens. WTO law offers a negotiation forum, legal remedies and compulsory worldwide adjudication and enforcement systems that are more effective than those of other worldwide organizations. Progressive integration of liberal trade law and human rights law enables mutually beneficial synergies for peaceful cooperation far beyond international trade. As explained by I. Kant more than 200 years ago in his essay on Perpetual Peace (1795), and as confirmed in the practice of European integration, the mutually beneficial character of liberal trade makes it politically easier to ‘constitutionalize’ the power-oriented, state-centered international legal system in the area of economic integration law than in other, more politicized areas of international law. Just as open markets are a necessary complement of human rights within constitutional democracies, the liberal trade rules of WTO law and

of the Bretton Woods institutions (like the IMF and the World Bank) need to be progressively integrated with universal guarantees of human rights and constitutional law. The economic philosophy of the utility-maximizing homo economicus can and must be reconciled with the constitutional philosophy of the homo politicus, liberated from feudal and colonial restraints and constitutionally empowered and protected by equal human rights. WTO law will be strengthened if it pursues not only utilitarian objectives such as satisfaction of consumer demand, but also the constitutional objectives of protecting equal freedoms and other human rights of the citizens. As recognized long since in international human rights law (e.g. Article 22 of the 1948 Universal Declaration of Human Rights), individual civil, political, economic and social freedoms are interdependent and indivisible and need to be better protected by national and international constitutional safeguards against abuses of private Page 48 →and public power politics. The future evolution of the WTO world trade and legal system is too important for mankind to be left to the often one-sided, utilitarian perspectives of trade politicians, trade bureaucrats and their rent-seeking clientèles. Building a new political constituency for the necessary constitutionalization of the global economy and of international economic law will be the greatest challenge of the new WTO Round.

NOTES 1. Cf. E.U. Petersmann, Constitutional Functions and Constitutional Problems of International Economic Law, 1991, chapter VII. 2. On the relationships between intellectual property and the human rights guarantees e.g. for private property, the ‘moral and material interests resulting from any scientific, literary or artistic production’ (Article 27:2 of the 1948 Universal Declaration of Human Rights, Article 15 of the 1966 UN Covenant on Economic, Social and Cultural Rights), cultural heritage, traditional knowledge, the right to health, science and technology, and non-discrimination see: Intellectual Property and Human Rights, WIPO 1999. 3. Cf. WTO Annual Report 1998, at 37. 4. From the point of view of EC member states, worldwide harmonization of intellectual property law through WIPO and WTO agreements has the advantage of maintaining national competencies in these areas, which might be transformed into EC competencies in case of harmonization by means of EC regulations and EC directives. 5. Cf. R. E. Hudec, Essays on the Nature of International Trade Law, 1999, at 215. 6. Cf. Article 6bis, paragraph 1 of the Berne Convention: Independently of the author’s economic rights, and even after the transfer of the said rights, the author shall have the right to claim authorship of the work and to object to any distortion, mutilation or other modification of, or other derogatory action in relation to, the said work, which would be prejudicial to his honor or reputation. 7. Cf. D. Gervais, The TRIPs Agreement: Drafting History and Analysis, 1998, at 72. On the long-standing objections to the express recognition of moral rights by the US movie industry and the US government prior to the US accession to the Berne Convention in 1989 see: J.M. Dine, Authors’ Moral Rights in NonEuropean Nations, in: Michigan Journal of International Law 16 (1995), 545-582. 8. Cf. L.R. Heifer, Adjudicating Copyright Claims Under the TRIPs Agreement: The Case for a European Human Rights Analogy, in: Harvard International Law Journal 39 (1998), 357-441, who argues that the interpretive methodologies developed over the last 40 years by the European Court of Human Rights for Page 49 →interpreting the European Convention on Human Rights – which ‘like TRIPs, is at its core a minimum standards treaty that creates international rights for private parties as well as positive and negative obligations for its signatory states’ (p. 363) – may serve as a more useful model for adjudicating disputes under the TRIPs Agreement than the comprehensive case-law of the EC Court of Justice on the interrelationships between the EC’s trade rules, intellectual property rules and competition rules (on this EC jurisprudence see notably: 1. Govaere, The Use and Abuse of Intellectual Property Rights in EC Law, 1996). 9. Cf. E.U. Petersmann, The Need for Integrating Trade and Competition Rules in the WTO World Trade and Legal System, 1996. 10. See e.g. A. Subranmaniam, TRIPs and the Paradigm of the GATT, in: World Economy 13 (1990),

509-521, at 513; for an ‘instrumental view’ of intellectual property rights as instruments for promoting economic welfare see also: P. Drahos, The Universality of Intellectual Property Rights: Origins and Development, in: Intellectual Property and Human Rights (above note 2), at 13, 31 et seq. 11. Cf. T. Cottier, The Protection of Genetic Resources and Traditional Knowledge: Towards More Specific Rights and Obligations in World Trade Law, in: Journal of International Economic Law 1998, 555-584. 12. This incentive thesis and reward thesis for the justification of intellectual property rights have a very long tradition, dating back to Galileo Gallilei’s famous request to the Venetian Republic in 1593 for patent protection. J.S. Mill likewise claimed that he, the inventor, ought to be both compensated and rewarded ... will not be denied ... it would be a gross immorality of the law to set everybody free to use a person’s work without his consent, and without giving him an equivalent. Cf. M. Blakeney, Trade Related Aspects of Intellectual Property Rights: A Concise Guide to the TRIPs Agreement, 1997, at 152-153. 13. For examples from the ECJ jurisprudence see Govaere (note 8), e.g. at 80, 83. 14. See e.g. Blakeney (note 12), at 153-156. 15. WTO doc. WT/GC/W/302 of 6 August 1999, at 2. 16. For details see: K. Stegemann, The Integration of Intellectual Property Rights into the WTO System, 1998, 13-14. 17. For analyses of national and international trade law from the perspectives of public choice theory and constitutional economics, with references to the vast literature, see Petersmann (above note 1); M. Hilf/E.U. Petersmann (eds.), National Constitutions and International Economic Law, 1993. 18. Cf. E.U. Petersmann, How to Constitutionalize International Law and Foreign Policy for the Benefit of Civil Society? in: Michigan Journal of International Law 20 (1999), 1-30. 19. Cf. E.U. Petersmann (above note 1), at 403-406. 20. Cf. e.g. J.A.C. Conybeare, International Organizations and the Theory of Page 50 →Property Rights, in: International Organization 34 (1980), 307-334. 21. Cf. E.U. Petersmann, Competition-oriented Reforms of the WTO World Trade System – Proposals and Policy Options, in: R. Zäch (ed.). Towards WTO Competition Rules, 1999, at 43-71. 22. For an analysis from a developing country perspective see e.g.: B.K. Zutshi, Bringing TRIPs into the Multilateral Trading System, in: J. Bhagwati/M. Hirsch (eds.), The Uruguay Round And Beyond, 1998, 37-49. More generally: E.U. Petersmann, The Transformation of the World Trading System through the 1994 Agreement Establishing the WTO, in: European Journal of International Law 6 (1995), 161-221. 23. See also E.U. Petersmann, Trade and the Protection of the Environment after the Uruguay Round, in: R. Wolfrum (ed.), Enforcing Environmental Standards: Economic Mechanisms as Viable Means?, 1996, 165-197, at 189 for the proposal of ‘the establishment of a WTO consultative committee enabling private industry, trade unions, consumer organizations and trading interests to present and coordinate their views and have access to WTO documents’. 24. For details see Drahos (above note 10) who concludes: ‘that the view that all intellectual property rights are human rights by virtue of their universal recognition is problematic’ (p. 31). 25. Cf. The United Nations and Human Rights 1945-1995, UN 1995, at 448-450. 26. See e.g. J. Bhagwati, Trade Linkage and Human Rights, in: Bhagwati/Hirsch (above note 22), at 241-250. 27. The following survey is deliberately brief and refrains from references to the vast human rights literature. For comprehensive analyses of the interrelationships between national constitutional law and international trade law see: M. Hilf/E.U. Petersmann, National Constitutions and International Economic Law, 1993. On Kantian legal theory see: Petersmann (above note 18). 28. For a discussion of these different philosophical justifications of human rights see: A.D. Rosen, Kant’s Theory of Justice, 1993, 212-226. 29. See note 25, at 448. 30. Cf. Rosen (note 28), at 218: ‘For Kant, the state has three principal functions and obligations: a duty of justice to ensure a condition of maximum law-governed freedom; a duty of benevolence to provide for the needs of its subjects; and a teleological responsibility to create the framework within which all forms of human rationality can

flourish.’ All these duties and separate functions ‘converge on the idea of freedom’ (p. 219). Modern constitutional theories of social justice (e.g. by J. Rawls, A Theory of Justice, 1971) share the Kantian view of regarding maximum equal liberty as one of the foremost requirements of justice. 31. See above note 25, at 448.Page 51 → 32. Cf. the Ninth Amendment to the US Constitution: ‘The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the People.’ The US Supreme Court has recognized certain unwritten rights (e.g. to privacy and to engage in political activity). But the Court has given clear preference to the judicial protection of civil and political over economic and social freedoms, and has never recognized individual freedoms of US citizens e.g. to import and export also across the US frontiers with third states. 33. Case 240/83, ADBHU, European Court Reports 1985, 531, 548. 34. For a comparative legal and political analysis of the protection of liberal trade in the 18th century US Constitution, the 19th century Swiss Constitution, the 1949 postwar Basic Law of Germany and the EC’s ‘treaty constitution’ see E.U. Petersmann (note 7), Chapter VIII. 35. United States v. Topco, 405 U.S. 595, 610 (1972). 36. Cf. Petersmann (note 1), at 8 ff. The conceptualization of human rights as property rights has a long tradition going back e.g. to John Locke, cf.: J. Locke, Second Treatise of Government (1690), chapter 5, paragraph 27: ‘Though the earth, and all inferior creatures, be common to all men, yet every man has a property in his own person: this no body has any right to but himself. The labor of his body, and the work of his hands, we may say, are properly his.’ On private property as an indispensable ingredient not only of economic progress but also of individual liberty and the rule of law, see: R. Pipes, Property and Freedom, 1999. 37. See above Petersmann (note 18). 38. Cf. E.U. Petersmann, Limited Government and Unlimited Trade Policy Powers? Why Effective Judicial Review of Foreign Trade Restrictions Depends on Individual Rights, in: Hilf/Petersmann (above note 27), 537-561, at 538. 39. On these controversies see e.g. R.L. Ostergard, Intellectual Property: A Universal Human Right? in: Human Rights Quarterly 1999, 156-178; M. Vivant, Le Droit D’Auteur: Un Droit de I’Homme? in: RIDA 174 (1997), 61-123; P. Drahos, A Philosophy of Intellectual Property, 1996. 40. On the competition policy problems of intellectual property rights see R. D. Anderson/N.T. Gallini (eds.), Competition Policy and Intellectual Property Rights in the Knowledge-Based Economy, 1998; P. Roffe, Control of Anticompetitive Practices in Contractual Licences under the TRIPs Agreement, in: CM. Correa/A.A. Yusuf (eds.), Intellectual Property and International Trade: The TRIPs Agreement, 1998, 262-296. 41. Cf. S.E. Finer/V. Bogdanor/B. Rudden, Comparing Constitutions, 1995, at 208. 42. On these ‘constitutional functions’ of WTO rules see Petersmann (above note 1).Page 52 → 43. On the gradual development of EC constitutional law see e.g. H. J. Weiler, The Constitution of Europe, 1999; E.U. Petersmann, Proposals for a New Constitution for the European Union: Building-Blocks for a Constitutional Theory and Constitutional Law of the EU, in: Common Market Law Review 1995, 1123-1175. 44. See e.g. M. Hilf, Negotiating and Implementing the Uruguay Round: the Role of EC Member States – the case of Germany, in: J.H. Jackson/A. Sykes (eds.), Implementing the Uruguay Round, 1997, 121-136.

____________________ * Professor, European University Institute, Florence, Italy. Former legal adviser in GATT (1981-1995) and the WTO (1995-1999) as well as in the German Ministry of Economic Affairs (1978-1981).

Page 53 →CHAPTER 2 The Triangle of TRIPs, GATT and GATS William J. Davey* and Werner Zdouc† The triangle of TRIPs, GATT and GATS presents numerous interesting and complex issues. Indeed, one is tempted to refer to the Bermuda Triangle of TRIPs, GATT and GATS. These three agreements are in a sense the three pillars of the WTO.1 A general theme of each is the promotion of international trade, and they share a number of common approaches in that regard and contain many of the same or similar legal principles. However, the three agreements differ in some significant respects, particularly in the case of the TRIPs Agreement vis-à-vis GATT and GATS. In this paper, we will focus first on some of the common threads linking the three agreements, particularly in terms of their approach to trade liberalization and regulation. In this connection, we will consider in general how principles of GATT law developed over the past 50 years may be useful in interpreting the TRIPs Agreement. The second part of the paper then deals in general with the issues of overlap and conflict in the WTO agreements, as they have been interpreted to date by panels and the Appellate Body. Finally, we turn to a detailed discussion of some of the issues presented by overlap and potential conflicts between GATT and the TRIPs Agreement and between GATS and the TRIPs Agreement.

Page 54 →1. The Approach of the TRIPs Agreement, GATT and GATS to Trade Liberalization Although the TRIPs Agreement is one of the three pillars of the WTO system, its approach differs from those of GATT and GATS in some significant ways. For example, it specifies minimum standards of intellectual property rights protection that all WTO Members must enforce. The focus of GATT and GATS in contrast is on negotiating market access commitments, which vary from Member to Member.2 Second, a major focus of the TRIPs Agreement is on ensuring that the intellectual property rights (IPRs) that it mandates are enforceable in domestic courts (a sort of ‘intermediate direct effect’3 approach).4 While other WTO agreements require impartial administration of national trade rules and the existence of appeal opportunities from decisions of administrative agencies,5 the TRIPs Agreement provides much more detailed rules designed to ensure the enforceability of commitments made under that agreement. Third, the under-lying economic rationales of the TRIPs Agreement, on the one hand, and GATT and GATS, on the other, are quite different in that the latter are based on economic theories that assume perfect competition, whereas the former is based the creation of short-term monopoly rights, justified by a need to encourage innovation. These and other differences notwithstanding, in fact there is much in common between the approaches of the three agreements to trade regulation.

Transparency, Non-Discrimination, National Treatment and Fair Trade Principles Some of the most basic GATT principles – transparency, nondiscrimination, national treatment, fair trade – are found in the TRIPs Agreement and GATS as well. For example, in respect of transparency, all three agreements have basic provisions. Article X of GATT requires publication of trade regulations and there are a multitude of notification requirements imposed by GATT and its related side agreements. In the case of the TRIPs Agreement, Article 63 requires notification of laws and regulations relating to the subject matter of the TRIPs Agreement. A considerable amount of the work of the TRIPs Council to date has consisted of reviewing notifications of Member laws. Article III of GATS requires notification of new, or changes to existing, laws, regulations or guidelines. These notification requirements are reinforced by the Trade Policy Review mechanism, under which laws and regulations in all three areas are extensively examined periodically. Page 55 →In the case of non-discrimination, all three agreements contain broad MFN clauses, albeit with various relatively limited exceptions. In the case of GATT, Article I requires MFN treatment in respect of various tariff and customs matters, as well as internal taxation and regulations.6 In the case of the TRIPs Agreement, Article 3 imposes a broad MFN requirement in respect of advantages related to the protection of intellectual property.7 Interestingly, in the case of the TRIPs Agreement, there is a further notion of nondiscrimination in the case of

patents in that Article 27 provides that patents shall be available without discrimination as to place of invention or field of technology. Article II of GATS contains a broad MFN requirement, although Members are permitted to schedule exemptions, and many have. As for national treatment, all three agreements contain national treatment clauses. GATT Article III requires national treatment to be afforded to imported products that are like domestic products in respect of internal taxation and internal regulations. Article 3 of the TRIPs Agreement requires national treatment to be given to nationals of other Members in respect of the protection of intellectual property.8 In the case of GATS, the national treatment obligation in its Article XVII is more limited in that applies only to sectors inscribed in a WTO Member’s GATS Schedule and subject to any conditions and qualifications set out therein. The limitations on national treatment in the TRIPs Agreement and GATS are reminiscent of the effective limitations on the GATT national treatment requirement that resulted from the exclusion of inconsistent existing legislation under the Protocol of Provisional Application. GATT’s MFN obligations, however, applied in full from 1948 (subject, of course, to certain permitted preferences, such as free trade areas and later pursuant to the Enabling Clause). In contrast, the exceptions permitted by the TRIPs Agreement and GATS seem more far reaching. They can probably be explained by the fact that those agreements, as they now exist, represent only the first stage of liberalization and more will come. In the case of fair trade principles, GATT contains provisions limiting unfair trade practices, such as dumping and subsidization.9 GATS has rules dealing with monopolies and exclusive service suppliers.10 As for the TRIPs Agreement, one could argue that it is essentially about establishing agreed standards of fairness in respect of the protection of IPRs, i.e., the agreement is an attempt to balance the various factors arguing for greater or lesser protection of IPRs.11 In summary, one can say that the approaches of the three agreements have many similarities in their textual provisions and in their approach to trade regulation. As we will see, however, this basic similarity in approach should not lead one to believe that the three agreements fit together in a coherent way without potential overlaps that may lead to conflicts.

Page 56 →GATT Dispute Settlement Principles and the TRIPs Agreement: Security /Predictability and Reasonable Expectations In his analysis of GATT case law through 1990, Pierre Pescatore identified a number of principles of GATT law in addition to those explicitly contained in the text of GATT. Among those principles – developed mainly through GATT dispute settlement practice – were security and predictability, and the protection of reasonable expectations.12 In this regard, it should be recalled that Article XVI: 1 of the WTO Agreement provides that the WTO overall shall be guided by past GATT practice. Thus, GATT precedents are clearly relevant to the interpretation of the TRIPs Agreement. Security and Predictability of Trading Relations It has long been recognized that one of the basic aims of GATT is to promote security and predictability in trading relations.13 The importance of this aim has been emphasized by the WTO Dispute Settlement Understanding. Article 3.2 of the DSU states: ‘The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system.’ The first dispute settlement case involving the TRIPs Agreement demonstrates how the principle of security and predictability is crucial in interpreting the TRIPs Agreement. In that case – India-Patents – the issue was whether India had implemented a ‘means’, as required by Article 70.8(a) of the TRIPs Agreement, by which applications for pharmaceutical and agricultural chemical product patents could be filed in India although patents in respect of such products were not obtainable under Indian law. The idea was that such applications would be considered at the time such products became patentable, which would be no later than 2005 under the transitional provisions of the TRIPs Agreement. In that case, the panel noted that ‘[p]redictability in the intellectual property regime is indeed essential for the nationals of WTO

Members when they make trade and investment decisions in the course of their businesses’.14 Both the panel and the Appellate Body found that India had to provide a ‘sound legal basis’ for such filings. After examining the Indian system the panel concluded that it did not provide sufficient legal security and predictability.15 On appeal, that conclusion was upheld. This case may have interesting ramifications in the future in the TRIPs area since it may often be possible to question whether measures implementing TRIPs obligations provide a sound legal basis for the enforcement of IPRs. The principle of security and predictability could well be invoked in situations where a measure implementing the TRIPs Agreement is alleged to be insufficiently precise. In such a situation, panels Page 57 →and the Appellate Body might be faced with the question of whether the India-Patent reasoning should be extended to cover such situations or whether the WTO dispute settlement system should wait to see how the national law is interpreted before considering its consistency with the norms of the TRIPs Agreement. If the former approach is followed, it could lead to TRIPs issues being considered more promptly, but the implementation of decisions on those issues could well be a claim that the relevant national authorities will in fact interpret the law as required by the WTO and that no legislative change is needed. Protection of Reasonable and/or Legitimate Expectations The principle of protection of reasonable expectations was derived by Pescatore from non-violation cases.16 As such, one may wonder if it has any relevance to the TRIPs Agreement at present. The situation of the TRIPs Agreement differs from that of GATT and GATS in that non-violation complaints are not possible for the moment under the TRIPs Agreement. Article 64 of the TRIPs Agreement provides that for the first five years of its application, there will be no non-violation complaints. Prior to the end of that period (by 1 January 2000), the TRIPs Council is to consider whether and under what conditions to allow such complaints. Any recommendations in that regard, as well as any decision to extend the period of non-application, are to be made by the WTO Ministerial Conference, acting by consensus. At this point, it is unclear what, if any, decisions will be made. There was an interesting difference of opinion between the panel and the Appellate Body in the India-Patents case, however, on a related subject, i.e., the principle of legitimate expectations. The panel noted that the Vienna Convention requires that ‘[a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.’ In the view of the panel, ‘good faith interpretation requires the protection of legitimate expectations derived from the protection of intellectual property rights provided for in the [TRIPs] Agreement.’ In support of this position, the panel noted the past GATT practice of protecting expectations of contracting parties as to the competitive relationship of their products, which it linked to creating security and predictability in the multilateral trading system. The panel concluded that the protection of such legitimate expectations required India to provide a sound legal basis for the filing of applications that could be considered in the future for patentability, as required by Article 70.8(a) of the TRIPs Agreement, which meant in particular that India had to adopt a means to preserve for future consideration the novelty and priority of such inventions. The Appellate Body sharply rejected the panel’s use of ‘legitimate expectations’ as a Page 58 →principle of WTO law.17 In its view, the meaning of the TRIPs Agreement had to be derived from the words of the agreement, not the expectations of the parties. It seemed to view the reference to protection of legitimate expectations as an attempt by the panel to import non-violation concepts into an agreement where such concepts had no place. Nonetheless, the Appellate Body agreed with the panel that India had to provide a sound legal basis under Article 70.8(a) to preserve for future consideration the novelty and priority of the inventions at issue and that it had not done so. In practical terms, the question arises whether the Appellate Body’s rejection of the concept of legitimate expectations should be read as limiting, in the interpretation of the TRIPs Agreement, the use of the GATT rule that expectations concerning conditions of competition are relevant in violation cases. This has been used in GATT cases to justify consideration of potential trade effects even where it is clear that no adverse trade effects are currently occurring. The Appellate Body seemed to believe that the issue of potential vs. real trade effects only arises after a violation has been established and the question of whether there is nullification or impairment is being considered. In this regard, it noted that pursuant to Article 3.8 of the DSU such nullification or impairment

is now assumed if a violation is established. Thus, it seemed to view this GATT principle of limited importance nowadays. Perhaps the Appellate Body is technically correct, but in fact it seems that the issue of whether potential trade effects can be cited to establish a violation still arises. As such, the concept of protecting expectations concerning competitive conditions is still an important one and future cases may need to consider its relevance in the TRIPs context. Having considered some of the common threads linking GATT, GATS and the TRIPs Agreement, particularly in terms of their approach to trade liberalization and regulation and how principles of GATT law developed over the past 50 years may be useful in interpreting the TRIPs Agreement, we now turn to a general examination of the issues of overlap and conflict in the WTO agreements, as they have been interpreted to date by panels and the Appellate Body.

2. Overlaps and Conflicts in the WTO Agreements The subject matters of GATT, GATS and the TRIPs Agreement, while conceptually distinct, are closely related and the regulation of one, e.g., intellectual property rights, may well have affects on the others, i.e., products or services subject to GATT and GATS rules. Rules on intellectual property may affect the sale of goods, as would rules on distribution services. One of the major issues that will confront WTO dispute settlement in the near-tomedium term is how to deal with overlaps or conflicts Page 59 →between these three agreements. While some WTO agreements explicitly address their relationship with other WTO agreements, there is no express provision regulating the relationship between the three pillars of the WTO – GATT, GATS and the TRIPs Agreement. Given that the relationship between these agreements raises issues of fundamental importance, the absence of any explicit provision dealing with this issue is surprising. It raises the question whether this was done because of a lack of agreement or uncertainty as to what the conflict rule should be, or whether it was inadvertent (perhaps due to the fragmented structure of the negotiations), or whether it was thought that there is no overlap in the scope of the three agreements and thus no need to address the question which obligation prevails in the case of a conflict, or whether such an overlap was assumed, but that cumulative application was intended such that one and the same governmental measure or action may be subject to differing requirements in the three agreements. In the end, these questions concerning the relationship between GATT, GATS and the TRIPs Agreement were left to be resolved in dispute settlement. Accordingly, in this Part II, we consider the notion of conflict in WTO law – both in the agreements themselves and as developed in dispute settlement – and then, in Part III, we examine concrete examples involving the TRIPs Agreement vis-à-vis GATT and GATS. In doing so, we will consider how WTO case law on the relationship of GATT 1994 and the other Annex 1A agreements and on the relationship of GATT and GATS may help deal with potential conflicts between the rules of the TRIPs Agreement, on the one hand, and those of GATT or GATS, on the other. In this section, we will first look at the specific provisions on conflicts in the various WTO agreements and then examine WTO case law relating to conflicts between the various Annex 1A Agreements (GATT 1994 and the related understandings and side agreements on trade in goods) and between GATT and GATS.

WTO Provisions Relating to Conflicts between Agreements The more important conflict resolution provisions in the WTO agreements can be summarized as follows. First, Article XVI:3 of the Agreement Establishing the World Trade Organization (the WTO Agreement) provides that it has supremacy over all other WTO agreements.18 Second, in the area of trade in goods, the General Interpretative Note to Annex 1A specifies that to the extent of a conflict the provisions of the six Understandings and the twelve agreements listed in that annex prevail over the more general provisions of GATT 1994.’19 Third, a number of the Annex 1A agreements have conflict provisions as well. For example, Article 21.1 of the Agreement on Agriculture stipulates that it and its annexes prevail over Page 60 →GATT 1994 and all other Annex 1A agreements.20 This rule is particularly necessary given that certain rules of the Agreement on Agriculture (e.g., those on export subsidies) are not consistent with the rules of other Annex 1A agreements (e.g., the prohibition on export subsidies provided for in the Agreement on Subsidies and Countervailing Measures (SCM Agreement). Fourth, Article 1.2 of the Dispute Settlement Understanding (DSU) addresses the situation

where special or additional rules and procedures on dispute settlement in a WTO agreement differ from the general dispute settlement procedures foreseen in the DSU itself.21 In such a case the special or additional rules and procedures would prevail as leges speciales to the extent that there is a difference. It is not clear whether the use of the word ‘difference’ in Article 1.2 of the DSU, compared to the word ‘conflict’ in Article XVI:3 of the WTO Agreement and in General Interpretative Note 1A, was intended to have special significance. At any rate, in dispute settlement practice, the reference to ‘difference’ in Article 1.2 has been largely assimilated to the references to ‘conflict’ in other provisions of WTO law.22 As noted above, however, the drafters of the Uruguay Round Agreements provided for no conflict rule addressing the relationship between GATT, GATS and the TRIPs Agreement. Nor is there a general rule on conflicts among the Annex 1A agreements other than GATT 1994.

Conflicts in Public International Law Before turning to the WTO case law on conflicts between GATT and the other Annex 1A agreements and between GATT and GATS, it is worth recalling the general rules of public international law on conflicts. In the first instance, of course, an attempt is made to interpret the relevant agreements so that there is no conflict, i.e. so that the agreements are compatible. However, as regards treaties having incompatible provisions, Brownlie observes that the relation of treaties between the same parties and with overlapping provisions is primarily a matter of interpretation, aided by presumptions. First, it is to be presumed that a later treaty prevails over an earlier treaty concerning the same subject matter.23 Second, a treaty may provide expressly that it is to prevail over subsequent incompatible treaties. It is clear that a particular treaty may override others if it represents a norm of jus cogens.24 These three principles are not very pertinent for resolving the relationship between GATT, GATS and the TRIPs Agreement. First, all agreements within the WTO framework have been concluded as a single treaty in the meaning of the Vienna Convention and at the same time – notably including GATT 1994 – which renders the later-in-time rule inapposite. Second, given that there is no such thing as a subsequent treaty Page 61 →within the WTO framework, there is also no express rule concerning subsequent incompatible treaties, although as noted above several conflict rules address the question of incompatible provisions of particular agreements with others in the WTO legal system. Third, WTO law cannot be regarded as international treaty law that has acquired the legal force of jus cogens. To some extent, the principle of effective treaty interpretation25 may be useful in avoiding incompatibilities between obligations provided for in GATT, GATS and the TRIPs Agreement. But the International Court of Justice has warned of stretching the rule of effectiveness too far: ‘The principle of interpretation expressed in the maxim: ut res magis valeat quam pereat, often referred to as the rule of effectiveness, cannot justify [an interpretation of a treaty] contrary to [its] letter and spirit.’26 The fact remains that Article 31 of the Vienna Convention does not explicitly endorse the principle of effectiveness as a method of interpretation, although it could be argued that the effectiveness principle is subsumed in the reference to ‘good faith’ and ‘the object and purpose of a treaty’ contained in Article 31.

Case Law on Conflicts between GATT 1994 and the Other Annex 1A Agreements In WTO dispute settlement practice, questions concerning the relationship between different agreements covered by the WTO arose first in respect of the agreements listed in Annex 1A, i.e., the annex which deals with various aspects of trade in goods. In that context, since all of these agreements and understandings relate to trade in goods one may presume that the scope of the agreements and understandings embodied in Annex 1A overlap in terms of the governmental measures or actions which are subject to the obligations contained in these legal instruments. That is not to say that GATT 1994 as well as all the understandings and agreements are identical in their coverage. While it is true that these legal instruments altogether concern trade in goods, they deal with different aspects of such trade, e.g., tariffs, internal taxation, import licensing, subsidies, antidumping or balance-of-payments. Accordingly, depending on its regulatory target a governmental measure may – or may not – be subject to the obligations contained in one or more of the agreements listed in Annex 1A. Nonetheless, the presumption of an overlap between the coverage of agreements listed in Annex 1A implies that the obligations contained in these

agreements may apply on a cumulative basis to laws, regulations or requirements or other actions by governments affecting trade in goods. Such overlap does not cause legal problems as long as cumulative obligations arising from different Page 62 →agreements are mutually compatible. Only if such compatibility does not exist is there a need for exceptions derogating from the general principle of cumulative application.27 Since it has always been clear that GATT 1994 and the other Annex 1A agreements overlap – at least in part – in terms of their coverage of measures and other actions taken by governments, the possibility of conflicts between the obligations contained in various instruments was foreseen by the Uruguay Round negotiators. To deal with this problem, they added the General Interpretative Note to Annex 1A which provides that the understandings and agreements listed in this annex prevail over GATT 1994 to the extent of a conflict. However, this solution is incomplete because the Note fails to define what constitutes a ‘conflict’. Consequently, a number of WTO dispute settlement panels have had to struggle with the notion of ‘conflict’ in WTO law and have developed quite different concepts. The EC-Bananas III panel had to decide as a preliminary issue whether, e.g., the national treatment and MFN clauses of GATT 1994 and provisions of the TRIMs Agreement and the Agreement on Import Licensing Procedures (Licensing Agreement) could simultaneously apply to the same measure, i.e., the EC regime on the importation, sale and distribution of bananas. The panel found that no conflict in the meaning of the General Interpretative Note existed in the case before it and examined the consistency of the EC measures at issue with the GATT 1994 and agreements listed in Annex 1A.28 Nonetheless, in dicta the panel developed a broad notion of ‘conflict’ between obligations contained in GATT 1994 and those provided for in the other Annex 1A agreements. It presumed such a conflict to exist – and thus the rule of the other Annex 1A agreement to prevail over the general rule of GATT 1994 – not only in a situation where one agreement explicitly mandates what another agreement explicitly prohibits, but also in a situation where one agreement explicitly permits what another explicitly forbids. The panel acknowledged that in such a case a Member could comply with both rules by renouncing to resort to the right conferred by the permissive rule in order not to violate the prohibitive rule. However, it deemed such a result to be contrary to the principle of effective treaty interpretation because no meaning would be given to the permissive rule which would become entirely redundant. The panel gave the example of quantitative restrictions permitted by the safeguard provisions of the Agreement on Textiles and Clothing (ATC) which on their face are incompatible with the general prohibition of quantitative restrictions in Article XI of GATT, but follow a somewhat similar rationale as safeguard measures justifiable under Article XIX of GATT.29 In the Indonesia-Autos case, this reasoning of the Bananas III panel was taken somewhat out of context by Indonesia which used it to buttress Page 63 →the argument that Article III of GATT and the provisions of the SCM Agreement could not apply simultaneously to the same measure especially in light of the exemption of productions subsidies in Article III: 8(b) from the coverage of the national treatment clause. The panel on Indonesia–Autos adopted a narrower notion of what constitutes a conflict than the Bananas III panel and essentially concluded that a conflict in the meaning of the Note to Annex 1A exists only in cases where one rule explicitly prohibits what another rule explicitly requires a Member to do. Specifically, the Indonesia–Autos panel noted that ‘[i]n international law for a conflict to exist between two treaties, three conditions have to be satisfied. First, the treaties concerned must have the same parties. Second, the treaties must cover the same subject matter. Were it otherwise, there would we no possibility for conflict. Third, the provisions must conflict, in the sense that the provisions must impose mutually exclusive obligations. ‘(...) [t]echnically speaking, there is a conflict when two (or more) treaty instruments contain obligations which cannot be complied with simultaneously. (...) Not every such divergence constitutes a conflict, however, (...) Incompatibility of contents is an essential condition for conflict’.30 Proceeding from that proposition, the panel found that different aspects of the Indonesia’s National Car policies could be challenged under the SCM Agreement, the GATT as well as the TRIPs Agreement – albeit from different angles. Regarding the relationship between the agreements in Annex 1A and the TRIPs Agreement, the panel did not discuss the question in what respect the relationship between claims under various agreements listed under Annex 1A covering trade in goods could differ from the relationship between Annex 1A and Annex 1C which contains the TRIPs Agreement.

It is unclear whether – as a result of the narrower notion of conflict developed by the Indonesia–Autos panel – that panel would have answered differently the hypothetical posed by the Bananas III panel, i.e., the relation between a prohibitive and a permissive rule. The Indonesia-Autos panel would not necessarily have concluded that the existence of a prohibitive rule would have simply prevented a WTO Member from exercising its right conferred by a permissive rule. Given the Indonesia–Autos panel’s reliance in general on the principle of effective treaty interpretation, it is probably more appropriate to assume that this panel would have reached a conclusion similar to that of the Bananas III panel. However, it would probably have reached that conclusion without labeling the relationship between a prohibitive and a permissive rule a situation of conflict, but it would likely have reasoned that effective treaty interpretation would require it to give meaning to the conditional derogation under the safeguards clause of the ATC from the general prohibition of quotas under GATT.

Page 64 →Case Law on Conflicts between GATT and GATS So far, two sets of adopted reports have treated the relationship between GATT and GATS. Despite its imprecision, the term ‘overlap’ was used when questions concerning the interrelationship between GATT and GATS arose in WTO dispute settlement practice. In the two cases – Canada–Periodicals31 and the EC-Bananas III – the question of overlap arose from quite different angles. In the Canada-Periodicals case, the argument was that a Member which has not made any specific commitments in a certain service sector cannot be held resaponsible under GATT for measures directly regulating that service sector but indirectly affecting trade in goods.32 In the EC-Bananas III case, the argument was that a measure taken by a Member to regulate trade in goods cannot be inconsistent with that Member’s obligations arising from GATS. The panel and the Appellate Body in Canada-Periodicals held that the creation of GATS does not carve out part of the pre-existing coverage of GATT 1947 or 1994. Therefore, the fact that Canada had not committed itself to grant market access or national treatment in a certain service sector (e.g., advertising services) does not exempt a measure directly affecting this service sector (e.g., an excise tax) from the potential coverage of GATT national treatment clause. The panel underscored that Article III:4 of GATT explicitly recognized certain types of services such as transportation and distribution as subject matters of the national treatment obligation and that in GATT dispute settlement practice advertising services had been long associated with the disciplines of Article III.33 The Appellate Body questioned altogether whether the tax at issue was a measure directly aimed at advertising services which merely indirectly affected periodicals. It noted that the tax was levied on split-run periodicals and thus clearly was a measure that applied to goods. This case illustrates that the regulatory objective purportedly pursued by a governmental measure, or its primary regulatory target are subjective benchmarks for determining whether a governmental action is measure affecting trade in goods or a measure affecting trade in services. Any such attempt to create mutually exclusive categories of measures affecting trade in goods, services and/or IPRs seems is in the end arbitrary and questionable. Interestingly, in applying the rules of interpretation embodied in the Vienna Convention and the principle of effective treaty interpretation to the texts of GATT and GATS, the Canada-Periodicals panel noted that obligations under GATT 1994 and GATS can coexist and that one does not override the other. It went so far to argue that, if the ‘carve out’ from the coverage of GATT by virtue of GATS were intended, the drafters of the Uruguay Round agreements would have included provisions similar to Article XVI:3 of the WTO Agreement or the General Interpretative Note to Page 65 →Annex 1A in order to establish a hierarchical order between GATT 1994 and GATS. It is debatable whether this a contrario argument is the only compelling conclusion that may be drawn from the absence of such conflict rules in the texts of GATT and GATS. Nor does the absence of a hierarchical order between GATT and GATS necessarily imply that these agreements overlap with respect to their respective coverage of governmental measures. Given that the Appellate Body found the measure at issue to be – also – a measure affecting trade in goods, it could limit itself to rejecting Canada’s argument that GATS would somehow ‘carve out’ certain measures from the coverage of GATT, and did not have to pronounce itself as clearly as the Panel about the ‘overlap’ between GATT and GATS. It was in the EC-Bananas III dispute that both Panel and Appellate Body addressed at length the issue of cumulative or mutually exclusive applicability of GATT 1994 and GATS to one and the same governmental measure, i.e., the EC regime affecting the importation, sale and distribution of bananas. In this case, the Panel and

the Appellate Body rejected the EC’s argument that that a measure taken by a Member to regulate trade in goods cannot affect and thus cannot be inconsistent with that Member’s obligations arising from GATS.34 Essentially, the Panel and the Appellate Body reasoned that the phrase ‘measures affecting trade in services’35 did not limit the scope of GATS to certain types of measures or a certain regulatory domain. Measures in respect of the purchase, payment or use of a service included matters that could be regulated by such types of measures as licensing requirements, numerical limitations or foreign exchange regulations. The definition of service supply as including the production, distribution, marketing, sale and delivery of a service36 did also not convey a restrictive notion of the coverage of GATS. The Panel and Appellate Body concluded that GATS covered not only laws and regulations which directly govern or regulate trade in services but also any law of regulations which might adversely affect trade in services or modify the conditions of competition of service supply. As to the simultaneous applicability of GATT and GATS to the EC’s banana regime, the panel found that no measure can be excluded a priori from the applicability of GATS, regardless of which field of economic activity it predominantly or purportedly intends to regulate. The Appellate Body arrived at a similar conclusion, but developed a slightly different argumentation. It distinguished between three different constellations, i.e., (1) measures that only affect trade in goods, (2) measures that only affect trade in services, and (3) measures that affect trade in goods as well as trade in services such as measures involving a service relating to a particular good or a service supplied in conjunction with a particular good. The Appellate Page 66 →Body explained, while in a case falling within the third category the measures in question could be scrutinized under both GATT and GATS, the specific aspects of the measure examined under each agreement could be different. Under GATT, the focus would be on how the measure affects the goods involved, whereas under GATS the focus would be on how the same measure affects the supply of the service or the service supplier involved. In light of the foregoing WTO rules and case-law, we now turn to a consideration of how a conflict between the TRIPs Agreement and GATT or GATS might arise and how it could be analyzed.

3. Conflicts between the TRIPs Agreement and GATT or GATS To date, WTO panels and the Appellate Body have not had occasion to consider the relationship of the TRIPs Agreement, on the one hand, and GATT or GATS, on the other. One dispute, i.e., Indonesia–Autos, concerned claims under GATT, the SCM Agreement and the TRIPs Agreement, but the panel had no occasion to deal with the relationship between GATT and the TRIPs Agreement. In this section, we first consider several general issues relevant to resolving conflicts between the TRIPs Agreement and GATT or GATS and then consider possible areas of conflict between GATT and the TRIPs Agreement and between GATS and the TRIPs Agreement.

General Concepts At the outset, it seems clear that there may be a problem of overlap between the obligations of GATT, GATS and the TRIPs Agreement. The TRIPs Agreement provides that its disciplines apply to all measure affecting (directly or indirectly) the protection of IPRs. While the national treatment and MFN clauses in Articles 3 and 4 of the TRIPs Agreement provide in rather general terms that they apply ‘with regard to the protection of intellectual property’, footnote 3 specifies that ‘for purposes of Articles 3 and 4 [of the TRIPs Agreement] ‘protection’ shall include matters affecting the availability, acquisition, scope, maintenance and enforcement of IPRs as well as those matters affecting the use of IPRs specifically addressed in this Agreement.’ Such a definition of the TRIPs Agreement’s scope is comparably broad as the GATS definition of ‘measures affecting trade in services’ or the description of the field of application of GATT’s national treatment clause in Article III:4. The definition of footnote 3 means by implication that in respect of the coverage of some governmental measures, the TRIPs Agreement’s scope could inevitably overlap with the coverage of GATT or GATS. Consequently, it would appear that cumulative application Page 67 →of potentially even three layers of GATT, GATS and TRIPS obligations cannot be excluded as a matter of pure logic. This conclusion is not necessarily in conflict with the statement by the panel on India–Patents37, that the TRIPs Agreement had a relatively self-contained, sui generis status within the framework of the agreements covered by

the WTO. That panel also emphasized that the TRIPs Agreement formed an integral part of the WTO system. Drawing on the Appellate Body’s reasoning in EC-Bananas III, one should keep in mind that even if one assumes overlaps in the scope of GATT, GATS and the TRIPs Agreement and potentially cumulative application of their disciplines, different aspects of the same measure would be subject to scrutiny from different perspectives. The notion of a relative self-contained, sui generis status of the TRIPs Agreement in contrast to, e.g., GATS, could thus be implemented by giving priority to its purpose of ensuring IPR protection as opposed to, e.g., equal competitive opportunities for like foreign service suppliers, rather than by straining to hold that no overlap exists in terms of the governmental measures subjected to the disciplines of those agreements. Given that overlaps may exist, it is next appropriate to consider the extent to which WTO dispute settlement practice in respect of conflicts in other situations can be helpful in resolving conflicts that may arise between the TRIPs Agreement and GATT/GATS. Such an inquiry is inevitable given that the three agreements form part of the same treaty system with identical membership and essentially the same general subject matter (i.e., trade liberalisation), although the reference points of GATT, GATS and TRIPs norms are not entirely identical (i.e., goods, services and their suppliers, and intellectual property rights and their holders). Nonetheless, we start with the assumption that the same rules should apply and consider whether there are reasons to reject that assumption. To reach this result, however, it would be necessary to read into the WTO legal system a conflict rule (similar to Article XVI:3 of the WTO Agreement or the General Interpretative Note to Annex 1A) giving supremacy to the TRIPs Agreement over GATT and GATS. Such a rule is obviously not apparent on the face of the agreements. But can sufficient differences be found in the agreements to justify such an approach? As a starting point for tackling this question, one could compare the fundamental rationales pursued by the three agreements and the beneficiaries or reference points for the rights and obligations embodied in them. In this regard, are there differences between these reference points or beneficiaries of the three agreements that would necessitate or justify defining the relation between the TRIPs Agreement and GATT or GATS differently than the way the GATT-GATS relationship has been defined in WTO dispute settlement practice? If at all, there are differences between Page 68 →products (i.e., goods and services), on the one hand, and persons, i.e., service suppliers and IPR holders, on the other. But already GATS rules apply to products (i.e., services) and producers (i.e., service suppliers). In that sense there is no fundamental difference between the coverage of persons (i.e., service suppliers under the third or fourth mode of service supply) under GATS and IPR holders under the TRIPs Agreement. Thus, the beneficiaries or reference points of the three agreements do not seem to justify a different rule for conflicts between the TRIPs Agreement and GATT or GATS. Another factor that might have repercussions for the relationship between the three agreements is that the basic rationales underlying the agreements differ. It is a commonplace that the general thrust of GATT and GATS is to foster trade liberalization, while the TRIPs Agreement pursues the objective of ensuring adequate international minimum standards for the protection of IPRs. Such international guarantees of – albeit temporary – legal monopoly rights for IPR holders could be perceived as being contrary to ensuring freer trade. On the other hand, as noted in Part I, GATT and other agreements listed in Annex 1A contain rules on contingent trade remedies (e.g., anti-dumping, countervailing and safeguards measures) which pursue objectives of ensuring fair trade rather than freer trade, as does Article VI of GATS (on domestic regulation), while the international minimum standards of the TRIPs Agreement could be perceived as prerequisites for legitimate (i.e., ‘fair’) trade in goods or services which depend on IPRs in their production, processing, marketing or distribution. Should such perceptions about similarities, differences and incompatibility of the free trade and/or fair trade rationales underlying these three agreements have repercussions on the relationship of the obligations provided for in the TRIPs Agreement with those contained in GATT and GATS? The preamble of the TRIPs Agreement recognizes the apparent dichotomy between the fundamental purpose ‘to promote effective and adequate protection of IPRs’ as well as ‘to ensure that measures and procedures to enforce IPRs do not themselves become barriers to legitimate trade’. It is also worth noting that the TRIPs Agreement acknowledges the ‘applicability of the basic principles of GATT 1994 (...)’ to IPRs. In the end, the similarities and differences in the beneficiaries of GATT, GATS and TRIPs rules and the variety of

similar or conflicting objectives pursued do not give decisive guidance for answering the question whether the rights and obligations contained in the TRIPs Agreement should simply apply on a cumulative basis with those of GATT and GATS, or whether the rules of the TRIPs Agreement should prevail in general or under certain circumstances.

Page 69 →GATT vs. TRIPs: The Controversy over Parallel Imports This general assessment of the relationship between the three pillars of the WTO legal system can be given more concrete life by taking as an example the controversy over the legal status of parallel imports under WTO law.38 Article 6 of the TRIPs Agreement provides that the question of the exhaustion of IPRs should not be subject to dispute settlement.39 However, Article 6’s exemption does not cover Article 3 (national treatment) and Article 4 (most-favoured-nation treatment), which continue to apply to matters of IPR exhaustion. In other words, even if WTO Members remain free to choose between national, regional or international exhaustion, they are bound by Article 3 to apply their system of IPR exhaustion on a nondiscriminatory basis to IPR holders of national and foreign origin, and by Article 4 to give MFN treatment to IPR holders from different foreign countries. With this qualification, Article 6 can be characterized as an agreement to disagree. Notably, Article 6 concerns procedural aspects of IPR exhaustion, it is not a substantive rule on IPR exhaustion. On the one hand, this provision seems to imply that WTO Members fully retain their discretion to choose between national, regional or international exhaustion. On the other hand, the proviso of Article 6 that IPR exhaustion should not be made subject to dispute settlement is a mere procedural limitation. It does not exclude the possibility in theory that certain provisions of the TRIPs Agreement might have legal implications for the exhaustion issue. Whatever these implications might be, however, they cannot be enforced under the TRIPs Agreement through the WTO dispute settlement mechanism. This begs the question if one could conceive of other fora than WTO dispute settlement where problems of IPR exhaustion could be litigated based on the TRIPs Agreement. In the alternative, one could also read Article 6 as an impediment to initiating any such litigation elsewhere based on the TRIPs Agreement. A more interesting question is whether exemption from enforceability through WTO dispute settlement applies only to the extent that implications on the exhaustion issue derive from the TRIPs Agreement, or if it also applies if such implications derive from other agreements within the WTO legal system – if such implications on IPRrelated matters are at all legally possible. One could well assume such implications on IPR-related matters from other WTO agreements in view of, inter alia, the broad definition of measures affecting IPRs in footnote 3 to the TRIPs Agreement, in applying the notion of overlap between GATT and GATS developed in WTO dispute settlement practice to the relation of these two agreements to the TRIPs Agreement and given, as a consequence, the potentially cumulative applicability of disciplines embodied in the three pillars of WTO law to the Page 70 →same governmental measures. Proceeding on this assumption, one might then ask in which respect other provisions of GATT and GATS may impact upon the WTO Members’ discretion with respect to the exhaustion of IPRs. The gap in the TRIPs Agreement caused by its Article 6 could be filled, e.g., by reference to Article XI of GATT in the sense that national or regional exhaustion of IPRs and ensuing prohibitions of parallel imports could be considered as import or export restrictions prohibited by Article XI: 1 of GATT. However, one has to be mindful of the exception under Article XX(d) of GATT40 which allows for derogation from GATT rules to the extent necessary for the protection of patents, trademarks and copyrights and the prevention of deceptive practices. But a careful reading of the wording of the exception reveals that GATT-inconsistent measures are justifiable under the exception of Article XX(d) only if they are necessary to secure compliance with patent, copyright or trademark laws and regulations which are – in themselves – not GATT-inconsistent. Therefore, by invoking this exception one cannot escape confronting the question whether national IPR laws prohibiting parallel imports are per se GATT-inconsistent. In other words, once the applicability of GATT rules to IPR-related matters is assumed, an interpretation of Article XX(d) refers back to the core question of whether allowing parallel imports is required by GATT. But it still would seem odd to assume that Members eliminated the most obvious possibility to invoke dispute

settlement procedures with respect to the exhaustion of IPRs, i.e., under the TRIPs Agreement, but at the same time intended to allow dispute settlement on the same issue under GATT (or possibly under GATS). However, one could also reformulate this question in a way that makes this oddity seem less striking. Presuming that prohibitions of parallel imports are measures affecting trade in goods, should one assume that – to the extent that the possibility to initiate dispute settlement proceedings with respect to IPR-related matters existed under the GATT 1947 – it continues to exist under the GATT 1994? In other words, should dispute settlement with respect to IPR-related matters have to be found to have been newly introduced under the GATT 1994 or could it be viewed as simply carried forward from GATT 1947? Or, should dispute settlement with respect to IPR-related matters, and in particular with respect to questions of exhaustion, be considered to be carved out from the coverage of GATT 1994 by virtue of the new TRIPs Agreement? It is well known that litigation involving IPR-related matters did occur under GATT 1947 in the quite prominent US–Section 337 case.41 This dispute concerned a successful challenge by the European Communities against the ‘Section 337’ procedure for enforcing patent infringement claims under the IPR law of the United States. The panel found a violation of Article III:4 because the special procedure concerning imported goods Page 71 →was less favorable than the procedure applicable to patent claims involving domestic goods.42 Interestingly, in reaching this conclusion, the panel defined the concept of measures affecting trade in goods as follows: ‘Nor could the applicability of Article III:4 be denied on the ground that most the procedures in the case before the Panel are applied to persons rather than products, since the factor determining whether persons might be susceptible to Section 337 proceedings or federal district court procedures is the source of the challenged products, that is whether they are of United States origin or imported. For these reasons, the Panel found that the procedures under Section 337 come within the concept of laws, regulations and requirements’ affecting the internal sale of imported product, as set out in Article III of the General Agreement.,43 If one were to assume a special sui generis or lex specialis status for the TRIPs Agreement within the new WTO legal system, challenges similar to the Section 337 case would arguably not be possible any more under GATT 1994. One could argue that such a ‘carve out’ theory is reasonable in light of the fact that the TRIPs Agreement now offers causes of action which did not exist under the GATT 1947 so that there is no reason any more for invoking the latter agreement. But it would be difficult to match such a ‘no overlap’ theory with the abovementioned ‘overlap’ theory developed in WTO dispute settlement practice for the relationship between GATT 1994 and GATS. This holds true even more in view of the considerations discussed above that the rationales pursued by, and the beneficiaries of rights under, the TRIPs Agreement do not vary so fundamentally from those of GATT and GATS that the relation between these two agreements and the TRIPs Agreement should be seen in an entirely different light. Nevertheless, are there other arguments that could be advanced to support the position that the relationship of the TRIPs Agreement with the remainder of WTO law is unique? Does the fact that GATT rules prohibit discrimination based on the origin of goods while TRIPs rules outlaw discrimination based on the origin of IPRholders render GATT rules inapplicable to IPR issues? One might be tempted to conclude so, but one should also recall the GATS combines prohibitions based on the origin of a product (i.e., services) with prohibitions based on the origin of natural or juridical persons (i.e., service suppliers at least under modes 3 and 4 and possibly under mode 2 in the meaning of Article I of GATS). And it would indeed be surprising to develop different theories governing the relationship between the GATS, on the one hand, and the GATT or the TRIPs Agreement, on the other, depending on which mode of service supply is involved. Another way of addressing the ‘overlap’ question could be to regard Article 6 of the TRIPs Agreement as a norm that pre-empts the area of the Page 72 →exhaustion of IPRs from any application of GATT or GATS provisions. This idea could probably be reconciled with accepting an overlap of GATT and/or GATS with the TRIPs Agreement in other areas of IPR protection where governmental measures affecting trade in goods, services and/or IPRs might still be subject to the cumulative application of the disciplines contained in the three agreements. If one were to understand Article 6 of the TRIPs Agreement as a pre-emptive norm, a denial of the application of GATT or GATS law to matters concerning IPR exhaustion would become less of a ‘conflict’ or ‘Overlap’ issue between different agreements. It would rather become a question of applying the principle of effective treaty

interpretation to Article 6 of the TRIPs Agreement which cannot be given adequate meaning or effect if it would be possible to circumvent the carve out from dispute settlement of matters of IPR exhaustion by resorting causes of action under the GATT or GATS. In the end, understanding Article 6, by virtue of effective treaty interpretation, as pre-empting the field of IPR exhaustion from any application of GATT or GATS disciplines would have the same result as interpreting Article 6 as a lex specialis which prevails over more general principles of GATT or GATS law. While the result of such an interpretation might be the same, it has the advantage that it does not require an interpreter to read a ‘conflict’ or supremacy rule similar to Article XVI:3 of the WTO Agreement or the General Interpretative Note to Annex 1A into the TRIPs Agreement which on its face it does not contain.

GATS vs. TRIPs: Interface Issues For the most part, the considerations above about the relationship between GATT and the TRIPs Agreement apply arguably also to the interface between GATS and the TRIPs Agreement. By the same token, the arguments about the applicability of the concepts of ‘conflict’ and ‘overlap’ provided for in the WTO agreements or developed in dispute settlement practice under GATT and GATS are also relevant for the relation between GATS and the TRIPs Agreement and need not be repeated here. Likewise, similarly to invoking Article XI of GATT, GATS obligations such as Article XVI on market access could also be referred to with a view to preventing restrictions on parallel imports in spite of Article 6 of the TRIPs Agreement. Moreover, contrary to Article XX(d) of GATT which permits derogation from GATT principles if necessary for the protection of patents, trademarks and copyrights, Article XIV of GATS does not mention IPR protection as a reason for deviating from GATS disciplines, except for a probably irrelevant reference to ‘the prevention of deceptive and fraudulent practices’. Therefore, the conclusion could be drawn that a prohibition of Page 73 →parallel imports is, if anything, less justifiable under GATS than under GATT. However, an argument could be based on Article XVI of GATS only in those service sectors and/or modes of supply which are fully and unconditionally bound in a particular Member’s schedule of commitments. Moreover, parallel imports of services which depend on the use of patents, copyrights or trademarks are technically feasible only where such services are incorporated into goods or where such services are tradable across borders.44 In examining how GATS and the TRIPs Agreement relate to each other, it seems clear that trade in services and market access through modes of supply such as commercial presence or the movement of natural persons may seriously be affected if the supply of the service at issue depends on access to IPRs which are subject to territorial limitations. For service suppliers in such a situation, service supply may become virtually impossible without adequate access to such IPRs even if a Member has entered into far-reaching commitments on market access and national treatment and observes the generally applicable GATS disciplines. One can ask how serious a problem this is. Is it any different from the problem which arises in the GATT-TRIPs relationship where access to IPRs may also determine whether a manufacturer/exporter may take effective advantage of tariff bindings? In one very significant regard, however, there is a fundamental difference. Under GATT the beneficiaries of the e.g., non-discrimination requirements are the products as such and not – directly – the producer. In contrast, under GATS, services as well as service suppliers are the direct beneficiaries of the rights conferred by that agreement. Likewise, as noted above, the beneficiaries of TRIPs disciplines are the persons holding IPRs. The definitions of ‘service suppliers’ in Article XXVIII (b,g,j,k,l,m,n) of GATS, as well as the definition of IPR holders, viz. ‘nationals’ under Article 1 of the TRIPs Agreement, leave little doubt that, on the one hand, IPR holders could be actual or at least potential service suppliers and, on the other hand, that service suppliers may own or acquire IPRs or (compulsory) licenses allowing their use against payment of royalties. This conclusion seems like a commonplace but due to the character of the rights and obligations embodied in GATS and the TRIPs Agreement it may cause far-reaching consequences. Therefore, the relationship between an IPR that is a prerequisite for or gives an advantage in supplying a specific service is legally more closely related to the service producer (i.e., the service supplier) than a producer of goods who is at best an indirect reference point for GATT disciplines.

Given that, the concepts of ‘service suppliers’ and of ‘IPR holders’ are overlapping if not interchangeable, would it be possible to read the non-discrimination Page 74 →principles embodied in Articles II and XVII of GATS to mean that suppliers of a given service who are holders of an IPR which is necessary for, or usually used in, the supply of that service are ‘like’ suppliers of the same service who do not have access to that IPR (or do not obtain access to that IPR unless they pay license fees)? If such service suppliers were found to be ‘like’, could one argue that the service supplier who owns an IPR (or obtains access to it more cheaply than others) enjoys more favorable treatment, resulting from governmental measures aimed at protecting IPRs, than a like service supplier without equally cheap access to the IPR at issue? In other words, would such a situation amount to a case of de facto discrimination under Articles II or XVII of GATS? Such an interpretation would obviously undermine the disciplines of the TRIPs Agreement unless an interpretation could be advanced that gives full meaning and effect to IPR protection under that agreement. In considering how the foregoing issues should be resolved, one can ask whether it should matter whether the IPR at issue benefits from the minimum protection required by the TRIPs Agreement or from more extensive protection, which Members are permitted to accord pursuant to Article 1.1 of the TRIPs Agreement. Could higher degrees of IPR protection in certain countries cause de facto discrimination of service suppliers holding IPRs conferred by Members with lower, but TRIPs consistent minimum protection? Would these problems be solved if licenses were available (whether compulsory or not)?45 Another aspect of the GATS-TRIPs intersection arises from the fact that IPRs by their very nature confer – albeit temporarily – legal monopoly rights. If an IPR is intrinsically linked to the supply of a service, would any holder of a service-related IPR qualify ipso facto or at least under certain circumstances (‘in effect’) as a monopoly supplier of a service in the meaning of Article XXVIII(h) of GATS46 and, consequently, be subject to the disciplines of Article VIII:2 of GATS?47 If that is the case, the cumulative applicability of GATS and the TRIPs Agreement to service-related IPRs would not necessarily create legal clashes because GATS rules against the abuse of monopoly or exclusive rights beyond their scope would not run counter to their protection under the TRIPs Agreement within their scope. To the contrary, given the rather rudimentary nature of rules against the abuse of IPRs for anti-competitive purposes under the TRIPs Agreement (e.g., Articles 8.2, 31, 40), to what extent could Article VIII of GATS (as well as the Annex on Telecommunications or the competition rules contained in the so-called Reference Paper on which the liberalization and deregulation of basic telecommunications services and networks is based) be susceptible of targeting the abuse of service-related IPRs (e.g., secondary patents in addition to Article 31(1) of the TRIPs Agreement)? Page 75 →The upshot of all this is to highlight the need to take a well-considered position at the outset on the relationship of GATS and the TRIPs Agreement. If the view is taken that both apply without limitation because they are not in true conflict, application of certain GATS provisions could significantly undermine the effectiveness of IPRs in certain cases. At the same time, the primacy of the TRIPs Agreement should not result in the effective negation of GATS commitments (e.g., through de facto discrimination). Effective treaty interpretation must be applied so that an appropriate balance is achieved. On a preliminary basis, it would seem that giving effect to the TRIPs Agreement may require toleration of some of the above-described adverse effects on GATS’ commitments. This is not to say that the GATS commitments rank lower in some sort of hierarchy, but rather that it is the very nature of IPRs that market access be restricted for some period of time. Some of the issues raised in the foregoing paragraphs suggest, however, that it may not be appropriate to assume that the proper balance will always be to recognize the IPR and not the GATS commitments, perhaps, for example, where the IPRs at issue go beyond the minimum requirements of the TRIPs Agreement.

Interface Problems Arising in Electronic Commerce The emergence of electronic commerce raises a number of new interface issues in the relationship of GATT, GATS and the TRIPs Agreement. Transactions involving electronic commerce may concern trade in goods, trade in services and the protection of IPRs as well. What is traded on the internet is often merchandise or sometimes services, or goods with incorporated services, or even licenses granting access to IPRs. For such internet commerce, the use of services such as basic and enhanced telecommunications is indispensable, while the use of distribution, advertisement, audiovisual or broadcasting services may be useful. The goods or services traded

electronically or inputs used in their manufacturing, processing or distribution may be patented, copyrighted, contain trademarks, industrial designs or geographical indications, involve the protection of undisclosed information or topographies of integrated circuits. The very tools for electronic commerce, e.g., computers, diskettes, microchips and internet connections depend on inseparable goods, services and IPR components. Accordingly, national legislation directly regulating, as the case may be, goods, services or IPRs, involved in electronic commerce are likely to amount simultaneously to measures affecting trade in goods, services or IPRs. In other words, for different aspects of the electronic commerce transactions obligations, GATT, GATS and/or the TRIPs Agreement may Page 76 →apply on a cumulative basis. Therefore not surprisingly, all the sectoral Councils on Trade in Goods, Services and TRIPs are involved in the WTO work program on electronic commerce as adopted by the General Council.48 In respect of the rules of GATT (and other agreements listed in Annex 1A), questions arise such as market access for access to products related to electronic commerce, problems related to valuation and import licensing procedures of electronically traded goods and technical regulations and standards related to electronic commerce. As regards trade in services, it is clear that the electronic delivery of services falls within the scope of GATS since it applies to all services regardless of the means by which they are delivered. Essentially, electronic delivery can take place under any of the four modes of supply in the meaning of Article I:2 of GATS, although it is very difficult to distinguish electronic transactions under mode 1 from such transactions under mode 2. It could be said that GATS is technologically neutral in the sense that it does not contain any provisions that distinguish between the different technological means through which a service may be supplied.49 Whether or not certain transactions are regarded as measures affecting trade in goods or rather as measures affecting trade in services might have repercussions on the degree to which electronic commerce is subject to existing WTO rules. If electronic commerce transactions are deemed measures affecting trade in goods, all the rules of GATT 1994 and the other agreements listed in Annex 1A apply. If such transactions are considered as measures affecting trade in services, the reach of GATS rules such as market access and national treatment are limited to those services sectors and modes of supply which a particular Member has chosen to inscribe in its national schedule on specific commitments. In the latter case, a Member that has not entered service sectors which are essential for electronic commerce in its schedule of specific commitments (e.g., certain telecommunications) could argue that it has no obligation to authorize market access for electronic commerce service providers. Regarding the applicability of the GATT/GATS/TRIPs MFN and national treatment clauses to electronic commerce, the issue of the ‘likeness’ of goods, services and their suppliers, or IPRs and their holders raises problems. There is no apparent reason not to consider goods or services traded over the internet as ‘like’ to products with the same or similar characteristics etc. which are traded the conventional way. Once such likeness is assumed, the threat of de facto discrimination under GATT or GATS might limit the regulatory discretion of national legislators to distinguish between electronically or conventionally traded products which are like in all factors traditionally used to determine ‘likeness’. Page 77 →If transactions of electronic commerce are subject to GATT, GATS and TRIPs obligations on a cumulative basis, the reach of the exception clauses under Article XX of GATT, Article XIV of GATS and Article 8 of the TRIPs Agreement could be diminished. This is so because for a measure affecting trade in goods, services as well as the protection of IPRs to be justifiable under WTO law, such measure would have to be compatible with all the conditions set forth in these three provisions. Therefore, a measure which might be justifiable under Article XX(e) or XX(g) of GATT could be struck down under GATS because its Article XIV does not contain similar exceptions. By the same token, measures compatible with the exceptions under Article XIV of GATS concerning the protection of privacy, the avoidance of double taxation, or the imposition of equitable or effective imposition or collection of direct taxes could be struck down under GATT given the lack of similar exceptions under Article XX of GATT. Finally, measures justifiable under Article XX of GATT and Article XIV of GATS could still be incompatible with Article 8 of the TRIPs Agreement which recognizes certain non-economic policy objectives but also provides that appropriate measures must be consistent with the TRIPs Agreement. It should be noted though that, of course, the same logic with respect to the exceptions from the GATT, GATS and TRIPs Agreement holds

true for any governmental measure affecting trade in goods, services and TRIPs at the same time, regardless of whether it concerns electronic commerce. Intellectual property issues arising in the connection with electronic commerce include, inter alia, access to and transfer of relevant new technologies as well as the protection and enforcement of copyrights, trademarks. Given the somehow inseparable nature of goods, services and/or IPRs involved in electronic commerce transaction, intricate legal issues arise from the fact that the origin in the meaning of GATT of goods traded over the internet may differ from the origin (in the meaning of GATS) of the suppliers offering electronic transmission services, which in turn may not be the same as the origin under the TRIPs Agreement of owners of IPRs indispensable for, or involved in such, electronic transactions. Consequently, for different aspects of the electronic transactions concerning one and the same good or service, different WTO Members are likely to be entitled to enforce GATT, GATS and/or TRIPs rules and to initiate WTO dispute settlement proceedings. For the moment, we simply raise these issues as examples of further complications that may arise from the emergence of electronic commerce in the triangle of GATT, GATS and the TRIPs Agreement.

Page 78 →4. Conclusion As demonstrated by the foregoing discussion the triangle of GATT, GATS and the TRIPs Agreement raises a myriad of interesting and complex issues. It is too early to hope to systematically identify and resolve all of the potential cases of overlap and conflict. But hopefully, the foregoing will help provide a framework in which such resolutions may begin to be analyzed.

NOTES 1. As in the case of the three pillars of the European Union, one pillar is much more developed than the other two - GATT in the case of the WTO; the European Community in the case of the EU. However, compared to the EU, one must say that the two other pillars of the WTO - GATS and TRIPS - are much more developed than the EU’s common foreign and security policy and its cooperation in police and criminal justice matters. 2. This difference in approach is explored extensively by another paper at this conference. See ErnstUlrich Petersmann, The Impact of TRIPs on the Multilateral Trading System: From Negative to Positive Integration. 3. William J. Davey, Journal of World Trade, vol. 32, no. 2, April 1998, at 160. 4. Part III of the TRIPS Agreement. 5. See, e.g., Article X of GATT; Article VI:2 of GATS. 6. The GATT and GATS MFN clauses were the subject of last year’s World Trade Forum. See generally William J. Davey & Joost Pauwelyn, MFN Unconditionality: A Legal Analysis of the Concept in View of its Evolution in the GATT/WTO Jurisprudence with Particular Reference to the Issue of ‘Like Product’, in T. Cottier, P. Mavroidis & P. Blatter (eds.), Regulatory Barriers and the Principle of Nondiscrimination in World Trade Law: Past, Present and Future (1999); Aaditya Mattoo, The Concept of MFN-Unconditionality in the GATS: Learning from the GATT Experience, in id. 7. The breadth of this requirement is limited by four specific exceptions, to wit, (i) advantages derived from international agreements on judicial assistance or law enforcement not limited to intellectual property, (ii) certain treatment provided under the Berne or Rome Conventions, (iii) in respect of the rights of performers, phonogram producers and broadcasting organizations not provided under the TRIPs Agreement and (iv) deriving from certain international agreements notified to the TRIPs Council and not discriminating arbitrarily of unjustifiably against nationals of other Members.Page 79 → 8. This obligation is subject to exceptions in the Berne, Paris and Rome Conventions and the Treaty on Integrated Circuits, as well as subject to circumscription in respect of the rights of performers, phonogram producers and broadcasting organizations not provided under the TRIPs Agreement. 9. Article VI of GATT; WTO Antidumping Agreement; WTO Agreement on Subsidies and Countervailing Measures.

10. Article VIII of GATS. GATS does not provide for anti-dumping rules concerning services. However, Article XV of GATS contains a mandate to negotiate rules to avoid trade-distorting effects of subsidies on trade in services. 11. The TRIPs Agreement allows protection of IPRs in excess of its minimum requirements (Article 1.1). This must be done, however, in a manner that does not contravene the TRIPs Agreement. Moreover, such increased protection could in theory run afoul of other WTO requirements. 12. Pierre Pescatore, Drafting and Analyzing Decisions on Dispute Settlement, in P. Pescatore, W. Davey & A. Lowenfeld, Handbook of GATT Dispute Settlement 19-20 (1991). 13. See, e.g., Panel Report on US Manufacturing Clause, adopted on 15-16 May 1984. BISD 31S/75. 14. Id. at para. 7.30. 15. Id at paras. 7.34, 7.41, 7.43. 16. Under Article XXIII of GATT, the basis for WTO dispute settlement, an action may be brought if expected benefits are nullified or impaired even if the measure at issue does not conflict with the agreement. If such a case is established, the remedy is compensation as there is no obligation to withdraw a WTOconsistent measure. 17. See also Appellate Body Report on European Communities – Customs Classification of Certain Computer Equipment, adopted on 22 June 1998, DS/WT62/AB/R (rejecting the use of legitimate expectations in a GATT Article II case). 18. ‘In the event of a conflict between a provision of this Agreement and a provision of any of the Multilateral Trade Agreements, the provision of this Agreement shall prevail to the extent of the conflict.’ 19. ‘In the event of a conflict between a provision of the GATT 1994 and a provision of another agreement in Annex 1A to the Agreement Establishing the WTO (. . .), the provision of the other agreement shall prevail to the extent of a conflict.’ 20. ‘The provisions of GATT 1994 and of other Multilateral Trade Agreements in Annex 1A to the WTO Agreement shall apply subject to the provisions of this Agreement.’ 21. ‘The rules and procedures of this Understanding shall apply subject to such special or additional rules and procedures on dispute settlement contained in the covered agreements as are identified in Appendix 2 to this Understanding. To the Page 80 →extent that there is a difference between rules and procedures of this Understanding and the special or additional rules and procedures set forth in appendix 2, the special or additional rules and procedures of Appendix 2 shall prevail. In disputes involving rules and procedures under more than one covered agreement, if there is a conflict between special or additional rules and procedures of such agreements under review, and where the parties to the dispute cannot agree on rules and procedures within 20 days of the establishment of the panel, the Chairman of the Dispute Settlement Body provided for in paragraph 1 of Article 2 (...) shall determine the rules and procedures to be followed within 10 days after a request by either Member. The Chairman shall be guided by the principle that special or additional rules and procedures should be used where possible, and the rules and procedures set out in this Understanding should be used to the extent necessary to avoid conflict.’ 22. In Guatemala–Cement, the Appellate Body used the terms ‘conflict’ and ‘difference’ rather interchangeably in its reasoning regarding the relationship between Article 1.2 of the DSU and Article 17 of the Anti-dumping Agreement: ‘Accordingly, if there is no ‘difference’, then the rules and procedures of the DSU apply together with the special or additional rules and procedures of a covered agreement cannot be read as complementing each other that the special or additional provisions are to prevail. A special or additional provision should only be found to prevail over a provision of the DSU in a situation where adherence to the one provision will lead to a violation of the other provision, that is, in the case of a conflict between them. An interpreter must, therefore, identify an inconsistency or a difference between a provision of the DSU and a special or additional provision of a covered agreement before concluding that the latter prevails and that the provision of the DSU does not apply. See the Appellate Body Report on Guatemala–Antidumping Investigation Regarding Portland Cement from Mexico, adopted on 25 November 1998, WT/DS60/AB/R, para. 65. ‘It is, therefore, only in the specific circumstance where a provision of the DSU and a special or additional provision of another covered agreement are mutually inconsistent that the special or additional provision may be read to prevail over the provision of the DSU.’ Id. at para. 66. 23. The applicability of Article 30 of the Vienna Convention, which embodies the rule ‘lex posterior derogat legi priori’, is limited to subsequent treaties on the same subject-matter between States that are

parties to both of them. This lex posterior rule is mitigated in certain cases by lex specialis rule—in toto jure genus per speciem derogatur—i.e., in any law the more specific rule prevails over the more general one. In other words, the lex specialis rule allows for a deviation from the later-in-time rule. Daillier Patrick & Pellet Alain, Droit International Public (5e ed.), Paris (1994), pp. 262-266. 24. Ian Brownlie, Principles of Public International Law (4th ed.), Oxford (1990), p. 625.Page 81 → 25. ‘An interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility’. See Appellate Body Report on United States–Standards for Reformulated and Conventional Gasoline, adopted on 20 May 1996, WT/DS2/AB/R, p. 23. 26. Interpretation of Peace Treaties, Advisory Opinion, ICJ Reports (1950) p.229; South West Africa, Judgment, ICJ Reports (1966), p. 48, para. 91. 27. Obviously, legislators or negotiators of international treaties should be expected to attempt to avoid incompatible obligations in different agreements. However, where international treaties cover different subject matters, apply to different groups of signatories, are negotiated at different points in time, or are ratified by different states at different points such incompatibilities are probably inevitable. All that public international law can offer in this respect are treaty-interpretation rules—which form largely part of customary international law—and are embodied in the Vienna Convention on the Law of Treaties (e.g., Articles 27, 30 or 41) which are geared towards avoiding such situations of incompatibility. One might expect, however, that in the case of a newly created treaty system such as the agreements covered by the WTO which were negotiated in a common and simultaneous multilateral effort, structured as a single legal undertaking with identical membership, and covered common subject matters, negotiators would have had ample opportunity to avoid incompatibilities or clashes between different components of the treaty system. Instead of incorporating the text of GATT 1947 into the new treaty system as GATT 1994, complemented by more detailed agreements and understandings covering similar areas of trade, the Uruguay Round presented the unique opportunity to establish a coordinated and integrated treaty system addressing each regulatory issue with a single rule. The failure to do this in the Uruguay Round is probably due to the atomized negotiating structure where it was difficult enough to achieve compromises in up to 15 negotiating groups. Arguably with a view to preserving compromise solutions accomplished in the numerous negotiating groups, the Trade Negotiations Committee never really embarked on the logical second step of examining the mutual compatibility of the rights and obligations contained in the various WTO agreements. At the end of the Uruguay Round, the so-called ‘legal drafting group’ harmonized legal terms and concepts used in various agreements, but did not go so far as to examine the overall compatibility of the obligations embodied in the various agreements covered by the WTO. 28. Panel Reports on EC–Regime for the Importation, Sale and Distribution of Bananas (EC–Bananas III), adopted on 25 September 1997, WT/DS27/ECU, GTM-HND.MEX & USA/R. In fact, the EC-Bananas III panel made findings under Articles I, III and X of GATT and Article 1.3 of the Licensing Agreement. It refrained from making rulings on other claims under the Licensing Agreement and Page 82 →the TRIMS Agreement for reasons of judicial economy but did not deny that such rulings could have been made consistently with the General Interpretative Note. 29. See EC-Bananas III panel, para. 7.155. The panel gave the following example: ‘For instance, Article XI:1 of GATT prohibits the imposition of quantitative restrictions, while Article XI:2 of GATT contains a rather limited catalogue of exceptions. At the same time, Article 2 of the Agreement on Textiles and Clothing authorizes the imposition of quantitative restrictions in the textiles and clothing sector, subject to conditions specified in Article 2.1-21 of the ATC. In other words, Article XI:1 of GATT prohibits what Article 2 of the ATC permits in equally explicit terms. It is true that Members could theoretically comply with Article XI: 1 of GATT, as well as with Article 2 of the ATC, simply by refraining from invoking the right to impose quantitative restrictions in the textiles sector because Article 2 of the ATC authorizes rather than mandates the imposition of quantitative restrictions. However, such an interpretation would render whole Articles or sections of agreements covered by the WTO meaningless and run counter to the object and purpose of many agreements listed in Annex 1A which were negotiated to ‘create rights and obligations which in parts differ substantially from those of the GATT 1994.’ Id. at footnote 390. 30. Encyclopaedia of Public International Law (Vol.7, North-Holland 1984), p.468, cited in the Panel Report on Indonesia–Certain Measures Affecting the Automotive Industry, adopted on 23 July 1998, WT /DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, footnote 649.

31. Panel Report and Appellate Body Report on Canada–Certain Measures Concerning Periodicals, adopted on 30 July 1997, WT/DS31/R & WT/DS31/AB/R. 32. Canada–Periodicals, Panel Report, paras. 5.13-5.19 and Appellate Body Report, pp. 17-20. 33. The Working Party on Border Tax Adjustment referred to, inter alia, ‘services used in the transportation and production of other taxable goods’ and observed that ‘taxes on advertising, energy, machinery and transport were among the more important taxes’ that might be eligible for border tax adjustment. Report of the Working Party, adopted on 2 December 1979, BISD18S/97, para. 15. The Panel Report on Thailand–Restrictions on Importation of and Internal Taxes on Cigarettes, adopted on 7 November 1990, BISD 37S/200, para. 78, had specifically addressed the question of advertising under GATT Article III. 34. EC–Bananas III, Panel Reports, paras. 7.277-7.286, and Appellate Body Report, paras. 217-222. 35. Article XXVIII(c) of GATS: ‘Measures affecting trade in services’ include measures in respect of: ‘the purchase, payment or use of a service; the access to and use of, in connection with the supply of a service, services which are required by those Members to be offered to the public generally; Page 83 →the presence, including commercial presence, of persons of a Member for the supply of a service in the territory of another Member.’ 36. Article XXVIII(b) of GATS: ‘Supply of a service’ includes the production, distribution, marketing, sale and delivery of a service.’ 37. ‘We must bear in mind that the TRIPS Agreement, the entire text of which was newly negotiated in the Uruguay Round and occupies a relatively self-contained, sui generis status in the WTO Agreement, nevertheless is an integral part of the WTO system, which itself builds upon the experience of over nearly half a century under the [GATT] 1947.’ See Panel Report on India–Patent Protection for Agricultural and Chemical Products, adopted on 16 January 1998, WT/DS50/R, para. 7.19. 38. Compare Thomas Cottier, The WTO System and the Exhaustion of Rights, paper for the ILA Committee on International Trade Law, Conference on the Exhaustion of IPRs and Parallel Importation in World Trade with Marco C.E.J. Bronckers, The Exhaustion of Patent Rights under WTO Law, Journal of World Trade, vol. 32, no. 5, October 1998, at 137. 39. ‘For the purposes of dispute settlement under this agreement, subject to the provisions of Articles 3 and 4 nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights.’ 40. ‘Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any Member of measures: (...) (d) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including those relating to (...) the protection of patents, trade marks and copyrights, and the prevention of deceptive practices.’ 41. Panel Report on United States–Section 337 of the Tariff Act of 1930, adopted on 7 November 1989, BISD 36S/345. 42. The remedies applied under Section 337 against imports but not used against domestic goods included in rem orders, automatic enforcement by customs officials and under specific circumstances general exclusion orders. The United States invoked Article XX(d) of GATT as a justification, but the panel found that it was not possible to justify less favorable elements of the special procedure under that exception concerning measures necessary to enforce national patent laws because the law itself was GATTinconsistent and not only the measures taken to enforce it. 43. US-Section 337, Panel Report, BISD 36S/345, 385-386, para. 5.10. 44. In the case of the supply of services which are not storable (i.e., they have to be consumed immediately when they are produced) and thus presuppose the movement of the production factors (capital or labor), or of the consumer, ‘parallel imports’ of services and restrictions thereof seem difficult to conceive of.Page 84 → 45. To add another layer of complexity to the problem, the origin of the service supplier and the origin of the IPR held by it need not coincide. For example, a service supplier originating in a Member with minimum IPR protection might hold a service-related IPR conferred by a Member that has implemented higher levels of IPR protection, or a service supplier originating in a Member with high-level IPR protection

might hold a service-related IPR conferred by another Member with minimum IPR protection, and this IPR might be relevant for the competitive opportunities of that service supplier in a third country. 46. Article XXVIII(h) of GATS: ‘Monopoly supplier of a service’ means any person, public or private, which in the relevant market of the territory of a Member is authorized or established formally or in effect by that Member as the sole supplier of that service.’ 47. Article VIII of GATS: ‘1. Each Member shall ensure that any monopoly supplier of a service in its territory does not, in the supply of the monopoly service in the relevant market, act in a manner inconsistent with that Member’s obligations under Article II and specific commitments. 2. Where a Member’s monopoly supplier competes, either directly or through an affiliated company, in the supply of a service outside the scope of its monopoly rights and which is subject to that Member’s specific commitments, the Member shall ensure that such a supplier does not abuse its monopoly position to act in its territory in a manner inconsistent with such commitments. (...)’ 5. The provisions of this Article shall also apply to cases of exclusive service suppliers, where a Member, formally or in effect, (a) authorizes or establishes a small number of service suppliers and (b) substantially prevents competition among those suppliers in its territory.’ 48. WTO doc. WT/L/274 of 30 September 1998. 49. WTO doc. S/L/74 of 27 July 1999.

____________________ *Edwin M. Adams Professor of Law, University of Illinois College of Law, Champaign, Illinois. Former Director, Legal Affairs Division, WTO (1995-1999). The authors would like to thank the commentators for their helpful criticisms of the paper. The remaining errors are their own responsibility. †Counselor, Appellate Body Secretariat, WTO. The views expressed herein do not necessarily represent those of the WTO.

Page 85 →CHAPTER 3 Comments on the Paper Presented by Ernst-Ulrich Petersmann Jacques H.J. Bourgeois*

1. Introduction Often Ernst-Ulrich Petersmann’s writings contain a diet that of food for thought. The Word Trade Forum with its heady mix of academics and practitioners, economists and lawyers, offers a good opportunity to go beyond the law as it stands and to reflect about principles, to examine whether they have found acceptance and to verify whether they have been reflected in rules. Ernst-Ulrich Petersmann’s contribution is thought provoking if not provocative. A distinction needs to be made between his analysis, on the one hand, and the conclusions he draws, the questions he raises and the remedies he proposes, on the other. The main interest of his paper lies in his treatment of the TRIPs Agreement as a new step in the WTO regulatory scheme and in his exploration of the question under what conditions it could serve as a model for further WTO rule-making.

2. The Analysis The analysis of how the TRIPs Agreement came about is right. It illustrates well the public choice theory at work at national level. In fact, the negotiating position of the EC and the U.S. was determined in close and almost exclusive cooperation with industries having a stake in the protection of their IP rights worldwide (chemical and pharmaceutical industries) and was aimed at extending as much as possible at the international level the regime of protection of IP rights as it existed at national level and in the existing international treaties. Moreover, negotiating countries that were not part of the group of countries accounting for 90% of all patent rights registered or owned were induced to accept the TRIPs Agreement not on account of the fact that, in their view, this agreement took their interests on board but because of the benefits that they obtained in other areas covered by the Uruguay Round of multilateral trade negotiations conceived as a ‘single undertaking’. Page 86 →Petersmann quite rightly questions whether such ‘trade-off, driven by one-sided mercantilist export interests in industrialized countries, will succeed in future WTO rule-making. Whether this is due to the combination of one-sidedness and mercantilism may be left aside here. Petersmann sees in the TRIPs Agreement an example of ‘positive integration.’ The distinction between ‘negative integration’ and ‘positive integration’ schemes goes back to Jan Tinbergen. Tinbergen classified under ‘negative integration’ schemes and measures consisting of eliminating a number of impediments to the proper operation of an integrated area; he defined ‘positive integration’ as the creation of new institutions and their instruments or the modification of existing instruments.1 As Petersmann notes the TRIPs Agreement contains affirmative obligations of WTO Members to introduce legislative, executive and judicial measures, is explicitly designed to protect private rights and sets out substantive and procedural minimum standards in domestic laws. Whether that means that the TRIPs Agreement is ‘positive integration’ scheme à la Tinbergen is debatable, in that such scheme implies policy making institutions empowered not only to ensure the proper functioning of the market but also to adopt at the level of the integrated entity policies designed to correct market failures and to strike a balance between the operation of the market and the pursuit of other interests. It may well be that both trade liberalization and ‘approximation of laws’ can be justified in terms of consumer welfare and economic efficiency. The question, however, is whether, assuming that the negotiations of future WTO agreements were to be influenced by such economic considerations, they would be seen as justifying politically WTO rule-making interfering with national policies and giving legitimacy to the necessary political compromises. Petersmann observes rightly that these considerations, at any rate, did not influence the negotiation

of the TRIPs Agreement.

Page 87 →3. The Conclusions Drawn Petersmann is right when he draws the conclusion – he does not say so, but that is apparently what he means – that there is a need for a new legitimacy in the case of future and broader WTO agreements involving what he calls ‘positive integration.’ In other words he doubts whether the conjunction of the elements that made the TRIPs Agreement possible would make other WTO rule making in. areas such as environment, competition and social policy possible. One would think that this would depend on the scope of such WTO rule making. For instance, a WTO agreement that would establish a worldwide set of competition rules designed to eliminate distortions resulting from disparate national competition rules or the absence of national competition rules appears quite unrealistic. However, a set of international competition rules that would be limited to ensure that the GATT rules imposing obligations on WTO Members would not be circumvented and nullified by restrictive business practices having the same effect on international trade as state measures prohibited by GATT rules appears achievable. This having been said, the Seattle debacle shows that the traditional GATT/WTO process is no longer politically feasible where it deals with matters that are, as a result, removed from political processes at national level that are perceived as allowing a more adequate balance of conflicting interests.

4. The Remedies Contemplated As Petersmann indicates, the main thesis of this paper is that the pursuit of positive integration and of international harmonization of domestic laws in future WTO rounds calls for a progressive ‘constitutionalization’ of WTO rules. According to Petersmann, this implies strengthening individual rights, introducing constitutional safeguards and creating representative institutions in the WTO.

5. As to Individual Rights It is probably possible to argue that, as one of four pillars of the WTO legal system, the TRIPs Agreement is based on common ‘constitutional principles’ of freedom, non-discrimination rule of law and transparent policy-making. The question remains, however, whether this forms a sufficient basis for future WTO agreements on harmonization of domestic laws based on international minimum standards for investment laws, competition laws, environmental and social legislation. In other words, Page 88 →would the existence of such constitutional principles legitimate and, more importantly, be seen to legitimate the interference of future WTO rules with national policies? The comparison which Petersmann makes with the European Community scheme is not entirely convincing. First, it is doubtful that the fact that the EC legal order strengthened individual rights enabled EC political institutions to agree on common policies. The relationship between common policies and individual rights is rather functional in the sense that individual rights contribute to the effective functioning of common policies once such policies have been adopted and that the judicial individual rights provide an impetus for legislative bodies to enact further rules. Second, even within the EC legal order qualifying the basic freedoms laid down in the EC Treaty as human rights is controversial (see e.g. P. Demaret,2 who argues that the prohibition of measures having equivalent effect should be linked to cases when, at least, some protective effect can be shown and P. Eeckhout,3 who argues that the EC internal market is an asset to which citizens and companies are entitled.

6. As to Constitutional Safeguards One of the constitutional safeguards, contemplated by Petersmann, inspired by the TRIPs Agreement precedent, is the obligation imposed on WTO Members to make available under their laws effective civil, criminal and judicial procedures and legal remedies for nationals of WTO Members to enforce the rights and obligations of the WTO

Members. Petersmann notes that since the inception of GATT 1947, GATT and WTO diplomats have conspicuously avoided any references to human rights law. One might add that, with some exceptions, i.e. in the TRIPs Agreement, they have avoided references to individual rights tout court. One understands why: individual rights mean judicial enforcement and governments are very reluctant to share the task of implementing international agreements with the judiciary. The big question is whether the safeguarding of individuals rights as a reflection of WTO Members’ obligations will be seen by the increasingly assertive civil society as the great bargain that would make further WTO rule-making acceptable. This is highly doubtful if this would simply mean that WTO obligations entered into would be more effectively enforced. What is called for are a number of constitutional guarantees to be included in WTO law subjecting WTO to a number of limitations. The concern seems to be that rule-making at the WTO level entails the risk that the constitutional safeguards and checks and balances that exist at the national level will be effectively eviscerated. As the developments in the EC show, this is less a matter of Page 89 →human rights than a matter of subjecting rule-making at EC level to such principles as ‘proportionality’ and ‘subsidiarity’.

7. As to the Creation of Representative Institutions in the WTO It would seem that quite a few misgivings of the civil society about the WTO can be traced back to the lack of transparency of the WTO processes and to the related impression that everything is a question of backroom deals above the heads of those that see themselves as part of civil society. Increasing transparency is obviously not sufficient. Petersmann’s point that the current ‘constitutional infrastructure’ of WTO law does not yet meet the requirements of constitutional democracy is particularly relevant in this respect. Citizens, at any rate in developed countries, no longer accept to be subjected to rules in whose making they do not have any say. National parliaments are generally not involved in WTO negotiations and have no genuine say, as their only alternative, i.e. to refuse approving the result of the negotiation and sending the negotiators back to the negotiating table, is politically unpalatable. Establishing some sort of advisory WTO Economic and Social Committee with representatives from all sectors of civil society may be a step in the right direction. It would allow civil society to make its voice heard. The question is, however, whether such Committee would be able to work out common positions on important issues. In the absence of such common positions, opinions of this Committee would be a shopping list without any real influence on the WTO negotiations. After some time this Committee would be perceived as a fig leaf and everybody would be back at square one. One may wonder whether a more modest step would not be preferable, i.e. to involve representatives from national parliaments in the WTO negotiations alongside the representatives of the governments or to require the representatives of the governments to report to a select committee of their national parliaments on a regular basis as the negotiations progress. This solution also has drawbacks: it would be left to each WTO Member to do so and some might do it, others not; representatives from certain national parliaments would simply follow the instructions of their governments. However, if one considers that there is a need to bring a form of democratic input in the WTO rule-making, shouldn’t one accept it as it comes?

NOTES 1. Tinbergen Jan, International Economic Integration, 2nd edition, 1965, at p. 76.Page 90 → 2. See e.g. P. Demaret, The Non-Discrimination Principle and the Removal of Fiscal Barriers to IntraCommunity Trade, in T. Cottier and P. Mavroidis (eds.) Regulatory Barriers and the Principle of NonDiscrimination in World Trade Law, The University of Michigan Press, Ann Arbor, 2000, at p. 188. 3. P. Eckhout, After Keck and Mithouard: Free Movement of Goods in the EC Market Access, and NonDiscrimination, in T. Cottier and P. Mevroidis (eds.) Regulatory Barriers and the Principle of Non-

Discrimination in World Trade Law, The University of Michigan Press, Ann Arbor, 2000, at p. 200.

____________________ * Partner, Akin, Gump, Strauss, Hauer & Feld, Attorneys-at-Law, Brussels, Belgium.

Page 91 →CHAPTER 4 Comments on the Paper Presented by William J. Davey and Werner Zdouc Jacques H.J. Bourgeois*

1. Introduction This paper is more legal, even legalistic, than the paper presented by Ernst-Ulrich Petersmann which is rather legal policy oriented. Everybody knows, however, that law is policy in disguise. The paper has three parts. In the first part, Davey and Zdouc explore how ‘principles of GATT law’ may be useful in interpreting the TRIPs Agreement. The second part of the paper addresses the issues of overlap and conflict in the WTO Agreements. In the third part, Davey and Zdouc discuss in detail some of the issues of overlap and conflict between GATT and the TRIPs Agreement and between GATS and the TRIPs Agreement. The present comments will follow the subdivision of the report.

2. The Relevance of GATT Principles The analysis in the report does not call for many comments. It recalls rightly that the MFN principle and the National Treatment principle have been laid down in the GATS and the TRIPs Agreement but notes that the contexts are different. One of the differences is that in GATT these principles refer to goods while in GATS and in the TRIPs Agreement they refer to persons. This is not without importance in a comparison between GATT and the TRIPs Agreement as has been correctly pointed out by Bronckers (‘The Exhaustion of Patent Rights under WTO Law’, 32 JWT 5 137 [1998]). Interestingly Davey and Zdouc subscribe to Pescatore’s theory that alongside the principles contained in the text of GATT, there are a number of principles of GATT law resulting from the GATT dispute settlement practice such as ‘Security and Predictability’ and ‘Protection of Legitimate Expectations’. It is true that Article XVI: I of the WTO Agreement provides that the WTO overall shall be guided by past GATT practice. While this certainly means that in WTO dispute settlement proceedings these principles apply, the question arises whether these principles have the same rank as the principles contained in the text of GATT and the WTO in general. This is not a theoretical question. A departure from the principles contained in the text of GATT, GATS and the TRIPs Agreement requires an amendment of these agreements. Arguably this does not apply to principles of GATT law resulting from GATT dispute settlement practice. Not only is the language of Article XVI: I of the WTO Agreement less constraining (‘the WTO shall be guided’), but under Article 3.9 of the DSU the Members have reserved the possibility to seek authoritative interpretation of a covered agreement through decision-making under the WTO Agreement. Conceivably this means that a principle of GATT law resulting from dispute settlement practice could be changed through WTO decision making. Page 92 →On ‘Security and Predictability’, Davey and Zdouc refer to India–Patents (WT/DS50/AB/R) and raise the question whether this principle could require WTO Members to make implementing measures sufficiently precise. It is submitted that this principle requires this. Their observations raise another issue which arose i.a. in US–Section 301-310 (WT/DS152/R), i.e. whether ‘Security and Predictability’ require a WTO Member to remove prima facie WTO-inconsistency of its legislation and how such inconsistency ought to be removed. It would seem that assurances by the WTO Member that its law would be interpreted in line with its WTO obligations are hardly satisfactory from the perspective of private parties which are generally prevented from relying on WTO law against inconsistent national law. In relation to ‘Protection of Legitimate Expectations’ Davey and Zdouc are of the view that, notwithstanding the

Appellate Body’s position in India–Patents, this principle is still an important one, where it concerns conditions of competition. This is debatable if they consider that conduct of a WTO Member that would run counter to legitimate expectations of another WTO Member that conditions of competition would not be changed could as such be the basis for a violation complaint. If they consider, however, that the principle still is important for the standing of a WTO Member to bring claims, one could agree. While in EC–Bananas III (WT/DS27/AB/R) the Appellate Body rejected the EC’s argument that a WTO Member must demonstrate a legal interest to bring a claim, it found that the U.S. was justified in bringing a claim i.a. because a potential export interest by the U.S. could not be excluded.

Page 93 →3. Overlap and Conflict in WTO Agreements Davey and Zdouc rightfully point out that the principles as advocated in the literature and as developed in the case law of the ICJ are of little assistance for the triangle TRIPs/GATT/GATS. They cite the example of the three principles put forward by Brownlie, which are indeed not pertinent here. One may add other examples. The often quoted seminal article of Jenks (‘The Conflict of Law-Making Treaties’, (1953) British Yearbook of International Law 401) deals essentially with different international agreements between different parties.

What Is ‘Conflict’? The paper does not expressly define the concept of ‘conflict’, but illustrates it by referring to the Panel in EC–Bananas III (WT/DS27/ECU, GTM, HND MEX and USA/R) and in the Indonesia–Autos case (WT/DS54 /R). Conflict arises either in a situation in which an agreement mandates what another agreement prohibits or in a situation in which an agreement permits what another agreement forbids. One might add similar situations within one and the same agreement, i.e. where a clause mandates what another clause prohibits or where a clause permits what another forbids. The conflict between a prohibitive rule and a permissive rule ought not, as a rule, to be resolved by preventing a WTO Member from using the permissive rule. This would normally deprive the permissive rule of its utility which is contrary to the principle of effective treaty interpretation. It is submitted that the solution put forward by the Panel in EC-Bananas III is the right one. Conflicts, within the meaning of incompatibilities between different clauses in the same agreement or between clauses of different agreements, can be dealt with at two different stages: during the negotiations or at the implementation/interpretation stage. Davey and Zdouc identify the rather few conflict rules that were agreed upon at the end of the Uruguay Round. They do not call for comments. There is one query: what if a clause states ‘nothing in this Agreement shall prevent parties from’ doing this or that? Is this a conflict rule? Or is such clause an exception? Does it further define the scope of the agreement making clear that when parties are operating under such clause they are not subject to the agreement? At the implementation/interpretation stage two hypos are possible: either the agreement contains an explicit conflict rule or it does not. In the first hypo for the interpreter there is no conflict. His/her task is limited to apply the conflict rule. He/she is not called upon to re-assess the way in which negotiators resolved the incompatibility between different clauses of an agreement or between clauses of different Page 94 →agreements. The second hypo is obviously the difficult one. The interpreter is left with little guidance. He/she runs a serious risk of going beyond his/her role by making policy choices that the negotiators should have made.

4. The Relationships between GATT, GATS and the TRIPs Agreement GATT/GATS Davey and Zdouc refer to the Appellate Body in EC–Bananas III distinguishing between three different

constellations i.e. (1) measures that only affect trade in goods, (2) measures that only affect trade in services and (3) measures that affect trade in goods as well as trade in services. In the third constellation the measures are to be scrutinized under both GATT and GATS. It remains to be seen according to what principles the conflict between GATT and GATS would be resolved if the specific aspects of the measures examined under each agreement are different and cannot be reconciled.

The TRIPs Agreement and GATT or GATS Davey and Zdouc are right where they conclude from their analysis that the beneficiaries of GATT, GATS and TRIPs rules and the variety of similar or conflicting objectives pursued do not give decisive guidance to determine the relationships between the TRIPs Agreement and GATT/GATS. They illustrate this by the controversy over parallel imports in which they – understandably – raise more questions than they provide answers. Conflicting answers have been provided in the literature (Th. Cottier’s paper presented at the ILA Conference on the Exhaustion of IPRs and Parallel Importation in World Trade; M. Bronckers in his article already cited in JWT). It is hardly possible to do justice in these comments to the exhaustive and balanced treatment of this issue in the report. Both the pro’s and the con’s would deserve many comments. Ultimately, however, one is left to wonder whether after all – this is one of the possibilities aired by Davey and Zdouc – Article 6 of the TRIPs is not simply a ‘carve out’ excluding the application of GATT and GATS to matters concerning exhaustion of IP rights.

5. Conclusion Davey and Zdouc conclude that it is too early to hope to systematically identify and resolve all of the potential cases of overlap and conflict. The present commentator agrees.

____________________ * Partner, Akin, Gump, Strauss, Hauer & Feld, Attorneys-at-Law, Brussels, Belgium.

Page 95 →CHAPTER 5 Comments on the Papers Presented by Ernst-Ulrich Petersmann and William J. Davey/Werner Zdouc Robert Howse*

Introduction Albeit in quite different ways, both these papers address the TRIPs agreement from a systemic perspective, considering its role within the broader structure of WTO law. The systemic approach is crucial to appreciating the manner in which TRIPs may contribute the legitimacy problems or challenges that the WTO system is facing today. In particular, these papers help us to appreciate the complexity of the task of integrating into a system that has its roots in the idea of free trade under conditions of regulatory diversity (Ruggie’s ‘embedded liberalism’) what appears to be a scheme for conditioning the benefits of free trade in the WTO on domestic policy harmonization.

Petersmann Petersmann begins from the premise that the economic justification for ‘positive integration’ or harmonization of domestic policies, including on intellectual property, is weak or problematic. He is perhaps the first mainstream trade scholar to have recognized clearly that the standard economic case for free trade could not be applied in any straightforward way to the new areas of ‘positive integration’, thereby threatening a legitimacy crisis for the trading system. In this respect, his insight is most admirable. Petersmann has long proposed a conception of rights, loosely Kantian in character, as a means of filling the legitimacy gap. On Petersmann’s original rights-based theory international obligations represent a form of hands-tying that allows domestic governments to resist depredation of property rights based on demands for rents from powerful domestic constituencies. Some of the difficulties with this view, expressed emphatically in his earlier work, are illustrated by Petersmann in this paper with amazing intellectual honesty – the TRIPs protections of intellectual property rights were a projection at the international level of powerful domestic rent-seeking constituencies in a few countries! Page 96 →Perhaps in part for these kinds of reasons, in this paper, as in other recent work, Petersmann emphasizes a rather different take on rights. He presents ‘positive integration’ as one stage in the trajectory from mere free trade to a universal regime of rights that he discerns in the evolution of the European Union. This is more Hegelian/Kojevian than Kantian. But Petersmann’s sketch of the trajectory raises more questions than it answers. In particular, Petersmann fails to articulate the conception of equality that would inform the universal regime of rights, although he invocation of ‘individual freedom, non-discrimination and social welfare’ as a formula suggests the conception is not as libertarian as his frequent focus on private property rights might at first suggest. This being said, depending on the relevant conception of equality that it contains, a trading order sublimated into a universal regime of rights might actually entail more rather than fewer limits on property rights, and even on free trade, than the existing order. It would be interesting to hear from Petersmann whether this is a result with which he would be intellectually comfortable.

Davey/Zdouc This is an excellent paper, reflecting a very subtle and intricate understanding of the workings of WTO across a wide range of agreements and provisions. There are few scholars in the world who have this kind of comprehensive and rigorous knowledge of WTO doctrine and structure. But precisely this scope is what is required for tackling the increasingly important subject of the interrelationship between the different WTO agreements, and the question of overlap and possible conflict of obligations. Davey and Zdouc rightly proceed from the notion that GATT, GATS and TRIPs are treaties, to be interpreted in light of the Vienna Convention rules on the law of treaties, and on the resolution of treaty conflicts, and related customary norms of treaty law.

Although it contains elements of regulatory harmonization unwarranted on the basis of the basic theory of the gains from trade, such as imposition of a minimum period of patent protection regardless of the conditions of particular countries, regardless of the consequences for domestic welfare (in terms of gains from marginal increases in incentives for innovation vs. consumer welfare losses from higher monopoly rents), the TRIPs Page 97 →Agreement also contains many balancing and limiting provisions, that mitigate its negative impact on regulatory diversity. By pointing out that some of the most basic GATT principles are also in the TRIPs Agreement, such as transparency, non-discrimination and National Treatment, Davey and Zdouc remind us that the TRIPs Agreement is a trade agreement, in important respects concerned with the discipline of protectionism, and therefore that it ought not to be interpreted as primarily or in essence as an agreement that protects or harmonizes intellectual property rights as such. This consciousness should help to inform the jurisprudence, avoiding interpretations like that in the recent Canadian Generic Medicines panel, which read one of the exceptions provisions of TRIPs unduly narrowly, supposing the ‘basic’ purpose of the Agreement to be to ‘lay down minimum requirements for the protection of intellectual property rights’.1 Thus, the dispute settlement organs might combine relatively strict scrutiny of TRIPs measures where the claim concerns these general norms of the trading system with an appropriate measure of ‘subsidiarity’ when applying provisions of the TRIPs Agreement that entail elements of regulatory harmonization, the latter case not presuming a narrow reading of exceptions and limitations on requirements to eliminate or reduce regulatory diversity.2 In another section of the paper, Davey and Zdouc explore the notion that there are general principles of dispute settlement, or jurisprudential principles, not actually written in the treaty text (unlike, for example, nondiscrimination). The first is security and predictability of trading relations – here, they refer to the IndiaPatents case, where the panel, and more cautiously, the Appellate Body took the view that India was required to make statutory changes in order to provide legal security to patent holders, in respect of the transitional ‘mail box’ regime in TRIPs, although the Indians maintained that administrative action would be sufficient. In my view, this understanding of state responsibility is unduly intrusive into the internal administrative and constitutional arrangements of Members, who should have latitude to devise domestic measures that respond to the duty of good faith treaty interpretation according to the particular legal, political and administrative characteristics of their own systems. In the more recent US. Sec. 301 case, the panel, while not overtly contradicting India-Patents, placed the GATT notion of security and predictability of trading relations within the overall public international law framework for state responsibility – the panel held that even where a statute gives rise to a serious risk or threat that a violation of WTO law will occur, this will not always itself constitute a violation because of the threat to ‘legal security’ of Members – other elements of official action, such as administrative statements and political declarations may be effective to give reasonable assurance that they statute will not be operated in a manner so as to give rise to WTO violations. To my mind, this provides appropriate flexibility to Members, while taking Page 98 →very seriously the basic notion of good faith treaty implementation. The US. Sec. 301 panel said something else that is quite important, which is that, while there is a GATT acquis with respect to something like what Davey and Zdouc mean by the general principle of security and predictability, one must look to the individual WTO treaty provision at issue in order to understand the meaning and extent of the rights and obligations therein, whence the specific requirements of state responsibility flow. The second principle that Davey and Zdouc focus on is reasonable or legitimate expectations, the notion of protecting ‘expectations concerning competitive conditions’. They are mildly critical of the approach of the Appellate Body, which has been, in India-Patents and the LAN Equipment case, to view this notion as exhausted by the ‘non-violation nullification and impairment’ doctrine of GATT. This is one of the few places where I find myself in disagreement with Davey and Zdouc. The TRIPs Agreement was a carefully and arduously negotiated balance between on the one hand the demands of a few rich and powerful countries for harmonization upwards of intellectual property protection, and resistance on the part of other countries that invoked competing social interests that may be best served by limits on intellectual property rights. The notion of an agreed set of reasonable expectations is here illusory. Such a concept could not easily be deployed, especially in the TRIPs context, without compromising the objectivity and neutrality required for legitimate dispute settlement. Indeed, disagreements about what was to be expected or not from TRIPs have given rise to intense exchanges between developed and developing country Members in political bodies of the WTO.

This brings us to the bulk of the Davey and Zdouc paper on overlaps and conflicts between GATT, GATS and TRIPs. This is original, pioneering work of real importance. Mostly, I find the analysis very persuasive. One of the many promising ideas in this largest section of the paper is the notion that there might be provisions of other WTO Agreements (such as GATS) that are in tension with or combat anti-competitive elements of intellectual property rights. Awareness of these possibilities should reinforce the notion that the TRIPs treaty is not simply about protecting intellectual property rights holders, but striking a balance between diverse and sometimes competing social interests. However, Davey and Zdouc suggest at one point that an appropriate resolution of tensions between GATS and TRIPs may require the former to yield to the latter to some extent, because ‘it is the very nature of IPRs that market access be restricted for some period of time.’ Yet, another way of resolving the tension would be, through effective treaty interpretation, to interpret the various exceptions and limitations on intellectual property rights in TRIPs relatively broadly, in light of GATS or other relevant WTO treaties. While it is true, that IPRs in most of their existing forms restrict market access for some period of time, they need not Page 99 →necessarily restrict it absolutely for any period of time, as the TRIPs provision on compulsory licensing illustrates, for example.

NOTES 1. Canada-Patent Protection of Pharmaceutical Products, Report of the Panel, WT/DS114/R, 17 March 2000. For an elaborate of this point and a detailed critique of the panel ruling, see R. Howse, ‘The Canadian Generic Medicines Panel – A Dangerous Precedent in Dangerous Times’, Journal of World Intellectual Property, July 2000. 2. See R. Howse and K. Nicolaidis, ‘Legitimacy and Global Governance: Why Constitutionalizing the WTO is a Step Too Far’, paper presented at the World Trade Forum 2000 (World Trade Forum Volume 4, forthcoming).

____________________ * Professor, University of Michigan Law School, Ann Arbor, USAPage 100 →

Page 101 →CHAPTER 6 The First Five Years (1995-1999): Implementing and Enforcing TRIPs Obligations Adrian Otten* In this paper, I would like to examine WTO activities in regard to the process of implementation of the TRIPs Agreement, in particular the mechanisms for monitoring this process and dealing with difficulties arising therefrom. In particular, I would like to discuss three issues, namely technical cooperation, notification and review, and dispute settlement. I will also touch on possibilities regarding further development of the TRIPs Agreement. As of 1999, only some 35 WTO Members have full obligations under the TRIPs Agreement. A further 70 or so WTO Members will have such obligations from 1 January 2000 (subject, in the case of a dozen or so countries, to the provisions of Article 65.4) and the remaining WTO Members, least developed countries, will acquire such obligations as of 1 January 2006. Understandably, given this situation and the fact that compliance with the TRIPs Agreement frequently requires major modifications or additions to national intellectual property regimes, in respect of both standards and enforcement, the focus of work in the WTO is very much on implementation and this can be expected to remain the case for some time, notwithstanding initiatives for new negotiations to be launched at the WTO Ministerial Conference to be held in Seattle at the end of this year.

1. Technical Cooperation The adequate availability of technical cooperation is evidently of great importance to assist developing and least developed countries meet their obligations. It has been a particular concern of the TRIPs Council, which has kept under regular review the technical cooperation offered by developed countries pursuant to their obligations under Article 67 of the TRIPs Agreement. Each year developed countries, as well as intergovernmental organizations, provide reports on their activities, so that information on the technical cooperation on offer is readily available. The WTO Secretariat attempts, within its limited resources, to contribute to this effort, but what is of critical importance is the role of the World Intellectual Property Organization. The WIPO has been extremely active in this field and has recently stepped up further its efforts in this direction, using its very considerable resources. Page 102 →The WTO and WIPO Secretariats launched in July 1998 a joint initiative in the field of technical cooperation aimed at maximizing the assistance that can be granted to developing countries who have accepted to bring themselves into conformity by the year 2000. Thirty-two developing country WTO Members have sought to take advantage of the joint initiative. Following discussions with our colleagues in WIPO and, where necessary, elucidations from the requesting country, we have agreed, in most cases, that WIPO will integrate the requests into its legal and technical assistance program for the country in question for this year; in a number of cases, the WIPO and WTO are organizing joint events to respond to the requests; and, in respect of a relatively limited number of requests, the WTO Secretariat is taking the lead in responding. Of course, as I have indicated, activities under the joint initiative are part and parcel of the ongoing technical cooperation relations that the two Organizations have with most developing countries Members of, or acceding to, the WTO, by no means limited to the 32 that have responded specifically to the joint initiative.

2. Notification and Review of National Implementing Legislation The body in Geneva charged with over-viewing the operation of the TRIPs Agreement is the Council for TRIPs which is open to all WTO Members. One of the main responsibilities for this body is to monitor Members’ compliance with their obligations under the Agreement. A key mechanism for this purpose is the notification to the TRIPs Council of national implementing legislation and its review by the TRIPs Council.

Notification

The TRIPs Council adopted in 1995 a decision on procedures for the notification of such laws and regulations under Article 63.2 of the TRIPs Agreement. Under these procedures, national laws and regulations pertaining to the subject-matter of the TRIPs Agreement are to be notified without delay after the end of the relevant transition period, normally within 30 days. Thus, developing country Members should notify their legislation to the TRIPs Council by the end of January 2000. Given the considerable volume of this Page 103 →legislation, efforts have been made to limit as much as possible the burden on notifying countries. Without going into detail, let me flag a few basic points about these procedures: First, attention has been given to minimizing duplication with the procedures of WIPO relating to the collections of legislation of that Organization. If a piece of legislation has already been communicated to the WIPO, it suffices to simply notify this fact to the WTO Secretariat, which will then obtain a copy from the WIPO. Furthermore, copies of all legislation notified directly to the WTO are sent to WIPO by the WTO Secretariat; this is understood by WIPO as meeting the requirements of that Organization regarding the communication of national legislation, so obviating the need for a second notification to WIPO. Second, a distinction is made between the main legislation that is dedicated to intellectual property and other legislation, such as subsidiary regulations and laws of relevance but not dedicated to intellectual property, such as those on anti-competitive practices or concerning civil or criminal procedures of a general nature. Only in the former case is there a requirement that the legislation be notified in a WTO language, that is to say in English, French or Spanish. In the latter case, it suffices to provide copies in a national language, together with a listing of the laws and regulations in question containing a brief description of the relevance of each law or regulation to the provisions of the TRIPs Agreement. In situations where legislation has to be translated in order to meet these requirements, the WIPO is in a position to be of assistance to developing countries. A third point about the notification procedures to which I should draw your attention is the checklist or questionnaire on enforcement, to which notifying Members have agreed to respond. This is in recognition of the fact that much of the important information about national enforcement procedures is not to be found in specific intellectual property laws but in general codes of civil and criminal procedures and indeed in jurisprudence.

Review The review of implementing legislation takes the form of a ‘peer group’ examination. The legislation is studied by the notifying country’s trading partners who are entitled to ask questions through the TRIPs Council. The questions are generally put some two to three months in advance, with responses to these questions provided on the floor of the TRIPs Council and Page 104 →in writing, in principle some two to three weeks in advance of the review meeting. An opportunity is given for follow-up questions. In the case of the developed countries, whose legislation was reviewed in 1996 and 1997, the review was divided into four subject areas, each requiring a week-long meeting. The records of each review, the questions put and the responses given, have been distributed in a separate document for each country reviewed and for each area. The following table shows some data relating to the review of the legislation of developed countries in which a total of over 4,000 questions were asked of the 30 or so participating countries. Table 1: Implementing TRIPs: Review of the Legislation in Developed Countries Page 105 →Developing countries have expressed a preference to have the totality of their legislation reviewed at a single review meeting, rather than to deal with different IPRs at different meetings as was the case with the developed countries. Twelve countries have volunteered to be reviewed in the first half of 2000 (probably in June or July) and a further 12 to be reviewed in the autumn of that year. The aim is to complete the review of developing countries’ legislation in 2001, with a further three review meetings. What is the purpose of this review mechanism? I think it can be regarded essentially as a vehicle for resolving possible difficulties in a conciliatory way and thus as a vehicle for dispute prevention. In giving effect to an agreement as complicated and far-reaching as the TRIPs Agreement, it is inevitable that a large number of issues

about compliance will arise. This was the case with the developed countries and will no doubt also be the case with the developing countries. Experience with the review of the legislation of developed countries shows that it was useful not only in clearing up misunderstandings about countries’ legislation but also in identifying deficiencies. In some cases, the country under review was already aware of deficiencies and was planning to put them to rights as soon as possible, whereas in quite a number of other cases the country came to accept the need for doing so as a result of the deficiencies being brought to its attention in the review process. Of course there were, and there no doubt will be, situations where the review will identify differences of interpretation. Some of these differences will no doubt be pursued bilaterally and, if not sorted out in that way and if considered of sufficient importance, may become eventually the subject of dispute settlement. However, it is to be hoped that the review mechanism will offer an avenue for dealing with compliance issues so as to limit as much as possible recourse to dispute settlement. I should also mention that the records of the questions put and answers provided in the review of developed countries can offer some insights into how those countries are implementing the TRIPs Agreement, which may be of help to countries still in the process of preparing to do so.

3. Dispute Settlement Before examining the use of the dispute settlement system in regard to TRIPs, it should be recalled that the majority of issues, up to 1999, that arise between Members regarding TRIPs compliance are resolved bilaterally without formal invocation of the dispute settlement mechanism, although against the background of its existence. In regard to the TRIPs Agreement, the WTO dispute settlement system has so far been invoked 20 times, in respect of 16 separate matters (see Table 2). This compares with a total number of consultation requests under the Page 106 →WTO system so far, in respect of all of the 26 WTO agreements, of 179 relating to 138 distinct matters. This proportion of more than 10 per cent is quite considerable given that so far only some 35 WTO Members, out of a total of 134, have TRIPs obligations, unlike the case under most other WTO agreements. It may be of interest to examine the matters which have most frequently arisen in disputes so far: Three of these matters have related to the mailbox and exclusive marketing rights obligations of Article 70.8 and 70.9. These obligations only apply in countries which do not yet provide product patent protection for pharmaceuticals and agricultural chemicals. The other provisions of Article 70, which relate to the extent to which the rules of the TRIPs Agreement apply to subject-matter that already exists at the end of the relevant transition period, have been the subject of four complaints relating to three distinct matters. Two of these complaints have related to the application of the rules contained in Article 18 of the Berne Convention to the protection of existing sound recordings, pursuant to Articles 14.6 and 70.2 of the TRIPs Agreement, and the other two have concerned the extent to which existing patents still in force at the end of the transition period in question benefit from the minimum term of 20 years from filing prescribed in Article 33. All of these disputes have been the subject of a mutually agreed solution, with the exception of the recent complaint of the United States against Canada regarding the patent term, which is at the panel request stage. Three of the cases have related to other aspects of the protection of pharmaceutical and agricultural chemical products. These concern the complaint by the European Communities about provisions of Canadian legislation that permit, without the authorization of the right holder, testing of pharmaceutical products for the purposes of obtaining marketing approval from health regulatory authorities and, during the last six months of the patent term, production and stockpiling. This matter is presently before a panel. The other two cases concern a Canadian complaint against the European Communities claiming that patent term extension for pharmaceutical and agricultural chemical products is inconsistent with the nondiscrimination provisions of the TRIPs Agreement and a United States complaint against Argentina relating to the consistency of its legislation on the protection of test data in respect of agricultural chemical products with the ‘standstill’ or ‘non-backsliding’ clause contained in Article 65.5 of the transition provisions. Both of these cases are still at the consultation phase. Page 107 →Three of the matters raised have concerned the enforcement provisions of the TRIPs Agreement. Two of them relate to the availability of provisional measures in the context of civil proceedings without prior notice to the defendant, in particular in situations where there is a likelihood that

otherwise evidence of infringing activities would be destroyed. These cases appear to have been motivated in particular by the need for ex parte search and seizure orders where rights in computer software are being infringed, given the ease with which evidence of the use of such programs can be eradicated. One of these cases has been the subject of a mutually agreed solution and I am hopeful that the other one will have a similar outcome. The other complaint, which also relates to copyright matters, concerns the availability of effective remedies with respect to unauthorized broadcasts. This is still at the consultation phase. In addition to the four matters concerning copyright and related rights to which I have already referred (that concerning retroactive protection for sound recordings and the three enforcement cases), one other copyright matter has been the subject of a complaint. This concerns the communication to the public by certain commercial establishments in the United States of broadcast works without the authorization of right holders or the payment of royalties. A panel to hear this complaint has been constituted. The other three cases have related to the protection of trademarks and geographical indications. One was the subject of a panel finding and the other two are at the consultation phase. Page 108 → Table 2: TRIPs Disputes as of 31 July 1999 Page 109 →In summary, of the 16 distinct matters that, until 1999, have been the subject of dispute settlement proceedings in regard to the TRIPs Agreement, four have been the subject of mutually agreed solutions. One has been the subject of two panel reports and one Appellate Body report, together with the adoption of legislation by the respondent to bring itself into compliance. Another was the subject of a panel report which upheld the main complaint but not the one relating to intellectual property. Two are at the panel stage, one at the panel request stage, and seven are still at the stage of consultations. It will be noted that all the complaints so far have been lodged by the major industrialized countries, mostly the United States and the European Communities, together with one complaint by Canada. This should, of course, be seen in the broader context of the WTO dispute settlement mechanism as a whole. Thirty-four of the 179 requests for consultations have been made by developing country WTO Members, many of them with success. It should also be recalled that one of the aims of the TRIPs Agreement, as reflected in its preamble, is to reduce tensions by strengthening commitments to resolve disputes on trade-related intellectual property issues through multilateral procedures. Article 23 of the dispute settlement procedures commits all WTO Members seeking redress of a violation of TRIPs or other WTO obligations to use the multilateral procedures and to respect them in regard to determinations of violations and any recourse to retaliatory measures.

4. Further Development of the Agreement Discussions under way regarding possible further development of the TRIPs Agreement are taking place in two contexts: First, under the so-called built-in agenda of the TRIPs Agreement calling for further work on the protection of geographical indications (Articles 23.4 and 24.2), biotechnological inventions (Article 27.3(b)) and nonviolation cases (Article 64.3) as well as under the work program on electronic commerce launched by the WTO Ministerial Conference last May. Second, as you know, preparations are under way for the initiation of new negotiations in the WTO, possibly taking the form of a round of trade negotiations, at the next WTO Ministerial Conference to be held in Seattle, 30 November to 3 December 1999. If a new round of trade negotiations is launched in Seattle, and it contains a TRIPs component, both of which issues remain to be decided, the likelihood is that any modifications that might result from work on the built-in agenda items would be negotiated in that context, rather than in the TRIPs Council where this work has been under way so far. Given that many Members are still consulting with interested parties in capitals, it is too early to have a very Page 110 →clear picture of the prospects for a TRIPs negotiating mandate in a new round. What is, I believe, reasonably clear is that intellectual property is not a major driver behind proposals for launching a new round and that for many Members issues of implementation remain the primary concern rather than further

development of the TRIPs Agreement.

5. Built-In Agenda Geographical Indications There are two areas of work under the built-in agenda concerning the protection of geographical indications: In regard to the requirement in Article 23.4 of the TRIPs Agreement to undertake negotiations on the establishment of a multilateral system of notification and registration of geographical indications for wines, the work is now focused on two proposals. One from the European Communities calls for a system which would lead to geographical indications registered under the international system being automatically protected in participating Members, subject to a procedure for dealing with oppositions from each Member who considers that a geographical indication is not eligible for protection in its territory. The other proposal on the table comes from the United States and Japan. It envisages a compilation of an international database of geographical indications to which Members would be expected to have reference in the operation of their national systems. Both approaches have support from some other Members. A related issue is the product coverage of an international notification and registration system. It is agreed that it would cover wines; there is widespread although not universal support for it covering spirits as well; and some Members would like to see it expanded to other product areas also. The other area of work on geographical indications is the review of the application of the provisions in the Section on Geographical Indications under Article 24.2. In this context and also in the context of the preparations for a new round, proposals have been made for the expansion of the product areas that must benefit from the higher level of protection presently only required under the TRIPs Agreement for wines and spirits to other agricultural and handicraft products, for example rice, tea, beer, etc. These suggestions have not been received with great enthusiasm by some Members. The present state of the work under Article 24.2 is that the Council has asked the Secretariat to prepare a paper summarizing the more than 30 Page 111 →responses that have been received to the detailed questionnaire on national regimes for the protection of geographical indications.

Biotechnological Inventions Article 27.3(b) of the TRIPs Agreement calls for its provisions to be reviewed this year (1999). The TRIPs Council has initiated this work with a data collection exercise, involving the provision of information by Members on the way in which they are giving effect to the provisions of Article 27.3(b) and the summarizing of this information by the Secretariat in the form of synoptic tables. One aspect which has become clear is the difference in emphasis between some Members who believe that the review exercise should focus on matters of implementation and others who believe that the review provides an opportunity to consider possible improvements or elements of rebalancing in the Agreement. In the TRIPs Council and in the broader context of the preparations for a new round, various suggestions in this regard have been made; these include that efforts should be made to eliminate the exclusion from patentability allowed by Article 27.3(b) and to incorporate key provisions of UPOV concerning plant variety protection and also that attention should be given to the interests of persons, particularly indigenous and local communities, who have provided underlying genetic resources or traditional knowledge used in biotechnological inventions.

Electronic Commerce The WTO Ministers launched at their meeting in Geneva last May a work program on electronic commerce. Under this work program, the TRIPs Council has been asked to explore the intellectual property aspects of electronic commerce. It has initiated this work with a Secretariat overview of the interfaces that arise between electronic commerce and intellectual property from the perspective of the TRIPs Agreement and submitted a progress report to the General Council. While there is broad appreciation of the importance of the implementation of the TRIPs Agreement for electronic commerce and of the work that has been done and is under way in WIPO,

for example the new WIPO copyright treaties and its work in the area of domain names, it is not yet clear what immediate role they see for the WTO on these matters, whether in the context of the TRIPs Council or a possible future round, other than to study further the issues arising in connection with electronic commerce.

Non-Violation Complaints An unusual feature of the WTO dispute settlement mechanism is that causes of action under it can not only be an alleged violation of a WTO obligation, but can also be an allegation that a benefit that should accrue is being nullified Page 112 →or impaired as a result of a measure taken by another Member which does not in itself conflict with that Member’s obligations. The possibility for this type of complaint under the TRIPs Agreement is subject to a moratorium for the first five years. The TRIPs Council is presently studying, pursuant to Article 64.3 of the TRIPs Agreement, the scope and modalities of complaints of this type in the TRIPs area. Some delegations have advocated that the moratorium should be extended to permit fuller study of this issue while one other delegation has stated that it will not be able to join a consensus in this regard.

Preparatory Process for a Possible New Round Under the auspices of the WTO General Council, a process is under way to prepare recommendations for decisions to be taken by Ministers at the Seattle Ministerial Conference. As I mentioned, many Members, but, as yet, not all, would like to see a new round of trade negotiations launched at that time. In the preparatory work for those recommendations, ideas and proposals for what might be included on TRIPs-related matters have been put forward. These cover the issues that I have already described under the rubric of the built-in agenda. In addition, a number of other ideas have been put forward. One point that is being stressed by some delegations is that any TRIPs component should aim to build on the protection of intellectual property already foreseen in the TRIPs Agreement and not call it into question. However, some other Members have put forward suggestions relating to improving, as they see it, the balance under the TRIPs Agreement, for example by extending transition periods and providing greater flexibility for compulsory licensing in the patent area. Suggestions have also been made that attention should be given to ensuring that the objectives of Article 7 of the TRIPs Agreement to contribute to the promotion of technological innovation and the transfer and dissemination of technology are effectively realized, in particular in developing countries. Ideas in this regard include extending the provisions of Article 66.2 concerning the grant by governments of developed Members of incentives to their enterprises and institutions for the transfer of technology to developing as well as least developed WTO Members, facilitating access to technology required to be used to meet national or international environmental standards and introducing safeguards in the intellectual property laws of developing countries, particularly those arising out of the provisions of Articles 30, 31 and 40 of the TRIPs Agreement. It is also being suggested that certain elements of ‘unfinished business’ from the Uruguay Round might also be looked at again, for example the general adoption of a first-to-file rule in the patent area. It is important to stress that there is still a long way to go before the outlines of what might be agreed at Seattle, both in general and on intellectual property matters, become clear. Members are in the process of putting their Page 113 →initial ideas and proposals on the table in Geneva and the real process of negotiation aimed at drawing up a balanced negotiating agenda has yet to get seriously under way. Quite apart from the question of whether WTO Ministers will be successful in reaching agreement on launching a new round in Seattle, it remains to be seen how broad the coverage of any such round might be, including whether it will have a TRIPs component and, if so, how far-reaching that component might be.

____________________

* Director, Intellectual Property Division, WTO, Geneva, Switzerland. Page 114 →

Page 115 →CHAPTER 7 The TRIPs Agreement Comes of Age: Conflict or Cooperation in the Post-Transitional Phase? Jerome H. Reichman* The international minimum standards of intellectual property protection set out in the TRIPs Agreement1 will eventually determine the level of competition for knowledge goods that are sold or licensed on the global market that emerged from the Agreement Establishing the World Trade Organization (‘WTO Agreement’) of 1994.2 The extent to which these standards will exert pro- or anti- competitive effects on global commerce remains to be seen and will, in my view, depend in part on how the developing countries contrive to implement them once the fiveyear transitional period expires on 1 January, 2000.3 As is now widely known, the TRIPs component of the WTO Agreement represented a revolution in international intellectual property law.4 Although it built on the Paris and Berne conventions of 1883 and 1886, respectively,5 TRIPs went well beyond the original anti-copying objectives of the drafters.6 It imposed a comprehensive set of relatively high international minimum standards governing copyright and sound recordings, patents, trade marks, geographical indications of origins, trade secrets, industrial designs, integrated circuit designs7 and even indirectly, unfair competition.8 It does not cover competition law, as such, although it touches on related issues,9 especially licensing agreements.10 TRIPs also mandated a detailed set of enforcement procedures, that is to say, rules of judicial and administrative conduct for all states, including a duty to reject counterfeit trade marked and pirated copyright goods at the borders of all member countries.11 Finally, it established speedy and tough dispute settlement machinery within the WTO framework, which leads, in the end, to the possibility of cross-collateral trade sanctions for noncompliance with the agreed minimum standards of intellectual property protection.12 Page 116 →Despite the rapid escalation of international intellectual property protection that this scheme envisions, the TRIPs Agreement, unlike prior GATT legislation, contains no preferential or differential measures for developing countries. After the five-year transitional period expires, all developing countries will be held to full compliance with all the agreed standards.13 However, we must continue to distinguish between developing countries and least-developed countries (‘LDCs’). The poorest of the poor have another six years in which to comply, and then there are many loop holes for them in both the WTO Agreement and in the Understanding on Rules and Procedures Governing the Settlement of Disputes (‘DSU’).14 So it may be a long time before the leastdeveloped countries are fully integrated into the system. This article focuses on the critical juncture in the TRIPs Agreement that will occur on 1 January 2000, when the developing countries (but not the LDCs) must comply with the relevant international minimum standards. After summarizing some of the positive achievements that have occurred under the TRIPs Agreement during the past five years, I intend to review some of the negative trends that could become worrisome in the post-transitional period, especially if the developed countries adopt a hard line, confrontational approach to the coming implementation process. I then explore the virtues of a non-confrontational (or less confrontational) approach and close with some long-term forecasts.

1. Positive and Negative Developments during the Transitional Phase First of all, on the positive side, the Council for TRIPs and the WTO secretariat that services the Council have truly been forces for mediation, consultation and persuasion.15 I realize that Professor Jacques Bourgeois has said that consultation is like an herbal tea,16 but a lot of very good and effective herbal tea has been drunk. On the whole, this process has avoided needless confrontation, largely due to the effectiveness of bringing into intellectual property law the rules of transparency that are a basic part of the GATT jurisprudence.

Positive Applications of Transparency and the Appellate Standards of Review Article 63 of the TRIPs Agreement clearly establishes a rule of transparency as the first step in ‘Dispute Settlement and Prevention.’17 This provision makes all countries aware of the risks of non-compliance with the black letter rules by rendering it difficult to avoid detection of non-conforming Page 117 →laws. Because the Council for TRIPs has the power to invite countries to present their laws, to discuss these laws, and to challenge them through periodic review mechanisms and other consultative procedures, it has successfully introduced respect for the rule of law and reduced pressures for unilateral measures. The attitude of both the Council and the Secretariat is, ‘whenever possible, to resolve differences between countries without the need for formal recourse to dispute settlement.’18 However, the transparency doctrine also reveals disputes that cannot be settled by herbal tea, by consultation or mediation, and for which states may logically turn to the dispute settlement procedures of the DSU.19 Even though no analogous machinery was applied to the pre-existing intellectual property conventions, the WTO process has worked surprisingly well so far. The first Appellate Body decision, in 1997, in the case of U.S. v. India,20 better known in Europe as the India-mailbox case, represents a new milestone en route to Professor John Jackson’s vision of a rule-based global trading system.21 In its groundbreaking opinion, the Appellate Body opted for a strict constructionist interpretation of the TRIPs Agreement, in keeping with its view of Article 31 of the Vienna Convention on the Law of Treaties. While there had been some doubt as to whether the Appellate Body would in fact apply the Vienna Convention to the TRIPs Agreement, it has now done so in a rather emphatic and strict constructionist manner.22 The Appellate Body also manifested considerable deference to local law, if good faith efforts to implement the TRIPs Agreement were being made.23 In so doing, the Appellate Body gave three reasons why deference to local law should become a cardinal principal of its interpretive jurisprudence. First, Article 1 (1) of the TRIPs Agreement allows states to determine the appropriate methods of implementing its provisions within their own legal system and practice. Second, Article 19 (2) of the DSU says that the dispute settlement process cannot add to or diminish the rights and obligations in the covered agreements. Finally, Article 1 (1) of TRIPs says members are not obliged to implement more extensive protection than that to which they have expressly agreed.24 This approach seems consistent with Article XX (d) of the GATT, which continues to reserve the formation of intellectual property law and policy to member states except as otherwise agreed.25 When, however, the Appellate Body scrutinized the facts presented in the dispute between the United States and India, it discovered a ‘smoking gun’ that led it to rule against India despite the principle of deference to national governments. The Indian government’s own experts had found that the law and administrative procedures questioned by the U.S. failed to meet the relevant TRIPs standards.26

Page 118 →Resisting the Temptation to Gap-Fill the Minimum Standards That was enough for the Appellate Body. Yet, that Body chose to modify the panel’s own decision against India, which had been based on a test of ‘competitive expectations’ arising from the treaty as a whole.27 This ‘expectations test’ was said to derive from past GATT jurisprudence and also from a doctrine of ‘non-violatory acts of nullification or impairment’ that was embedded in GATT and carried over into the TRIPs Agreement, subject to a five-year moratorium.28 The latter doctrine holds that, even if there is no direct violation of a GATT provision, a state may remain liable for measures that indirectly frustrate the purposes of the treaty, such as nontariff barriers to trade. In the TRIPs Agreement, there is a five year moratorium on complaints for non-violatory acts of nullification and impairment.29 The Appellate Body accordingly held that a panel could not base its decision on principles derived from the non-violatory acts provision because of that moratorium.30 At the same time, the Appellate Body declined to apply the panel’s version of an ‘expectations’ test on the

alternative ground that it was inconsistent with the strict constructionist principle that the court had derived from the Vienna Convention on the Law of Treaties. Invoking this principle, the Appellate Body required India to accept the foreign patent applications at issue and to prioritize them under the ‘mailbox’ rule of Article 70 (8) of the TRIPs Agreement;31 but it refused to require India to process these same applications, as the U.S. had demanded, because India was entitled to the full transitional period applicable to newly patentable subject matter in its territory.32 A reasonable inference from this seminal decision is that TRIPs law consists essentially of the negotiated rules and no more. Panels cannot fill gaps in international intellectual property law on a theory of commercial or competitive expectations.33 A further reasonable inference is that violations will have to be clear, if not flagrant. The Court has specifically reminded members that the TRIPs Agreement governs intellectual property relations between states. Hence, the WTO is not to be treated as a court of last resort in which private parties can bring their own disputes and vent their displeasure with local judicial decisions.34 It is a forum for governments, in which the matter at issue must have an impact on international trade. The Appellate Body’s overall approach should permit developing countries to adapt the TRIPs standards to their own economic conditions by exploiting the ‘wiggle room’ in the international minimum standards.35 Two caveats deserve mention, however. First, in U.S. v. India, the Appellate Body was interpreting new TRIPs rules unencumbered by pre-existing treaties and relevant state practice. That Body may or may not become bolder when applying the Paris or Berne Conventions and their cultural Page 119 →baggage.36 Second, a lifting of the moratorium on nonviolatory complaints, which could expire on 1 January, 2000, might also loosen the Appellate Body’s interpretive process. This result seems doubtful, however, because that tribunal took pains to link the bargained-for expectations of member countries strictly to the standards expressed in the text, independent of the moratorium in question.37

Eroding the Free-Rider Mentality Another positive result of this whole process has been the erosion of the free-rider mentality that predominated in the developing countries before the Uruguay Round of Multilateral Trade Negotiations, especially in the Newly Industrialized Countries (‘NICs’).38 These countries have moved promptly to implement the TRIPs Agreement. They are ready and eager to be reviewed. They want a good report card, and some of them, Taiwan, for example, which I visited recently, are clearly beginning to realise the benefits of a more mature intellectual property system.39 Now, this could make the NICs formidable competitors of the developed countries with respect to high tech and knowledge goods later on, but at least such competition would transpire on a level playing field. Meanwhile, studies suggest that compliance with TRIPs can help all developing countries, and not just the NICs, to attract more foreign investment and to improve the terms on which technology is likely to be transferred.40

Negative Factors on the Horizon Let me now identify some of the more ominous negative factors that should also be placed on the table. If we disregard the APEC countries, which are reportedly on schedule to meet the deadline, the bulk of the developing countries appear behind schedule in implementing the TRIPs Agreement. Many will not be ready by January 1, 2000, and they are in an increasingly angry and resentful frame of mind. Transaction Costs Unlimited The transaction costs of building and staffing intellectual property systems, including patent offices and other administrative agencies, constitute a palpable drain on very scarce resources.41 Poor countries have also to send high-level delegations to numerous meetings at the World Intellectual Property Organization (WIPO), the WTO, and other bodies, not to mention regional and sub-regional meetings on related issues, whose costs further burden their treasuries. It is an open secret that many countries could simply not afford to attend these meetings if WIPO or other organizations did not foot all or part of the bills. The developing countries have also become Page 120 →increasingly conscious of the social costs that their TRIPs obligations will entail in the short and medium

terms.42 There are, in particular, certain hot button issues that have fanned resentment. At the top of the list, perhaps, is the problem of acquiring essential medicines at affordable prices.43 I personally do not see this as an insoluble problem, but the big pharmaceutical companies and their government patrons have both been taking increasingly hard lines. Problems of maintaining biodiversity and sharing in the gains from exploiting local plants and medicines have likewise attracted considerable attention.44 There are also ethical and emotional issues, such as questions concerning the patenting of life forms. Efforts of hybrid seed manufacturers to prevent farmers from using seeds of improved crop varieties without having to repurchase them is another hot button issue at the moment.45 Uneven Distribution of Benefits There is also a growing perception that the benefits of higher intellectual property protection may be very unevenly distributed, at least in the short and medium terms, even though all the developing countries must bear the transaction costs mentioned above.46 Numerous small countries in Latin America, for example, find themselves significantly disadvantaged in this respect, unlike two or three of the region’s larger economic powers that have virtually attained the status of Newly Industrialized Countries. How smaller or less advanced countries can limit these disadvantages and their attendant social costs during a foreseeably long technological ‘catch-up’ period is perceived as a major strategic issue.47 At the same time, proposals for new forms of intellectual property protection that might generate income streams for developing countries at the expense of public domain users in developed countries have received a cool reception at the international level. Resistance to proposals that would protect folklore and native arts under rights related to copyright law,48 for example, is often couched in terms of avoiding unacceptable deviations from Western legal traditions and doctrinal orthodoxy. Such purist foot-dragging infuriates the representatives of the poorer countries, who are well aware that the developed countries recently turned orthodox copyright principles on their head in order to accommodate their own manufacturers of computer programs.49 A ‘Pound of Flesh’ Mentality Meanwhile, the various intellectual property owners’ associations in developed countries are clearly gearing up for a fight, as are their respective trade representatives. Having failed to accelerate the implementation of TRIPs during the transitional period, these associations now want full Page 121 →compliance after January 1, 2000. They are preparing the necessary country by country reviews. This, in turn, has bred considerable anxiety among the developing countries as they contemplate the order in which they will be called before the Council for TRIPs, 50 not to mention the impending bilateral requests for consultations with their implicit threat of formal litigation in the end. In this connection, the intellectual property owners who most dominate the process are pressing maximalist claims and interpretations of TRIPs standards that are consistent with their earlier negotiating positions, but are often inconsistent with the black letter rules of the various disciplines. Moreover, powerful firms and trade associations seem determined to press certain scope of protection issues on which there is often no consensus, even in the developed countries. Attempts to bully the international organizations that advise the developing countries on these issues are frequently encountered; and even organized efforts to provide technical cooperation under Article 67 of the TRIPs Agreement51 have sometimes reportedly degenerated into crude propaganda exercises that give exclusive voice to the views of the high protectionist coalition. The TRIPs Agreement itself calls for review of certain borderline issues that were not fully resolved in 1994 and that are extremely controversial.52 Prime examples are the patenting of biogenetically engineered products and processes and the protection of plant varieties in the domestic intellectual property laws, both of which must be reviewed after 1 January 2000.53 Because the European Union has finally adopted a Directive on the legal protection of biotechnology,54 which had been unattainable in the early 1990s, their negotiators are likely to press the developing countries for higher levels of intellectual property protection in this field.

Yet, these issues will hardly be less controversial in the developing countries than they were in the European Union. Moreover, any intellectual property regime governing biotechnology will affect developing countries in different ways, depending on the state of their existing technological infrastructures,55 and it may prove objectively difficult for them to formulate a coherent policy with which to resist demands for prematurely high levels of protection. Meanwhile, the U.S. continues to threaten the rest of the world with Sec. 301 actions, even though the DSU, in Article 23, appears to outlaw resort to unilateral actions as the price of the package deal underlying the Uruguay round.56 The European Union has, in fact, challenged some aspects of the United States’ resort to Section 301 in a formal WTO dispute settlement action.57 Whether the WTO or the U.S. Congress and Administration are prepared to deal with the aftershocks of conflicts of this magnitude remains to be seen.

Page 122 →New Demands for Ever Higher Levels of Protection At the time of writing, the U.S., the EU, and Japan had been drawing up a list of new topics, including new demands for higher intellectual property protection, to become the basis for the Millennium Round of Multilateral Trade Negotiations, which was scheduled to get underway late in 1999. Especially ominous is the inclination in some quarters to lift the moratorium on non-violatory complaints of nullification and impairment under Article 64.58 This move would further encourage the coalition of intellectual property owners to press for maximalist interpretation of existing norms, including their own views of the gray areas, the ‘wiggle room’ areas, on which there is much disagreement.59 Those who favor lifting the ban on non-violatory complaints underestimate the extent to which this doctrine, once set loose in the fluid world of intellectual property rights, could boomerang against developed countries, especially those wedded to a common law approach, such as the United States. It could, indeed, expose many federal appellate decision affecting foreign intellectual property rightsholders to second guessing actions filed before the WTO in Geneva. Should the WTO panels or the Appellate Body become receptive to complaints of this kind, it could hamper the ability of the U.S. authorities to formulate domestic intellectual property policy over time. The availability of non-violatory complaints would also magnify existing temptations to wring unnegotiated benefits out of the dispute-resolution process rather than seeking to resolve pending intellectual property issues by offering to exchange greater market access for higher levels of protection. Such a strategy would further elevate tensions and put more pressure on the fledgling dispute-settlement apparatus than it is ready to bear. To their credit, some negotiators appear less keen than others about lifting the moratorium on non-violatory acts, and Professor Jackson has questioned the wisdom of continuing to rely on this doctrine at all, now that states have begun systematically to negotiate the removal of non-tariff barriers. Meanwhile, as the U.S. and EU prepared their wish list of new demands for the Millennium Round, they seemed relatively unconcerned about either the ability of the developing countries to pay the costs of still higher levels of intellectual property protection or the willingness of U.S. political circles to endure the countervailing costs of new trade concessions to be given in exchange. Perhaps the protests at the Ministerial Meeting in Seattle will have kindled second thoughts in this regard. When questioned publicly about new concessions for developing countries, high-level spokespersons for USTR and the European Commission have, in the recent past, tended to duck the issue by feigning a reluctance to reveal their hand. But prior to the Page 123 →Uruguay Round, they did reveal their hand. From the beginning, everybody knew that developing countries were going to gain concessions in agriculture and textiles, and that developed countries were going to strengthen intellectual property rights, and that is what happened. One reason that the authorities have not wanted to reveal their hand is that they may hold no cards. President Clinton did not obtain fast-track authority, and Congressional actions continually belie the rhetoric of free trade. Nevertheless, the big multinational firms with greatest access to USTR keep on pressing for ever higher levels of intellectual property protection, regardless of the social costs. Few have bothered to ask the small and medium sized firms that actually drive the U.S. economy whether they would benefit or suffer from such proposals.

Another reason that we do not hear much about new trade concessions for developing countries is that some of the developed countries’ negotiators may view debt forgiveness as a trump card in the forthcoming Millennium Round. While debt forgiveness is long overdue, a strategy of wringing untenable levels of intellectual property protection that mortgaged the technological future of poor countries out of weak governments could discredit the entire enterprise. This theme leads directly into my next topic. The question becomes how to confront this sobering list of negative factors on the TRIPs horizon without straining the new institutional infrastructure built around the WTO to the breaking point.

2. Confrontation or Cooperation in the New Millennium? The negative trends summarized above should focus attention on the kind of process that would yield the greatest benefits after 1 January 2000, when the developing countries become fully liable for breaches of their international obligations under the TRIPs standards. Shall it be a process of confrontation or cooperation? Some of us believe that a more cooperative approach would lead to greater gains while lessening the risks to the survival of the WTO system as a whole.60

Why a Confrontational Approach Seems Likely to Fail While the TRIPs Agreement harmonizes the domestic intellectual property regimes to an unprecedented degree, there is a tendency to forget that the end result is a long way from a set of uniform laws. If the greatest gains occurred in patent law, for example, this was largely because international patent protection under the Paris Convention had remained abysmally weak, despite concerted and ultimately unsuccessful efforts to revise the Paris Convention between 1979 and 1985.61 Page 124 →Gaps in the Law My own assessment is that the TRIPs Agreement left the intellectual property glass either half full or half empty, depending on one’s point of view. TRIPs was largely a backwards-looking agreement that relied on time-honored doctrinal norms that seemed well-suited to the creative productions of the Industrial Revolution. But it did not seriously address the problems caused by the newer technologies, especially information technologies, which fit imperfectly within the classical patent and copyright paradigms;62 and it did not begin to address the broad areas of traditional intellectual property law in which state practice in developed countries varies widely. There is still no consensus concerning such basic patent issues as the subject matter of protection (computer programs and biotechnology remain unsettled, for example); the novelty and nonobviousness standards of eligibility; the scope of the exclusive rights (including the doctrine of equivalents); or the exceptions that all states should be allowed to make.63 Even in copyright law, where the Berne Convention represented a much higher degree of systemic harmonization than was true under the Paris Convention, no consensus has been reached with respect to fundamental scope of protection issues, or to the kinds of exceptions and limitations that states may freely implement.64 However, some progress with respect to basic norms governing transmissions of literary and artistic works in cyberspace was made at a WIPO Diplomatic Conference in December 1996,65 and proposals to integrate these norms into the TRIPs Agreement may logically appear on the agenda for the Millennium Round. Against this backdrop, hard-nosed confrontational strategies for implementing the TRIPs standards risk backfiring by revealing the full extent of the residual disagreement, as reflected in conflicting state practices. Undue pressure may also convince governments in the developing countries to resist further harmonization at all costs. Defensive Measures If the developing countries do decide to stiffen their resistance, they can formulate regional positions on key intellectual property issues, which, as instances of state practice, could greatly influence the future development of international intellectual property law and policy. Indeed, something of this sort is already underway in the APEC framework. While these countries are determined to meet the deadline for compliance with the basic TRIPs

standards, they see themselves as the one region that most acutely needs to reconcile the intellectual property strategies of highly developed countries with those likely to benefit poorer developing countries.66 APEC thus seems Page 125 →determined to forge its own policies and standards for the post-transitional phase, and their example could greatly influence other regions and subregions. Besides exploiting the ‘wiggle room’ that pervades existing international minimum standards of intellectual property protection, the developing countries retain broad powers to tax and otherwise regulate intellectual property owners in ways that could significantly undermine their commercial expectations.67 There is even greater room for states to use competition law to limit the social costs of higher standards of intellectual property protection.68 This risk seems likely to trigger serious initiatives to bring competition law within the WTO disciplines, despite the lack of consensus surrounding all but the most basic norms even in the developed countries.69 Of course, incautious use of such regulatory powers becomes a doubleedged sword, which could discourage direct foreign investment and transfers of technology, undermine local innovation, and lessen overall economic efficiency.70 Nevertheless, they are logical responses to excessive or premature demands by intellectual property owners who focus only on their own short-term interests. Governments in developing countries that find it politically expedient to respond to the social discontent of local intellectual property users may seek to gain time by relying on these regulatory measures, without sufficiently evaluating their costs; and they may also come to assess the relevant policy variables from their own unique perspective, just as the U.S. did when it was still a developing country.71 Litigating to Impasse Conflict and confrontation in the post-transitional phase could soon cripple the mediatory powers of the Council for TRIPs and lead to wholesale litigation. Seasoned observers already expect the number of dispute settlement actions to increase exponentially once the developing countries lose their immunities, and the coalition of intellectual property owners can hardly wait to bring test cases. The successes of the transitional phase thus appeared to have bred unrealistic expectations founded on unwarranted faith in a system that had yet to face the most potentially disruptive issues, at least prior to the vocal expression of discontent voiced at Seattle in November 1999. I predict that no one will be satisfied with the results of an excessively litigious strategy, and that the coalition of intellectual property owners may find their potential leverage much diminished in the end if they pursue it. The Appellate Body will not be maneuvered into affording rights holders more protection than their governments bargained for in the Uruguay Round. The hard truth is that these same governments often compromised Page 126 →far more, and obtained far less, than the various trade associations can afford to admit. For example, spokespersons for the big pharmaceutical interests have claimed that public interest compulsory licenses facilitating access to patented, essential medicines are illegal; that requiring the local working of patented inventions is no longer permitted; and that the patentee’s exclusive right to import patented products trumps a state’s right to allow competing imports under the doctrine of international exhaustion. Instead, I believe that, were the Appellate Body forced to decide these issues, it would uphold the validity of virtually all public-interest compulsory licenses, so long as the governments concerned observed the conditions set out in Article 31;72 it would find that local working requirements to correct abuse remain protected by the Paris Convention and that ‘abuse’ is very broadly defined;73 and it would decline to limit resort to international exhaustion on the grounds that Article 6 of the TRIPs Agreement makes the issue non-justiciable before WTO panels.74 Moreover, putting too much pressure too soon on the developing countries will induce them to push back by invoking safeguards codified in Articles 7 and 8,75 whose potential impact is fortified by the pre-ambular objectives.76 Experts in developing countries now perceive Articles 7 and 8(1) as a basis for seeking waivers to meet unforeseen conditions of hardship.

These countries could attempt to trigger the safeguards implicit in Articles 7 and 8 in one of two ways. The least destructive approach would be to convince the Council for TRIPs itself to grant narrowly described waivers to meet clearly defined circumstances for a specified period of time. This approach would strengthen the mediatory powers of the Council for TRIPs and help to offset the problems arising from the inability of that body to quash or stay requests for consultations and dispute-settlement panels launched by trigger-happy governments.77 Alternatively, developing country defendants responding to complaints of nullification and impairment under Article 64 could invoke the application of Articles 7 and 8(1) to meet unforeseen conditions of hardship.78 This defense, if properly grounded and supported by factual evidence, could persuade the Appellate Body either to admit the existence of a tacit doctrine of frustration built into the aforementioned articles or to buttress those articles by reaching out to the general doctrine of frustration recognized in the Vienna Convention on the Law of Treaties.79 Either way, overly aggressive complainants could wind up with what would amount to a judicially imposed waiver. Recall, moreover, that the legal product available to most citizens of most developing countries is poor by Western standards, in part because the legal and judicial system in a poor country is likely to suffer from the same Page 127 →lack of capital as other areas. Article 41(5) of TRIPs says that member countries are under no obligation to provide foreign intellectual property owners with a better legal product than is available to nationals even if the TRIPs procedures set out in Articles 41-61 must be met.80 A confrontational atmosphere will thus decrease the developing countries’ incentives to enforce intellectual property laws protecting foreigners in subtle ways that will seldom become actionable. Let me reiterate that ending the moratorium on non-violatory complaints in a climate of confrontation and hostility could thoroughly destabilize the WTO. Consider, for example, that under a common law process of legal development, the U.S. federal appellate courts have slowly developed case law limiting copyright protection of software and opening patent protection of software.81 If this process had been disrupted by suits filed in Geneva by government attorneys acting on behalf of disgruntled foreign litigants, the loss of sovereign control over intellectual property law and policy would have appalled Congress. Yet, that is the kind of risk all countries face in a climate of conflict and unbridled litigation once non-violatory complaints were allowed.82 Summing all these risks together, I conclude that an overly litigious climate that produced a stream of controversial decisions on the limits of intellectual property protection would convince most states that they had lost too much sovereignty in this area, and it would undermine confidence in and loyalty to the WTO process. If the U.S. lost too many cases, a Congress that had declined to pay its dues to the United Nations and that had withdrawn from the United Nations Educational, Scientific, and Cultural Organization (UNESCO), could reconsider its commitment to the WTO. Conversely, if the U.S. and E.U. won too many cases, the resentment of developing countries could spill over to other, non-negotiated areas. It does not take much practical wisdom or experience to see how easy it is for a truly determined group of countries spanning three continents to find ways to put spikes in the wheels of a weak and decentralized international system.

Bargaining around the TRIPs Agreement: Elements of a More Cooperative Approach In contrast to a confrontational approach, I urge consideration of a more cooperative approach to the posttransitional phase, an approach that Professor David Lange and I have termed ‘bargaining around the TRIPs Agreement.’83 Under this approach, governments would treat the TRIPs Agreement as a basic set of default rules that they bargained around, with a view to obtaining win-win positions for all the players. Such a process is, of course, perfectly consistent with the philosophy underlying prior Page 128 →development of the General Agreement on Tariffs and Trade (GATT). From this perspective, it is useful to distinguish government to government actions from public-private initiatives. Government to Government Initiatives

Looking at government to government transactions, the first goal, in my view, is to consolidate the transparency and mediatory capacities of the Council for TRIPs as an effective alternative to litigation.84 In particular, we need to consolidate the anti-copying, anti-counterfeiting and anti-freeriding thrust of TRIPs on which everyone agrees. This entails the notion that dispute settlement actions should be reserved for slam-dunk decisions, like that in the U.S. v. India case, but they should not be brought to test the gray, unbargained for areas. We should, moreover, preserve the moratorium on non-violatory complaints and leave the gray, or ‘wiggle room,’ areas to WIPO, where market power is less of a factor and where methodical negotiations and deliberations can take place at a high technical level. With the Cold War ended, the climate for negotiations within the WIPO framework has changed for the better. This is attested by the successful outcome of the 1996 Diplomatic Conference that produced two fundamental treaties governing international copyright relations in the networked environment.85 Since 1998, WIPO’s procedures have been further streamlined, with a view to facilitating direct inputs by Regional Groups on pending issues before Standing Committees, with fewer overlays of so-called Groups of Experts, that were prone to manipulation in the past. Moreover, WIPO’s legislative process has been made more open by the recent decision to allow both intergovernmental and non-governmental representatives to take the floor during deliberations of the Standing Committees. The WIPO process has, of course, also benefited from the success of the TRIPs Agreement itself, which gives all countries a stake in the international intellectual property system and obliges them to seek a balance of interests that both developed and developing countries can accept.86 In the new WIPO framework, experience demonstrates that the U.S. and the E.U. cannot dictate to the rest of the world and still hope to come away with positive legislative results. Despite much huffing and puffing, for example, real progress on the WIPO copyright and phonograms Treaties of 1996 could not be made until the U.S. and E.U. delegations persuaded a powerful coalition of ‘content providers’ that a more balanced, genuinely negotiated set of ground rules was preferable to no treaty at all. Once compromise became possible, the need to obtain the votes of the Latin American, Asian, and African Regional Groups, coupled with the self-interest of those groups in constructing a robust, world-wide cyberspace Page 129 →environment, led to hard bargaining and determined efforts to reach a broad consensus.87 In the end, the new WIPO treaties represent a balanced and reciprocally beneficial set of foundational rules, with which each state can adapt its Internet policies to its own needs. Thus, while both the U.S. and the E.U. have opted to enact domestic legislation that is far more protective than these treaties require, the rest of the world remains free to adopt a less protectionist approach that will not, however, undermine the global telecommunications network and the electronic commerce it is expected to sustain.88 Having participated directly in this process and in follow-up deliberations on related issues,89 I am confident that the WTO has much to gain (and many losses to avoid) by placing greater reliance on these WIPO processes for the formulation of new intellectual property norms to be incorporated into future revisions of the TRIPs Agreement. Meanwhile, at the WTO, the goal in the post-transitional phase should be to find ways in which everyone wins by implementing the TRIPs standards. When each of the developing countries comes up for review by the Council for TRIPs, the developed countries should approach the issues by asking, ‘how can we help you to implement these international minimum standards so that you win and we win, too?’ Consider, in this connection, the possibility of linking targeted technical assistance and public sector aid or investments to satisfactory outcomes. This obviously includes technical assistance in training intellectual property cadres, and building intellectual property offices, although there is some innovative thinking about even these mundane matters.90 There is also a need to encourage regional cooperation so as to reduce everyone’s transaction costs.91 Less obvious is the need to focus on ways to assist the developing countries in identifying areas in their own economies that can profit from the global intellectual property system. Governments should encourage and assist the developing countries to strengthen a ‘fair followers’ mentality by building up the capacities of their own national systems of innovation and by helping them to improve the terms on which technology is transferred.92 In this regard, even simple or rudimentary improvements in the status quo can yield big payoffs if the developed countries back them up with appropriate technical assistance and financial support.

For example, governments in developing countries can be encouraged to foster the use of off-patent technology (including generic drugs);93 to promote the study of patent disclosures, with a view to local adaptations and improvements; to invest in expanding local reverse-engineering skills, to be supplemented by recourse to the international labor market as the need arises; to preserve and manage their biogenetic endowments, with a view to directly participating in projects to explore and exploit these resources by foreign firms; to promote the use of national trademarks on high quality Page 130 →goods and to help publicize these products and marks in foreign markets; and to identify local strengths, including cultural assets, such as design, folklore, and musical or dance traditions, which increasingly lend themselves to intellectual property protection and to commercial exploitation.94 More ambitious projects could link effective implementation of TRIPs standards with helping these governments to invest wisely in telecommunications and Internet capacity, with particular emphasis on maximizing access to scientific and technical data and information.95 Developing country governments will also require considerable assistance in stimulating transfers of technology from the public to the private sectors. In the end, of course, the developing countries’ greatest need is to make the worldwide intellectual property system work for them and not just for coalitions of powerful rights holders operating from the developed countries. To this end, I have elsewhere proposed a pro-competitive strategy for implementing the TRIPs Agreement in developing countries, which consists of the following five prongs: Accommodating established intellectual property regimes to national development goals; Using competition law to curb the abuse of market power; Fashioning new intellectual property regimes to stimulate local innovation; Resisting the drive for stronger intellectual property rights; Strengthening national infrastructures for the acquisition and dissemination of scientific and technical knowledge.96 If, in fact, the developing countries were to move in this direction, they would emulate prior pro-competitive strategies that the U.S. and Japan practiced when they were still developing countries. In this regard, perhaps the greatest contribution that governments in developed countries could make would be to avoid thwarting these good faith efforts to balance the TRIPS incentives against the need for access to intellectual creations and for the benefits of free market competition. Such a policy of restraint would require these governments to avoid unnecessary confrontations and to check the ability of private rights holders to convert the WTO process into a circus of needless and wasteful litigation that would quickly dissipate the good will and comity that all sides need to make this experiment work. Page 131 →Public-Private Initiatives Let me close by calling attention to Professor David Lange’s proposal for public-private initiatives that constitute another means of bargaining around the TRIPs Agreement. Because we have explained this proposal in a recent article,97 I will limit myself to a capsule summary here. In essence, we believe that government representatives, local entrepreneurs, and foreign rights holders should negotiate on a transactional basis to resolve conflicts arising from the TRIPs standards by devising tailor-made deals that produce win-win solutions for all the participants. Here, by government representatives, we mean that the relevant state commercial entities and their overseers should participate at the bargaining table in their capacities as economic actors, not as political exponents, in order to secure implementation of private-sector deals to resolve specific intellectual property conflicts. Presumably the presence of government representatives at the table would ensure that any deals struck between foreign rights holders and local firms would also redound to the public interest, without, however, compromising the larger political organs’ ability to maintain official positions on intellectual property law and policy in the relevant international forums. At the same time, the government’s representation at the table should help to ensure that any deals struck were implemented in practice, with the backing of the relevant administrative and judicial

organs as the case might require. While we believe that an endless array of intellectual property conflicts involving specific foreign initiatives lend themselves to mediated solutions of this kind, a hypothetical transaction might result in a specific commitment to direct investment or to a transfer of technology by a foreign rights holder in exchange for guaranteed levels of intellectual property protection and enforcement that would remove existing obstacles and make such an investment both feasible and reciprocally beneficial. Another hypothetical transaction might result in the conversion of alleged pirates into authorized licensees of the intellectual property in question, with perhaps an understanding that the rights holders might devote a fraction of their expected gains to defraying the costs of enforcement in poor countries. In evaluating these proposals, one must take into account both the limits of basic TRIPs principles, especially the national treatment and most-favored nation principles, and the need for the state’s political organs to defend their publicly held positions on intellectual property issues while promoting win-wintransactions in economies that are still susceptible to considerable government regulation. As regards the first consideration, so long as deals between foreign firms and local commercial entities (both public and private) conferred no legal or administrative benefits on foreign Page 132 →governments and did not entail legal or administrative discrimination that favored nationals over similarly situated foreigners, there would seem to be broad opportunities for resolving individual disputes on such a transactional basis.98 At the same time, the tripartite approach to deal-making envisioned in this proposal does seem to call for a special forum in which the public and private sectors could negotiate confidentially without compromising the political organs of the state in question. To this end, Professor Lange has established a Center at Duke University, which aims to develop the specialized expertise to facilitate the kind of public-private initiatives we envision. Such a Center is also open to trade associations from both developed and developing countries. It could thus encourage sectoral collaboration and alliances between small and medium-sized firms in developed and developing countries, which often have more in common with each other than with the larger firms whose interests have dominated the multilateral trade negotiations.

The Long-Term Payoffs The marriage of convenience between international trade law and intellectual property law99 has produced powerful new institutions that could stimulate innovation and invention on an unprecedented, worldwide scale.100 But the fragility of these institutions is easily underestimated because the first five-year test run has benefited from the immunities afforded both developing and least-developed, countries during a transitional phase. While leastdeveloped countries will continue to enjoy these immunities for at least another six years, the exposure of the developing countries to the full weight of the WTO’s dispute settlement machinery after 1 January 2000 poses a serious new challenge for the stability of the international trading system established in 1994. That system needs to survive the shocks and pitfalls likely to be encountered in the post-transitional phase of the TRIPs Agreement. Let me, therefore, end with a plea for restraint and for a more cooperative and nonconfrontational approach than that which has sometimes characterized relations between developed countries during the transitional phase. Once the developing countries fully perceive that they, too, have a big stake in the global intellectual property system, the long-term prospects for that system would become bright, indeed. In the long term, we should expect the economic stimulus of the TRIPs standards to influence business and investment decisions everywhere, without regard to those North-South divisions, inherited from the Cold War that seem increasingly anachronistic in principle, if not in practice. The trick, however, is to reach that long-term Page 133 →understanding without capsizing the vessel on which we collectively embarked in 1994. Professor John Jackson once stated that, if the 130 or more states that entered the WTO Agreement had really known what they were getting into, they would never have signed it. Having embarked on this great adventure, however, it is well to recall the Italian proverb that says, if one finds oneself unaccountably at sea, the best course of action is to keep on rowing.

If developed and developing countries can learn to cooperate with each other during the delicate, post-transitional phase of the TRIPs Agreement, they may jointly preside over a new epoch of investment and technological innovation. If, however, they insist on fighting each other to divide the spoils from the production of knowledge goods at the end of the twentieth century, they risk compromising the progressive and orderly development of international intellectual property law within the framework of the TRIPs Agreement. Such disarray could, in turn, destabilize the world trading system as a whole, which will inevitably become ever more dependant on the progressive development of that same body of law.

NOTES 1. See Marrakech Agreement Establishing the World Trade Organization [‘WTO Agreement’], Annex 1C: Agreement on Trade-Related Aspects of Intellectual Property Rights, 15 April 1994 [‘TRIPs Agreement’], 33 ILM 81 (1994). 2. See generally, Michael Blakeney, Trade-Related Aspects of Intellectual Property Rights: A Concise Guide to the TRIPs Agreement 45-107 (1996); J. Watal, Intellectual Property Rights in the World Trade Organization: The Way Forward for Developing Countries (Oxford 2000); J.H. Reichman, Universal Minimum Standards of Intellectual Property Protection Under the TRIPs Component of the WTO Agreement, in Intellectual Property and International Trade – The TRIPs Agreement 21-92 (C.M. Correa & A.A. Yusuf, eds., 1998). 3. See TRIPs Agreement, supra note 1, Article 65 (Developing countries and former socialist countries have five years in which to delay application of TRIPs standards, other than national treatment and most-favorednation rules). Least-developed countries (LDCs) enjoy an eleven year period of transition. See id., Article 66. See generally Adrian Otten, Implementation of the TRIPs Agreement and Prospects for Its Future Development, 1 J. Int’l. Econ. L. 523, 529-30 (1998). 4. See supra note 2. For the limits of this revolution, see J.H. Reichman, From Freeriders to Fair Followers: Global Competition Under the TRIPs Agreement, 29 NYU J. Int’l. L. & Politics 11, 26-85 (1997).Page 134 → 5. See TRIPs Agreement, supra note 1, arts. 1(3), 2 (1); Paris Convention for the Protection of Industrial Property, Mar. 20, 1883, as last revised at Stockholm, July 14, 1967, 828 U.N.T.S. 305 (‘Paris Convention’); Berne Convention for the Protection of Literary and Artistic Works, Sept. 9, 1886, as last revised at Paris, July 24, 1971, 828 U.N.T.S. 221 (‘Berne Convention’). 6. See, e.g., Gail E. Evans, Intellectual Property as a Trade Issue: The Making of the Agreement on TradeRelated Aspects of Intellectual Property Rights, 1994 World Competition L. & Econ. Rev. 137 (1994); Frederick M. Abbott, Protecting First World Assets in the Third World: Intellectual Property Negotiations in the GATT Multilateral Framework, 22 Vand. J. Transnat’l. L. 689 (1989); Friedl Weiss, TRIPs in Search of an Itinerary: Trade-Related Intellectual Property Rights and the Uruguay Round Negotiations, in Liberalization of Services and Intellectual Property in the Uruguay Round of GATT 74 et seq. (Giorgio Sacerdoti [ed.] 1990). 7. See TRIPs Agreement, supra note 1, Part II, arts. 9-39. 8. See TRIPs Agreement, supra note 1, Article 2(1), incorporating by reference Paris Convention, supra note 6, Article 10bis. 9. See generally, Eleanor Fox, Trade, Competition, and Intellectual Property: TRIPS and Its Antitrust Counterparts, 29 Vand. J. Transnat’l. L. 481 (1996); Hanns Ullrich, TRIPs: Adequate Competition Policy, in Antitrust: A New International Trade Remedy?, 153 et seq. (1995); Robert D. Anderson, The Interface Between Competition Policy and Intellectual Property in the Context of the International Trading System, 1 J. Int’l. Econ. L. 655-78 (1998). 10. See TRIPs Agreement, supra note 1, arts. 8(2) (abuse), 40 (control of anticompetitive practices in contractual licenses). 11. See TRIPs Agreement, supra note 1, arts. 41-61; Thomas Dreier, TRIPs and the Enforcement of Intellectual Property Rights, in From GATT to TRIPs – The Agreement on Trade-Related Aspects of Intellectual Property Rights 248 et seq. (F. K. Beier & G. Schricker eds. 1996); J.H. Reichman, Enforcing the Enforcement Procedures of the TRIPS Agreement, 37 Va. J. Int’l. L. 335-56 (1997). 12. See TRIPs Agreement, supra note 1, arts. 63-64; Understanding on Rules and Procedures Governing the

Settlement of Disputes, 15 April 1994, WTO Agreement, supra note 1, Annex 2, 33 ILM 1226 (1994) (‘DSU’); Rochelle Cooper Dreyfuss & Andreas L. Lowenfeld, Two Achievements of the Uruguay Round: Putting TRIPS and Dispute-Settlement Together, 37 Va. J. Int’l. L. 275 et seq. (1997). 13. An exception occurs in TRIPS Agreement, supra note 1, Article 63 (4), which allows an additional five years for developing countries to extend product patent protection to areas of technology not previously protectible on their territories. 14. See supra notes 1 and 12. 15. See TRIPs Agreement, supra note 1, Article 68 (Council for Trade-Related Aspects of Intellectual Property Rights); Often, supra note 3, at 524-29; see also TRIPs Agreement, supra note 1, Article 69 (International Cooperation).Page 135 → 16. Remarks of Professor Jacques Bourgeois, first Herbert Batliner, Symposium on ‘Europe in the Era of Globalization – Economic Order and Economic Law, April 29-30, 1999, Vienna, Austria. 17. TRIPs Agreement, supra note I, Article 63 (‘Transparency’). 18. See Adrian Otten & Hannu Wager, Compliance with TRIPS: The Emerging World View, 29 Vand. J. Int’l. L. 391, 411 (1996). 19. See generally Dreyfuss & Lowenfeld, supra note 12; see also F.M. Abbott, WTO Dispute Settlement and the Agreement on Trade-Related Aspects of Intellectual Property Rights, in International Trade Law and the GATT/WTO Dispute Settlement System 387-409 (E.U. Petersmann, [ed.], 1997). 20. WTO Appellate Body Report on U.S Complaint Concerning India – India Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/D550/AB/R (Dec. 19, 1997) (‘U.S. v. India’). 21. See generally J.H. Jackson, The World Trading System, Ch. 1 (2nd ed., 1998). 22. U.S. v. India (Appellate Body), supra note 20, at 13 (stating that the ‘legitimate expectations of the parties to a treaty are reflected in the language of the treaty itself); infra note 79. See also J.H. Reichman, Securing Compliance with the TRIPs Agreement after U.S. v. India, 4 J. Int’l. Econ. L. 585, 595-97 (1998). 23. U.S. v. India (Appellate Body), supra note 20, at 16. See also S.P. Croley & J.H. Jackson, WTO Dispute Procedure, Standard of Review, and Deference to National Governments, 90 Am. J. Int’l. L. 193 (1996). 24. See TRIPs Agreement, supra note 1, Article 1(1); DSU, supra note 12, Article 19; U.S. v. India, supra note 20, at 16. 25. See Reichman, Securing Compliance, supra note 22, at 596 (citing authorities). 26. See U.S. v. India, supra note 20, at 16. 27. See Panel Report, U.S. v. India, WT/D550/R, 5 Sept. 1997 (WTO 97-3496) (‘Panel Report’), para. 7.18. 28. See TRIPs Agreement, supra note 1, Article 64(1), incorporating by reference WTO Agreement, supra note 1, and GATT 1994, arts. XXII and XXIII; DSU, supra note 12, arts. 3(1), 26. See also Robert E. Hudec, Enforcing International Trade Law 6-7, 144, 156-61, 269 (1993); F. Roessler, The Concept of Nullification and Impairment in the Legal System of the World Trade Organization, in International Trade Law and the GATT/WTO Dispute Settlement System 123-42 (1997). 29. See TRIPs Agreement, supra note 1, Article 64 (2). 30. U.S. v. India (Appellate Body), supra note 20, at 12. 31. See TRIPs Agreement, supra note 1, arts. 70 (8) (‘mailbox rule’), 70(a) (exclusive marketing rights). 32. U.S. v. India (Appellate Body), supra note 20, at 16; TRIPs Agreement, supra note 1, Article 65 (4). 33. See Reichman, Securing Compliance, supra note 22, at 591-97; but see Paul Edward Geller, Intellectual Property in the Global Marketplace: Impact of TRIPS Dispute Settlement?, 29 Int’l. L 99, 109-10 (1995) (arguing for the opposite view).Page 136 → 34. See, e.g., Frederick M. Abbott, The Enduring Enigma of TRIPS: A Challenge for the World Economic System, 1 J. Int’l. Econ. L. 497, 514 (1998). 35. See infra note 92 and accompanying text. 36. See, e.g., Geller, supra note 33. 37. See Reichman, Securing Compliance, supra note 22. 38. See J.H. Reichman, Intellectual Property in International Trade: Opportunities and Risks of a GATT Connection, 22 Vand. J. Transnat’l. L. 747, 751-68 (1989); Abbott, supra note 6. 39. Cf. Carlos A. Primo Braga & Carsten Fink, Reforming Intellectual Property Rights Regimes: Challenges for Developing Countries, 1 J. Int’l. Econ. Law 537, 538-41 (1998) (growing importance of IPRs in developing countries).

40. Keith E. Maskus, The Role of Intellectual Property Rights in Encouraging Foreign Direct Investment and Technology Transfer, 9 Duke J. Comparative & Int’l. L. 109 (1998); Carlos A. Primo Braga & Carsten Fink, The Relations Between Intellectual Property Rights and Foreign Direct Investment, 9 Duke J. Comparative & Int’l. L. 163(1998). 41. See, e.g., Ruth L. Gana, Prospects for Developing Countries Under the TRIPS Agreement, 29 Vand. J. Transnat’l. L. 735, 770 (1996); Primo Braga & Fink, supra note 39, at 549-50. 42. See, e.g., United Nations Conference on Trade and Development (UNCTAD), The TRIPS Agreement and Developing Countries 15-20 (UN pub. 96.II.D. 10, 1996) (hereinafter ‘UNCTAD, TRIPs’). 43. See, e.g., World Health Organization (WHO), Globalization and Access to Drugs: Perspectives on the WTO/TRIPS Agreement, DAP Series No. 7, WHO/DAP/198. 9 Rev. (1999). 44. See, e.g., Thomas Cottier, The Protection of Genetic Resources and Traditional Knowledge: Towards More Specific Rights and Obligations in World Trade Law, 1 J. Int’l. Econ. L. 557-84(1998). 45. See id. 46. See, e.g., UNCTAD, TRIPs, supra note 38, at 15-20. See also Samuel Oddi, TRIPS Natural Rights and a ‘Polite Form of Economic Imperialism,’ 29 Vand. J. Transnat’l. L. 415 (1996); C.A. Primo Braga, TradeRelated Intellectual Property Issues: The Uruguay Round Agreement and its Economic Consequences, in The Uruguay Round and Developing Countries (W. Martin & A Winters eds., 1996). 47. Cf. Abbott, supra note 34, at 502-10. 48. See, e.g., Kamal Puri, Preservation and Conservation of Expressions of Folklore, 32 Copyright Bulletin [UNESCO] 5 (1998); Folarin Shyllon, Conservation, Preservation, and the Legal Protection of Folklore in Africa: A General Survey, 34 Copyright Bulletin [UNESCO] 37 (1998); Rachel Massey & Christopher Stephens, Intellectual Property Rights, the Law, and Indigenous Peoples’ Art, 34 Copyright Bulletin [UNESCO] 49 (1998).Page 137 → 49. See, e.g., TRIPs Agreement, supra note 1, Article 10(2) (requiring computer programs to ‘be protected as literary works under the Berne Convention [1971]’). 50. See, e.g., Otten, supra note 3, at 524-30. 51. See TRIPs Agreement, supra note 1, Article 67 (mandating technical cooperation on behalf of both developed and developing countries). 52. See, e.g., Otten, supra note 3, at 531-33 (‘Built-in Agenda’). 53. See TRIPs Agreement, supra note 1, Article 27(3)(b). 54. See Directive 98/44 of the European Parliament and of the Council on the Legal Protection of Biotechnological Inventions, July 6, 1998, 1998 O.J. (L 213) 13. 55. See, e.g., Reichman, Free Riders to Fair Followers, supra note 4, at 36-40. 56. See DSU, supra note 12, Article 23 (strengthening of the multilateral system); WTO Agreement, supra note 1, Article XV(4) (requiring members to conform their laws to the obligations of all the Uruguay Round Agreements); see also Reichman, Securing Compliance, supra note 22, at 598-99. 57. See Report of the Panel, United States – Sections 301-310 of the Trade Act of 1974, WT/DS152/R(Dec. 22, 1999). 58. See TRIPs Agreement, supra note 1, Article 64(2), (3). Technically, the moratorium will automatically expire on 1 January 2000, unless a consensus of the Member States agrees to suspend application of the existing provision on the recommendation of the Council for TRIPs. 59. See, e.g., Dreyfuss & Lowenfeld, supra note 12, at 283-97 (exploring difficulties of non-violation complaints in the context of the TRIPs Agreement). For the ‘wiggle room’ in the TRIPs standards, see generally, Reichman, Free Riders to Fair Followers, supra note 4, 27-51. 60. See, e.g., Martine de Koning, Why the Coercion-Based GATT Approach Is Not the Only Answer to Piracy in the Asia-Pacific Region, 19 E.I.P.R. 59 (1997); J.H. Reichman & David Lange, Bargaining Around the TRIPS Agreement: The Case for Ongoing Public-Private Initiatives to Facilitate Worldwide Intellectual Property Transactions, 9 Duke J. Compar. & Int’l. L. 11 (1998) (hereinafter Bargaining Around the TRIPs Agreement). 61. See, e.g., Reichman, GATT Connection, supra note 38, at 751-69 (discussing contrasting views of developed and developing countries during failed efforts in WIPO to revise the Paris Convention in the period 1979-1985); see also Evans, supra note 6. 62. See, e.g., Abbott, supra note 34, at 514-19; Cottier, supra note 44; Otten, supra note 3. See generally

Watal, supra note 2; see also J.H. Reichman, Legal Hybrids Between the Patent and Copyright Paradigms, 94 Colum. L. Rev. 2431 (1994); 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). 63. See TRIPs Agreement, supra note 1, arts. 27-34; Reichman, Free Riders to Free Riders, supra note 4, at 27-41.Page 138 → 64. See TRIPs Agreement, supra not 1, arts. 9-14; Reichman, Free Riders to Fair Followers, supra note 4, at 42-51. 65. See Copyright Treaty, Dec. 20, 1996; WIPO Performances and Phonograms Treaty, Dec. 20, 1996; Pamela Samuelson, The U.S. Digital Agenda at WIPO, 37 U.Va. J. Int’l. L. 369 (1997); Neil Netanel, The Next Round: The Impact of the WIPO Copyright Treaty on TRIPS Dispute Settlement, 37 U.Va. J. Int’l. L. 441 (1997). 66. See Shigeo Takakura, The Role of APEC and the JPO in the Field of Intellectual Property Rights, paper presented at CASRIP Conference, Seattle, WA, July 24 1999. 67. See, e.g., Oddi, supra note 46. 68. See TRIPs Agreement, supra note 1, arts. 8(2), 40;, supra note 9. 69. See supra note 9. 70. See, e.g., Reichman, Free Riders to Fair Followers, supra note 4, at 52-58 (citing authorities). 71. See, e.g., Fox (1996), supra note 9, at 490. 72. See TRIPs Agreement, supra note 1, Article 31. 73. See TRIPs Agreement, supra note 1, Article 1(1); Paris Convention, supra note 5, Article 5A. 74. See TRIPs Agreement, supra note 1, Article 6; F.M. Abbott, First Report (Final) to the Committee on International Trade Law of the International Law Association on the Subject of Parallel Importation, 2 J. Int’l. Econ. L. 607-36 (1998); but see Harvey E. Bale, Jr., The Conflicts Between Parallel Trade and Product Access and Innovation: The Case of Pharmaceuticals, 1 J. Int’l. Econ. L. 637-54 (1998). 75. See TRIPs Agreement, supra note 1, arts. 7 & 8. 76. See TRIPs Agreement, supra note 1, Unnumbered Preambular Recitals. Among other things, these recitals stress the need ‘to ensure that measures and procedures to enforce intellectual property rights do not themselves become barriers to legitimate trade.’ They also stress that effective means of enforcement must ‘tak[e] into account differences in national legal systems;’ that ‘the transitional arrangements [should] aim . . . at the fullest participation in the results of the negotiations;’ and that ‘intellectual property rights are private rights’ that must be reconciled with, or balanced against ‘the underlying public policy objectives of national systems for the protection of intellectual property, including developmental and technological objectives.’ 77. See, e.g., Dreyfuss & Lowenfeld, supra note 12 at 310-16 (criticizing this perceived lacuna). 78. See supra notes 75-76 and accompanying text. 79. See Vienna Convention on the Law of Treaties, May 23, 1969, Article 31, 1155 U.N.T.S. 331,340.Page 139 → 80. See TRIPs Agreement, supra note 1, arts. 41(5), 42-61; Reichman, Enforcing the Enforcement Procedures, supra note 11, at 340-41. 81. See, e.g., J. H. Reichman, The Know-How Gap in the TRIPs Agreement: Why Software Fared Badly, and What Are the Solutions, 17 Hastings Comm/Ent L. J. 763 (1995); see generally Pamela Samuelson, Randall Davis, Mitchell D. Kapor, & J.H. Reichman, A Manifesto Concerning the Legal Protection of Computer Programs, 94 Colum. L. Rev. 2308, 2332-2363 (1994). 82. For detailed examples of this risk, see Dreyfuss & Lowenfeld, supra note 12. 83. See Reichman, & Lange, supra note 60. 84. Cf. Often, supra note 3, at 524-29. 85. See supra note 65. 86. See, e.g., WIPO Treaty I, preamble. 87. See further Samuelson, supra note 65. 88. Cf. Otten, supra note 3, at 533-34. 89. The author represented the International Council for Science (ICSU) at the WIPO Diplomatic Conference in December, 1996, and since then, he has continued to represent ICSU at various meetings of

WIPO’s Standing Committee on Copyrights and Related Rights. 90. See, e.g., Sherwood, IDEA (1999). 91. See, e.g., de Koning, supra note 60, at 75-76 (commending co-operative and consultative approach of Southeast Asian countries). 92. See generally Reichman, From Free Riders to Fair Followers, supra note 4. 93. See, e.g., Adelman & Obadia, Vand. J. Transnat’l. L. (1996). 94. Cf. also Abbott, supra note 34, at 519-20 (noting role of World Bank and other institutions). 95. Cf. Primo Braga & Fink, supra note 39. 96. See generally, Reichman, Free Riders to Fair Followers, supra note 4, 26-84. 97. See Reichman & Lange, supra note 60. 98. See TRIPs Agreement, supra note 1, arts. 3-4. 99. See Gadbaw, Vand. J. Transnat’l. L. (1989); Abbott, supra note 34, at 498-501, 510-21. 100. Cf. Primo Braga & Fink, supra note 39.

____________________ * Professor, Duke University School of Law, Durham, USA. – Chapter 7 © by J.H. Reichman. Page 140 →

Page 141 →CHAPTER 8 Comments on the Papers Presented by Adrian Otten and Jerome H. Reichman Krista Nadakavukaren Schefer* Stating that the ‘focus of work in the WTO is very much on implementation’ in the realm of TRIPs, Mr. Otten’s paper focussed on the issues of technical cooperation, notification and review, and dispute settlement. Within these parameters, Mr. Otten lays out nicely the procedural mechanisms that the TRIPs division uses to facilitate the efficient achievement of the goal of ensuring that the national legislative changes required by the TRIPs is achieved in all Member States. Mr. Reichman’s paper discusses the developed-developing country dichotomy in viewing TRIPs, touching on a multiplicity of issues, such as the deference given national legislature’s attempts to implement the TRIPs obligations by the Appellate Body, the inadvisability of ending the moratorium on the non-violation provision (I would have more to say about that, but will refrain for the moment), and the need to foster a cooperational rather than a confrontational approach to alleviating differences in views on TRIPs obligations. My comments will focus on some ideas that came to me from Mr. Otten’s paper and that were to some extent present as well in Mr. Reichman’s. These are ideas less tied to the mechanics of the TRIPs Agreement as to the context of TRIPs within the international community. I find this of particular importance, not only because I am beginning some research of my own in the direction of integrating WTO law into the general international law system, but also because, as Mr. Reichman noted, the WTO itself is proclaiming a concern with moving into the center ring of general international law from its position as a relative outsider. Page 142 →One of the possible approaches to the integration question would be to look to the extent to which specific international law norms have been woven into the various stages of the WTO legal process. For those of you who are fans of the Appellate Body, I want to remind you that international law norms extend beyond Article 31 of the Vienna Convention on the Law of Treaties, and covers, the entire body of international treaties as well as jus cogens, customary international law, general principles of law, and the jurisprudence of the ICJ. In the WTO, this might require an inquiry for instance into how the emerging customary international law on state responsibility might affect a state’s right to impose trade sanctions for human rights violations; it might ask whether the elements of clausula rebus sic stantibus are present in a particular situation, thereby relieving a Member state of its duties under the WTO Agreements. It might, indeed, cause one to question whether the protection of legitimate expectations is not inherently a part of the entire WTO system – whether or not there is an express non-violation clause in a treaty based on the unavoidability of the principle of good faith that underlies the legal system itself. However, there is another approach to integrating the general and economic international legal systems, and that is the one I have chosen. This approach looks at the targets of the systems. My comment, or rather my question, is, then: WHAT IS THE STATUS OF THE IMPLEMENTATION OF THE ULTIMATE OBJECTIVES OF THE WTO AGREEMENTS IN THE AREA OF TRIPS? While it is certainly admirable to be able to say that technical cooperation between the WTO and WIPO is enabling developing countries to fully implement their TRIPs obligations by the year 2000, as relayed by Mr. Otten, it is something else entirely to say that the goals of the WTO Agreements are being fostered. Permit me to vocalize something that has been in my mind for several years now: The WTO System (like many legal systems and sub-systems) has a problem in distinguishing its GOAL from the TOOLS USED TO ACHIEVE THE GOAL. The GOAL of the WTO is, to paraphrase the Marrakesh Agreement, to raise standards of living while pursuing sustainable development. This goal, albeit stated rather too generally from my point of view, is

therefore to be taken as one of making life better for the world’s inhabitants. Moreover, it is a goal shared by modern international law. Now, let me stress something that is, to germanify a bit, ‘OBER-Obvious’: The world’s inhabitants are men, women, children, and, depending on your environmental persuasion, plants and animals. The world’s Page 143 →inhabitants are NOT autonomous customs territories, nor are they corporations. The TOOL which the WTO has chosen to achieve this ‘enhancement of living standards’ is that of liberalized trade and protection of traders. In the area of TRIPs in particular, it is the world-wide protection of intellectual property. Now, it seems to me – and nothing exists in Mr. Otten’s paper to indicate otherwise – that the WTO is consistently preoccupied with ensuring that trade is further liberalized and intellectual property is further protected WITHOUT LOOKING TO WHETHER LIVING STANDARDS ARE THEREBY BEING RAISED. I do not want to begin discussing whether the advantages of intellectual property protection for the enterprise does or does not IN GENERAL and IN THE LONG RUN ‘trickle down’ to the individual. What I want to do is simply state that it is time that the WTO – and TRIPs – begin to look at the individual and determine whether the TOOL is achieving the GOAL – and not just whether the tools are being implemented. I would like to simply mention one occurrence that has recently been highlighted by Jeffrey Sachs and that was mentioned in Mr. Reichman’s paper. It is not an original idea, nor is it a new problem, but it is very relevant to today’s discussion: the question of development of medicines for the world’s poorest inhabitants.1 As Mr. Sachs writes, If it were true that the poor were just like the rich but with less money, the global situation would be vastly easier than it is. As it happens, the poor live in different ecological zones, face different health conditions and must overcome agronomic limitations that are very different from those of rich countries. ... ... Not only life but also death differs between temperate and tropical zones.2 The fact that life expectancy in the highly indebted countries is 51 compared to 70+ years in the industrialized north is due in part to the extraordinarily high fatality rates of tropical diseases such as malaria, sleeping sickness, and schistosomiasis. Yet, for all of the sickness, the number of scientific patents in these countries is less than onetenth that of the number in the EU or US. Now, TRIPs experts are bound to say it is because these countries have insufficient patent protection, and that with the full implementation of TRIPs obligations this situation will change. But is that realistic? Sachs responds, and I tend to agree, that the reason for lack of patents is the lack of research into such diseases and the reason for the lack of Page 144 →research is due to the lack of profits that are promised by developing such medicines. The people who are suffering are those that have no money. Patent protection will only ensure that profit opportunities will be seized. It will NOT ensure that medicines will be made that will save the 1-2.5 million estimated deaths due to malaria. So, what does that imply about implementation of WTO Goals? My guess is that it does not paint a very rosy picture of the sufficiency of the TRIPs instruments. This brings me to a last point, which ties in with something Mr. Reichman wrote about having ‘embarked on this great adventure, … it is well to recall the Italian proverb that suggests that, if one finds oneself unaccountably at sea, the best course of action is to keep on rowing’. As true as this may be for sailors, it is certainly unwise for lawyers. One of the most dastardly kinds of policy mistakes stems from exactly such inertial thinking. If we find out that a certain tool is not moving us toward our goal, I think it is a terrible folly to simply keep using that tool. I think we would be better off looking for a different tool. I will conclude with a simple point: in discussing implementation of the TRIPs, it is time that attention be given to

discussing whether the GOALS of the WTO, as well as the TOOLS, are being promoted.

NOTES 1. See Jeffrey Sachs, “Helping the World’s Poorest”, The Economist, 14 August 1999, pp. 17-20. 2. Sachs at 17-18.

____________________ * Senior Research Fellow and Lecturer, World Trade Institute, Berne, Switzerland.

Page 145 →Part II: Intellectual Property in Regional and National Trade Laws Page 146 →

Page 147 →CHAPTER 9 Parallel Imports, Free Movement and Competition Rules: The European Experience and Perspective Paul Demaret* and Inge Govaere†

1. Introduction The paper deals with EC law as it applies to parallel imports in the context of both the internal (i.e. trade between Member States) and the external trade of the European Community. Parallel imports are considered first in relation to the exhaustion doctrine, second in relation to competition rules and more specifically the abuse of a dominant position. For a great many years, parallel imports in the Community internal trade were the main focus of attention. Freeing parallel imports between member States was an objective actively pursued by both the EC Commission and the European Court of Justice, as this was perceived as being a key element in the establishment of a common market for goods. However, significant developments have recently taken place with respect to parallel imports in the Community external trade.1 The concept of parallel imports is understood as follows. In territory A an intellectual property right, such as a patent, a copyright or a trade mark is in force and the holder of the right is X. Goods to which the intellectual property right in force in territory A applies have first been sold in another territory B, either by X himself or with his explicit or implied consent. Some of these goods are subsequently imported in territory A without the consent of X. So understood, the concept of parallel imports includes the case of reimported goods,2 but excludes counterfeits.3

Page 148 →2. Parallel Imports and Exhaustion of Rights First, the state of EC law will be described. A major difference is emerging depending on whether trade between Member States or trade between the Community and third countries is involved. Whereas in the first case, parallel imports cannot, as a rule, be opposed, in the second case, the reverse solution applies. The description of EC law as it stands today will be followed by a discussion of how parallel imports ought to be treated, considering the trade context and the function and nature of the intellectual property rights involved.

The State of EC Law Trade between Member States The regime applicable to parallel imports in the Community internal trade is the result of the abundant case-law developed by the European Court of Justice in the framework of Articles 30 and 36 (now 28 and 30) of the EC Treaty in the wake of Deutsche Grammophon.4 The treatment of parallel imports under Community legislation has to be consistent with that case-law, since the EC Treaty, as interpreted by the Court of Justice, prevails over EC directives or regulations.5 The criterion on which the Court of Justice relies in order to free parallel imports in trade between Member States is the ‘first sale consent test’. In the main, parallel imports cannot be opposed by the owner of a national intellectual property right if the goods involved were first sold abroad by himself or with his explicit or implied consent.6 In keeping with such a test, parallel imports can be opposed if the first sale abroad was made by a compulsory licensee or a licensee of right.7 The ‘first sale consent test’ leads to the same results as the ‘exhaustion doctrine’ in most instances, but not always. Indeed, the Court of Justice has applied the ‘first sale consent test’ somewhat blindly, even in circumstances where, in the country of exportation, no intellectual property right was in force and thus no right which could be

‘exhausted’ by a first sale, as in the Merck cases,8 or where no true exclusive right was in force, but a mere right to royalties, the level of which was set by statute, as in Musik-Vertrieb.9 However, the Court of Justice has not applied its ‘first sale consent test’ in two cases involving copyrighted works, Basset10 and Warner Brothers.11 Page 149 →There the mechanical application of the test would have resulted in the copyright owner in the country of importation being in practice deprived of a specific exclusive right and unable to benefit from a form of exploitation of the copyrighted work.12 Basset concerned the so-called ‘droit de reproduction mécanique’ in France and Warner Brothers rental rights in Denmark. 13 In Ideal-Standard14 the Court has also qualified its ‘first sale consent test’ with respect to trade marks. IdealStandard was a trade mark which had been registered in both France and Germany. However, the common owner of the trade marks had assigned part of his French trade mark to an unrelated business concern. Partial assignments are allowed under French, but not under German trade mark law. The result was that in France two different firms, respectively the original owner and the partial assignee, held the right to use the trade mark, but each one for only part of the products for which the trade mark had been initially registered. Goods marketed by the French assignee were imported in Germany without the consent of the owner of the German trade mark. Asked whether parallel imports were permissible in such a case, the Court noted that the French trade mark, to the extent it had been assigned, and the German trade mark were no longer subject to common control. As a result, the owner of the trade mark in Germany could exclude from the German market goods lawfully marketed in France by the unrelated assignee. A trade restriction was here justifiable, according to the Court of Justice, in order to protect the basic trade mark function.15 The voluntary assignment of part of the French trade mark could not be equated with the consent needed to have the trade mark right exhausted, for such consent could be inferred only if the French and the German trade mark were subject to a unified control. Finally, there is a substantial amount of case-law regarding the circumstances under which the owner of a trade mark may have ‘legitimate’ reasons to oppose parallel imports, and more generally the circulation of goods sold with his explicit or implied consent, when subsequently the goods or their packaging have been altered.16 Community trade mark legislation provides for the same escape clause.17 The Court of Justice has also ruled on the particular circumstances under which the owner of a trade mark is not entitled to bar parallel imports from the market of a Member State even though the parallel importer has replaced the original trade mark, which identifies the product in the Member State of importation, by another trade mark, the one which identifies the product in the Member State of exportation. Trade mark substitution is a practice to which parallel importers have resorted in the drug sector, where identical drugs are not always marketed under the same name in all the Member States.18 In so far as intra-Community trade is concerned, the main features of the law applicable to parallel imports of goods to which intellectual property Page 150 →rights apply seem now well settled. Major new developments are not to be expected in the coming years, but rather what one might call some fine-tuning, as illustrated by the Dior case.19 In the EC, the liberalisation of parallel trade in goods protected by intellectual property rights was started and was largely achieved as a result of judge-made law. It preceded by many years the adoption by the Community legislator of regulations establishing unitary systems of protection (Community trade mark, plant variety rights) or directives harmonising to some degree the laws of the Member States (with respect to topographies of semi-conductors, trade marks, computer programmes, rental, lending and neighbouring rights, biotechnical inventions, [designs]).

Trade between the Community and Third Countries The free movement of goods between Member States is a cornerstone of the EC internal market. The EC Treaty does not provide for the same principle to govern trade between the Community and third countries.20 In this regard, the Treaty simply aims to establish a common trade regime so that third country goods once imported in a Member State can circulate without hindrance throughout the Community market. The establishment of a common regime may result from the conclusion by the Community of agreements with third countries or from the adoption of autonomous measures such as directives or regulations. As long as no common external regime has been established, national measures, either liberal or trade restrictive, continue to apply.21

The Community has never attempted to deal with the exhaustion of intellectual property rights in the Community external trade in a single instrument based on the exclusive competence it derives from Article 113 (now 133) of the EC Treaty, the commercial policy provision.22 There is, however, little doubt that the treatment of parallel imports in the Community external trade is a matter that should come within the scope of the common commercial policy. This is true even if commercial policy is understood in the narrow sense given to the concept by the Court of Justice in Opinion 1/94.23 Since there is no Community legal instrument that would deal with parallel imports coming from third countries, different situations may occur depending in any particular case on the intellectual property right which applies or the third country whose imports are involved. Either no common regime has been established or there is a common regime which results from the existence of an agreement between the Community and a third country or from the existence of a Community directive or regulation.

Page 151 →Absence of a Common External Regime Where no external agreement and no specific Community directive or regulation applies, whether or not to follow the rule of exhaustion is a question which continues to be governed by national law.24 As a result, there is no guarantee that parallel imports shall receive the same treatment in all Member States and across the entire intellectual property field. Any lack of uniformity in the treatment of parallel imports from third countries may in turn cause intra-Community trade to be restricted. In Member States which allow parallel imports from third countries to be barred from their market, owners of intellectual property rights will also seek to prevent the sale on the national market of so-called ‘grey’ goods which would have been imported into the Community through another, perhaps more liberal, Member State.25 Actually, without a common external regime, there is no true internal market. The Community then resembles more a free trade area than a customs union. Community legislation, however, requires Member States to notify the Commission in advance when they intend to adopt new trade restrictions (or to modify existing ones) justified by the protection of intellectual property.26 This means that a Member State should inform the Commission if it were to shift from a rule allowing international exhaustion to a rule against international exhaustion.27

Agreements between the Community and Third Countries The Community has concluded various free trade, co-operation and association agreements with third countries. Usually these agreements contain provisions identical or similar to Articles 30 and 36 (now 28 and 30) of the EC Treaty. These are the provisions on the basis of which the Court of Justice has built its case-law regarding parallel imports in the Community internal trade. The question is whether the same case-law applies in the context of agreements with third countries. The Polydor Judgement With respect to free trade agreements, this question has received a negative answer. In the Polydor case,28 which concerned the interpretation of the free trade agreement between the EEC and Portugal (not yet a member of the EC at the time), the Court of Justice decided that a British copyright owner could oppose parallel imports from Portugal as this was justified by the protection of intellectual property. In other words, the Court refused to follow its internal case-law. It was not willing to give the same weight to the free movement of goods in the external context as in the internal context.29 The Page 152 →Court of Justice would probably follow the same approach if it had to interpret most other agreements concluded by the Community with third countries.30 The EEA Agreement There is, nevertheless, at least one agreement in the context of which the issue of parallel imports is subject to the same rules as in the intra-Community trade. This is the agreement establishing the European Economic Area (EEA). The EFTA members of the EEA had to accept the ‘acquis communautaire’, [i.e. Community legislation and the Court of Justice case-law], and it was but logical that the Community itself would be bound by the same

‘acquis’ in its trade relations with the former.31 The rule of exhaustion thus applies to intellectual property rights within the EEA.32 However, the EEA is built on the model of a free trade area, and not of a customs union as the EC. EEA rules govern trade between EEA contracting parties, but not between the latter and third countries. Therefore, the Community for its part, individual EFTA countries for their part, remain free to decide whether or not to implement the exhaustion rule in their trade relations with third countries.33 This was indeed confirmed by the EFTA Court in the Maglite case,34 which concerned the parallel importation of branded goods from the United States into Norway. The reasoning of the Court was that the EC trade mark directive did not extend its reach to trade between EFTA members of the EEA and third countries. Therefore, whatever the scope given by the Community to the rule of exhaustion prescribed by the trade mark directive, Norway could continue to enforce a rule of international exhaustion with respect to goods imported from territories outside the EEA.35 As seen hereafter, the European Court of Justice later decided that, under the trade mark directive, international exhaustion was excluded, but this ruling only concerns the external trade of the Community itself. The EC-Andorra and the EC-Turkey Customs Unions The provisions governing the customs unions established by the Community with respectively Andorra and Turkey are supposed to be interpreted in the same manner as similar provisions of the EC Treaty.36 This should normally be taken to mean that the rule of exhaustion should apply within these customs unions. However, in the most important instance, the customs union with Turkey, this is not so. The decision on which the EC-Turkey customs union rests explicitly provides that the exhaustion of rights does not apply in trade between the two parties, this despite the fact that Turkey was required to adopt the same standards as the Community with respect to the protection of intellectual property.37

Page 153 →Community Legislation: The Silhouette Judgement As mentioned above, the Community has adopted a number of regulations and directives in order either to unify or to harmonise intellectual property law in certain specific sectors. All these regulations and directives prescribe Community-wide exhaustion of intellectual property rights after products have been put on the Community market by the owner of the exclusive right or with his consent. However, up until now,38 Community legislation has always been silent regarding international exhaustion. The question was thus (i) whether a rule of international exhaustion could be built on the basis of the mere silence of the Community legislator, or (ii) whether Member States were left free to decide whether or not to embrace a rule of international exhaustion or (iii) whether the legislator’s silence meant the exclusion of international exhaustion in those sectors covered by Community legislation? The issue was of particular importance with respect to trade marks, since the case for allowing owners of intellectual property rights to oppose parallel imports is here at its weakest,39 in view of the trade mark function which is to guarantee origin.40 Actually, the first draft of the trade mark directive (as well as that of the Community trade mark regulation) did explicitly provide for international exhaustion in conformity with the function of trade marks. However, at the urging of the European Parliament, the text which was eventually adopted referred only to Community-wide exhaustion.41 Legislative history made it thus somewhat difficult to argue that the silence of the trade mark directive could be construed as requiring all Member States to apply, as a matter of Community law, a rule of international exhaustion.42 The issue thus came to be seen as boiling down to an alternative:43 whether individual Member States enjoyed the freedom to choose in favour of international exhaustion44 or whether exhaustion had to be limited to the Community territory.45 The answer came in 1998 in the Silhouette case,46 Following the ‘reluctant’47 submissions of advocate general F. Jacobs, the Court of Justice ruled that the silence of the Community legislator had to be construed as implying the exclusion of international exhaustion for the entire Community. The Court of Justice did not base its ruling on trade mark policy considerations, but rather on the need to protect the unity of the internal market, which would

have suffered if Member States had been left free to decide. Sweden, for instance, interpreted the directive as allowing international exhaustion, in contradiction with the view taken by most other Member States.48 The Court of Justice may also have taken into account, the need to give the same interpretation to the trade mark harmonisation directive and to the Community trade mark regulation, as the advocate general had pointed out. The regulation, which also is silent on the issue, certainly Page 154 →requires a uniform Community interpretation which, in view of legislative preparatory work, cannot lead to the recognition of international exhaustion. The Court of Justice has since confirmed its Silhouette judgement in another trade mark case, Sebago.49 Both the plain reading and the rationale of the Silhouette judgement lead to the conclusion that henceforth exhaustion is limited to the territory of the Community and that, as a result, holders of trade mark rights are entitled to bar parallel imports coming from third countries as a matter of trade mark law, i.e. without the need to resort to restrictive contractual arrangements. However, in the recent Davidoff case,50 an English court, relying on XIXth century English case-law, ruled that, by selling marked goods abroad without imposing explicit export restrictions, the owner of a trade mark may have implicitly consented to the (re)sale of the marked goods on the Community market. It is quite obvious that this is a direct attempt to circumvent the Silhouette ruling, which, if it were to succeed, would make exhaustion subject to either intricate contractual arrangements or to how national courts interpret silence abroad.51 The Davidoff line of reasoning should not be followed as it would shroud the issue of exhaustion in a legal mist, which would only be pleasing to some lawyers. The issue should be dealt with as a matter of Community trade mark law, and not as a matter of national contract law, whatever one might think of the Silhouette judgment.

Future Prospects It is rather unlikely that the Court of Justice would accept to qualify its Silhouette ruling as suggested in Davidoff. The question is thus whether the Silhouette ruling, which was probably not meant to settle the issue of international exhaustion as a matter of Community trade mark policy, might nevertheless not have that effect. There are Member States which would like Community trade mark legislation to explicitly provide for international exhaustion, as they believe this to be advantageous for the consumer. However, a sizeable number of Member States are against such a modification52 which, in any case, the European Parliament might not approve.53 There is thus little prospect that the rule of international exhaustion shall be adopted by the Community, even if the rule is limited to the field of trade marks.54 The European Community has done much, at times even perhaps too much, to encourage parallel imports in intraCommunity trade. It is slightly ironic to see this same Community ready to keep parallel imports out of the Community market. The Community would thus adopt a less liberal policy towards parallel imports from third countries than do at present the United States,55 Japan56 or EFTA countries under the EEA.57 This, however, is not Page 155 →altogether surprising.58 The EC Treaty provides for the establishment of an internal market. This entails free trade between Member States and a common trade policy, the content of which may be rather liberal or rather protectionist, depending on the will of the Member States. With respect to parallel imports involving trade marked goods, the Member States were unable to agree. Faced with the choice of either allowing parallel trade to be free in the external trade of only some Member States or ensuring the external (and internal) unity of the Community market, the Court of Justice chose the latter option.

An Appraisal59 Trade between Member States Parallel Imports and Trade Marks The treatment of parallel imports of branded goods, as established by the case law of the Court of Justice, the trade mark directive and the Community trade mark regulation is satisfactory. By relying on the first sale consent test, qualified by the escape clause of Article 7 § 2 of the directive and Article 13 § 2 of the regulation, Community law has achieved a balance between the free movement of goods and the safeguarding of the basic trade mark

function, which is to ensure that the consumer may rightly attribute to the owner of the trade mark the responsibility for the impression which products or services bearing that trade mark produce on him.

Parallel Imports, Patents and Copyrights60 The treatment of parallel imports of patented and copyrighted goods, resulting from the case law of the Court of Justice, is sound at least when the following conditions are met: first, parallel exclusive rights are in force in both the importing and exporting Member State; second, the law of both Member States allows patent and copyright owners to maximise their returns;61 third, the importing Member State is not enforcing any sort of domestic manufacturing requirement.62 Today, the last condition is satisfied as a result of EC law which outlaws any sort of domestic (i.e. national) manufacturing requirement,63 but the first and second conditions are not always satisfied. This is why, to free parallel imports in cases such as Musik-Vertrieb64 and the Merck cases65 is questionable from a patent policy point of view. The same observation applies to Sterling Drug66 insofar as the patentee was only entitled to a ‘reasonable reward’ on his drug-related patent in the United Kingdom. The Court of Justice was led to make such rulings because Page 156 →of its formalistic adherence to the first sale consent test, which, with respect to patents and copyrights, is not fully adequate, as a comparison between, for instance, the respective Musik-Vertrieb67 and Pharmon68 decisions would readily demonstrate. The first sale consent test should be replaced by a test of a more economic nature, i.e. whether with regard to parallel imports, the original owner of the rights on a given invention or protected work was entitled, in the exporting country, to extract the type of economic returns normally associated with the possession of exclusive rights.69 However, since all Member States (and EEA members) are now supposed to abide by the standards set by the major international and European conventions and since their national laws are also being gradually harmonised as a result of Community directives, there are less and less situations where to allow parallel imports of patented or copyrighted goods in intra-Community trade would seem unjustified from the standpoint of patent or copyright policy. The Community (and also the EEA) becomes more and more a level-playing field for owners of intellectual property rights.

Trade between the Community and Third Countries Parallel Imports and Trade Marks EC law ought to move beyond Silhouette and ought to make international exhaustion the explicit rule, subject, as suggested by Cornish,70 to the same qualification as under article 7 § 2 of the harmonisation directive (‘legitimate reasons’) This does not mean that, as seems to be the case under US law, most material differences between parallel imports and EC goods bearing the same trade mark ought to enable the EC trade mark owner to keep parallel imports out of the EC market. It might be enough to require distributors and retailers to clearly inform the public of any significant difference between imported goods and goods specially designed for the EC market. It is only when the marketing of genuine goods imported from abroad could seriously damage the reputation of the trade mark in the EC that the owner of the trade mark should be allowed to exclude parallel imports. This would be undeniably the case where some of the goods physical characteristics would have been altered due to their shipment from abroad. This could also be the case where marked goods are tailored to certain physical conditions prevailing in a foreign market, which makes them either unfit for the EC market or less performing than goods bearing the same trade mark, but intended for the EC market. International exhaustion, it should be remembered, was the rule under the trade mark law of a majority of the Member States before the harmonisation directive came into force. Its best and broadest formulation Page 157 →was probably provided by the Cinzano ruling of the BGH in 1973.71 As a general rule, international exhaustion is fully consistent with the trade mark function which is to indicate origin and to protect consumers and trade mark owners against risks of confusion as to the source of products or services. Arguments against the parallel importation of trade marked goods essentially relate to the need for trade mark owners to practice market segmentation and to protect investments in brand development made in the high-price market. This has nothing to do with the trade mark function. Protection against confusion as to the source of products serves the interests of

both consumers and producers. On the other hand, protection of investments in brand development through the maintenance of high prices, if it certainly serves the interests of trade mark owners, does not serve the interests of consumers in the short term. Whether it might serve the latter’s interests in the long term is at best uncertain.72 Another argument, also totally unrelated to the trade mark function, is that in some sectors, the protection of trade mark owners against parallel imports would be needed in order to protect investments in R & D. The patent system exists for that very purpose and the life of patents is of limited duration whereas the life of trade marks is virtually unlimited. If ever the marketing of branded goods were to justify the practice of market segmentation, this should be achieved through individual contractual arrangements subject to the scrutiny of antitrust authorities. These marketing arrangements do not deserve general statutory protection based on trade mark law. Finally, it should be noted that according to the report commissioned by DG XV of the European Commission,73 the economic consequences to be expected from the implementation of international exhaustion in EC trade mark law would be rather limited.

Parallel Imports, Patents and Copyrights Turning now to patents and copyrights (or related types of exclusive rights), the question is whether here too international exhaustion deserves to become the rule in the Community external trade. Before starting the discussion, two preliminary observations must be made. First, it is even more unlikely that, in the coming future, the Community would introduce international exhaustion in the field of patents and copyrights than in the field of trade marks. Second, the issue is admittedly less clear-cut than in the case of trade marks. If international exhaustion were to become the rule, it should, of course, be subject to the three conditions mentioned above when discussing the merits of the treatment given parallel imports in the Community internal trade.74 Even assuming these conditions to be satisfied, an argument might Page 158 →still be raised against the introduction of the rule of exhaustion in the Community external trade with respect to patents and copyrights, which would run as follows. Price discrimination resulting from market segmentation is consonant with the function of patents and copyrights, which is to stimulate investments in the production of respectively new technology and original ways of expressing and communicating ideas. Price discrimination increases the profits of patentees and copyright owners and thus represents an additional incentive to invest in the production of new creations, which could be lost if international exhaustion were to become the rule. In the context of intra-Community trade, the objective of free movement was of such importance that it did override narrower patent and copyright policy considerations. Indeed, since in the past, national law did not permit domestic patentees and copyright owners to use their exclusive right to control the circulation of goods on the national market beyond their first sale (except to a limited extent in the United Kingdom and in Belgium), the same had to apply to the circulation of goods protected by exclusive rights on the Community internal market. However, at the international level, so would the argument continue, patent and copyright policy considerations need not yield to the objective of free movement. In addition, European ‘nationalists’ might point out that the Community is large enough for it to be able to capture a sizeable part of the additional incentive to invest in new creations, which results from allowing patentees and copyright owners to engage in price discrimination at the world level. In response to the previous line of reasoning, it should first be mentioned that the additional incentive to engage in the production of new creations has to be balanced by the possible effect of price discrimination on output. This effect could be either positive or negative, with no sure guarantee that it be positive except under a special set of circumstances. In addition, looking only at the EC, if the latter turns out to be more often than not the high price market, this would mean that the use of patented inventions and copyrighted works in the EC would be lower if parallel imports were free. Moreover, to allow patentees and copyright owners to oppose parallel imports provides them with a convenient tool not only to maximise profits relating to their inventions or their works, but also to enforce market-sharing practices.

However, today the most potent argument in favour of international exhaustion in the field of patents and copyrights has probably to do with TRIPs. This is not because the TRIPs Agreement, or for that matter other WTO rules, could be interpreted as requiring international exhaustion. To the contrary, WTO members remain free to accept or to refuse international exhaustion.75 It cannot be argued either that the TRIPs rationale is essentially the promotion of free trade in the traditional sense: Article 6 of TRIPs shows Page 159 →that this is not the case. However, by raising substantially the level of protection of intellectual property, going sometimes beyond what had been achieved through Community legislation at the EC level, the TRIPs Agreement is contributing to the establishment of a level-playing field at the world level.76 This opens up better opportunities for patentees and copyright owners to exploit their exclusive rights in an economically rational manner on the world market, which should have the effect of increasing their ‘reward’ and their incentive to invest in the production of new creations. One might thus question their need to remain protected in each national market against parallel imports. Today, owners of intellectual property rights can take advantage of lower production costs in developing countries and then export the goods so produced to the EC. However, they are also in the position to decide whether or not goods they have produced and first marketed in developing countries can subsequently enter the EC market.77 This indicates that international trade in (genuine) goods protected by intellectual property rights is free only to the extent their owners so wish. This would change only if some WTO members were to implement international exhaustion on their own or if international exhaustion were to become the rule at the WTO level. Securing effective enforcement of TRIPs in all WTO members might help to reach that goal. However, it would be unrealistic to expect the European Union to take the lead in order to make international exhaustion the rule in the WTO framework, since several of its Member States are even reluctant to accept international exhaustion in the field of trade marks and since international exhaustion does not even apply in the context of the customs union established with Turkey.

3. Parallel Imports and Competition Rules The above does not prejudge the question of to what extent the application of the EC rules on competition may favour parallel imports, in spite of the fact that the principle of international exhaustion is currently not endorsed as such. It is one thing to acknowledge that, in principle, it is up to each intellectual property holder to allow international trade in his product to take place or not. It is a different matter to establish whether, in any given case, a limit may need to be imposed on the discretion of the intellectual property holder by virtue of the competition rules.78

Page 160 →The State of EC Law Intra-Community Trade The application of EC competition rules to anti-competitive behaviour of intellectual property holders is commonly accepted. Whereas it is understood that the existence of intellectual property rights is to be left untouched by the competition rules, the latter are fully applicable whenever intra-Community trade would otherwise unduly be affected by the exercise of intellectual property rights.79 This translates into the principle that the enforcement of intellectual property rights will not, of itself, be caught by Article 81 (ex Article 85) of the EC Treaty in the absence of an agreement or a concerted practice. Nor will it be contrary to Article 82 (ex Article 86) in the absence of an abuse of a dominant position.80 The practice proves to be more difficult, if not more controversial.81 Article 81 (ex Article 85) of the EC Treaty With respect to patent and know how licensing agreements, some guidance is nowadays given by the Technology Transfer Block Exemption, which replaced the earlier block exemptions for patent licensing agreements and know how licensing agreements.82 For intellectual property rights and for clauses in agreements or situations not covered by the block exemption, the situation is less transparent. For instance, the registration and enforcement of a trade mark in conformity with national law will not automatically entail the non-applicability of Article 81 (ex

Article 85). Consideration may be given as to whether there was an underlying agreement or a concerted practice which led to the possibility to register the trade mark in the first place.83 On the other hand, not all agreements concerning intellectual property rights and whereby territorial restrictions are negotiated will necessarily be contrary to article 81. The Court has, for instance, held that trade mark delimitation agreements may be lawful, provided they serve to delimit the spheres within which the respective trade marks may be used and in so far as they are intended to avoid confusion and conflict between them. If the aim is to divide the market or to restrict competition otherwise, then Article 81 will nonetheless apply.84 With respect to trade mark assignments, the Court has held that before concluding that they give effect to agreements prohibited under Article 81, it is necessary to analyse their context, the commitments underlying the assignment, the intention of the parties, as well as the considerations for the assignment.85 Page 161 →Article 82 (ex Article 86) of the EC Treaty Similarly, the mere enforcement of the exclusive right to prevent unauthorised use by others, fully in accordance with national law, may under exceptional circumstances be contrary to Article 82 (ex Article 86). The problem is that it is not at all clear what exceptional circumstances will justify a recourse to Article 82 (ex Article 86), in particular when comparing the Magill cases86 with the Volvo case.87 In the Magill cases, the Court held that the reliance on copyright by television broadcasting companies to prevent the appearance of a new comprehensive TV guide, a new product for which there was a potential consumer demand, in order to reserve to themselves the secondary market of weekly TV guides by excluding all competition on the market, were exceptional circumstances triggering Article 82 TEC. Rather than being ‘borne out’ of the Volvo case, as the Court maintains, it is apparent that it is difficult to reconcile with the latter. In Volvo, the Court ruled that the use of industrial design rights to eliminate all competition in the after-sales market for replacement parts of cars, to the detriment of consumers, constituted a ‘normal’ use of the exclusive right which could not be curtailed by the competition rules. The blatant contradiction in reasoning and outcome of the two cases is hard to explain. It may well be that Court in Magill considered the copyright to be abusively granted and implicitly equated this with an abuse of a dominant position by the copyright holder, whereas it did not question the merit of the industrial design protection in the Volvo case. For sure is that neither the elimination of competition in a related market nor the need to safeguard the interest of consumers can, in themselves, constitute the exceptional circumstances that trigger Article 82.88 Parallel Imports and Competition Rules in Trade between Member States Many of the EC competition cases are nonetheless easily understood if one bears in mind that EC competition policy is considered to be an important complement to the internal market. One of its main objectives is to ensure that undertakings will not themselves resurrect barriers to intra-Community trade. In particular – but not only – where the application of the rules on the free movement of goods and services has led to trade liberalization. It was precisely this concern that led the Court of Justice in an early stage of its case-law, to decide that Article 85 (now Article 81) could be applied to trade mark assignments when the effect of these assignments was to prevent parallel imports in intra-Community trade as in the Sirena Case.89 This ruling was rendered just a couple of months before the Court introduced the principle of Community exhaustion in the famous Deutsche Grammophon Page 162 →case.90 Perhaps not surprisingly, the former case was largely overshadowed by the latter. As is wellillustrated by the Ideal-Standard case,91 the issue of parallel imports in intra-Community trade became a matter that is dealt with almost exclusively under the rules on the free movement of goods and services, leaving little use for the competition rules.

Trade between the Community and Third Countries The denial of international exhaustion (other than regional exhaustion in the context of the EEA) raises the question of whether it is precisely the opposite approach – favouring the application of the competition rules – that should prevail when confronted with attempts to prevent parallel importations coming from third countries. Article 81 (ex Article 85) of the EC Treaty

The EMI Records case illustrates that an agreement concerning trade marks between traders established inside and outside the EC, which isolates the EC market as a whole, might be contrary to Article 81 (ex Article 85).92 This will in particular be so if the trader outside the EC has subsidiaries in the EC that could have used the trade mark in the absence of the contested agreement. In the Javico case of 1998, the question was raised whether an export prohibition in an agreement between a supplier and a distributor established in the EC, but relating to a territory outside the EC so that also re-exportation from the contractual territory to the EC is prohibited, may be caught by the prohibition of Article 81 (ex Article 85).93 Although this case does not deal specifically with intellectual property rights it is interesting to point out that, in particular in view of the ruling in Silhouette, a similar result in so far as the EC market is concerned could have been obtained simply by invoking intellectual property protection at the external EC border. In this case, the Court held that the export prohibition should not necessarily be construed as being intended to exclude parallel imports and prevent the marketing of products in the Community. The fact that the export prohibition concerned not only the EC, but also all other third countries, was considered indicative of the fact that the purpose was to enable a producer to penetrate a market outside the EC by supplying a sufficient quantity of products to that market.94 The national court may, however, find that there nonetheless is a restrictive effect on competition within the meaning of Article 81 (ex Article 85), in particular if there is an appreciable difference between the prices charged in the EC as compared to the contractual territory concerned.95 Page 163 →Article 82 (ex Article 86) of the EC Treaty It could be argued that the rules on competition are relevant each time it appears that the aim or the result of the enforcement of intellectual property rights is to partition markets and, ultimately, to enforce differential and discriminatory pricing to the EC consumers’ detriment. This was recently pointed out by the EC Court of First Instance in the Micro Leader case of 1999,96 At stake was the enforcement of copyright in order to prevent the importation into the EC of computer programs which had been put on the Canadian market with the consent of Microsoft, the copyright holder. The Micro Leader case will undoubtedly be interpreted by many as an attempt by the Court of First Instance to circumvent the ruling of the Court of Justice in the Silhouette case.97 It could under certain conditions allow for parallel importation into the EC in spite of the fact that the principle of international exhaustion is formally rejected. In the Micro Leader case, the Court of First Instance pointed to the argument that higher, if not excessive, prices were charged on the French market as compared to the Canadian market for an equivalent transaction. This was held to qualify potentially as an ‘exceptional circumstance’ that could trigger Article 82 (ex Article 86), provided that a dominant position was also established.

Appraisal The potential implications of the Micro Leader case are both more and less important than Silhouette, according to the viewpoint that is being adopted. The importance of the Micro Leader case goes far beyond that of Silhouette to the extent that the reasoning of the Court of First Instance concerned, but cannot reasonably be restricted to, copyright. This might appear paradoxical in view of the outright reluctance of the Court of Justice to accept international exhaustion even in a case concerning trade marks and the importance that the Court seemed to attach, in the Silhouette and Sebago cases,98 to the consent of the trade mark holder to put his products on the Community market for the first time. It was mentioned before that it is easier to argue why trade marks should not be invoked to oppose parallel importations than it is for other types of intellectual property rights, such as patents and copyright. The reasoning in the latter cases was developed for trade marks by virtue of a (controversial) interpretation of the trade mark directive. If, therefore, it cannot be transposed as such to other intellectual property rights, it appears nonetheless highly unlikely that the Court would introduce the principle of international exhaustion with respect to other intellectual property rights. The straightforward application of the competition rules would, however, under certain conditions entail parallel Page 164 →importations into the EC of products or services covered by any kind of intellectual property right, including trade marks and patents, in spite of the opposition of the intellectual property holder. On the other hand, following the competition law approach would not always and automatically allow for parallel imports to take place, as would the principle of international exhaustion. It would in each case need to be shown that there was abusive behaviour by an intellectual property holder in the sense of Articles 81 or 82 (ex Articles

85-86). Besides illustrating the selective character of the measure, this condition in fact embodies a most important and perhaps insurmountable threshold. If, by virtue of the internal market logic, it is considered abusive to resurrect barriers to intra-Community trade by preventing parallel imports,99 it is apparent that it will be more difficult to justify why barriers cannot be (re)surrected by an intellectual property holder at the external frontiers of the EC.100 One cannot reasonably maintain that it suffices to point to higher or discriminatory prices to establish abusive behaviour by an intellectual property holder in a dominant position, in spite of the suggestion of the Court of First Instance in the Micro Leader case. In particular as this case concerned copyright rather than trade marks. It should be recalled that the possibility to enforce price differentiation and to get the highest possible return the market is willing to pay is often advanced as one of the main raison d’être of certain types of exclusive rights other than trade marks, such as patents and copyrights. For a competition authority or a judge to establish what price is excessive, let alone an abusive use of the exclusive right concerned, thus seems to be utterly and totally unfeasible. At best it would be arbitrary.101 An ex-post cost analysis or comparison of price reveals nothing about the real investment in research and development nor about the expected ‘return’ necessary to induce inventive or creative activity in the first place. Moreover, it should be recalled that the absence of an internal market logic and the ensuing ability to benefit from the specificities of the different markets world-wide is precisely one of the main arguments advanced against the introduction of the trade liberalising principle of international exhaustion. It can hardly be said to be a fully satisfactory solution, not to say that it would be fundamentally inconsistent, to sanction undertakings for taking this argument to the letter. The Micro Leader case is definitely a most interesting test-case with respect to the possibility to apply the competition rules in order to facilitate parallel imports from outside the EC. It gives little indications as to the remedies that would apply in case an infringement were to be effectively established, in particular as the premise remains that the exclusive right is not to be considered exhausted. The Magill case102 may be helpful as it clarified that the EC Commission has the power to impose compulsory licences in Page 165 →order to remedy abusive behaviour by intellectual property holders. This may be considered by some as the solution to the problem of parallel imports. It seemingly strikes a balance between the need to be able to shield the EC market from products coming from abroad and the consumers interest in obtaining lower prices. However, rather than diverting the attention from the principle of international exhaustion, it is maintained that it exposes the weaknesses of rejecting this trade-liberalising principle offhand.

NOTES 1. See in particular Silhouette, European Court of Justice, 16 July 1998, case C-355/96, (1998) ECR 1-4799 and Micro Leader, Court of First Instance, 16 December 1999, case T-198/98, (1999) ECR II-3989. Both cases are discussed infra. 2. The Silhouette case, cited supra note 1, involved reimported goods as did the L ‘anza case in the United States, see Quality King Distributors v. L ‘anza Research International, Inc., 118 S.Ct 1125 (1998) 3. Parallel imports do not fall within the scope of the Community regulation dealing with the importation of counterfeits, see Council Regulation 3295/94 of December 22, 1994 laying down measures to prohibit the release for free circulation, export, reexport or entry for a suspensive procedure of counterfeit and pirated goods, (1994) O.J. L 341/8, Article 1(4). Counterfeit and pirated goods consist in slavish and unauthorised imitation of goods, and the packaging thereof, protected under intellectual property law. The regulation was modified by Council Regulation 241/99 of January 25, 1999, (1999) O.J. L 27/1. It now applies to goods protected under a trade mark, a copyright, a neighbouring right, a design or a patent. Some have made the argument that the scope of the regulation should be extended so that parallel imports become subject to controls, administered by customs authorities, at the Community external borders, see A. Clark, Parallel Imports: A New Job for Customs?, (1999) E.I.P.R. 1-7. 4. European Court of Justice, 8 June 1971, case 78/76, (1971) ECR 487. 5. See Bristol-Myers Squibb, European Court of Justice, 11 July 1996, joined cases C-427, 429 and 436/96, (1996) ECR 1-3457. 6. In addition to Deutsche Grammophon, cited supra note 4, which concerned neighbouring rights, see with

respect to patents. Sterling Drug, European Court of Justice, 30 October 1976, case 15/74, (1974) ECR 1147, to trade marks, Winthrop, European Court of Justice, 31 October 1974, case 16/74, (1974) ECR 1183, and to designs, Keurkoop, European Court of Justice, 14 September 1982, case 144/81, (1982) ECR 2853. Constructive or implied consent certainly covers the case where goods have been marketed by a firm belonging to the same group of companies as the Page 166 →owner of the exclusive right in the Member State of importation. It also seems to cover the situation where two firms, even unrelated, are in the relationship of assignor/assignee (or conversely), see Keurkoop, at par. 29, except where the exclusive right is a trade mark, for the trade mark function requires that the owners of the trade mark in the two Member States be subject to unified control, see Ideal-Standard, European Court of Justice, 22 June 1994, case C-9 /93, (1994) ECR 1-2789. 7. See Pharmon, European Court of Justice, 9 July 1985, case 19/84, (1985) ECR 2281. 8. See Merck I, European Court of Justice, 14 June 1981, case 187/80, (1981) ECR 2063 and Merck II, European Court of Justice, 5 December 1996, joined cases C-267 and 268/95, (1996) ECR 1-6285. 9. European Court of Justice, 20 January 1981, joined cases 55 and 57/80, (1981) ECR 147. 10. European Court of Justice, 9 April 1987, case 402/85, (1987) ECR 1747. 11. European Court of Justice, 17 May 1988, case 158/86, (1988) ECR 2605. 12. The Coditel I judgement of the Court of Justice, 18 March 1980, case 62/79, (1980) ECR 881, concerning performing rights, was based on the same economic rationale. 13. The Warner Brothers case law concerning rental rights was later taken over in Council Directive 92/100 of 19 November 1992, (1992) O.J. 346/61, which deals with rental and lending rights and certain neighbouring rights. The validity of the Directive was affirmed and the Warner Brothers case law confirmed by the Court of Justice in Metronome, 28 April 1998, case C-200/96, (1998) ECR I-1953 and Egmont, 22 September 1998, case C-61/97, (1998) ECR 1-5187. 14. Cited supra note 6. 15. The Court of Justice was undoubtedly right to rule that, as a matter of trade mark policy, trade in goods bearing the same trade mark could be restricted between territories when parallel trade marks have fallen, as a result of the assignment of one or both of these trade marks, under independent commercial management. Goods marketed under the same trade mark in the respective territories can no longer be reputed to originate from the same source. The Court was also correct in deciding that despite its negative consequences for intracommunity trade, the mere assignment of a parallel trade mark to a firm unrelated to the original owner, was not per se a restrictive agreement in the sense of Article 85 (now Article 81) of the EC Treaty. In so deciding, the Court did move away, but without mentioning it, from its former and questionable Sirena judgement, 18 February 1971, case 40/70, (1971) ECR 69. There remains, nevertheless, a somewhat disturbing element in Ideal-Standard. The original common owner of the trade mark rights, i.e. the IdealStandard group of companies, had partially assigned its French trade mark to an unrelated party. It was thus responsible for the fact that henceforth on the French market the Ideal-Standard trade Page 167 →mark came to be associated with goods coming from two different sources, something which obviously did not bother the original owner. However, on the German market, the trade mark owner would not allow the same to apply, arguing that this would constitute an infringement of its trade mark rights. The Court of Justice, however, refused to draw any implication regarding the fate of parallel imports from such an inconsistent attitude on the part of the original owner of the trade mark. The Court’s rationale was that, since no Community legislation governed the conditions under which national trade mark rights could be legitimately assigned, this remained a matter for each national legislator to decide independently. To permit parallel imports in the Ideal-Standard case would have meant that Germany, which excludes the partial assignment of part of trade mark, would have had to accept the consequences of the different approach taken by France in this respect. The Court did not want the free movement of goods to undermine the policy choice made by the German legislator. Ideal-Standard is a case of judicial self-restraint in the same vein as Keck & Mithouard, European Court of Justice, 17 November 1993, joined cases C-267 and 268/91, (1993) ECR 1-6097. 16. See Hoffmann-La Roche, European Court of Justice, 23 May 1978, case 162/77, (1978) ECR 1139; Pfizer, European Court of Justice, 3 December 1981, case 1/81, (1981) ECR 2913; Bristol Myers Squibb, cited supra note 5; Phyteron, European Court of Justice, 20 March 1997, case C-352/95, (1997) ECR I1729; Loendersloot, European Court of Justice, 11 November 1997, case C-349/95, (1997) ECR 1-6227.

17. See First Council Directive 89/104 of 21 December 1988 to approximate the laws of the Member States relating to trade marks (the ‘harmonisation directive’), (1989) O.J. L 40/1, Article 7(2) and Council Regulation 40/94 of 23 December 1993 on the Community trade mark, (1994) O.J. L 11/1, Article 13(2). 18. See American Home Products, European Court of Justice, 10 October 1978, case 3/78, (1978) ECR 1823 and Upjohn, European Court of Justice, 12 October 1999, case C-379/97, (1999) ECR I-6927. 19. European Court of Justice, 4 November 1997, case C-337/95, (1997) ECR I-6013. The case concerned the conditions under which the sale of luxury goods could be advertised by a chain-store, which did not belong to the selective distribution system established by the trade mark owner and which normally sold goods quite different and without a luxury character attached to them. 20. For an illustration in the field of trade marks, see EMI Records, European Court of Justice, 15 June 1976, cases 51, 86 and 96/75, (1976) ECR 811, 871 and 973. 21. For instance, certain national import quotas survived for a very long time. It is only in March 1994 that all national quotas were removed and that all products became subject to common import regimes. See Council Regulation 518/94 of 1 March 1994, (1994) O.J. L 67/77 and Council Regulation 519/94, (1994) O.J. L Page 168 →67/89. Following the Uruguay Round, Regulation 518/94 was replaced by Council Regulation 3285/94 of 22 December 1994, (1994) O.J. L 349/53. 22. Common import regimes, see supra note 21, are, for their part, based on Article 113 (now Article 133) of the Treaty. However, they are essentially concerned with quantitative restrictions. As a rule, the importation of products in the Community is free and safeguard measures in the form of quantitative restrictions can only be taken by the Community. Common import regimes do not remove or unify national import restrictions grounded on intellectual property rights, see Regulation 3285/94, cited supra note 21, Article 24 (2), and Regulation 519/94, cited supra note 21, Article 19 (2). See also EMI Records, cited supra note 20. 23. 15 November 1994, (1994) ECR I-5267. The Court there ruled that the protection of intellectual property rights as envisaged under the TRIPs Agreement did not fall within the framework of Article 113, for it did not specifically concern international trade relations. According to the Court, TRIPs was concerned as much, if not more, with internal trade as with external trade. However, it considered that specific external measures, such as measures against the importation of counterfeited goods, had been rightly based on Article 113. Specific measures dealing with parallel imports in the Community external trade could thus equally be based on Article 113 (now Article 133). 24. See Regulation 3285/94, cited supra note 21, Article 24 (2) (a) and Regulation 519/94, cited supra note 21, Article 19 (2) (a). These provisions allow Member States to adopt or implement prohibitions, quantitative restrictions or surveillance measures justified by the protection of industrial and commercial property. In the context of the Community internal trade, the Court of Justice considers that the protection of intellectual property does not, as a rule, justify obstacles to parallel imports. However, it has taken the opposite position in the context of the Community external trade when it had to interpret a Community agreement and a Community directive, see Polydor, cited infra note 30 and Silhouette, cited supra note 1. It follows that the Court of Justice would interpret the provisions of Regulations 3285/94 and 519/94 mentioned above as extending to national measures enabling holders of intellectual property rights to bar parallel imports from third countries. 25. According to Article 24 (ex Article 10) of the EC Treaty, goods coming from third countries are to be considered in free circulation if the import formalities have been complied with and any customs duties or charges having an equivalent effect which are payable have been levied. However, this does not imply that goods could be imported from third countries and then marketed in the whole common market in violation of rules relating to the protection of intellectual property, see EMI Records, cited supra note 20, at par. 13 to 16 (case 51/75). For a case where parallel imports entering the Community through a Member State were successfully opposed in another Member State, see Tylosin, BGH 3 June 1976, GRUR 519 (1976). Even if Page 169 →parallel imports were to be lawful under the law of the Member State through which they enter the Community market, because international exhaustion would there apply, the sale of goods so imported could be successfully opposed in another Member State without breaching Community law. The latter prescribes that parallel imports should be allowed between Member States, but on the condition that the goods involved were previously put into circulation on the Community market with the consent of the owner of the exclusive right. Such consent is here lacking.

26. See Regulation 3285/94, cited supra note 21, Article 24 (2) (b), and Regulation 519/94, cited supra note 21, Article 19 (2) (B). 27. For the limited legal implications of a failure to notify new national trade restrictions vis-a-vis third countries, see Bulk Oil, European Court of Justice, 18 February 1986, case 174/84, (1986) 559. However, the soundness of the whole Bulk Oil reasoning is debatable. 28. European Court of Justice, 9 February 1982, case 270/80, (1982) ECR 329. 29. Reciprocity considerations may have influenced the Court of Justice. In 1979, when interpreting similar free trade agreements between the EC and respectively Switzerland and Austria, the Swiss and Austrian highest courts had ruled against allowing parallel imports, see OMO, Trib. Fed., 25 January 1979, ATF 105-11 (1979) and Austro Mechana, Austrian Supreme Court, 10 July, 1979, IIC 754 (1980). 30. This opinion rests on the fact that the case law of the Court of Justice relating to intellectual property and parallel imports in the Community internal trade leans heavily in favour of the free movement of goods. It is best explained by the need to avoid the partitioning of the Community market on the basis of national intellectual property rights. An examination of the ‘external’ case-law of the Court of Justice reveals that the Court is quite ready to give a direct effect to provisions of external agreements which resemble provisions of the EC Treaty, except in the case of the GATT and the WTO, see Portugal v. Council, European Court of Justice, 23 November 1999, case C-149/96, (1999) ECR I-8395. However, for what concerns the substantive interpretation of these same provisions, the Court of Justice is not ready to carry into the external context that part of its internal case law relating to the free movement of goods which goes the farthest is terms of market integration, see, in addition to Polydor, Kupferberg, 26 October 1982, case 104 /81, (1982) ECR 3641; Metalsa, 1 July 1993, case C-312/91, (1993) ECR I-3751; and Chiquita, 12 December 1995, case C-469/93 (1995) ECR I-4533, which should be compared to Legros, 16 July 1992, case C-163/90, (1992) ECR I-4625 and Eurim-Pharm, 1 July 1993, case C-207/91 (1993) ECR I-3723. Before the establishment of the EEA, Pabst & Richarz, 29 April 1982, case 17/81, (1982) ECR 1331, was the only instance where the Court of Justice took the view that the provisions of an external agreement had to receive the same interpretation as the provisions of the EC Treaty in view of the nature and object of the agreement. The case concerned the interpretation of the Page 170 →association agreement meant to prepare the entry of Greece into the EEC, and the ruling was rendered after Greece had become a Member State. 31. See Agreement establishing a European Area, (1994) O.J. L 1/2, Articles 6 and 7. 32. Intellectual property is dealt with in Protocol 28 and Annex XVII. Article 2 of protocol 28 explicitly provides for the exhaustion of rights in conformity with Community legislation or Community case law. 33. See Thomas Cottier, Der Schutz des geistigen Eigentums im Europäischen Wirtschaftsraum: ein Übersicht, in Jacot-Guillarmod, EEA Agreement (Comments and Reflexions), 1992, 411, at 419. 34. See Mag Instrument, Advisory Opinion of 3 December 1997, 29 IIC 316 (1998). 35. However, if such parallel imports were to be diverted to EC Member States, the rule of exhaustion then would not apply either because EEA rules do not extend to goods originating in third countries or because the goods were not put into circulation in the EEA with the consent of the trade mark holder. 36. Concerning the customs union between the EC and Andorra, see the common declaration of the parties which accompanies the text of the agreement, (1990) O.J. L 374/16; concerning the customs union between the EC and Turkey, see Decision 1/95 of the Council of Association EC-Turkey of 22 December 1995, (1996) O.J. L 35/1, Article 66. 37. See decision 1/95, cited supra note 36, Annex 8, Article 10. 38. See, however, Article 21 (2) of the draft directive on the protection of inventions by utility model, COM (99)309 final/2, which explicitly excludes international exhaustion. 39. See W.R. Comish, Trade marks: Portcullis for the EEA ? (1998) E.I.P.R. 172-176, at 172-173. 40. In Sabel, 11 November 1997, case C-251/95, (1997) ECR I-6191, the Court of Justice confirmed, against the views of Benelux countries based on Benelux law, that, under Community trade mark legislation, protection was normally limited to those cases where the public risks being confused as to the origin of the goods. See G.J. Van de Kamp, Protection of Trade marks: The New Region – Beyond Confusion? (1998) E.I.P.R. 364-370. 41. See W. Alexander, Exhaustion of Trade mark Rights in the European Economic Area, (1999) 24 Eur. L. Rev. 56-66, at 57-58. 42. Cornish, cited supra note 41, considered, nevertheless, that the Court of Justice was not precluded from

gradually developing a rule of qualified international exhaustion on the basis of the trade mark directive. 43. See M. Michaux-Foidart, L’integration européenne au travers du droit des marques. Les rôles respectifs du juge et du législateur, Revue du Marché Unique Europeen, 1998, 85, at 124-128.Page 171 → 44. This was the view taken by W. Alexander and F.-K. Beier, see Alexander, cited supra note 41, at 58-59. 45. This was the view taken by most Member States and national courts, including those which, before the trade mark directive, had adhered to a rule on international exhaustion in the trade mark field, see Alexander, cited supra note 41, at 59, and the Commission’s answer of 2 June 1998 to written question, P0737/98, (1998) O.J. C-402/26. 46. Cited supra note 1. Silhouette has been the subject of several articles in addition to the articles by Cornish and Alexander, cited supra notes 39 and 41. See, e.g., H. Cohen Jehoram, Prohibition of Parallel Imports Through Intellectual Property Rights, 30 IIC 495-511 (1999); A. Olgivi, Trade Marks and Parallel Importation – Recent Developments in European Law, 30 IIC 512, at 520-531 (1999). 47. To borrow Cornish’s apt characterisation of F. Jacob’s submissions, as the latter was of the opinion that, but for the text of the directive, international exhaustion ought to be the rule. 48. See supra note 45. 49. 1 July 1999, case C-173/98, (1999) ECR I-4103. 50. See Davidoff, High Court (Ch. D.), 18 May 1999, 30 IIC 567 (1999), which has received supportive comments from I.A. Stamatoudi & P.L.C. Torremans, International Exhaustion in the European Union in the Light of ‘Zino Davidoff: Contract Versus Trade mark Law?, 31 IIC 123-141 (2000). 51. The question had been foreseen by Cornish, see supra note 39, at 177. In the Davidorff case, the High Court eventually did refer the issue to the European Court of Justice, asking in particular whether sales made abroad without any territorial restriction could not result in the trade mark being exhausted in the Community. Another manner of trying to circumvent the Silhouette ruling, or at least to reduce its impact, is to consider that it is not for the distributor who claims exhaustion to demonstrate that the goods have been put on the Community market with the consent of the owner of the trade mark, but that it is for the latter to demonstrate that the goods have not been put, or could not have been put, on the Community market with his consent. Regarding this issue, see the recent conflicting rulings of the German BGH and the Austrian OGH, compiled by Th. Simon, ‘European Trademark Exhaustion in Current Discussion’, (2000), The European Legal Forum pp. 22-39. The BG has now referred the question to the European Court of Justice, asking specifically whether putting the onus on the distributor would not have the effect of restricting the free movement of goods within the Community. See ibid. 52. Sweden, Denmark, Finland, the United Kingdom and Holland seem favourable to a modification of the trade mark directive, but not France, Austria, Italy, Ireland and Germany, see Europe, 25 September 1998, p. 8. It should be recalled that to modify the harmonisation directive, which is based on former Article 100 a (now Page 172 →Article 95) of the EC Treaty, a qualified majority of Member States is needed, but to modify the Community trade mark regulation, which is based on former Article 235 (now Article 308) of the EC Treaty, unanimity is required. 53. The European Parliament was responsible for the fact that the rule of international exhaustion did not become part of Community trade mark law, see supra text above note 41. 54. Concerning the implications of the Silhouette Judgement for other intellectual property rights in the light of British law, see H. Norman, Parallel Imports from Non-EEA Members; The Vision Remains Unclear, (2000) E.I.P.R. 159-170. 55. See L’anza, cited supra note 2. For a clear synthesis of U.S. law, see L.-J. Zadra-Symes & J.J. Basista, Using U.S. Intellectual Property Rights to Prevent Parallel Imports, (1998) E.I.P.R. 219-225. 56. See BBS Wheels, Tokyo District Court, 22 July 1994, Tokyo High Court, 23 March 1995, 27 IIC 546 and 550 (1996), the Supreme Court of Japan, 1 July 1997, 29 IIC 331 (1998), decisions which are commented by J.A. Tessensohn and S. Yamamoto, The Big Aluminium Wheel Dust Up – International Exhaustion of Rights in Japan, (1998) E.I.P.R. 228-238. 57. See supra note 34. 58. See H. Ullrich, International Exhaustion of Intellectual Property Rights: Lessons from European Economic Integration, Mélanges en hommage à Michel Waelbroeck, Vol. 1, 205-254, at 251 and sq, Bruxelles, Bruylant (1999). 59. For recent studies discussing the merits of allowing holders of intellectual property right to oppose

parallel imports, see F.M. Abbott, First Report (Final) to the Committee on International Trade Law of the International Law Association on the Subject of Parallel Importation, 1 Journal of International Economic Law 607-636 (1998); H.E. Bale, Jr, The Conflicts Between Parallel Trade and Product Access and Innovation, ibid 637-654 (1998); The Economic Consequences of the Choice of a Regime of Exhaustion in the Area of Trade marks, National Economic Research Associates (N.E.R.A.), 8 February 1999, London, (Study commissioned by the European Commission, DG XV). See also the various reports presented at the Quatrième forum européen de la propriété intellectuelle (23-24 April 1999), Revue internationale de la propriété industrielle et artistique, 1999, n° 3. For a thoughtful analysis of the exhaustion issue in the European Community context, see H. Ullrich, cited supra note 58. 60. What follows relies on P. Demaret, Patents, Territorial Restrictions and EEC Law, IIC Studies, vol. 2 (1978), where the reader can find the more detailed economic reasoning. 61. This second condition merges with the first if one accepts that it is in the nature of exclusive rights to allow their holders to maximise their returns.Page 173 → 62. Manufacturing requirements are protectionist devices which for a long time were imposed on patentees in many European countries. A similar requirement could be found in U.S. copyright law up until the 1980’s, see P. Demaret, Industrial Property Rights, Compulsory Licences and the Free Movement of Goods under Community Law, 18 IIC 162-191 (1987). To the extent holders of exclusive rights have to comply with a manufacturing requirement, which prevents them from supplying the national market through imports from abroad, it is rather normal that they be given the right to bar parallel imports from abroad. In the XIXth century, certain national courts were aware of that economic rationale when they had to deal with the question of parallel imports. 63. See European Court of Justice, Commission v. Italy, 18 February 1992, case 235/89, (1992) ECR I-777 and Commission v. United Kingdom, 18 February 1992, case C-30/90, (1992) ECR I-829. 64. Cited supra note 9. 65. Cited supra note 8. 66. Cited supra note 6. 67. Cited supra note 9. 68. Cited supra note 7. 69. Another test, which calls into question the existence/exercise dichotomy, would be the so-called functionality test. This test implies that the concept of essential function of each type of intellectual property right is determined at Community level and used as the criterion to distinguish between use and abuse of intellectual property rights. Abusively granted and/or abusively used intellectual property rights should then be struck down under the rules on the free movement of goods and/or the rules on competition respectively. See Govaere, I., The Use and Abuse of Intellectual Property Rights in EC Law, Sweet & Maxwell, 1996, in particular at pt. 3.47 and 6.18. 70. Cited supra note 39, at 176. 71. Bundesgerichtshof, 2 February 1973, 4 IIC 432 (1973), with a comment by F.- K. Beier. 72. Similar reasons explain why it does not seem justified to allow international exhaustion only on condition of reciprocity. Indeed, reciprocity is then understood not by reference to the protection of the trade mark function and to the consumers’ interests, but solely by reference to the producers’ interests, see W. ALEXANDER, cited supra note 41, at 63-64. This, of course, does not mean that, in practice, the recognition of international exhaustion as a result of bilateral or multilateral agreements should not be seen as a positive step. 73. Cited supra note 59. 74. This kind of approach was followed by the Tokyo High Court in the BBS case, when it ruled in favour of international exhaustion in a patent case. However, the Page 174 →Japanese Supreme Court introduced an important qualification, since it added that the patentee could prevent international exhaustion by imposing explicit territorial restrictions, see the references cited supra note 56. 75. See M. Bronckers, The Exhaustion of Patent Rights under WTO Law, 32 Journal of World Trade 137-159 (1998). 76. See I. Govaere & P. Demaret, The TRIPS Agreement: A Response to Global Regulatory Competition or an Exercise in Global Regulatory Coercion?, in D. ESTY & D. Geradin (eds.), Regulatory Competition and Economic Integration: Comparative Perspectives, Oxford Univ. Press, forthcoming (2000).

77. See the facts underlying Sebago, cited supra note 49, which, however, was a trade mark case. 78. See also the opinion of AG Jacobs in the Silhouette case, cited supra note 1. 79. See the very first case dealing with intellectual property rights: Consten Grundig, European Court of Justice, 13 July 1966, joined cases 56 and 58/64, (1966) ECR429. 80. See in particular, Parke Davis, case 24/67, European Court of Justice, 29 February 1968, (1968) ECR 55. 81. See also the analysis made in I. Govaere, The Use and Abuse of Intellectual Property Rights in E.C. Law, Sweet & Maxwell, 1996 for more details. 82. See Commission Regulation (EC) N° 240/96 of 31 January 1996 on the application of Article 81 (3) (ex Article 85 [3]) of the Treaty to certain categories of technology transfer agreements, (1996) O.J. L 31/2. 83. See for instance Consten Grundig, cited supra note 79. 84. BAT v. Commission, 30 January 1985, case 35/83, (1985) ECR 363. 85. See the Ideal-Standard case, cited supra note 6. 86. P, RTE and ITP v. Commission, European Court of Justice, 6 April 1995, (1995) ECR I-743. 87. Volvo v. Veng. European Court of Justice, 5 October 1988, case 238/87, (1988) ECR 6211. 88. In the subsequent Bronner case, the Court again used the criterion of exceptional circumstances. This case concerned the refusal of a media undertaking holding a dominant position in the territory of a Member State to include a rival daily newspaper of another undertaking in its newspaper home-delivery scheme. As such it also concerned potential abusive behaviour on a secondary market, however this case was not specifically related to intellectual property rights. See 26 November 1998, case C-7/97, (1998) ECR 1-7791. 89. Cited supra note 15. 90. Cited supra note 4. 91. Cited supra note 6. 92. Cited supra note 20.Page 175 → 93. Javico International, European Court of Justice, 28 April 1998, case C-306/96, (1998) ECR1-1983. 94. See in particular at para 19. 95. Allowance being made for customs duties and transport costs, see para 24. The Court further recalls that it should also be established that there is an appreciable effect on intra-Community trade. 96. Micro-leader Business v. Commission, Court of First Instance, 16 December 1990, Case T-198/98, (1999) ECR H-3989. 97. Cited supra note 1. 98. Cited supra respectively note 1 and note 49. 99. See Grundig and Sirena cited respectively supra note 79 and note 15. 100. Unless the EC market in so-doing is isolated, see the EMI Records case, 1976, cited supra note 20. 101. It goes without saying that the reasoning of the Court as developed in the United Brands case, with respect to the possibility to determine excessive pricing objectively, for instance by comparing selling price with production costs, cannot be transposed as such to intellectual property rights. See European Court of Justice, 14 February 1978, Case 27/76, (1978) ECR 207. See also Javico, cited supra note 93. 102. Cited supra note 86.

____________________ * Professor, University of Liège, Liège, Belgium. † Professor, University of Ghent, Ghent, Belgium. This article has been written within the framework of Interuniversity Poles of Attraction Programme – P4/04 Belgian State, Prime Minister’s office – Federal Office for Scientific, Technical and Cultural Affairs’, University of Liège, University of Ghent and University of Brussels. Page 176 →

Page 177 →CHAPTER 10 Political Economy of the U.S. Parallel Trade Experience: Toward a More Thoughtful Policy Frederick M. Abbott* For the past decade, the Office of the United States Trade Representative (‘USTR’), more recently in conjunction with the U.S. Department of State (‘State’),1 has aggressively pursued a trade policy condemning (and threatening) foreign governments that open their markets to parallel trade. There is a material disconnection between the trade policy that USTR (and State) pursue abroad, and the law applicable to parallel trade within the United States. There is, moreover, a divergence in policy advocated by the U.S. Department of the Treasury, which historically has favored parallel trade, and the policy pursued by USTR and State. There are a number of features of this policy disconnection that are troubling. First, USTR adopted and has pursued its policy without any in-depth study of the parallel trade phenomenon. The only apparent explanation for the policy adopted in the absence of analysis is industry pressure. Second, the U.S. Supreme Court has already rebuked USTR for suggesting that it could seek to determine domestic parallel trade policy by forcing small developing countries to capitulate to its terms. Third, as a practical matter it is doubtful whether there is an internal legal mechanism by which a U.S. citizen might compel USTR to change its external parallel trade policy by initiating a court action – although the U.S. Congress may certainly dictate a change in policy. The objective of this article is to concisely explain the law of the United States governing parallel trade in respect to the fields of trademark, copyright and patent, as well as to take note of certain recent developments on the political side suggesting that USTR may be facing increasing pressure to modify its combative stance. It suggests that USTR (and State) should back away from their current positions until an adequate public dialogue and analysis of the complex implications of parallel trade policy on matters such as world public health and the maintenance of competitive markets has taken place.

Page 178 →1. U.S. Rules in the Field of Trademark U.S. law regulating parallel importation in trademarked products is based on three statutes. These are Section 526 of the Tariff Act of 1930,2 Section 42 of the Lanham Act3 and Section 337 of the Tariff Act of 1930.4 The first two of these statutes is enforced by the U.S. Treasury Department (in its capacity as administrator of import regulations through the U.S. Customs Service).5 The Tariff Act and Lanham Act provisions regulating parallel importation are worded differently, but the Treasury Department has implemented both provisions with the same Treasury Regulation.6 The federal courts have largely attributed the same meaning to both statutes. The Supreme Court has not yet pronounced on whether the differences in wording should result in differential application. The U.S. Supreme Court has interpreted Section 526 of the Tariff Act to produce two different sets of results, depending on the relationship between a U.S. trademark holder seeking to block parallel importation and the party that places goods on the market in a foreign country. In Kmart v. Cartier, 486 U.S. 281 (1988) the Court decided that the Customs service should block parallel importation of goods placed on a foreign market by an entity independent of the holder of a registered U.S. trademark, even if the foreign entity holds a valid (independent) trademark in the foreign market (Case 1). The Court said that the Customs service also should block parallel importation of goods placed on a foreign market by the licensee of a U.S. trademark holder (Case 3). The Court, on the other hand, said that parallel imports from an enterprise under common control with a U.S. trademark holder (in a parent-subsidiary, subsidiary-parent, or controlled affiliate relationship) (Case 2(a)-(c)), should not be blocked. In Lever Brothers II,7 the Court of Appeals for the District of Columbia Circuit (CADC) added a further element to the Supreme Court’s analysis. In interpreting the Lanham Act, the CADC held that the Customs Service should block parallel importation of goods that are materially different than goods placed on the U.S. market by the U.S.

trademark holder, even if the imported goods are placed on the foreign market by a commonly controlled enterprise, because of the potential for consumer confusion. The Treasury Department, which had vigorously opposed this CADC interpretation during the Lever Brothers litigation, reacted to the decision by adopting socalled Page 179 →‘Lever rules’.8 These rules provide that the Customs service will not block importation of materially different goods first placed on a foreign market by a commonly controlled enterprise, unless the importer places a conspicuous notice on the goods advising that there is a material difference with goods marketed for U.S. consumers. Section 526 of the Tariff Act and Section 42 of the Lanham Act are directed to Treasury (and Customs Service) enforcement. Section 337 of the Trade Act of 1930 allows the holder of a registered U.S. trademark to file a petition before the International Trade Commission (ITC) to block the importation of goods that infringe the U.S. trademark holder’s rights. The ITC conducts a proceeding (initially before an Administrative Law Judge, subject to appeal to the ITC Commissioners), and renders a determination regarding the petition. The ITC may issue an exclusion order on behalf of a successful petitioner that directs the Customs Service to block importation of goods found to infringe. The ITC does not award monetary damages (although it may assess penalties for violation of its orders). Decisions of the ITC may be appealed to the Court of Appeals for the Federal Circuit (CAFC) (and ultimately to the Supreme Court). The U.S. President may use policy discretion to overturn an ITC decision. The ITC and CAFC, in Gamut Trading v. ITC and Kubota Tractor, 200 F. 3d 775 (1999), recently allowed a Japan-based manufacturer (and holder of a registered U.S. trademark) to block importation of goods produced and sold by an affiliated entity in Japan (under a parallel trademark) on grounds of material differences between the goods that a third party sought to import from Japan, and goods produced and marketed by the trademark holder in the United States. The CAFC indicated that there is a low threshold for finding a material difference between U.S. goods and import goods; as minor as a difference in the language of instructional materials provided with the goods. The CAFC held that used (i.e., second-hand) goods imported from Japan may infringe the rights of a U.S. trademark holder, because the importation of used goods may affect the goodwill of the U.S. trademark holder. Whether the parallel importation of used goods may be blocked will depend on case-specific factors. The Administrative Law Judge, at the stage of the initial ITC determination against Gamut Trading, recommended that importation of the goods (i.e. used tractors) be blocked ‘unless the tractors bore a permanent, non-removable label alerting the consumer to the origin of the used tractors and containing other information deemed necessary to mitigate consumer confusion’ (200 F. 3d at 784). Although the importer had not, by the time of the CAFC decision, proposed a labeling system that satisfied the ITC, it certainly appeared that there was enough leeway in the ITC final Page 180 →determination to allow parallel importation to resume, once an adequate labeling system had been worked out. U.S. law in respect to parallel importation of trademarked goods may thus be briefly summarized as follows: the Customs Service will block importation when the U.S. trademark holder is independent of, or is the licensor of, the party that places goods on the market abroad under a parallel trademark. In general, the Customs Service will not block the importation of goods placed on the market abroad by a commonly controlled enterprise; however, the Customs Service will block importation of materially different goods, even if placed on the market abroad by a commonly controlled enterprises, unless the importer labels the goods to indicate a material difference. U.S. trademark holders may block parallel importation through Section 337 proceedings under the same general rules as are applied by the Custom Service (including blocking goods placed on the market abroad by commonly controlled enterprises on the basis of material differences, while adequate labeling as to material differences may allow parallel importation).

2. U.S. Rules in the Field of Copyright Section 501 of the Copyright Act of 1976 provides private copyright holders in the United States with the right to obtain relief against imports of infringing works by filing a complaint in federal court.9 Such relief may include an injunction and the award of damages, as in an ordinary civil action for copyright infringement. Section 602 of the same Act directs the U.S. Treasury Department and Customs Service to block infringing imports, and provides for

potential seizure and forfeiture of infringing works.10 Section 337 of the Trade Act of 1930 allows registered holders of U.S. copyrights to petition the ITC for an exclusion order directed at infringing imports. The U.S. Supreme Court, in Quality King Distributors v. L’anza Research, 1998 U.S. Lexis 1606 (1998), has interpreted Section 602 of the Copyright Act in the context of ‘round trip’ parallel importation, but has yet to squarely address the circumstance of copyrighted works first placed on a market outside the United States. In Quality King, the Court observed that copyrighted works first sold in the United States are subject to a longstanding (and statutory) rule of exhaustion (Copyright Act, sec. 109). The right to block infringing importation embodied in Section 602 is based on the right to prohibit infringement of the U.S. copyright holder’s rights under Section 106. Because these basic rights are exhausted on first sale under Section 109, the U.S. copyright holder cannot block the importation of works that are first sold in the United States, then exported and imported, because the U.S. copyright holder has already exhausted its basic rights in regard to disposition of the works. Page 181 →Although the Court did not rule on the alternative circumstance of works first sold abroad under parallel copyright, it expressed strong skepticism as to whether intellectual property rights should provide a mechanism by which producers can engage in international price discrimination. It suggested that U.S. IPRs holders that are concerned with low-priced sales of their products abroad might rebrand their products for international sale, or engage in comparable levels of advertising in foreign markets. The Court castigated the Executive Branch for attempting to rely on a series of trade agreements prohibiting parallel imports, entered into with several smaller economy countries, as a basis for demanding an interpretation of the U.S. Copyright Act that prohibited parallel importation. On a policy level, the Quality King decision can be understood as evidencing Supreme Court antipathy to rules prohibiting parallel trade in copyrighted works – at least in the common control context of the Kmart decision.11 Nonetheless, the Court will eventually confront the text of the Copyright Act, and there is debate concerning how it will interpret that Act in the context of expressive works produced under parallel copyright abroad. Section 109(a), which establishes the first sale rule, provides for exhaustion with respect to copies of expressive works ‘lawfully made under this title’. Some argue that this would preclude the rule of exhaustion from applying to works first placed on a market abroad since such works may not, strictly speaking, have been made ‘under this title’. On the other hand, works produced under a parallel copyright abroad are in fact ‘lawfully made’, and their making is not precluded by the Copyright Act, so there is also a strong argument that works ‘lawfully made under this title’ would cover works made abroad with the consent of the U.S. copyright holder. For the time being, the federal Courts of Appeal will address the issue of parallel trade in copyrighted works produced and marketed outside the United States, and if the historical pattern holds, will divide as to result. The ITC and CAFC will apply Section 337 in light of Quality King. Within the next several years, the Supreme Court should be expected to again confront the question of parallel importation of copyrighted works. Already, copyright industry lobbying groups have made efforts to legislatively overturn the Quality King decision, but so far without success.

3. U.S. Rules in the Field of Patent12 Section 271 of the U.S. Patent Act provides the patent holder with a cause of action against infringement by importation of goods, and against infringement by importation of goods produced using U.S. patented processes. Section 337 of the Tariff Act of 1930 provides an alternative Page 182 →means for private parties to seek relief against imports of products infringing a U.S. product or process patent. Deriving from the 1873 decision of the U.S. Supreme Court in Adams v. Burke, 84 U.S. (17 Wall) 453 (1873), the United States applies a rule of exhaustion in respect to the first domestic sale of patented products. In Boesch v. Graf, 133 U.S. 697 (1890), the Supreme Court allowed the holder of a U.S. patent on a lamp burner to block the importation of burners lawfully produced and first sold in Germany. The German lamp burners were not produced under a German patent held in parallel by the U.S. patent holder. They were instead produced by a

competing enterprise under a ‘prior use’ exemption provided by the German patent law. While the U.S. Supreme Court in Boesch said that a lawful first sale in Germany did not affect the U.S. patent holder’s rights in the United States, the Court’s holding was not directed to a first sale under a U.S. patent holder’s parallel patent in Germany, but rather to a first sale based on an exemption from the otherwise applicable patent restraint provided by German law. From the standpoint of an analysis of parallel imports of patented products, the Boesch decision might best be understood to stand for the proposition that an ‘unauthorized’ first sale abroad does not exhaust the U.S. patent holder’s rights. This is consistent with the customary understanding of lawful parallel importation as being based on the consent of the right holder to the first sale abroad. The Supreme Court has not otherwise pronounced on parallel importation of patented goods. The Courts of Appeal have largely supported a rule of international exhaustion regarding patented products, but have provided leeway to patent holders to control the importation of products by contract. In Curtiss Aeroplane v. United Aircraft, 266 F. 71 (2d. Cir. 1920), a case decided by the Court of Appeals for the Second Circuit,13 a holder of U.S. patents on aircraft components had licensed the British government to produce aircraft in Canada (for use in the First World War). After the war, the British government sold some of the aircraft it had produced to a third party that imported them into the United States for resale. The Second Circuit held that the U.S. patent holder, in consenting to the use of its patent for the manufacture of airplanes in Canada, had exhausted its right to control the importation of the resulting aircraft into the United States. The Court specifically noted that the contract between the licensor and licensee contained no restriction regarding the disposition of the aircraft.14 In Dickerson v. Tinling, 84 F. 192 (8th Cir. 1897) and Dickerson v. Matheson, 57 F. 524 (2d Cir. 1893), the Eighth Circuit and Second Circuit Courts of Appeal, respectively, held that the holder of a U.S. patent may contractually condition a foreign sale on agreement by the purchaser to refrain from importing into the United States. In Tinling, the Eighth Circuit Page 183 →enforced a restriction on importation that appeared as a conspicuous notice on a product label. In Matheson, the Second Circuit enforced a restriction included as a term in an invoice (which the Court determined to be a binding contract term).15 In Griffin v. Keystone Mushroom Farm, Inc., 453 F. Supp 1283 (E.D. Penn), the federal district court permitted the holder of parallel patents in the United States and Italy to prevail in an infringement action based on the importation of products lawfully sold under patent in Italy. The court based its decision on the Supreme Court’s decision in Boesch v. Graf, supra, holding that the sale in Italy did not affect the rights of the patent holder in the United States because this would give extraterritorial effect to Italian patent law. This decision has been sharply criticized by commentators for failing to address contradictory U.S. precedent, and for its overbroad application of Boesch.16 On the whole, U.S. case law appears to favor a doctrine of international exhaustion in the field of patents, subject to the condition that the U.S. patent holder may by contract and notice restrict the rights of a purchaser abroad to import into the United States. The exact parameters of U.S. doctrine in this area are not clear. What is clear is that there is little support in case law or statute for the proposition that the United States follows a doctrine of national exhaustion in the field of patents.

4. USTR Parallel Trade Policy The foregoing discussion of U.S. law regarding parallel importation in the fields of trademark, copyright and patent, should make it apparent that USTR protests against foreign governments that pursue relatively open policies with respect to parallel importation might just as well be directed at the U.S. Supreme Court and Treasury Department. Added to this generally bewildering picture is the fact that USTR has not to this point undertaken or produced any meaningful policy analysis – economic or otherwise – on which to base its aggressive policy against parallel trade.17 A citizen of the United States may indeed be tempted to wonder why its trade policy apparatus is

attempting to enforce a policy on foreign nations that has been rejected at home. Article 6 of the TRIPs Agreement appears to permit WTO Members to pursue the parallel importation policy that best suits them. Under no reasonable interpretation of the TRIPs Agreement does it preclude WTO Members from allowing parallel imports.18 It is an interesting feature of the U.S. constitutional and legislative framework that there is no apparent avenue by which a citizen might petition the courts to demand that the Executive Branch follow a trade policy that is consistent with U.S. WTO Page 184 →obligations. The WTO Agreement has been denied direct effect in U.S. law by act of Congress.19 A citizen may well initiate a Section 301 proceeding to demand that USTR evaluate the trade practices (including consistency with WTO law) of a foreign government. There is no such mechanism available in respect to the U.S. Executive Branch.20 The only meaningful remedy presently open to U.S. citizens to challenge USTR policy regarding parallel trade is involvement in the political process – and this remedy has of late been pursued with some success by various advocacy groups. In connection with the WTO Seattle Ministerial Conference, USTR announced that it would hereafter consult with the U.S. Secretary for Health and Human Services regarding claims by trading partners that U.S. intellectual property policies are impeding their ability to address health crises, and ‘give full weight to the advice of HHS regarding the health considerations involved.’21 In connection with this announcement, USTR removed South Africa from its ‘Special 301’ watch list.22 This announcement followed USTR’s decision, under pressure from Vice President Gore, to reduce pressure on South Africa because of its liberal parallel trade and compulsory licensing activities in respect to addressing the AIDS pandemic.23 The implications of the new relationship between USTR and the Department of Health and Human Services in regards to parallel trade in pharmaceutical products are for the moment indeterminate. The announcement by USTR is somewhat vague, and its meaning remains to be fleshed out in practice. It is nonetheless apparent that there is now more than one side to the parallel trade debate in the United States at the political level, and this may have the effect of restraining USTR in it pursuit of TRIPs Agreement-inconsistent policy.

5. Toward a More Thoughtful Parallel Trade Policy Questions regarding the relationship between intellectual property rights and trade, and particularly those that help to determine world public health policy, are complex. Researchers in this field remain stymied by the lack of solid empirical data with which to work. One might imagine – though this author finds it doubtful – that a serious study of parallel trade issues by the U.S. government would yield a parallel trade policy that is comparable to the one that has been pursued by USTR for most of the past decade. What is disturbing is that USTR (and State) for all appearances has adopted a policy that may have serious adverse consequences for global economic development and public health, and for U.S. foreign policy, on the basis of industry demands that have not been evaluated against broader national and Page 185 →international interests. This kind of policy-making seems out-of-date, and inconsistent with public demands for transparency and good governance. We may hope that the surge of U.S. public – and political – interest in parallel trade policy and public health will encourage USTR and the Department of State to step back and allow the relevant domestic and multinational constituencies with interests in parallel trade policy to engage in an open discourse, and to reach a thoughtful set of conclusions and recommendations regarding the future of U.S. trade policy and diplomacy.

NOTES 1. On the ill-conceived venture of the U.S. Department of State into trade and pharmaceutical policy issues, see, e.g., David Wilson, Paul Cawthorne, Ford Nathan and Saree Aongsonwant, Global trade and access to medicines, 354 LANCET 1893, Nov. 27, 1999, and; Robert Weissman, Are U.S. anti-AIDS drug makers being unfair to Africa?, INSIGHT, Sept. 13, 1999, at 40. 2. 19 USCS § 1526. 3. 15 USCS § 1124. 4. 19 USCS § 1337.

5. U.S. trademark holders must provide the Customs Service with evidence of trademark registration. The Customs Service will temporarily block importation of goods that it suspects to be infringing, pending an administrative determination. Trademark holders may alert the Customs Service to infringing shipments. 6. 19 C.F.R. § 133.21. 7. Lever Brothers v. United States, (CADC 1993), 981 F. 2d 1330. 8. 19 C.F.R. § 133.2(e). 9. 17 USCS § 501. 10. 17 USCS § 602. 11. In Quality King, the Supreme Court discussed the circumstance in which the creator of an expressive work had assigned his or her copyright to independent publishers in the U.S. and abroad, and intimated that in this context the first sale of a copyrighted work outside the United States might be subject to import restriction based on U.S. copyright ownership. This may be analogous to the situation of independent trademark ownership, or third party licensing, discussed by the Supreme Court as Case 1 and Case 3 in Kmart. The Court might well consider control factors in a subsequent copyright decision. 12. The discussion of U.S. case law in this section was presented in substantially similar fashion at the meeting in Berne in August 1999, and appeared in an abbreviated format in ILA International Trade Law Committee, Second Report of the Committee, Helsinki Conference, Aug. 12-17, 1996 (E.-U. Petersmann and F. M. Abbott, Rapporteurs). After the Berne meeting, this author was asked to review a paper drafted by a colleague, Prof. Margreth Barrett, that carefully describes and analyzes U.S. case law on patents and exhaustion. The reader is referred to Margreth Page 186 →Barrett, The United States’ Doctrine of Exhaustion: Parallel Imports of Patented Goods [forthcoming], for additional citations to U.S. case law and supporting analysis. 13. The Second Circuit was following its own precedent in Dickerson v. Matheson, 57 F. 524 (2d. Cir. 1893). 14. Curtiss Aeroplane was recently followed by the federal district court for the Southern District of New York in Kabushiki Kaishi Hattori Seiko v. Refac Technology Development Corp., 690 F. Supp. 1339 (S.D.N.Y. 1988). In the later case, the district court again observed the lack of a contractual restriction as to importation or resale in United States. 15. In Daimler Mfg. Co. v. Conklin, 170 F. 70 (2d Cir. 1909), the Second Circuit permitted the holder of a U.S. patent on an automobile component to block the importation of automobiles that had lawfully been sold abroad by a party authorized to sell under a parallel patent. In the Daimler case, the seller abroad did not have the right to sell for export to the United States, and the Court observed that the seller abroad could not by sale convey rights greater than those it possessed. This decision by the Second Circuit preceded its own Curtiss Aeroplane decision by some years, and the later decision does not require that a seller under a parallel patent has been granted an express right to sell or use in the U.S. market in order for parallel importation to be allowed. The idea that the right to parallel import patented products may depend on the extent of the rights of the seller abroad in respect to the U.S. market was adopted by a federal district court in Sanofi, S.A. v. Med-Tech Veterinarian Products, Inc, 565 F. Supp. 931 (D.N.J. 1983). In that case, the district court refused to block parallel importation on behalf of an enterprise that had granted an exclusive license to sell its patented product in the United States to another party. It said that while a sale abroad may ordinarily be sufficient to exhaust the patent holder’s rights as to the United States, the patent licensor did not have rights as to the U.S. market when it sold its products abroad (since it had granted the exclusive license for the U.S. market to another party). The district court went on, however, to allow the exclusive licensee for the U.S. market to block parallel importation of the products first sold by the licensor in Europe because the licensee’s exclusive rights for the United States had not been exhausted. The rationale for this decision has been criticized since it assumes that a patent right is only exhausted when a seller has rights to sell within a certain territory, and this is not consistent with basic U.S. first sale doctrine in respect to patents. See Barrett, supra note 12. 16. See, e.g., Barrett, id. As a federal district court decision, it does not carry the precedential weight of an Appeals Court decision. 17. This author has confirmed this fact with responsible USTR officials and with officials in the Treasury Department. 18. See Frederick M. Abbott, Second Report (preliminary) to the Committee on International Trade Law of

the International Law Association on the Subject of the Exhaustion of Intellectual Property Rights and Parallel Importation, Revision 1.2 (Aug. 10, 1999), in which the interpretative suggestions of various commentators are described.Page 187 → 19. See Frederick M. Abbott, Intellectual Property Rights Treaties in the Law of the United States: The Direct Application Paradox, 2 TRANSLEX No. 2:1 (June 1999). 20. Conceivably, a citizen might argue that the Executive conducts trade policy under delegation of authority from Congress, that U.S. legislation does not address parallel import policies of foreign nations, and that USTR is exceeding its delegated authority by aggressively challenging foreign nations that pursue open parallel trade. However, it would be a fairly daunting task to persuade a federal court that USTR’s trade negotiating authority is limited by existing parameters of federal law on comparable subject matter. 21. Office of the USTR, The Protection of Intellectual Property and Health Policy, Press Release 99-97, Dec. 1, 1999. 22. Id. 23. Frances Williams, US to consider poor countries’ need for drugs, in: Financial Times, Dec. 3, 1999, at 6; Sabin Russell, Poor Nations Given Hope on AIDS Drugs, in San Francisco. Chronicle., Dec. 3, 1999, at A20.

____________________ * Professor, Florida State University College of Law, Tallahassee, USA; University of California at Berkeley School of Law, Berkeley, USA. Page 188 →

Page 189 →CHAPTER 11 Issues Regarding Parallel Importation of Trademarked and Patented Products and Competition Policy in Japan Mitsuo Matsushita*

1. Initial Remarks Issues regarding parallel importation of goods under intellectual property laws have been regarded in Japan as those of the Patent Law, the Trademark Law and the Copyrights Law. In the area of the Trademark Law, the case law has been established that parallel importation of genuine goods covered by a trademark should be allowed. Under the Patent Law, although the Supreme Court in the BBS Case allowed parallel importation of patented goods under some conditions, the legal situation is less clear. (Issues regarding parallel importation of products covered by the Copyrights Law is omitted due to time constraint.) Article 23 of the Antimonopoly Law of Japan (the AML)1 provides that a conduct which amounts to an exercise of a right under the intangible property rights is exempted from the application of provisions of the AML. Traditionally rights under the Patent Law, the Utility Model Law, the Trademark Law, the Design Law (they are referred to as the industrial property rights) and the Copyright Law have been regarded as intangible property rights. In addition to those, however, the exercise of rights under such laws as the Integrated Circuit Law should be regarded as an exercise of intangible property rights. Page 190 →There are many arguments regarding what constitute the exercise of such rights among academics, government officials and lawyers. However, no prevailing view has emerged and case law doctrines have not been firmly established yet. An exclusion of a product which infringes a right under any of the intangible property laws by legal action is certainly deemed to be an exercise of a right. A collection of royalty under a license of any of such rights is another example of an exercise of right. Cases dealing with this issue are quite scanty. The preamble to the Civil Code of Japan contains a statement that abuse of rights is not permitted. Under this provision, an abusive exercise of a patent, trademark or any other rights is presumably not permitted. Therefore, even if one owns a patent right, trademark rights or other rights under the heading of the intangible property rights, an ‘ abusive exercise’ of such a right could be challenged under the AML. This is, however, an extraordinary situation, and, again, there are little case law developments.

2. Parallel Importation of Trademarked Goods under the Trademark Law In the area of trademark law, parallel importation of genuine goods is generally regarded permissible. The landmark case in this area is the Parker Fountain Pen case decided in 1970 by the Osaka District Court.2 The issue involved in this case was a parallel importation of fountain pens produced by Parker Company in the United States. Parker designated Shuriro Trading Company as the sole agency of Parker fountain pens in Japan and Shuriro registered the exclusive right to use the trademark ‘Parker’ in Japan. Due to the monopolistic position of Shuriro regarding the product, the price of Parker fountain pens in Japan was quite high. A company (MNC Company), desirous of engaging in parallel importation of Parker fountain pens from a third country, requested to Shuriro to grant a license to do so. When Shuriro refused to grant a license, MNC initiated a lawsuit in the Osaka District Court and sought a judgment that Shuriro had no right under the Trademark Law to block parallel importation of genuine Parker fountain pens into Japan. The court handed down a decision and upheld the position of the parallel importer, MNC on the following ground. There are two essential elements of a trademark and, as long as those two essential elements are not injured by parallel importation, there is no infringement of the trademark. The two essential elements are: first, the identification of origin and secondly the guarantee of quality of the trademarked goods. The court reasoned that a trademark right was not infringed if those two essential elements are secured.

Even if a Parker fountain pen was imported by a parallel importer, the requirement for identification of origin was maintained since the imported Page 191 →product was a genuine Parker fountain pen and was indeed produced and originally sold by Parker. Likewise a parallel importation of a Parker fountain pen by a parallel importer would not impair the guarantee of quality because it was a genuine Parker fountain pen. On the basis of the above reasoning, the court held that Shuriro had no right to block parallel importation of genuine Parker fountain pens. Shortly after this decision, the Bureau of Customs and Tariffs of the Ministry of Finance modified the enforcement policy of Article 21 of the Customs and Tariffs Law which provides that a product which infringes intangible property rights in Japan shall be stopped at the border and allowed parallel importation of genuine trademarked goods into Japan. This decision opened the gate for parallel importation not only for Parker fountain pens but also for all sorts of consumer goods and high prices of many of branded products (Johnny Walker whisky, high valued Swiss watches, high valued ties, etc.) went down considerably.3 Nowadays department stores and supermarkets engage in large scale parallel importation of branded goods from abroad. The holding of the Parker case seems to have been generally accepted among government agencies, lawyers and academics although there is dissatisfaction for this decision among enterprises which act as sole agencies for foreign exporters, the business community in general takes this decision for granted. It is to be noted, however, that the Parker decision is not a Supreme Court decision and, if a lawsuit occurs and one of the parties challenges the legality of parallel importation of genuine trademark goods, the possibility that this decision is overturned cannot be ruled out. At this point, such a lawsuit is unlikely to happen since, as mentioned before, the doctrine of the Parker decision is so well known and widely accepted and this discourages a future potential litigant from bringing this issue to court. As liberalization of trade progresses, however, a foreign company which owns a trademark in Japan and in whose mother country parallel importation of a genuine trademarked goods is not allowed may decide to challenge it. The court in the Parker case decided the issue on a ‘theoretical ground’, e.g., on a certain view of the essential features of a trademark. This approach is in sharp contrast to the text of the Trademark Law. Articles 30.2/37.7 of the Trademark Law define an exclusive right to use a trademark exclusively and an infringement of exclusive right is defined as including import of a commodity bearing the mark in question. Therefore, the wording of the Trademark Law may be interpreted to suggest that there should be no parallel importation of a genuine trademarked goods as long as there is no license given by the owner of the trademark in question or the exclusive licensee thereof. The court based its judgment on the objective of the Trademark Law. Page 192 →There could be room for debate whether the literal interpretation faithful to the text of law or the objective of the law should be given priority.

3. Parallel Importation of Patented Goods under the Patent Law In the area of patents, the legal situation is not quite the same as it is in the trademark area. Let us examine the case law developments first. In 1969, the Osaka District Court held that a product that was covered by a patent in Japan could not be lawfully imported into Japan by a parallel importer. This is the Brunswick case which involved the parallel importation of bowling pins covered by a patent owned by Brunswick Corporation (a U.S. company).4 Brunswick owned a patent covering bowling pins in Australia and Japan as well as in other countries. Brunswick licensed its patent to a third party in Australia and this party manufactured bowling pints there and sold them. The bowling pins were imported into Hongkong and a person in Japan intended to import them into Japan. Brunswick brought a lawsuit against this person alleging that the bowling pins in question were covered by the patent it owned in Japan and importation of the bowling pins into Japan constituted an infringement of its patent. The court agreed with this allegation and granted a remedy to Brunswick on the ground that, whereas the patent right with regard to the bowling pins in question was exhausted in Australia, the patent right in Japan covering the same subject was not exhausted since the patent in Japan was based on the Patent Law in Japan and should be regarded as independent from any other corresponding patents covering the same subjects in other countries.

After more than 20 years, this issue was revisited by a lawsuit brought by the BBS Company (a German company producing wheels for automobiles). BBS owned a patent in Germany and Japan as well as in other countries. BBS produced and sold wheels for automobiles both in Germany and Japan. Apparently there was a large difference between the price of this product in Germany and Japan and there was a company in Japan which intended to purchase the product in Germany from third parties and import them into Japan. BBS claimed that such a parallel importation constituted an infringement of the patent it owned and lawsuit occurred. BBS prevailed in the Tokyo District Court which held that the parallel importation constituted an infringement of the BBS patent.5 On appeal, the Tokyo High Court adopted the international exhaustion doctrine and held that once BBS sold the product in Germany, its patent right was exhausted not only in Germany but also in Japan.6 On petition to the Supreme Court, the case was examined by the Supreme Court. Page 193 →On 1997, the Supreme Court handed down a decision.7 The gist of the decision is that, when a person owned a patent in a foreign country and Japan and a product covered by the patent was sold, it was presumed that the patentee implicitly granted the right to import the product into Japan by a third party unless the patentee expressly notified to the first purchaser of the product in the foreign country when the first sale took place that importation of the product was not allowed and affixed a sign on the product to that effect. The Supreme Court reasoned that this presumption of implied license was reasonable when considering the degree of globalized business transactions in which the legal stability was vitally important. The decision of the Supreme Court did not adopt the doctrine of international exhaustion in its pure form. Under this ruling, the patentee can block a parallel importation into Japan of a product covered by the patent which it owns in Japan and the country of exportation as long as it notifies the first purchaser its intention of not allowing a parallel importation into Japan and affix a sign indicating that intention. If the patent in question was exhausted in the country of exportation and in Japan also at the first sale of the product in the country of exportation, how can the patentee attach a condition that the product cannot be imported by a third party into Japan? The decision of the Supreme Court was a compromise between the view held among academics and some lawyers advocating for the liberalization of parallel importation of patented products and the view entertained among some sectors of the business community which maintain the traditional doctrine that a patent registered in a country in independent from any other corresponding patents registered in other countries and a patented product cannot be imported into Japan even if the product was duly sold in a foreign country. This decision tried to strike a balance between the demand for liberalizing parallel importation supported by important groups among academics and that for maintaining the status quo of the traditional interpretation based on the territorial principle held by some important business groups including the pharmaceutical industries. Whatever the intention of the Supreme Court may have been, this decision probably created more legal uncertainty than certainty. Under this ruling, whether or not a parallel importation into Japan of a patented product is allowed depends on the expression of intention made by the patentee in a foreign country. How can a parallel importer in Japan find out about it? Also it depends on whether that intention is represented on the product in question. What if that representation was lost by attrition during the process of transportation? If a parallel importer which is an innocent third party imported the product, is it held liable under the Patent Law? These are some practical questions that may arise in the context of this decision. Page 194 →It is not certain what changes of enforcement policy of Article 21 of the Customs and Tariffs Law have been made by the Bureau of Customs and Tariffs of the Ministry of Finance regarding parallel importation of patented goods. Since the Supreme Court has spoken on this subject, the Director of Customs and Tariffs is obligated to change the enforcement policy of Article 21 of the Customs and Tariffs Law to make it conform to the decision of the Supreme Court. However, due to unclearness involved in the Supreme Court decision, the liberalization of parallel importation of patented goods under Article 21 of the Customs and Tariffs Law must be conditioned on factors which surround a parallel importation of a patented product. However, now that the Supreme Court has taken a position on this issue, this is the legal doctrine with regard to this question in Japan until such time comes in future when this issue is taken up in courts again.

4. Competition Law Implications of Parallel Importation of Trademarked and Patented Goods As long as parallel importation of products covered by patent, trademark or other rights in Japan constitutes an infringement of rights under a law such as patent law and trademark law in Japan, the conduct of a party which possess the right to exclude parallel importation of such products either through lawsuit in courts or an application to the Customs House to stop the importation of such products at the border does not generally constitutes a violation of the AML since the exercise of rights under intangible property rights is generally exempted from the application of the AML. As mentioned earlier, Article 23 of the AML clearly states that the exercise of rights under the intangible property laws is exempted from its application. However, as mentioned earlier, the preamble of the Civil Code declares that abuse of rights is not permitted. Although this statement is found in the preamble of the Civil Code, this can be interpreted to be a statement of general principle in jurisprudence. Therefore, even if a person’s conduct formally amounts to an exercise of right, that conduct is not justified when it amounts to an abuse of that right. Likewise, in the area of intellectual property rights, although a conduct of the owner of a patent to exclude the use of the technology on which the patent is granted or of the owner of a trademark to exclude the sale of a commodity bearing that mark appears to be an exercise of the right under the patent law or the trademark law, such an exercise is not allowed if it amounts to an abuse of right.8 In this situation, presumably, the AML would apply. As mentioned earlier, the Parker decision has established that parallel importation of genuine goods did not constitute an infringement of a trademark right in Japan. It follows, therefore, that an exclusion on the part of Page 195 →the owner or exclusive licensee of the trademark of parallel importation of genuine goods which bears the same trademark is subject to the application of the AML. Depending on the degree of seriousness of violation, such an exclusion can be either a private monopolization under Articles 2.5/3 or an unfair business practice under Articles 2.9/19 and the General Designation of Unfair Business Practices announced by the Fair Trade Commission (the JFTC).9 Since the Parker decision, the JFTC has acted on a number of occasions to prohibit attempts on the part of sole import agencies which registered exclusive right to use these brands to suppress parallel importation of genuine goods. There are some case law developments in this area. Theses case law developments are reflected in Part 3 of the Guidelines on Distribution and Trade Practices issued by the JFTC in 1991 (the Distribution Guidelines) as part of the measures taken as the result of the Structural Impediments Initiative (the SII), a trade negotiation between the United States and Japan. Therefore, we turn briefly to the content of the Distribution Guidelines.10 Section 3 of Part 3 of the Distribution Guidelines is devoted to setting out rules of the AML on undue blocking of parallel importation by sole import agencies of parallel importation of genuine trademarked goods. Generally parallel importation has the effect of maintaining price competition and, if it is unduly hindered, this is a violation of the AML. On the other hand, in cases in which products imported by parallel importation are not genuine products or, even if they are genuine products, their quality deteriorates and the health of users or the safety of products is adversely affected, sole agencies can legitimately block parallel importation of such products. Interference on the part of sole agencies into procurement by parallel importers of genuine goods from abroad constitutes an unfair business practice. This includes conduct such as: to cause a foreign supplier to stop selling products to a parallel importer in Japan when the parallel importer proposes to the foreign supplier to purchase products or to cause such supplier to stop selling by detecting sources of such supply through identifying product numbers attached to the product and denouncing them to the foreign supplier. Imposition on the part of sole agencies the condition on distributors that the latter cannot sell products which they purchased from the former to retailers which handle products imported by parallel importation constitutes an unfair business practice if its effect is to maintain the retail price of the products in question. Page 196 →Legal or non-legal action, without good cause, on the part of sole agencies to exclude genuine products imported by parallel importation by coercing distributors which handle such products to stop handling them by claiming that they infringe the trademark owned by the sole agencies constitutes an unfair

business practice except for the fact that trademark owners can legitimately exclude false products which bear the trademark they own. Buying up of genuine products imported by parallel importation by a sole agency amounts to an unfair trade practice if it is exercised for the purpose of removing the products from the market and maintaining the price of the products. Refusal to repair genuine products imported by parallel importation on the part of sole agencies amounts to an unfair business practice if such refusal is done for the sole reason that the sole agencies did not sell the products in the situation where sellers other than the sole agencies cannot provide adequate repair services to customers. Undue interference into sales promotion activities of products imported by parallel importation on the part of sole agencies. Conducts enumerated in the Distribution Guidelines are an illustrative rather than exhaustive list of conducts that come under the prohibition of the AML. There can be other conducts which are prohibited as unfair business practices. However, the above are conducts to which the AML were applied. In the area of patent, since parallel importation of patented goods has been allowed by the BBS case under some conditions, the AML applies when similar activities as above occur which would prevent patented products from coming into the Japanese market. However, whereas in the trademark area courts have explicitly stated that parallel importation of genuine products did not constitute an infringement of trademark, the ruling of the Supreme Court decision in the BBS case is less clear. As explained earlier, it did not rule that the right of patent is internationally exhausted when the first sale of the covered product was made somewhere in the world in which the patent is registered. The ruling of the Supreme Court is that the intention on the part of the patentee to allow parallel importation of the covered product into Japan is presumed unless the patentee expressly stated at the time of the first sale of the product that parallel importation is not allowed. The JFTC cannot generally prohibit a blocking of parallel importation of a patented product into Japan on the premise that the first sale abroad has exhausted the patent right of the product. A case-by-case judgment is necessary to determine whether a particular parallel importation of a patented product amounts to infringement of the patent in Japan or not. This makes it Page 197 →extremely difficult for the JFTC to draft guidelines which would generally regulate conducts relating to parallel importation of patented products. In abstract, there is room to argue that the AML would apply to conducts on the part of a patentee and sole import agencies which unduly interfere with parallel importation. However, compared with the trademark area, the issue of applicability of the AML to blocking of parallel importation of patented products is more uncertain.

NOTES 1. For details of the Antimonopoly Law of Japan, see H. Iyori and A. Uesugi, The Antimonopoly Laws and Policies of Japan (New York: Federal Legal Publications, Inc., 1994). 2. Decision of Osaka District Court, February 27, 1970, Mutaishu (Intangible Property Law Reporter), Vol. 2, p. 71 et seq. 3. See for details, M. Matsushita, Regulation of Sole Import Distribution Agreement under the Japanese Antimonopoly Law, The Japanese Annual of International Law, Vol. 18, p. 66-82 (1974). 4. Decision of Osaka District Court, June 9, 1969, Mutaishu (Intangible Property Law Reporter), Vol. 1, p. 16 et seq. 5. Decision of Tokyo District Court, July 22, 1994, Hanrei Jiho (Court Cases Reporter), No. 1501. 6. Decision of Tokyo High Court, March 23, 1995, Hanrei Jiho (Court Cases Reporter), No. 1542. 7. Decision of Supreme Court, July 1, 1997, Hanrei Taimuzu (Court Cases Times), No. 951, p. 105 et seq. 8. Abuse of a right has been rarely recognized in Japanese courts. However, there are a handful of cases in which courts held that an exercise of a right amounted to abuse and consequently refused to give it a legal effect In intellectual property law area, one Supreme Court case is reported in which the exercise of trademark right was denied for the reason that it amounted to an abuse of right. In this case, a person applied

for registration of a trademark which represented ‘POPEYE’ and, combined with it, a comic in which ‘POPEYE’ was placed. A trademark was granted. However, at the time of registration, the name ‘POPEYE’ was widely known among the public as the figure associated with the comic. A third party sold a commodity with a sign consisting of just ‘POPEYE’ after receiving a license from the copyright holder of the comic. The trademark owner brought a suit for injunction against a person who sold the commodity. The Supreme Court held that the assertion of the trademark in the situation amounted an abuse of right. See the Supreme Court Decision, July 20, 1990, Minshu (Civil Cases Reporter), Vol. 44, No. 5, p. 876 et seq.Page 198 → 9. On unfair business practices, see I. lyori and A. Uesugi, supra., note 1, pp. 104-153. 10. See, generally, M. Matsushita, Japanese Anti-trust Law in the Context of Trade Issues, in Japanese Commercial Law in an Era of Internationalization (ed. H. Oda, Graham & Trotman/Martinus Niijoff, 1994), pp. 1-39.

____________________ * Professor, Seikei University, Tokyo, Japan.

Page 199 →CHAPTER 12 Parallel Imports and IPR-Based Dominant Positions: Where Do India’s Interests Lie? Jayashree Watal*

1. Introduction All intellectual property rights (IPRs) can be broadly held to confer a legal right to exclude others from certain unauthorized acts with respect to the subject matter of protection. These rights are conferred under national law with the purpose of encouraging inventive or creative activity or for preventing consumer deception and unfair competition. In the context of the Agreement on Trade-Related Aspects of Intellectual Property Rights of the WTO (TRIPs), the IPRs meant to encourage creative or inventive activity include patents,1 copyright and related rights, industrial designs and layout-designs. Those primarily intended to prevent information asymmetries and consumer deception include trademarks and geographical indications.2 Usually the first set of rights is meant to confer market power through legal exclusivity, albeit limited in time and scope. This set is consequently also subject to stricter limits than the second set. This is because society recognizes that with the grant of this limited market power for the term of protection, public interest or welfare may suffer. In the second set, the rights prevent the use of the same trademark or distinctive signs but do not prevent the production, use or sale of a similar good or service under a different mark, as long as there is no likelihood of consumer deception. Not surprisingly, policies allowing parallel imports are more widely accepted in the second set than they are in the first set. Even in the first set, such limits on copyrighted works, where the scope of protection is more narrowly defined, are more common than on patented products. Page 200 →It is no secret that India was amongst those most strongly opposed to TRIPs and in particular to the strengthening of patent rights. During the TRIPs negotiations India was amongst those seeking to retain national discretion on parallel import regimes. In the wake of the finalization of this agreement, the public debate on TRIPs in India, as in other developing countries, has centered around two main issues: prices of patented medicines and prices of protected seeds.3 During the Uruguay Round negotiations, TRIPs was widely perceived to be an area where India had more to lose than gain. However, since the conclusion of these negotiations, there has been an increased awareness amongst policy makers, particularly those in scientific establishments, that strengthened patent protection can serve as incentives for local inventive activity and can be important for creating bargaining chips for accessing newer and more effective products and technologies.4 Clearly, for a country like India, the limits to patents should not be too broad as otherwise the objective of rewarding local inventive activity would itself be defeated. However, given the strong public policy concerns in India on prices of protected products,5 it is likely that legislators would use all available TRIPs-compatible policies to alleviate any possible adverse effects of patent-dominant positions. In addition, parallel imports allow some of the profits from the sale of products covered by IPRs to be shared by nationals, thus reducing national welfare losses. This paper evaluates parallel imports as a policy alternative for generating competition in India to neutralize the effects of market dominance of patent-covered products and technologies, particularly in areas of concern such as pharmaceuticals.6 The paper briefly sets out the issues involved in parallel imports and competition policy in general, stating the position in India in particular and then goes on to analyze parallel imports as a policy alternative to generate competition.

2. Parallel Trade and TRIPs Many commentators only speak of parallel imports, whereas it is logical to analyze the effects of parallel imports as well as parallel exports and thus speak of ‘parallel trade’. Generally speaking, IPRs are exhausted once the goods or services, which incorporate these rights, are put on the market. This means that once a patented, trademarked or copyrighted article has been sold by the IPR owner (or his licensee/agent), the further sale or

distribution of this article can no longer be controlled by him. This principle, called the ‘exhaustion of rights’, is accepted in all countries, developed and developing, Page 201 →within their national jurisdictions. The controversy arises when goods, legitimately and consensually placed on the market in one country by the IPR owner, are imported into another country without the authorization of the IPR owner in that country.7 On this controversial subject TRIPs negotiators only reached an agreement to disagree. Article 6 of TRIPs on ‘Exhaustion’ prohibits WTO members from using the dispute settlement mechanism to address this issue. It neither explicitly prohibits nor allows parallel trade, thus implicitly allowing members to follow their own national regimes on exhaustion of IPRs, as long as national treatment and MFN, as provided for under TRIPs, are accorded. Some see parallel imports as a major policy option for developing countries to attenuate the ill effects of strong intellectual property protection, apart from unfair duplication of the rights of IPR holders.8 Others strongly argue in favor of clearly prohibiting parallel trade in products protected by all IPRs, and in patented pharmaceuticals in particular.9 Some supporters of the latter view have contended that TRIPs only removes the subject of parallel imports from the jurisdiction of the dispute settlement process and that this issue is actually governed by the substantive provisions in TRIPs on specific intellectual property rights. In the case of patents, it has been argued, that the substantive provision allowing the exclusive right of importation, along with that prohibiting any discrimination on grounds of whether the product is imported or domestically produced, amounts to an obligation prohibiting parallel imports in this area.10 This interpretation, it is argued, is not affected by the footnote to Article 28 which merely states that this right of importation, like all other rights of use, sale, importation or other distribution of goods conferred under TRIPs, is subject to the provisions of Article 6. Since Article 6 only removes the issue from arbitration under WTO dispute settlement rules, this does not take away from the absolute right of patent owners to prevent importation by third parties, whether of counterfeit or gray goods. Proponents of this view argue that in the particular case of pharmaceuticals, parallel trade would decrease incentives for innovation. TRIPs does not harmonize patent laws and such imports would originate not only from countries with lower ability to pay but from those with TRIPs-compatible measures such as strict price controls, compulsory licensing provisions or non-grant of patent term extension. However, the right to exclude others from importation, like the right to do so on sales, does not automatically extend to ‘gray’ goods and has to be specifically provided for in national law and so also in international law. The strength of the argument that TRIPs does not allow parallel imports of patented goods cannot be tested in a WTO dispute for the obvious reason that this is prohibited under Article 6. Page 202 →Many argue that parallel imported products would lack pre or after-sales service or that parallel importers are ‘free-riders’ on IPR owners’ promotional expenditures within the territory. This argument applies only to certain products and also, with the advent of electronic commerce, many of these services are not necessarily confined to national or regional borders. Another argument in favor of restrictions on parallel imports stresses that the quality of the product may be different and that such imports could lead to consumer deception. However, this may be corrected with better information and consumers could benefit from greater choice. Other arguments that the IPR owner will not license his technology to countries that permit parallel exports can be met with adequate responses through competition policy decided on a case-by-case basis.

3. India’s Current Parallel Trade Policies and Implications for Competition India currently does not specifically allow parallel imports under any of its IP laws. However, under the copyright law and rules, the Registrar of Copyrights can allow such imports as only imports of infringing copies are prohibited by law.11 To implement its TRIPs obligations, India has recently passed legislation on trademarks, geographical indications and industrial designs. However, these laws do not contain any specific provision on parallel trade. At the time of writing, India had yet to legislate on other IP laws, notably patent law, required to comply with TRIPs, although it needed to do so by the end of 1999. The draft patent law, however, contains a special provision to allow parallel imports. At the time of writing, this draft is under scrutiny of a Parliamentary committee.12 No law or regulation addresses the issue of parallel exports from India.

Global prohibition of parallel trade may amount to allowing IPR owners to make territorial restrictions on sales in licensing arrangements. Following this logic, could the lack of adequate competition due to patent-based dominant positions be remedied through policies allowing parallel trade? In short, would an international regime allowing parallel trade be in the interests of developing countries like India?13 It is to be noted that prohibiting territorial restrictions on exports in IP licenses, under competition law, even if interpreted to be permissible under TRIPs, only allows ‘active’ parallel exports.14 But the market for such parallel exports would depend upon the parallel import and competition policies in other WTO members over which India has no control. For instance, if others widely allow the imposition of such exclusive territories in IP licenses through competition, labeling or other laws, there may be limited scope for parallel imports into India, even if this is otherwise dictated by economics. Similarly, if all other countries prohibited parallel imports, where would India’s parallel exports go? In this sense, the Page 203 →same ends can possibly be achieved by either international harmonization of policies on parallel trade or of competition policy.

4. Control of Anti-Competitive Practices in India In many developed countries today there is no presumption under competition law that patents confer any monopoly power, as the product covered by patents can be subject to competition from economic substitutes. On the other hand, patents are seen as introducing dynamic competition through newer products and production processes. Abuse of market power, in this context, is usually linked to extension of the scope of the IPR either spatially or temporally, such as to restrict competition.15 Consequently, many licensing conditions that developing countries may consider per se illegal,16 are expressly permitted in the major developed countries as part of the exclusive rights conferred by IPRs or are decided by the rule of reason on a case-by-case basis. However, in developing countries, per se treatment of anti-competitive practices is simpler to administer and monitor for enforcement authorities and clearer for both IPR owners and users. The question of which licensing conditions could legitimately be considered as having anti-competitive effects per se has been left open in TRIPs, as the list given in Article 40 is merely illustrative. It is not clear that in a future WTO dispute, territorial restrictions on sales would be determined to be outside the purview of per se rules. The current Indian Patents Act, 1970, in Section 140, deems certain anticompetitive practices in patent licenses to be null and void per se. These are limited to tied sales or other restrictions on compelled use of non-patented products or processes.17 In addition, the Indian Monopolies and Restrictive Trade Practices (MRTP) Act, 1969, as amended in 1984 and 1991,18 requires registration of the following kinds of agreements that are deemed to be restrictive trade practices, unless such restrictions are considered to be reasonably necessary in public interest.19 tying, price fixing and exclusionary provisions; output restrictions on quantity or territorial basis; employment or process restrictions; misuse of market power; including predatory pricing; exclusive dealing and resale price maintenance; The requirement of registration is subject also to a rule of reason or effects test. This makes the list of practices that have to be registered merely illustrative. Indian case law under the MRTP Commission has considered the practices listed above as anti-competitive, including restrictions on output and Page 204 →allocation of areas. Presumably, territorial restrictions on exports in contractual licenses dealing with IP are not per se invalid but can be taken up on a case-by-case basis by the MRTP Commission. India does not have specific policies reconciling IPRs and competition policy. It is necessary for India to study the structures, procedures and case law in developed countries and put in place, as soon as possible, a competition policy to deal with IPR-based dominant positions, covering all IPRs and tailored to their own particular needs and goals, although there is no obligation under TRIPs to do so. Guided, at least in part, by the study group on competition policy issues set up by the first WTO Ministerial Conference at the end of 1996, India has already begun the process of examining these issues in order to strengthen existing competition law.

However, the limited case law in India shows that currently competition policy can only help in limiting anticompetitive behaviour of IPR owners where these result in expanding the scope of IP rights, either spatially or temporally, beyond those envisaged by law.20 It is likely that the prohibition on exclusive territories or restriction on exports in IPR licences by IPR owners as being anti-competitive per se is likely to be disputed under Article 40 of TRIPs. Such restrictions are now considered to be part of the IPR holders’ exclusive rights in the US and to a large extent, in the EC and are, in any case, not per se illegal.21 There have, however, been changes in attitudes of competition authorities over the years in these jurisdictions and perhaps, there can be a case for developing countries to follow the earlier, more pro-competition policies.22 However, under its current competition law, India could only rule such restrictions to be anti-competitive on a case-by-case-basis.

5. Parallel Trade and Access to Essential Medicines For developing countries, an important questions is whether a globally enforced rule allowing parallel trade would achieve this objective of access to newer and more effective (patented) medicines at reasonable prices? It is with this objective that South Africa recently amended its Medicines Act to allow for parallel imports of medicines. There has been strong opposition to this from US and Europe based pharmaceutical companies, which attempted to pressure South Africa, through diplomatic and legal channels, to amend its policies.23 However, in the context of other developing countries like India, there is need to carefully review the arguments. If international exhaustion policies are meant to benefit consumers in some developing countries through lower prices due to price competition, it has to be noted that consumers in parallel exporting countries may experience a rise in prices or may face inadequate Page 205 →availability of the product subjected to parallel exports. Standard economic theory tells us that the price-discriminating monopolist will disallow arbitrage by raising prices.24 This would prevent ‘passive’ parallel exports from the country. The right owner may also decide not to supply the market. However, it is not clear at what point right holders would take such action since unreasonably high prices or nonsupply of the market could possibly result in a compulsory license of a patented product to a third party or price controls.25 Paradoxically, in the case for price controls, the availability of such price-controlled products may become a problem if the IPR owner decides not to serve the market. India has experienced shortages for some drugs under price controls. In India domestic industry and multinational companies are united in their opposition to price controls of pharmaceutical products and have obtained fairly liberal margins even under such a policy.26 A compulsory licensee may also be tempted to benefit, wherever feasible, by engaging in ‘active’ parallel exports, even though exports cannot predominate over domestic sales, according to Article 31 of TRIPs. Eventually, policy makers in the parallel exporting country have to face up to the issue of transferring the benefits of lower prices, whether or not derived through compulsory licenses or price controls, to foreign consumers at the cost of domestic consumers, especially where availability even to meet domestic demand may sometimes become a problem. This may possibly lead countries like India to permit parallel imports to derive the benefits of possible lower prices elsewhere, while restricting parallel exports. It must be noted that economic theory may not translate into practice on account of other real world differences. This would largely depend upon the reaction of IPR owners to parallel exports, the risk of compulsory licenses or price controls and the presence of other regulatory barriers to such imports, which is a matter of empirical study and verification. Also, it is not clear, a priori, which countries would be parallel exporters and which parallel importers as this would differ with product and perhaps, over time. Even while India has some of the lowest prices of patentable medicines today, without patent protection, it is not clear if this situation would still be true, with patent protection. One consideration in the pricing strategies by MNEs of patented pharmaceuticals may be the increasing use of global ‘reference pricing’ to monitor and regulate drug prices in developed country markets.27 This implies that there is a danger of uniform pricing of patented pharmaceuticals even if parallel imports were completely prohibited in every WTO member country through a future revision of TRIPs. Therefore, to avoid the solution of global uniform pricing in patented medicines, there may have to be harmonization of several regulatory measures and not just intellectual property laws. Page 206 →That said, certainly, consumers in countries facing higher prices than those elsewhere could make

short term gains from parallel imports. Moreover, some low-income countries may also benefit as it is not easy to identify pricing strategies of IPR owners a priori in high, middle or low income countries as these vary widely, particularly in the sensitive area of pharmaceuticals. To add to the confusion, recent theoretical discussions show that parallel exports can even take place from countries with higher retail prices to countries with lower retail prices and that considerations of achieving vertical price efficiency may dictate the prevention of parallel imports.28 However, even assuming that India would be a parallel exporter, the effect on India of allowing WTO members to determine their policies in this regard, would depend upon the actual policies of other countries. If some countries do maintain a policy of international exhaustion of IPRs, and if right holders use the option not to introduce the product on the Indian market or ensure uniformly high prices worldwide (and take the risk of litigation on consequent compulsory licenses), Indian consumers may suffer. This would be especially so in areas where the technology is difficult to reverse engineer as compulsory licenses would not work here. So far the limited empirical evidence on the subject shows that there are substantial wholesale price differences which could give scope for parallel importation but that even within the EU, where such trade is permitted, such differences persist due to other reasons.29 This confusion is reflected in national legislation adopted on this issue so far by some developing countries. Argentina has in article 36 (c) of its new patent law no. 24.481 of 1996 specifically permits international exhaustion. Brazil, however, has opted for national exhaustion of rights i.e. prohibition of parallel imports. Brazil lays down in its law no. 9.279 of May 1996 in Article 43.IV that the rights of a patent owner do not apply to a product placed on the internal market directly by the patent owner or with his consent. Similarly in relation to trademarks, under Article 132. IV the owner of such a mark cannot prevent the free circulation of products placed on the internal market.

6. Conclusion To sum up, the implications of using parallel trade policies to enhance competition and lower prices in developing countries like India have to be verified empirically as it is difficult to draw any conclusion a priori as to which countries would benefit and which would lose from any global rules in this area, given the different pricing strategies adopted by right owners for different products, the imperfections in distribution and the regulatory barriers to parallel imports in certain products. Therefore, it would appear, that there is considerably more uncertainty on the value of a global policy Page 207 →uniformly permitting or prohibiting parallel imports and its economic significance for low-income developing countries like India than was assumed during the TRIPs negotiations, when India figured amongst the strong supporters of the freedom of countries to determine their national exhaustion regimes.

NOTES 1. It is not clear if plant breeders’ rights are included in the definition of IPRs given in Article 1.2 of TRIPs, but if this were the case such rights would also be included in this first set. 2. See Carsten Fink (1999). Note that the concept of unfair competition should, realistically speaking, cut across all IPRs, including trade secrets and test data. 3. Not coincidentally public health and food are described as the two crises of the tropics. See Sachs (1999). 4. Assuming that an index of increased domestic inventive activity in India is the number of patents granted in the US to inventors from India, it can be seen that in just three years the number increased from 35 patents in 1996 to 112 in 1999. The single largest grantee is the Indian government’s Council for Scientific and Industrial Research. (See http://www.uspto.gov.) 5. A study by the author shows that with the introduction of product patents in India, the difference in prices of patentable drugs could be as much as +250% and options such as price controls could only reduce prices by -40%, although compulsory licenses could result in a reduction of -60 to -90%. See Watal (2000a). 6. In the case of seeds, the necessity for local adaptation and production makes imports less important. Besides, under the minimum standards set by TRIPs seeds are to be protected by Plant Breeders’ Rights,

which generally allow for certain exemptions. 7. Note that these goods are not ‘counterfeit’ but since it is not clear if they are infringing goods, they are sometimes called ‘gray goods’ or ‘parallel imports’. 8. See Yusuf and von Hase (1992), pp. 115-132. See also Correa (1997). Based on such arguments, presumably, the new Argentine Patent law in Article 36 incorporate this exception, along with other limited exceptions as allowed under Article 30 of TRIPs. Abbot (1998, 1999) also clearly recommends that the WTO adopt a rule precluding governments from blocking parallel imports, although he also recommends that the issue be developed further to build consensus. 9. See Bale (1998). 10. See Straus (1996), pp. 191-195, quoting notably Cottier, 1995 SMI 55, in support of his views. See also Cottier (1998). 11. Section 53 of the Copyright Act, 1957, as amended up to 1994. 12. This information has been gleaned from various issues of Indian newspapers over 1999-2000 from the website http://www.samachar.com.Page 208 → 13. There is little empirical guidance on this subject. Anderson et al. (1998)recommend parallel trade only within groups of countries that have harmonized IP and competition laws, e.g. Canada and the US. WTO members will not reach this level of harmonization on IP even with the full implementation of TRIPs. Maskus (1999) is more agnostic in concluding that more empirical work needs to be done on this issue. 14. It is useful to distinguish between ‘active’ parallel exports i.e. exports made by the licensee that can be controlled by such restrictive conditions by the licensor and ‘passive’ parallel exports made by others by buying the product from the wholesale market. Such passive exports can be controlled to some extent by labeling that explicitly prohibits sale in countries other than those specified and by different packaging in different countries. The latter policy may, however, only serve to increase costs and reduce importers’ profits marginally. 15. See Anderson (1998), pp. 655-678 for an excellent analysis of the policies of the ‘Quad’ viz. US, EU, Japan and Canada. 16. Going by demands made in MTN.GNG/NG11/W/71 by 14 developing countries in the TRIPs negotiations and based on past discussions in UNCTAD. 17. Other Commonwealth countries, following the UK pattern, also have similar provisions in their patent laws. See for instance, Section 144 of the Australian Patents Act, 1990. 18. The concept of dominant undertakings and requirement of approvals for expansions, new ventures, mergers, amalgamations and take-overs by them have been removed in the 1991 amendments. Material for this section is drawn from Debroy (1997). 19. Defined broadly in this law as a range of specific circumstances, from reduction in export earnings to requirements of national security. 20. This was the ruling of the MRTP Commission in a trademarks case, Dr. Vallal Peruman vs. M/S Godfrey Phillips (India) Limited (1994), as cited in Chakravarty (1997). 21. See Gutterman (1997) Chapter 10 and 11 for the development of the law and jurisprudence on patent licensing in the US and the EC. 22. See Fox (1996). 23. See http://www.cptech.org for a flavor of the debate on this issue. 24. Presumably, such price increases would be resorted to after all other methods such as labeling and repackaging fail to prevent such exports. 25. See Watal (1998) on the flexibility on grounds for compulsory licenses. However, the effectiveness of cost-based price controls, such as those used in India, is itself questionable, especially in the case of imports of patented products or their raw materials/intermediates, on account of the use of transfer pricing by transnational corporations. 26. Watal (2000a) puts out results of a simulation study that show that given the current policy parameters, price controls may not result in dramatic reductions of patented medicines in India. 27. See Lanjouw (1998). 28. See Maskus and Chen (1999).Page 209 → 29. See Fink (1999). In addition the recent study by NERA shows that price reductions from parallel imports within the EU may be modest. See Abbott (1999), pp. 7-8.

REFERENCES Abbott, Frederick M (1999): Second Report (preliminary) to the Committee on International Trade Law of the International Law Association on the Subject of the Exhaustion of Rights and Parallel Importation, Revision 1.2 (August 10, 1999), available on file with author. Abbott, Frederick M (1998): The First Report (Final) to the Committee on International Trade Law of the International Law Association on the Subject of Parallel Importation, Journal of International Economic Law Vol. 1, No. 4, December 1998, pp. 607-636. Anderson, Robert D. (1998): The Interface Between Competition Policy and Intellectual Property in the Context of the International trading System, Journal of International Economic Law, Vol. l, No. 4, December 1998, pp. 655-678. Anderson, Robert D. and Nancy T. Gallini (Eds.) (1998): Competition Policy and Intellectual Property Rights in the Knowledge-Based Economy, University of Calgary Press. Anderson, Robert D., Paul M. Feuer, Brian A. Rivard and Mark F. Ronayane (1998): Intellectual Property Rights and International Market Segmentation in the North America Free Trade Area, in Anderson and Gallini (Eds.) (1998), pp. 397-446. Bale, Harvey E., Jr.(1998): The Conflicts Between Parallel Trade and Product Access and Innovation: The Case of Pharmaceuticals, Journal of International Economic Law Vol. 1, No. 4, December, pp. 637-653. Beier, Friedrich-Karl and Schricker, Gerhard (1996): From GATT to TRIPs – The Agreement on Trade-Related Aspects of Intellectual Property Rights, IIC Studies, Vol.18, Max Planck Institute for Foreign and International Patent, Copyright and Competition Law, Munich, Germany. Chakravarty, S. (1997): Competition Law – Some Consonantal and Dissonantal Dimensions, paper presented at the World Bank Global Forum Conference on Competition Policy in a Global Economy, New Delhi, March 17-18. Correa, Carlos M (1997): Implementation of the TRIPs Agreement in Latin America and the Caribbean, European Intellectual Property Review, Vol. 8, pp. 435-443. Cottier, Thomas (1998): The WTO System and Exhaustion of Rights, paper presented at Conference on the Exhaustion of Intellectual Property Rights and Parallel Importation in World Trade, Committee on International Trade Law, Geneva (7 November). Page 210 →Debroy, Bibek (1997): Competition Policy - An Indian Perspective, paper presented at the World Bank Global Forum Conference on Competition Policy in a Global Economy, New Delhi, March 17-18. Fink, Carsten (1999): Entering the Jungle of Intellectual Property Rights: The Exhaustion of Intellectual Property Rights and Parallel Imports, in Owen Lippert (Ed.) Competitive Strategies for the Protection of Intellectual Property, The Fraser Institute, Vancouver, Canada, pp. 173-191. Fox, Eleanor (1996), Trade, Competition and Intellectual Property - TRIPs and its Antitrust Counterparts, Vanderbilt Journal of Transnational Law, Vol. 29, No. 3, pp. 481-505. Gutterman, Alan (1997), Innovation and Competition Policy: A Comparative Study of the Regulation of Patent Licensing and Collaborative Research & Development in the United States and the European Community, Kluwer Law International, London, Boston. Lanjouw, Jean 0. (1998): The Introduction of Pharmaceutical Product Patents in India: “Heartless Exploitation of the Poor and Suffering” NBER Working Paper 6366, Cambridge, MA: National Bureau of Economic Research, available at http://www.nber.org.

Maskus, Keith E. (2000): Intellectual Property Rights in the Global Economy, Institute for International Economics, Washington D.C. Maskus, Keith E. and Yongmin Chen (1999): Vertical Price Control and Parallel Imports, presented at the NBER International Seminar on International Trade, June 5. Sachs, Jeffrey: Helping the World’s Poorest, in The Economist, August 14, 1999, pp. 17-20. Straus, Joseph (1996): TRIPs and the Patent law in Beier and Schricker (Eds.), pp. 181-182. Watal, Jayashree (1998): The TRIPS Agreement and Developing Countries - Strong, Weak or Balanced Protection?, Journal of World Intellectual Property, Vol. 1, No. 2, March, pp. 281-307. Watal, Jayashree (2000)a: ‘Pharmaceutical Patents, Prices and Welfare Losses: Policy Options for India under the WTO TRIPS Agreement’, The World Economy, Vol. 23, No. 5, May, pp. 733-752. Watal, Jayashree (2000)b: Intellectual Property Rights in the World Trade Organization and Developing Countries, Kluwer Law International, London and Oxford University Press, New Delhi, 2000. Yusuf, Abdulqawi A and Moncayo von Hase, A (1992): Intellectual property protection and international trade: exhaustion of rights revisited, World Competition: Law and Economics Review, Vol. 16, pp. 115-132.

____________________ *Visiting Fellow, Institute for International Economics, Washington DC, USA and Fellow at the Indian Council for International Economic Relations, New Delhi, India. This paper draws upon Chapter X in Watal (2000). Views expressed herein are not attributable to any organization that the author is associated with.

Page 211 →CHAPTER 13 Parallel Imports into Switzerland – A Spot of Global Free Trade amidst Fortress Europe? Ingo Meitinger*

1. Introduction Although Switzerland is geographically and culturally situated very much in the heart of Europe, it is also a well known fact that Switzerland is not a member of the European Union. Because of the inevitability of either joining or becoming more closely associated with the EU in the not too distant future, and because of the important trade flows between Switzerland and its European neighbors, Swiss lawmakers have long (since the early nineties) attempted, in most areas of economic law, to formulate Swiss legal instruments in a manner that would render them compatible with the laws of the European Union. With respect to the question of exhaustion of intellectual property rights, this is not possible because the doctrine of regional exhaustion as practiced by the ECJ would be contrary to Switzerland’s international obligations as a member to the WTO. Therefore, Switzerland is forced to find its own solution to the parallel import problem. In the field of trademark and copyright law, the Swiss Federal Court1 has chosen a liberal approach, and has probably showed more courage than the ECJ. However, in the field of patents, in 1999, the Court stepped back and decided differently. Based on this, patent owners are allowed to prevent others from parallel importing goods. Page 212 →Switzerland’s International Obligations Not being party to any regional economic cooperation agreement, Switzerland is only bound to one body of supranational law: the obligations of global economic law. In the field of intellectual property rights this body consists, on the one hand, of the treaties administered by the WIPO2 and on the other hand, of the WTO TRIPs Agreement.3 Besides the duty to apply the chosen doctrine non-discriminatorily, none of these treaties and agreements contains any substantial rules on the issue of exhaustion of intellectual property rights.4 The bilateral Free Trade Agreement between the EC and Switzerland5 until today has remained of no effect with respect to the exhaustion of intellectual property rights. There was only one case brought to the ECJ concerning the question of whether bilateral free trade agreements of the EC could lead to an application of the doctrine of regional exhaustion within the EC, developed by the ECJ during many years of jurisprudence,6 with respect to imports from the respective counterpart of the agreement.7 In Polydor, the ECJ ruled that this was not the case and parties to a bilateral agreement with the EC did not benefit from the EC-wide exhaustion. The same happened in Switzerland: unfortunately, the Federal Court missed the chance to improve the relevance of the Free Trade Agreement for everyday law practice. In its OMO decision, it denied, in practical terms, the direct effect of the Free Trade Agreement, and, in doing so, caused the Agreement to often be considered a worthless tool for private parties.8 This jurisprudence is the reason why Articles 13 and 20 of the Free Trade Agreement, notwithstanding their similarity to Articles 28 and 30 of the EC-Treaty,9 have remained without effect until today. Swiss Practice in the Various Areas of Law In this internationally undetermined situation, Switzerland is fully free and autonomous in shaping its rules and practice concerning exhaustion of intellectual property rights and parallel imports. Since 1999, Federal Court case law exists with respect to trademark, copyright and patent law. The long awaited decision in patent law,10 as well as the ongoing revision of the Pharmaceutical and Medical Devices Marketing Approval Act11 have provoked 1999’s broad debate on the issue. Page 213 →2. Trademarks: Continuing Practice under the New Trademark Act

Background: The OMO Case12

In the last twenty years the Federal Court has had to decide two cases concerning the question of exhaustion of rights with respect to trademarks. The first decision was the so-called OMO case. In OMO, Bosshard Partners Intertrading AG was selling OMO laundry detergent on the Swiss market after parallel importing those products from Germany. Sunlight AG, the Swiss subsidiary of Unilever and the registered proprietor of the Swiss trademark ‘OMO’, claimed that Bosshard infringed its intellectual property right by selling OMO bought from the German subsidiary of Unilever. In this almost classic parallel import case, the Federal Court held that, based on the function of the trademark to allow the consumer to distinguish products from each other, the right holder has the exclusive right to the first sale of the trademarked product or to consent to the sale by another party. If the product once was put on the market legally, the right to first sale is exhausted. On the national level, this is undisputed. The question was whether marketing abroad was also relevant to the Swiss trademark right, exhausting it as the first sale in the domestic market would. The OMO case was decided under the former Swiss Trademark Act. The Court interpreted Article 24(a) of the Act in favor of national exhaustion as a general rule, but reduced the scope of this rule to those cases where the trademarked good was sold on a foreign marked by a right holder fully independent of the Swiss right holder and if there was danger of confusion to consumers. Because of this very limited application of the doctrine of national exhaustion, it seems to be more correct to say that former Swiss trademark law was mainly governed by the principle of international exhaustion except in some defined and very specific cases. The danger of confusion arises in all cases where the parallel imported product, not visible to the buyer, is of different quality and, therefore, consumers can be misled by the trademark. Even though the Court held that in principle, Bosshard Partners was allowed to parallel import German OMO, it affirmed the danger of confusion rule in this case. Since the plaintiff showed that concerning its detergent, German OMO was of lesser quality than Swiss OMO. Therefore, consumer expectations would be disappointed if, by incident, they bought a German box of OMO in Switzerland. Other cases of danger of confusion to consumers can be mentioned: A typical example is chocolate. Consumers in Italy have other taste preferences with respect to chocolate than those in Germany or in Switzerland. Manufacturers do not ignore this and produce their chocolate taking these Page 214 →differences into consideration. If now the chocolate is parallel imported among countries, the consequences might threaten the sales of the product, since consumers have the impression that the quality of the chocolate deteriorated. Another example is perfume. If a certain fragrance smells differently in Greece than in Switzerland, but is packaged the same way, then a parallel import is not desirable because it causes consumer confusion. In general, all those consumer products that are produced with regard to national preferences should be protected from parallel imports if the appearance of the products or their packages do not show the differentiation at the time of purchase. New Trademark Act: The ChanelCase13 In its Chanel judgement, the Federal Court had to decide whether the new Trademark Act of 1992,14 by contrast to the former Act, gave the right holder the unlimited power to prevent others from importing original products put on a foreign market by himself or with his consent. Even though the Federal Court made a clear statement in its OMO decision, the implementation of the new Trademark Act that slightly differed from the former Act with respect to the rights given to registrants, raised the question whether the Court was still free to continue with its liberal practice.15 The new Act opened a large field for speculation as to whether the changes could be interpreted as a reinforcement of the trademark right in the sense that international exhaustion was denied. Particularly practitioners did not hesitate to publish a series of articles supporting this interpretation.’16 The only reason for

this debate was that Article 3(1) a of the new Trademark Act does not, by contrast to the old law, limit the right of the proprietor of a trademark to cases, where the use of the same trademark on the same goods by another party leads to a danger of confusion. This removal led to the legitimate interpretation that the Federal Court’s OMO ruling was no longer possible. The danger of confusion did not seem to matter anymore and therefore, right holders, by means of Article 13(2) of the new Trademark Act, appeared to have the right to prohibit all parallel imports. Nevertheless, the Federal Court did not follow this argumentation. It showed that the parliament did not intend to decide the question of parallel imports in a general way by means of legislation. Although the notion of danger of confusion in fact was deleted from the new act, parallel imports could not be prohibited in cases where there was no misleading of consumers. The rule in Article 3(1)(a) of the Trademark Act addresses the case, where another person puts counterfeited goods on the market. But in a parallel imports case, it is not that another person puts products on the market Page 215 →that bear the same trademark as the one belonging to the right holder. There, the right holder itself or a person having his consent produced and sold the goods abroad that later find their way back to the domestic market. This case does not fall under the scope of Article 3(1)(a) of the Trademark Act. The Act does not contain a provision regulating this case. Therefore, again, interpretation was necessary. The Court showed that proponents of a ban on parallel imports argue with an absolute understanding of the principle of territoriality. The principle is understood as such that the fact that the foreign trademark is attached to the goods by the same person than the same trademark in Switzerland is irrelevant: A trademark lawfully applied to an original product abroad, in their view, is not the one protected in Switzerland. This understanding, considered the Federal Court, was artificial and unsatisfying.17 The principle of territoriality only gives rise to a restriction on the application of Swiss law on the national level, but nevertheless, it does not preclude that Swiss law can take elements of fact into account that occurred abroad.18 Therefore, in continuation of its OMO case kaw, the Federal Court considered that the principle of territoriality does not prevent the recognition of international exhaustion.19 This is the case, e.g., when a legal person appertaining to the same group as the proprietor of a Swiss trademark has sold a product abroad that on every count corresponds to the products sold in Switzerland. The purpose of the trademark is to individualize the product on the market and to distinguish it from like products so as to enable consumers to recognize the product among the available supply of goods and services.20 These main functions are satisfyingly fulfilled even if the product is parallel imported in cases where the trademark was applied to an original product. After neither the literal, nor the systematic, nor the historical interpretation led to a right to prevent of parallel imports, the Court took into consideration the spirit of the Federal Constitution.21 In Article 27 of the Constitution the freedom of trade and commerce is granted, which entails also the freedom to trade with foreigners and, by consequence, the freedom to export and import trademarked products.22 This fundamental right may only be limited upon good cause shown. Although the Federal Court is not allowed to judge the constitutionality of Federal Acts, it may take the Constitution into consideration in the sense that, if more than one interpretation is possible, it favors the one more corresponding to the spirit of the Constitution. Based on this, the Court chose the more liberal interpretation and, for the second time, introduced the principle of international exhaustion into Swiss trademark law.23 The only exception to this rule remains the case where there is a danger of confusion. It is not sure whether the taking into account of the Federal Constitution was much more Page 216 →than another explanation for an already made decision. Had the Court favored a more restrictive interpretation of the Act, it could have done so by considering the constitutional right to property. Since the Chanel products not only bore the same trademark but were exactly identical, the risk of confusion undoubtedly had to be denied. This led to the result that the defendant, EPA, could freely parallel import the products without infringing Chanel’s intellectual property rights.24

3. Copyright The Regime under the Old Copyright Act

Under the old Copyright Act of 1922, even though it did not answer the question directly, it was implied25 and affirmed by the Federal Court26 and also undisputed among scholars27 that Swiss copyright law was governed by the doctrine of international exhaustion. Only the entry into force of the new Copyright Act in 1993,28 in analogy to the Trademark Act, gave rise to speculations about the now applicable doctrine of exhaustion.29 The Legislative History of the New Copyright Act: Regional Exhaustion? The revision of the Swiss Copyright Act took place at the same time as the negotiations for a Swiss accession to the EEA.30 First, it was intended to introduce the principle of international exhaustion into the new act.31 But because at the time, the EEA obligations were interpreted by the Federal Council,32 i.e. the government, in a way that application of a regional, EEA-wide doctrine of exhaustion by the parties was mandatory, the provision was amended in a way that the question remained open so that the Courts would be able to implement the obligations of the EEA Agreement properly.33 After the Swiss population voted against an accession of Switzerland to the EEA, speculations with respect to the interpretation of the new Copyright Act started to rise. Several authors tried to convince the Courts to interpret the new Act consistently with the doctrine of national exhaustion.34 It was argued that the intention of the legislator to apply regional exhaustion Switzerland being party to the EEA was identical to an application of national exhaustion Switzerland not being party to the EEA. Nevertheless, the Federal Court continued its previous case law and decided in favor of economic liberalism: In the Nintendo case, 35 it held that Swiss copyright law was still governed by the principle of international exhaustion. Page 217 →The Nintendo Case: No Substantial Change with Respect to the Exhaustion of Copyright In the Nintendo case, the company Waldmeier AG was the single distributor for Switzerland of the video game ‘Donkey Kong Land’. The Nintendo Co. Ltd., holder of the copyright, licensed the rights to its subsidiary company, Nintendo of America with a strict limitation on the region of the NAFTA countries and Latin America. The precedent of the Imprafot AG, the Wahl Eximpo AG, in 1995 sold parallel imported video games in Switzerland that it bought on the US market from Nintendo of America. Waldmeier and Nintendo filed suit against Imprafot. The first instance, the Commercial Court of the Canton of Aargau,36 ruled that Imprafot was not allowed to sell the parallel imported good anymore. The decision was appealed to the Federal Court who, in opposition, interpreted the Copyright Act in favor of international free trade; i.e. applied the doctrine of international exhaustion. At first, the Court stated that the wording of the Swiss Copyright Act remained silent with respect to the applicable doctrine of exhaustion,37 This, of course, is true since, as it was shown, the Parliament left the decision to the courts because of obligations through the possible accession to the EEA that was still unforeseeable at the time. In the following, the Court did not follow the opinion that the planned limitation to regional exhaustion in the case of accession to a regional economic agreement necessarily meant a limitation to national exhaustion as the accession failed. After checking the legislative history of the Act and discovering that, in fact the Legislator did not intent to introduce national exhaustion after the people’s ‘no’ to the EEA accession, the Court concluded that there was no reason for a change of jurisprudence and, therefore, continued the application of the doctrine of international exhaustion in the field of copyright.

4. Patents Minimum Standard: A System of ‘Bilateral’ Exhaustion Although the Federal Court disfavored international exhaustion of patents, for many years, Switzerland practices an, although very limited, doctrine of regional exhaustion. There has been a long lasting cooperation with Switzerland’s even smaller neighbor, the Principality of Liechtenstein in many areas of law. Mainly because of its small size, Liechtenstein has not made the effort of constituting an own patent office. In the area of patent law, since 1980, the territorial scope of the Swiss Patent Act extends to the territory of Page 218 →Liechtenstein and patents granted by the Federal Institute of Intellectual Property have effect for both countries.38 By consequence, inventors from Liechtenstein have to apply for a patent

at the Swiss Federal Institute of Intellectual Property in Berne. Because there is only one patent right granted for the area of Switzerland and Liechtenstein, the marketing of a patented product exhausts the right no matter in which of the two countries it is done. The result is a doctrine of regional exhaustion.39 The fear that after the Maglite decision of the EFTA Court,40 this regional exhaustion of patent rights with respect to an EEA country could lead to a one way street for parallel imports from Switzerland to the whole EEA, is unfounded. Because the free flow of goods within the EEA is only granted to products originating from EEA countries. If the product is instead manufactured in Switzerland and then imported to Liechtenstein, it cannot be further exported to an EC country if the EC patent holder does not allow so. Case Law The Courts so far had not much to deal with the question of exhaustion of patent rights. There are only five cantonal decisions since the establishment of a patent system in Switzerland, two of which were decided in favor, 41 three of which in disfavor42 of international exhaustion. First Decision by the Federal Court: 1999s Judgement in the Kodak Case43 Before the Kodak judgement, in Switzerland there was a large debate about exhaustion of patent rights. The reason for it was a far reaching ruling by the Commercial Court of the Canton of Zurich44 where it concluded that Swiss patent rights exhaust internationally and therefore, parallel imports do not infringe the Swiss Patent Act.45 The decision was overruled by the Federal Court. The facts in the Kodak case were the following: A Swiss supermarket imported Kodak films and one-way-cameras from England instead of buying them from the official Swiss licensors of Kodak. In its lawsuit, Kodak requested the Court to prohibit Jumbo Markt from further parallel importing the mentioned products. Decision by the Commercial Court of the Canton of Zurich As was the case under the Trademark and the Copyright Act, the Swiss Patent Act does not determine the applicable doctrine of exhaustion. Traditionally, scholars widely agreed that the very national character and the particular function of the patent right made a limitation on national Page 219 →exhaustion mandatory.46 One argument is the high cost of registration and maintenance of patents; the other argument is the need of cost coverage of the investment that was necessary to make the invention. After the battle had been lost with respect to trademarks, interest groups in favor of strong intellectual property protection argued that, other than in the field of trademarks, the patent’s main function is not to distinguish one product from another but to give inventors a tool to recover the high costs of innovation. If products can be parallel imported internationally, it was argued, then justified and necessary price differentiation would be impossible, this would result in lower return on investment and, therefore, in the future in decreased research and development initiatives by the industry. Nevertheless, the Commercial Court of the Canton of Zurich, in its judgement of the Kodak case, decided against the majority of the scholars and also against the pressure of interest groups and interpreted the Swiss Patent Act in favor of international exhaustion. The Judgement by the Federal Court Starting point of the ruling of the Federal Court was, again, the fact that the provisions of the Patent Act and the relevant international law do neither require international, nor national exhaustion.47 The Court’s reasoning on the differential treatment of patents and copyright which are both considered as having the purpose of protecting the investment of an artist or inventor was of particular interest. The Court stated that

copyright and patents have substantial dissimilarities. First, the Court states that a patent is granted for a much shorter time than a copyright and, second, the maintenance of patents is much more expensive than maintenance of copyrights. Therefore, a patent owner’s position is much less favorable and to fulfill its purpose, in the Court’s view, the patent right must be fairly strong.48 Although it is correct that copyright is quite long lasting and, due to its informal character, quite easy to maintain, it is highly questionable if application of the doctrine of national exhaustion compensates for the weaknesses of the patent rights as they were discovered by the Court. An approach of national exhaustion does only compensate inventors that distribute their products internationally, the small inventor, however that only has the means for nationwide distribution of his products does not benefit of the advantage of national exhaustion although he faces all the disadvantages of expensive maintenance of the patent and short-term protection. Further on, the Court states that copyrighted works could be exploited in various ways, whereas in the case of patented goods, the exploitation essentially consisted of the sale of the product. Therefore, when selling the Page 220 →product, a right holder kept a much stronger position in the case of copyrighted works because he kept the rights for all remaining uses (such as performance, presentation, broadcasting). The Court then argues that the two areas of law had different policy implications: Whereas copyrighted works traditionally (only) serve esthetical purposes, patented products might be crucial for the survival of individuals. Since, after the Court, international exhaustion might lead to the result that products will not be distributed in developing countries at lower prices, the over-all effect of international exhaustion might be undesirable. There is an infinite amount of literature about the impact of intellectual property rights on developing countries and the opinions widely differ.49 It might indeed be true that certain essential products, such as pharmaceuticals will not be sold in low-price countries anymore if import and sale of those products in high-price countries by third parties is allowed. However, the sole fact that in the pharmaceutical sector, i.e. in a sector of a regulated market, parallel imports may be undesirable because of negative effects does not justify a prevention of all parallel imports. The international law allows for specific approaches in different areas and sectors, therefore concerns with respect to pharmaceuticals could be specifically taken care of without limiting free competition in all sectors of the economy.50 According to the Federal Court, the major difference between the Members of the EC and countries outside the EC is, that in the EC, countries are obliged to reciprocity with respect to regional exhaustion whereas countries such as Switzerland cannot expect to benefit of international exhaustion of rights in other countries when they implement international exhaustion in their own jurisdiction. This is indeed true and the argument, that the issue should be subject to international negotiations on trade liberalization can be agreed to. But does this prevent a country from implementing a doctrine of international exhaustion? Is there really a reason for international negotiations if, as the Court held, almost all countries do apply the doctrine of national exhaustion? It is more likely that negotiations on harmonization of law are initiated if the law among countries differs. In an obiter dictum at the end of the Kodak decision, the Federal Court states that competition law will be an effective instrument to prevent patent owners from abusing their right for unjustified price-discrimination. However, the requirement of the relevant market, as it is applied by the Swiss Federal Competition Commission as of today will be a hurdle for a parallel importer that is difficult to overcome. Additionally, the future will show that the prove of unjustified separation of markets is fairly burdensome for a parallel importer. Page 221 →A Highly Battled Field The debate about the exhaustion of patent rights came together with the ongoing revision of the Swiss Pharmaceuticals and Medical Devices Marketing Approval Act.51 In the proposals of the new act it is planned to change the current approach and allow parallel imports, at least of non-patented products with the result that health costs will be reduced.52 So far, from the administrative branch, only the Swiss Federal Competition Commission53 seems to support this

more liberal point of view. The Inter-cantonal Office for Marketing Approval of Healthcare Products generally supports the draft of the new Act54 but is hesitating with respect to the possibility of parallel imports.55 However, the Federal Parliament agreed to the relevant provision and chances are quite high that the Act will allow for parallel imports of products not being patent protected.56 The organization of the Swiss researching pharmaceutical industry, INTERPHARMA57 opposes the draft of the new act massively and expects it to be a threat to the attractiveness of Switzerland as a place of research. The Swiss Federation of Commerce and Industry (Economie suisse)58 takes a broader view and opposes parallel imports of patented goods in general. In a time where the pharmaceutical markets of most countries are still governed by high market regulation instead of free competition, it is in fact unsure if parallel imports should be allowed without taking into consideration the structure and pricing system of those foreign markets. In the EC, e.g., the ECJ’s liberal case kaw in its Merck decisions59 caused strong market disturbances and led to a somehow chaotic situation on the European market for health care products. However, this is no reason to deny international exhaustion in the field of patents in general. With its Article XX(d) GATT, WTO law contains a valuable and systematically well-placed instrument to allow individuals to prohibit parallel imports in certain cases.60 By now, it is impossible to predict the long term development of the Swiss legal situation on parallel imports of patented goods. However, after a period of a strong movement in the direction of free trade, with the Kodak judgement, the tide seems to have turned shortly before the end of the millennium. In the case of Switzerland it is now the Swiss legislator alone that can change the applied doctrine of exhaustion.

5. Open Fields There remain mainly three areas of intellectual property protection, where the exhaustion question is still unanswered. First of all, in the field of design protection, the issue had never been brought to the Federal Court until today. Scholars, in analogy to patent law, argue in favor of national exhaustion, but Page 222 →their reasoning is, again, only based on the principle of territoriality.61 However, from a dogmatic point of view, the exhaustion of design protection must be regulated in analogy to copyright law due to the close relationship and the identical character of these two areas of law. The same holds true for integrated circuits. In Switzerland, only esthetical designs are protected, the ‘small patents’, utility models, do not lay within the scope of the Swiss Design Act. It would be desirable that the Swiss parliament decides the question through legislation as the Swiss Design Act is currently being revised. However, in the current draft of the Act the issue is not treated. In the field of plant varieties, it is only consequent to decide in analogy to patent law.

6. Parallel Imports as Unfair Competition? In both cases reported, Nintendo as well as Chanel, the right holders tried to prohibit parallel imports by means of the law on unfair competition. In the Chanel case, the Court did not agree with the opinion of the petitioner that it was a violation of the Federal Unfair Competition Act62 if the defendant systematically made use of the violation of the distributing system of Chanel by its subsidiaries. Neither did the Court agree with the petitioner that EPA committed an inducement to breach a contract nor that it otherwise infringed the basic principle of good faith.63 The same claims were made by Nintendo Inc. and dismissed by the Court64. In Nintendo, it was also argued that the product came together with a service package that consisted in a user manual in the language of the intended market and a help line for users. First, Swiss users of a parallel imported item of ‘Donkey Kong Land’ would be unable to understand the manual and if they contacted the free help line, operated by Waldmeier AG, they would benefit from a service that they did not pay for. This would cause damages to Waldmeier AG and was an unfair competition action by Imprafot, the latter saving the costs of an own service line. The Court did not follow these arguments denying that it was a parasitic behavior of Imprafot if its clients called the help line of Waldmeier AG. Summarizing, it can be said that prohibition of parallel imports by means of competition law is not a promising

path to follow under Swiss law.

7. Concluding Remarks After years of relative silence and peace, the question of the lawfulness of parallel imports of goods protected by intellectual property rights has become the issue of three cases of the Federal Court concerning the most important areas of intellectual property law within three years, and in the last five years Page 223 →publications on this question became more numerous than ever before. Why is this? An answer can only be guessed. Three things may be of significance to it: First the ongoing harmonization and integration of economic law taking place within the GATT-WTO leads to a substantial reduction of the costs of cross-border trade such as customs, technical adjustments and import restrictions. Therefore, cross-border trade never was as attractive as today. Second, the isolation caused by the nonmembership of Switzerland in the EU might have made it difficult to keep up business contacts with European companies. In consequence, Swiss companies, to remain on the EC-market, have to supply products more cheaply than their intra-union competitors. This price-differentiation can lead to parallel imports back to Switzerland. Third, the trend to international concentration leads to more international distribution of goods and companies sell their products in low-price countries they did not supply some years ago. The true reason of the phenomenon may be another one or a combination of the three mentioned above. Whereas interest groups and their supporters, in other fields the advocates of liberalism, battled successfully to convince the Federal Court to reduce the damage and leave exhaustion of patent rights at the national scope, more and more Swiss academics see the advantages of free trade and the disadvantages of over-monopolistic rights.65 Only the next years will show whether the Kodak judgement was an exception and whether Switzerland will continue its tradition of international liberalism or if this tradition has now come to an end. Although, right now it might be difficult for a small country in the middle of the territory of the restrictive practice of the ECJ to foster free trade, it should be born in mind that the global trend is different and that Switzerland could play an important role to continue this trend. In those cases where there are legitimate concerns with respect to parallel importation, tailor-made exceptions from the general principle of their legality should be based on Article XX(d) GATT. This path leads to more satisfying results, as the application of this rule does not depend on the existence of an intellectual property right and because cases in which a prohibition of parallel imports is justified are usually not limited to intellectual property protected goods. The reason behind stopping the parallel importation of a pharmaceutical that can be dangerous to consumers because of a risk of confusion does not cease to exist at the end of the twenty years term of patent protection. Therefore, courts as well as legislators all over the world can and should adopt the doctrine of international exhaustion of intellectual property rights as a general rule and base the exceptions on the law of free flow of goods.

Page 224 →NOTES 1. Schweizerisches Bundesgericht. 2. Switzerland is party to almost all treaties administered by the WIPO. For detailed information see www.wipo.org/eng/ratific/index.htm. 3. Agreement on Trade-Related Aspects of Intellectual Property Rights, reprinted in: WTO Secretariat (ed.): The Results of the Uruguay Round of Multilateral Trade Negotiations, the Legal Texts, Geneva 1995, p. 365. 4. Article 6 of the TRIPs Agreement states: For the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 and 4 nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights. Article 6:2 of the WIPO Copyright Treaty (adopted in Geneva, December 20, 1996; reprinted in 36 I.L.M.

65 (1997)) and Article 8(2) of the WIPO Performances and Phonograms Treaty (adopted in Geneva, December 20, 1996; reprinted in 36 I.L.M. 76 (1997) contain a similar rule. 5. Agreement between the European Economic Community and the Swiss Confederation, [1972] O.J 300 /189. 6. For a complete summary of the ECJ cases concerning regional exhaustion see, among others, Bernhard van de Walle de Ghelcke/Gerwin van Gerven, Competition Law of the European Community, New York (loose-leaf, release 8-10/98), § 9.03. 7. ECJ, case 270/80, Polydor Ltd. and RSO Records Inc. vs. Harlequin Record Shops Ltd. and Simons Records Ltd., decided February 9, 1982, [1982] E.C.R. 329. 8. Swiss Federal Court, Bosshard Partners vs. Sunlight AG, decided January 25, 1979; BGE (Bundesgerichtsentscheid) 105 II 49, (‘OMO’); see also Thomas Cottier, Das Problem der Parallelimporte im Freihandelsabkommen Schweiz-EG und im Recht der WTO-GATT, SMI (Schweizerische Mitteilungen tiber Immaterialgüterrecht) 1995, p. 37 at 44. 9. Treaty establishing the European Community of March 25, 1957, as amended on October 2, 1997, [1997] O.J. C 340/173. 10. Swiss Federal Court, Kodak SA vs. Jumbo-Markt AG, Session of the Court of December 7, 1999, looseleaf (‘Kodak’). 11. Bundesgesetz über Heilmittel und Medizinprodukte (Heilmittelgesetz; HMG), draft of March 1, 1999; see http://www.admin.ch/. 12. OMO, loc. cit. (note 8). 13. Swiss Federal Court, Chanel S.A., Geneva and Chanel S.A. vs. EPA AG, decided October 23, 1996; BGE 122 III 469. 14. Bundesgesetz über den Schutz von Marken und Herkunftsangaben (Markenschutzgesetz, MSchG) of August 28, 1992, as amended; SR 232.11.Page 225 → 15. Article 3(1) of the Trademark Act states: Vom Markenschutz ausgeschlossen sind (weiter) Zeichen, die: a) mil einer älteren Marke identisch und für die gleichen Waren oder Dienstleistungen bestimmt sind wie diese b) … Article 13(2) states: Der Markeninhaber kann anderen verbieten, ein Zeichen zu gebrauchen, das nach Artikel 3 Absatz 1 vom Markenschutz ausgeschlossen ist, so insbesondere: a) … b) unter dent Zeichen Waren anzubieten, in Verkehr zu bringen oder zu diesem Zweck zu lagern; c) unter dem Zeichen Dienstleistungen anzubieten oder zu erbringen; d) … 16. See Appellationshof des Kantons Bern (Canton of Berne’s Court of Appeal), Pentax, in: SMI 1995, p. 133 ff.; Kamen Trailer, Manuel du droit Suisse des bien immatériels, Band. I, 2nd ed., Basel and Frankfurt a.M. 1996, p. 131; Lucas David, Das neue Markenschutzgesetz: Änderungen aus der Sicht des Praktikers, SJZ (Schweizerische Juristenzeitschrift) 1993, p. 111; Peter V. Kunz, Parallelimporte und selektive Vertriebssysteme nach revidiertem Markenrecht, recht 1994, p. 223; Meyer, Schutz selektiver Vertriebssysteme durch das Markenschutzgesetz, SJZ 1994, p. 94, Georg Rauber, Das neue Markenrecht: Mittel gegen Parallelimporte?, AJP (Allgemeine Juristische Praxis) 1993, p. 539; Rudolf Tschäni,

Parallelimporte und das neue Markenschutzgesetz, SZW (Schweizerische Zeitschrift für Wirtschaftsrecht) 1994, p. 178. 17. Chanel, loc. cit. (note 13), cons. 5.e). 18. See Thomas Cottier/Marc Stucki, Parallelimporte im Patent-, Urheber- und Muster- und Modellrecht aus europarechtlicher und völkerrrechtlicher Sicht, in: ‘Conflit entre importations parallèles et propriété intellectuelle?’, Actes du colloque de Lausanne, Comparativa No. 60, Geneva 1996, p. 29 at 49; Eugen Marbach, Der Stellenwert ausländischer Sachverhaltselemente bei der Beurteilung nationaler Markenrechte, ZBJV (Zeitschrift des bernischen Juristenvereins) 124bis, p. 321; Thomas Cottier, loc. cit. (note 8) at p. 41; Nordmann-Zimmermann, Importations parallèles et droit des marques, in: ‘Conflit entre importations parallèles et propriété intellectuelle?’, Actes du colloque de Lausanne, Comparativa Nr. 60, Geneva 1996, p. 9 at 12; Dominique Graz, Propriété intellectuelle et libre circulation des marchandises, these Lausanne 1988, p. 28, 76 and 82; for a German perspective see Friedrich-Karl Beier, Territorialität des Markenrechts und internationaler Wirtschaftsverkehr, GRUR Int. (Zeitschrift für gewerblichen Rechtsschutz und Urheberrecht, Internationaler Teil) 1968, p. 8.Page 226 → 19. See Chanel, loc. cit. (note 13), cons. 5.e). 20. See Article 1(1) of the Swiss Trademark Act, loc. cit. (note 14), see also, e.g., Article 15(1) of the TRIPs Agreement, loc. cit. (note 3). 21. Federal Constitution of April 18, 1999; SR 101. 22. See Zäch, Recht auf Parallelimporte und Immaterialgüterrecht, SJZ 1995, p. 301 at 305-308. 23. Chanel, loc. cit. (note 13), cons. 5.g)aa). 24. id. cons. 5, h). 25. See Article 5 8a(1) and 5 8a(2) of the Copyright Act of 1922. 26. See Swiss Federal Court, Torre vs. Philips AG, decided December 8, 1959; BGE 85 II 431, cons. 3.c. 27. Thomas Cottier/Marc Stucki, loc. cit. (note 18), p. 43; Alois Troller, Immaterialgüterrecht, Band. II, 3rd ed. 1985, p. 767 and 905; Dominique Graz, loc. cit. (note 18), p. 94; Kaspar Spoendlin, Der Internationale Schutz des Urhebers, UFITA (Archiv für Urheber-, Film-, Funk- und Theaterrecht) 107/1988, p. 31. 28. Bundesgesetz über das Urheberrecht und verwandte Schutzrechte (Urheberrechtsgesetz, URG) of October 9, 1992, as amended; SR 231.1. 29. See, e.g., Roland von Büren, Der Übergang von Immaterialgüterrechten, in: Roland von Büren/Lucas David (eds.), Schweizerisches Immaterialgüter- und Wettbewerbsrecht, Bd. 1/1, Basel/Frankfurt a.M. 1995, p. 179. 30. Agreement on the European Economic Area, [1994] O.J. L 1/3. 31. BB1. (Bundesblatt, Federal Reporter) 1984 III 210. 32. Bundesrat. 33. The judgement of the EFTA-Court in the case E-2/97, Mag Instrument Inc. vs. California Trading Company Norway, Ulsteen, decided December 3, 1997 showed that neither the EEA Agreement nor the ECTrademark Directive (First Council Directive 89/104/EEC of 21 December 1988 to approximate the laws of the Member States relating to trade marks; [1989] O.J. L 40/1 prevents parties to the EEA from operating under a doctrine of international exhaustion. 34. See von Büren, loc. cit. (note 29), p. 179; Denis Barrelet/Willi Egloff, Das neue Urheberrecht, Berne 1993 at Article 12 URG, note 2; François Perret, Quelques observations sur l’épuisement des droits de propriété inellectuelle, SZIER (Schweizerische Zeitschrift für intemationales und europäisches Recht) 1997, p. 283. 35. Swiss Federal Court, Imprafot AG vs. Nintendo Co. Ltd. and Waldmeier AG, decided July 20, 1998; BGE 124 III 321 (‘Nintendo’); an English summary and discussion of the case gives Brigitte Lindner, Switzerland: The Cradle of International Exhaustion?, [1999] E.I.P.R. (European Intellectual Property Review), 373. 36. Aargauer Handelsgericht.Page 227 → 37. Nintendo, loc. cit. (note 35), cons 2.a); Article 12(1) of the Copyright Act loc.cit. (note 28) states: ‘Hat ein Urheber oder eine Urheberin ein Werkexemplar veräussert oder der Veräusserung zugestimmt, so darf dieses weiterveräussert oder sonstwie verbreitet werden.’

38. See, Treaty of 22 December 1978 between the Swiss Confederation and the Principality of Liechtenstein on the protection conferred by patents for inventions, in force since 1 April 1980; SR 0.232.149.514. 39. This derogation from the principle of MFN-treatment in Article 4 of the TRIPs Agreement was notified to the WTO (see WTO-Doc. IP/N/4/LIE/1 of February 7, 1996). 40. Maglite, loc. cit. (note 33). 41. Verfügung des Einzelrichters am Handelsgericht Zürich vom 6. Februar 1979, in SMI 1982, p. 95; Ordonnance de la Cour de Justice of the Canton of Geneva of April 14, 1983, in Semaine Judiciaire 1984, p. 31; Judgement of the Court of Appeal of the Canton of Ticino of August 30, 1987, in SMI 1988, p. 202. It is not true that there was a decision by the Swiss Federal Court. The Swiss Federal Court decision in the case P Inc. vs. C. AG decided June 6, 1989 (BGE 115 II 279) is against the view of Eugene Brunner, expressed at the INGRES (Institut für Gewerblichen Rechtsschutz) meeting ‘Parallelimporte und Immaterialgüterrecht’ (held in Zurich, June 22, 1999) not addressing the question of exhaustion of the Swiss patent right, since the area of the airport Basel-Mulhouse is not part of the Swiss territory, even though with respect to custom law this impression might arise. 42. Handelsgericht Zürich (Commercial Court of the Canton of Zurich), Judgment of November 23, 1998 in the case Kodak SA vs. Jumbo-Markt AG; ZR (Blätter für zürcherische Rechtsprechung) 97 (1998), No. 112, p. 289; Entscheid der Justizkommission des Obergerichts des Kantons Luzern (Judgment by the Commission of Justice of the Court of High Instance of the Canton of Lucerne) of December 11, 1987, in LGVE 1987 I, No. 25. 43. See Kodak, loc. cit. (note 10). 44. Handelsgericht des Kantons Zürich. 45. Bundesgesetz über die Erfindungspatente (Patentgesetz, PatG) of June 25, 1954, as amended; SR 232.14. 46. See Blum/Pedrazzini, Das schweizerische Patentrecht, Band. I, note 13 to Article 8 of the Swiss Patent Act; Roland von Büren, loc. cit. (note 29), p. 179; Alois Troller, loc. cit. (note 27), vol. II, 3 rd ed. 1985, p. 767; Mario M. Pedrazzini, Patentund Lizenzvertragsrecht, 2nd ed. 1987, p. 123; Kamen Troller, Manuel du droit Suisse des biens immatériels, Band. II, 2nd ed. 1996, p. 661; Dominique Graz, loc. cit. (note 18), p. 107. The only criticism comes from Cottier/Stucki, loc. cit. (note 18), p. 40.Page 228 → 47. See Kodak, loc. cit. (note 43), p. 13. 48. See Kodak, loc. cit. (note 43), p. 18. 49. See, e.g., Christopher Heath, Bedeutet TRIPs wirklich eine Schlechterstellung von Entwicklungsländern?, GRUR Int. 1996, p. 1169 et seq.; Carlos A. Primo Braga, Trade-Related Intellectual Property Issues: the Uruguay Round Agreement and its Economic Implications, in: Martin Will/Alan L. Winters (eds.), The Uruguay Round and the Developing Economies, World Bank Discussion Paper No. 397, New York 1996, p. 390 et seq.; Ana Maria Paeón, What Will TRIPs Do For Developing Countries? in: Friedrich-Karl Beier/Gerhard Schricker (eds.), From GATT to TRIPs, Weinheim 1996, p. 329 et seq. 50. See also Cottier/Stucki, loc. cit. (note 18), p. 29 et seq. 51. Loc. cit. (note 11). 52. Under the current system, the competent authority, the Intercantonal Office for the Marketing Approval of Healthcare Products (Interkantonale Heilmittelkontrollstelle), only allowed one supplier per product and therefore parallel importers were excluded generally from market access. 53. Eidgenössische Wettbewerbskommission. 54. See: www.iks.ch/IKS/IVOFrameset_D.asp 55. See the note in the official publication of INTERPHARMA, Pharma CH, vol. 1/98 p. 2. 56. See Neue Zürcher Zeitung, March 9, 2000, p. 13. 57. See Pharma CH, loc. cit. (note 55). 58. Schweizerischer Handels- und Industrieverein (Vorort); see the official position of the Federation in Thomas Pletscher, Notwendige Differenzierungen bei Parallelimporten – Das Kind nicht mit dem Bade ausschütten!, on file with author, forthcoming in sic! (Zeitschrift für Immaterialgüter-, Informations- und Wettbewerbsrecht) 4/1999. 59. ECJ, case 187/80, Merck & Co. Inc. v. Stephar BV and Petrus Stephanus Exeler, decided July 14, 1981; [1981] E.C.R., p. 2063; ECJ, joined cases C-267/95 and C-268/95, Merck & Co. Inc. a.o. v. Primecrown Ltd. a.o., decided December 5, 1996, [1996] E.C.R. 1-6285.

60. See Thomas Cottier, The WTO System and Exhaustion of Rights, paper presented at the Committee on International Trade Law Conference on the Exhaustion of Intellectual Property Rights and Parallel Importation in Word Trade, Geneva, November 6-7, 1998, on file with author; see also Thomas Cottier/Ingo Meitinger, The TRIPs Agreement without a Competition Agreement?, paper presented at the Fondazione Eni Enrico Mattei Conference on Trade and Competition in the WTO and Beyond, Venice, December 4-5, 1998, forthcoming. 61. See Lucas David, Kommentar zum Muster- und Modellgesetz, Basel 1994, Page 229 →p. 417 at note 8; Marianne Bieri-Gut, Parallelimport und Immaterialgüterrechte nach schweizerischen Spezialgesetzen und dem Recht der EU, AJP 1996, p. 572 with ref. 62. Bundesgesetz gegen den unlauteren Wettbewerb (UWG) of December 19, 1986; SR 241. 63. See Chanel, loc. cit. (note 13), consid. 10.a) and b), with this decision, the Judges confirmed their ruling in Parfums Christian Dior SA a.o. vs. Import Parfümerien AG, decided March 24, 1988; BGE 114 II 91, where they held that only under very limited conditions parallel imports can be prevented by means of competition law. 64. See Nintendo, loc. cit. (note 35), consid. 4. 65. With respect to patent law see: Thomas Cottier/Marc Stucki, loc. cit. (note 18), p. 58, Roger Zäch, Recht auf Parallelimporte und Immaterialgüterrecht, SJZ 1995, p. 310, Bieri-Gut, loc. cit. (note 61), p. 573, Johannes Burgi/Christoph Lang, Rettungsanker Patentrecht zum Schutz selektiver Vertriebssysteme in der Schweiz?, sic! 1999/3, p. 379 et seq.

____________________ * Associate, Baker & McKenzie, Attorneys-at-Law, Zurich, Switzerland. I am indebted to Krista Nadakavukaren Schefer for comments and suggestions. Errors and omissions remain my own. Page 230 →

Page 231 →CHAPTER 14 Where Should WTO Law Go on the Exhaustion of Intellectual Property Rights? Marco C.E.J. Bronckers* The papers presented to this conference on the mercurial topic of exhaustion of intellectual property rights are excellent. They show that national laws on exhaustion are, in Professor Matsushita’s felicitous phrase, ‘not stable’. Dr Watal goes even further, stating that ‘there is confusion’. To me this state of affairs raises two questions: in which direction should WTO law be heading; and how should we get there?

In Which Direction Should WTO Law Go? Let us first do a head count on the policies favored by the contributors to the present publication, in alphabetical order: Abbott: a self-declared proponent of international exhaustion Demaret: leaning towards international exhaustion, at least where trademarks are concerned Matsushita: neutral Meitinger: favoring international exhaustion, subject to market regulations Watal: looking for more evidence before taking a decision (as for now, Dr Watal questions the assumption that developing countries would benefit from the introduction of international exhaustion). Page 232 →My position is close to that of Dr Watal. I am struck by the fact that there is still so little empirical evidence, and that the indications we do have are conflicting. In the papers presented here reference is made to a recent economic study by NERA, which envisaged a modest impact on consumer prices when international exhaustion would be introduced, whereas it signaled a danger that consumers might receive less service at that stage. In his paper Professor Abbott criticizes the assumptions of the NERA study. Professor Matsushita mentions more anecdotal evidence that the introduction of international exhaustion in the trademark area in the 1970s did result in considerable price decreases for certain branded goods in Japan. What else is out there? In January 1999 the Swedish Competition Authority published a report, which concluded that parallel imports lead to increased consumer benefits in Sweden.1 However, some months later the Trade and Industry Committee of the UK House of Commons distanced itself from the Swedish report (and the NERA study), by noting that there is a deficit of empirical research measuring the impact of international exhaustion in both the short and the long term. The Committee therefore concluded that it would be ‘imprudent’ for the European Commission or Member State governments to come to any final decision, even in the trademark area, without further study. Interestingly, the committee seemed to favor a flexible approach, where different exhaustion policies might be adopted from one sector to another.2 In his report Professor Abbott also refers to a recent study by the economists Maskus and Chen. They confirm the unavailability of reliable data upon which to base an empirical analysis of the economic implications of parallel imports. Given this uncertain state of the debate, I am happy that WTO law presently does not prescribe that WTO Members adopt a particular position on the exhaustion issue. As a matter of law, they are free to choose either national or international exhaustion policies, without running the risk of legal challenge or retaliatory measures in WTO. That, at least, is the view I have been defending now for some time.3 To start with, I base myself on the ‘agreement to disagree’ on this point, which is expressed in the TRIPS Agreement.4 Others, like Professor Cottier, have defended a different position. They believe that it is still possible to appeal to the liberal trade principles of

the WTO, and argue that these principles may already oblige WTO Members to follow international exhaustion.5 This debate is summarized in Professor Abbott’s report to the Trade Law Committee of the ILA. I also see no compelling policy reason for the WTO to step in and impose a uniform position for all WTO Members at this stage. In particular, I Page 233 →am not persuaded that the economic theories which favor liberal trade (such as the theory on comparative advantage) automatically point in the direction of international exhaustion. Intellectual property right protection and liberal trade each seek to improve economic welfare through different means. Reconciling intellectual property right protection with liberal trade requires a separate economic and policy analysis. Giving WTO Members now the freedom to experiment with different policies on the exhaustion issue will ultimately give the WTO membership more data on which to decide whether and which uniform rule on the WTO level makes the best sense. For this reason I believe as well that the negotiators in the upcoming Millennium Round best continue to leave the exhaustion question to the discretion of individual WTO Members. I do believe though that whenever a WTO member chooses a particular position on the exhaustion question, it should apply this position to all right holders on a non-discriminatory basis. This is a requirement of positive WTO law.6

How Should the WTO Get There? For those who feel that WTO should impose a particular, uniform position on the exhaustion issue, the question is relevant how one should arrive at such a position. When looking at the national context, it is striking to see that so much here is judge made law. The papers of Professors Demaret and Matsushita and Mr. Meitinger illustrate this very well. ‘Exhaustion’ is one area where the legislatures have been silent or (studiously?) ambiguous. Such judge-made solutions may be fine and well in national jurisdictions, or even in the context of the EU. But I think that there is less room in WTO for judicial creativity. WTO is an international organization, which is based, fundamentally, on cooperation between sovereign states. There is as yet very little room here for a transfer of authority to the supranational level, e.g., the WTO Dispute Settlement Body. Allowing or encouraging judgemade solutions to controversial issues is therefore bound to weaken the legitimacy of the WTO.7 If it is felt, therefore, that there ought to be a uniform rule on exhaustion in WTO, this rule ought to be formulated at the negotiating table. That rule should not be ‘found’ through WTO litigation.

Page 234 →NOTES 1. Konkurrensverket, Parallel Imports – Effects of the Silhouette Ruling (January 1999). The report was commissioned by the Swedish Government. 2. See the Eighth Report of the Committee on Trade and Industry, ‘Trade Marks, Fakes and Consumers’ (8 July 1999), also published at: http://www.parliament.the-stationery-office.co.uk/pa/cml99899/cmselect /cmtrdind/380/38007.htm (last visited in April 2001). 3. Bronckers, ‘The Exhaustion of Patent Rights under WTO Law’, 32 in Journal of World Trade (No. 5, 1998), 137-159. 4. See Art. 6 TRIPs. 5. See Art. XI and XX(d) GATT. 6. See Art. 6 TRIPs. 7. This point has been developed in Bronckers, ‘Better Rules for a New Millennium: A Warning against Undemocratic Developments in the WTO’, in Journal of International Economic Law (No. 4, 1999), pp. 547-566.

____________________ * Professor, University of Leiden, Leiden, The Netherlands; Partner, Wilmer, Cutler and Pickering, Attorneys-at-Law, Brussels, Belgium.

Page 235 →CHAPTER 15 Intellectual Property Rights, Competition Policy and International Trade: Reflections on the Work of the WTO Working Group on the Interaction between Trade and Competition Policy (1996-1999) Robert D. Anderson*

1. Introduction The application of competition (antitrust) policy is an important factor bearing on the exercise of intellectual property rights (IPRs) in many jurisdictions.1 Such policy is often considered as helping to balance the exclusive rights provided to producers under intellectual property legislation. Indeed, issues concerning market power derived from intellectual property rights have figured in a number of prominent competition law cases in recent years.2 To the extent that the application of competition policy impacts on the exercise of IPRs, it also bears on the implications of intellectual property for international trade and development.3 Not surprisingly, therefore, the application of competition policy vis-à-vis IP rights is addressed in relevant articles of the WTO Agreement on Trade-Related Intellectual Property Page 236 →Rights (TRIPs),4 and has been a key consideration in wider debates on policies relating to trade, development and economic growth.5 Issues relating to the interface between competition policy and intellectual property rights and their implications for international trade and development have been an important consideration in the work of the WTO Working Group on the Interaction between Trade and Competition Policy over the past three years. The general mandate of the Working Group, which was established at the Singapore Ministerial Conference in December 1996, is to examine issues raised by Members regarding the interaction between trade and competition policy and to identify areas meriting further consideration in the WTO framework.6 Since December 1996, the Group has held 9 meetings under the Chairmanship of Professor Frederic Jenny. The work done by the Group in 1997 and 1998 was based on the so-called Checklist of Issues Suggested for Study which was developed by the Group at its first meeting, in July 1997 (reproduced in Appendix I to this paper).7 A specific topic considered by the Working Group as part of this mandate was the relationship between the trade-related aspects of intellectual property rights and competition policy.8 In its consideration of this aspect of its mandate, the Working Group has reflected on such topics as (i) the objectives of intellectual property and their relationship to those of competition policy; (ii) the optimal treatment of intellectual property licensing arrangements; and (iii) the implications of the territorial segmentation of intellectual property protection from the perspective of competition policy.9 The purpose of this chapter is to set out the range of views expressed in the Working Group on the Interaction between Trade and Competition Policy on the above-noted matters and to reflect on the issues raised in the debates, including the question of further work that could be undertaken by the WTO in this area. To place this material in context, reference is made both to recent economic learning concerning the relationship between competition policy and intellectual property rights and to existing provisions of the TRIPs Agreement relating to the national competition policies of WTO Members. More specifically, Part 2 summarizes some key insights of recent economic learning in this area. Part 3 reviews relevant provisions of the TRIPs Agreement. Part 4 sets out the range of viewpoints expressed in the Group on questions pertaining to the interface of competition policy and intellectual property rights. Part 5 reflects on the views expressed and issues raised in the debates, including the question of further work that could be done in this area. Part 6 provides concluding remarks.

Page 237 →2. Recent Economic Learning on the Relationship between Competition Policy and Intellectual Property Rights: Its Impact on National Competition Policies Economic learning over the past two decades provides important insights regarding the relationship between competition policy and intellectual property rights.10 To begin with, while economists today recognize that conflicts can and do arise between the objectives of competition policy and the exercise of intellectual property

rights in particular cases,11 and some, indeed, maintain broader reservations about the overall impact of intellectual property protection on competition and economic welfare,12 for the most part, recent economic thinking emphasizes that competition policy and intellectual property rights, rather than being fundamentally at odds with each other, generally serve the same overall objectives of fostering competition and efficiency in a dynamic sense.13 Intellectual property does this by preventing inefficient free-riding on, and thereby creating incentives for, investment in research and development and related activities that result in new products and production processes; competition policy does this by maintaining healthy inter-firm rivalry in markets, which itself is a vital pre-condition for innovation and the timely adoption of new technologies.14 Another key premise of modern approaches to the competition policy – intellectual property interface is that voluntary arrangements for the licensing of intellectual property generally enable firms to work together and combine complementary factors of production (e.g., technology, capital and labor) efficiently, even though such arrangements (like many contracts not involving IP) typically involve limiting the parties’ freedom of action in various ways.15 In this respect, views regarding the treatment of licensing arrangements have adapted a range of insights derived from the economic theory of vertical market restraints. This literature emphasizes that ‘restrictive’ contractual arrangements such as exclusive dealing, tying and territorial market restraints, while capable of stifling competition in particular market circumstances, are often employed by firms for legitimate, pro-competitive purposes.16 In fact, whether an ostensibly ‘restrictive’ licensing practice is indeed likely to have anti-competitive effects in the relevant market is a question which can, in many cases, be satisfactorily resolved only on the basis of a ‘rule of reason’ inquiry which takes into consideration the nature of the market, the degree of market power exercised by the licensor, the alternative technologies that are potentially available to licensees, and other factors.17 A competition policy that prohibits the use of such practices in circumstances where they do not, in fact, have harmful effects on the market is likely to entail significant deadweight losses in efficiency. Page 238 →Notwithstanding these general developments, modern economic analysis also recognizes that tensions will arise between competition policy objectives and the existence and exercise of intellectual property rights in particular cases. For example, practices such as exclusive dealing requirements in IP licenses can thwart competition by artificially reducing the profitability of entry by new competitors, particularly where an incumbent firm or group of firms imposing such requirements already enjoys a high market share.18 Tying arrangements, though often benign, can be used to ‘leverage’ market power from one market to another where there are cost advantages to early entry, and the tie represents a strategic commitment to supply the tied good.19 Furthermore, recent learning suggests that intellectual property protection and restrictive licensing practices can raise particular concerns in the context of network industries’ (e.g., telecommunications, computer software, etc.), where their effects are compounded by externalities that increase the likelihood of locking into a socially inefficient standard.20 Recently, concerns about possible anti-competitive uses of intellectual property have been reinforced by perceptions that the scope of IPRs as applied under national legislation may, in some circumstances, be excessively broad, or at least that trends are at work that may eventually result in over-broad protection of such rights.21 The breadth of IPR protection refers to the extent to which similar (but not necessarily identical) products are covered by a patent. It thus determines the ability of competing firms to develop substitutes for a protected product or process without being subject to a patent infringement claim. In the theoretical literature on patent scope, the point has been made that, to the extent that technological progress depends on cumulative or ‘sequential’ innovations (‘standing on the shoulders of giants’) as opposed to discontinuous breakthroughs, it may be best promoted through relatively narrow (though potentially also longer) forms of protection.22 Some particular situations in which IPR protection has been alleged to be over-broad, and therefore to raise concerns of this nature, include biotechnology23 and computer operating systems and other technologies that are subject to significant network externalities.24 On the other hand, the point has been made that broad patents encourage primary innovation and provide an incentive to disclose valuable information that would otherwise be kept secret.25 Reflecting such ambiguities, and a lack of systematic empirical evidence to support either side of the debate, the literature on patent breadth has not, in the view of mainstream commentators, generated results that are sufficiently robust to provide a basis for systematic, a priori adaptation of the nature and scope of IP protection

across industries or products.26 Nevertheless, it has reinforced the concern that, sometimes, intellectual property protection can give rise to market power that is not justified by the incentives it provides for Page 239 →innovation. Implicitly, this strengthens the case that intervention by competition authorities may be needed to counteract the effects of intellectual property protection in particular instances where the ex post effects of such protection are shown to be excessive. The trends in economic thinking outlined above have had a profound impact on the application of national competition policies vis-a-vis intellectual property rights, at least in the major developed jurisdictions with experience in this area. In the US, an earlier enforcement policy which provided for strict prohibition of vertical licensing practices (the policy of the so-called ‘nine no-no’s’) has been replaced by enforcement Guidelines that: (i) indicate that licensing practices will generally be evaluated on a rule-of-reason rather than a per se basis; while (ii) providing guidance as to the circumstances in which such practices are most likely to be harmful to competition, and therefore subject to challenge. Essentially, the Guidelines seek to codify a moderate approach to licensing arrangements, drawing explicitly on the insights of recent economic learning.27 Related initiatives in the European Community, Canada and Japan likewise generally favor a case-by-case approach, taking account of recent economic learning, though they are also conditioned by those jurisdictions’ own national experience, jurisprudence and policy priorities.28 The foregoing is not to suggest that countries have adopted a uniform approach or that all of the interesting issues concerning the enforcement of competition laws vis-à-vis intellectual property rights have been resolved, either among the enforcement agencies or in the relevant literature. For example, notwithstanding the generally greater acceptance of the legitimate role and pro-competitive benefits of intellectual property on the part of competition agencies and scholars, there remain lingering questions on matters such as whether competition authorities should simply take the level of intellectual property protection as given, or whether concerns about ‘excessive’ levels of protection should be factored directly into enforcement decisions in this area.29 While some favor direct application of competition policy to remedy situations of over-broad protection,30 others are skeptical of the ability of antitrust enforcers to ‘fine tune’ the level of intellectual property protection in particular cases.31 An important related question is whether a refusal to license intellectual property rights should ever be actionable under competition law. While there is a very strong (possibly absolute) presumption under U.S. law that refusal to license is within the rights of patent holders,32 the usefulness of this presumption has come under intellectual attack with respect to the above-noted issue of network industries33 and some possible limits to it have appeared in the jurisprudence in the U.S. and elsewhere.34 In addition, debate continues over policy issues such as the implications for economic welfare of international market Page 240 →segmentation based on intellectual property rights.35 As discussed in Part 4 below, many of these tensions in the literature and the enforcement policies of major developed jurisdictions were echoed in the debate in the WTO Working Group on the Interaction between Trade and Competition Policy.

3. Existing Provisions of the TRIPs Agreement Relating to Competition Policy The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) recognizes the right of Member governments to take measures to prevent anti-competitive abuses of intellectual property rights, provided that such measures are consistent with relevant provisions of the Agreement. This reflects a concern on the part of some countries, especially developing countries, that the various commitments incorporated in the Agreement regarding standards of protection for intellectual property be balanced by a recognition of the right of Members to take appropriate measures to address resulting abuses.36 More specifically, Article 8.2 of the Agreement stipulates that ‘Appropriate measures, provided that they are consistent with the provisions of this Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology’. Article 40 affirms the right of Members to specify in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having adverse effects on competition in the relevant market and to adopt, consistent with the other provisions of this Agreement, appropriate measures to prevent or control such practices. The Agreement also contains a short

illustrative list of practices which may be treated as abuses.37 It should be noted, however, that neither Article 8.2 nor Article 40 purports to indicate that specific practices shall be treated as abuses, or to specify remedial measures that must be taken. In this sense, the competition provisions of the Agreement are permissive rather than mandatory. Certainly, they do not set out specific standards for dealing with anti-competitive licensing practices or other abuses. In addition, Article 40 of the Agreement includes a provision under which a Member considering action against an intellectual property owner that is a national or domiciliary of another Member can seek consultations with that Member. The latter Member is required to cooperate through the supply of publicly available non-confidential information of relevance, and of other information available to that Member, subject to domestic law and to the conclusion of mutually satisfactory agreements concerning the safeguarding of its confidentiality. Page 241 →The TRIPs Agreement also contains specific provisions relating to compulsory licensing in respect of patents and the layout-design of integrated circuits. Article 31, in particular, sets out detailed conditions that must be respected in the granting by Member states of any compulsory licenses. These conditions have the effect of limiting the availability of such licenses to particular situations, for example where a proposed user has made efforts to obtain voluntary authorization from the right holder on reasonable terms and conditions and such efforts have not been successful within a reasonable period of time, or of limiting the scope and duration of licenses that are issued. However, subparagraph (k) of the Agreement specifies that Members are not obliged to apply a number of these conditions (specifically, those contained in subparagraphs (b) and (f) of paragraph 31) in circumstances where the compulsory license is granted ‘to remedy a practice determined after judicial or administrative process to be anti-competitive’. Thus, the TRIPs Agreement clearly permits the use of compulsory licensing as a legal remedy for practices that are deemed to be anti-competitive in the context of the Agreement. However, it does not define the basis on which a practice might be held to be anti-competitive – a situation which possibly calls for further guidance, in some form, at an appropriate stage.38 In sum, the TRIPs Agreement provides clear but qualified international legal authority for countries that wish to take measures to protect themselves against anti-competitive abuses of specific types of intellectual property rights. It sets out conditions governing the use of compulsory licensing in respect of some types of rights, and also provides for limited forms of international cooperation in addressing cases of abuse. The Agreement does not, however, go as far as defining measures to be treated as abuses or setting out standards that could be used in evaluating particular practices. This raises the question of whether, at some stage, it would be useful to provide further guidance, whether of a binding or non-binding nature, for the assistance of WTO Members in this area.

4. Highlights from the Working Group’s Discussions on the Role of Competition Policy vis-à-vis Intellectual Property Rights This section of the paper provides a factual summary of the debate which took place in the Working Group on the subject of the relationship between the trade-related aspects of intellectual property rights and competition policy, based on the publicly available reports and records of the Group’s meetings.39 It will be noted that, although the discussion was not exhaustive and, indeed, differing viewpoints were expressed by delegates on some key points, in many respects, the discussion in the Working Group picks up on Page 242 →and, indeed, parallels the evolution of scholarly thinking in this area as summarized in Part 2, above. To begin with, in the course of the discussion of IP-related issues in the Working Group, the view was expressed by a number of Members that there is a basic complementarity between intellectual property law and competition law.40 According to this view, an intellectual property regime, by preventing free-riding on inventive or creative activities and the use by others, without payment, of assets resulting from such activities, helps to prevent a situation of under-investment in inventive and creative work, and thereby the negative impact upon economic growth and welfare that would result from such under-investment. By the same token, competition laws prevent abusive practices and ensure that interfirm rivalry is not restricted to an extent beyond that intended by the intellectual property laws, and thereby that the market assigns a fair and efficient value to such property. The former view of the relationship between competition policy and IP rights did not, however, command universal

assent in the Working Group. Other delegates emphasized what they perceived to be a dichotomy or divergence between the effects of intellectual property and competition laws. While the latter promotes or engenders competition, the former was said by these delegates to endanger it. Particularly for developing countries, it was suggested by these delegates that the overriding objective of facilitating economic advancement might require strict application of competition policy to curtail potentially ‘excessive’ levels of protection conferred by IP rights.41 The discussion in the Working Group took account of the ways in which the attitudes of competition authorities to intellectual property protection and related enforcement policies have evolved over the past decades. In this regard, it was noted that in the past, competition policy in many countries was characterized by a significant degree of hostility toward the exercise of IP rights, leading to (perhaps) excessively strict or ‘per se’ enforcement approaches. More recently, there has been a significant trend toward more permissive, ‘rule-of-reason’ approaches, reflecting a more favorable assessment of the overall impact of IP rights on competition or, at least, a view that decisions about the overall level of IP protection should not, except perhaps in compelling circumstances, be second-guessed by competition agencies. More particularly, it was noted that there is now a general recognition that an exclusive right does not necessarily confer market power. This is because often (not always) there are enough substitutes in the market to prevent the holder of an intellectual property right from actually gaining market power. In fact, the Group recognized that the availability of substitutes is an empirical question that can only be determined on a case-by-case basis. Further, even if the intellectual property right concerned generates market power, the right holder’s behavior might not necessarily constitute an Page 243 →abuse of a dominance. Therefore, under current standards the mere exercise of an intellectual property right as such is not generally restrained by competition law.42 In a related vein, the Group took note that, in the application of competition law, there is now a much greater appreciation of the efficiency benefits arising from the licensing of intellectual property rights. In many jurisdictions, licensing is regarded as being generally pro-competitive; consequently, it is felt that it should not be subject to excessive regulation by national competition laws. Reflecting this, some national competition laws define safety zones or group exemptions to reflect this presumption. Where an individual licensing practice needs to be examined, this is often done on a case-by-case or ‘rule of reason’ basis by which the pro-competitive benefits are weighed against anti-competitive effects. Reference was also made in the Group to the use of guidelines by national competition authorities as a means of contributing to predictability and transparency in the application of competition law, for example to provide guidance on licensing practices that would be presumed acceptable and on those that might require examination.43 Also brought forward was the view, that the compatibility of competition law and intellectual property rights depends critically on competition law being properly applied to the exercise of those rights. The point was made that the proper application of competition law should avoid both excessively stringent enforcement approaches, which can lessen innovation, and the weak or ineffective application of such law, leading to the abuse of market power. It was suggested that either approach could have an adverse effect on output as well as an inhibiting effect on trade. In this context, a number of Members described the way in which their national law addressed anticompetitive practices in the exercise of intellectual property rights. Emphasis was placed on the appropriateness in most instances of a ‘rule of reason’ analysis, weighing pro-competitive against anti-competitive effects, the use of appropriate filters to identify potentially harmful practices and the importance of non-discrimination and transparency.44 Notwithstanding the foregoing points, the view was also expressed that a proper balance must be found in the level of protection to be accorded to intellectual property rights by intellectual property law and that more attention should be paid to ensuring that the intellectual property rights themselves are underpinned by sound competition principles and that they promote global welfare. It was suggested that over-protection of intellectual property rights could contribute to the entrenchment of horizontal and vertical restraints, for example through patent pooling among competitors and the restriction of parallel imports. Some Members suggested, further, that future negotiations in the area of intellectual property rights should give Page 244 →equal weight to recognizing the risks of both under- and over-protection of intellectual property rights. Under this approach, advocates of change would be required to demonstrate empirically that the changes they proposed are likely to increase global

welfare.45 In response to the foregoing view, some thoughts were given to the fact that WTO Members had already agreed in the TRIPs Agreement on what should be the appropriate level of protection of intellectual property rights. What was material for the purposes of the present work of the Working Group was not the level of intellectual property right protection, but rather whether right holders, in using such protection in the market, behaved anticompetitively or not. If they did, competition policy provided remedial measures, without abridging the level of protection afforded either by the TRIPs Agreement or by the national intellectual property rights regime.46 The various provisions of the TRIPs Agreement relating to the treatment of anti-competitive practices were discussed in the Working Group.47 The point was made that the TRIPs Agreement reflected the thinking that regimes for the protection of intellectual property rights should be balanced by safeguards intended to restrain anti-competitive practices involving the use of intellectual property rights. Comments were also made on the effectiveness of these provisions and whether there was need for further international cooperation in this area. Some Members stated explicitly that the relevant provisions of TRIPs provide insufficient guidance on the practices that should be treated as abuses and the remedies that would be appropriate. This, it was said, suggests a need for further deliberations on these practices.48 The discussion in the Working Group also touched on the question of national practices in regard to the treatment of parallel imports. Although there was no agreement on this point, the view was expressed that intellectual property rights that enabled right holders to prevent parallel imports could be employed in an anti-competitive manner to segregate markets and restrict international trade. In this regard, it was suggested that the issue of parallel imports and appropriate regimes for the exhaustion of intellectual property rights might be an appropriate subject for further work in the Group.49 The view was expressed that, in finding an appropriate balance between providing market incentives and limiting monopolistic and unfair business practices in the field of intellectual property rights, account should be taken of the special circumstances in which many developing countries found themselves. It was said, first, that developing countries had, in some cases, yet to exploit the intellectual property rights provided for in their national laws to a substantial extent and that their trade in products subject to intellectual property rights was mostly in areas that were not necessarily covered by existing disciplines. Second, developing countries needed to Page 245 →acquire technology from advanced nations which might not be forthcoming given the desire of owners of intellectual property rights to maximize profits.50 The point was also made that, in giving further consideration to the relationship between intellectual property and competition policy, it would be desirable to address the issue of the extent to which remedies for abuse of intellectual property rights could and should be sought within competition policy and to what extent they should be found by introducing or strengthening features of laws on intellectual property such as compulsory licensing.51 Of course, this is a question which is also the focus of ongoing scholarly inquiry.52 In sum, the discussion of the interface between competition policy and intellectual property rights in the WTO Working Group on the Interaction between Trade and Competition Policy was both wide-ranging and penetrating. The discussion delved into matters such as the objectives of intellectual property laws and their relation to those of competition policy; the potential efficiency benefits of ‘restrictive’ licensing arrangements; the evolution of Member states’ competition enforcement policies in this area and the reasons for such evolution; and the implications for economic welfare of the practice of international market segmentation through intellectual property rights. As noted in Part 2, these are all matters that have been the subject of examination in the scholarly literature in recent years. Moreover, in many respects, the discussion in the Working Group paralleled the evolution of scholarly thinking in this area as summarized in Part 2, above. This is not to suggest that the discussion in the Working Group reflected a unanimity of viewpoints (nor, indeed, does the scholarly literature). For example, as noted in Part 2, an important area of divergence in the literature concerns the question of whether competition authorities should simply take the level of intellectual property protection as given, or whether concerns about ‘excessive’ levels of protection should be factored directly into enforcement decisions in this area. A similar tension was clearly reflected in the debate in the Working Group as suggested, for example, in the above-highlighted discussion on compulsory licensing.

5. Reflections on the Views Expressed and the Issues Raised in the Working Group This section provides reflections, from the personal viewpoint of the author, on the debate summarized in Part 4, above.

Page 246 →(a) The Discussion in the Working Group: A Guide for the Formulation of Economic Policy and a Basis for Further Analytical Work As noted in the preceding section, the discussion of the relationship between competition policy and intellectual property rights in the WTO Working Group was not unanimous in all respects; indeed, continuing tensions were evident with respect to some important questions. Nonetheless, in the view of the author, the debate provides a useful basis for further work and, indeed, contains many elements which already provide helpful guidance for work on the national competition policies of WTO Members. For example, the discussion took as a point of departure the recognition that competition policy can be an important factor in balancing the rights of producers under intellectual property legislation, and in counteracting particular abuses thereof. A similar perspective is reflected in the competition enforcement policies of the Quad members and, indeed, in the TRIPs Agreement itself. At the same time, the debate in the Working Group recognized the dangers of overly strict enforcement policies and regulations in the area of technology licensing, as well as the dangers of an overly lax approach. This is encouraging in that it is in contrast to debates that have occurred at the multilateral level in previous eras, which have attached insufficient importance to the efficiency-enhancing properties of licensing practices, and called for more sweeping intervention in this area.53 In a related vein, the Group took note of the evolution that had taken place in the enforcement policies of WTO Members with experience in this area, and attached importance to this as a basis for further analysis. To this extent, it is submitted, the work in the Working Group provides more of an analytical basis than might have been thought for further work on fostering common approaches to competition enforcement policies in this area among WTO Member countries, centered around sound economic principles.

(b) Some Specific Issues That Could Be Considered in Further Work in This Area The analytical basis provided by the work of the WTO Working Group, together with other developments at the multilateral level and in related economic literature as well as national enforcement policies,54 has opened up a number of possible lines of inquiry for future work in this area. Some of these are noted below. It should be emphasized that there is no suggestion that these issues are necessarily ‘ripe for action’ at the multilateral or other level; while this may be true in some cases, in other cases, it may well be a question of further study being required before action (if any) is warranted. Page 247 →Comparative approaches to the treatment of licensing arrangements A central aspect of the competition policy-intellectual property interface relates to the treatment of licensing arrangements under national competition legislation. An obvious focus for further analytical work would, therefore, be on comparative approaches to the treatment of licensing practices in WTO Member countries. This would entail specifying the range of practices that are of interest (e.g., exclusivity requirements, tying arrangements, field-of-use restrictions, grant-backs, etc.) and reviewing different national approaches to the treatment of each practice under competition law. A review of recent economic learning in this area would help to put the various national approaches in perspective. The potential usefulness of further work in this area seems clear. The coming into force of WTO Members’ obligations under the TRIPs Agreement, combined with the international trend toward removal of direct or industry-specific regulation of prices, has made it likely that countries will, increasingly, look to competition law to remedy perceived abuses and/or excesses of market power created by intellectual property protection. This is, however, an area of antitrust policy in which enforcement experience and familiarity with relevant methodologies is largely limited to a few countries (i.e., those of the Quad). Furthermore, as noted, there are significant potential downsides for economic welfare associated with enforcement practices in this area which are either too lax or too strict.55 Consequently, there would seem to be a compelling need to share and promote understanding of the subtleties involved in the sound application of competition policy to such practices.

As noted in Part 2 above, there is much food for reflection in this area. In the past five years, the United States, the European Community and Japan have issued new or substantially revised guidelines or similar instruments setting out the application of their respective competition laws to licensing arrangements. In addition, draft Guidelines have been issued recently by Canada,56 and issues concerning the competition policy treatment of licensing arrangements have been addressed in policy studies and enforcement cases in these jurisdictions.57 A review of these materials would provide a good basis for further reflection/any action to be taken at the multilateral level. The role of intellectual property in network industries: the treatment of refusals to license As noted in Part 2, there is a very strong, possibly absolute, presumption under the law of the U.S. and (possibly less clearly) other major developed jurisdictions that refusal to license is within the rights of intellectual property Page 248 →owners.58 This reflects general presumptions regarding the benefits of intellectual property protection and the view that the right to refuse to license such property is inherent in the terms of protection. Clearly, systematic denial of this right could substantially erode the value of existing forms of protection. Notwithstanding these important considerations, recently, the desirability of an absolute (as opposed to a qualified) right to refuse to license intellectual property has been questioned by some commentators.59 The concerns articulated relate particularly to the role of intellectual property in network industries. Such industries include telecommunications, computer hardware and software, and many other industries that are building blocks of the new, informationbased economy. These industries often require common access to unique facilities, and are prone to the possibility of ‘tipping’ or ‘locking into’ inefficient standards.60 As a result, the risk of undue exercise of market power through anti-competitive licensing and other practices (including, arguably, refusal to license) is particularly high in these industries.61 In the light of these concerns, Church and Ware (1998) have suggested that assets protected by intellectual property which are critical to accessing a network should be capable of being treated as ‘essential facilities’ under competition law, and therefore subject to mandatory rights of access in circumstances where a refusal to license meets the general requirements of the essential facilities doctrine.62 The implementation of remedies to deal with anti-competitive refusals to license intellectual property, even in a narrow range of circumstances, poses significant policy dilemmas. As noted, to many observers, a right to refuse to license IP-protected technology or goods is implicit in the protection afforded under the relevant statutes. Moreover, systematic denial of this right could substantially erode the value of existing forms of protection. It should also be noted that, whether applied in the context of intellectual property protection or otherwise, the essential facilities doctrine has itself been the subject of significant scholarly criticisms.63 These considerations weigh against overly sweeping compulsory access rules for IP (or other assets). Nonetheless, in view of the growing importance of network industries and related phenomena in the increasingly information-based world economy, it is probably inevitable that the issue of anti-competitive refusals to license in network industries will be increasingly broached at the national if not the international level. It may be preferable that these issues are addressed in a systematic way that considers the need for selectivity and the costs as well as the benefits of intervention, rather than through ad hoc initiatives. Page 249 →The emergence of new strategies for the exercise of market power through the acquisition of intellectual property The acquisition of patents or other intellectual property rights, whether by assignment, long-term exclusive licenses or other means, and the related use of patent infringement suits to deter the entry of competitors have long been recognized as a powerful potential technique for amassing market power. In the past, this concern has focused largely on the accumulation of ‘killer patent portfolios’ by large, vertically integrated firms. A leading case on this practice in the United States is the United Shoe Machinery case.64 The case dealt with patent acquisitions and other practices by the United Shoe Machinery Corporation that allegedly created an impenetrable barrier to entry by new competitors. In its decision in this case, the Court explicitly recognized that patent acquisitions (as opposed to the less restrictive instrument of non-exclusive licenses) could be used to suppress competition. In an important recent contribution, Merges (1998) has updated previous analyses of patent acquisition and litigation strategies to take account of new forms of corporate organization that are increasingly prevalent. He

notes that the traditional dominance of integrated, R&D intensive firms in developed economies is giving way to more diverse organizational forms such as strategic partnering and joint ventures. This is due, in part, to the strengthening of intellectual property protection which has made decentralized organizational structures more viable. In these circumstances, new types of anti-competitive patent accumulation and licensing strategies are evolving. For example, recently cases have revealed that firms have engaged in a practice of acquiring a third party’s patent, filing a reexamination or re-issue request in the Patent Office, and ‘re-engineering’ the patent to block a competitor’s product. In the case of Hewlett-Packard v Bausch & Lomb, Inc.,65 a court concluded that Bausch and Lomb had purchased a third-party patent ‘for the (sole) purpose of gaining leverage in negotiations … with HP.’ Moreover, Merges and others suggest, it is not clear that this subject has received appropriate attention at the national level.66 The subject of patent acquisition strategies and blocking patents as a device for exercising market power would seem to be a particularly important one for further consideration by knowledgeable authorities. The concept of ‘innovation markets’ In industries subject to rapid change and innovation, the process of innovation itself – i.e., the ongoing development of new products and production processes – may be the most important dimension of competition Page 250 →in the market. For example, it has been suggested that this may be true in the case of industries such as computer hardware and software, pharmaceuticals and telecommunications, in which the development and marketing of new products is obviously a key determinant of the competitive success of firms and the welfare of consumers. Recently, competition policy analysts have sought to come to grips with this dimension of inter-firm rivalry and incorporate it into law enforcement doctrines through the concept of ‘innovation markets’. Innovation markets are defined as ‘research and development directed to particular new or improved goods or processes, and the close substitutes for that research and development’.67 The concept of innovation markets has served a useful purpose in promoting awareness of the importance of innovation as a dimension of competition, and the need for explicit consideration of this dimension in particular competition law cases. Nonetheless, it is arguable that the actual analysis of the innovative dimensions of competition can be addressed more effectively through conventional tools of competition law enforcement such as the doctrine of ‘potential competition’. Under this approach, the impact of licensing restrictions and other possible anti-competitive practices would be evaluated on the basis of their expected ultimate impact on the price and availability of new technologies and products, rather than on innovative activities as such.68 Thus, while the role of innovation as a dimension of competition clearly needs to be recognized, it may not be necessary for national competition policies to employ the concept of innovation markets as such in order to deal effectively with related issues in particular cases.69 The implications of the territorial divisibility of intellectual property rights and the case for applying the doctrine of exhaustion in international trade A further important issue that is touched on both in the above-summarized discussion in the WTO Working Group on the Interaction between Trade and Competition Policy and in current economic literature concerns the implications for economic welfare of the territorial divisibility of intellectual property rights and the case for applying the doctrine of ‘exhaustion’ of IPRs in international trade. This issue arises from the ability of rights holders, in many circumstances, to bar the parallel importation of competing, legally-manufactured foreign versions of their products. Critics argue that this ability creates a classic barrier to trade which harms economic welfare in ways comparable to a tariff or conventional non-tariff barrier. The concept of ‘exhaustion’ of intellectual property rights in international trade – which would provide for the elimination of right-holders’ ability to bar the importation of legitimately produced foreign versions of their products or works – is suggested as a remedy for these adverse effects.70 Page 251 →While economic analysis of this issue supports concerns about the adverse effects of trade restrictions arising from intellectual property rights in some circumstances, it also suggests that the issue is a particularly complex one, and that the ability to segment markets through intellectual property rights is not always harmful to

economic welfare. To begin with, the proposition that the effects of international market segmentation under intellectual property laws are analogous to those of tariffs or conventional non-tariff barriers (e.g., quotas) needs to be qualified. Unlike tariffs and conventional non-tariff barriers such as quotas, which are non-discretionary instruments, the ability to bar imports under intellectual property legislation is typically a discretionary remedy that can be differentially applied or simply not used depending on the perceived interests of the firms holding the relevant rights. Consequently, it does not remove the ability of national firms or subsidiaries subject to common ownership or contractual links (which will often be an important consideration in regard to situations involving parallel imports) to realize gains from the international rationalization of production activities. That is, a multinational enterprise owning the rights to a patented product or process in multiple jurisdictions can, notwithstanding the existence of a (discretionary) right to control parallel imports under intellectual property legislation, market its product internationally while locating its production activities in the country in which it finds it most efficient to do so. This is quite different from the effect of a traditional tariff or non-tariff measure which distort the pattern of trade even within a common enterprise.71 An important consequence of the ability to bar parallel imports is to permit patent holders to charge different prices for their products/use of their patented technologies in different national markets – i.e., to engage in international price discrimination. In general, the prices charged will reflect the differing demand conditions prevailing in different national markets.72 Although the benefits of this practice continue to be debated,73 there are good arguments to be made that it is likely to be welfare-enhancing in many contexts.74 Most obviously, the ability to price discriminate can enable manufacturers to sell their products (e.g., patented medicines) for higher prices in countries having inelastic demand conditions (e.g., perhaps in many cases, developed countries) while marketing them for lower prices in countries having more elastic demand conditions (e.g., at least for many products, developing countries).75 In fact, it has been shown that the ability to price discriminate can enable patent holders to serve markets that they would not otherwise serve.76 It may also have two additional welfare-enhancing consequences: first, it can enable firms to achieve significant economies of scale and learning, which are important in the introduction of new products. In addition to the gains in economic welfare accruing from the ‘static’ Page 252 →efficiencies, the ability to price discriminate can generate important gains in dynamic efficiency as compared to the situation of uniform pricing. This is because discriminatory pricing is a particularly efficient way to provide the incentives for innovation which are a primary objective of the patent system.77 Abbott (1998) questions whether firms with the ability to segment their markets can indeed be relied upon to price their goods in ways that have such socially benign effects, or at least whether they will do so in a sufficiently systematic way to compensate for the gains that would accrue from an unrestrained environment for parallel trade. Indeed, the exclusion of parallel imports clearly limits intrabrand competition (i.e., competition among sellers of a particular brand) in the supply of the products affected,78 and whether the prices of particular products will be lower or higher in developing or other countries in an environment permitting international price discrimination is an empirical question that will depend on many factors, including the existence of other, low-priced sources of supply and the application of price controls. There is a need for more empirical research to evaluate the consequences of international price discrimination for developing countries, particularly in respect of socially important goods such as medicines. Pending such research, however, it seems difficult to reject the view that price discrimination is likely to be welfare-enhancing at least in some important cases.79 Perhaps reflecting such an assessment, the WTO-TRIPs Agreement explicitly avoids taking a position on the issue.80 The foregoing exposition of the possible welfare benefits of international price discrimination based on market segmentation through intellectual property rights does not, it should be emphasized, imply that the ability to segment markets in this way is universally desirable. At least three important exceptions should be noted. First, the case for an international rule of exhaustion (i.e., the case against permitting the international segmentation of markets) is more compelling in regard to trademarks than it is in regard to patents and copyrights.81 While the latter rights are specifically intended to create rents that act as an incentive for innovation, the former have a different purpose: they are intended principally to serve as a signal of product quality and thereby to prevent inefficient free-riding. To the extent that the possibility of misleading the consumer is prevented through appropriate rules requiring disclosure of any material differences in foreign-manufactured

versions of a product, the applicability or non-applicability of relevant warranties, or any special characteristics of the imported goods that differentiate them appreciably from the domestic product, there is a good case to be made for international exhaustion in respect of trademark goods. Page 253 →Second, there may well be cases where the right to bar imports under intellectual property legislation is unrelated or disproportional to any possible efficiency gains. This could be the case, for example, where the ability to bar parallel imports is based on a copyright or trademark over packaging material, not the product itself. More generally, the availability of border remedies that go beyond the remedies available in respect of alleged infringement by domestic competitors may give rise to concerns. Third, the potential benefits of international price discrimination relative to its possible detrimental effects are likely to be much less as between countries with broadly similar demand conditions than as between countries with quite different demand conditions.82 This suggests that, from an economic perspective, a rule of international exhaustion may well be desirable in the context of free trade areas comprising broadly similar economies. Indeed, the principal examples of the benefits of a rule of international exhaustion are drawn from regional economic unions. Within the European Community, the use of intellectual property rights to segment international markets has been curtailed through the policy of exhaustion of IP rights in intra-Community trade. Under this approach, legitimately-made goods embodying IP rights can flow freely across the Community, once they have been legitimately sold in any member state. The Community’s policy in this area derives from the freedom of movement provisions of the Treaty of Rome, and the fundamental goal of the Treaty to ensure the economic integration of member states. It is reinforced by the relatively strict treatment of territorial market restraints under the competition provisions of the Treaty as compared to other jurisdictions. Recently, Anderson et al (1998) have suggested that, from an economic point of view, a similar rule may be appropriate as between Canada and the United States. For the reasons discussed above, the application of such a rule in the multilateral context (at least in regard to patents or copyrights) seems considerably more problematic.

6. Concluding Remarks Competition (antitrust) policy has an important role to play in balancing the exercise of intellectual property rights (IPRs) in many jurisdictions. To this extent, the application of competition policy also bears on the implications of intellectual property for international trade and development. Not surprisingly, therefore, the application of competition policy vis-à-vis IP rights has been an important consideration in debates on policies relating to trade, development and economic growth, is addressed in relevant articles of the WTO TRIPs Agreement and has been an important consideration in the Page 254 →work of the WTO Working Group on the Interaction between Trade and Competition Policy over the past three years. Economic learning over the past two decades provides important insights regarding the relationship between competition policy and intellectual property rights. While economists today recognize that conflicts can and do arise between the objectives of competition policy and the exercise of intellectual property rights in particular cases, and some, indeed, maintain broader reservations about the overall impact of intellectual property protection on competition and economic welfare, for the most part, recent economic thinking emphasizes that competition policy and intellectual property rights, rather than being fundamentally at odds with each other, generally serve the same overall objectives of fostering competition and efficiency in a dynamic sense. Notwithstanding this, modern economic analysis also recognizes that conflicts will arise between competition policy objectives and the existence and exercise of intellectual property rights in particular cases. Recently, concerns about possible anti-competitive uses of intellectual property have been reinforced by perceptions that the scope of IPRs as applied under national legislation may, in some circumstances, be excessively broad, or at least that trends are at work that may eventually result in over-broad protection of such rights. This has strengthened the case that intervention by competition authorities may be needed to counteract the effects of intellectual property protection in particular instances. The discussion of the relationship between competition policy and intellectual property rights in the WTO

Working Group on the Interaction between Trade and Competition Policy reflects, in many ways, the debates that have taken place in the literature, and has provided a useful basis for further work on this topic at the multilateral level. For example, the debate in the Working Group has recognized the dangers of overly strict enforcement policies and regulations in the area of technology licensing, as well as the dangers of an overly lax approach. This is encouraging in that it is in contrast to debates that have occurred at the multilateral level in previous eras, in which intellectual property was depicted as a more unambiguous evil and calls were made for sweeping prohibition of practices that are potentially efficiency-enhancing. In a related vein, the Working Group has taken account of the evolution that had taken place in the enforcement policies of WTO Members with experience in this area, and attached importance to this as a basis for further analysis. To this extent, the work in the Working Group may provide more of an analytical basis than is commonly thought for further work on fostering common approaches to competition enforcement policies in this area among WTO Member countries, centered around sound economic principles. Page 255 →Taking account of the work to date in the Working Group as well as the academic literature and enforcement developments, a number of possibilities for further work in this area have been identified and commented upon. These include the subject of comparative approaches to the treatment of licensing practices; the role of intellectual property in network industries; the emergence of new strategies for the acquisition of patents and the use of patent infringement suits to deter the entry of competitors; the concept of ‘innovation markets’ and the usefulness of this concept as a tool for the application of competition law; and the implications of the territorial divisibility of intellectual property rights and the case for applying the doctrine of exhaustion of intellectual property rights in international trade. While there is no suggestion that these issues are necessarily ‘ripe for action’ at the multilateral or other level, all are matters that are relevant to the economic welfare of WTO Members, that entail significant complexities of policy design and application and on which the sharing of perspectives and experience could yield significant benefits for the world economy.

Page 256 →Appendix I Checklist of issues suggested for study (July 1997) It was widely recognized that the Working Group’s work programme should be open, non-prejudicial and capable of evolution as the work proceeds. It was also emphasized that all elements should be permeated by the development dimension. Particular attention should be paid to the situation of leastdeveloped countries. In pursuing the items of its work program, the Working Group should draw upon and avoid unnecessary duplication of the work of other WTO bodies concerned with specific trade measures as well as the work under way in UNCTAD and other organizations. Relationship between the objectives, principles, concepts, scope and instruments of trade and competition policy. Their relationship to development and economic growth. Stocktaking and analysis of existing instruments, standards and activities regarding trade and competition II. policy, including of experience with their application: - national competition policies, laws and instruments as they relate to trade; - existing WTO provisions; - bilateral, regional, plurilateral and multilateral agreements and initiatives. III. Interaction between trade and competition policy: - the impact of anti-competitive practices of enterprises and associations on international trade; - the impact of state monopolies, exclusive rights and regulatory policies on competition and international trade; - the relationship between the trade-related aspects of intellectual property rights and competition policy; I.

- the relationship between investment and competition policy; - the impact of trade policy on competition. IV. Identification of any areas that may merit further consideration in the WTO framework. Page 257 →Appendix II Decision of the General Council, December 1998 (WT/GC/M/32, page 52) The General Council decides that the Working Group on the Interaction between Trade and Competition Policy shall continue the educative work that it has been undertaking pursuant to paragraph 20 of the Singapore Ministerial Declaration. In the light of the limited number of meetings that the Group will be able to hold in 1999, the Working Group, while continuing at each meeting to base its work on the study of issues raised by Members relating to the interaction between trade and competition policy, including anticompetitive practices, would benefit from a focused discussion on: (i) the relevance of fundamental WTO principles of national treatment, transparency, and mostfavoured-nation treatment to competition policy and vice versa; (ii) approaches to promoting cooperation and communication among Members, including in the field of technical cooperation; and (iii) the contribution of competition policy to achieving the objectives of the WTO, including the promotion of international trade. The Working Group will continue to ensure that the development dimension and the relationship with investment are fully taken into account. It is understood that this decision is without prejudice to any future decision that might be taken by the General Council, including in the context of its existing work programme.

NOTES 1. For a review of the role of national competition policies vis-à-vis intellectual property rights in the United States, the European Community, Japan and Canada, see Anderson (1998). 2. A few examples of such cases include the 1995 Microsoft settlement (US v Microsoft, 1995-1 CCH Trade Cases, para. 70,928) and the 1994 Pilkington case (US v Pilkington pic and Pilkington Holdings, Inc. (District Court for Arizona, 19 October 1994) in the US; the Magill TV case before the European Court of justice (Radio Telefls Eireann (RTE) & Anor. v EC Commission, 1995 CCH CEC, para. 400); and the NutraSweet case in Canada (Director of Investigation and Research v the NutraSweet Co. (1990) 32 CPR (3d) 1 (Competition Tribunal, 4 October 1990). Even Page 258 →where abuse of intellectual property is not alleged, patents or other IPRs can be a factor in defining the relevant markets and the sources of market power in a case. For example, intellectual property rights were an important consideration in defining the relevant markets in the Ciba-Geigy/Sandoz merger case which was examined by the competition authorities of both the U.S. and the European Community. Moreover, requirements to share patented technology or other IPR-protected assets may figure in the remedies applied in a merger or other case (as was the case, for example, in the remedies applied in both the Ciba-Geigy/Sandoz case and the 1997 Boeing/McDonnellDouglas merger). 3. For example, exclusive dealing arrangements, territorial market limitations or other restrictions incorporated in licensing agreements can affect directly the terms of international trade and technology transfer. Nonetheless, it is not suggested that the effects of such restrictions are necessarily anti-competitive or (still less) that they should be subject to sweeping prohibition. See Part 2, infra. A useful general discussion of the implications of intellectual property protection for trade and development is provided in Lahouel and Maskus (1999). 4. See Part 2, infra. 5. See, e.g., Lahouel and Maskus (1999). 6. Singapore Ministerial Declaration, paragraph 20. 7. This work is summarized in the Report (1998) of the Working Group on the Interaction between Trade and Competition Policy (WT/WGTCP/2). In December 1998, the General Council of the WTO decided that the Working Group should continue its work in 1999, and should address certain specific elements set out in its decision (reproduced in Appendix II of this paper). The further work undertaken on the basis of the

General Council’s decision is summarized in the Report (1999) of the Working Group on the Interaction between Trade and Competition Policy (WT/WGTCP/3). 8. Other topics considered by the Working Group include matters such as (i) the impact of anti-competitive practices of enterprises and associations on international trade; (ii) the impact of state monopolies, exclusive rights and regulatory policies on competition and international trade; (iii) the relationship between investment and competition policy; (iv) the impact of trade policy on competition; (v) the relevance of fundamental WTO principles of national treatment, transparency, and most-favoured-nation treatment to competition policy and vice versa; (vi) approaches to promoting cooperation and communication among Members, including in the field of technical cooperation; and (vii) the contribution of competition policy to achieving the objectives of the WTO, including the promotion of international trade. A detailed review of the work done by the Working Group in 1997 and 1998 is provided in Zaech, ed. (1999).Page 259 → 9. See Report (1998) of the Working Group on the Interaction between Trade and Competition Policy, Report on the Meeting of 28 and 29 September (WT/WGTCP/M/6). In addition to extensive oral commentary, written contribution son this subject were provided by the European Community and its member States (WTO document WT/WGTCP/W/99); the United States (WT/WGTCP/W/101);New Zealand (WT/WGTCP/W/103); Hong Kong, China (WT/WGTCP/W/I04); Korea (WT/WGTCP/W/105); Japan (WT/WGTCP/W/106) and Turkey (WT/WGTCP/W/113). The oral discussion on this matter is summarized in Part C.III(c) of the Working Group’s Report (1998) to the General Council. All of these documents are now in the public domain and are available on the WTO Website under the symbol ‘wgtcp’. 10. For overviews of relevant material, see, e.g., U.S., Federal Trade Commission (1996) and the essays in Anderson and Gallini, eds. (1998). 11. For discussion of particular examples, see Section 5. 12. See, for example, Scherer (1998). 13. See Federal Trade Commission (1996), ch. 6. 14. See Gilbert and Sunshine (1996), and Federal Trade Commission (1996). Analytically, current thinking emphasizes the trade-off that exists between competition and efficiency in the short run (i.e., static, allocative efficiency) and dynamic efficiency which takes account of the introduction of new products and production processes, over time. 15. This premise is highlighted, for example in US, Department of Justice and Federal Trade Commission (1995). 16. For example, by preventing free-riding, territorial market restraints can promote more efficient product distribution systems, by strengthening dealer incentives to invest in service facilities and staff training. For detailed discussion of pro-competitive rationales for vertical market restraints, see, e.g., Brenner and Rey (1995). The insight that vertical contractual restraints can have pro-competitive effects has been a part of mainstream competition law doctrine at least since the famous decision of the U.S. Supreme Court in Continental TV, Inc. v GTE Sylvania, Inc., 433 U.S. 1 (1976). 17. US, Department of Justice and Federal Trade Commission (1995). 18. See Rey and Winter (1998). 19. Baxter and Kessler (1998). 20. See the discussion in second subsection of Section 5 and references cited therein. 21. See, e.g., Barton (1997) and Thurow (1998). 22. Key contributions include Gilbert and Shapiro (1990); Scotchmer (1991) and Chang (1995). The concern about the impediment that may be created for sequential innovation by over-broad patent protection has been summarized by Stiglitz as Page 260 →follows: ‘We often talk about how important patents are to promote innovation, and I certainly subscribe very strongly to that. [However, if patents are defined too broadly], you may stifle competition that uses those patents later on, and so ... the breadth and utilisation of patent rights can be used not only to stifle competition, but also have adverse effects in the long run on innovation. We have to strike a balance.’ Quoted in US, Federal Trade Commission (1996), chapter 6, Part 2. 23. See Barton (1998). 24. See, e.g., Church and Ware (1998). 25. Gallini and Trebilcock (1998). 26. See, e.g., Gallini and Trebilcock (1998).

27. Tom and Newberg (1998). 28. Anderson (1998). 29. Gallini and Trebilcock (1998). 30. Church and Ware (1998). 31. Dumont and Holmes (1999). 32. See, e.g., Dawson Chemical Co. v. Rohm and Hass Co., 448 U.S. 176 (1980). 33. Church and Ware (1998) and references cited therein. 34. See, e.g., Image Technical Service, Inc. v. Eastman Kodak Co., 125 F. 2d 1195, cert. denied 118 S. Ct. 1560 (1998), in which the U.S. Court of Appeals for the Ninth Circuit held that, where an intellectual property right was asserted only ‘pre-textually’ (as an after-thought), it could not justify an otherwise illegal refusal to deal; the Magill TV case in the European Community (Radioa Telefis Eireann (RTE) & Anor. v. EC Commission, 1995 CCH CEC, para. 400), in which the Court of Justice held that a refusal by a dominant firm to license copyrighted TV listings could constitute an abuse of dominant position under Article 85 of the Treaty of Rome. 35. See Abbott (1998). 36. See discussion in World Trade Organization (1997), ‘Special Study on Trade and Competition Policy’, at 72-74. 37. These are exclusive grant-back conditions, conditions preventing challenges to validity and coercive package licensing. 38. See related discussion in Part 5, infra. 39. In particular, this section of the paper draws extensively on the relevant portion of the Report (1998) of the Working Group on the Interaction between Trade and Competition Policy (WT/WGTCP/2), paragraphs 112-122. 40. Report (1998), paragraph 113. 41. Report (1998), paragraph 114. 42. Report (1998), paragraph 115. 43. Report (1998), paragraph 116. 44. Report (1998), paragraph 117. 45. Report (1998), paragraph 118.Page 261 → 46. Report (1998), paragraph 118. 47. In particular, mention was made in Articles6, 8, 31 and 40 of the Agreement. 48. Report (1998), paragraph 119. 49. Report (1998), paragraph 120. See related comments in Part 5, infra. 50. Report (1998), paragraph 121. 51. Report (1998), paragraph 122. 52. See, e.g., Dumont and Holmes (1999). 53. For a summary and critique of proposals of this nature that were put forward in the 1970s and 80s, see Palmer and Aiello (1986). 54. See Lahouel and Maskus (1998). 55. Overly lax enforcement policies will tolerate the existence of anti-competitive licensing and other practices that restrict output and raise prices; overly strict policies will increase transaction costs and undermine the scope and incentives for efficient technology transfer that provides important benefits for host countries. 56. Commissioner of Competition (1999). 57. See, e.g., U.S., Federal Trade Commission (1996) and the essays in Anderson and Gallini, eds. (1998). 58. See, e.g., Dawson Chemical Co. v. Rohm and Hass Co., 448 U.S. 176 (1980) regarding the situation in respect of patents. 59. See Church and Ware (1998) and references cited therein. 60. See Katz and Shapiro (1994). 61. See Federal Trade Commission (1996) and references cited therein. According to Church and Ware (1998), the Lotus case is a particularly clear example of intellectual property rights interacting with network externalities to create a de facto standard and considerable market power, with the result that new entrants offering differentiated products that were arguable of higher quality were prevented from entering the

market. The case involved a copyright suit by Lotus relating to Borland’s use of words and a menu command hierarchy for Lotus’ 1-2-3 program, in its Quattro Pro spreadsheet. See Lotus Dev. Corp. v Borland International, Inc., 799 F. Supp. 203 (D. Mass. 1992), reversed 49 F.3d 807 (First Circ., 1995). 62. As set forth in the leading case of MCI Communications Corp. v AT&T, 708 F.2d (7th Cir. 1983), cert. denied 464 U.S. 891 (1983), application of the essential facility doctrine requires proof of four elements: (a) control by a monopolist of a facility or resource serving the monopolist’s market, (b) the inability of an entrant to practically or reasonable duplicate the facility, (c) the denial of the use of the facility to a competitor or entrant, and (d) the feasibility of providing access to entrants. 63. In particular, critics have made the point that enforcing mandatory access can result in free-riding on the investment of those who create unique facilities, may thereby undermine the incentive to invent around existing bottlenecks and may Page 262 →require ongoing regulation of prices and service quality with its attendant costs and risks. See, e.g., Areeda (1990). 64. See U.S. v United Shoe Machinery, 110 F. Supp. 295 (D. Mass. 1953), affd per curiam, 347 U.S. 251 (1954) and, for discussion, Merges (1998). 65. 882 F.2d 1556 (Fed. Cir. 1989). 66. See comments of Merges and F.M. Scherer in Anderson and Gallini, eds. (1998), ‘Roundtable Discussion’. 67. U.S., Department of Justice and Federal Trade Commission (1995). For background, see Gilbert and Sunshine (1995) and Tom and Newberg (1998). 68. See Gallini and Trebilcock (1998). 69. Gallini and Trebilcock (1998). 70. For a thoughtful exposition of the case for international exhaustion, see Abbott (1998). 71. Anderson et al. (1990). 72. This assumes that the firm involved possesses a minimum degree of market power. If the firm has no market power, then it cannot charge a price higher than the competitive price in any market. 73. See Abbott (1998). 74. Malueg and Schwartz (1994). 75. For related discussion, see Malueg and Schwartz (1994). 76. Hausman and MacKie-Mason (1988). 77. Hausman and MacKie-Mason (1988). 78. In modem competition policy analysis, priority is generally placed on the maintenance or promotion of interbrand competition (i.e., competition among separate brands) as opposed to intrabrand competition. This reflects a general perspective that restrictions on intrabrand competition often serve legitimate, efficiency-related purposes. See Carlton and Perloff (1994), chapter 13. 79. In a related vein, Lahouel and Maskus (1999), p. 33, observe that ‘it is impossible to place confidence in either the prescription for banning parallel imports or mandating that there be a free global regime in parallel trade’. 80. In particular, Article 6 of the Agreement states that ‘... nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights’. 81. See Anderson et al. (1998) and Dumont and Holmes (1999). 82. Malueg and Schwartz (1994). Page 263 →REFERENCES Abbott, Frederick M. (1998). ‘First Report (Final) to the Committee on International Trade Law of the International Law Association on the Subject of Parallel Importation’, Journal of International Economic Law, vol. 1, no. 4, pp. 607-636. Anderson, Robert D. (1998) ‘The Interface Between Competition Policy and Intellectual Property in the Context of the International Trading System’, Journal of International Economic Law, vol. 1, no. 4, pp. 655-678. Anderson, R. D., P. Feuer, B. Rivard and M. Ronayne (1998). ‘Intellectual Property Rights and International Market Segmentation in the North American Free Trade Area’, in Anderson and Gallini, eds. (1998), ch. 11.

Anderson, R. D. and N. T. Gallini, eds. (1998). Competition Policy and Intellectual Property Rights in the Knowledge-Based Economy (Calgary: University of Calgary Press for the Industry Canada Research Series). Anderson, R. D., P. J. Hughes, S. D. Khosla and M. F. Ronayne (1990). Intellectual Property Rights and International Market Segmentation: Implications of the Exhaustion Principle (Hull, Quebec, Canada: Bureau of Competition Policy Working Paper). Anderson, R. D., S. Dev Khosla and M. F. Ronayne (1991). “The Competition Policy Treatment of Intellectual Property Rights: Retrospect and Prospect’, in R. S. Khemani and W. T. Stanbury, eds., Canadian Competition Law and Policy at the Centenary (Halifax: Institute for Research on Public Policy), ch. 23, pp. 497-538. Areeda, Philip A. (1990). ‘Essential facilities: an epithet in need of limiting principles’, Antitrust Law Journal, vol. 58. Barton, John (1997). ‘Patents and Antitrust: A Rethinking in Light of Patent Breadth and Sequential Innovation’, Antitrust Law Journal, vol. 65. Canada, Commissioner of Competition (1999). Intellectual Property Enforcement Guidelines (Draft for discussion). Carlton, Dennis W. and Jeffrey M. Perloff (1994). Modern Industrial Organization (New York: Harper Collins). Chang, H. F. (1995). ‘Patent Scope, Antitrust Policy and Cumulative Innovation’, Rand Journal of Economics, vol. 26, pp. 34-57. Church, J. and R. Ware (1998). ‘Network Industries, Intellectual Property Rights and Competition Policy’, in Anderson and Gallini, eds. (1998), ch. 8. Page 264 →Corley, Richard F.D. (1999). IP and Competition Law: Enforcement Challenges of the Information Economy (Paper prepared for the Canadian Bar Association, Annual Conference on Competition Law, Ottawa). Correa, C. (1999). ‘Competition Law and Development Policies’, in Zaech, ed. (1999), pp. 361-394. Dumont, Beatrice and Peter Holmes (1999). The Breadth of Intellectual Property Rights and Their Interface with Competition Law and Policy: Divergent Paths to the Same Goal (mimeo). Gallini, N. T. and M. J. Trebilcock (1998). ‘Intellectual Property Rights and Competition Policy: A Framework for the Analysis of Economic and Legal Issues’, in R. D. Anderson and N. T. Gallini, eds., ch. 2. Gilbert., R. J. and C. Shapiro (1990). ‘Optimal Patent Length and Breadth’, Rand Journal of Economics, vol. 21. Gilbert, R. J. and S. C. Sunshine (1996). ‘Incorporating Dynamic Efficiency Concerns in Merger Analysis: The Use of Innovation Markets’, Antitrust Law Journal, vol. 63, 2 (Winter), pp. 569-601. Hausman, Jerry and Jeffrey MacKie-Mason (1988). ‘Price Discrimination and Patent Policy’, Rand Journal of Economics, vol. 19, pp. 253-265. Katz, Michael and Carl Shapiro (1994). ‘Systems Competition and Network Effects’, Journal of Economic Perspectives, vol. 8. Lahouel, Mohamed and Keith E. Maskus (1999). Competition Policy and Intellectual Property Rights in Developing Countries: Interests in Unilateral Initiatives and a WTO Agreement (Paper prepared for a WTO /World Bank Conference on Developing Countries Interests in a Millennium Round, Geneva). Malueg, D. A. and M. Schwartz (1994). ‘Parallel Imports, Demand Dispersion and International Price Discrimination’, Journal of International Economics, vol. 37, November, pp. 167-195.

Merges, R. P. (1998). ‘Antitrust Review of Patent Acquisitions: Property Rights, Firm Boundaries and Organization’, in Anderson and Gallini, eds. (1998). Palmer, J.P. and R.J. Aiello (1986). ‘International Technology Exchange: An Economic Analysis of Legal Proposals’, in John J. Quinn, ed., The International Legal Environment (Toronto: University of Toronto Press for the Royal Commission on the Economic Union and Development Prospects for Canada). Scherer, F. M. (1998). ‘Comment’, in Anderson and Gallini, eds. (1998), pp. 104 -109. Page 265 →Scotchmer, S. (1991). ‘Standing on the Shoulders of Giants: Cumulative Research and the Patent Law’, Journal of Economic Perspectives, vol. 5. Tom, W. K. and J. A. Newberg (1998). ‘US Enforcement Approaches to the Antitrust-Intellectual Property Interface’, in Anderson and Gallini, eds., ch. 10. US. Department of Justice and Federal Trade Commission (1995), Antitrust Guidelines for the Licensing of Intellectual Property (1995). US. Federal Trade Commission (1996). Competition Policy in the New High Tech Global Economy. World Trade Organization (1997). ‘Special Study on Trade and Competition Policy’, in Annual Report for 1997 (Geneva), chapter IV.

____________________ * Counselor, Intellectual Property Division, WTO, Geneva, Switzerland. Helpful conversations with Adrian Otten, Nancy Gallini, Fred Abbott and Peter Holmes are gratefully acknowledged. Parts of this article draw on material contained in a previously published article by the author entitled ‘The Interface between Competition Policy and Intellectual Property Rights in the Context of the International Trading System’, Journal of International Economic Law, 1998, pp. 655-678. The views expressed herein are the personal responsibility of the author and not necessarily those of the WTO or its Secretariat. Page 266 →

Page 267 →CHAPTER 16 A Short Note on Competition Rules in the WTO David Palmeter* Interest in the inclusion of competition rules in the WTO has grown in recent years as academics, antitrust practitioners, WTO officials and some government officials see the need for international competition rules. These proposals usually cover one or more of three distinct aspects of the notion of ‘international competition rules in the WTO.’ Some proposals emphasize one aspect, other proposals emphasize another aspect, and some proposals mix two or three of them. It is important to separate the three aspects when considering the pros and cons of international competition rules in the WTO. These aspects are: The need for international antitrust rules for antitrust purposes only. The problems usually cited include extraterritorial jurisdiction and merger control. Efforts at cooperation and harmonization center in the OECD. The need to substitute for antidumping rules. Many commentators have noted the differences between the two laws and the anti-competitive effects of the antidumping laws, and suggest that antitrust rules be substituted for antidumping. The need to further liberalize trade. The reduction of tariff barriers, it is said, makes private barriers to trade expansion relatively more important. Commentators see a need for rules that will ensure WTO Member enforcement of domestic competition laws on at least minimal points. Some commentators see a combination of a substitution for antidumping (aspect 2) and the need to further liberalize trade (aspect 3) as particularly desirable. The premise is that the inclusion of competition rules in the WTO will provide the basis for the substitution of Page 268 →competition standards for antidumping, if not for the elimination of antidumping. Some EU and US officials have viewed aspect 3 as a means of gaining leverage on other countries, as a means of ‘internationalizing’ Section 301. They see a need for both antidumping rules (in their present form) and antitrust rules backed by WTO trade sanctions. In the US, this position was taken quite strongly by President Clinton’s first Trade Representative, Mickey Kantor. However, the Antitrust Division of the Department of Justice soon learned of the position and quite quickly killed it within the Administration. The concern of the Antitrust Division was two-fold: first, the policy smacked of protectionism, and protectionism has never been particularly popular with antitrust enforcers. Second, and from the institution’s point of view more important, a policy that could lead to second-guessing by WTO panels of its decisions was not welcomed. USTR soon backed off its position. US lukewarmness for the idea has not killed it, however. The proposals continue. For the most part, they do not consider the practical question of how the existing WTO dispute settlement machinery would cope with disputes concerning competition issues. Clearly the present dispute settlement process could not begin to do the job. Major changes would be required to permit massive amounts of evidence to be obtained and processed. Those of us who have watched panels struggle with the massive records that now appear in just about every case shudder at the thought of an antitrust case before a panel. Moreover, even if the system were changed to permit panels to handle complex competition law cases adequately, the question remains as to what remedies would be available in the event that a member, for example, refused to order the rescission of a merger which a dispute settlement panel found to be contrary to WTO competition rules. Compensation or retaliation would be cumbersome remedies at best, and would have the effect of reducing competition even further – an odd result for a remedy to a competition law violation. But anything more than traditional compensation/retaliation would raise serious questions for many Members. All of this suggests that competition rules are a subject the WTO should approach with great caution, if it should approach them at all.

____________________ * Partner, Sidley, Austin, Brown & Wood LLP, Attorneys-at-Law, Washington, D.C., USA

Page 269 →CHAPTER 17 ROUNDTABLE DISCUSSION ON PARTS I AND II Transcript of Roundtable Discussion 27 August 1999, Bern, Switzerland

A. Gupta Let me interject something to the discussion. I mean, to tell you the truth I have a slight problem with the first part of the discussion. One of my favorite Posner writings is: ‘At the end of the day you need the judge and the judge is doing a creative function.’ I don’t buy this plain view about law and the legal process. If we disagree only about whether law exists or not, things would be much simpler. But there are problems when we [the judges] create more than legislation and go beyond existing treaty obligations. The law of treaties confirms this view. The Vienna Convention in Article 32 clearly states that in cases where the interpretation of the treaty does not provide a meaningful result, I then have to go back to preparatory work for further guidance. In the context of WTO, there was no need to reach this point I think that interpretation has remained within the bounds of the law. Some people have got a little bit scared, and I think unjustifiably so, by the way panels and Appellate Body have interpreted WTO law. Compared with other international fora, in particular the European Court of Justice, for example in the 1974 Dassonville case holding that any law which actually or potentially, directly or indirectly impedes free movement of goods goes against Article 30, the WTO jurisprudence has done a lot of respect of national sovereignty. When I criticize the WTO from the opposite direction actually, I say they are too reticent sometimes, they should have gone a little bit further and I think that if we want to have a meaningful discussion about world integration at the trade level we must acknowledge the creative function of the WTO judge.

Page 270 →F. Roessler I would like to make a few remarks on yours, on Jacques Bourgeois’ comments regarding democracy and ErnstUlrich Petersmann’s views on the quality of the WTO forum for different issues. I find the frequently heard reproach the WTO is not democratic, intellectually without any substance. The parliaments constantly delegate decision-making power to non-democratic fora. They create central banks, that are independent etc. Why do they do this? Because they know if they were to conduct monetary policies themselves, they would mess it up. That is not undemocratic. It is a democratic decision to transfer in certain issues to other fora which might produce results that the parliament prefers. I think we have observed something similar in the area of trade. The Smoot-Hawley Tariff Act of 1930 was a disaster. It was recognized to be a disaster by the United States Congress. Congress reacted by transferring the whole issue of trade policy-making to the president and the resulting international negotiations under the 1934 Reciprocal Trade Agreements Act, which is the historical origin of the GATT. Why was that done? Simply because the legislators recognized that trade policy decision-making is dominated by producer interests and by transferring them to international fora which conduct negotiations on the basis of reciprocity, you inject the producer interests of other countries and the overall result is more favorable to your own economy and to your consumers. So I do not think that this decision of parliaments to transfer certain issues to other fora including the forum of the WTO can be regarded as undemocratic. The real issue, however, in my view is, whether the beneficial transfer of decision-making power to the GATT that has taken place in the trade area generates equally beneficial results when intellectual property rights are transferred to the producer-driven organization. I have serious doubts about that. One would have to demonstrate that the world is somehow better off by linking access to the United States, Japanese, European and Canadian markets to the grant of intellectual property rights. Whether the results in the intellectual property rights area are better for humanity if decisions on these issues are taken in this forum, is the real issue. And I do not think that this problem has been sufficiently analyzed. I basically agree with the core of Ernst-Ulrich Petersmann’s paper which essentially says that in the trade area we can assume that the results of the decision-making will be improved but in other areas like intellectual property rights and human health standards etc. we cannot be sure that

the WTO will produce better decisions than national parliaments.

Page 271 →Ch. Bail I also have two comments on Ernst-Ulrich Petersmann’s paper or rather on the first part of it. I thought his presentation, which I had to privilege to listen to, but not to read the paper in advance, was extremely thoughtprovoking and in that sense it is very important to discuss that much more. I don’t think that democracy is the issue after all. WTO does not make laws there, it’s just proposing to have them ratified by national legislators. This is totally different from the EU context where the democracy debate is big issue because the EU actually makes laws. So I think any comparisons are a bit off the mark. What I think it does raise, however, is this whole question of positive integration vs. negative integration. What is the WTO about after all? We did have to debate and I participated in about six years of debating in the Uruguay Round whether or not TRIPs and GATS was or should be part of the mandate of the GATT or part of the scope of the GATT. We defended that it was. I must admit that our argument as far as TRIPs are concerned were much less stringent and coherent than our arguments on the GATS because after all the GATS key principles were about the same nondiscrimination, transparency and the process towards liberalization. TRIPs, on the other hand, was a totally different bargain -that was about positive integration if you wish; it was for very good, sound policy reasons about harmonizing legal monopolies which are potentially and competitive and anti-trade if improperly used as we all know. So the real question is, what after TRIPs, the mission of the WTO is or should be. I certainly have no answer to that. I don’t think there is an answer in the WTO. We have a general reference that there should be objective or sustainable development but what is it really? When I thought about it a little bit I was aware it should really be about the rules of the game of competition in a globalized economy. From that perspective and as Ernst-Ulrich Petersmann pointed out, maybe TRIPs or harmonization of intellectual property rights is less obvious an area to move into than in many other fields. Possibly, competition would be a much more obvious one. I would submit that also certain parts of environmental standards are possibly more obvious because they are to possibly internalize externalities or correct the disfunctioning of markets. So what is the real mission of the WTO in the longer term perspective? I think that debate has never really taken place, and I doubt whether it is really seriously taking place now before the next round because, after all, the GATT process has always been driven to a large extent by exporter and producer interests. That’s the rule of the game. But there is a bit of a pity that there is no sufficient public debate about what the WTO should be. For that reason, something like a quasi parliament or consultative committee for this kind of serious political debate would actually be quite useful. I would submit that Page 272 →such a debate should be about finding rules of the game for competition in a globalized economy. How much regulation do you need there? And then how does it interact with the rest of the international system? Here, I think the question of conflicts in the process of interpreting and applying international law and of coherence becomes really, really crucial. What Robert Howse and others have said, that whenever you do not have an overt and clear conflict – I would say a clear conflict within the WTO system, i.e. between GATS and TRIPs and the GATT itself, but just as much between the WTO agreement and other international agreements to which the GATT parties are also parties, or other rules in the general domain of public international law - there should be a clear understanding, a clear consensus that every effort should be made in particular in the context of the panel process and the Appellate Body that the GATT provisions are interpreted in a coherent way among each other but also with respect to other international treaties. As far as general principals of international law are concerned one could also follow to some extent the example of the European Court of Justice. This Court has not created human rights but has simply taken inspiration from the body of existing rights in the Member States of the Community to as an undercurrent to the interpretation of Community Law. The same type of solution could possibly apply in the cases which were cited by Ernst-Ulrich Petersmann. But there are other areas where it becomes perhaps even more important. Think about the interaction between environmental agreements and the WTO. We have in many fora very difficult discussions in particular between the European Community and the US or the other side of the Atlantic about whether or not environmental agreements should be isolated from or - however you want to call it - be subordinated to the body of WTO law. This falls under the subject-matter of the savings-clause. We argue that this would be extremely dangerous because international law would then be sort of cut into sectors. The trade people would do one thing and then

interpret the same type of thing in a total different way than it in the context of an environmental agreement to which also most of the countries of the world are signatories to. The Convention of Biodiversity, which we shall discuss tomorrow, is an example in point. Here again, the principle of neutral supportiveness of consistency must apply. This is perhaps one of the ways to overcome the problem of imbalance we are all a bit concerned about. Imbalance in terms of both, the strength of the WTO as compared to other treaties without a strong and efficient dispute settlement and enforcement mechanism and its provisions strongly penchant towards ideals of comparative advantage.

Page 273 →C. Braga I am actually going to ask some clarifications from the authors. Let me start with Ernst-Ulrich Petersmann. I find his presentation quite interesting, but I didn’t understand it. I was thinking maybe it is the jetlag so let me read the remarks, and I still don’t understand. So what I would like is a little bit of a clarification. When you say that positive integration law should be based on human rights are you suggesting that, as an objective, as a goal for the WTO we should put human rights at the very top, or are you suggesting that in terms of the instruments in order to achieve the goal in the trade field we have to be particularly careful with human rights issues. I would appreciate very much if you could explain what you have in mind. With respect to the other papers, the triangle of TRIPs, GATT, GATS and also implementing and enforcing TRIPs obligations, it is more a question, because I think that there are several areas of conflict that are tips of the ‘iceberg’ in front of us. I would like to hear a little bit more for instance from Adrian Otten who pointed out, that so few countries, thirty whatever at this point in time, have fully implemented the TRIPs obligations. We don’t know how, after 2000, the level of conflict, particularly with respect to enforcement issues, is going to increase. Actually we know that it is going to increase but how big is the demand going to be? I would like to hear a little bit about how your institutions are going to respond to this in terms of technical assistance? At the moment we are entering enforcement issues and we are talking tons and tons of money. We are not talking seminars we are not talking commenting on laws we are talking a whole different ballgame. So what is the perspective that you see ahead of us in how technical assistance in this area can be implemented? And Jerry Reichman could also comment on this. How would you see it be useful? Going back to the question of conflict, more specifically to the paper of Bill Davey and Werner Zdouc. I attended a meeting on Information Technology in the context of the World Economic Forum in Davos at the beginning of 1999. What called my attention in the discussion (and of course the discussion was carefully awaited by industrialized countries), was, that the only thing that people like Bill Gates and others were discussing, was privacy. Why is that so? Because from the point of view of the industry they see this as becoming a major issue from the point of view of potential conflicts. And what I would like to hear a little bit is how you see your nation in electronic commerce and the potential of discussions on electronic commerce in a potential new round. Well, we will have discussions on GATS where it is built in service liberalization. Countries that have much higher standards of privacy in their domestic laws are beginning to impose trade restrictions inside their space related to differential standards of protection to privacy, something that, as far as I can tell, the WTO has not Page 274 →dealt with up to now. What kind of issues do you see ahead in this area and what would be the suggestion to deal with this? To be very concrete, we know that with the new technology, mining companies in developing countries are being very successful in putting together database about consumer preference -and practices with no careful attention to issues of privacy. We can imagine in the future for instance companies in the European Union very soon trying to import this database without taking into account privacy considerations. What will happen then and how do you think this issue should be treated, if at all with the WTO?

J. Reichman A propos of Ernst-Ulrich Petersmann’s paper, whose aims I agree with, I had a question. But first an observation. It’s clear to me that the public interest sectors were underrepresented in the TRIPs negotiations because they were uniformly excluded from the developed countries’ delegations, and the developing countries were in no position to adequately represent them. Everything the latter countries said was seen as special pleading. In contrast, during the WIPO treaty negotiations in 1996, and notwithstanding the high protectionist aims of the US and the EU delegations, there was an inundation of NGO’s, of public sector representatives. They were both on the

delegations and outside the delegations, and they were a very powerful influence. The end result was a set of balanced treaties, WIPO I and II of December 1996. These were foundational treaties and balanced expressions of democracy. So I agree with you that WTO and TRIPs have a big public interest deficit, and they require an opening to these other interests, and also to the interests of small and medium-sized firms. However, I get nervous when, like Carlos Correa, you invoke this broad human rights tradition. In the human rights context, the traditional connection with intellectual property rights is to reinforce the natural property rights thesis, which is even more potentially protectionist than utilitarian Economic principles and which officially is not recognized in the United States courts. I submit that what we need is a ‘human rights of the public domain.’ In the end, the whole purpose of intellectual property rights is to expand the production of intellectual creations, which ultimately result in ownership by the public. But that gives the public an ultimate interest in those ownership rights and in access to the copyrighted culture. That public interest aspect may not be adequately captured in contemporary human rights provisions dealing with intellectual property, so I’m curious to know how you will make that link using a human rights approach.

Page 275 →R. Howse I wanted to respond, if only briefly, to Anil Gupta’s comment on creativity. Of course there is an element – an important element – of creativity in the exercise of adjudication. I think that the real question here is how it should be exercised. I think the appropriate exercise in creativity in the WTO context should include elements of sensitivity or even deference to domestic political, democratic outcomes and also that there should be a sense that whatever interpretations are developed accurately in the text, Article 31 of the Vienna Convention doesn’t say just ordinary meaning, it says ordinary meaning plus context and plus in a fact all relevant rules of international law. You yourself say, when you go to Art. 32, it is only in case of ambiguity or even absurdity. So what does this tell us? Does it tell us that there is judicial creativity? It tells us that in the first instance creativity is to be displayed in an interpretation that’s anchored in the text, but brings in a broader context. But when you raise Posner, I think you raise a bigger issue about traditional activism versus restraint. In the domestic context – except in some countries where there are entrenched bills of rights or constitutions that can easily be amended – if the creationary court goes too far, there is a fairly obvious democratic safety problem involved. That country’s democratic organs could basically overrule the decision of the creationary court by a democratic act. It happens all time in Canada, all the time in the United States. Now you have to ask yourself whether the Appellate Body of the WTO gets it wrong. Well, there you have to basically get a consensus of a much larger group of countries, in order to encounter at least a practical legal impact of the judgement in question. And I think it’s this reality that the language in the dispute settlement understanding reflects, that the interpretation process should not add or subtract anything to the actual obligations of the text.

A. Gupta I’m saying two things. First of all, if the Appellate Body gets it wrong, the WTO judgments remain ineffective. And second, and most important, the separation of responsibility of the national and international claim. You can very well, very legitimately assert that the Vienna Convention says you can do whatever you want, I pay remedy but I do not comply with the decision. But this is only one point. The second point is the most important: if the Appellate Body gets it wrong, what would be the repercussion? Now for the Appellate Body to get it wrong, it has to get wrong within a particular system, which does not give too much discretion to the Appellate Body. My point was simply that you cannot force the Appellate Body to not read an Page 276 →obligation to scientifically justify your TBT, when the agreement itself tells you when you do this, you must find the scientific basis.

M. Matsushita I just wanted to make two very brief points. One is in regard to Christoph Bail’s comment on the conflict of law situation within the WTO. I think you classify the conflict into two types. One is more like a direct conflict. If a law says for example ‘thou shall not commit adultery’, the other law says ‘thou shall commit adultery’. That is a

clear contradiction. But I don’t see much possibility for this within the WTO. There are maybe some, but that’s not a serious problem as far as the settlement of disputes is concerned. But there is another type which is an indirect or partial conflict. This is becoming more and more of a problem in dispute settlement these days. One of the examples I can think of is the recent Indian Quantitative Restriction case in which Frieder Roessler was involved. Now that this case is finished, I think we can discuss it. There, the panel stated that it had the jurisdiction over balance of payments matters. India argued that it is only the balance of payments committee [who has jurisdiction]. So this is the basic problem there and the Appellate Body upheld the panel’s view. I’m one of the three who did so, so I have to say that the panel was correct. But I haven’t said, and I have to admit, that due to both the panel’s and the Appellate Body’s ruling, the use of balance of payments committees has declined quite a bit, because nobody wants to go to a balance of payments committee anymore. Committee decisions are taken by consensus. If you go to a panel you have automaticity. Thus everybody opts to go to a panel rather than a balance of payments committee. This is not a direct head-on collision, but rather a type of indirect collision. Another good example is probably the Canadian Periodicals case. The GATT and GATS were amongst the issues there. Again the question there was, whether Canada could say that they had the right to retain restrictions under the GATS. The panel came to the conclusion that this can’t be done under the GATT. It is clear that this type of conflict exists. As time goes on, more and more of these types of conflict are likely to become apparent and my suggestion is that at some point in time the necessity to establish some kind of review committee will arise. My guess is, that when the Uruguay Round was negotiated, they just didn’t have time to think about any of these issues. Now the WTO system has been established, these kind of disputes are inevitably popping up. These are just some of the problems we face, and this is one of two areas that I just wanted to mention. The other is about Anil Gupta’s comment about creativity. You may have noticed that in panel and Appellate Body reports, especially in AB reports, one can discern the tendency to go with the literal interpretation of Page 277 →the wording or text [of an agreement] and I’m not sure whether you are saying that this constitutes a lack of creativity. In any event I think there is a reason for this. The reason is automaticity (both panel and Appellate Body reports are adopted automatically). Now if this system gets it wrong, what are you going to do? In national legislation you can change the law. In a national jurisdiction, you would have the legislature which would act to change the law. But WTO law cannot be changed so easily. This puts some constraint, I think, on the activities of the Appellate Body and the panels, but especially on those of the Appellate Body. And so the safest way is to go is with a literal interpretation of the wording or text [of an agreement]. Thus you have the two elements of the wording and the context [of an agreement]. Any consideration of the [agreement’s] objective is actually quite risky and referring to [an agreement’s] preparatory work is even riskier. So you attempt to avoid these two risky avenues and stick to the wording and context [of an agreement]. This is the reason behind the literal approach. I’m not saying it’s necessarily good, I’m just pointing out the logic behind it. And I think in the long term, the views of panels and the Appellate Body may become more Firmly established and this might change. But I think this tendency is going to continue for quite a while at least.

T. Cottier I just wanted to offer a comment on the relationship of human rights and intellectual property as addressed by Ernst-Ulrich Petersmann. It is true that some positions on IPRs are inherent in human rights conventions, but the fundamental question is, whether the concept of IPRs as a whole is actually prone and suitable for a human rights approach. I think the question is, what is the legal implication of defining something as a human right. And I think it means adopting a very tough and hard position which you cannot easily restrict, for example, if we think about freedom of the press or other areas. I think what one will have to examine when one applies human rights concepts to IPRs, is, what are the implications that you can then hardly restrict these positions, for example in the light of competition policies. Do you want to give a predominance to IPRs as opposed to other policies here? I can see some areas where you have a truly personal, individual touch, for instance moral rights of individual authors and producers as artists. But I have very serious doubts whether patents for example, which are used by basically legal entities, by huge companies, should be defined in these terms. So I think we should reassess this after tomorrow’s debate when other areas and policies also do come in here. Maybe one more thought: I had the impression that it’s the fact that these are private rights, that leads you to think that they are Page 278 →individual

rights, but if we look closely enough, the distinction between private rights and public rights applied to individuals is probably very relative. When you have removal of a trade barrier you have a right, there is a principal not to have quantitative restrictions that equally and in effect operates as an individual right of economic operators, although it’s never been defined as a private right.

E.-U. Petersmann I just want to react to the comments made by Jacques Bourgeois who seems to have misunderstood my paper. First, I have never said that GATTAVTO rules should be superior to national parliaments. The ‘constitutional approach’ emphasized in my publications states the opposite: The legitimacy of GATTAVTO rules derives from their ratification by national parliaments and from their ‘human rights functions’ to protect individual freedom and non-discriminatory conditions of competition across frontiers. GATTAVTO rules also serve ‘constitutional functions’ by helping national governments to limit ‘constitutional failures’ in national policy-making processes. Thus, the 1934 US Reciprocal Trade Agreements Act and subsequent ‘fast track legislation’ changed domestic decision-making processes about trade policy so as to prevent a repetition of welfare-reducing Smoot-Hawley legislation by authorizing (1) reciprocal international tariff liberalization by the Executive; (2) international prohibition of non-tariff trade barriers (e.g., through GATT rules); and (3) parliamentary ‘fast-track’ approval of the results of reciprocal trade agreements. In my 1991 book on Constitutional Functions of International Economic Law, I describe that also many other international guarantees of freedom, non-discrimination, rule of law and monetary stability serve similar ‘constitutional functions’. But this does mean that trade policy-making in GATT, monetary policy-making in the IMF and through national central banks, or the UN and NATO collective security systems, do not require parliamentary control. The opposite is true and has always been emphasized by myself: Democracy requires parliaments to become more actively involved in controlling and supporting international guarantees of freedom, non-discrimination and rule of law. A second misunderstanding by Jacques Bourgeois relates to international policy-making powers. I have always emphasized in my writings the dangers of conferring policy-making powers to international institutions that are not adequately constitutionally constrained. For example, my paper criticizes the producer-bias of GATT and WTO negotiations, as illustrated by the one-sided focus of the TRIPs Agreement on producer interests and by the lack of adequate WTO rules for the protection of consumer interests and of undistorted competition. GATT and WTO have quasi-judicial powers for the Page 279 →settlement of disputes on the basis of existing law. But GATT and WTO negotiations on new rules rightly depend on ratification of international draft agreements by national parliaments. Of course, WTO negotiations on e.g. sanitary standards imply policy problems which require careful consideration and democratic decision-making at the national level; it is also true that, if parliaments fail to influence and supervise international negotiations e.g. in the WTO, such government failures may be difficult to remedy after the draft agreement has been signed at the international level and is being submitted to national parliaments for ratification. My paper therefore emphasizes the need for more effective democratic control of WTO negotiations and for protecting general citizen interests by ‘mainstreaming human rights’ into positive integration law. Similarly, my arguments in favor of WTO competition and environmental rules aim at protecting citizens and their human rights more effectively against widespread government failures as well as market failures. But such WTO rules must be negotiated subject to close scrutiny and approval by national parliaments. My paper argues against transferring policy-making powers to the WTO. The third criticism by Jacques Bourgeois seems likewise misplaced. I see no contradiction between my argument mat reciprocal tariff liberalization by producer-driven GATT negotiations have produced results that have increased consumer welfare; and that producer-driven WTO negotiations outside the tariff area risk to focus onesidedly on rules that favor the interests of powerful producers (e.g., in protection of intellectual property rights visà-vis ‘parallel imports’) without adequate regard to consumer interests (e.g., in competition and environmental WTO rules). ‘Positive integration law’ in the EC rightly includes guarantees of human rights, competition law, environmental law, social and labor standards which can serve as a model for future ‘positive integration law’ in the WTO. But the example of the EC also tells us that such positive integration rules will not come about if WTO negotiations continue to be one-sidedly ‘producer driven’ and if domestic courts continue to ignore the WTO rules ratified by national parliaments.

This leads me to the question by Carlos Braga on the relevance of human rights. In constitutional democracies, it is recognized long since that human rights serve different functions, for instance as (1) objective legal principles and sources of democratic legitimacy, (2) policy objectives, and (3) individual rights of a defensive, participatory or redistributive nature that constitutionally limit government powers. One important lesson from EC law is that ‘mainstreaming human rights’ into integration law may be achieved by references to national human rights law (see, e.g., Article 295 EC Treaty on national ‘systems of property ownership’) and to existing international human rights instruments (see, e.g., Article 6 EU Treaty referring to the European Page 280 →Convention on Human Rights). ‘Positive integration law’ in the WTO will rightly be criticized by citizens and civil society groups as long as WTO rule-making processes continue to be dominated by one-sided producer interests and by the authoritarian premises of classical international law (e.g. the Hobbesian premise that governments and secret diplomacy will maximize the public interest of the citizens). These authoritarian premises have been clearly refuted by the historical experience of governmental failures and are increasingly being overcome at the national level in constitutional democracies. WTO negotiations on positive integration law are unlikely to succeed unless they protect general consumer interests and human rights more effectively. I agree that the references in UN human rights instruments to intellectual property rights raise many questions about the proper balancing of producer interests and consumer interests. Yet, the future WTO jurisprudence on the TRIPs Agreement risks to be criticized as illegitimate if it fails to take into account that, as stated in the Preamble to the TRIPs Agreement, ‘intellectual property rights are private rights’ whose interpretation and limitation requires due regard to the human rights of all citizens. Likewise, WTO authorizations of ‘cross retaliation’ and of suspension of private property rights need to take into account that such ‘taking of private rights’ must respect constitutional safeguards. Unlike traditionally secret tariff negotiations in GATT, WTO negotiations on positive integration law must respond in a transparent and more democratic manner to the ‘clash of civilizations’ between modern constitutional democracy and state-centered classical international law that has to be adapted to the needs of human rights and of global markets.

B. Davey I would agree with most of the comments we’ve made about the paper we will try to improve it. I would agree in particular with the comment of Rob Howse. The first thing you do in a case of a conflict is to try to avoid finding that there is a conflict and that’s something that you do approach. There is a presumption against conflict particularly when you are dealing with the WTO agreement which was put in place all at the same time. I would also agree with Mitsuo Matsushita that the main problem we are having now, are indirect conflicts, not these direct conflicts that ‘thou shall do this or thou shall not do that.’ As to the question that was asked whether there is an explicit exception in GATS Article 14 c) for privacy protection. It’s not explicit I believe. I think though what the industry is going to be concerned about is to have a harmonized system. But the fact that we would allow some sort of protection Page 281 →of privacy in WTO rules isn’t going to solve their problem if they are competing in different systems and I’m not sure if there is any interest in the WTO getting into harmonization. I suspect that will take place somewhere else.

W. Zdouc I obviously agree with the interpretation or with the view taken by Jacques Bourgeois or then later on by Mitsuo Matsushita that in the cases of permissive rules and prohibitive rules there’s an obvious solution to this that you would want to interpret rules in a way that consistent application is possible. Yet, we saw that this interpretation developed in the Bananas case amounted to an abuse in another case. In the Indonesian Car case it led to immediately argue in favor of a disciplinization of the whole agreement. Here, the application of the national treatment clause was used as an argument to discipline the whole subsidies agreement. I think in the end of the day these partial conflict cases will require lots more thought and probably we can’t do much more than case specific solutions. I also wanted to refer to Anil Gupta’s point on creativity. You can’t push the effective treaty interpretation so far as to read more into treaties than is actually written there. The ICJ itself has in several cases referred to this point. In my view, the EC approach could be helpful. It would be very favorable if the commentators could inspire us

with the three pillars of the EC and develop how delimitation between goods, services and capital movements work there and whether some inspiration for WTO could be found. But in the end of the day, also referring to Carlos Braga’s comment, electronic commerce makes it clear that maybe the WTO three pillar approach of negotiating three different agreements might be justified for TRIPs. But for GATT and GATS it’s a debatable concept in the first place, and if we go back to the limitation, the dichotomy that Jacques Bourgeois has developed on conflicts in application and conflicts that are made by the rule-makers, I think we really deal here with the first category of failure by rule makers, failure by negotiators.

J. Bourgeois First, I want to reply to Ernst-Ulrich Petersmann’s comment that the WTO only makes rules and not policy. Well, I’m sorry. Once you start for instance negotiating about harmonized rules on health protection, how can you do that without developing a health policy? Page 282 →I would also like to reply to Frieder Roessler. I think we agree. I said that once you start embarking on positive integration, you can no longer be satisfied with the system, where legislating is done by a bunch of diplomats and then everything is sent down to a parliament. It doesn’t work anymore, once you start with positive integration. Your example of trade policy towards tariffs and QRs is something else. That you can imagine. But once you embark on other matters then you can’t do it like that anymore and you basically have to agree with me. Finally I would like to reply to Christoph Bail, who expressed the view that, OK it is the diplomats who negotiate, but parliaments have the last word, because it is ultimately they who must ratify: The German parliament, in ratifying the results of the Uruguay Round, had two hours of debate. Ladies and Gentlemen was this because it was not important? Or was this because they knew that they couldn’t do anything about it anymore? The role of parliaments in that situation is zero! And they know it. And that is something that doesn’t work properly, I would say.

Page 283 →Part III: Intellectual Property, Genetic Engineering and Sustainable Development Page 284 →

Page 285 →CHAPTER 18 Intellectual Property, Biotechnology, and International Trade: Two Examples John H. Barton* Intellectual property law has been extremely important in both pharmaceutical and agricultural biotechnology, and both sectors are highly research intensive. Nevertheless, the two sectors have evolved quite differently, domestically and internationally. Hence they provide a useful contrast in thinking about the agenda for future WTO negotiations.

1. The U.S. Domestic Industrial Structure in the Two Sectors The extension of patents to life forms in Diamond v. Chakrabarty, 447 U.S. 303 (1980), was important to both sectors, but intellectual property patterns in the pharmaceutical and the agricultural biotechnology sectors have since evolved in quite different manners, reflecting the different economic and technological factors shaping the sectors. Pharmaceuticals The pharmaceutical sector had long been dominated by large firms which maintained the key capabilities for managing the product approval processes needed in this sector and for the marketing of the drugs. These firms depended heavily on product patents; each of their specific products was often a monopoly for a particular indication, enabling them to recover the product approval costs over the patent period. At the expiration of the patent rights, the products could also be produced by generic manufacturers, and the prices Page 286 →would fall. This type of patent, typically on a novel compound or its use, has, of course, long been available in the United States as well as most other developed nations. It is the poster child of the patent system – the undisputed example of success of the intellectual property system in encouraging innovation. The advent of biotechnology led to change in both research paradigm and industrial structure. The candidate compounds considered by the traditional pharmaceutical industry derived from sources such as soil collections and organic chemistry; those considered in the biotechnology era have, at least initially, derived from the human body itself. Many were human proteins that were present in nature in very small quantities, but could be produced in abundance through biotechnology. And much of the underlying science was developed in university laboratories. The universities had research funding provided by the National Institutes of Health (NIH), and they held rights over the research under the Bayh-Dole Act.1 They would often license the new technology not to a pharmaceutical major but to a venture-capital funded biotechnology startup, which would then develop the product, often, of course, adding significant inventions of its own. A very early generation of firms, e.g. Genentech and Amgen, were able to evolve into something close to full-service pharmaceutical firms in this pattern. Very quickly, however, it became apparent that few of the start-up firms would be able to create the necessary product approval and marketing capabilities. However, they were still often able to obtain rights over a technology (still frequently a technology developed in a university), and then to enter strategic alliances with the pharmaceutical majors. The start-ups would contribute their research capability and certain of their research results and receive in return a combination of current funding and royalties on ultimate products; the pharmaceutical major would carry out the large-scale trials and regulatory approval processes, as well as provide the marketing capability. This has become an enormously successful pattern, building on the different capabilities of the universities and the two types of firms. Clearly, exclusive rights over the products have been essential to make this process work. Some have derived from the patent law’s willingness to protect purified natural proteins and the gene sequences for proteins; others came from orphan drug legislation.

As NIH scientific support continued and increasingly basic inventions or discoveries were made and patented, the process evolved further, and in a way that may lead to intellectual property gridlock. A number of very basic inventions, whose value is essentially entirely in product development, have been made and have been granted patents; in many cases, there was initial doubt as to patentability, but the doubts have regularly been resolved in favor of patentability (at least by the Patent and Trademark Office). Thus, the transgenic research mouse designed as a laboratory model for cancer studies Page 287 →was developed at Harvard under NIH funding, patented, and licensed to DuPont, which has sought strong controls over it and other forms of modified mice.2 Concentrated stem cells, which are undifferentiated or partially differentiated cells that can develop into a number of other cell types, have been patented in the United States.3 Partial gene sequences, including ‘expressed sequence tags’ or ‘EST’s, which are components of genes being expressed at a particular time, can now be sequenced by machine. NIH initially sought to patent such sequences and then decided it was a bad policy, but at least one such patent has now been issued.4 Start-up firms have built businesses around these patents. For example, SyStemix, which holds the stem-cell patent just discussed, operated (until it became a subsidiary of Novartis) through strategic alliances with pharmaceutical firms to help identify potential products relevant to the immune system, Incyte has developed genomic data bases, obtained patent rights on particular ESTs, and is marketing genomic information to pharmaceutical firms. Affymetrix has developed techniques of obtaining genomic information through matrix arrays (similar to computer chips), and holds a patent on certain single nucleotide polymorphisms (SNPs).5 These are ways in which the genomes of different individuals differ; knowledge of them can be significant for identifying susceptibility to specific genetic disease or conceivably susceptibility to particular drug side-effects. Other firms concentrate on randomized or evolutionary methods of creating new compounds or on computer capabilities to model shapes of biological compounds and of possible drugs to interact with them. The emergence of these firms has led to a new industry structure in which the firms controlling research techniques provide information to pharmaceutical firms, which use the information in identifying new product candidates or in designing their clinical trials. The start-up or ‘platform’ firms market the information to the pharmaceutical firms through strategic alliances. They are funded by venture capitalists, who seek to obtain an ultimate return by selling the company to a large firm or by selling the company to the public through an initial public offering (IPO). The companies, along with universities, may seek to exercise their patents rights by the threat of litigation at the time a product derived from the unlicensed use of the techniques reaches the market, or by licensing use of the technique, often in return for ‘reach-through royalties,’ i.e. royalties against the final products that might be developed from the research. In some cases, these firms bring substantial benefit, and are responsible, for example, for sequencing of genomes years earlier than they would otherwise have been sequenced. On the other hand, certain of their patents may effectively foreclose other firms from entire areas of research. Moreover, university researchers or pharmaceutical firms face a formidable task in evaluating the various third-party patent claims and obtaining the necessary legal rights to Page 288 →market a product or technology, or even simply to carry out research.6 In response to the risk its members see in patenting of SNPs, an international consortium of pharmaceutical firms has emerged to identify and publish as many SNPs as possible and to ensure, to the extent possible, that they remain in the public domain.7 Recognizing, of course, that patents on finished products remain crucial to the industry, it is, at this point, the vertical tension among the various sectors of the research process that is posing an extremely significant intellectual property issue in the pharmaceutical sector. Agriculture The agricultural evolution has been quite different. Here, before the biotechnology revolution, a significant portion of the research was conducted in the public domain, mainly in the land-grant universities. Early on, these universities simply provided the seeds to farmers. About mid-century, the use of hybrids took over in the corn belt. Because it is impossible for a farmer to replant the harvest from these seeds and obtain an economically acceptable crop, seed firms have long had a biological form of proprietary protection, based on their control of the parental lines from which the marketed seeds are grown. Based on this incentive, a strong private sector maize seed industry emerged in mid-century. Further incentives were provided to the private sector in 1970 when plant

variety protection was inaugurated in the United States.8 Although much of the initial work in agricultural biotechnology took place in the public sector (parallel to that on the pharmaceutical side), the intellectual center of gravity quickly moved to the private sector, beginning with start-up firms. For example, firms like Agracetus, Mycogen, and Calgene, started with venture-capital funding, sequenced particular genes or perfected particular methods of transferring the genes into plants. Their strategic alliances were with a variety of entities, e.g., with seed companies which would have a marketing network, or with food processing or agricultural chemical companies, which would have both significant capital and reason to support the introduction of particular traits into plants. Obviously, the ability of these firms to raise capital depended heavily on the availability of patent rights on the specific genes they proposed to use. But, as it turned out, the patent structure went much further. As with research tools, very fundamental methods and tools were patented, e.g., the promotors that are inserted into plants along with the new substantive genes and that encourage the plant to express these substantive genes. Moreover, the patents overlapped in a way not found in the pharmaceutical industry. For example, claims covering the use of transgenic Bacillus thuringiensis (Bt) maize (a maize that contains a gene from a bacterium that kills insects) have been awarded (a) to the first firm to clone the Bt gene, (b) to the first firm to put it in any plant, and (c) to the first firm to put it a crop plant. Not surprisingly, Page 289 →there has been incredible litigation as the market for these products has taken off.9 In part as a result of this litigation, integration of the industry has proceeded at an incredible pace. Undoubtedly, the integration is also in part a result of the need to combine biotechnological research with traditional breeding and with seed marketing operation large enough to permit amortization of the research expenditures. Moreover, in some cases, integration may appear more effective than strategic alliances in order to achieve effective cooperation among the different scientific groups involved. Perhaps also, the mergers are a result of the specific acquisition strategy chosen by Monsanto, one of the leading firms. (And these acquisitions provided an exit for the venture capitalists who funded the start up.) But, almost certainly, the mergers are in part a result of the need to settle or avoid patent litigation. The result is that the biotechnology start-ups are now essentially all integrated into a few multinational firms, which have themselves merged. (See Table 1.) Table 1. Some Recent Acquisitions in Agricultural Biotechnology (1996-1999). A ventis PGS (Belgium) Agr-Evo [Hoechst (Germany) + Schering (Germany)] + RhoneCrop Cargill Poulenc (France) Science (US seed operations) Dow Eli Lilly (US) + Dow (US) Mycogen (US) Elanco DuPont Pioneer (US) (US)

Monsanto (US)

Novartis Sandoz (Switzerland) + Ciba-Geigy (Switzerland)

Agracetus (US) Asgrow (US) Cal gene (US) Cargill (international seed operations) De Kalb (US) Holdens (US) Syngenta

Source: Barton Page 290 →These firms have a strong-enough patent portfolio to bar entry by anyone else; there are, however, some new start-ups marketing plant genomic capabilities to the majors through strategic alliances similar to those in pharmaceutical genomics. The reasons why antitrust authorities have rarely responded is not clear10 – perhaps it is because antitrust theory has not yet reached consensus on how to evaluate mergers that assemble large packages of rights over very basic technologies, but may not affect competition in any specific market for an already

existing product.11 The result, in any event, is global oligopoly, currently consisting of five firms. And it is the wisdom and future of this form of technological oligopoly that poses the dominant intellectual property issues in agricultural biotechnology.

2. The International Industrial Structure: Trade and TRIPs The trends just described have taken place in a global context. To clarify the similarities and differences among the global structures of the industries, it is useful to ask four questions about each sector and the role intellectual property plays in it: (1) To what extent has the industry’s corporate and research structure become integrated within the developed world (and in particular the United States, Canada, and Europe)?12 (2) To what extent has the industry’s product market become integrated within the developed world? (3) What is proving to be the impact of intellectual property rights on the market for the industry’s products within the developing world? (4) What is proving to be the impact of intellectual property rights on the industry’s research and industrial structure within the developing world? Pharmaceuticals The research and industrial structure of the developed-world pharmaceutical industry has effectively forgotten national boundaries. More so than in any other sector, research may be performed in one nation for the benefit of a corporation whose headquarters in located in another nation. For example, in 1994, about $ 4.5 B of pharmaceutical R&D was performed in the United States by affiliates of foreign firms, mainly from the UK and Switzerland, and roughly $1.9 B was performed outside the United States by foreign affiliates of U.S. firms.13 The strategic alliances that were described above between start-up firms and pharmaceutical firms are just as likely to be transnational as national.14 They clearly reflect the relative technological and managerial capabilities and needs of the firms rather than the nationality of the firms. Thus, the mergers that have occurred in the pharmaceutical industry (significant, but at nowhere near the relative level of those in agricultural biotechnology) include mergers of firms from one nation and mergers of Page 291 →firms from several nations, reflecting the matches among firms rather than the nationalities of the firms. (See Table 2.) Effectively, then, there is a single developed world health research community, and research investment and collaboration decisions are taken with no reference to national borders. Presumably, therefore, fundamental capability factors like the character of university and publicly sponsored research play a more important role in shaping the location of the biotechnology industry than do factors like distance from markets or the relatively minor differences in intellectual property protection that will be noted in the next paragraph.15 Table 2. Some Recent Pharmaceutical Mergers (1999). Roche Holdings – Genentech Switzerland, US Institut Merieux – Conn aught France, Canada Merieux-Connaught – Rhone Poulenc France Hoechst – Marion Merrell Dow Hoechst – Rhone Poulenc Glaxo – Wellcome Upjohn – Pharmacia AHP – American Cyanamid Ciba-Geigy – Sandoz Zeneca – Astra

Germany, US Aventis Germany, France UK US, Sweden US, US Novartis Switzerland AstraZeneca UK, Sweden

Source: Barton The firms have also been reasonably successful in integrating the developed world into a single product market. There are certainly barriers. The most important are independent regulatory regimes, potentially leading to different product approvals in different markets, but there are major harmonization and mutual recognition efforts

to overcome and weaken these barriers.16 Similarly, there are some differences in relevant patent policy between the different regions, but these differences are minor, and firms generally act in a way that recognizes the importance of the U.S. market (which grants some patents that may not be available elsewhere) and the need to be able to file in Europe (which requires filing before publication and lacks the U.S. one-year grace period). And patents on production processes have had only mixed success in building barriers against imports.17 The most important differences among the different nations are significantly different reimbursement policies of government health services. In spite of these barriers, there is functional market integration, in the sense that a pharmaceutical product developed for one market will normally be submitted for product approval in all developed-world markets, that the approval decisions will normally be consistent among the different developedworld markets, and that manufacture in one market will be acceptable for supply of Page 292 →other markets. Thus, research investment decisions can be made with a view to economic return in the entire developed-world market. Because of price regulation by national health plans in Europe and the large unregulated market in the United States, however, it is the U.S. market in which the largest profit, by far, is available. The U.S. patient or employer (acting through a health care plan) pays a predominant share of the costs of world pharmaceutical research, and the patients in other nations pay a significantly smaller share of this cost.18 In the developing world, the shaping questions with respect to product marketing are those associated with the TRIPs Agreement. About a generation ago, many developing nations chose to place low product costs above incentives to research, and enacted policies that prohibited patents on pharmaceuticals. What emerged, of course, as in a scientifically sophisticated nation such as India, was a low-price market supplied by local firms whose expertise lay in manufacture of products copying those in the developed world. The low prices constituted an important benefit to consumers, although, in at least some nations, these low prices were accompanied by low product quality. Now, under the TRIPs Agreement, all WTO nations must have patent systems or exclusive marketing systems to protect pharmaceuticals by 2000. A number of nations have already complied, e.g. Korea in 1986 (acting under U.S. pressure rather than the legal need to comply with TRIPs), Brazil in 1996, and, most recently, India in 1999. What can be expected to happen to pharmaceutical prices in the nations that have recently changed their laws? The most careful analysis found suggests that no one really knows, 19 and it is certainly true that many of the most important pharmaceuticals are now off-patent, so that there should be no effect on these prices. The pharmaceutical industry points to the example of Italy, whose patent law was changed in 1978 to protect pharmaceuticals, and where prices rose subsequently only at rates comparable to those in the rest of western Europe (i.e. at about the same rate as in Germany but at about twice the rate of France).20 And a recent study sponsored by the international pharmaceutical industry looked at a number of nations and found no effect, attributing this result to a combination of competition, single buyer systems, and price regulation, as well as a sense that patent protection would most affect prices of drugs to be developed in the future.21 Further, a Canadian government study suggests little price impact associated with that nation’s elimination of compulsory licensing in 1993, but the same act strengthened the nation’s price control process.22 Cutting in the direction of greater concern about prices, it is clear that the industry is extremely unhappy over South Africa’s 1997 legislative changes to allow compulsory licensing and parallel imports.23 Prices have been lower in nations such as India in contrast to developed nations. And it is clear that prices in developed nations fall when products go off patent24 Although it is very difficult to reach any conclusion Page 293 →with great confidence, the evidence suggests that prices are likely to go up some – but more likely by increases such as 50 % than by increases of several hundred percent. Moreover, they can be controlled. But, if the news for consumer prices is less negative than might be feared by consumers, the news for research focus and national industry structure is all bad. First of all, the studies suggest significant difficulties for local industry when patent protection is extended to pharmaceuticals. The Italian example is sometimes held up as a positive example, because an industry did evolve within the nation’s borders – but the lessons must be read very narrowly.25 The domestic firms did not modify their research to undertake the development of new products; some were acquired by multinationals; and the nation ended up with a high level of foreign control of the industry. And in Korea, the evidence shows that the market values of domestic firms fell significantly with the adoption of pharmaceutical patent protection.26 It is too early to report on anything but an intuitive sense of what is happening in Brazil and India; in both cases, it seems likely that there will be a number of acquisitions of domestic firms by

multinationals. And it is not clear how much independent direct investment will occur.27 What is much more disturbing, however, is the fact that the multinational industry, even with the potential of local acquisitions, does not, at this point, seem interested in conducting research oriented toward developing-world disease. (If, of course, prices really are not likely to rise in response to intellectual property rights, this is an economically rational position.) Thus, in the pharmaceutical sector, TRIPs appears likely to lead to the absorption of the independent developing-world industry and to make entry by new developing-world firms more difficult – but, at least so far, without offering the benefit of incenting research toward new products oriented toward developing world needs. Agriculture The industrial structure and research pattern in agriculture is readily described – integration within the United States, Canada, and Europe is just as intense and profound as that in the pharmaceutical sector. The concentration described above is a concentration of multinationals. Mergers of majors are often cross-border, as are acquisitions of new biotechnology firms. But the developed-world product markets are far less harmonized and integrated than those in the pharmaceutical sector. This derives from the broad differences between Europe and the United States with respect to the safety of transgenic organisms and transgenic food. There has been rough general harmonization in the intellectual property laws affecting transgenic agriculture, although the United States is certainly more willing to grant patent protection in certain areas than are European systems. But there is no Page 294 →similar harmonization in the biosafety and environmental issues associated with agriculture. Even though the scientific community is, on the whole, convinced of the environmental and health safety of the transgenic products currently in use, there has been enough environmental and consumer opposition in Europe that Europe has built significant regulatory barriers to trade in both seeds for transgenic agriculture and the products of that agriculture. Hence, this has not become an integrated market. Rather, it is the United States market (and a few others such as Argentina) that must provide the economic incentive for research – and the possibility that transgenic crops grown in the United States may become difficult to market internationally could terminate the entire agricultural biotechnology enterprise. For the developing world, the ‘traditional’ agricultural research pattern was quite different from that for pharmaceuticals. Since World War II, there has been only limited public or private sector research in the developing world for pharmaceuticals – rather the region has gained the benefit of products developed with a view to a developed-world market, and has essentially no products otherwise. But over the same period, there was a major public sector seed breeding program oriented toward developing-world needs, carried out by a combination of international institutions (such as the International Rice Research Institute and the International Center for the Improvement of Wheat and Maize), of national agricultural research programs in the developing world, and of some developed world institutions, including, in particular, a number of U.S., European, and Commonwealth universities. The combination made its research available at essentially no cost, typically distributed through national extension systems. It was extremely important and was responsible for the ‘Green Revolution.’ A number of pressures have also led developing nations to open their markets to seeds imported by or locally produced by the global firms. For those nations involved in export agriculture, it has been essential to obtain global varieties. By the 1980s, farmers in some nations were demanding the multinational varieties, because they regarded them as better than the local public-sector ones. Use of hybrids made the markets appealing, and, even before being required to do so by TRIPs, developing nations have been passing plant variety protection systems. Budgetary pressures and the global trend toward privatization also led many developing nations to turn toward private sector seed firms. Obviously there is fear of increased prices as a result of these new proprietary rights – however, the possible availability of public-sector varieties and the difficulty of imposing a very substantial markup in a sector where margins are as low as they are in agriculture suggests that price concerns in this sector are probably less serious than those in pharmaceuticals. The industrial structure is evolving parallel to that in pharmaceuticals. With biotechnology, the regular patent law has become relevant in addition to Page 295 →plant variety protection, exactly as in the developed world. And the multinationals are moving in and acquiring all local firms in sight, in exactly the pattern of the pharmaceutical

industry. Seed companies throughout the world are being bought up. The multinationals are also entering strategic alliances with the various developing-world public sector research entities, which are becoming concerned with their freedom to operate in a high intellectual property environment. But there is a surprising and important difference from the pharmaceutical sector. In the agricultural sector, the multinationals are interested in doing research, especially on major crops, for the special needs of the more wealthy part of the local market. Already, there is research oriented toward marketing of transgenic wheat and maize seed in such nations as Argentina and Brazil, as well as towards future markets, such as transgenic rice throughout Asia. Thus, the intellectual property system is, in this case, genuinely incenting research for the benefit of developing nations.

3. Reflections First, it is important to consider why the two sectors differ so – and this is important for evaluating the extent to which the lessons of these sectors are likely to be generalizable. Why, in the first instance, have the key issues in pharmaceuticals become vertical issues regarding the structure of research while those in agriculture are horizontal issues regarding the role of intellectual property in creating an oligopoly? One important group of relevant factors includes industry history and scale. The pharmaceutical firms were slower to recognize the importance of the new technologies, their internal research capabilities were difficult to adapt, and the industry was big enough to support a substantial number of firms providing development support to the majors. (The entire U.S. biotechnology industry has less revenue than Merck.28) Seed revenues could not support such a complex structure. Another type of factor is that the character of the patents has been radically different. So far, at least, only in agriculture have there been significant conflicting patents that cover the entire market and can be effectively asserted against a new entrant. There is, of course, a significant possibility that the emerging mesh of fundamental and research tool patents will lead the pharmaceutical industry in the same direction – a Canadian study has already noted concerns about ‘broad blocking patents.’29 And, there is an implication that similar centralization will occur in any industry characterized by many overlapping patents – as is the trend, for example, in business methods and software. A second important difference between the two sectors is that agriculture has taken developing-nation research needs into account, but pharmaceuticals have not. This is probably predominantly an issue of market size. The product Page 296 →development cost for a new pharmaceutical is unavoidably much greater than that for a new agricultural variety. Moreover, there is a pharmaceutical market in the developing world for products developed for the developed-world market, for many human diseases are common to both parts of the world. In contrast, there is little market in the tropics for crop seeds adapted to the temperate zone. Further, certain of the developingworld agricultural markets are for products to be exported to the developed world, so that research expenditures can ultimately be recovered from a developed world consumer. Finally, there is at least an argument that the pharmaceutical industry has more lucrative alternate research directions available in the developed world than does the agricultural biotechnology industry. The economics of such issues may be beyond influence by WTO arrangements, but it is important to think about ways that incentives can be structured to encourage research for less wealthy nations in a free-trade, intellectual-property oriented world. Finally, and beyond the differences, the domestic and global strengthening of intellectual property appears very likely, in both of these sectors, to have centralized and stabilized the power of existing large firms. This seems likely to apply for many technologies. Although small and new firms are likely to be more creative, larger firms can spread their research costs over a larger market; they can use intellectual property rights as a barrier to entry; and they can presumably raise capital more readily through use of their stream of rents from existing products. Thus, in some sense, they are more competitive and are able to shrink the technological opportunities available to developing nations and to slow the adjustment of the industrial structure to take advantage of new technologies. It must be recognized, however, that biotechnology and other new technologies will not evolve without intellectual property rights, unless there is much more public sector funding than seems plausible. Intellectual property protection is thus a necessary component of a global trade regime in a high-technology era; intellectual property protection also disfavors developing nations in a way that requires some form of correction for the benefit of these nations (and that correction is much more economically defensible than was the New International Economic Order). This impact of intellectual property on the international industrial structure will, in the long run, be far more important than any more static rent flow associated with prices for products containing intellectual property.

4. Implications for the WTO Agenda We are facing the need fundamentally to rethink our international intellectual-property/antitrust/research support relationship. The future of the developed world – and even more that of the developing world – depends on continuous creation of new technologies. This requires intellectual property incentives Page 297 →and proprietary positions, for firms will not invest in research without the chance of more than normal economic return. But this must not be done in a way that entrenches the current corporate leaders and fails to link the incentives to the most important human needs. We need both new analysis and new law – and institutions to do the analysis together. Managing the Recoupment of R&D Expenses One area needing thought is a problem that has not yet been faced with clarity, namely the allocation of research expenses across different nations. Three examples have appeared in this discussion. First, through differences in health care financing, the costs of pharmaceutical research are spread inequitably as between the United States and Europe. Second, at the same time, the developing-world consumer of pharmaceuticals should not have to pay as large a share of R & D costs as does the developed-world consumer. Indeed, in the vaccine sector, developedworld consumers and governments pay roughly 100 times the price charged to the developing world and to the international donor buying vaccines for the developing world. Basically, the developing-world consumer is paying marginal cost, while the developed-world consumer is amortizing R&D and production facility costs. Such crosssubsidization is essential in any high-technology or information-intensive good.30 Third, in the pharmaceutical sector, there has been inadequate incentive for research oriented to developing-world needs, although this is happening in the agricultural sector. Is there a way to modify the incentives so as to encourage more research for development needs? In the first instance, the WTO system must stay out of the way of efforts to respond to these problems. Thus, one of the most important issues in analyzing questions of intellectual property exhaustion and trade in ‘gray-market’ goods is that differential pricing may serve a valuable economic role in the marketing of information and researchintensive goods. Similarly, there are issues for treatment of research expenditures and of public-sector research subsidies for price-definition for antidumping and countervailing duty law. And there should be no WTO barrier to efforts to integrate markets, especially in the developing-world, through common intellectual property and regulatory approval mechanisms. But there may need to be a more focussed negotiation to deal with this issue. Perhaps, for example, there might be a new kind of code in which government procurement agencies and price regulators promise one another not to force down prices in a way that inequitably places the burden of research or that unwisely weakens the incentives for research. Or there could be some form of global analogue of the orphan drug system in which there might be special periods of exclusivity or other benefits for developed-world and donor-funded markets as a way to encourage research for diseases found primarily in the developing world. Page 298 →Competition Law The intellectually difficult patent-antitrust issues are now unavoidably on the agenda as important issues between developed and developing nations. Although there may be other important questions, the biotechnology examples suggest two important competition code needs. The first is the need for standards for horizontal mergers and intellectual property arrangements in intellectual-property-dense sectors. In today’s world, such mergers will be at the global level – whether in genomics or in agricultural biotechnology. They risk both static oligopoly and the strengthening of barriers to entry. The strengthening of intellectual property protection may significantly delay the opportunity for newly-emerging firms to participate in the global economy. As with export cartels, those potentially harmed are far beyond the borders of those nations whose firms are merging or agreeing. Those in third nations can be legitimately concerned that mergers such as those in agricultural biotechnology will be seriously harmful. These costs should be taken into account in an individual nation’s decision to approve or disapprove such a merger. And if the mergers are not restrained, what is a third nation to do? This may be more an issue of analysis than of standards, but there needs to be solid thinking to help a nation’s competition authorities to react intelligently in approving or disapproving a local firm’s acquisition by a multinational. When will the result of such an

acquisition be local monopoly and high prices? When will it be a valuable transfer of technology? What if it appears likely to be both? And there are also clearly circumstances in which compulsory license and price regulation approaches may quite reasonably be taken. These possibilities need carefully to be protected in any global competition law arrangement. Intellectual Property and Patents Third, TRIPs and the traditional intellectual property treaties have to be just a beginning on the task of intellectual property law harmonization and improvement. The idea of independent national patent systems is anachronistic, as most high technology markets are substantially global and the differences among national patent systems are an expensive nuisance for the industry. There clearly needs to be much more regionalization (and possibly globalization), both in the procedures for gaining intellectual property rights and in the standards for doing so. Moreover, the battles described in both the pharmaceutical and agricultural sectors suggest caution in the standards to be used in granting and enforcing intellectual property rights. The actual detailed standards currently used by the United States Patent and Trademark Office are often unwise – Page 299 →they contribute to the research tool problem and to litigation in agricultural biotechnology. Many aspects of the U.S. and European biotechnology intellectual property system may be dysfunctional, and should not be further replicated in its current form. Standards for patentability are almost certainly too low, and the rights of a patent-holder to restrict future research too broad. This may be a demand for a new treaty defining the appropriate rules for intellectual property much more precisely – or it may be just a demand for better analysis in applying current intellectual property standards. And, the risk that intellectual property rights slow the transfer of technological capability to developing nations suggests that harmonization efforts might most wisely consider one common set of legal rules for intellectual property for developed nations and a different set for developing nations.

NOTES 1. P.L. 96-517, Dec. 12, 1980, codified at 35 U.S.C. §§ 200-210. 2. E. Marshall, ‘The mouse that prompted a roar’, Science 276: 24 (July 4, 1997); NIH, ‘DuPont declare truce in mouse war’, Science 281: 1261 (Aug. 28, 1998). 3. U.S. Patent 5,061,620, Tsukamoto et al., Human hematopoietic stem cell, Oct. 29, 1991. 4. E.g. U.S. Patent 5,817,479, Au-Young et al., Human kinase homologs, Oct. 6, 1998. 5. U.S. Patent 5,856,104, Chee et al., Polymorphisms in the glucose-6 phosphate dehydrogenase locus, Jan 5, 1999. 6. See Report of the NIH Working Group on Research Tools (1998), available at http://www.nih.gov/news /researchtools/index.htm. 7. See The SNP Consortium Ltd. Fact Sheet, Chicago, IL. 8. P.L. 91-577, Dec. 24, 1970, codified at 7 U.S.C. §§ 2321 ff. 9. See Barton, ‘The Impact of Contemporary Patent Law on Plant Biotechnology Research’, in Eberhart et al., Intellectual Property Rights III: Global Genetic Resources: Access and Property Rights (Crop Science Society of America 1998). 10. A private antitrust action, however, is being planned by groups opposed to agricultural biotechnology, J. Eaglesham, ‘Global Challenge to Genetic Crop Modification Techniques: Unprecedented Antitrust Actions in up 30 Countries’, Financial Times (London), September 13, 1999. 11. For discussions of the relevant principles – mainly in the pharmaceutical context – see J. Gatti, Mergers, Joint Ventures and the Pharmaceutical Industry, EU Pharmaceutical forum 1996, available at http://europa.eu.int, and L. Landman, Competing in the Global Pharmaceutical Industry: Innovation and Future Potential Competition, 2 Journal of Biolaw & Business 29 (1998).Page 300 → 12. Japan is omitted from this list because the depth of integration between Japanese firms and those of the North Atlantic has, in these sectors, been significantly less than that among the firms of the North Atlantic. See M. Sharp, ‘The science of nations: European multinationals and American biotechnology’, International Journal of Biotechnology 1:132 (1999). (A quite different geographic pattern would be found in the computer and semiconductor sectors.)

13. OECD, Internationalisation of Industrial R&D: Patterns and Trends (1998). 14. See M. Sharp, supra. 15. There is a special exception – that of the increased investment in Canada following its 1993 elimination of compulsory licensing for pharmaceuticals. In this case, there was an explicit promise by the industry to increase research investment in Canada following the legislative change. See Government of Canada, Review of the Patent Act Amendment Act, 1992 (Bill C-91), February 1997, available at http://strategis.ic.ca/pharm 16. E.g., Agreement on Mutual Recognition between the United States of America and the European Community, available at http://europa.eu.int, and see U.S. Food and Drug Administration, Proposed Rule, 63 Fed. Reg. 17744, April 10, 1998. The International Conference on Harmonization is organized by a combination of European, Japanese, and U.S. regulators and pharmaceutical firms and is working to produce uniform procedures in a variety of areas. See http://www/ifpma.org 17. Compare, e.g., Bio-Technology General Corp. v. Genentech, Inc., 80 F.3d 1553 (Fed. Cir. 1996) with Novo Nordisk of North America, Inc. v. Genentech, Inc., 77 F.3d. 1364 (Fed. Cir. 1996). 18. F. Scherer, ‘Pricing, Profits, and Technological Progress in the Pharmaceutical Industry’, Journal. of Economic Perspectives 7:99 (Summer 1993). 19. J. Lanjouw, ‘The Introduction of Pharmaceutical Product Patents in India: Heartless Exploitation of the Poor and Suffering’?, Yale University, Economic Growth Center, Center Discussion Paper No. 775 (Aug. 1997). And see the very careful analysis forthcoming by J. Watal, Pharmaceutical Patents, Prices and Welfare Losses: A Simulation Study of Policy Options for India under the WTO TRIPs Agreement. 20. G. Korenko, ‘Intellectual Property Protection and Industrial Growth; A Case Study’, 2 Journal of World Intellectual Property 47 (1999). 21. R. Rozek & R. Berkowitz, ‘Effects of Patent Protection on the Prices of Pharmaceutical Products – Is Intellectual Property Protection Raising the Drug Bill in Developing Countries?’, 1 Journal of World Intellectual Property 179 (1998). 22. Review of the Patent Act Amendment Act, 1992 (Bill C-91), supra. 23. M. Wadman, ‘Gore under fire in controversy over South African AIDS drug law’, Nature 399: 717 (24 June 1999); U.S. Department of State, Report on U.S. government efforts to negotiate the repeal, termination of withdrawal of Article 15(C) of the South African Medicines and Related Substances Act of 1965 (Feb 5, 1999), as Page 301 →reported by an opponent of U.S. policy at http://lists.essential.org /pharm-policy/msg00049.html. 24. D. Suh et al., ‘Price Trends Before and After Patent Expiration in the Pharmaceutical Industry’, Journal of Research in Pharmaceutical Economics 9: 17 (1998). 25. F. Scherer & S. Weisburst, ‘Economic Effects of Strengthening Pharmaceutical Patent Protection in Italy’, 26 I.I.C. 1009 (1995). 26. S. La Croix & A. Kawaura, ‘Product Patent Reform and It’s Impact on Korea’s Pharmaceutical Industry’, International Economics Journal 10: 109 (1996). 27. The pharmaceutical sector is one in which intellectual property protection is perceived as important by foreign investors, E. Mansfield, Intellectual Property Protection, Direct Investment and Technology Transfer, IFC Discussion Paper # 27 (Sept. 1995). The evidence as to actual effects is much less clear. See the summary of studies in United Nations, Transnational Corporations and Management Division, Intellectual Property Rights and Foreign Direct Investment, 1993. And see H. Kwon, ‘Patent Protection and Technology Transfer in the Developing World: The Thailand Experience’, 28 George Washington Journal of International Law & Economics 567 (1995)(describing a fall in direct investment into Thailand after that nation’s new patent act of 1992). 28. Ernst & Young, Bridging the Gap 1999. 29. Industry Canada, Intellectual Property Directorate, Background Economic Study of Canadian Biotechnology Industry (1996), available at http://strategis.ic.gc.ca 30. Whether differential pricing is appropriate in agriculture is a different issue, especially when the need to supply technology to the subsistence farmer at as low a cost as possible is related to the economic benefits of keeping prices in internationally traded goods as close to marginal cost as possible.

____________________ * Professor of Law, Stanford University, California, USA. Page 302 →

Page 303 →CHAPTER 19 Which Rules in World Trade Law – Patents or Plant Variety Protection? Margaret Llewelyn *

1. Introduction This paper addresses the following question: ‘Which Rules in World Trade Law – Patents or Plant Variety Protection?’ (The term ‘plant variety protection’ is used in a broad sense to include non-UPOV type protection.) As my paper is to be followed by expert views on specific jurisdictional approaches to the protection of plant varieties, namely Europe, the USA and developing countries, I am going to confine my remarks to a general outline of the rights which are currently available and those which are being proposed. To date the debate has focused on two key international agreements, the Agreement of Trade Related Aspects of Intellectual Property Rights (TRIPs) and the Convention on Biological Diversity (CBD). The central issue is the extent to which genetic material, in the form of a plant variety, should be the subject matter of a private right. TRIPs and the CBD are often viewed as in conflict with each other because of their apparently diverse rationales. The CBD is intended to ensure the conservation of biological diversity, the sustainable use of genetic resources and the fair and equitable sharing of any benefits arising out of the use of these genetic resources.1 Seemingly in contrast, the TRIPs Agreement serves to ensure that private rights are available to protect intellectual Page 304 →property and to secure appropriate and effective means for the enforcement of these rights.2 It is often asserted3 that the TRIPs Agreement serves to negate the provisions of the CBD. The basis for this is that, in contrast to the stated objectives of the CBD to preserve genetic diversity, the TRIPs Agreement encourages the production of genetically uniform plants which can meet either the requirements for patent protection or plant variety rights. The Agreement is also seen as discouraging sustained use as rights holders will pressurize farmers to use their protected varieties in order to recoup the investment. Finally, it is asserted that the act of granting a private right over genetic material does not serve to ensure an equitable sharing of any benefits arising out of the use of these resources. Instead it enables the right holder to dictate terms upon which access to the material can be assured.4 The CBD does not specifically refer to intellectual property rights over genetic material.5 However, Article 8(j) states that where indigenous knowledge, innovations and practices are utilized then encouragement should be given so that any benefits arising out of that utilization are fairly and equitably shared. This can be interpreted as meaning that where a benefit, arising out of the use of genetic resources, takes the form of an intellectual property right then that benefit should be shared between the rights-holder and the local community. On this reading the function of the CBD can be seen as reinforcing the concept of local sovereignty over access to the genetic material. This sovereignty can be exercised via the provision of private rights where the genetic material is used to produce a new invention or plant variety. It also permits the setting down of criteria for sharing of any benefits arising out of the use of that genetic material. It is the second of these, which is directly affected by the TRIPs Agreement. On this basis the CBD and TRIPs are not in conflict.6 The mandate in Article 27(3)(b) of TRIPs means that Member States are under an obligation to provide such protection even if, through membership of the CBD, the preference is for a less monopolistic approach to genetic resources. In the absence of any direct statement in the CBD that intellectual property rights should not be available over genetic resources (in which case it would have been necessary to look at the relationship between the CBD and

TRIPs to determine which would prevail) it is possible to see both texts as acknowledging that such rights can be granted over genetic material. In the case of the TRIPs Agreement this goes further in that such protection must be available over plant varieties. The only barrier to a common position, and the focus of this paper, is the form these rights should take. Page 305 →As TRIPs sets down the requirement that plant varieties must be protected, this shall serve as our starting point. However, any discussion of the TRIPs Agreement must be prefaced with the comment that whilst the Agreement might create an obligation to protect plant varieties it should not be taken as indicating that there is universal acceptance that either genetic material should be the subject of a private property right or, if this is accepted, that preconceived norms as to the form of that protection are necessarily appropriate for all members of the global trading community.

2. TRIPs The primary obligation imposed by membership of TRIPs is the removal of any distortions or impediments in the provision of national intellectual property protection, which might affect international trade. Specifically members are required to promote ‘effective and adequate’ intellectual property rights (IPRs) provided these do not in themselves become barriers to trade.7 Article 27(1) requires that Members must allow patent protection for inventions from all fields of technology provided the inventions are novel, involve an inventive step and are capable of industrial application. The requirement that protection must be provided for all types of inventions is mitigated by paragraphs 2 and 3. These permit Member States three optional exclusions from patent protection. These operate where the subject matter takes the form: inventions the commercial exploitation of which might be contrary to ordre public or morality (Article 27(2)); and/or diagnostic, therapeutic and surgical methods for the treatment of human or animals (Article 27(3)(a)); and /or plants and animals (Article 27(3)(b)). Views on the extent to which modern patent law should exclude material from protection differ, hence these exclusions being only optional. In some countries, most notably the US, there are no equivalent express exclusions of subject matter.8 This has meant that, for example, methods of human treatment have been patented, as have plants and animals, including plant varieties. Other countries, including all member states of the European Patent Convention (EPC), specifically exclude certain categories of material.9 This paper is most concerned with Article 27(3)(b).

Page 306 →3. Article 27(3)(b) TRIPs Article 27(3)(b) states that members may exclude from patentability: ‘plants and animals other than micro-organisms, and essentially biological processes for the production of plants and animals other than non-biological and microbiological processes. However, Members shall provide for the protection of plant varieties either by patents or by an effective sui generis system or by any combination thereof. The provisions of this subparagraph shall be reviewed four years after the date of entry into force of the WTO Agreement.’ (emphasis added) It is perhaps interesting to note by way of an aside that there is no equivalent option to exclude human genetic material from patent protection.10 It is clear from Article 27 that the only category of inventions, which specifically cannot be excluded from protection, is plant varieties.” 11 Article 27(3)(b) states that Members must provide patent or sui generis protection or a combination of the two.

Before looking at the substantive elements of this requirement, it is pertinent to raise some of those alternative points alluded to previously as to the legal status of plant genetic material. For those countries loosely categorized as the ‘North’ (developed countries) the requirement set out in Article 27 is merely a restatement of existing intellectual property practice. Protection, whether in the form of patents or plant variety rights which accord with the International Convention for the Protection of New Varieties of Plants (UPOV) – the commonly accepted alternative to patent protection - has been available for genetic material for many years. The form this protection has taken is the result of extensive and exhaustive debate. Within Europe one only has to look at the deliberations which took place during the 1950s on how to protect the results of plant breeding activity,12 and at those which have taken place more recently in respect of the EU Directive on the Legal Protection of Biotechnological Inventions,13 to see the range and scope of arguments. In contrast, those countries collectively known as the ‘South’, which have had no history of protecting plant material, have not had an equivalent opportunity to decide whether plant varieties should be protected. Instead they are faced with an immediate obligation to provide protection, the only issue for debate being how they should be protected. There is a fear that in the absence of any debate as to whether such protection is either desirable or necessary, countries in the South might find themselves pressurized to adopt Northern concepts of protection rather than devising appropriate protection for themselves. Bearing in mind that a failure to comply will most probably result in trade sanctions. Page 307 →The obligation imposed by TRIPs can be criticized on a number of grounds. The most important of which is the concern that by reducing plant, and other biological material, to the status of private property capable of being the subject matter of a private property right greater harm will result than benefit.14 The form of this harm ranges from moral harm resulting from treating genetic material as private property through to potential environmental harm resulting from pressure to market before the full environmental impact of the engineered material has been assessed. This latter harm potentially taking many different forms including loss of biodiversity, adverse impacts on the farming community, and harm resulting from modified genetic material moving from one plant variety/species to another when released into the environment.15 In light of these concerns it is important to look at the actual obligation imposed by Article 27(3)(b). Article 27(3)(b) requires Member States to provide protection for plant varieties by a patent, sui generis right or by any combination of the two. Whilst it is correct to read TRIPs as mandating protection it would, however, be wrong to read it as mandating either the form that protection should take or the extent to which TRIPs can control the scope of the right. Article 1 of TRIPs allows member states to ‘implement in their law more extensive protection than is required by this Agreement, provided that such protection does not contravene the provisions of this Agreement’. Depending on the definition of extensive it is possible for Member States to use this provision to mitigate any less palatable aspects of the rights they grant. For example, Article 27(1) simply requires that the invention must be new, involve an inventive step and be capable of industrial application. It does not define the scope of these requirements further. A Member State could therefore make it more rather than less difficult to obtain the right. The fact that TRIPs does not address, nor was it intended to address, existing divergences in the interpretation and application of the granting criteria makes such action not only possible but permissible. Member States could also use Article 27(2) as the basis for excluding certain categories of genetic material from patent protection. It would be necessary however to show that the commercial exploitation would be contrary to ordre public or morality. In light of the interpretation and application of the equivalent provision within the European Patent Convention it is unlikely that this would have a widespread use in preventing the granting of patents over genetic material.16 In addition it is unlikely that the WTO would accept a circumvention of the requirement in Article 27(3)(b) by the use of Article 27(2). In addition to the flexibility contained within the provisions relating specifically to patent law, TRIPs also allows

Member States to adopt Page 308 →‘measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development’ (Article 8). It is unclear, however, whether this could serve as a mechanism for denying patent protection to genetic material or indeed as a basis for a non-UPOV type right. The same flexibility for interpretation and implementation exists if a Member State opts for the effective sui generis right. In determining the form a sui generis right would take, Member States are not bound by any existing substantive requirements as they would be if they were to provide patent protection (novelty, inventive step and industrial applicability). This means that when formulating the right it is possible to seek guidance and/or inspiration from other international agreements including those not wholly concerned with intellectual property protection. It is clear, therefore, that whilst the obligation to protect plant varieties is closed in the sense that protection must be provided, it is nonetheless open in that Member States retain a degree of flexibility as to the form that protection should take. There is scope for both imaginative interpretation and application. The only proviso is that it must be ‘effective’. In respect of the national formulation of either patent and sui generis protection or both all that a Member State has to do is to reconcile its provision with the obligation imposed under Article 27(3)(b). Where this provision is based on non-traditional concepts, for example where national protection takes the form of a right only loosely based on UPOV, then it might give rise to an allegation that the provision is not sufficient to comply with TRIPs. In formulating non-traditional protection a common justification given is that the accepted norms of protection, patents and plant variety rights according to UPOV, do not enable a country to meet other commitments relating to genetic resources undertaken through membership of the CBD. In order to meet these commitments it is, therefore, necessary to introduce concepts recognized under the CBD into intellectual property provision.

4. The Protection of Plant Varieties The conventional methods of protecting plant material are via a patent or by a right in accordance with the UPOV Convention. However, as will be discussed below, due to the lack of universal acceptance of these traditional methods of protection alternative ways of meeting the obligation imposed by Article 27(3)(b) are being sought. Article 27(3)(b) is seen as providing two possible approaches. Member states can provide patent protection and/or sui generis protection in accordance with UPOV. This is the approach taken in the US – where patents Page 309 →are available over all plant material, including plant varieties, with breeders also able to apply for plant variety rights if they so wish – and in Europe, where plant varieties are expressly excluded from patent protection but protectable under UPOV style plant variety rights. Alternatively, Member states can exclude plant varieties from patent protection in favoring of protection via a sui generis system, which conforms to neither patent law nor UPOV. The only constraining factor in such provision being the requirement that the right is ‘effective’. There is a also third approach, provision of both patents and a non-UPOV sui generis right, however, as to date no country appears to have taken this approach it is not intended to discuss this option in any detail. It is proposed to look at each of these approaches in turn.

Patent Protection As has already been mentioned there is no single international system of patent protection. However, the existing national rights do have their substantive requirements in common – namely that an applicant must demonstrate the invention is novel, that it involves an inventive step and it is capable of industrial application. In some systems, most notably those operating within Europe, the invention must also not be excluded. The relevant categories for

the purpose of this paper are those relating to discoveries, inventions which would be contrary to morality, plant varieties and pharmaceuticals. However, it is important to note that even within Europe there are national differences in interpretation and application. In recent years an increasing number of patents have been granted over inventions involving living material.17 The reasons for this are straightforward. The bioscience industry needs to protect the results of expensive research and development from unauthorized copying and marketing. The promise of patent protection for the results of biotechnological research is a key factor in ensuring ongoing investment and there is an acute need for certainty that such protection will be forthcoming once the research has been completed. It is hardly surprising that those involved in bioscience research should be demanding this certainty of protection in all global markets. The economic position of these companies, both actual and potential, is such that there is an economic imperative to ensure the availability of intellectual property protection. Patent offices have responded to this need by recognizing the value of the ‘inventions’ being claimed and, provided the applicant can demonstrate a novel technical effect, then patents have been granted notwithstanding the fact that in some the technical effect is similar or identical to one already occurring in nature.18 Page 310 →This pressure to permit patent protection for inventions which involve biological material has meant that the exclusions from protection have come under increasingly close scrutiny. This scrutiny has been undertaken at all levels from governmental to academic. It is intended to assess whether the restrictions on patentable subject matter present a barrier to the development of the biotechnology industry, which should be removed, or whether they represent an appropriate safeguard preventing an extension of monopoly rights to inappropriate subject matter. This tension, between the need to protect and the concern that this might lead to an undesirable extension of patent protection, has meant that patents granted over genetic material have been subjected to extensive analysis and criticism. In respect of plant varieties this analysis has included assessing: If it is acceptable for plant material to form the basis of a monopoly grant; If the answer to 1) is yes, then is the appropriate form of protection the patent, (for example is it possible to regard plant material as novel and decisions taken to undertake plant centered research as inventive); Has the distinction between a non patentable discovery and a patentable invention become merely a matter of legal semantics (for example is it correct, legally and ethically, to hold that naturally occurring material no longer constitutes a discovery when a commercial value or use has been recognized); How much should a patent applicant be able to claim (is it appropriate to permit broad patent claims which encompass whole swathes of genetic material); Is it appropriate to grant a right over living material purely based on a paper assessment of the material being claimed; Whether patents encourage biopiracy; and finally Whether granting offices, which are predominantly administrative arms of governmental trade and industry departments, are concerned only with the interests of the applicant and not those of opponents to such patents? Page 311 →Pro-Patent Arguments The arguments for patent protection are that they encourage investment, innovation and commercialization. It is argued that without the certainty of patent protection in developing and least developed countries, where the dissemination of the patented material would be most beneficial, this exchange of information, which would lead to further investment, innovation and commercialization, would not take place. Equally in respect of the application of substantive patent provisions, the attitude and practice of those pro-patents is clear. Where an invention has not previously been known in the form claimed in the application (for example by isolation and identification) then even if the material involved is basic genetic material it may be patentable. The key word here being that it may be patentable – not that it will be patentable.19

The alleged need for patent protection in order to proceed with research and development can be treated with a degree of skepticism not least because the absence of IPRs has not to date deterred research – this can be seen in Europe where the biotech industry is growing at a fast rate and yet there is still considerable uncertainty over which research results will be patentable. Adding weight to this was the announcement in June 2000 by President Clinton and Prime Minister Blair that patents should not be granted over basic human genetic material in order to foster medical research.20 This view was mirrored in another announcement made at the same time by Sir Aaron Klug and Bruce Alberts (Presidents of the Royal Society and US National Academy of Science respectively) Clearly the incentive of patent acquisition is not seen by those engaged in these discussions as key to the continuation of this research. It should be noted, however, that this proposed agreement runs counter to the position the UK has taken as a member of both the EU and EPC.21 Anti-Patent Arguments The arguments against permitting patents are that: They encourage the treatment of genetic material as private property; The practice of patentees and patent offices often ignore traditional knowledge when determining both novelty and inventive step; and They serve to exclude others from free and unfettered use of the patented material. Page 312 →There is also the concern that patents can be granted over not only the end product of the research but also over processes. In respect of plant material this means that it is possible to acquire rights over breeding methods as well as over the plants themselves. As has already been shown by the UK/US Agreement, concern over an inappropriate extension of patent protection exists not only in developing countries but also can be found in developed countries. This concern extends beyond the protection of human genetic material and can also be seen in relation to plant protection. In the US there was a recent appeal against one of Pioneer Hi-Bred’s patents on a transgenic plant variety.22 The basis for the appeal was that the plant variety rights system, as defined by UPOV, is the exclusive method of protecting plant varieties. Any other form of protection, and in the specific instance utility patents, are therefore invalid as a matter of law. Whilst previous cases, such as Chakrabarty23 and Hibberd,24 appear to support the granting of patents over plant material it is possible that, in light of growing concern over the use of patents by biotechnology companies,25 there was a strongly held view that the Court would find for the Appellants. If this had been the outcome then whilst the decision would have been unlikely to put an end to the debate over whether plant material should be patented it would at least have had the effect of, temporarily at least, bringing the US and Europe into line. Indeed irrespective of the conclusion which the Court of Appeal reached, the fact that the appeal has been made indicates that, decisions such as Chakrabarty and Hibberd notwithstanding, there is by no means unanimity of view over the status of plant material as patentable subject matter. This can only serve to add weight to the argument that patents are not necessarily the most suitable method of protecting plants and provides support for those countries which have not chosen to follow the patent law route when complying with Article 27(3)(b). There is equally disagreement within Europe over the extent to which plant material should be patented. Despite the evolving jurisprudence of the European Patent Office and the decision, in 1998, to adopt a EU directive on the Legal Protection of Biotechnological Inventions intended to clarify the patentable status of living material, there is continued opposition to the patenting of biotechnological inventions. This opposition can been seen in both decisions of the European Patent Office26 and reactions to the draft EU directive on the Legal Protection of Biotechnological Inventions. It is particularly noteworthy that no sooner was the directive adopted by the European Parliament than a challenge was lodged by the Netherlands at the European Court of Justice.27 This action gives lie to the contention that the decision to adopt the directive indicates a consensus within the EU that Page 313 →biological material should be patented, with a few, restrictively applied, exclusions.

When the initial TRIPs negotiations were taking place the US propounded the view that member states should be required to provide patent protection for all types of innovation. This view dominated the debates over how to draft the patent sections of the Agreement. However, the belief from the South that patents are the tools of the industrially elite, which could be used against the industrially and economically vulnerable, found support from Europe when addressing the issue of the protection of plant varieties. It is questionable whether Article 27(3)(b) would have been introduced if Europe had chosen to abandon its prior practice and adopt an equivalent open patent policy to that used in the USA. It should be recognized, however, that the anti-patent line is not one which finds official favor in most countries in the North. The policy and practice of granting of bioscience patents in both the US and in Europe must be seen for what they are. Political responses based on an acceptance of the biotechnology industry’s argument that patents are a necessary adjunct to bioscience research. When looking to the US or Europe as a possible model of how to implement Article 27(3)(b) it is important to bear in mind that protection has developed to meet specific local biotech needs or interests. As a result all that the US and Europe serve to offer are two, local, perspectives as to what constitutes effective and appropriate protection.

Sui Generis Protection Since the introduction of the TRIPs Agreement there have been a number of suggestions as the types of consideration which should be taken into account when formulating the sui generis right. They include the following.28 A right specifically designed to protect plant varieties which takes into account the specific needs not only of the protected material but also of those who use it, in particular the breeders and the end users. Possible novel forms of intellectual property rights such as the Farmers’ Right and Traditional Resource Rights (TRR) each of which recognizes the contribution made by the local community. • A certificate of origin system which would require the patent applicant to: • To present a sworn statement which details the genetic resources, traditional knowledge used and those communities which have been involved in obtaining the information contained in the patent application; and • Page 314 →Provide evidence of prior informed consent from the peoples concerned to the patent application being filed. Without both these elements the application should fail. Both Costa Rica29 and the Andean Pact countries30 have adopted variants on this. Realistically, however, if this approach is to prove successful there needs to be international standardization. Proof that this might hard to obtain in practice was provided in 1998 when the European Commission refused to accept an amendment to the EU directive on the legal protection of biotechnological inventions proposed by the European Parliament requiring evidence of consent prior to the filing of any patent which involved indigenous material. It was felt that such an amendment went beyond the scope of the directive. Innovation register or low level patent system. This would take the form of a global database designed to prevent data being misappropriated. Such a database would operate by encouraging the registration of local indigenous genetic resources and would seek to build links between all those which interests in this material, including economic interests. This database would be consulted by all national patent offices when assessing a patent application relating to plant material for compliance with the substantive granting criteria.31 In making these suggestions countries have used as their inspiration the UPOVC, the CBD and the FAO’s International Undertaking on Plant Genetic Resources.

The UPOV Union The most common form of sui generis protection for plant varieties is the plant variety, or breeders’, right as defined by UPOV. Whilst plant variety rights are a relatively recent addition to the intellectual property law family, the UPOV Union was set up in 1961, the premise that plant breeders should be rewarded for their work via

a right enabling them to control certain uses of the protected material was established early in this century.32 It was recognized that the plant breeding industry was becoming economically very important. In order to ensure that the economic, as well as agricultural, potential of this new industry was realized it was felt that plant material should be protected by some form of intellectual property right. In the USA protection for asexually reproducing plants was provided under the Plant Patent Act (PPA) 1930.33 It took until 1970, however, and the Page 315 →Plant Protection Act (PVPA)34 for protection for sexually reproducing plants to become available. Since then, as already outlined above, it has become possible in the US to obtain a utility patent over plant material. In contrast, within Europe it was not thought appropriate to grant patent protection to plant material because of inherent difficulties in meeting the granting criteria. In particular it was felt that: Plant material could not meet the novelty requirement; that decisions regarding breeding programs were not sufficiently inventive; that it would not be possible for plant material to meet the disclosure requirement (that someone skilled in the art can reproduce the invention simply by using the patent specification as plant material could spontaneously mutate and sport); and that it would not be appropriate to grant a monopoly as extensive as a patent over crop varieties.35 The result was the UPOV Convention, which came into force in 1961.

Dual Protection Contrary to popular myth the Convention did not remove the possibility of protection under patent law.36 It is true that Article 2(1) of the 1961 Act did require member states to provide either patent protection or a sui generis right but not both – however, this stipulation only applied where both rights accorded with the provisions of the Convention. It did not affect the ability of member states to provide both patents and plant variety rights where only the latter was a right in accordance with the UPOVC. That this was the intended interpretation can be seen from the fact that the US continued to provide both patent and plant variety protection, under the PPA and PVPA, post ratification of the UPOV Convention, and indeed more recently it has provided protection via utility patents. The reason why it can do this is because neither the PPA nor utility patents are rights in accordance with the provisions of the UPOV Convention. The US situation aside, the fact that patent protection was seen as inappropriate for protecting plant varieties lead many member states of UPOV to interpret Article 2(1) as referring to ordinary patent protection and thus it became known as the dual protection prohibition. This meant that member states thought they had to choose between ordinary patent protection and plant variety rights. As the former was not thought suitable it meant that in practice plant variety rights was the only acceptable form of protection. Page 316 →Reinforcing this view was the decision, taken at the same time as the UPOVC was being drafted, to exclude plant varieties from protection under the European Patent Convention. The dual protection prohibition was removed from the 1991 UPOV Convention thereby removing any remaining uncertainty about whether member states could provide both forms of protection.

5. Plant Variety Protection under UPOV The protection provided under UPOV enables plant breeders to control the use of the reproductive material of the protected variety provided the variety is distinct, uniform and stable (D.U.S.) following repeated reproduction. In comparing patents and plant variety rights it is essential to take account of certain key differences and to avoid viewing the two systems as having identical rationales and requirements. Indeed ascribing equivalent principles

and rationale to the plant variety rights system as exist for patent protection, for example, can give rise to misunderstandings. An example of this can be seen in a criticism leveled at the plant variety system that it, unlike the patent system, does not require any disclosure of how the variety was produced. Plant variety rights have been condemned on the basis that they encourage secrecy and cannot, therefore, be in the public interest. Such criticisms are disingenuous. Patents serve to protect novel results, which are non-obvious. In order to ascertain whether or not the invention is obvious to one skilled in the art it is necessary to demonstrate the steps taken in arriving at the invention. The disclosure of the steps taken in order to arrive at the final result is requisite if the applicant is to succeed in showing that what s/he has done is inventive. This is shown by describing what was known before and demonstrating how what the inventor did was not an obvious step forward given what had been known before. In contrast the plant variety rights system is not intended to protect non-obvious results. Most plant breeding activity involves trying the obvious – if breeders were required to show that what they had done would not be obvious to a person skilled in the art then few if any rights would be granted. The rationale for the grant of a plant variety right is therefore not to protect inventiveness. There is no need for the breeder to disclose information about how the variety was developed as s/he does not have to prove that their decision to pursue a particular line of research was not obvious. The key rationale for the grant of a plant variety right is the protection of the time invested in producing a new variety which is distinct from others of the same species, and which, over time, remains uniform and stable following reproduction. Page 317 →There are three other main points of distinction between patent protection and plant variety rights. The first is that the right is generally administered by governmental agencies responsible for agricultural matters and not by offices concerned with trade and industry, as is the practice with patents. The second is that the rights are subject to a number of exceptions on the basis of public interest. In order to ensure that the protection granted does not restrict ongoing research or interfere with the legitimate interests of the agricultural community UPOVC explicitly states: • That use of protected material for research purposes and the results of that research are not covered by the right; and • That farmers can continue their practice of retaining seed from one year to the next without necessity of an additional payment to the breeder. The extent of these exceptions has changed in recent years as will be discussed in more detail below). The third distinction is that, in contrast to the paper assessment undertaken to determine whether an invention is patentable, a plant variety is subjected to two years of practical trials before the right is granted. These serve to show whether or not the variety is actually distinct, uniform and stable as opposed to simply relying on a written description provided by the breeder. The trials are undertaken by the granting offices in conjunction with breeding institutes, such as the UK’s National Institute of Agricultural Botany (NIAB). As the needs of the plant breeding industry developed so too have the rights provided under UPOV. The Convention has been revised three times since 1961, most notably in 1978 and 1991. However the fact that UPOV-type rights have been recognized as the acceptable alternative to patents should not be taken as indicating that this form of protection is not itself open to criticism.

Two UPOV Acts During the TRIPs negotiations considerable opposition was voiced by developing countries to proposals that Member States should be required to provide either patent protection or a right in accordance with UPOV.37 The

reasons for this opposition were primarily two-fold. Firstly because despite perceptions in some quarters that UPOV provides weaker protection than a patent (i.e. it protects only the variety not individual constituent elements, it does not extend to methods of producing the variety and is subject to certain Page 318 →exceptions), it is nonetheless a private right and plant varieties, especially crop varieties, should not be regarded as private property. Second, because a proposed revision of the UPOV Convention, which was taking place at the same time as the TRIPs negotiations, was going to lead to a right more closely aligned to a patent with the result that the differences in the scope of the monopoly provided by a patent and that by a UPOV right would be marginal.38 Given the highly sensitive nature of this issue it was decided that where possible members states, which had not previously provided protection for plant varieties, should be encouraged to adopt one of the existing models of protection: patents or UPOV-type rights. But that they should not be forced to accept either one or the other. In order to help provide a solution the UPOV Council agreed to keep the 1978 Act of the Convention open for ratification until 1995 for those countries, which had not previously been signatories.39 As the 1978 Act was seen as providing less monopolistic protection than the proposed revised Act, it was hoped that the act of leaving it open for accession would encourage countries to join the UPOV Union. However, a revision of the UPOV Convention was regarded as essential if the right was to continue as a viable alternative to patent protection. It was decided, therefore, that meeting the needs of developing and least developed countries should not be at the expense of those countries, which required stronger plant variety protection. The result was that the revision went ahead with all existing member states of UPOV being required to ratify the new 1991 Act. The 1978 Act was left open for new members to accede until 1995. Any countries choosing to join the UPOV Union after the 1995 deadline must accede to the 1991 Act. This meant that, for a short period of time, there were two UPOV Conventions open for ratification. The hope is that those countries, which have acceded to the 1978, Act will later upgrade their protection to that provided under the 1991 Act. Whilst many countries without a previous history of plant variety protection have chosen to opt for the 1978 Act, 40 there remain those which are still looking for an alternative. However, the fact that some developing and least developed countries have resisted embracing the UPOV system does not mean that the 1978 and 1991 Conventions have no relevance when looking at the proposed alternative forms of sui generis protection. It is possible to see similar provisions or themes arising in the proposed new rights, however with certain key differences. It is therefore useful to look, in brief, at the protection afforded under both the 1978 and 1991 Acts. The UPOV Convention 1978 The protection provided by the 1978 Act is as follows. Rights are granted over varieties, which are shown to be distinct, uniform, stable and commercially new. (One major diversion from the 1961 Act was the removal of the definition of a plant variety). The right allows the holder to sell, or offer for sale, reproductive material of the protected variety. The right does not extend to the use of material for research purposes (nor to the products of that research) nor to farm saved seed (the so-called farmers’ privilege). The Act requires member states to progressively extend protection to more species and genera; The right lasts for up to 18 years for trees and vines and 15 years for all other varieties. Member states are prevented from permitting patent protection and plant variety protection over the variety (the dual protection prohibition). In contrast the 1991 Act strengthens the rights of the breeder and limits the exemptions from the right. Page 319 →The UPOV Convention 1991 The substance of 1991 Act is follows.

It provides a right over plant groupings, which are shown to be commercially, novel, distinct, uniform and stable (Article 5). The definition of a plant variety is reintroduced, and the right extends to any plant grouping within a single botanical taxon of the lowest known rank which, irrespective of whether the conditions for a grant of a plant variety right are fully met, is new, distinct, uniform and stable (Article 1). The fact that the grouping can be identified as a plant variety irrespective of whether or not it meets the conditions for grant takes account of varieties with a level of uniformity which is acceptable to industry, but not acceptable for a grant of rights. It allows these ‘varieties’ to be taken into account when assessing distinctness and novelty.41 Member states are required to provide protection in respect of all species and genera within five years of joining (Article 3). There is no express derogation from the right in respect of farm saved seed which means that any farmer engaging in this activity will infringe the rights of the holder (Article 14). However, in Page 320 →recognition of the sensitivity of this issue, the 1991 Act does allow member states an option of restrict the breeders right within reasonable limits (Article 15(2)). This would enable member states to permit the practice of farm saved seed. It is widely understood that any exercise of this provision should not extend beyond that which was permitted under the 1978 Act. In the EU, for example, this has been implemented within the Council Regulation for a Community Plant Variety Right (CPVR) and permits small farmers to save seed from one year to the next without additional payment but requires all other farmers to pay an ‘equitable remuneration sensibly lower than the original price’ (Article 14 CPVR). Use of protected material for research purposes is permitted (Article 15), but where that research results in a variety which is ‘essentially derived’ from the protected variety then the protection will extend to the essentially derived plants as well (Article 14[5]). It is not entirely clear how the term ‘essentially derived’ is to be interpreted and it is likely that this will be left to the courts to determine which could give rise to vagaries of interpretation. The right lasts for up to 25 years for a tree or vine and 20 years for all other species (Article 19).

Reactions to the UPOVC Both the 1978 and 1991 Acts have been sharply criticized: the 1978 Act on the basis that it does not provide sufficiently strong protection for the plant breeders and the 1991 Act on the grounds that it places an unacceptable burden on farmers and indeed breeders. Equally both Acts have faced opposition on the grounds that they reinforce the view that plant material should be the subject of a private monopoly right and they could help industrialized countries dominate the markets of developing countries thereby taking the concomitant benefit.42 A key concern is that plant variety protection could lead to a loss of biodiversity. Both patents and plant variety rights are dependent on the plant material protected remaining, to a greater or lesser degree, stable and uniform in order for a right to be granted and to perpetuate. This emphasis on genetic uniformity could encourage a loss of diversity and this again is a key area of concern, which could be mitigated by taking a non-traditional approach to plant protection. There have been suggestions that there should be a further revision of the UPOV Convention to take account of these concerns. In particular it has been Page 321 →suggested that in order to reduce the likelihood of the system encouraging stable genetic uniformity, which might result in the loss of biodiversity, the granting criteria should be amended to require the variety to demonstrate distinctness and indentifiability.43 The idea behind this is that it would still permit private rights to be granted but over less genetically uniform plant groupings thereby stimulating the use of genetically diverse plant material. Another proposal is that there should be a broader concept of plant variety adopted than that currently used.44 However, given the concerns expressed over the extension of private rights to plant material it should be noted that this would have the effect of extending

protection over a broader range of plant material rather than reducing it. In addition to these concerns there is also the fact that neither patents nor UPOV type plant variety rights provide for a benefit sharing mechanism which is regarded by many developing countries as a pivotal provision in the CBD. Because of these concerns the term sui generis in Article 27(3)(b) has provided Member States, opposed to the current norms of plant intellectual property, with a golden opportunity to develop protection which meets their own local needs. The only constraint to this development being that, whilst patent protection or a UPOV right are, presumably, recognized as an ‘effective’ right and therefore compliant with Article 27(3(b), a new untested right could prove more vulnerable to challenge.

Non-UPOV type Plant Variety Protection I am only going to outline each of these in brief as there are others here who are far more qualified than I to explain the detail. In assessing the viability of each of these options it is necessary to bear in mind that the obligation imposed by Article 27(3)(b) relates only to plant varieties and not to plant material in general. An important issue is, therefore, the definition of a plant variety. The TRIPs Agreement merely refers to ‘plant variety’ with no further elaboration as to whether this means a ‘variety’ in a scientific sense, or a legal one (and if so whether this means the UPOV definition) or a combination of the two. It is clear from decisions of the European Patent Office that reliance is placed on the definition used in UPOV.45 Yet it is possibly inappropriate to rely on what is a legal definition. It is clear from Article 1 of the 1991 UPOV Act that plant varieties exist which do not conform to UPOV. There is, therefore, an issue as to whether the requirement set down in TRIPs extends to these as well. Page 322 →An example of defining plant varieties in broader sense can be seen in the draft Thai plant variety law where four definitions are given, plant variety, wild plant variety, general domestic variety, and local domestic variety. The absence of any specific definition of a ‘plant variety’ allows member states to draft their own national terminology, which may or may not conform to the UPOV definition. Intrinsically bound up in these discussions is the issue of protecting the local knowledge and practice, which produced the plant genetic material. This has resulted in attempts to bring within intellectual property legislation broader concepts of protectable material to include local or traditional knowledge, and the results of applying that knowledge, as property, which is owned by the local community. Whilst this is not strictly relevant to the present discussion it is nonetheless interesting to note that the term sui generis is being broadly interpreted to bring in material felt threatened by the use of traditional forms of intellectual property protection. This includes such things as traditional knowledge.

6. The Convention on Biological Diversity The objectives of the CBD are to protect biodiversity, promote sustainable use and to ensure an equitable sharing of any benefits arising out of the use of genetic resources between those providing the material and those using it.46 The role the CBD plays in determining how to appropriately protect plant material is a crucial one for it sets down certain fundamental principles such as sovereignty over genetic material and the right, of those who are custodians of this common heritage, to have a say over the exploitation of indigenous plant material. As has already been stated attitudes towards the relationship between TRIPs and the CBD differ.

There is a school of thought that the two are wholly inconsistent with each other.47 The CBD lays down the principle that member states have sovereign rights over indigenous material whereas TRIPs takes this right away by permitting private rights. It is alleged that an effect of TRIPs is to promote acts of biopiracy. Within this school there is also a divergence of opinion as to which would precedence over the other in the event of conflict. Another school of thought is that the two are wholly consistent with each other. Whilst the CBD enshrines the principle of sovereign rights over indigenous material, it nonetheless recognizes the right of member states to allow private rights to be obtained over this material in return for an equitable share in any benefits which result.48 By so doing the CBD Page 323 →recognizes that there is great interest in realizing the commercial value of genetic material. An interest which can be found not merely within Northern countries.49 This value, it is felt, can only be fully realized through the provision of effective IPRs as set out in the TRIPs Agreement. In order to realize the potential of both the CBD and TRIPs, where countries are members of both, then the view within this school is that they are required to ensure that the two are implemented in a consistent and coherent manner. It can be postulated, therefore, that whilst Article 27(3)(b) mandates plant variety protection, the CBD provides guidance as to the form that protection should take. If this view is accepted, and it is the one which this author prefers, then it can been seen that the CBD provides a critical function in the absence of any express statement in TRIPs as to the substantive elements of the sui generis right. If the hard line approach is followed, that the two are not compatible, then to all intents and purposes the CBD is redundant with regard to informing the provision of protection in compliance with TRIPs. It is suggested that this would be to the detriment of those countries wishing to take advantage of the sui generis option. For it would add weight to the argument that the CBD is not concerned with intellectual property rights and that therefore it is inappropriate to rely upon it for the purposes of complying with Article 27(3)(b). This would lend support to the view that only the provision of either patents or plant variety rights in accordance with UPOV will suffice to meet the obligation. If it is accepted that the two are compatible then any argument that patents or UPOV type plant variety rights are the only acceptable forms of protection becomes more open to challenge. One thing is certain. Member states, which have joined TRIPs, are regarded as having done so voluntarily. They are deemed, therefore, to have agreed to be bound by the obligation contained in Article 27(3)(b). Once this simple fact is recognized then the only remaining decision is the extent to which preconceptions over the status of genetic material as private property should dictate the form of that protection. Article 8j of the CBD sets down the obligation to respect, preserve and maintain knowledge, innovations and practices of indigenous and local communities embodying traditional life-styles relevant for the conservation and sustainable use of biological diversity. Some individuals and organizations50 believe that the rights outlined in the CBD should take precedence over the private property constructs contained within TRIPs. The view is that the CBD contains a priori rights which cannot and should not be disregarded or diminished because of the bias exercised through the economic power of bodies such as the WTO, the sole function of which is to oversee global trade. Page 324 →One of the most important aspects of the CBD lies in its recognition of the rights of local communities. It, therefore, provides developing countries with a basis for preventing foreigners from benefiting from local, traditional, knowledge as well as protecting access to indigenous genetic resources. One of the major concerns developing countries have is the extent to which traditional knowledge is ignored by some Northern countries when it comes to assessing prior art. The concern is that this knowledge is being disregarded for the purposes of assessing novelty if it is not published or printed. As much traditional knowledge is handed down from generation to generation by practice and word of mouth it is often not committed to a fixed form. Because of this it is not regarded as in the public domain and is either ignored or dismissed as irrelevant.51 One of the effects of the CBD is to raise the profile of traditional knowledge thereby making it more difficult for patent applicants and patent offices to dismiss its existence. With regard to the development of a new sui generis private right, albeit one which is communally held, there is, however, a problem with relying on the CBD. Namely that it does not define the material which could be regarded

as property nor does it explain terms such as indigenous and ‘Community’. This makes it difficult to ascertain what can be protected and who can claim the right. This latter issue is highlighted by the fact that communities have traditionally been dependent on each other for the exchange of information, including genetic material. Where genetic material has been used by more than one community it could prove difficult to determine to which community the right should attach. This could result in any benefits accruing being devolved to a number of communities thereby diminishing the value of the right. In addition to recognizing the rights of those who husband indigenous genetic material the CBD also promotes the sustainable use of this material. Article 2 states that this is to be achieved through ensuring that genetic resources are used in such a way, and at a rate, which does not lead to the long-term decline of biological diversity. As already stated there is a concern that traditional forms of intellectual property rights, with their emphasis on genetic uniformity and on the controlled use of certain genetic characteristics, for example the Terminator gene, are being used to protect the intellectual property embodied in the plant. As a result they promote, not sustainable use, but rather unsustainable use.52 This reason for this concern is the fear that commercial incentives underpin the decisions of the multi-nationals to the exclusion of other considerations. This leads to pressure not merely to realize the financial potential of new plant varieties, but also to ensure that valuable varieties are protected from copying once marketed. This could mean that only those Page 325 →varieties which meet the genetic uniformity requirement necessary for protection or those which are designed not to reproduce will be placed into the market place. This could have the effect of reducing not sustaining biodiversity.53 This view can be countered by arguing that traditional breeding, undertaken with no view to obtaining intellectual property protection, itself gives rise to a loss of biodiversity. Unlike commercial breeding programs there is no incentive to differentiate between varieties, and there is less likelihood of safety controls being implemented which assess and minimize any risks resulting from the use of the variety. To date there has been no firm proof that either type of plant breeding activity results in a reduction of biodiversity. However the absence of firm data either way should not serve to dismiss either view out of hand. It would be more appropriate to wait until a full environmental impact study has been undertaken before drawing any firm conclusions.

The CBD and Traditional Resource Rights One proposed way of using the CBD as the basis for a new intellectual property right is by implementing it in the form of a Traditional Resource Right (TRR). The TRR was first proposed by Posey and Dutfield54 and takes the form of a framework of rights which ‘reflect the diversity of contexts where sui generis systems are required’. The term Traditional Resource Right is intended to reflect a building on existing intellectual property right principles, in the sense of utilizing the concepts of protection and reward/compensation, ‘while recognizing that traditional resources — both tangible and intangible – are also covered under a number of international agreements’ and these ‘can be used to form the basis for a sui generis right’. TRRs will protect both tangible and non-tangible local assets of all kinds (including ‘plants, animals and other material objects that may have sacred, ceremonial, heritage, or aesthetic qualities’) on the basis that they are of value to the local community. The rights can be used to protect, compensate and conserve. In establishing this framework it is proposed to take account of: rights arising out of moral and ethical considerations; soft-law which emanates from customary practice and non-legally binding international instruments; legally binding instruments; and Page 326 →the need to provide an equitable basis for all participants enabling full participation in the establishment of policy and practice.

It is also recognized that the rights of communities are subject to change, they are fluid concepts, and as such should not be confined or constrained by restrictive legal definitions. Access to genetic material would be provided on the basis of agreements, such as the Material Transfer Agreement, which would ensure that resources and expertise were provided in return for access. This would enable the development of the local plant breeding and bioscience industries. The role the CBD is playing in the determination of appropriate local responses to Article 27(3)(b) is obviously a critical one, but the strength of opposition to it should not be underestimated. It is viewed as undermining the right of companies who invest in bioscience research to make full use of genetic resources, and the products of that research, and recoup the investment made. In short it is seen as an impediment. It should be noted, for instance, that the USA is not a signatory to the Convention. One of the reasons for the US’s abstention from membership being that the Convention could weaken the economic position of US biotechnology companies. This means that there is a very real possibility that any rights established on the basis of the CBD would be challenged. The basis for this challenge being that the rights do not conform to rights recognized by the TRIPs Agreement and there they do not meet the requirement of being ‘effective’.

7. The International Undertaking on Plant Genetic Resources The International Undertaking on Plant Genetic Resources is a non legally binding instrument, adopted in 1983 by the Food and Agricultural Organization (FAO) of the United Nations. Its initial premise was to establish that genetic resources were the common heritage of mankind and as such access to this material and its use should be based on international co-operation rather than individual monopolization. Since its adoption it has been subject to a number of revisions which have gradually narrowed the scope of the Undertaking. For our purposes the most important of these is the recognition that whilst plant genetic resources are the common heritage of mankind it is, nonetheless, subject to national sovereignty and that plant variety rights (as set down by the UPOV Convention) do not conflict with the basic principles set down in the Undertaking. In exchange for agreeing not to dispute the use of plant variety rights, developing countries obtained acceptance of the concept known as ‘Farmers’ Page 327 →Rights’. This right is based on the recognition of the contribution made by farmers to preserving biodiversity. This recognition gives rise to rights arising out of ‘the past, present and future contribution of farmers in conserving, improving and making available plant genetic resources’.55 The International Undertaking acknowledges the impact farmers have had, and will continue to have, on the preservation of genetic resources and seeks to ensure the continuation of these practices. The function of the Undertaking is to ensure that the work of farmers should be recognized and rewarded. For the purposes of implementing the obligation imposed under Article 27(3)(b) the issue is whether or not any right based on the International Undertaken can be recognized as an intellectual property right.56 If Farmers’ Rights is to be regarded as an intellectual property right then a number of questions arise not least of which are defining i) the property and ii) who can claim the right? As with the CBD the language used in the Undertaking is very broad and open to ambiguous interpretation. The traditional justification for the grant of a patent is the demonstration of something new, something which, but for the inventor, would not otherwise exist. It is unlikely that the plant material ‘created’ by farmers would be the result of any intensive breeding program; it may have been carefully husbanded by the farmers, but it would be difficult to claim that it results from an intellectual input of the kind required for a patent. The right is therefore closer to a plant variety right, which can be obtained over both discoveries, and over the results of extensive breeding programs. But again a direct comparison is not appropriate. A plant variety right is

granted over specifically delineated subject matter: a plant grouping which in its essential characteristics is distinct, uniform and stable following respected reproduction. In contrast it is not clear over what the Farmers’ Right will be granted. It would seem, however, that it will not be over a defined thing, such as a stable, uniform and distinct plant grouping. Instead the right recognizes a truly intangible concept: the contribution made to conserving, improving and making available plant genetic resources. Equally problematic is the lack of a definition of a ‘farmer’. This makes it difficult to determine with any certainty the group, which will be able to rely on this right and of whom any potential infringers should be aware. In a world where there is increasing pressure to extend intellectual property protection to ever more categories of material there is conversely a reluctance to introduce new intellectual property rights. Reliance is rather placed on the ability of governments and granting offices to extend protection through existing provision. It is likely that any attempt to categorize the currently nebulous Farmers’ Right alongside patents and plant variety rights will meet with resistance. Page 328 →But this should not act as a bar to Farmers’ Rights forming part of a sui generis system, although doubt might be cast whether, on its own, it could be regarded as ‘effective’. To avoid this it would appear that Farmers’ Rights is not being legislated for in isolation but is rather being incorporated into other legislative instruments such as plant variety rights, access to biodiversity systems and conservation programs.

Responses to the CBD and International Undertaking Recent conferences have shown that developing, less developed and least developed countries are drawing heavily on the both the CBD and the International Undertaking in formulating their sui generis systems. At both the New Delhi Conference in January 1999 and Nairobi Conference held in February 1999 concern was voiced that the TRIPs Agreement was forcing member states to avoid addressing issues of access and equitable sharing of benefits and concentrate on the provision of effective intellectual property protection. Many member states were, instead, more concerned with a proper and effective implementation of the obligation agreed to under the CBD and the protection of indigenous material and traditional knowledge.57 The overriding view expressed at these meetings was that intellectual property rights should not be available over indigenous plant material or traditional knowledge. Instead countries concerned with the acquisition of such rights should ensure that local plant material is protected from piracy, exploitation and monopolization. Lying behind this is the view that such rights are simply another form of colonization and domination. There was acceptance of the need to take some form of legal action to protect local rights but it was nonetheless the overwhelming view that political pressure should be exerted to have the obligation imposed by Article 27(3)(b) removed thereby enabling member states of TRIPs to exclude varieties from protection. Recognizing that for the foreseeable future they were bound to implement Article 27(3)(b), the views were that it should be implemented on the basis of a code of provision which takes account of Farmers’ Rights and the establishment of gene funds. It should also set out clearly, and on a proper legal footing, the principles enshrined in the CBD, particular those relating to sustainable use and development. In so doing the objective is to establish a system of best practice which could later be assessed to see if it meets the requirement of being effective. At the heart of these discussions was the view that the WTO should recognize and respect the decision to implement Article 27(3)(b) in this manner. It was also regarded as vital that new legislation should be morally neutral but that it should expressly take account of any environmental or Page 329 →social impacts the new varieties may have to ensure that ‘they do not threaten agro-diversity and community rights’. It can be seen, therefore, that developing countries are looking to more than one model for the determination of their sui generis system. The resulting sui generis right may, therefore, incorporate aspects of patent and plant variety rights law, but it could also include new concepts derived from the International Undertaking and the

CBD. The question now is whether these rights would be regarded as effective and thereby compliant with Article 27(3)(b). Acting as a focus for these deliberations is the current review of Article 27(3)(b). Whilst the most likely result is that the status quo will be retained, the possibility that the optional exclusion might be removed or extended should not be ruled out.

8. The 1999 TRIPs Revision Article 27(3)(b) was ostensibly up for revision in 1999. I say ostensibly since the review appears to have been deferred indefinitely until such time as TRIPs in its entirety is to be reviewed as part of what is being termed ‘TRIPs Plus’. The deferral is not being unwelcome. Developing countries had until December 31st 1999 to implement legislation in accordance with Article 27(3)(b), for less developed countries the requirement to implement is yet further postponed until 2005. It would have been difficult to hold a full and informed review of current provision when many of those member states of TRIPs, with no prior history of providing protection for plant varieties, have not yet implemented Article 27(3)(b) and indeed had until the end of 1999 to introduce appropriate legislation. Even if all the legislation were in place it would be difficult, without a significant lapse of time, to assess whether or not the provision is appropriate.

Possible Outcomes There are a number of possible outcomes which could result from the review. The first is that Article 27(3)(b) will be retained. In this event the only remaining question will be whether the non-conventional sui generis systems of protection are effective. This would presumably be an issue for the dispute mechanism of the WTO. The second possibility is that the optional exclusion will be removed. If this happens then Member States would be required to comply with the stricture in Article 27(1) to protect all inventions. The only exclusions Page 330 →from protection would be if the commercial exploitation of the invention is contrary to morality (Article 27(2)) or if it took the form of a diagnostic, therapeutic or surgical method for treating humans or animals (Article 27(3)(a)). It is unlikely that either of these would prove effective in for the purposes of excluding patent protection for biological material. On the face of it Article 27(2) could be invoked to permit member states to exclude all inventions involving genetic material (for example, pharmaceuticals or human genetic material). The non-exhaustive list of matters to be taken into account when assessing if something is contrary to morality – for example human, animal and plant health – could be interpreted to exclude all living material. However it is not certain whether Article 27(2) could be relied upon to exclude whole categories of potentially patentable subject matter. It is possible that such an extensive application could be challenged on the grounds that it runs counter to the primary obligation to provide effective and appropriate intellectual property protection. A further problem with relying upon Article 27(2) is defining morality within a patent law context. The European experience provides a prime example of the problems, which have been encountered. Article 53(a) of the European Patent Convention (EPC) states that patents may not be granted for invention the publication or exploitation of which would be contrary to morality. To date this has only been invoked in respect of inventions involving biological material. The Guidelines to the EPC state that the invention must be ‘abhorrent’ in order for Article 53(a) to apply and an example of a letter bomb is given. To date no appeal brought before the European Patent Office, which has been based on morality, has been successful.58 This could be a cause for concern for those who might hope to rely on the European experience.

As an aside it is interesting to note that Article 53(a) of the EPC makes reference to ‘exploitation or publication’. Article 27(2) in contrast refers qualifies this to ‘commercial exploitation’. The Article 27(2) wording has also been recently adopted in Article 6(1) of the EU draft directive on the Legal Protection of Biotechnological Inventions. It is not clear yet what effect, if any, this qualification will have on the type of cases which are brought or on the issues which will be deemed appropriate for consideration when determining morality (It should be noted that one of the issues for consideration at the forthcoming Diplomatic Conference to revise the EPC is the rewording of Article 53(a) to bring it into line with Article 27(2).) It is also possible that Article 8 of TRIPs could be used to justify any exclusion of plant material from patent protection. It states that: ‘Members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutrition, and to promote the public Page 331 →interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement.’ This could provide member states with a legitimate basis for restricting the availability of intellectual property protection over certain inventions in the pharmaceutical or agricultural sectors where, for example, the protection might make it the cost of access prohibitive or cause economic harm. However it is not clear if this provision will permit a Member State from excluding plant material from protection or if it only operates to any regulation relating to access to and use of the protected material. The third possibility is that Article 27(3)(b) could be revised making UPOV the only acceptable alternative protection. Whilst this would presumably permit both the 1978 and 1991 Acts, it is likely that there would be political pressure exerted from some quarters to require those countries which have adopted the 1978 Act to upgrade their protection to the 1991 Act. The final option is that Article 27(3)(b) could be amended to enable Member States to exclude all genetic material from intellectual property protection. Given the extensive discussions which have taken place about why intellectual property protection should be provided, any country which chooses this option would do so in the full knowledge that they would, in effect, have decided not to have access to the certain new agricultural and pharmaceutical products. Whichever of the options is chosen it is likely that developing and least developed countries will insist on a system of controlled access to indigenous genetic material and permit use only on those terms most beneficial to the local interest. This option is favored by groups such as GRAIN and RAFI and has is support within many developing countries. It is, however, strongly opposed by Northern countries. As already mentioned above in respect of attempts to introduce equivalent provisions into the EU directive on the Legal Protection of Biotechnological Inventions met with little success. The view of organizations such as the International Chamber of Commerce is that if TRIPs is reviewed then it should on the basis of taking into account new technologies and it should not be undertaken in a manner which puts at risk those commitments already entered into under the current Agreement.

Page 332 →9. Conclusions One of the main stumbling blocks to accepting either patents or UPOV type protection is the fact that they are seen as the tools of big industry. Because of this they are regarded by many developing countries as serving the interests of foreign companies wishing to exploit the local market. They are not seen as providing protection for the local community. Alternatives are therefore being sought. The primary objective of these new rights is to meet local as opposed to foreign need. In determining the form of these right great emphasis is laid on the need to protect community or a collective interest in local plant material. When assessing these proposed rights it is important to remember that most North countries have been debating whether or not to protect plant material for many decades. These debates have been freely undertaken and have

not been dictated by a requirement, externally imposed, to provide protection. The subsequent protection is based on local need and interest. In contrast, the countries in the South do not have a history of debating this issue and the debate they are having now is taking place within the context of implementing the TRIPs Agreement. As the existing intellectual property provision is regarded as a Western invention there is a suspicion that if patents and/or UPOV type protection are adopted without any local refinement that they will be used to protect the interests of foreigners wishing to exploit indigenous material. It is hardly surprising therefore that they are trying to devise locally appropriate protection, which may or may not be based on the existing concepts. The fact that they are still in the process of having this debate should not deny them the right to determine for themselves the best and most effective means of complying with Article 27(3)(b). It is the role of Northern countries to provide them with sufficient information upon which they can make an informed and appropriate decision. It is clear that until the systems of protection which are being developed have been tested to determine whether or not they are effective there is no single answer to the question as to which should rule in international trade. What each of the varying ways of responding to the requirement of the provision of a sui generis system indicates is that there is growing acceptance of the notion that genetic material is a resource, which can be bargained over. If this premise is universally accepted (and there are still many who object to it) then the issue becomes one of ensuring that the parties to the bargain are in equal position to ensure that there is no abuse of power or position. In making this determination it is essential that those countries which are starting from a preconceived idea of the form plant variety protection should refrain from adopting a narrow view when it comes to responding to Page 333 →alternative forms of protection. They should remember that their existing formulation came about as a result of a determination as to what was in their national interest. It was not forced upon them at the insistence of other countries. It would be easy and convenient to insist upon either patents or UPOV type protection, but that is plainly not the preferred route of all member states and this should be respected. In an ideal world it might be desirable to exclude plant material from intellectual property protection altogether; however, it is unlikely that this will be the outcome of any review of either Article 27(3)(b) or TRIPs as a whole. In light of the acknowledgement of plant genetic resources as a valuable commodity in both TRIPs and the CBD the onus is on us all to ensure that those rights which are provided (whether patent or sui generis) serve the needs of both private and public sectors. In so doing it is not a case of which rules but rather of which ensures the continued availability of not only the basic genetic material but also the products, which result from, realizing the potential contained within them. We should bear in mind that the developing countries are actually in a potentially strong bargaining position given that they are custodians of the material Northern countries wish to use. They can dictate the terms of access provided they are sufficiently empowered to put in place effective and appropriate local measures, which reflect the local need. These measures should then be internationally respected and adhered to even if they do not met certain preconceived norms as to what they should be. As a recent European Commission position paper on the forthcoming TRIPs review put it ‘It is the governments which must put in place appropriate domestic policies and these policies must then be supported by incentive based multi-lateral and bilateral agreements... A central benchmark of the New Round should be sustainable development [and] trade and environment policies should play a mutually supportive role’. In taking this stance it must be remembered that these countries are not merely consumers of products produced by Northern countries but that they also have a role to play as producers and inventors. In order to establish this level playing field it is essential to let those countries new to providing IPRs have time to realize the local benefits of having such rights. This could result in an incremental development of these rights, which may or may not result in equivalent protection to Western concepts of patents and plant variety rights.

Respecting the need to move slowly will provide the existing public sector with the protection they need to continue their research programs and it will also serve to encourage the development of the private sector. It is vital that these countries are given the time to develop their own private plant breeding industry and enable them to carry out R&D on their indigenous material, and to trade fairly and equally in Page 334 →the products of this research safe in knowledge that they have been given the opportunity to realize their full economic and genetic potential.

NOTES 1. Article 1. 2. Preamble to the Agreement. 3. See for example Shiva, Biopiracy: The Plunder of Nature and Knowledge, Green Books Ltd. 1998, and Verma, ‘TRIPS and Plant Variety Protection’ [1995] 6 European Intellectual Property Review 281. 4. For these arguments in detail see Genetic Resources Action International (Grain) at http://www.grain.org and in particular http://www.grain.org/publications and http://www.grain.org /publications; and Rural Advancement Foundation International (RAFI), http://www.rafi.org/. 5. The only direct reference to intellectual property rights is in respect of technology transfer, for example Article 16(2) states that ‘access to and transfer [of technology] shall be provided on terms which recognize and are consistent with the adequate and effective protection of intellectual property rights’ The use of the wording ‘adequate and effective protection’ expressly mirrors the language of the TRIPs Agreement which states in the Preamble that one of the central purposes of the Agreement is to promote ‘effective and adequate protection’ of intellectual property. 6. See for example International Chamber of Commerce Policy Statement TRIPs and the Biodiversity Convention: What Conflict? Document No 450/897 Rev 28 June 1999. 7. Preamble to the TRIPs Agreement. 8. 35 USC 101 simply states that protection is available to ‘whoever invents or discovers any new and useful process, machine, manufacture, or composition of nature, or any new and useful improvement thereof. 9. Articles 52 and 53 EPC. These include ‘discoveries, methods of human treatment, inventions the exploitation of which would be contrary to morality and plant & animal varieties’. 10. The question of the extent to which TRIPs requires member states to provide patent protection for human genetic material could be about to be put to the test. See, for example, the recent UK and the USA announcement concerning the banning of patents over basic human genetic material. In the absence of any direct provision permitting such a ban it would seem that such an agreement could be in violation of the obligation to protect all inventions irrespective of the field of technology. It is possible that reliance might be placed on Article 27(2) which permits member states to exclude inventions where it is necessary to do so to protect amongst other things human health and Article 8. In respect of Article 27(2) there is, to date, no jurisprudence on this provision. Given that it is commonly recognized that the Page 335 →reference to morality was introduced at the instigation of Europe, to ensure parity with the current provisions of the European Patent Convention (Article 53(a) EPC). It is possible that any dispute might refer to the jurisprudence of European Patent Office. Past practice of the EPO, as demonstrated by those cases cited in note 16, and the fact that the Administrative Council of the EPO recently implemented the EU directive on the Legal Protection of Biotechnological Inventions (Directive 98/44/EC) which expressly permits patents for human genes on the grounds that they promote medical research, indicates that it is unlikely that the provision could be relied upon as support for this action. Equally Article 8 is an unknown quantity and it unclear as to what extent, if any, Member States can use this provision to exclude certain categories of inventions from patent protection. 11. It is not clear from the text of TRIPs whether or not it remains possible for Member States to circumvent the Article 27(3)(b) exclusion using Article 27(2) or whether the mandate in Article 27(3)(b) overrides all other routes for exclusion. 12. See Laclaviere, ‘The Convention of Paris of December 2, 1961, for the Protection of New Varieties of Plants and the International Union for the Protection of New Varieties of Plants’ (1965) October, Industrial

Property 224; Laclaviere, ‘A New Intellectual Property Union is Born: The International Union for the Protection of New Plant Varieties’ (1969) 8 Industrial Property 154; UPOV, ‘History, Development and Main Provisions of the UPOV Convention’ (1987) 7/8 Industrial Property 320; Greengrass, UPOV and the Protection of Plant Breeders – Past Developments, Future Perspectives (1989) IIC 622; Greengrass ‘The 1991 Act of the UPOV Convention’ [1991] 12 European Intellectual Property Review 467. 13. See for example Llewelyn, ‘The Legal Protection of Biotechnological Inventions: An Alternative Approach’ [1997] 3 European Intellectual Property Review 115. 14. See supra notes 3 and 4 and Sterckx, Biotechnology, Patents and Morality Ashgate Publishing Ltd 1997. 15. Supra note 4. 16. See Harvard/Onco-mouse [1990] EPOR 501, Plant Genetic Systems/glutamine synthetase inhibitors (T356/93) [1995] EPOR 357 and Howard Florey/Relaxin[1995] EPOR 541. In each case the arguments relating to morality was dismissed by the relevant examining board of the European Patent Office – it should be noted that Harvard/Onco-mouse is still on appeal. 17. See for example supra note 16; for a more detailed discussion see Wegner, Patent Law in Biotechnology, Chemicals & Pharmaceuticals Stockton Press, 1992 and Grubb Patents for Chemicals, Pharmaceuticals and Biotechnology 3rd ed. Oxford University Press 1999. 18. The recently adopted EU directive on the Legal Protection of Biotechnological Inventions specifically states that biological material ‘which is isolated from its natural environment or produced by means of a technical process may be the subject of an invention [and patentable] even if it previously occurred in nature’ (Article 3(2)).Page 336 → 19. Examples of the detailed arguments presented in favor of patenting living material can be seen in see Straus, Patent Protection for New Varieties of Plant Produced by Genetic Engineering (1984) 15 IIC 426; The Protection of Plant Varieties and the Debate on Biotechnological Inventions UPOV/INF/11 (1986); Straus, The Relationship between Plant Variety Protection and Patent Protection for Biotechnological Inventions (1987) IIC 723. 20. The Guardian, Monday September 20 1999 – see also footnote 10. 21. The EU biotech directive states in Article 5(2) that an element isolated from the human body or otherwise produced by means of a technical process, including the sequence or partial sequence of a gene, may constitute a patentable invention, even if the structure of that element is identical to that of a natural element. That this is intended to promote medical research can be seen from Recital 17 which states that whereas significant progress in the treatment of diseases has already been made thanks to the existence of medicinal products derived from elements isolated from the human body and/or otherwise produced, such medicinal products resulting from technical processes aimed at obtaining elements similar in structure to those existing naturally in the human body and whereas, consequently, research aimed at obtaining and isolating such elements valuable to medicinal production should be encouraged by means of the patent system. The directive was recently implemented by the European Patent Office. Decision of the Administrative Council 16 June 1999 to Amend the Implementing Rules of the European Patent Convention. 1999 OJ EPO 437, 1999 OJ EPO 573. Rule 23(e) of Part II of the Implementing Regulations of the EPC, mirrors exactly the text of Article 5 of the Directive. The Regulations came into effect on 1 September 1999. The UK implemented the Directive on 28 July 2000 when the Patent Regulations 2000 came into force. Other countries are encountering greater difficulties, for example in France the implementing legislation is being held up due to concerns that it violates the existing French law on Bioethics and in Germany the Green Party is blocking the adoption of the proposed new legislation. 22. Pioneer Hi-Bred International Inc v J.E.M. AG Supply Inc 49 U.S Patents Quarterly 2nd ed. 1813 (N.D. Iowa 1998); 2000 US App. LEXIS 682 (Federal Circuit 2000) 23. Diamond v Chakrabarty 206 US Patents Quarterly 193, 1980. This was the case that gave rise to the famous dictum ‘anything under the sun made by man’ in response to the question as to what, if anything, should be protected by a patent. 24. Ex parte Hibberd 227 US Patents Quarterly 443, 1985. 25. For example, the Director of the Rockerfeller Institute told Monsanto in June 1999 that it should take note of public concerns over its use of intellectual property rights in order to monopolize genetic information.

26. This lack of consensus can be seen in differing views of the Board of Appeals at the EPO in respect of the recent Novartis decision. The case centered on the definition of a plant variety for the purposes of exclusion under Article 53(b). In 1998 the Technical Board of Appeal rejected the argument that a claim which encompassed a plant variety, but which did not claim a plant variety as such, was not excluded. The Board also stated that it was not required to look to the EU biotech directive for the Page 337 →purposes of interpreting the EPC. Recital 31 of the directive states that plant groupings, characterized by a particular gene and not protectable by plant variety rights, are patentable even if they comprise new varieties of plants. The issue was referred to the Enlarged Board of Appeal. In December 1999 the Enlarged Board of Appeal reversed the decision of the Technical Board stating quite emphatically that Article 53(b) only applied to those claims which related to plant varieties as such. For the decision of the Technical Board of Appeal and a discussion of it, see Novartis/Transgenic plant [1999] EPOR 123; [2000] EPOR 303. See Nott, ‘The Novartis Decision in the EPO’ [1999] European Intellectual Property Review 33; Vossius & Schnappauf, ‘Comments on the Referral Decision T 1054/96 Transgenic Plant/Novartis’ [1998/1999] Bioscience Law Review 179; and Llewelyn ‘European Plant Variety Protection: A Reactionary Time’ [1999] Bioscience Law Review 211. 27. Action brought on 19 October 1998 by the Kingdom of the Netherlands against the European Parliament and Council of the European Union Case C-377/98, Official Journal of the European Communities C 378/13. It is also thought that Italy has joined the Netherlands in the action. See also Scott The Dutch Challenge to the Bio-Patenting Directive [1999] EIPR 212. The basis for the challenge is predominately procedural but it is also asserted that directive creates more uncertainty than it resolves and that certain of its provisions violate human dignity. 28. In identifying and explaining these suggested methods of protecting plant material the author owes a deep debt of gratitude to Graham Dutfield of the Oxford Center for the Environment, Ethics and Society, Oxford University. 29. Ley de Biodiversidad 1998. 30. This comprises Bolivia, Columbia, Ecuador, Peru and Venezuela. In 1996 they collectively enacted their Common System on Access to Genetic Resources. 31. For a critical analysis of this proposition see Gupta, Suggested Ethical Guidelines for Assessing and Exploring Biodiversity at [email protected]. For an excellent discussion and analysis of all these issues see Dutfield, Intellectual Property Rights Trade and Biodiversity: Seeds and Plant Varieties IUCN, Earthscan Publications Ltd., London 2000. 32. Supra note 12. 33. 161 35 USC ‘Whoever invents or discovers and asexually reproduces any distinct and new variety of plant, including cultivated sports, mutants, hybrids, and newly found seedlings, other than a tuberpropagated plant or a plant found in an uncultivated state, may obtain a patent therefore, subject to the conditions and requirements of title. The provision of this title to patents for inventions shall apply to patents for plants, except as otherwise provided.’ 34. 7 USC 2402 ‘The breeder of any novel variety of sexually reproduced plant (other than fungi, bacteria or first generation hybrids) who has so reproduced the variety, or his successor in interest, shall be entitled to plant variety protection thereof, subject to the conditions and requirements of this title.’ 35. Supra note 12 — for a discussion of these issues within a specific jurisdictional context see the UK’s HMSO Plant Breeders’ Rights Report of the Committee on Transactions in Seeds, Cmnd 1092 (1960).Page 338 → 36. See Plant Variety Rights: An Outmoded Impediment? A Seminar Report Intellectual Property Institute, London 1998. 37. It should be borne in mind that the US already regarded the inclusion of the optional exclusion of plant varieties from patent protection as a concession. Any attempts to further water down the available rights by deviating from the acceptable legal norms of protection, patents and UPOV protection, are likely to meet with resistance. 38. See, for example, supra notes 3, 4 and 14. 39. For a discussion of the 1991 revision of the Convention see Greengrass supra note 12. 40. See Report on Activities During the First Nine Months of 1999 International Union for the Protection of New Varieties of Plants C/33/3 October 1, 1999.

41. One interesting result of recognizing non-protectable plant varieties as plant varieties is that is does created a problem over relying on the UPOV definition for the purposes of applying the exclusion in patent law, whilst it might be thought sensible to define excluded plant varieties as those plant groupings which are protectable under UPOV, the fact that UPOV recognizes another category of varieties which are not protectable makes it more difficult to determine with precision material excluded under patent law. See Llewelyn supra note 13 and Llewelyn ‘The Legal Protection of Plant Varieties in the European Union: A Policy of Consensus or Confusion?’ [1997] 2 Bioscience Law Review 50. 42. See RAFI supra note 4. 43. Ibid. 44. See for example the draft Thai Plant Variety Rights Bill. 45. Plant Genetic Systems/glutamine synthetase inhibitors (T356/93) [1995] EPOR 357; Novartis /Transgenic plant [1999] EPOR 123 (decision of the Technical Board of Appeal) and the recent decision of the Enlarged Board of Appeal, G 0001/98, 1999. See supra note 26. 46. For an excellent discussion of these issues see Lesser Sustainable Use of Genetic Resources under the Convention on Biological Diversity, CAB International 1997. 47. Supra notes 3 and 4. 48. Supra note 6. 49. This can be seen in the fact that a number of countries have introduced legislation designed to ensure that access both to indigenous plant material and to any wealth generated from it is controlled by the country concerned see, for example the Thai draft Plant Variety Protection Bill and the Andean Pact Common System on Access to Genetic Resources. 50. See notes 3 and 4. 51. A commonly cited example is that of the Turmeric patent granted in the USA. The patent related to methods of administering turmeric for the purpose of healing wounds (both in internally and externally). Turmeric had been used by Indians for many generations as both a food and medicinal product – however this use had not been reported in any official journals. It was therefore dismissed as ‘prior art’. The patent was latter revoked due to a lack of novelty.Page 339 → 52. See supra note 6 for an refutation of this claim. 53. Supra note 4 and in particular RAFI’s paper Plant Breeders’ Wrongs. 54. See for example, Dutfield & Posey Indigenous Peoples and Sustainability: Cases and Actions 1997 IUCN, International Books, Utrecht; Dutfield & Posey Beyond Intellectual Property: Towards Traditional Resource Rights for Indigenous Peoples and Local Communities 1996 International Development Resource Center, Ottawa; Dutfield & Posey Traditional Resource Rights: International Instruments for Protection and Conservation for Indigenous Peoples and Local Communities 1996 IUCN, Gland. 55. For a detailed discussion and analysis of this right, see Girsberger Biodiversity and the Concept of Farmers’ Rights in International Law, Peter Lang 1999. 56. Presuming that the obligation in Article 27(3)(b) can only be met by an intellectual property right. There is nothing in the Agreement to say that the sui generis system has to take the form of an intellectual property right. Indeed there is an argument for saying that the plant variety rights system is not a member of the intellectual property law family, on the basis that the rationale for grant is distinct from other forms of intellectual property right – particularly with regard to the lack of any requirement that the variety must be novel or original in the patent or copyright senses. Certainly texts on intellectual property law often, with few exceptions, either ignore plant variety rights or relegate it to an appendix under headings such as ‘related rights’ See, for example, World Intellectual Property Organization (WIPO) Introduction to Intellectual Property Theory and Practice Kluwer Law International 1997. 57. For a discussion of this see Blakeney Biotechnology, TRIPs and the Convention on Biological Diversity’ [1998/99] 4 Bioscience Law Review 144. 58. Supra note 16.

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* Senior Lecturer in Intellectual Property Law Deputy Director, Sheffield Institute for Biotechnology, Law and Ethics, University of Sheffield. Page 340 →

Page 341 →CHAPTER 20 Patenting of Life Forms – The European Experience and Perspectives Joseph Straus*

1. A Confession When I accepted the kind invitation to participate in this Forum and to deliver a talk, Thomas Cottier thanked me cordially and added that he was looking forward to the discussion! I am mentioning this because he put an exclamation mark behind that sentence. It is the interpretation of that exclamation mark, whether right or wrong, which makes me feel obliged to make a few confessions just at the outset in order to introduce and clarify my views on some issues of interest, which might be viewed beyond the task assigned to me. One could say, I just don’t want to disappoint the organizer and am trying to justify his punctuation. Firstly, I am basically a believer in the overall positive macro-economic effects of intellectual property rights, in particular patents. However, I claim not to be a blind, but a critical one. I am not willing to accept that particularistic interests are presented as those of a society as a whole, be they those of the pharmaceutical industry, of farmers or of plant breeders. I also believe in advantages of the market economy. I am of the opinion that a system of intellectual property rights protection, weak or strong, which has proved beneficial and successful in macroeconomic terms should be maintained, but I expect evidence of the past success. Therefore, I have difficulties to share concerns about, resistance against and even more so rejection of an effective protection of intellectual property rights, especially in the area of biotechnology or more specifically in the area of plant biotechnology, as long as the experience from the past does not reveal that, for instance, the complete lack of any kind of protection resulted Page 342 →in a prosperous use and further development, i.e. adjustment to local climate and soil conditions, of successful plant varieties developed abroad and in a flourishing farming, which had been cautiously avoiding the erosion of biodiversity and extinction of species. My basic understanding of the intellectual property rights system is that the protection conferred should always be commensurate with the contribution or contributions to the state of the art, and that all contributions should be taken into account in a balanced way. The system is in place in order to promote the technological, economic and social progress and to secure that intellectual creations, i.e. intangible goods, are treated, as far as technically possible, the same way as the tangible ones, at national as well as at international level.1 This leads me to a short comment on the neem tree syndrome: to my understanding, it should be in the interest of the humankind to benefit in the best possible way from the remarkable pharmaceutical effects of chemical substances contained in such plants as the neem tree. It should be at the same time in the very best interest of the provider country, in the case at hand India, to benefit to the best possible extent from commercial exploitation of those substances, and it should be the responsibility of the provider countries to share the benefits accrued with those who have contributed to the conservation of the valuable plants at hand, i.e. the indigenous people of India. Thus, to provide for an adequate legislation on access to genetic resources and benefit sharing. This further presupposes realizing that the relatively limited local use of the substances at hand does not serve the need of all people in India, not to speak of patients in Switzerland, Peru or Alaska. In turn, one has to understand that making available the substances of the neem tree or other similar plants as successful ordinary medicines requires huge investments, which will only be effected if a kind of exclusivity of exploitation will be available. Eventually, instead of being outraged and raise accusations of bio-piracy and instead of undertaking all efforts to prevent future patenting of similar biological events in the USA by collecting and publishing all the information relevant to such substances, one should realize that in the end not only Grace, the US neem patent owner, but also patients in many countries and, if adequate legal instruments would have been available in India, India and the indigenous people could and would benefit from the, admittedly, somewhat obscure notion of novelty under the US Patent Act, which encouraged and secured the investments of Grace.2

Coming closer to the assigned task, I have to admit difficulties to follow critics of patenting in the area of plants presumably because of lack of the so called breeder’s and farmer’s privilege, but who seemingly have no problems with the UPOV type of protection of hybrid plant varieties, even without disclosure, without access to parental lines, and with the breeder’s privilege being explicitly excluded by law, and that of farmers being not existent by Page 343 →the simple fact that saved seeds are not fertile. Since I shall be addressing the situation in Europe, where we have to fight against an ever increasing overproduction of agricultural products, as well as against a too extensive use of agro-chemicals, thus are clearly in need, in the first place, of new attractive products, which could find their markets without subsidies and which will at the same time be environmentally tolerable and have improved nutritional and health value, i.e. so-called ‘functional foods’ and ‘nutraceuticals’,3 several other aspects have to be emphasized. For instance, I have a problem in believing that the means for the production of such new products could be and will be delivered free of charge to the propagators, multipliers, traditional plant breeders and farmers. Bearing in mind the present situation in Europe, this exactly seemed to have been the prevailing attitude at least prior the adoption of the Biotech Directive: In Germany, for example, in the late 80s the expenditures for agro-production per hectare were as follows: 150-200 DEM for seeds, including 8-15 DEM as licensing fees for certified protected seeds; 320-420 DEM for pesticides and herbicides; and some 1000 DEM for subsidies. Even if assuming that if patents would be involved more licensing agreements would be necessary and higher licensing fees due, say two to three times of the indicated amount, i.e. some 45 DEM per hectare, the price of the ‘pure plant biotechnology’ would still constitute only roughly 2.5% of the overall expenditure per hectare.4

2. The European Approach of Exclusionary Provisions As it is well known, under the European Patent Convention (EPC) and the corresponding provisions of national patent laws of practically all European countries, two widely differing groups of inventions of interest remained explicitly excluded from patent protection: The first group is of very general character and relates to inventions, the publication or exploitation of which would be contrary to ‘ordre public’ or morality, but with the explicit limitation that the exploitation shall not be deemed to be so contrary merely because it is prohibited by law or regulation (Article 53 [a]). The second group relates to inventions of plant or animal varieties or essentially biological processes for the production of plants or animals. Here again, an important limitation of the freedom of contracting states has been provided for: They have to grant patents for micro-biological processes and the products thereof (Article 53 [b]). Although a great deal has been published on the roots of and the reasons for these exclusionary provisions, and they have in part been already mentioned by the previous speaker, it seems necessary to recall them once again, since they convey some important insights into the problems the European System has been eventually faced with. The starting point for the unified core of the substantive patent law in the Member States of the Page 344 →Council of Europe was the adoption of the Convention on the Unification of Certain Points of Substantive Law on Patents for Inventions, in 1963, in Strasbourg (Strasbourg Convention). Under the general and mandatory rule of Article 1, the Contracting States were obliged to grant patents ‘for any inventions, which are new and which involve an inventive step.’ However, the Contracting States by Article 2 were offered a free hand to provide or not to provide for the grant of patents for inventions now excluded from patent protection under Article 53 (a) and (b) EPC.5 Since the Strasbourg Convention provided for unification only of ‘certain points’ of substantive law and left the patent granting procedure entirely in the realm of national legislation, the adopted approach was clearly a substantial progress as compared with the then prevailing situation. As far as the allowed exclusions are at hand, one has to observe that whereas the first group mentioned above was modeled by and large along the lines of similar provisions then existing in the national patent laws,6 the second one reflected some peculiarities which were predominantly linked to patenting in the kingdom of plants. Notwithstanding the fact that patents had been granted for new varieties of plants in a number of European countries for about two and half decades, namely between the mid-30s until the beginning of the 60s,7 patenting in this field, although no explicit statutory exclusions in this respect existed,8 had encountered problems in respect to the patentability requirements of enabling disclosure and industrial applicability and, more importantly, was unpopular with the powerful

agricultural administration.9 Under the decisive influence of the latter, a new special system of exclusive rights for protecting new varieties of plants was established, when in 1961 the International Convention for the Protection of New Varieties of Plants (UPOV Convention) was signed in Paris. The drafters of Strasbourg viewed the UPOV Convention, in fact at that time a pure child of European efforts, as an appropriate alternative for protecting plant varieties. Therefore and because of the existing controversies in applying patent laws, they refrained from imposing respective obligations on the contracting states.10 The reasons for the parallel treatment of inventions in animal varieties are less clear, since a special system for their protection neither existed nor was it under consideration. The prevailing view seemingly was that animal varieties and animal breeding processes would not fit well into the classical forms of patent protection.11 Moreover, the then state of the art in animal breeding was considerably lagging behind that in the field of plants, so that there was virtually no pressure on the law makers. The parallel treatment of plant and animal varieties and the indirect link to the UPOV Convention revealed, however, that a distinction was made between plant or animal varieties as specific groupings of plants or animals which the Contracting States were allowed to exclude from patent protection and plant or animals as such. This is also demonstrated by the use of the terms, plants or animals in respect to essentially biological processes for their production.12 Page 345 →Thus, the parallels between Articles 1 and 2 of the Strasbourg Convention and Article 27 of the TRIPs Agreement are evident and cannot be overlooked. However, with one significant difference: In 1963 no Member State of the Council of Europe, let alone other European states, was obliged to sign and ratify the Convention. Also, there were no time limits set forth for such actions. What was left at the discretion of the Contracting States in Strasbourg, eventually led to the strict exclusions in Articles 53 (a) and (b) EPC and the pertinent national patent law provisions. This metamorphosis has taken place without any substantial reconsideration of the issue against the ongoing scientific developments in the field of molecular biology and genetics. This has to be viewed in part as a price which had to be paid for the establishment of a central patent granting system in Europe, which could logically not impose more obligations on the Contracting States than they had been obliged to observe under the Strasbourg Convention. The resulting situation only some ten years after entering into force of the EPC (in 1978) was viewed as unfortunate even by the original creators of the EPC.13

3. Practical Experience with Exclusionary Provisions Corresponding to developments in natural sciences, the European Patent Office (EPO) was first confronted with patent applications in which protection was sought for inventions in plants. Claims in the respective applications were directed to plants, plant cells or plant tissue, modified by the use of either rDNA or somatic cell hybridization techniques. The question, which the EPO had to answer therefore was, whether the respective claims were directed to plant varieties and whether protection to be granted could extend to plant varieties, irrespective of the precise wording of the claims. For over ten years, namely between 1983 and 1995, that issue was controlled by a ruling handed down by the Technical Board of Appeal (TBA) on July 26, 1983 in the case ‘Propagating Material/CIBA GEIGY.14 In this decision, which dealt with chemically treated but not genetically modified seeds, the Board has first clarified that no general exclusion of inventions in the sphere of animate nature can be inferred from the EPC. For the interpretation of the term ‘plant variety’, reference was made to the definition originally used in the UPOV Convention’s 1961 Act. It stated that Article 53 (b) EPC prohibits only the patenting of plants or their propagating material in the genetically fixed form of the plant variety, i.e. a multiplicity of plants which are largely the same in their characteristics and remain within specific tolerance after every propagation or every propagation cycle, and that the very wording of that provision precludes the equation of plants and plant varieties which would also be at variance with the general sense of the provision.15 The EPO also later on has upheld this nexus between the term ‘plant Page 346 →variety’ as used in the EPC and in the UPOV Convention, including its 1991 Act. First, in a 1988 decision on patentability of a process for producing hybrid plants, involving also steps of cloning, and on patentability of hybrid seed and plants from such seed, the Board concurred with the 1983 CIBA GEIGY Board and declared that hybrid seeds and plants from such

seeds, lagging stability in some trait of the whole generation population, cannot be classified as plant varieties within the meaning of the Article 53 (b) EPC.16 In two subsequent decisions the Opposition Division in cases in which claims were directed, for instance, to plants, plant cells and seeds which possessed a foreign gene encoding resistance to glutamine synthetase inhibitors, upheld the line of arguments set forth in CIBA GEIGY decision. It stated: [T]hese claims are clearly not restricted to a specifically defined narrow group of plants, such as a variety, but relate to a much broader group of plants. It is true, as argued by the Opponent, that all the examples were carried out on plants belonging to plant varieties and that the claims furthermore embrace plant varieties in their scope. However, it is the long-standing practice of the EPO to allow claims directed to groups of plants larger than plant varieties if the invention is applicable to such larger plant groups. This is clearly the case for the method for producing the claimed plants and plant material, taught in the disputed patent. Any other interpretation would disregard the purpose of Article 53 (b) EPC, which is to draw an appropriate dividing line between plant variety and patent law.17 Prior to reporting on the so far last developments in the case law of the Technical Board of Appeal of the EPO it seems appropriate to refer to a decision of the German Federal Supreme Court (BGH) of March 30, 1993, in a case in which claims were directed to a variety of a ‘Tetraploide Chamomile’.18 Irrespective of the unique legal situation, as a result of which, in the case at hand a ‘plant variety’ per se was eligible for patent protection,19 the German Federal Supreme Court explicitly confirmed that as regards patentability of biological inventions in general and those of plants and plant varieties in particular, the principles which have to be applied are those which had been developed in respect to chemical substances. Thus, product claims to plants are allowed if the subject matter claimed is unambiguously identified by characteristics, which are apt to external or internal perception. If this is impossible or totally impractical, then the plant can be described by unambiguously distinguishable and reliably identifiable parameters of its characteristics. Should this also prove impossible, the plant or plant variety at hand can be characterized by its production process, and thus can be granted the so-called ‘product-by-process’ product protection, provided that the method can be reproduced by the person skilled in the art on the basis of the written description.20 Mention should also be made here of the holding of the Page 347 →Swiss Federal Court of March 27, 1995, in the parallel Swiss Tetraploide Chamomile case, according to which the exclusion of plant varieties from patent protection does not affect the derived protection of such a variety, i.e. as the direct product of a patented process.21 The interpretation of Article 53 (b) EPC, however, has changed fundamentally when the TBA on February 21, 1995 handed down its decision in the Plant Cells/PLANT GENETIC SYSTEMS case.22 The Board rejected a claim that related to a non-biologically transformed plant, possessing in its genome a stably integrated foreign DNA nocleotide sequence encoding a protein having specific useful properties, as a claim encompassing plant varieties and being banned from patent protection under Article 53 (b) EPC. As to the notion of ‘plant variety’, the Board followed the holdings in CIBA GEIGY and LUBRIZOL, i.e. it viewed the UPOV definition as controlling Article 53 (b) EPC. However, the Board did not refer to the wording of the 1961 and 1978 Act, but instead to the 1991 Act – at that point in time not yet in force — whose definition of a plant variety differs considerably from those contained in the previous acts. In respect to this widely criticized decision23 it should suffice to note that the Board, despite its claim, did not correctly apply the definition of Article 1 (vi) UPOV 1991 Act either. It stated that in its judgement the concept of ‘plant varieties’ under Article 53 (b), first half-sentence, EPC refers to any plant grouping within a single botanical taxon of the lowest known rank, which, irrespective of whether it would be eligible for protection under the UPOV Convention, is characterized by at least one single transmissible characteristic distinguishing it from other plant groupings and which is sufficiently homogeneous and stable in its relevant characteristics. Thus, in this definition the first indent of Article 1 (vi) UPOV 1991 Act is missing, according to which the plant grouping at stake can be [...] defined by the expression of the characteristics resulting from a given genotype or combination of genotypes.

Because of this deficiency, as the critics correctly pointed out, the Board disregarded that a plant variety can only be characterized by a very individual, specific combination of characteristics, which are based on an individual unique genome. An attempt of the President of the EPO to refer the Plant Cells/ Plant Genetic Systems case to the Enlarged Board of Appeal for a review failed in 1995, because in the opinion of the Enlarged Board the decision at hand did not conflict with decisions T 49/83 (Ciba-Geigy) and T 90/90 (Onco-Mouse), since neither of decisions T 49/83 and T 90/90 were concerned with the point of law which was decided in T 356/93.24 The same TBA which handed down the Plant Cells/Plant Genetic Systems decision, eventually, on October 13, 1997 in a similar case referred four questions to the Enlarged Board of Page 348 →Appeal, inter alia: [D]oes a claim which relates to plants but wherein specific plant varieties are not individually claimed ipso facto avoid the prohibition on patenting in Article 53 (b) EPC even though it embraces plant varieties?25 As regards the application of Article 53 (b) to animals, the TBA in the Onco-Mouse II case in 1990 held that that exception applies to certain categories of animals only but not to animals as such. Since there is no UPOV type of protection in the area of animals, thus no legal definition of an ‘animal variety’ exists, to which the Board could have referred, the issue of how to interpret the notion of ‘animal variety’ and where to draw the dividing line between groups of animals eligible for protection and animal varieties, remained unresolved.26 In the Onco-Mouse case the EPO had also for the first time addressed the issue whether specific inventions in animals could be excluded from patent protection under Article 53 (a) EPC. As it is well known, the invention at hand related to a method for producing a transgenic non-human mammalian animal having an increased probability of developing neoplasms, which implied suffering of those animals. The considerations of the Board eventually resulted in an instruction that a test has to be performed on a case by case basis, whereby a careful weighing up of the suffering of animals and possible risks to the environment on the one hand, and the inventions’ usefulness to mankind on the other, has to take place.27 Following the instruction of the Board the Examining Division later on performed the necessary tests and found that the benefit to the medical research of laboratory mice with accelerated tumor development prevail over the suffering inflicted, and potential risks for the environment virtually do not exist. Consequently, the patent was granted28 but has been and is (in 1999!) still opposed. In the Plant Cells/Plant Genetic Systems case the Board also had to examine the application under Article 53 (a) EPC since the Opponent Greenpeace invoked that provision. Greenpeace argued that it was the duty of the EPO to take into account primary considerations of public interest when granting patents, such being in the specific case of a herbicide-resistant plant – the preservation of the environment. These allegations of Greenpeace prompted the Board to issue a number of statements related to the interpretation of Article 53 (a) EPC, inter alia, that the assessment of whether or not a particular subject matter is to be considered contrary to either ordre public or morality is not dependent on any national law or regulations, and that a particular subject matter shall not automatically be regarded as complying with the requirement of Article 53 (a) EPC merely because its exploitation is permitted in some or all of the Contracting States.29 In short, Page 349 →one could observe that the TBA developed a tendency to interpret the concepts of ‘ordre public’ and ‘morality’ virtually detached from national and even European law. This was well reflected in its assessment of the patentability of the invention at hand: The Board attempted its own value judgements on the technology involved, instead of using as a yardstick national laws and Directives of the European Union, which regulate, e.g. the use of the tools of genetic engineering techniques and their resulting products, such as the Council Directive on the Contained Use of Genetically Modified Organisms,30 the Council Directive on the Deliberate Release into the Environment of Genetically Modified Organisms,31 the Council Directive on the Marketing of High-Technology Medicinal Products, particularly those derived from biotechnology32 and the Council Directive on the Protection of Workers from Risks Related to Biological Agents.33 These Directives clearly reveal that the use of genetic engineering techniques and the marketing of, for instance, pharmaceuticals produced by rDNA techniques are explicitly allowed if specific requirements are met. How untenable the approach of a value judgement on the technology involved by the Patent Office would be, is best demonstrated by the fact that the Board eventually rejected the

allegations of Greenpeace because ‘[I]t would be unjustified to deny a patent under Article 53 (a) EPC merely on the basis of possible, not yet conclusively-documented hazards. ‘In other words, if the hazards would have been conclusively documented, than the patent would have been denied. However, only a few months after the decision had been handed down, newspapers reported that the competent Administrative Body of the European Union had approved field trials with the very same herbicide resistant plants for which the patent was sought.34

4. Reaction of the EU Law Maker At this point, at latest, efforts of the EC Commission to adopt a Directive on the legal protection of biotechnological inventions have to be mentioned. The initiative started in 1988 with the aim ‘[t]o establish, harmonize, clarify and improve standards for protecting biotechnological inventions in order to foster the overall innovatory potential and competitiveness of Community, science and industry in this important field of technology.’35 Although at that time the case law of the EPO in the area of biotechnology still was at a stage of relative infancy, cases like Ciba-Geigy or the Guidelines for examination already reflected a tendency, to in the area of biotechnological inventions offer protection to the full extent left by the exclusionary provisions, in particular to treat inventions in animate nature as, in principle eligible for patent protection.36 This was not only in line with the legal development in the USA, but matched also well with the legal and economic philosophy of the Commission, on which the proposed Directive was based. Thus, one could observe that a main aim of the Directive was to ensure that the patent Page 350 →granting practice of the EPO in the area of biotechnology will not be reversed by authorities of Member States, i.e. patents issued by the EPO and, for instance, upheld in opposition and appeal proceedings, will not be revoked in a national nullity suit. This has changed, however, when the TBA in 1995 in its Plant Cells/Plant Genetic Systems holding refused to allow claims related to transgenic plants. Notwithstanding the fact that even under this decision claims to methods leading to the properties of the genetically engineered plants, or product claims relating to the gene expressing the desired feature, and claims to the vector by which transformation of the plant cells is carried out remained available and were not affected by the exclusionary provisions,37 it was generally felt and the view was shared by the EU Commission, that the remaining protection could not adequately meet the needs of plant biotechnologists and the plant biotechnology industry. When on July 6, 1998 the Directive 98/44/EC of the European Parliament and the Council on the Legal Protection of Biotechnological Inventions was eventually adopted,38 it, on the one hand, maintained the exclusion of plant and animal varieties from patentability, but, on the other hand, counteracted the Plant Cells/ Plant Genetic Systems TBA Doctrine, by setting forth in Article 4 (2) that ...[i]nventions which concern plants or animals shall be patentable if the technical feasibility of the invention is not confined to a particular plant or animal variety.39 Thus, under the Directive the patentability of generic inventions in plants and animals is secured and will have to be made available in the patent laws of the EU Members by July 30, 2000 at latest.40 Bearing in mind the holding of the Board in the Plant Cells/ Plant Genetic Systems, the Directive also explicitly stipulates that the concept of ‘plant variety’ controlling the exclusionary provision is defined by Article 5 of Regulation on Community Plant Variety Protection (EC) No. 2100/94 (Art. 2 [3]), which corresponds to that of Article 1 (vi) of the 1991 UPOV Act. To avoid any misunderstanding as to how to interpret the provision at hand, the European law maker also clarified that under the controlling legislation protecting new varieties of plants, ‘[a] variety is defined by its whole genome and therefore possesses individuality and is clearly distinguishable from other varieties’ (Recital 30).41 Therefore, a plant grouping which is characterized by a particular gene only is not covered by the protection of new varieties of plants and is consequently not excluded from patentabilty even if it comprises new varieties of plants (Recital 31). This reflects and is completely in line with deliberations during the Diplomatic Conference in which the 1991 UPOV Act was adopted, but which had been ignored by the TBA in the Plant Genetic Systems case.42

Page 351 →Apart from the patentability issue, the Directive also set the limits for the scope of protection inter alia for patents related to generic inventions in plants and animals. In the context at hand it seems of particular importance to note that process patent protection extends also to biological material derived from the directly obtained biological material through propagation or multiplication in an identical or divergent form and possessing those same characteristics. Consequently, the so-called F+l, 2, etc., generations of plants and even plant varieties but also of animals and animal varieties can, in principle, be covered as a direct product of the patented process. On the other hand, Article 10 maintains a specific exception, indicating that where the multiplication or propagation necessarily results from the application of a propagation, the protection available will not extend to biological material obtained from the propagation or multiplication of biological material placed on the market in the territory of a Member State by the holder of the patent or with his consent. Moreover, Articles 11 and 12 contain provisions relating to the farmer’s privilege and compulsory licenses. As regards the first, mention should only be made that as far as plant propagating material is concerned, the extent and conditions for the use of saved seeds is linked to those set forth under Article 14 of Regulation on the Community plant varieties protection. This is a logical consequence of the fact that farmers will always be buying plant varieties only and never unstable and non-homogeneous plant material. Less clear is the situation in respect to animal reproductive material, where the privilege includes making the animal or other animal reproductive material available for the purposes of pursuing own agricultural activity but not sale within the framework or for the purpose of a commercial reproduction activity and where the extent and the conditions of the derogation of the patent right shall be determined by national laws, regulations and practices (Article 11 [3]). As regards compulsory cross-licensing, it should suffice to note that such licenses for non-exclusive use of the invention protected by the patent or the plant variety protected by that right, respectively, can be obtained, whenever negotiations for a contractual license have failed and the variety or the invention constitutes significant technical progress of considerable economic interest compared with the invention claimed in the patent or the protected plant variety. Basically these rules reflect Article 31 (1) of the TRIPs Agreement. Bearing in mind the overall context of this Forum, eventually, it should be noted that the EU-Directive does not make patenting of inventions based on biological material of plant or animal origin dependent on any other requirements than those of novelty, inventiveness, industrial applicability and sufficient disclosure. An attempt of the European Parliament to amend the EU Commission’s proposal inter alia by introducing an obligation that such inventions should qualify for patent protection only if the geographical origin of the material is indicated and if the patent applicant provides evidence to Page 352 →the patent authority to the effect that the material was used in accordance with the regulations regarding access and export applicable in the place of origin of the material43 has failed. The Commission and the Council rejected that proposal for the reason that such a provision would go beyond the international commitments entered into by the Community and its Member States under the Convention on Biological Diversity (CBD). The Council further pointed out that patent offices would not be able to verify that foreign legislation was complied with.44 In the adopted wording of the Directive it is acknowledged that Member States must give particular weight to Articles 3 and 8 (j), the second sentence of Article 16 (2) and Article 16 (5) of the CBD when bringing into force the laws, regulations and administrative provisions, necessary to comply with the Directive (Recital 55). Moreover, it is also acknowledged that further work is in process at an international level to ‘[h]elp develop a common appreciation of the relationship between intellectual property rights and the relevant provisions of the TRIPs Agreement and the CBD’ (Recital 56). Consequently, Recital 27 in legally non-binding way stipulates that [i]f an invention is based on biological material of plant or animal origin or if it uses such material, the patent application should, where appropriate, include information on the geographical origin of such material, if known. However, this being without prejudice to the processing of patent applications or the validity of rights arising from granted patents.

5. Implementation of the EU Directive into the EPC Although the European Patent Organization as an international organization established outside the legal

framework of the European Union45 is not required to implement the Directive 98/44 EC into the EPC and its Implementing Regulations, its Administrative Council on June 16, 1999 decided, primarily in order to comply with the requirement for uniformity in harmonized European patent law, to bring the Implementing Regulations to the EPC in line with the Directive.46 The new rules became effective by September 1, 1999. As of that date they form an integral part of the Convention and are binding on the EPO’s Boards of Appeal (Articles 164 (1), 23 (3) EPC) and on national courts when deciding on European patents. A different interpretation of the Convention would be possible only if it is specifically demonstrated that a particular rule of interpretation is inconsistent with the Convention itself.47 Since December 20, 1999, it is clarified, at least for the practice of the EPO, that such inconsistency with the Convention does not exist. On that date, the Enlarged Board of Appeal of the EPO48 gave a clear answer to the Page 353 →Question 2 posed by the Board of Appeal in the Transgenic Plant/NOVARTIS Decision.49 It held: [A] claim wherein specific plant varieties are not individually claimed is not excluded from patentability under Article 53 (b) EPC, even though it may embrace plant varieties. The Enlarged Board of Appeal in the Reasons given for the decision extensively referred to the legislative history of Article 53 (b) EPC and its actual origin, Article 2 (b) Strasbourg Convention, which suggested that European Patents should not be granted for subject-matter for which the grant of patents was excluded under the ban on dual protection in the UPOV Convention 1961. Therefore, inventions ineligible for protection under the plant breeders’ rights system were intended to be patentable under the EPC provided they fulfilled the other requirements of patentability.50 Since the subject matter of a claim covering but not identifying plant varieties is not a claim to a variety or varieties, it cannot be protected by a plant breeders’ right. The latter were concerned with plant groupings defined by their whole genome but not by individual characteristics.51 The Board then explicitly emphasized: [W]hereas in the case of a plant variety, the breeder has to develop a plant grouping fulfilling in particular the requirements of homogeneity and stability, this is not the case with a typical genetic engineering invention in a claim such as that referred to in Question 2. The inventor in the latter case aims at providing tools whereby a desired property can be bestowed on plants by inserting a gene into the genome of those plants. Providing these tools is a step which precedes the further step of introducing the gene into a specific plant. Nevertheless, it is the contribution of the inventor in the genetic field which makes it possible to take the second step and insert the gene into the genome of any appropriate plant or plant variety. Choosing a suitable plant for this purpose and arriving at a specific, marketable product, which will mostly be a plant variety, is a matter of routine breeding steps which may be rewarded by a plant breeders’ right. The inventor in the genetic engineering field would not obtain appropriate protection if he were restricted to specific varieties for two reasons: first, the development of specific varieties will often not be in his field of activity and, second, he would always be limited to a few varieties even though he had provided the means for inserting the genes into all appropriate plants.52 Thus, the Enlarged Board of Appeal of the EPO clearly concurred with Article 4 (2) of the EU Directive and implicitly found it being in line with Article 53 (b) EPC. The same is true for the new rule 23 c (b) Implementing Page 354 →Regulations to the EPC. Consequently there is no obstacle anymore to start examining the some 1.500 applications relating to transgenic plants and some 600 to transgenic animals at present pending in the European Patent Office.53

6. Concluding Remarks and Outlook From hindsight the European System of exclusionary provisions related to plant and animal varieties, can hardly be characterized as a successful model worth being copied, although it has been successfully exported into the TRIPs Agreement. To my understanding, the cumbersome and costly handling of the system comes best under the heading ‘much ado, eventually about nothing.’ This is the more annoying in view of the fact that objections

against patenting of higher life forms, which had been based on pure patent law deliberations, have lost their justification against the background of scientific and technological developments. On the other hand, those based on political and economic deliberations never were based on any empirical proof from systems where patents were available, for instance for plant varieties. A look over the ocean to our US neighbors, where patents and plant variety protection rights are available for plants and plant varieties, as well as for animals and animal varieties, without any specific limitation, does not reveal any negative macro-economic impact. Many things may be disputed, the fact, however, is that it took Europe 20 years of operation of the EPC before a macro-economically adequate solution of the problem at hand could be found. In view of the complex relationship of the modern society to genetically modified plants and especially food, which seems to reveal considerable differences between the United States and Europe,54 it should be made clear that the law maker should take into account the existing concerns according to the scientific evidence, however, in the laws dealing with safety issues, protection of environment, etc. and, if persuaded, prohibit specific acts of research and exploitation. In any case, an attitude to, on the one hand, limit protection because of the importance to keep that new technology freely available, but, on the other hand, blame that same technology of implying all kind of risks and therefore should possibly be even banned, seems untenable. If prominent scientists like Phillip A. Abelson, one of the former Science Magazine Editors, are by and large correct, we soon shall be facing ‘A Third Technological Revolution’, namely that of genomics, whose greatest ultimate global impact will result from manipulation of DNA of plants. According to Abelson, [U]ltimately, the world will obtain most of its food, fuel, fibre, chemical feed stocks and some of its pharmaceuticals from genetically altered vegetation and trees. Until recently, comparatively little research has been devoted to changing plant genomes. Now, major companies Page 355 →including Dow Chemical, DuPont, Monsanto, Novartis, Pioneer Hi-Bred and AgrEvo are spending Billions of Dollars annually on genetic engineering and on acquiring stakes in genome-oriented companies.55 Those who argue that until recently biotechnology science and industry in Europe have developed smoothly despite all uncertainties related in part to intellectual property issues, may have overlooked that especially in the area of plants until now that technology in practice has been applied in the United States, Canada and in other non-European countries only, but not in Europe. The United States has already approved more than 30 genetically modified crops for commercial use, with many more under trial.56 Almost 20 Million hectare are planted with transgenic plants in North America alone.57 Should the EU-Directive 98/44 be upheld by the European Court of Justice, where it has been contested by the Netherlands and Italy, the dual system for protecting inventions in higher life forms based on that Directive and the UPOV type of protection for new varieties of plants, should offer the biotechnology industry and scientists conditions favorable enough to successfully further develop and exploit the new technologies. However, the US approach, without exclusionary provisions, seems to be more adequate: it is simpler and cheaper to handle and more flexible to adjust to ever changing needs not only of science and technology, but the society as a whole.

NOTES 1. Cf. Straus, ‘Implications of the TRIPs Agreement in the Field of Patent Law’, in: Beier and Schricker (Eds.), From GATT to TRIPs – The Agreement on Trade-Related Aspects of Intellectual Property Rights, Weinheim, etc. 1996, pp. 160 ss., at 162; same, ‘Bargaining around the TRIPs Agreement: The Case for Ongoing Public Private Initiatives to Facilitate Worldwide Intellectual Property Transactions – A Comment on the Paper Presented by Professors David Lange und J.H. Reichman’, 9 Duke Journal of Comparative & International Law 91 ss., at 94. (Fall 1998). 2. Cf. Straus, ‘Biodiversity and Intellectual Property’, AIPPI Yearbook 1998/IX, pp. 99 ss., at 115. 3. For some aspects of Nutraceuticals, see Zeisel, ‘Regulation of Nutraceuticals,’ 295 Science at s. 1853 s. (Sept. 1999). 4. If the expenditures for mechanical equipment and fertilizers are also considered. Cf. for the data on

expenditures Priebe, ‘Agrarpolitische Rahmenbe-dingungen einer umweltvertraglichen Landwirtschaft, in: Albrecht’ (ed.), Die Zukunft der Nutzpflanzen-Biotechnologie in Landwirtschaft und Pflanzenzüchtung, Frankfurt and New York 1990, pp. 53 ss. 5. See for more details Beier/Crespi/Straus, Biotechnology and Patent Protection – An International Review, OECD, Paris 1985, pp. 28 ss. 6. Cf. on the exclusionary provisions then contained in the patent laws of Austria, Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Sweden, Page 356 →Switzerland and the United Kingdom, the reports of Sonn, Braun, Casalonga, Tetzner, Luzzati, Muyser, Croon, Fuchs and Sandart, Pedrazzini and Blum, and Hesketh Prichard, published in 1960 GRUR Int. 105 — 168, under the heading ‘Die vom Patentschutz ausgeschlossenen Erfindungen.’ 7. Cf. for details Matthey, Les brevets de végétaux, Lausanne 1954, pp. 13 ss. 8. For the exclusionary provisions relating to pharmaceuticals and food stuffs cf. the reports referred to in note 6 supra. 9. This was particularly true in Germany. Cf. Bent/Schwaab/Conlin/Jeffrey. Intellectual Property Rights in Biotechnology Worldwide, New York 1987, pp. 46 ss.; Neumeier, Sortenschutz und/oder Patentschutz für biotechnologische Erfindungen, Cologne etc. 1990, pp. 23 ss. However, and for the sake of completeness and only to avoid any misunderstanding, it has to be observed in this context that in countries, like Germany, where numerous patents have been granted on varieties of important species, no market disturbances or other negative economic implications have been reported so far. 10. For more details cf. Straus, Industrial Property Protection of Biotechnological Inventions — Analysis of Certain Basic Issues, WIPO Doc. BIG/281, Geneva 1985, Para. 54, at pp. 62 ss. On deficiencies of the UPOV system established under the 1961 and 1978 Act, see Straus, The Relationship Between Plant Variety Protection and Patent Protection for Biotechnological Inventions From an International Viewpoint, 18 IIC 723 ss. (1987). 11. Cf. Pfanner, ‘Vereinheitlichung des materiellen Patentrechts im Rahmen des Europarates’, 1962 GRUR Int. 545 ss. (at 547); and Straus, ‘Ethische, rechtliche und wirtschaftliche Probleme des Patent- und Sortenschutzes für die biotechnologische Tierzüchtung und Tierproduktion’, 1990 GRUR Int. 913 ss. (at 920). 12. Cf. Technical Board of Appeal of the European Patent Office (TBA) of October 3, 1990, 22 IIC 74 ss. (no. 4.6 at p. 81) (1991) — ‘Onco Mouse II.’ 13. See Armitage, ‘Updating the European Patent Convention’, 1990 GRUR Int. 662 ss. (at 664 s.); Savignon, ‘Considérations sur les principes du rapprochement des législations en matèires de brevets: La brevetabilité des êtres vivants’, 1990 GRUR Int. 766 ss. 14. T 49/83, 1984 OJ EPO 112. 15. No. 2-4 of the Reasons for the decision. 16. Decision of November 10, 1988 – T 320/87, 1990 OJ EPO 71, at 79 (No. 13 of the Reasons). 17. Decision of December 15, 1992 – Patent Application No. 87400141.5 Greenpeace UK v. Plant Genetic Systems N.V., 24 IIC 618, at 625 (No. 4.3 of the Reasons). The Opposition Division expressed similarly in a not published decision of June 5, 1992, Patent Application No. 84302533.9 – Lubrizol Genetics Inc. 18. 1993 GRUR 651 ss. = abridged English translation in 25 IIC 580 (1994). 19. Until the amendments of the German Plant Variety Protection Act and Patent Act of March 27, 1993, patents were available for those plant varieties which were not included in the list of protected taxa annexed to the Plant Variety Protection Act. This was the case for the Chamomile, when in 1983 the respective patent application was filed. 20. No. IV 4b of the Reasons for the decision (1993 GRUR 655). The Court, however, did not decide on whether the requirement of enabling disclosure in the field of plants could be satisfied by a deposit of propagating material. From its obiter Page 357 →dicta one could cautiously deduce that that would have been the case, had the Court to decide upon it (No. IV 4c in fine). 21. 1996 GRUR Int. 1059, at 1060 – Tetraploide Kamille II’, with comment by Calame. 22. 1995 OJEPO 545. 23. Cf., for instance, Lange, ‘Patentierungsverbot für Pflanzensorten’, 1996 GRUR Int. 586 ss.; Jaenichen, The European Patent Office’s Case Law on the Patentability of Biotechnology Inventions, 2nd ed., Cologne etc. 1996, pp. 25 ss.; White/Brown, EPC Appeal Procedures – Opinion G 03/95 (Inadmissible Referral),

(1996) EIPR 419 ss.; Roberts, ‘Patenting Plants Around the World’, (1996) European Intellectual Property Review 531 ss., 534 s., Schatz, ‘Zur Patentierbarkeit gentechnischer Erfindungen in der Praxis des EPA’, 1997 GRUR Int. 588 ss., 591 ss.; Straus, ‘Vôlkerrechtliche Verträge und Gemeinschaftsrecht als Auslegungsfaktoren des Europäischen Patentübereinkommens – Dargestellt am Patentierungsausschluß von Pflanzensorten in Artikel 53 (b)’, 1998 GRUR Int. 1 ss., No. 31 at 10 ss. 24. Decision of November 27, 1995 – G 3/95, 1996 OJ EPO 169 (cf. in particular No. 8 of the Reasons of the decision). 25. Question 2, 1998 OJ EPO 511 – Transgenic Plant/Novartis. 26. The problem is aggravated by the fact that the wording of the EPC is authentic in three languages and the expressions used in German – ‘Tierarten’, English – ‘animal varieties’ and French – ‘races animales’, which, however, technically do not reflect the same biological taxonomic unit. Cf. for more details Straus, ‘Ethische, rechtliche und wirtschaftliche Probleme des Patent- und Sortenschutzes für die biotechnologische Tierzüchtung und Tierproduktion’, 1990 GRUR Int. 913 ss., 921 s.; Moufang, Patentability of Genetic Inventions in Animals, 20 IIC 823 ss., at 832 s. (1989). 27. No. 5 of the Reasons (22 IIC 83 s. (1991). 28. Decision of April 3, 1992, 24 IIC 103 ss. (1993) --’Onco-Mouse/Harvard II’ 29. 1995 OJ EPO 545, No. 7 of the Reasons. The Board summed up in this respect: ‘Thus, approval or disapproval of the exploitation by national law(s) or regulation(s) does not constitute per se a sufficient criterion for the purpose of examination under Article 53 (a) EPC.’ 30. Of April 23, 1990, OJ No. L 117, May 8, 1990, at 1. 31. Id. at 15. 32. Of December 22, 1986, OJ No. L 15, January 17, 1987, at 38. 33. Of November 26, 1990, OJ No. L 374, December 31, 1990, at 1. 34. Cf. Straus, Genpatente – Rechtliche, ethische, wissenschafts- und entwicklungspolitische Fragen, Basel and Frankfurt 1997, p. 27, note 75. 35. First proposed in Doc. COM (88) 196 final - SYN 159, October 17, 1988, OJ No. C, January 13, 1989, at 3. 36. See supra Nos. 15 ss. 37. This has been explicitly emphasized by the TBA in its referral decision in the case of ‘Transgenic Plant /Novartis’ (cf. 1998 OJ EPO 511, No. 34 at 530). 38. OJ No. L 213, July 30, 1998, at 13. 39. See also Recital 29. 40. Art. 15(1). 41. Emphasis added. 42. Cf. Minutes of the Diplomatic Conference for the Revision of the International Page 358 →Convention for the Protection of New Varieties of Plants, Geneva, 1991, UPOV Geneva 1992, Nos. 991.3 (i, ii, iv), 999; see also Straus, 1998 GRUR Int. 5 s. with further references. 43. Doc. COM (97) 446 final (August 19, 1997), amendment No. 76 (1). 44. See Statement of the Council’s Reasons, OJ No. C 110, at 26, April 8, 1998 (at 29, No. 25), and the criticism expressed by Sterckx, ‘Some Ethically Problematic Aspects of the Proposal for a Directive on the Legal Protection of Biotechnological Inventions’, (1998) European Intellectual Property Review 123 ss. 45. See on this Straus, The Present State of the Patent System in the European Union, Luxembourg 1997, p. XIII, 12 ss. 46. 1999 OJ EPO 437. See also the Notice of the EPO of July 1, 1999, concerning the amendment of the Implementing Regulations to the European Patent Convention, 1999 OJ EPO 573. 47. Cf. Notice of the EPO, 1999 OJ EPO at 575. 48. G 0001/98, 2000 OJ EPO 111 – Transgenic Plant/Novartis II. 49. See supra No. 19. 50. Nos. 3.6 and 3.7 of the Reasons. 51. No. 3.8. 52. Ibid. 53. Cf. Notice of the EPO of July 1, 1999, concerning the amendment of the Implementing Regulations to the European Patent Convention, 1999 OJ EPO 573 ss., at 574.

54. According to empirical data provided by Professor Thomas Hoban of North Carolina State University, 72% of US consumers support agricultural biotechnology and only 14% regard genetic modification as a serious risk in food products; the figure in the latter respect being in Sweden 65%, in Austria 60% in Germany 50% and in the United Kingdom 35% (cited after Ayers, 281 Science 714, 715 [1998]). See also Gaskell, et al., ‘Worlds Apart? The Reception of Genetically Modified Foods in Europe and the U.S’., 285 Science 384 ss. (July 1999). 55. Editorial in the 279 Science 219 (1998). 56. Williams, 281 Science 268 (1998). 57. Mann, 283 Science 310, at 313 (1999).

____________________ *Professor, University of Munich, Munich, Germany.

Page 359 →CHAPTER 21 Elements for the Protection of Farmers’ Plant Varieties Carlos M. Correa*

1. Introduction Article 27.3. b) of the TRIPs Agreement has obliged WTO Member countries to protect ‘plant varieties’ under intellectual property rights. The development of a sui generis regime needs to take into account both the peculiar features of each national legal system, as well as the international instruments relating to the access to and use of plant genetic resources. The latter include, in particular, the Convention on Biological Diversity (CBD) and the FAO International Undertaking on Plant Genetic Resources (IU), currently under revision. Within the framework provided by said instruments and the TRIPs Agreement, each country may frame its legislation in a manner that ensures the attainment of the country’s own objectives. Intellectual property rights (IPRs), including on plant varieties, need to be viewed as instruments that a society puts in practice in order to attain certain goals. They do not constitute an end by themselves. An essential step in the process of establishing a protective regime is, therefore, to clearly define the objectives to be pursued and to assess the implications of different legislative options. The objectives of a possible regime may be defined, for instance, in terms of: improving capacities to develop and utilize genetic resources for sustainable agriculture; food security; Page 360 →stimulation of local research; preservation and use of farmers’ traditional knowledge. The implications of a new regime should be assessed in terms of the defined objectives and, in particular, take into account its likely effects on farmers, in both the formal and informal sectors, consumers, breeders in public and private institutions, seed producers, and those who undertake conservation activities such as farmer communities. Though the TRIPs Agreement sets forth minimum standards for the protection of plant varieties, it leaves a broad room for maneuver for WTO Members to legislate in this area. Such room is left, in particular, with regard to: The modality of protection; The ways in which the rights may be acquired; The extent and scope of the rights to be conferred. While using the room left by the Agreement, Member countries should, however, ensure consistency of their legislation with IPRs principles and norms, as well as with seeds certification, biosafety and trade legislation, as appropriate. It should be noted, finally, that a large number of developing countries have not adopted yet IPRs regulations on plant varieties. Given the costs and complexity of implementing a new legal regime and its possible impact on several aspects of agricultural development, such countries may opt for a gradual approach, i.e. for a step-by-step process that allows to assess the implications of each new legal change introduced. Both for reasons of equity and efficiency different proposals have been made to establish sui generis regimes through national legislation.1 The purpose of this paper is to analyze possible elements necessary to implement a nonpatent type of protection for plant varieties pursuant to the TRIPs Agreement, and to present options for the establishment of such protection by developing countries. It deals, in particular, with possible approaches in relation to the protection of the varieties developed by farmers and indigenous communities, which are currently outside the scope of IPRs.

2. Extent of the Obligations under the TRIPs Agreement The TRIPs Agreement has introduced the obligation for all WTO Member countries, to protect plant varieties either by patents or by ‘an effective sui Page 361 →generis regime or by a combination of both’. It should be noted that the Agreement neither refers to the concept of ‘breeders rights’ nor to the international convention in force on the matter (the Convention on the Union for the Protection of Plant Varieties-UPOV). The reference to a sui generis regime may be interpreted as alluding to breeders’ rights as developed within UPOV and in the domestic law of many countries. However, the possibility is open to combine the patent system with the breeders’ rights regime2 or to develop other options. Though patents and breeders’ rights share some features, they present important differences. While the breeders’ rights regime permits to protect a plant variety as determined by a specific combination of genes, it does not allow for the protection of particular genes, a possibility instead allowed under patent law. In addition, the breeders’ rights regime permits the use of a protected variety as a source for the development of a new variety (‘breeders’ exemption’) as well as the re-use of obtained seeds by farmers (this is known as the ‘farmers’ privilege’).3 Member countries can develop other sui generis forms of protection which do not exactly correspond to the patent or breeders’ rights model, to the extent that the new regime is ‘effective’. This provides an opportunity to develop legal options that ensure a right balance between the private and public interests at stake and, in particular, to explicitly deal with issues relating to the conservation and sustainable use of plant biodiversity, including the creation of rights in areas today excluded from patents and UPOV-type regimes. Despite the considerable room left by the TRIPs Agreement to frame a regime for the protection of plant varieties and to determine the scope, level and form of protection to be conferred, such a regime would have to comply with a number of minimum standards. First, such a regime should recognize the national treatment principle. However, such a recognition may be subject to limitations like in the case of other IPRs.4 Second, the most-favored-nation (MFN) standard should be respected. This means that any advantage accorded to the nationals of a WTO Member country, has to be extended to any other Member country. Third, the regime must confer an ‘effective’ protection. This qualification is ambiguous, since no criteria to judge the effectiveness are provided for in the Agreement. One reasonable interpretation is that said qualification does not only refer to the level of protection, but also to the availability of the legal mechanisms to make it operative. Page 362 →Fourth, in the absence of an exception, the protection should be granted to varieties of all genera and species. This is in contrast to the solution under UPOV 1978, and is even stricter than UPOV 1991 which provides for transitional periods for contracting parties to previous Acts and for new members (Article 3). It should be noted, finally, that Article 27.3.b) of the TRIPs Agreement is the only provision in the Agreement subject to an early review: four years after the entry into force of the Agreement that created the World Trade Organization (that is, 1.1.95). The process of review has not started yet, due to differences in interpretation between developed and developing countries about what ‘review’ actually means.5

3. Framework for National Regulations In accordance to the Preamble of the TRIPs Agreement, the main goal of the Agreement is ‘to reduce distortions and impediments to international trade’. Though it is recognized that intellectual property rights are ‘private rights’, ‘the underlying public policy objectives of national systems for the protection of intellectual property, including developmental and technological objectives’ are recognized. More specifically, Articles 7 (‘Objectives’) and 8 (‘Principles’) provide a framework for the interpretation and implementation of IPRs. In accordance with Article 7, the protection of IPRs is not only intended to promote

‘technological innovation’, but the ‘transfer and dissemination’ of technology, which are of particular importance for developing countries. In addition, the concepts of Article 7 mean that the recognition and enforcement of IPRs are not ends in themselves, and that each country should be able – within the limits defined by the Agreement – to define a balanced regime of protection, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare. Article 8.1, on the other hand, stipulates that ‘Members may, in formulating or amending their national laws and regulations, adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement’. Though a ‘consistency test’ is to be applied, this principle stresses that no Member country can be prevented to take into account its own public interests in its IPRs legislation.

Page 363 →4. National Seed Supply Systems It is estimated6 that commercially sold seeds represent only about 30% of the value of seeds used worldwide, while 35% is accounted for by saved seed and the remainder 35% by seed produced by public institutions. These percentages vary significantly across countries and over time, depending on the characteristics of their ‘national supply systems’ and their evolution (Louwaars and Marrewijk, 1996, p. 75). The practice of saving seeds is very high in developing countries. For self-pollinated crops and for crops primarily grown for subsistence, the proportion of farmer-saved seed is probably above 80%. In Ethiopia, for instance, farmer-saved seed represents 95% of consumed seed. The volume and value of saved seed is also significant in developed countries. In the case of the United States though the privately sold seed is dominant, 30-50% of seeds for self-pollinated crops such as wheat and soybeans comes from stocks saved by farmers (Srivastava and Jaffee, 1993, p. 8). The need for and the impact of IPRs on plant varieties will vary according to the nature and characteristics of the national seed supply system of a particular country. Moreover, seed supply arrangements may be crop-specific and may vary within a country. Hence, IPRs may play a different role depending on the crop at stake.7 Seed supply systems may be broadly grouped in three categories : The ‘informal’ system characterized by farmer seed-saving, bartering with neighbors or farmers in different villages, and purchase of seeds from local grain stalls; A ‘transitional’ system in which some farmers specialize in the production of seeds for the local market; The ‘commercial’ system where seeds are provided by private companies and/or public and semi-public institutions. The ‘informal’ system is based on the use and continuous improvement of farmers’ varieties (landraces). It operates on the basis of the diffusion of the best seed available within a community, and on its movement, even over large distances ‘during migration of after disaster. In these systems genetic material is valued highly, for example as a gift, but it does not represent a monetary value (because it can be reproduced). It is unlikely that the spread of varieties has ever been restricted out of ownership considerations’ (Louwaars, 1996, p. I-1). Page 364 →The ‘commercial’ system requires the strict control over various cycles of production of genetic, physiological, physical and sanitary parameters. Considerable time and investment is devoted to obtaining ‘uniform’ varieties, which normally requires the planting of a few generations before homogeneity can be described and claimed. Though the conventional breeding method is a widely available, mature technology, the investments necessary and the time required for releasing new varieties pose considerable barriers of entry, and grounds the demands for IPRs protection or other mechanisms that protect and reward such investments. The diffusion of commercial varieties has generally taken place in different stages. It starts with improved varieties first developed or adapted from plant breeding, focusing on major crops in favorable areas. In a second stage, a wider range of varieties and hybrids are developed and commercialized. Farmers’ varieties are replaced

with commercial seed. Finally, all or most seed is developed and traded by specialized suppliers, mainly in the private sector. A number of conditions foster the development of a seed commercial sector, including a research infrastructure and adequate distribution systems. Commercial breeders’ income may be maximized when farmers are unable to save seed and reproduce a variety due to the characteristics of the seeds (such in the case of hybrids), to local conditions (e.g. germination due to poor storage conditions) that do not permit to keep minimum quality levels (Louwaars, 1996, p. I-1), or to the effective application of IPRs. In some developed countries (e.g. the United States), seed supply is largely in the hands of the private sector, even if public institutions actively participate in the development of plant varieties. In other countries (e.g. Argentina), public institutions play a major role in the breeding of new varieties, at least in certain crops. In many countries, however, the production and distribution of commercial seeds through the formal system play a marginal role, while the informal seed system is dominant. In developing countries, the informal system is the main channel for diffusing improved varieties. More than 80% of crops cultivated in such countries are planted with seeds from the informal seed system. In the case of Ethiopia, for instance, only 2% of used seed by small farmers is commercially supplied; overall, commercial seed is 5% of total used seeds. Newly established commercial systems are seldom expected in developing countries to supply more than 15% of total seeds requirements for the specified crops (Srivastava and Jaffee, 1993, p. 7-8).

Page 365 →5. IPRs in Different Seed Supply Systems The impact of plant-related IPRs will vary according to the characteristics of each national supply seed system, and may also vary within a country for different crops. As mentioned, the rationale for the IPRs protection of plant varieties lies in rewarding the investments necessary to develop new, distinct, stable and uniform varieties. Such protection is intended to stimulate commercial plant breeding, which by hypothesis would not occur (at least in the same magnitude) in the absence of rights8 that permit to control the commercial use of the variety. IPRs protection is most important for vegetatively propagated and self fertilizing crop seeds, since once the variety is available, it can be reproduced without the intervention of the original breeder. The introduction of IPRs protection for plant varieties may be regarded as an instrument to support the development of a ‘commercial’ system of seeds supply. Whether this is or not a desirable objective, remains an issue to be decided according to the particular national agricultural policy. If a country wishes, for instance, to move from a predominantly ‘informal’ system, or to move from a ‘transitional’ to a ‘commercial’ system of supply, the introduction of IPRs (in the form of PBRs) may be one of the possible instruments to be applied.9 If the policy aims at preserving the informal system of seed supply, the introduction of IPRs may, in contrast, be neutral or dysfunctional, to the extent that it promotes the conversion of traditional to commercial agriculture. Viewed as an instrument for fostering the development of a ‘commercial’ seed supply system, IPRs may have certain advantages and disadvantages vis-à- vis other possible mechanisms. Among the advantages, the following have been identified (Wolson, 1997): stimulate private investment in plant breeding; permit farmers to benefit from wider access to new varieties released internationally; generate funding for public research institutions; allow farmers and consumers to benefit from increased crop yield and improved crops resulting from new varieties. The previous discussion, and the classification of seeds supply systems, should not be interpreted as indicating that the ‘informai’ and ‘commercial’ systems are mutually exclusive. While cases of almost absolute dominance of Page 366 →either system exist, in many countries both systems coexist with a different relative weight. The

introduction of an instrument that promotes the development of a ‘commercial’ system shall not, by itself, have direct impact on the ‘informal’ system. A study on seed systems in Sub-Saharan Africa has found, for instance, that ‘very rare indeed are instances of modern varieties bred at formal research stations passed on to informal sector for further downstream multiplication and sale’ (Venkatesan, 1994, p. 2). However, IPRs may have important indirect effects on the ‘informal’ seeds system, especially to the extent that modern, uniform varieties replace farmers’ varieties. While the conversion of farmers to use modern varieties may have positive income effects, it is likely to erode plant diversity (Louwaars and Marrewijk, 1996, p. 99). Commercial plant breeding, by its very nature, concentrates on a limited number of varieties, mainly on those that generate prospects of high return on investments. In any case, the contribution of modern seeds is likely to significantly differ depending upon the conditions under which agriculture takes place (Louwaars, 1996, p. I-1, I2). The issue of when and how to introduce IPRs protection becomes, in this context, a matter of agricultural policy. If the development of a ‘commercial’ seeds system is deemed a desirable objective, the effects that such a step may have on the ‘informal’ system should be carefully assessed. The informal system may also be a channel for the diffusion of commercial seeds, ‘since in most countries, informal farmer-to-farmer spread of seeds is the single most frequently used source of seed by farmers, it is necessary for governments to recognize the informal sector as an important low-cost source of quality seed, and to use it as a vehicle for providing resource-poor farmers with improved seed of modern varieties at affordable prices’ (Venkatesan, 1994, p. 2). In sum, it is not possible to generalize on the likely impact of the introduction of IPRs protection for ‘commercial’ seeds on different seed and farming systems. It is clear, however, that IPRs in this field respond to the logic and requirements of a certain mode of seeds supply, which predominates today in developed countries, but which is still small (or inexistent) in many developing countries.

6. Breeders’ Rights vs. Patents The previous discussion has been based on the possible protection of plant varieties through a regime of breeders’ rights (PBRs). The main beneficiaries of said regime would be commercial breeders that employ conventional breeding techniques, and possibly farmers that develop and sell their own varieties. Page 367 →If patents for the protection of varieties or other parts of plants were recognized, however, the main beneficiaries would be the companies and other institutions that master genetic engineering techniques, rather than conventional breeders.10 Currently, the capacity to develop and commercialize new varieties based on genetic engineering is strongly concentrated in a few countries and companies (Pistorius and van Wijk, 1999, p. 118). Despite the promises that biotechnology opened for firms in developing countries, the actual achievements in such countries in the use of agricultural biotechnology are still modest.11 However, some of those countries (like Argentina) have developed good breeding capabilities that allow them to provide well adapted and high quality varieties in which foreign companies’ genes are inserted. Like in the case of PBRs, patents may be seen as an instrument that promote innovation in the biotechnology field. It is clear, however, that such an effect would be true in countries that possess the resources necessary to undertake complex and costly biotechnology-based research. Though, as mentioned before, patents may be partially adapted when applied to biological materials by incorporating some features of PBRs, for most developing countries it would seem reasonable to make use of article 27.3.b) and exclude plant varieties from patent protection.

7. Elements of a Sui Generis Regime If the establishment of a sui generis regime were considered, the objectives to be pursued should be clearly

identified and spelled out. It would also be important to clarify which are the principles on which the regime will be based. Such statement would provide a framework for the interpretation and implementation of the regime, thereby enhancing the certainty about its legal implications. Those principles may, include, for instance, the recognition That the conservation, development and use of plant varieties are essential for the development of the agricultural sector and for improving the living conditions of the population; That plant genetic resources are under the sovereignty of the States; That the use of plant genetic resources, including of protected varieties, for the development of new varieties must be unrestricted; Of the rights, values and cultures of local/indigenous communities. Page 368 →A sui generis regime may contribute to partially realize the Farmers’ Rights. The concept of ‘Farmers’ Rights’ – first mentioned in the FAO International Undertaking on Plant Genetic Resources – aims at compensating traditional farmers for their ancestral contribution to the development of new plant varieties. The implementation of such rights is currently under discussion within FAO, and it has been deemed compatible with the UPOV system.12 The ‘Contact Group’ of the Chairman of the Eight Regular Session of the Commission on Genetic Resources for Food and Agriculture agreed, in April 1999, on the text for a provision on ‘Farmers Rights’. It states that it is the responsibility of the national governments to realize such rights and that their recognition does not limit ‘any rights that farmers have to save, use exchange and sell farm-saved propagating material, subject to national law and as appropriate’. A component of Farmers’ Rights under a sui generis regime may be the possibility of preventing the misappropriation of their varieties. This may not imply the establishment of an exclusive right, or of any form of monopolization that may contradict farmers’ practices and values, but the legal faculty to prevent multiplication or commercialization of the propagating material without their consent, for instance, when the material was acquired in violation of legislation relating to access to genetic resources. The concept of Farmers’ Rights is, however, broader and would require other instruments at the national level for their full realization.13 A crucial issue in the establishment of a sui generis regime would be the definition of the protected subject matter. As mentioned, the TRIPs Agreement requires the protection of ‘plant varieties’, but does not provide (like in the case of inventions) a definition thereof. National laws have, hence, ample room to determine what is to be deemed a plant ‘variety’ for the purposes of the legal regime. There have been lengthy discussions on the concept of ‘plant variety’, particularly in the framework of UPOV. The scientific notion does not necessarily coincides with the legal concept. The law may require certain characteristics for a protected variety that may not be essential for a scientific definition. One option may be to distinguish among grouping of plants, without necessarily relying on the criteria of uniformity and stability. This approach would allow to protect farmers’ varieties (‘landraces’) that generally do not remain uniform over time, but are essentially characterized by their variation. It is precisely this variation which confers local varieties great value as a source of Page 369 →germplasm for agricultural use. The uniformity and stability requirements may be specifically applied, however, with respect to certain categories of plant varieties or in order to get a different (stronger) set of rights. A sui generis regime may, thus, provide for a dual system of protection,14 which includes both ‘modem’ as well as farmers’ varieties. Under a UPOV-like legislation,15 the requirements would include novelty, distinctness, uniformity and stability. For other cases (‘local varieties’) the requirements may be less stringent and be limited, for instance, to sufficient characterization and distinctness. The inclusion of farmers’ varieties as a protectable subject matter would imply a radical departure from existing IPRs regimes. One of the major difficulties to deal with such varieties, however, is their essentially variable nature. The definition of the subject matter and, consequently, the enforcement of rights become more difficult and complex than in cases where uniformity and stability are present. Nevertheless, the subject matter of

protection under IPRs law needs not to be precisely defined in all cases. Thus, trade secrets are protectable without description and registration. It would be a matter of proof in each individual case to determine whether there has been infringement or not. It may be convenient to make it clear that the protection would be granted with respect to a variety as such and that, therefore, it should not extend to any constituent of the plants, including their genetic information, nor to specific characteristics of the plants or of the harvested materials. In some jurisdictions, patents have been accepted on the basis of characteristics or functional specifications, a possibility that a sui generis regime should clearly prevent. In the case of farmers’ varieties, the creation of the variety generally is a collective endeavor and, therefore, the rights should not be granted to individuals, but to the group that has developed and used the variety. Of course, the collective nature of these rights, and the dissemination of farmers’ varieties in different areas or communities, may create controversies about the entitlement to the respective rights. This situation is not essentially different, however, from cases in which two or more persons or firms claim to have developed a given piece of technology or information. A crucial aspect of a sui generis regime relating to plant varieties would be the scope of the rights conferred to title-holders. In most cases, IPRs grant exclusive rights, i.e. the faculty to prevent third parties from exploiting the protected subject matter. Some modalities of IPRs, however, do not entail exclusivity, but other types of rights. Even the TRIPs Agreement does not require the granting of exclusive rights in a number of instances, such as with respect to undisclosed information. Page 370 →In the case of farmers’ varieties, national legislation may recognize a ‘remuneration right’, i.e. an entitlement to receive a compensation in all cases of use of a protected variety for production of the variety. This formulation in practice would amount to an open licensing system under which any interested party may utilize the protected variety for planting or multiplication, against a payment in favor of the title-holder. National patent and PBR’s laws may establish, finally, the obligation to reveal the source used for the creation of a new variety and, if appropriate in the particular case, a proof that the applicant has complied with rules relating to access and sharing of benefits. This type of requirement would be entirely consistent with the TRIPs Agreement standard.

8. Conclusions The establishment of a sui generis regime to protect both commercial and farmers’ varieties is a possible option under article 27.3.b) of the TRIPs Agreement. In developing such regime, an essential consideration should be the characteristics of the existing seed supply system at the national level, and the policy objectives relating to the production and distribution of seeds. A law for the protection of plant varieties may follow some of the existing models of protection with regard to commercial varieties, and introduce specific rules with respect to farmers’ varieties. A ‘dual’ approach, if properly designed, may permit to comply with the requirements of the TRIPs Agreement, while introducing elements of (non-monopolistic) protection for varieties maintained and developed in farms. The exercise of this option will, of course, require to keep the flexibility currently permitted by article 27.3.b) of the TRIPs Agreement.

NOTES 1. See, in particular, the study by Leskien and Flitner, 1997. 2. The UPOV Convention, in its 1978 version, banned the ‘double protection’ of plant varieties through patents and breeders’ rights. This ban has been removed by the 1991 amendment to the Convention. 3. The EU Directive on the Legal Protection of Biotechnological Inventions (No. Page 371 →98/44/EC of

6 July, 1998) has incorporated an exception to the patentee’s exclusive rights similar to the farmers’ privilege under breeders’ rights. Such exception also applies in relation to livestock (articles 10 and 11). 4. See article 3.1 of the TRIPs Agreement. 5. Developed countries have held – until July 1999 – that the ‘review’ should be limited to the ‘implementation’ of the provision, while developing countries have argued for a possible amendment thereof. 6. This section is partially based on Srivastava and Jaffee, 1993. 7. These differences had been, in fact, recognized by the UPOV Convention until its revision in 1991. Member countries were allowed, under UPOV 1978, to decide on which crops PBRs would apply. Article 4 obliged to protect a minimum of 24 genus or species after eight years of the entry into force of the Convention in a member country (article 4.3). 8. The application of genetic use restrictions technologies that prevent the replanting of seeds, may constitute a substitute for such rights, at least for certain varieties. See Jefferson et al, 1999. 9. There are, of course, other instruments that may be considered and that have been applied in the past, such as the use of certification systems, prizes for outstanding varieties, levies on the sale of seeds (Louwaars, 1996, p.3). 10. In many cases, as a result of takeovers and mergers, breeding and biotechnology activities are conducted by the same firms. 11. For the case of Latin America, see Correa et al, 1996. 12. See Greengrass (1996). 13. See, for instance, Part V of the draft African Model Legislation for the Recognition and Protection of the Rights of Local Communities, Farmers and Breeders and for the Regulation of Access to Biological Resources (OAU, May 1999). 14. In Switzerland, for instance, a register for groupings of cereals that do not meet the ordinary homogeneity requirements has been established. 15. UPOV 1978 provides a model for legislation more flexible and adaptable to developing countries than UPOV 1991. REFERENCES Correa, Carlos; Diaz, A.; Burachik, M.; Jeppesen, C.; Gil, L.; Moreno Posada, F.; Sorj, B. and Sutz, J., (1996), Biotecnología: Innovatión y Productión en América Latina, Colección CEA-Uba, Buenos Aires. Greengrass, Barry, (1996), ‘UPOV and Farmers’ Rights’, in M.S. Swaminathan Page 372 →Research Foundation, 1996, Agrobiodiversity and Farmers’ Rights, Madras, p.56. Jefferson, Richard; Byth, Don; Correa, Carlos; Otero, Gerardo and Qualset, Cal, (1999), Genetic Use Restriction Technologies: Technical Assessment of the Set of New Technologies which Sterilize or Reduce the Sgrpnomic Value of Second Generation Seed, as Exemplified by U.S. Patent 5,723,765, and WO 94/03619, CBD Assessment of Genetic Use Restriction Technologies, Expert Paper. Leskien, Dan and Flitner, Michael, (1997), ‘Intellectual Property Rights and Plant Genetic Resources: Options for a Sui Generis System’, Issues in Genetic Resources, No.6, IPGRI, Rome. Louwaars, Niels P., (1996), Expansion of Intellectual Property Rights. systems in plants: issues related with Plant Genetic Resources, CPRO-DLO, Wageningen (The Netherlands). Louwaars, N.P. and Marrewijk, G.A., (1996), Seed Supply Systems in Developing Countries, Technical Centre for Agricultural and Rural Cooperation, Wageningen Agricultural University, The Netherlands. Pistorius, Robin and Van Wijk, Jeroen, (1999), The Exploitation of Plant Genetic Information. Political Strategies in Crop Development, Amsterdam. Srivasta, Jitendra and Jaffee, Steven, (1993), ‘Best Practices for Moving Seed Technology. New approaches to

doing business’, The World Bank, World Bank Technical Paper Number 213, Washington, D.C. Venkatesan, V., (1994), ‘Seed Systems in Sub-Saharan Africa. Issues and Options’, The World Bank Discussion Papers, Africa Technical Department Series, No.266, Washington, D.C. Wolson, Rosemary (1997), Intellectual property rights in agriculture, (Mimeo), Cape Town.

____________________ *Director, Maestria en Politica y Gestión de la Ciencia y la Tecnología, Universidad de Buenos Aires (Argentina).

Page 373 →CHAPTER 22 Conserving Biodiversity and Rewarding Associated Knowledge and Innovation Systems: Honey Bee Perspective Anil K. Gupta* Economic development in different regions has often been accompanied by a decline in biodiversity. Biotechnology and other value adding technologies offer a possibility of valorizing biodiversity. But the distribution of the gains among different stakeholders generated through added value obviously is the function of institutional arrangements. The kind of ethical practices followed by bioprospectors may determine whether or not the benefits of biotechnological products are shared fairly among different stakeholders. The need for low transaction cost system is obvious and yet most global dialogues on intellectual property rights have not yet embarked upon such a system. In the forthcoming review of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) of the World Trade Organization (WTO), a discussion on Article 23 providing for negotiations on the establishment of multilateral system of notification and registration of geographical indications in the context of wines is proposed. There is no reason why such a discussion should be restricted only to wines and not include traditional knowledge as well as contemporary innovations of local communities and individuals. There are many other policy and institutional modifications that are called for in the IPR laws. It is not my argument that removing the Page 374 →imperfections in an IPR regime will, by itself, generate economic rewards and social esteem for local knowledge rich economically poor people. I realize that the role of non-monetary incentives may be sometime more important. However, the biotechnology, drug, and other value adding industries have yet not shown any explicit interest as a stakeholder in generating models of voluntary benefit-sharing. Does it imply that they believe that future gains in biotechnological products may be made only on the basis of public domain biodiversity. The empowerment of local knowledge experts will require building bridges between the excellence in formal and informal science. Reform of TRIPs thus is a process involving reform of knowledge producing and networking institutions in any society.

1. Introduction The asymmetry in rights and responsibilities of those who produce knowledge particularly in informal sector and those who valorize it (in formal sector) has become one of the most serious contentious issues. I will begin with four case lets to illustrate the interface between the traditional and contemporary knowledge and global trade. I will then demonstrate that there are possibilities of securing the interests of grassroots innovators and traditional communities within the global trade regime provided the ethics of extraction can be factored in the calculation of respective incentives or disincentives for cooperation among different stakeholders. To do so, some of the fast emerging and expanding technologies like Information Communication Technologies (ICTs) will have to be adapted to the needs of local communities and individual grassroots innovators. Lastly, I will summarize the policy changes that need to be negotiated in the next round of review of TRIPs and some other trade agreements having bearing on incentives for local innovations and growth of traditional knowledge and institutions.

2. Lessons from What Has Happened Case I: The Intellectual Property in Herbal Products: Why Has the Center of the World Moved Eastward? The import of the fact that almost forty five per cent of the herbal patents in USPTO till 1998 were owned by Chinese, another twenty per cent by Japanese and about sixteen per cent by Russians has not been properly

appreciated.1 Chinese leadership in herbal products proves that with the right kind of incentives, even a developing country can achieve global preeminence. Page 375 →Not only that, the first hundred assignees were individuals and not corporations. The notion that R&D by small scale firms or individual scientists cannot generate globally valuable intellectual property is not true. It is said that one in every five north Americans has used Chinese medicine. The traditional Chinese medicine has succeeded in capturing global markets through available trade routes. How has it happened? Whether this is a replicable model? To what extent has this trade helped the local communities and individual herbalists in China? Is there a reason to hope that the erosion of traditional knowledge will be stemmed because of the emergence of market and valorization of the knowledge? May be answers to many of these questions may not be positive. And yet, simply because not all problems have been solved, the example should not deter us from solving at least some problems to begin with. Caution has to be exercised that if those stakeholders whose problems get solved first (for instance, traders or petty manufacturers), they should not become complacent towards solving the problem of other stake holders such as herbalists, local communities, conservators of biodiversity in wild as well as domesticated domains.

Case II: Genetic Resources Recognition Fund at UC, Davis: Viability of Voluntary Sharing of Benefits 2 When Pamela Ronald, a pathologist at UC, Davis cloned a gene which conferred resistance to a major disease of rice i.e. blast and licensed it to two companies, she was not willing to bear the label of a biopirate. She realized that the wild rice (O. longistaminata) from which the gene was isolated and cloned originated from Mali, from where it had gone to Central Rice Research Institute, India, and in turn to International Rice Research Institute. The characterization and identification of the gene in question (XA 21) took place at IRRI. She met with Prof. Barton and conceptualized the Genetic Resource Recognition Fund (GRRF) in which part of the one time royalty from the companies would be credited apart from contribution from UC, Davis so as to provide fellowships to the students from Mali and other developing countries. It is true that no money has yet been put in this fund because the companies concerned have not as yet decided to commercialize the gene through its insertion in various rice varieties. Hence, no fellowship has yet been given. The top management of UC, Davis campus is conscious of the fact that this idea has not been mainstreamed, and thus has not been institutionalized for similar other transactions taking place at this campus or at other campuses of University of California. They are planning to initiate discussions on this subject. Assuming that not many scientists agree to put a part of their income coupled with the share of the university in this fund, the idea will remain an isolated but outstanding example of individual good conscience. Can such voluntary examples show the way for the future? Can Page 376 →these models be replicated through reforms at higher level, i.e., in the inter governmental negotiations on TRIPs and trade? Whether the postgraduate fellowships to the students from the gene donor country will be a good means of sharing benefits and providing incentives for in situ conservation? To what extent the amount proposed in this fund is optimal? There can be many more questions. And yet, the issue remains that the individuals can make a difference, change the perspective and generate hope. To what extent can such models provide a basis for influencing the trade negotiations in genes? Is it possible that while generating global solutions we do not constrict the space for creative solutions, no matter how isolated and non-replicated these are?

Case III: Commercializing Traditional Knowledge of the Kani Tribe Tropical Botanical Garden Research Institute (TBGRI) has been doing research on herbal drugs for a long time like many other botanical institutions. Dr. Pushpangandan being the coordinator of national project on ethno botany and Director of this Institute was well aware of the potential of indigenous knowledge of herbal drugs. He and his colleagues identified a drug from the traditional knowledge collected as a part of their study and filed a patent on the same. An Ayurvedic drug company got interested in the commercialization of this drug and accordingly licensed the right to manufacture and market. Dr. Pushpangandan discussed various ways of sharing the benefits with me and accordingly decided to set up a trust fund of the tribe. He chose this route in preference to the transferring of the benefits to a public sector tribal development corporation. There was criticism of his

attempt to share benefits suggesting either inadequacy, lack of widespread involvement of Kani or that TBGRI did not hire enough Kani people or even paid them well. There was no criticism of thousands of researchers in public and private sectors who have been using traditional knowledge without any reciprocity whatsoever. The consciousness of Kani tribe about their own knowledge and need for its conservation and application has increased manifold. Dr. Pushpangandan had been working on many plants and realized the need for sharing benefits only because of the current global and national concern. Whether the amount of benefit was adequate or not is an important issue but not the most important one. To what extent Kanis will become conscious of their rights and responsibilities is a more important question. Whether a voluntary decision of this kind will bring about change in the behavior of other public and private sector users of traditional knowledge within India is again an open question. It is interesting that many NGOs and others who see MNCs as the biggest enemy of the nation don’t realize that for poor tribes, it Page 377 →is no solace whether they are exploited by a domestic company or international company. Globalization of ethical responsibility is an imperative.

Case IV: Honey Bee Network Transforms Paradigm of Benefit Sharing: The Case of Monetary and Non-Monetary Incentives for Communities and Innovators Honey Bee Network evolved ten years ago in response to an extraordinary discomfort with my own conduct and professional accountability towards those whose knowledge I had written about and benefited from. I realized that my conduct was no different from other exploiters of rural disadvantaged people such as money lenders, land lords, traders, etc. They exploited the poor in the respective resource markets and I exploited the people in idea market. Most of my work had remained in English and thus, was accessible to only those who knew this language. While I did share findings of my research always with the providers of knowledge through informal meetings and workshops, the fact remained that I sought legitimacy for my work primarily through publications and that too in English and in international journals or books. The income which had accrued to me had hot been shared explicitly with the providers of the knowledge. I had argued with myself that I have spent so much time and energy in policy advocacy on behalf of the knowledge-rich, economically poor people. But all this was of no avail when it came to being at peace with oneself. That is when the idea of Honey Bee came to mind. Honey Bee is a metaphor indicating ethical as well as professional values which most of us seldom profess or practice. A honey bee does two things which we intellectuals often don’t do: (i) it collects pollen from the flowers and flowers don’t complain, and (ii) it connects flower to flower through pollination. Apart from making honey of course. When we collect knowledge of farmers or indigenous people, I am not sure whether they don’t complain. Similarly, by communicating only in English or French, or a similar global language, there is no way we can enable people to people communication. In the Honey Bee network, we have decided to correct both the biases. We always acknowledge their innovations by their name and address and ensure a fair and reasonably share of benefits arising out of the knowledge or value addition in the same. Similarly, we also have insisted that this knowledge be shared in local languages so that people to people communication and learning can take place. Global trade so far has not created enough space for such knowledge to be exchanged among people in different continents which reduces their transaction costs of learning from each other around particularly non-monetary green technological innovations. Page 378 →Honey Bee, in that sense, is like a Knowledge Centre/Network which pools the solutions developed by people across the world in different sectors and links, not just the people, but also the formal and informal science. It is obvious that people cannot find solutions for all problems. At the same time, the solutions they find need not always be optimal. There remains a scope for value addition and improvement in efficiency and effectiveness. But it is definite that a strategy of development, which does not build upon on what people know, and excel in, cannot be ethically very sound and professionally very accountable or efficient. Society for Research and Initiatives for Sustainable Technologies and Institutions (SRISTI) has set up an internal fund to honor ten to fifteen innovators every year from its own resources supplemented by the license fee received from a company to whom three herbal veterinary drugs were transferred based on public domain traditional

knowledge. Similarly patents have been filed or are being filed on behalf of several innovators. In the case of Tilting bullock cart developed by Amrut Bhai of Pikhore village, while the patent is pending, the technology has been licensed to private entrepreneurs for three districts of Gujarat for an attractive financial consideration. This amount has been given to the Amrut Bhai through Gujarat Grassroots Innovation Augmentation Network (GIAN). GIAN itself was set up in 1997 as a follow up of International Conference on Creativity and Innovation at Grassroots held at IIMA in collaboration with Gujarat Government to scale up and commercialize grassroots innovations. The golden triangle linking innovation, investment and enterprise, which I first talked about at the AIPPI forum, organized in 1996 has now been operationalized. SRISTI had pursued this linkage through its venture promotion fund before GIAN came into being. Even after that, it continues to provide financial support for action research to small innovators. Whether global linkages among innovators in one country with investment and enterprise in second and third country take place, is only a matter of time. Four case studies bring out various issues: To what extent has been the generation of awareness about rights of traditional communities and grassroots innovators among various stakeholders effective in changing the way business is done? It seems that professionals like scientists and academics have been far more proactive than the corporations in this regard (Shaman pharmaceutical and Dr Nair’s Technology Foundation are two of the few exceptional companies, most mainstream companies have so far shied away from making any bold attempt to tilt the scales in favor of local communities). Whether the norms of benefit sharing have acquired the status of a professional value. For instance before accepting a Ph.D. thesis, a Page 379 →certificate is generally taken from the student that he/she has acknowledged all the contributions in the research work. However, a similar declaration is not insisted upon from the researchers and commercial users of indigenous knowledge that they have made due acknowledgement and reciprocal arrangement with the innovators. The norm of acknowledgement of local knowledge has not become professional value among germplasm collectors as well as ethnobiologists. What combination of monitoring and non-monitoring incentive would be optimal for which kind of knowledge systems and innovations and under what institutional arrangements? Unless such a contingent frame work is developed, it is unlikely that most users of biodiversity will be able to initiate benefit sharing experiments. We do not know as to what level of intellectual property protection will make the local knowledge system vibrant and buoyant. Is it possible that fears about the erosion of local knowledge increasing due to its valorization are unfounded? What are the reasons, which explain such a dearth of information on experiments around benefit sharing? Why are so few people trying to pursue these experiments? Why aren’t consumers of value added product in Europe and other western countries as conscious of the rights of local communities and grassroot innovators as they are about the rights of the animals ? What is preventing the NGOs and Government in third world countries from initiating benefit sharing measures on their own among the various institutions within the country? Why should intra country arrangements of benefit sharing as attempted by TBGRI and Honey Bee Network not take place in many countries and await the resolution of North South conflicts? Not in one case, the consumers of herbal and other products have demanded fairer contracts with the local community in contrasts to the boycott of beef burgers in US some time ago to discourage environment unfriendly rearing of beef in Latin America. What is the perception of local communities and innovators themselves on the issues of benefit sharing? The context in which local knowledge evolves and gets modified or transformed over time is discussed in the next part.

Page 380 →3. Alternatives to Development: From Grassroots to Global SRISTI, a global NGO set up few years ago, provides organizational support to the Honey Bee network around the world. It is a network of odd ball who experiment and do things differently. Many of them end up solving the problem in a very creative and innovative manner. But the unusual thing about these innovations is that they

remain localized sometimes unknown to other farmers in the same village. Lack of diffusion cannot be considered a reflection on the validity of these innovations. The innovations could be technological, socio-cultural, institutional and educational in nature contributing to the conservation of local resources and generation of additional income or reduction or prevention of possible losses. Farmers have developed unique solutions for controlling pests or diseases in crops and livestock, conserving soil and water, improving farm implements, various kinds of bullock or camel carts for performing farm operations, storing grains, conserving land races and local breeds of livestock, conserving aquatic and terrestrial biodiversity, etc. Honey Bee has already collected more than eight thousand innovative practices predominantly from dry regions to prove that disadvantaged people may lack financial and economic resources, but are very rich in knowledge resource. That is the reason we consider the term ‘resource poor farmer’ as one of the most inappropriate and demeaning contributions from the West. If knowledge is a resource and if some people are rich in this knowledge, why should they be called resource poor (a term used in GATT/WTO also)? At the same time, we realize that the market may not be pricing peoples’ knowledge properly today. It should be remembered that out of 114 plant derived drugs, more than 70 per cent are used for the same purpose for which the native people discovered their use (Farnsworth, 1981). This proves that basic research linking a material and effect had been done successfully by the people in majority of the cases. Modern science and technology could supplement the efforts of the people, improve the efficiency of the extraction of the active ingredient, find causal mechanism, or synthesize analog of the same, thereby improving effectiveness. The scope for linking scientific search by the scientists and the farmers is enormous. We are beginning to realize that peoples’ knowledge system need not always be considered informal just because the rules of the formal system fail to explain innovations in another system. The soil classification system developed by the people is far more complex and comprehensive than the USDA classification systems. Likewise, the hazards of pesticides residues and associated adverse effects on the human as well as entire ecological system are well known. Some of these practices could extend the frontiers of science. For instance, some farmers cut thirty to forty days old sorghum plants or Calotropis plants and put these in the irrigation channel so as to Page 381 →control or minimize termite attack in light dry soils. Perhaps hydrocyanide present in sorghum and similar other toxic elements in Calotropis contributed towards this effect. There are a large number of other plants of pesticidal importance found in arid and semiarid regions, hill areas and flood prone regions which can provide sustainable alternatives to highly toxic chemical pesticides. It is possible that private corporations may not have much interest in the development and diffusion of such alternatives which pass control of knowledge into the hands of people. However, an informed, educated and experimenting client always spurs better market innovations as is evident from the experience of computer industry. Therefore, we do not see a basic contradiction between the knowledge systems of people and the evolution of market rules to strengthen and build upon it. However, such a model of market would be highly decentralized, competitive, open and participative. Honeybee in that sense is an effort to mould markets of ideas and innovations but in favor of sustainable development of high risk environments. The key objectives of SRISTI thus are to strengthen the capacity of grassroots level innovators and inventors engaged in conserving biodiversity to (a) protect their intellectual property rights, (b) experiment to add value to their knowledge, (c) evolve entrepreneurial ability to generate returns from this knowledge, and (d) enrich their cultural and institutional basis of dealing with nature. Of course no long term change in the field of sustainable natural resource management can be achieved if the local children do not develop values and a worldview which is in line with the sustainable life style. Thus education programs and activities are essential to perpetuating reform. Globalization in trade and investment through harmonization of national laws, particularly dealing with intellectual property rights is one of the major impacts of GATT/WTO. The contribution of knowledge as a factor of production is being increasingly given central importance in economic development. The management of knowledge not just in farms and firms but also in non-farm sector will become very crucial in coming years. The

intellectual property rights deal with the reciprocity in rights and responsibilities of inventors and society at large. In lieu of the disclosure of the patented innovation or invention, the society agrees to recognize the right of inventor to exclude others not authorized, from commercial exploitation of the invention. It is a kind of social contract between society and the inventor. Society gains by getting access to the inventive process and product, which can be used by other inventors for making improvements as well as developing substantive new innovations. Inventor benefits by having incentive to invest himself/herself or assign it to some one else interested in commercial exploitation of the invention. If others could easily copy the Page 382 →invention as happens in process patents, then investors will not make major investments and inventors will have no incentive to disclose. The plants and animals were kept out of the purview of patents when the concept was developed initially. However, in fifties, discussion started on finding out ways in which more plant varieties could be developed and breeders could be given incentives to innovate and disclose the improvements. There are several ways in which indigenous knowledge, innovation and practices can be protected so that the informal knowledge system continues to grow and symbiotically link with modern science and technology: Overcoming informational asymmetries in the formal and informal knowledge systems through IT applications. Reforming IPR system to make them accessible for small grassroots innovators. Establishing dedicated green venture promotion funds and incubators for converting innovations into enterprises. Reforming the mandate and responsibility of CG institutions to make it obligatory for international agricultural and natural resource management institutions to accord priority to adding value to local innovations. Rethinking and redefining the role and responsibility of international financial institutions with respect to ethical, institutional and financial support for grassroots innovations and local knowledge systems.

4. Making IPR System Accessible to Small Innovators and Local Communities: Key Objections to Stronger IPR Regime along with a Case for a Stronger IPR Regime: (Gupta, 19963, 1999) The debate on the relevance and appropriateness of the conventional IPR regime for Plant varieties, products based on knowledge of local communities and individual informal experts and use of local biodiversity even without use of associated knowledge systems has become very emotive in recent years. Many NGOs and activists see no merit in the IPRs regime for providing incentives to local communities and creative individuals. They term the attempts of the large corporations (generally MNCs) to access biodiversity without sharing any benefits with local communities as ‘Biopiracy’. Many others oppose IPRs because these are supposed to commoditise knowledge which reportedly was ‘always’ in the common domain for universal/local benefit. High costs of hiring patent attorneys are supposed to make the present patent system out of reach of grassroots Page 383 →innovators. The absence of any institutional setup in most developing countries to (a) provide information about IPRs, (b) extend help to obtain patents for individuals or communities, and (c) oppose the patents by others on the knowledge traditionally known to local communities, have further alienated the moderates and hardened the attitudes of the conventional opponents. The arguments of those who do not see any hope in the provisions of TRIPs can be summarized as: All the knowledge held by people about use of biodiversity for treating various ailments of human and animals, producing vegetative dyes, developing local land races etc., is held in common by the local communities. This knowledge is supposed to have been transferred by one generation to another over very long period of time with (or without) some value addition by successive generations. The knowledge must be held in common domain and should not be allowed to be monopolized by MNCs (though the behavior of public sector and private but national drug companies is no different from the MNCs). Intellectual property right regime evolved for protecting industrial designs and processes and is not suitable

for biological processes and products. Since the knowledge of various plants has been developed over several generations, why should present generation be entitled to reap all the rewards if any? Why should governments be entitled to any benefits from the commercialization of patented products when the resource and the knowledge were actually provided by individuals or communities? While process patents can be provided, the product patents impede research, generate excessive monopoly to one or few inventors, make the technology or products out of reach of common people due to price increase, and discourage expertise of successful reverse engineering in the third world. There are many other arguments on ethical and efficiency grounds against the patenting of life forms and also against the products derived from common knowledge without any reciprocity towards knowledge generators or providers in one or more countries in the region. I propose to dispel many of these myths, acknowledge where there is a genuine case for reforms of patent regime and finally suggest an alternative framework which may be needed to help achieve the goals of IPRs i.e. Page 384 →rewarding inventive and creative activities in society. It is acknowledged that encouragement to creative and innovative spirit at grassroots level will not be possible only through IPR regimes. It is for this reason, SRISTI and Honey Bee network have been arguing since 1989 that various models of reward involving material and non material incentives for individual and communities applicable in short and long term should be explored. One of the material-individual way of rewarding creativity can be patenting and other such forms of protection of intellectual property (Gupta, 1989, 1990, 1991, 1995, Honey Bee 1989-95). But this is just one way. My Case: Not all the knowledge held by people in biodiversity rich economically poor regions and communities is (a) traditional, (b) carried forward in fossilized form from one generation to another but has been improvised by successive generations, (c) collective in nature, and (d) even if known to communities, is reproduced by everybody. Considerable knowledge of economic importance is produced, reproduced, and improvised by individuals and also in recent times i.e. through contemporary innovations. Even the traditional knowledge should receive certain kind of protection if incentives have to be generated to conserve not only the knowledge but also the institutions of its reproduction and intergenerational transfer. We should not kill the goose which laid the golden eggs so long. Given the high hit rate in formal research around locally identified uses of plants and other kinds of biodiversity, transaction costs of formal R and D systems in private and public systems are reduced considerably. They should in turn share the benefits that may accrue from commercialization of so protected products. In some cases local communities or individuals as the case may be should be considered coinventors of the new value added products. We have made this unpopular argument for last several years through the columns of Honey Bee newsletter and otherwise, that southern governments should not discriminate among national and international companies and/or organizations regarding (a) threat to environment from unrestrained exploitation of germplasm or biodiversity without replacing or repairing disturbance to natural habitats, (b) exploitation of local or traditional or contemporary knowledge of people without prior informed consent, and ensuring equitable sharing of benefits, and (c) contribution to national capacity building in negotiating fair and reasonable contracts among people Page 385 →and the biodiversity prospectors. What solace does it give to the poor biodiversity conserving community that in some cases it is exploited by national companies and not a MNC? Some exceptions may be made in case of those NGOs or civil society organizations which are explicitly accountable to people and are experimenting to evolve models of rewarding creativity through material and non-material incentives for individuals and communities. The newness and non-obviousness of a traditional knowledge should be seen in the light of available repertoire for that particular purpose.

The local knowledge should qualify to be considered new for the purposes of prior art since outside communities/companies may not have had access otherwise. The norms regarding exhaustion of the rights due to publication of local knowledge should be reconsidered and modified so that incentives to share the knowledge by local communities with outsiders are not affected adversely. The argument that all the knowledge should be treated as common property is not tenable because large number of local experts we have met so far are extremely knowledgeable though very poor. They know far more than any body else in the village and have expertise to prepare various solutions. Others may know about it but they may not have contributed to it except by giving an opportunity for testing. To that extent they should have a small share in the entitlements. But the entitlements of an expert could not be at par with the rest of the community. Local communities have not provided them any significant incentives such that either their children or other younger people try to learn their skills. It should also be noted that secrecy is not a gift of modern patent regime. Lots of traditional knowledge has already been lost or is in the process of being lost because the expert concerned did not ever share the innovation with any one. Every patent office in a western country should insist that patent applicant declares that the knowledge and resources used in a patent have been obtained law fully and rightfully. This implies need for regulations in developed countries requiring full disclosure by any corporation or an individual seeking patent protection on a plant based drug or any other natural product. The disclosure should provide that the source material has been rightfully and lawfully acquired. ‘Rightful’ acquisition would involve moral as well as ethical issues in access to biodiversity. For instance even if a local community has not asked for any Page 386 →price for sharing the material or the knowledge about it, is the corporation bound by an ethical conduct to set up trust funds and other forms of reciprocity for local communities? Is it incumbent upon it to ensure that the superior ethics of local communities remaining poor despite conserving biological diversity and the knowledge around it does not become a reason for perpetuating their poverty, and thus endangering the survival of diversity itself? The ‘lawful’ acquisition will imply that prior informed consent and approval and involvement of local communities and creative individuals has been ensured provided that the biodiversity donor country has laws requiring such a consent and approval. If a country does not have any such laws, as for instance India, then acquiring any material will be lawful or legal but may not be rightful.4

5. Reforming IPR Systems Publication of Indigenous Knowledge, Innovations and Practices and Exhaustion of Intellectual Property Rights: The Case for International and National Registration System In a recent paper,5 I recognized that the publication of local knowledge exhausts IPRs on one hand and may deprive the knowledge provider any benefit that may arise from value addition in local knowledge to the individual or community or nation concerned. At the same time, local language publications make it possible for people struggling with similar problem to learn from it. This happens through publication in local languages as attempted by Honey Bee. However, the challenge is to marry two goals of easy and quick opportunity for lateral learning (through local language publication) and sharing of benefits through value addition in the same knowledge. A quick legitimacy to Data Bases like Honey Bee and registration system6 of innovations may provide the answer. Honey Bee will then make its data bases accessible to all patent offices in lieu of the protection provided to the communities and individuals whose knowledge is catalogued in it. The alternative of greater secrecy and withholding of knowledge will make every one a loser through a) greater erosion of oral knowledge, b) continued unwillingness of the younger generation to learn the knowledge, innovations and practices developed over a long period of time, c) depriving knowledge holders as well as those dependent upon them of any opportunity to improve their livelihood prospects through sharing of possible benefits, d) lack of material incentives for conservation of endangered species, e) knowledge-rich poor communities may migrate out due to low opportunities for subsistence and employment and not take care of local Page 387 →resource or over

exploit the resource itself netting very little value in a short period of time, and f) stifling the very creative and buoyant laboratory of innovations at grassroots by denying any social esteem for such knowledge through material as well as nonmaterial incentives and general neglect. Since it will be very difficult for any and every community to seek protection of its knowledge and inventive recipes for various purposes such as herbal pesticides, human or veterinary medicines, vegetative dyes, etc., a registration system should be developed. Such a registry will prevent any firm or individual to seek patent on community knowledge as well as on knowledge and innovations produced by individuals without some kind of cross licensing. A proposal for International Network for Sustainable Technologies, Application and Registration (INSTAR) has been mooted by SRISTI at several for a during last six years. The basic structure of INSTAR is as follows: It will be possible to achieve the following results from such a registry: • Primary entitlements: Acknowledgement of individual and collective creativity. Grant entitlements to grassroots innovators for receiving a share of any returns that may arise from commercial applications of their knowledge, innovations or practices with or without value addition. • Secondary entitlements: Linking the golden triangle of entrepreneurship by linking investments, enterprise and innovations. Small scale investors in North and South can not afford to go to various countries, scan diversity of knowledge and resources, negotiate contracts and invest up front huge investments for value addition. If they do not participate, then the field will remain dominated by only large corporations. This register will help small scale investors seek opportunities of communication with communities and individual innovators and explore opportunities of investment. Large number of potential negotiations will take place increasing the opportunities for innovative communities and individuals. The competition among the investors tempered by competition among potential suppliers of a various kinds of knowledge as well as diversity will moderate expectations on both the sides. An autonomous authority of which local community representatives will be the majority members could be entrusted with the responsibilities of having access to all the Page 388 →contracts. A copy of the contracts may have to be deposited with this Authority so as to avoid short changing of the communities. These contracts will also be scrutinized to see whether management plans for sustainable extraction of diversity have been drawn upon scientifically appropriate manner or not. Penalties may have to be imposed for non-sustainable extraction of herbs by domestic as well as external extractors, Each entry in the Register will be coded according to a universal system like ISBN. The postal pin code of the habitat of the community or individuals registering innovations will be incorporated in the indexation system so that geo-referencing of innovations can be done. In due course the contextual information of innovations can also be incorporated in the system so that this systems of innovations can help cross connect the communities having similar ecological situations or facing similar constraints or challenges around the world. The entry in the register will in the first stage be mere acknowledgement of creativity and innovation at grassroots level. But later some of the innovations will be considered appropriate for award of inventors certificate or a kind of innovation patent which is a limited purpose and limited duration protection. Essential purpose of this innovation also is to enable the potential investors (a cooperative of consumers, producers, an entrepreneur, or a large firm in private or public sector) to link with the innovator and set up an enterprise. The award of certificate will also increase entitlement of innovator/s for access to concessional credit and risk cover so that transition from collector, or producer of herbs to developer and marketeer of value added products can take place in cases where innovators deem that fit. The registration system will also be part of Knowledge Network linking problem solving people across the world

at grassroots level (see discussion on Knowledge network in the later section). This will promote people to people learning and serve as a multi-language, multi level, multi media (oral, textual, electronic) clearing house for local and indigenous communities. Wherever necessary and possible, formal scientific institutions will be linked up in the network. Apart from the registration system a large number of specific incentives would need to be developed for different categories Page 389 →of knowledge, innovations and practices. Similarly the incentives for preservation of sustainable lifestyles of indigenous communities would also be different. Knowledge Network for sustainable technological options operationalized through Honey Bee network approach implies that innovations in one part of the world, may seek or attract investments from another part, if necessary, to generate enterprises (whether commercial or non commercial, individual or co-operative) in third place. Several innovative experiments have been started to explore this Golden Triangle for rewarding Creativity. It requires acknowledging that not all innovators may have the potential for becoming entrepreneurs or have access to investible capital. One could have an innovation say from India, investor from Europe and enterprise in South Africa. Forces of globalization could after all be also mobilized in defense of poor creative people. Information Technologies like any other technology can help bridge as well as widen the gaps between ‘haves’ and ‘have-nots’. What is very encouraging about the new possibilities that IT trends offer is the scope for democratizing knowledge which was never so high as now.

Search for Prior Art and Essential Disclosure by the Applicants It has been felt for a long time that patent offices issue improper patents because they do not have either access, time, perspective or sometimes even willingness to explore information in databases not available on internet or in electronic format. Recently, CIEFL has submitted a presentation to USPTO suggesting modifications in the procedures for searching prior art. SRISTI has also been pleading for last several years that databases of community as well as grassroots knowledge should be accessed by the patent offices to avoid issuance of trivial or improper patents. Specific steps required in the matter are: Various NGOs and other documentation services should be contracted by WIPO or leading patent offices to convert published data on ethnobiology, indigenous knowledge and other innovations into electronic databases so that each patent office can screen these before issuing any patent. The cost of building up of these databases will have to be raised from multi-lateral sources. In some cases, it would also include translation from local languages. There should be incentives for groups documenting local knowledge to share it with patent offices regularly. Page 390 →Every applicant should be required to disclose that material, information or any other knowledge used in the patent application has been obtained lawfully and rightfully. Those patent offices which do not disclose the patent applications before granting the patent should be obliged to make the applications public after reasonable period of time of application so that objections can be filed by the interested groups. There is a tremendous amount of knowledge which is available only in oral form and has not yet been documented. There have been cases when such knowledge communicated in good faith by local people has been used without acknowledgement or reciprocity to claim intellectual property on the same. There should be severe penalty for such attempts so that these act as a deterrent. At the same time, mechanisms should be put in place for world wide campaign for documentation and registration of these knowledge systems. Just as a discussion is going on in the USA on linking the application cost of patents with number of claims, there should similarly be, incentives for disclosing extensive prior art. This will encourage applicants to make extra efforts to disclose as much as prior art as possible and accordingly get concessions in the cost of application. This is particularly applicable for patent applications on biodiversity based knowledge and resources. Not every localized knowledge which is not yet documented should be considered public domain unless it is easily accessible. Therefore, oral traditional knowledge in which some improvements may have been made

should be eligible for being considered patentable. This will help the communities to decide whether they would like their knowledge to be public domain and thus become part of prior art or would like it to come in public domain after getting protection for a given period of time.

Global Dialogue on New Systems of IPR for Protecting Localized Traditional Knowledge vis-à-vis the Protection for Traditional Life Styles Embodied in Geographically Indicated Products like Wine The conventional IPR system will exhaust the rights of local communities and traditional healers after 10-20 years depending upon the system in vogue in different countries. There is a need for Page 391 →experimenting with different kinds of protection for different kinds of traditional knowledge. Some can be protected through trade mark route, some by geographical indications, and still others through a combination of patent and inventors’ certificate entitling the communities for sharing benefit for at least two generations i.e. 50 years. It is obvious that a small share provided regularly over a long term period gives greater certainty than a larger share given only once or for few years. The communities must be enabled to evolve institutions for utilizing external resources in a sustainable manner without becoming victim of non sustainable life styles and consumption patterns as happened in the case of many of the north American native Indian communities. The new systems of protection will have to balance the long-term need for the community to have interest in conserving the knowledge system and the incentives for those who add value to share the benefits for a limited period of time. Longer the period of the protection, the more delayed access will be there for those smaller firms which want to add value, reduce cost and make products available for larger consumption. Therefore the new system we propose should discriminate between rights of communities in the knowledge systems per se vis-à-vis the rights in a specific knowledge output. The rights in the systems should be perpetual. For instance, the classical health systems such as ayurvedic, unani or sidhdha have recipes which are being granted patents in a rather indiscrete manner. This is improper. However, modifications in these recipes should be permissible for patenting with the understanding that a share of the benefit will go into a global pool of funds for augmenting indigenous systems of medicines all over the world. This is similar to a system for plant verities in which improved verities based on land races should contribute a share to the global fund for in situ conservation. Since every such benefit is shared ultimately at the consumer’s costs, it is only natural that consumers should pay for the conservation of diversity. In the famous dispute on sheep meat export by England to France on which France had levied a tariff, it was reportedly resolved by the European court that France was justified in levying tariff on the import because (i) the shepherds in France were small scale herders and (ii) sheep rearing was a way of life for them without many alternative employment opportunities. In contrast in England the sheep rearing was a largescale activity. In France the sheep rearing was dominating in a marginal environment with relatively speaking Page 392 →lover income levels. Therefore while negotiating tariff reduction, a special provision should be made in the next round on providing safety measures for such commodities, which are produced in the importing countries by poor people in marginal environment. For instance if the rags are imported from Australia and New Zealand in to India, they depress the price of wool. Once the price goes down, the incentive for shepherds (primarily located in arid poor environment) to substitute low productive sheep by high cost high productive sheep go down. The result is increase in the herd size and consequent increase in grazing pressure. The degradation of the environment is a direct consequence of low tariff on the imported rags/wool. For the shepherd community in arid environment there are very few alternatives. Before granting any patent, patent office should demand declaration that the data or material used in the patent application has been obtained lawfully i.e. in fulfillment of the laws of the country from where these have been obtained, and rightfully i.e. through prior informed concerned of the local community and the appropriate authorities.

Developing a Low Transaction Cost System for Small Innovators In addition to the model of INSTAR, we need experiment with another model based on Australian Innovation

patent system. In Australia it was realized that most of the jobs are created by small firms, a fact which is evident in most of the countries of the world and yet it was very difficult for smaller firms to license the standard patterns which are much more costlier. The petty patent system did not serve the purpose because the inventive threshold was similar to one required in the standard patent system. Therefore it was proposed to setup an innovation patent system in which the innovations having lower inventive threshold will qualify for a protection for eight years with maximum number of five claims. The prior art requirement would be same as in the standard patent and formality examination would also be undertaken on all applications though substantive examination only on the request by the applicant or third party. The publication of the innovation patent application would occur three months after filing. Dual protection by standard and innovation patent would be possible (Review of the Petty Patent System, Advisory council of industrial property, AIPO Canberra, 1995). Conventionally the fees for the Petty Patent and the Standard Patent were more or less same and the time taken in the Petty Patent was lesser. On an average 300 Petty Patent applications were filed with 50 to 60% granted patent. The foreign applicants had rarely used it. Individuals Page 393 →rather than companies made the majority of the Petty Patent applications. In comparison, Australia received 20,000 applications for standard patents out of which only 10% made by Australians. As against this, only 1.5% was the share of Petty Patent. The share of agriculture or veterinary was just about 5% in Petty Patent. The distinction that one needs to make from the conventional utility models relates to the subject of protection. The utility models were intended to cover designs and other incremental improvements but not necessarily a kind of product patent for drugs, or agriculture. Although interpretation vary from country to country. What is recommended here would be further improvement on the Australian innovation system so as to include the term of at least 10 years, claims 5-7, lower inventive threshold but availability of a product and use patent. Thus an indigenous herbal drug developed by a local healer can receive product patent for 10 years. During this period, potential manufacturers may get in touch with the inventor and may negotiate the right so as to file a standard patent if large scale manufacture was considered desirable and profitable. The fees should be negligible but publication of application within a year should be obligatory and the granting of patent should not take more than a year or 18 months. The cost of filing patent can be very high. For example, a US patent application in the 1990s could be about 20,000 USD while in EU could cost twice that amount. However, this cost varies a great deal and in thirty-two countries it was found to vary from USD 355 to 4772 in the 1990s (Helfgott, 1993). John Barton of Stanford Law School has argued that the concentration of market power in larger corporations in seed industry has been a dominant trend. This is something that is not conducive to generation and development of diversity in agriculture. On the other hand, the smaller start-up biotech companies are able to recover their costs and make money when taken over by larger corporations (Tansey, 1999). The issue is whether the corporation which takes over these small firms does so in order to promote the new technologies or to block them lest they pose competition to the existing technologies of large firms. The global registry can incorporate the information on these patents as well. In addition, the plant variety registered should also be catalogued.

Improvements in the Plant Varieties Registration and Protection System Article 27.3(b) of the TRIPs agreement is likely to be negotiated hard at the forthcoming review. There are several issues which arise in that context which are mentioned below. Article 27.3(b) of the TRIPs agreement is a subject of intense debate. There are many groups particularly, of the indigenous people from Latin Page 394 →America (July 25th 1999) who have strongly opposed the provision for patent on life forms in this article. The key arguments against this article are (a) patent on plants and animals or essentially biological process for the production of plant and animals are in contradiction with the conception of life being sacred and beyond human interference in its basic characteristics. The patents on gene sequences give protection to those who did not invent these sequences but merely discovered these. Patents on micro-organisms likewise, reward discovery, isolation, characterization to an organism unaltered in its basic genetic make up from

the one found in nature. The essentially biological process such as gene sequences or other biotechnological methods interfere with public morality or ethics. On the other hand, the arguments which support incorporation of article 27.3(b) in the national laws particularly regarding agriculture imply, (a) recognition that incentives will need to be created for public, private, NGO and individual plant breeders for investment inbreeding activities for which protection from unauthorized multiplication and marketing must be available, (b) the potential of transgenic in reducing pesticide consumption and thereby improving productivity, enhancing uptake of vitamin ‘A’ and iron (as attempted by some Swiss biotechnological scientists recently in rice varieties) and other minerals to help overcome anemia from which more than 1.2 billion disadvantaged women in rice growing and consuming areas suffer; (c) protection from micro organisms that can help in (i) better realization of nutrients that are not available through the plants for one reason or the other, (ii) developing new antibiotics, (iii) monitoring soil eco system health, (iv) restore productivity of degraded soils naturally or through human actions, and (v) developing plant protection technologies; (d) using DNA fragments to screen germplasm or animal breeds for specific ailments, genetic deficiencies or potential. Basically, the debate is on using the potential of biotechnology to achieve newer production frontiers versus relying on conventional approaches of plant breeding and animal breeding to improve productivity. The risks are involved in conventional as well as modern technologies. Lot of weeds and pests were transported from one part of the world to another in the last few decades. One did not argue for stoppage of trade in food materials. Instead, the argument was for stronger and more effective phytosanitory standards. Likewise, the response to biotechnological technology development and transfer should be through better and more effective biosafety guidelines, competence and enforcement through involvement of civil society in as wide a manner as possible. The ethical issues must be handled up-front through bioethics committees and watchdogs at different levels through transparent systems of accountability. A society can then decide whether adverse toxic effects of chemical pesticides on the health of Page 395 →farm workers, consumers, environment have to be preferred over the potential hazards that may take place through transgenic crops or animal breeds. The ethics of continued tolerance of harm to poorest people, i.e., farm workers vis-à-vis potential harm to environment must be evaluated dispassionately. I am always in favor of precautionary principle, i.e., when in doubt, err on the side of caution or safety. However, we should distinguish the problems of ‘risk’ from that of ‘uncertainty’ in the first case, we can estimate probability of occurrence while in the latter case we can not. At the time of review of this Article 27.3(b) in November 1999, the developed countries are likely to push for not only using UPOV as the effective sui generis system but replace the option of sui generis system by UPOV 1991. This is the position that pharmaceutical and agri business industry in the west favors. The EU may favor UPOVPVP option but there is a difference of opinion within the EU on desirability of patents on plants and animals. As far as developing countries are concerned, the opinion is likely to be quite divided. Most NGOs and farmers’ organizations prefer to keep plants and animals out of the patent and also do not favor increasing control of corporations on the seed industry. Some countries which export agricultural products may prefer a stronger protection regime. It is likely that plant variety protection coupled with farmers’ rights and gene fund as being attempted in India will help in influencing public opinion much better. An issue that has not received enough attention in this debate relates to the ability of various country governments in generating revenue for sharing benefits, conserving agro biodiversity in situ and for investment in R&D. 6. Highlights of Indian Plant Variety and the Farmers’ Rights Bill of 1999 The Indian Government is yet to enact a plant variety act but the draft has already gone through vetting by interministerial group and represents one of the most progressive documents. There are many features in this draft bill which none of the 39 Country Plant Variety Acts had. The Indian government has preferred to use a sui generis system instead of patents because of three major advantages: a) flexibility, b) better protection of farmers’ rights, and c) stronger researchers’ exemption. The Indian Draft Bill on Plant Variety and Farmers’ Rights provides for the option of compulsory licensing

when reasonable quantity of seed or reproductive material of protected variety is not made available in the country. Page 396 →Government has the power to determine which genra and species would be covered under the Plant Variety Protection. In case of any disputes regarding orders of Indian PVFRB Authority, the high courts will have the jurisdiction for resolving any complaints. Clause 25 of the Bill has a provision for non-registration of the varieties which are injurious to the public morality or health as in the case of ‘terminator gene’. There is a provision of setting up gene fund, which will determine the share of benefits to be given to farmers or other breeders and also decide the eligibility for getting benefits, whether benefits are given one time or on recurrent basis. There is a provision for registration of extant varieties, i.e. the ones notified under Seed Act, 1966 released by the Central Seed Committee. The provision also exists for preservation jointly or severally of wild species or a traditional variety with or without added value and which has economic use. The farmers’ rights include the right to i) produce his crop, ii) use product of crop as seeds for producing further crop, iii) sell product of crop except its sale exposing it as a seed. The new varieties are supposed to be those varieties which have not been grown earlier than one year outside India and in case of trees and vines not earlier than six years. In all other cases, the limit is four years. The distinctiveness of the variety is defined by its distinguishability by at least one essential characteristic from any other variety whose existence is a matter of common knowledge in any country at the time of filing of application. Failure of an application for the grant of breeders right to a new variety or its derivatives shall deemed to render that variety as a matter of common knowledge. The applicant is required to provide complete passport data of the parent line from which new variety or its propagating material has been developed. The duration of protection is 18 years for trees and vines and 15 years in the case of extant varieties and 15 years for other crops except extant varieties in which 15 years will be calculated from the date of notification by the government under the Seed Act, 1966 or from the date of release or date of registration as a farmers’ variety whichever is earlier. Page 397 →Gene Fund: Breeder will deposit in gene fund the amount determined by the authority. In case of default, this amount can be recovered as an arrear of land revenue. The breeder will be required to deposit appropriate quantity of the propagating material. Researcher’s Right: Authorization of breeder or plant variety protection holder is necessary when repeated use of parental lines of a variety is required. Otherwise nothing will prevent any researcher from using a protected variety as a research material. Farmer’s right: Farmer has the right to save, use, exchange, share or sell his farm produce of a protected variety except when covered by contractual market arrangement. Rights of communities: People of any community or an NGO representing them can represent the contribution of people to a variety granted protection under the Act. The authority would very such claims. And if found valid, compensation would be paid to NGO/people who submit claims of people against which existing breeder/s enjoying protection would be heard and given notice. The compensation granted by the breeder will be deposited in the gene fund. The NGO or the community shall withdraw the compensation even if such a fund has not been deposited by the breeder concerned in the gene fund. The compensation shall be recovered from the breeder in case of default as an arrear of land revenue. National Gene Fund: The functions of national gene fund are, i) benefits sharing in the prescribed manner, ii) royalty paid at such rate as may be prescribed by the central government on the sale price of the seed or propagating material of a registered variety, iii) contribution from national or international organizations can be received in the gene fund. All plants under the order Plantae are included for protection except micro organisms. There are many progressive measures in Indian draft which do not find mention. The ethical issues in the grant of patent rights on life forms are extremely contentious. The developed countries had not paid attention to the

protection for inter-generational flow of knowledge and the rights of traditional communities over their resources and knowledge. Things are beginning to change. And some attempts have been made in Australia and Canada in this regard. A question, which has not been addressed by the opponents of IPR regime, relates to the alternative organizational structures, which can pursue the goal of promoting inventions and generate protection for the same. Page 398 →Likewise, another less researched issue is the tradition of this protection provided in past to the creative people within traditional communities. On the first issue we should look at the role of cooperatives, small firm networks and other voluntary associations of inventors to produce new inventions. On the second issue, we should look at the practices followed by some of the healers, potters and other artisans and knowledge experts in various parts of the world to restrict copying of their designs, innovations or other creations. This indicates that the idea of protecting innovations is not necessarily a new construction of the last five centuries. The technology transfer and sustainable development are two of the important goals of the WTO in the context of TRIPs which have not received sufficient attention.

7. Recasting Plant Variety Acts The definition of the variety should include discovered wild or other plants having distinctive and stable properties. France and China have the concept of discovered plant having DUS property as eligible for the protection. However, the problem with the uniformity requirement is that heterogeneous or buffering populations characteristic of marginal environment with high fluctuations may not get protection under DUS provisions. In the times to come the genetic uniformity is likely to become a major threat to food security. Therefore provisions for buffering population which are distinct and stable over a long period of time (5-10 years) may be created. The present system is designed primarily for commercial crops in irrigated regions. The right to save, exchange, sell the products of a protected variety must remain with the farmers. However, sale of the seed under the branded name has been discouraged. It is necessary that farmers’ rights in this regard are respected. Only very large farmers having a holding more than 100 hectares may be required to take license or pay royalty for commercializing protected a variety of seeds. A national and international register of land races acknowledging community right should be established. Simultaneously recognition of the community rights in the extant varieties as proposed in the Indian draft bill should also be incorporated. The passport information sheet of the gene bank should include the knowledge of community with particular focus on women knowledge. At present a very small proportion of the passport sheet identify the community, region or specific farmer for whom the material has been collected. Updating of passport sheet will be very necessary for operationalizing a benefit sharing system and Page 399 →therefore global efforts to create a fund for the purpose are urgently called for. The prior informed consent of the farmers must be obligatory in cases were on farm trails of transgenic crops are called for. In most developing countries farmers do not have an adequate information on the subject. Many times anxiety about transgenic is higher than the damage caused by conventional methods such as use of chemical pesticide. However, there is no legal agreement by which exports of pesticides which are banned in the source country can be prevented. Every applicant seeking plant variety protection must disclose that the germplasm, parent lines or other material used for developing new variety. The applicant should also prove that the material was taken through prior informed concern and after fulfilling a material transfer agreement (MTA). Besides other legal requirement in the country were protection has been sought. The quality standards should be so evolved that genuine products from developing country are not restricted because scientific evidence about the minimum standard has not been generated in the developing countries. The standards very often are based on the scientific evidence from temperate countries. The negotiations for an international registry of wines through international registers may be accepted only if similar registration facility for local varieties of crops and indigenous animal breeds as well as other

products is accepted. Unlike International Union for Plant Variety Protection, there is no international agreement for protection of traditional animal breeds and associated knowledge system. There is a need to evolve institutional mechanism for protection of animal breeds also.

8. Reforms at CGIAR Level International negotiations must include a need for modifying the mandate of CG institutions so that these are obliged to acknowledge the local contributions in the development of land races, knowledge about uses of local varieties be included in the passport sheet as mentioned earlier and value addition in grassroots innovations be a necessary responsibility of these institutions. The global support for these institutions should be contingent on their accepting this conditions. It should also be obligatory on the part of each CG institutions to share the germplasm with private sector or others only through material transfer Page 400 →agreement (MTA). While a moratorium had been placed by the technical advisory committee (TAC) on patent on the land races by third parties, it is not sufficient. In fact, we should encourage characterization and value addition in the land races and the protection of so improved or characterized land race but with the appropriate benefit sharing arrangements. The countries which have provisions of patent as well as plant variety protection must provide research exemptions and farmers’ privileges. Pedigree analysis of improved varieties should be undertaken regularly so that rights of communities contributing land races are acknowledged and reciprocated.

9. Reforms in Financial Institutions No amount of registration or grant of patent will help make local knowledge system vibrant unless venture promotion grant are available to local entrepreneurs at very low transaction cost. While we have Grameen Banks or Saving and Credit Self help groups in different parts of the world, we do not have venture promotion fund for small innovations anywhere in the world. The result is the growth of entrepreneurial process is highly stilted. GIAN is an exception and it does not have, as yet, provisions for venture promotion grant from its own resources. Though it mobilizes funds for the innovators from Government programs for the purpose. Similarly most developing countries do not have incubators to convert innovations into product. 10. Summing Up Traditional knowledge and contemporary innovations can indeed benefit through globalization process because niche markets for many of the products may not exist up to a proper scale in one place, or demand from another part of the world may provide incentive for conservation and growth of knowledge, or needs in less developed parts of the world may be met through people’s innovations from another part. There could be several ways in which ICT, venture funds, global and national registries and other innovations can expand the global space for local innovations and knowledge systems. The issue is whether we are willing to try.

Page 401 →NOTES 1. I am grateful to Keith Richardson of Derwent Pharmaceutical Data Base for sharing this data with me. 2. This and the other cases of Kani Tribe and Honey Bee network are being developed further as a part of WIPO supported study on the role of intellectual property rights in Benefit Sharing. 3. Based on Gupta, Anil K., 1996, ‘Rewarding Creativity For Conserving Diversity in the Third World: Can IPR Regime Serve the Needs of Contemporary and Traditional Knowledge Experts and Communities in the Third World?’, a Paper presented at the AIPPI Forum (September 10-14, 1996) on Ethical and Ecological Aspects of IPRs, Interlaken, Switzerland, on 13 September, 1996 since published in Cottier et al., 1999. 4. This argument has arisen in the context of Art 15.5 as well as Art 8j and 10c of the Convention on

Biological Diversity: CBD). The prior informed consent is required only of parties to convention i.e. the contracting nation states and not of the knowledge and resource providing communities. Under Art 8j however, the approval and involvement of local communities and Individuals is required for ensuring equitable sharing of the benefits. Whether that happens will, of course, depend upon the legislative environment and local institutional capacity in each country. Whether the institutions which deprived knowledge-rich but economically poor people of their basic rights and needs would let any benefit trickle down to them will depend upon access of such people to alternative frameworks of negotiation and mutually agreeable contracts. 5. Anil K. Gupta, 1996, ‘Rewarding Creativity for Conserving Diversity in the Third World: Can IPR Regime Serve the Needs of Contemporary and Traditional Knowledge Experts and Communities in Third World?’, presented at the AIIPI Forum, Interlaken, Sept, 1996. 6. Such a registry will prevent any firm or individual to seek patent on community knowledge as well as on knowledge and innovations produced by individuals without some kind of cross licensing.

____________________ *Professor, Indian Institute of Management, Ahmedabad, India. Paper presented at First Commonwealth Science Forum — Access, Bioprospecting, Intellectual Property Rights and Benefit Sharing and the Commonwealth, Goa, 23-25 September 1999. This is a considerably revised and expanded version of the paper presented at World Trade Forum, Berne, August 27 to 29, 1999.Page 402 →

Page 403 →CHAPTER 23 Technology Transfer in Agricultural Biotechnology: The Developing Country Perspective Carsten Fink* and Carlos A. Primo Braga†

1. Introduction Among the spectacular advances that have taken place in many areas of science and technology over the past decades, the biotechnology revolution stands out in terms of its potential in solving mankind’s most pressing problems related to health care, food security and environmental degradation. In its broadest definition, biotechnology relates to any technique that uses living organisms in order to produce new or improve existing plants or animals. Thus, the traditional plant breeding activities that were at the core of the green revolution boosting agricultural output throughout the world represent an early example of systematic biotechnology research. In contemporary discussions, however, biotechnology refers predominantly to more recent applications of molecular science, with an emphasis on recombinant DNA technologies, including genetic engineering. 1 As pointed out by Colwell (1995), the definition that probably best captures the essence of the economic and social transformations associated with these new techniques, is the one coined by Moses and Cape (1991) in which biotechnology is simply identified with ‘making money with biology.’ Page 404 →This paper explores the implications of the biotechnology revolution for the developing world and, in particular, how developing countries can gain access to new technologies and what institutional reforms are needed for developing countries to benefit from this new era. In doing so, we will focus on agricultural biotechnology. Although the impact of biotechnology on the industrial (notably pharmaceutical) sector has been (at least) equally dramatic, the near-term implications for developing economies are likely to be greater in the agricultural sector. This is mainly due to the history of developing world agricultural research institutions and their contribution to the development and dissemination of products and technologies suitable to developing country conditions and of benefit to local farmers. Nonetheless, some aspects of the discussion are also applicable to industrial applications of biotechnology. Section 2 presents a brief summary of the importance of intellectual property rights (IPRs) instruments for the biotechnology revolution. The economic and institutional environment of developing countries’ agricultural sectors in relation to the changes brought about by the new biotech paradigm are reviewed in section 3. The subsequent section discusses how institutions in the developing world have to adapt so that developing nations can gain access to and benefit from the knowledge of developed world agricultural biotech companies. The final section offers some concluding remarks and outlines how multilateral development agencies could assist developing countries in this process of institutional reform.

2. Agricultural Biotechnology and Intellectual Property Rights New research tools of molecular genetics have contributed to a shift in the institutions and conduct of agricultural research. In the past, the development of new plant varieties and the dissemination of new agricultural technologies was mainly the domain of public sector research centers. Starting in the early 1980s, however, a modern private agricultural biotechnology (or agri-biotech) industry has emerged, which, in developed countries, has crowded out public investment in agricultural R&D and is pushing the boundaries of scientific knowledge. At the same time, it should be noted that many agri-biotech businesses have only recently begun to recover some of their investments and most companies are only expected to become profitable early in the next millennium. The dissemination of agri-biotech products has also lagged behind early expectations. Agricultural biotechnology products, such as genetically modified seed, did not become commercially available until the mid-1990s. Recently, however, the market for agricultural biotechnology has picked up rapidly. By the end of 1999, an estimated 40 million hectares will be covered with transgenic crops (crops Page 405 →obtained from the insertion

of novel genes). Global sales of transgenic crops reached an estimated value between US$ 1.2-1.5 billion in 1998 and are projected to increase to US$ 3 billion or more in 2000 and to US$ 8 billion by 2005.2 Aside from fiscal considerations and a more skeptical view of the social benefits from public investment in science, a contributing factor behind the growing privatization of agricultural R&D has been the continuous adaptation of intellectual property rights (IPRs) instruments to biotechnology processes and products. By granting temporary exclusive commercial rights on newly developed products and processes, IPRs allow agri-biotech companies to recoup expensive investments in research, testing and introducing innovative products and technologies to the market. Several IPRs instruments are relevant for the agri-biotech industry. The most traditional form of IPRs granted to agricultural researchers is plant variety protection. Plant breeders’ rights (PBRs) protect new plant varieties that are stable, homogeneous and clearly distinguishable from existing varieties. The exclusive rights conferred under a PBR differ from country to country, but they typically include the sale and distribution of the propagating materials for a limited period of time (e.g., 10-30 years). Two exemptions to exclusive rights are common in many countries’ PBRs systems. Under the ‘farmers’ exemption’ farmers can reuse seed obtained from their own harvests; and under the ‘research exemption’ breeders can use protected varieties as breeding material for new varieties. Shortly after the commercial potential of molecular genetics was discovered, the United States and selected other countries started to grant regular utility patents to biotechnology inventions. The criteria for patentability — novelty, non-obviousness and commercial applicability — are stricter than the requirements for PBRs. At the same time, the exclusive rights conferred by a patent title are much stronger, as reflected by the absence of statutory exemptions that limit the exclusive rights of patent holders. Accordingly, many breeders have shifted to the patent system in appropriating their R&D efforts. But the grant of patents has not been limited to transgenic plants. Over the past 20 years, companies have sought and obtained patents on isolated genes and gene sequences, the proteins they code for and various techniques of creating transgenic plants; in industrial applications, biotech patents have also covered animals and methods of human gene therapy. A third class of IPRs that is relevant to the agri-biotech industry is the protection of trade secrets and undisclosed test or other data. Trade secrets often complement other forms of IPRs, although it should be pointed out that the grant of a PBR or a patent requires the deposit of the new seed and the disclosure of the underlying technology. In the case of hybrid plant Page 406 →varieties, some breeders rely exclusively on trade secret protection, which can be effective if the propagating seeds do not exhibit the same characteristics. The protection of undisclosed test data relates to proprietary health, safety and environmental data, which has to be submitted to registration authorities in order to obtain marketing approval for a new plant variety. The compilation of such data typically involves extensive field tests over several years and absorbs a huge portion of the overall development cost related to a new product. IPRs systems differ widely from country to country. Some nations, for example, allow double protection of new plants through both PBRs and patents, while others still do not grant plant breeders’ rights and exclude patent coverage for living organisms. Notwithstanding such variations, countries that are members of the World Trade Organization are bound to the obligations of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs). With regard to biotechnology, Article 27.3 (b) of TRIPs requires its members to protect patents for microorganisms and non-biological and microbiological processes, but allows for the exclusion of patent coverage for plants and animals as well as essentially biological processes for the production of plants and animals.3 However, countries are required to protect new plant varieties by, at least, an effective sui generis system of exclusive rights; a PBRs system, such as the system of the International Union for the Protection of New Varieties of Plants (UPOV), represents one option in this context. The provision of the TRIPs Agreement became applicable to its signatories by the beginning of 1996, but developing countries and least developed countries were granted several transition periods, according to which they can delay the adoption of the TRIPs minimum standards by a period of four to ten years.

The biotechnology revolution and its implications on the institutions of agricultural research have raised many new questions and concerns. Governments and international organizations have begun to address some of these new issues by amending laws and reviewing existing regulations. But the rapid commercialization of agri-biotech products and further technological advances are likely to raise many new issues to which policymakers have to respond. Of particular importance are the implications of this new era for developing countries. For them, agricultural biotechnology creates promising opportunities, but also poses significant challenges. Such technologies may provide solutions to long existing bottlenecks of developing countries’ agricultural sectors. At the same time, most technological advances have taken place in the developed world. Firms from industrial countries have taken the lead in cutting-edge agri-biotech research and have acquired powerful intellectual property portfolios that many fear may increase barriers-to-entry in this field.

Page 407 →3. The Developing Country Perspective As already pointed out, the arrival of agricultural biotechnologies may bring important benefits to the developing world. For almost all crops, yields are significantly lower in developing than in developed countries, in part due to a larger degree of biotic stresses, in the form of pests, weeds and various plant diseases. For many such biotic stresses, existing transgenic crops already offer improved protection; for others, researchers are optimistic to find biotechnological solutions (James, 1998). Moreover, the development of plant varieties suitable for tropical and temperate zone climates could lead to substantial improvements in agricultural productivity. Agricultural biotechnology applications could thus lead to a boost in developing countries’ farm output and contribute to the alleviation of hunger, malnutrition and poverty and support food security in light of rapid population growth in many parts of the developing world. Yet most developing countries have so far been bystanders in the development and adoption of agri-biotech products. Arguably, a few developing economies (e.g., Argentina, China, Mexico and South Africa) have introduced privately-developed transgenic crop at relatively early stages. At the same time, several developed countries have, to date, failed to establish significant agri-biotech capabilities or have faced stiff resistance in commercializing agri-biotech products amid concerns over their safety and potential environmental damage (e.g., many European countries). But by and large, the privatization of agricultural research has been a trend mainly confined to industrial countries and most agri-biotech companies in those countries have formed their research strategies according to the needs and demands of richer markets. The development and dissemination of agricultural technologies in developing countries has, for a long time, been carried out by a network of public sector research centers. Some of these centers are members of the donorsupported Consultative Group on International Agricultural Research, others are supported by national governments. This network of publicly-sponsored research organization has played an important role in the enormous increases in agricultural yield that have taken place in the developing world over the last generation. They typically practiced a culture, where centers would exchange germplasm quite freely, among themselves and with developed-world public and university laboratories. This culture of ‘free exchange’ is increasingly challenged by the changes in the legal and institutional environment that have taken place in the international agricultural research arena. Most developing countries have committed themselves to stronger standards of IPRs protection as required by the TRIPs Agreement. Since the Agreement came into force in 1996, many countries have initiated reforms of their IPRs regimes: amending Page 408 →laws, upgrading administrative organizations and strengthening enforcement mechanisms.4 Fifteen developing countries have joined the UPOV Convention for the protection of new plant varieties since 1996, and UPOV membership is expected to increase to 50-80 countries by 2000 (Barton, Lesser and Watal, 1999). The pace of IPRs reforms is likely to gain momentum as the various transition periods in implementing the TRIPs minimum standards of protection approach expiration.5 Can researchers from developing countries catch up and develop their own biotechnology capabilities? One challenge is that companies from industrial countries have taken a substantial lead in agri-biotech research and have acquired strong intellectual property positions — sometimes covering fundamental research tools and broadly defined groups of plants —that it may be difficult for new firms to enter the emerging agri-biotech

market. Indeed, the increased oligopolization of the industry has become a widely shared concern among industry observers, reinforced by the recent wave of mergers and buy-outs of seed companies. For example, the U.S. market share of the biggest multinational company, Monsanto, is estimated to range from about 30-80 percent for different crops (Barton, Lesser and Watal, 1999). Other barriers of entry for developing world researchers include the large scale and capital-intensiveness of agri-biotech R&D projects. Notwithstanding these factors, there are opportunities for both the public and private sector to steward or at least participate in the development of new biotechnology products that are of concern to developing country agricultural sectors. Often, there are needs and crops for which there is no substitute to undertaking research locally. The strengthening of intellectual property rights systems is likely to create important incentives for firms from the developing world to invest in formal R&D. At the same time, if developing countries seek to harness biotechnology for agricultural development in a systematic way, they must find ways to access the knowledge that large agri-biotech companies have accumulated over years and decades. Hence, the modalities of technology transfer have become a pivotal issue and the management of intellectual property rights lies at the forefront of it.

4. Technology Transfer Technology transfer, as pointed out by Brooks (1995), is in essence ‘a way of linking knowledge to need.’ There is growing recognition that a dynamic national innovation system requires not only proper stimulus to R&D activities, but also efficient mechanisms for the diffusion and use of knowledge (David and Foray, 1995). From this perspective, the process of technology transfer – be it from research labs to the commercial sector of a Page 409 →same company or from university labs to private companies (either nationally or internationally) – is as crucial to the creation of knowledge as R&D efforts by themselves. Radical innovations (as the ones unleashed by the biotechnology revolution) pose additional challenges for the process of technology transfer since they may also require considerable restructuring of the institutions involved in the innovation process. As illustrated above, there is concern among industry observers that the trend toward privatization of R&D and increased reliance on IPRs increases the barriers to entry for developing countries, and to new entrants in general. As one analyzes the process of innovation and its interdependence with IPRs, however, a more complex picture emerges. Table 1 illustrates — in a highly stylized manner — the barriers to entry in different niches of the innovation ‘space.’ The difficulties for new entrants tend to be the highest in cell 1, that is in those cases of radical innovations (that typically are R&D-intensive) under concentrated proprietary control (as have been observed in the pharmaceutical industry). In contrast, fields characterized by incremental innovations with more diffuse proprietary control offer more opportunities to new entrants. Indeed, the biotechnology field is more likely to be organized around spaces (3) and (4) than (1) and (2). Despite increased oligopolization of the industry, there are forces that conspire against an ever increasing concentration of proprietary positions. First, there is a natural resistance to broad patents in this field, given not only the high stakes involved and non-economic considerations, but also the role of alternative instruments of protection. Second, new agricultural technologies typically require adaptation to local conditions, promoting strategic alliances and cross-licensing of proprietary assets. From this view, as radical innovations — typically introduced in industrialized countries — redefine the nature of incremental innovations in the field, one would expect the potential for technology transfer to developing countries with adequate IPRs regimes to expand. Page 410 →Table 1: Innovation and IPRs: The Barriers of Entry ‘Concentrated’ ‘Diffused’ Proprietary Position Proprietary Position (1) (4) Radical Innovation +++ +++

(2) Incremental Innovation ++

(3) +

Key 1. (+) = captures the level of barriers to entry for new players 2. Incremental innovation = incremental improvements in existing products and processes. 3. Radical innovation = new products and processes that produce discontinuities in the technological trajectories of firms/societies. 4. Concentrated’ proprietary position = control of a patent and/or group of patents (and/or other IPRs) allows a strong proprietary position. 5. Diffused’ proprietary position = innovations that require extensive cross-licensing alliances to build a strong proprietary position. Source: Adapted from Brooks (1995) It is likely that the bulk of future technology transfer agreements will involve the voluntary participation of private intellectual property owners. Although the TRIPs Agreement provides for the use of compulsory licenses under specific circumstances, strategies that would primarily rely on non-voluntary licensing arrangements or even imitation are unlikely to be fruitful. In many cases, the participation of the technology holder is necessary for effective implementation of the technology (e.g., because of complementary or secret know-how). Moreover, coercive strategies would run counter toward the persistent move toward stronger IPRs over the past decades and may thus involve significant political costs. This is not to say that countries should foreclose the option of granting compulsory licenses, as they may be justified, for example, to combat anti-competitive practices. The critical point to keep in mind is that although IPRs confer temporary exclusivity to owners on the commercial exploitation of an invention, they are not inconsistent with the objective of technology dissemination.6 In fact, IPRs can play a supportive role in the transfer process by providing a legal framework on which buyers and sellers of technology can base their transactions. Holders of IPRs may be reluctant to license proprietary knowledge to firms in countries with weak protection, Page 411 →for the risk that such knowledge may leak to imitators. For example, this was a key motivation for Canada in 1990 and Chile in 1996 to adopt PBRs systems, i.e. to obtain access to protected plant varieties developed in the U.S. (Barton, Lesser and Watal, 1999). In addition, IPRs holders have an incentive to disclose their technologies in anticipation of transfer negotiations, because they are assured that they will not lose their assets if negotiations end without an agreement. In the absence of secure IPRs, inventors try to keep their technologies secret, fearing theft by competitors. Hence, IPRs help resolve information asymmetries, reduce transaction costs and foster efficient price discovery in markets for knowledge. It is difficult to describe general patterns of technology transfer arrangements in the agri-biotech industry, as such patterns differ widely depending on the technologies and parties engaged in the transfer. Moreover, the experience with technology transfer in this industry is still young and best practices are only slowly emerging. Negotiations of licensing agreements typically center on the scope of the technology to be licensed, the field of use by the licensee, transferability of the license to third parties and the payment for the license. One important component of transfer agreements where the subject matter are plants concerns restrictions on the use of farm saved seed. Without such restrictions, technology recipients need to acquire the technology only once. By contrast, contractual saved seed restrictions ensure a longer term stream of revenue for the intellectual property owner. Transfer contracts may also include the provision of training by the technology owner, especially where some local adaptation is necessary (Shear, 1998). Licensing agreements may be negotiated after a new product or process has been invented and introduced to the market. But often, it is in the interest of both contracting parties to enter into an agreement during the R&D phase.

As already pointed out, sometimes there is no alternative to undertaking research on the ground and local firms or research centers often have better knowledge of local agricultural conditions as well as regulatory institutions and marketing strategies. Such research partnerships can take the form of joint ventures, strategic alliances, or other collaborative arrangements and may involve private companies, public research centers and universities. Typically, the earlier an entity joins an R&D project, the better are its terms with regard to royalties and access to knowledge developed during the project, as it shares part of the risk that the project may fail. For example, one approach in collaborative arrangements between developed world companies and developing country research centers has been to make resulting plants or technologies available in the developing world at zero or low royalty, while the company retains the right to market new products in industrial countries (Barton, 1997). Page 412 →The challenge for developing countries is to reform agricultural institutions in such a way that they represent an attractive environment for companies to transfer their proprietary knowledge and, at the same time, build strong and well-informed negotiating positions to ensure the wide dissemination of valuable agri-biotech products. This process of institutional reform has various dimensions. First, governments need to provide a transparent and accountable legal and regulatory framework for the agri-biotech sector. The provision of an effective intellectual property rights system is one important component of such a framework. Compliance with the obligations of the TRIPs Agreement represents a necessary first step that can send an important signal to private research-based companies. Countries may also choose to go beyond the TRIPs-minimium standard of protection if they find that stronger levels would encourage more R&D or attract critical technologies. Equally important is the development of mechanisms that credibly enforce intellectual property and contract laws and effectively administer patents and PBRs. Of increasing relevance will be the creation of adequate competition policies that can prevent the abuse of dominant market positions resulting from the ownership of IPRs, as exemplified by the trend towards increased oligopolization of the industry discussed above. Other components of the legal and regulatory structure include the establishment of transparent registration requirements and procedures, well-defined biosafety and environmental standards, and clear rules regarding bioprospecting activities. Second, governments in developing countries could support the development of local agri-biotech capabilities (especially in countries already further up the development ladder). Although it appears unlikely that entities from the developing world will become significant players in the global agri-biotech industry in the foreseeable future, the existence of local research capabilities could make a difference with regard to the needs and demands of developing country markets. Moreover, it would allow developing countries to enter into partnerships with Northern agri-biotech companies at earlier stages of the R&D process, cutting the costs of obtaining access to privately held technologies and optimizing the use of knowledge developed under such research collaborations. A related aspect is that the existence of a local IPRs portfolio can create ‘bargaining chips’ and may thus strengthen the negotiating position of researchers from developing countries regarding the terms of international technology transfer agreements (Sampaio, 1998). Third, public research organization need to reinvent themselves to operate in the new environment created by the biotechnology paradigm. In particular, they need to establish the capacity to effectively manage intellectual property rights and negotiate contracts and transfer agreements Page 413 →with other research organizations and private firms both at national and international level. This may require adjustments in the human resource base, for example through the hiring of new staff or special training courses for scientists and research managers. Public research centers may become more sensitive to the potential value of their own resources. Seeds will increasingly only be exchanged through a material transfer agreement, because of a need to protect a financial interest or to avoid infringing patent claims (Barton, 1997). Universities in developing countries may consider the establishment of technology transfer offices, similar to their developed country counterparts. An example of the reform process initiated at one Brazilian agricultural research organization is outlined in Table 2. Page 414 →Table 2: Reinventing a Public Research Organization for the Biotech Age - The Example of Embrapa in Brazil

Embrapa (Empresa Brasileira de Presquisa Agropecuária) is a public company linked to the Brazilian Ministry of Agriculture. It aims at promoting the sustainable development of the Brazilian agribusiness by generating, adapting and transferring knowledge and technology for the benefit of Brazilian farmers and consumers. Since its inception in 1973, Embrapa has generated and recommended more than 9,000 technologies for Brazilian agriculture. It employs more than 2,000 researchers and maintains an extensive national and international network of affiliated organizations to promote the development and dissemination of agricultural knowledge. The global trend toward strong standards of IPRs protection and the increased privatization of agricultural R&D has, over the past years, become highly visible in Brazil. In compliance with its obligation under the TRIPs Agreement, the Brazilian legislature approved a new patent law in 1996 that allows for the patenting of transgenic organisms, but excludes patent coverage for plant and animal varieties. Moreover, a new PBRs system was established through the Cultivar Protection Law of 1997 and Brazil became a member to the UPOV Convention in May 1999. On the face of these changes, the Brazilian seed industry has already seen an increase in the number of acquisitions by multinational companies. How has Embrapa responded to this new institutional environment in terms of its internal policies and strategies? After extensive discussions, Embrapa published in 1996 its policy for the management of intellectual property that outlined various measures geared toward strengthening the organization’s capacity to create, acquire, transfer and license privately held technologies. It has advised its units to seek legal protection for products and processes derived from its research programs, while maintaining the option to grant royalty-free licenses. To implement its IPRs policy, Embrapa has created a special Intellectual Property Committee (CPIE), which meets on a regular basis to deliberate about internal practices and future IPRs strategies. The Committee’s work has included the preparation of new rules for the functioning of laboratories (e.g., policies regarding disclosure and sharing of knowledge), the review of ongoing contracts with the private seed industry, the evaluation of the need to obtain licenses for certain biotechnology research tools, and the coordination of training programs and workshop for Embrapa staff on aspects of IPRs law and practices (e.g., access to patent data bases) as well as the modalities of licenses and technology transfer contracts. In addition, a special centralized unit was created in 1998 that serves as the focal point for the acquisition, transfer, negotiation and licensing of technologies that are covered by Embrapa’s or third parties’ IPRs. Embrapa has also fostered the development of its own biotech expertise. Through its Genetic Resources and Biotech Research Unit, it has even managed to create a technology that has functioned as a valuable ‘bargaining chip’ in technology transfer negotiations and has allowed it to obtain easier access to proprietary technologies. In addition, many companies have expressed interest in joint R&D projects, although the lack of an appropriate legislative framework for such projects has, so far, held back the formation of collaborative research partnerships. Embrapa’s adjustment process is still young and best practices are only slowly emerging. For example, for many of its researchers, which have over years developed a strong desire to publish research results for the benefit of scientific advancement, the need for confidentiality requires significant changes in daily routines and attitudes. At the same time, Embrapa’s pro-active stance with regard to effective intellectual property management has already made important contributions toward the adoption of new biotech products and processes in Brazilian agriculture and the need for capacity building in this area is likely to grow in the future, as an increasing share of valuable technologies will be privately held. Source: Sampaio (1998) and http://www.embrapa.br Page 415 →Finally, it is important that developing countries voice their interests in discussions on evolving policy issues related to agricultural biotechnology in various international fora, including the World Trade Organization (WTO), the World Intellectual Property Organization (WIPO), the Food and Agricultural Organization (FAO), and the Consultative Group on International Agricultural Research (CGIAR). Commitments to international treaties can, in turn, play an important role in establishing the credibility and accountably of national regimes and thus provide confidence among investors and IPRs owners.

5. Concluding Remarks The application of the science of molecular genetics to agricultural research has progressed rapidly throughout the 1990s and has brought with it fundamental changes in the institutions that develop and disseminate new

agricultural technologies. A defining characteristic of these changes has been a shift in the conduct of research from the public to the private sector and consequently, increased reliance on IPRs mechanisms to foster investments in R&D. Technology continues to advance at rapid speeds. As mentioned above, recent advances in combinatorial chemistry and bioinformatics have created new ways of targeting research, potentially accelerating the rate of new product development.7 Competitive market mechanisms are likely to be best suited to promote the development of the most valuable products and technologies and ensure a fair sharing of benefits of new technologies between agri-biotech companies on the one hand and farmers on the other. For governments around the world, it is important to establish the right incentives for agri-biotech research through a transparent and accountable legal and regulatory framework. Of particular importance in this regard is the provision of secure IPRs and, at the same time, competition policies that prevent the abuse of dominant market positions due to IPRs ownership and that ensure appropriate access to protected technologies to encourage future innovation. Governments must also assure an increasingly worried public, which is exposed to a growing amount of negative publicity regarding the safety and environmental impact of new agri-biotech products (reinforced in some countries by recent ‘food scares’). The establishment of adequate biosafety and environmental standards and testing requirements as well as open discussions on moral concerns related to genetic research can play important roles in this context. Needless to say, strategies and priorities in this field need to be country specific, taking into account local capacities, safety considerations and public acceptance of genetically engineered products. The common denominator in these changes, however, is that only countries able to Page 416 →implement, enforce and manage adequate protection of intellectual property rights in this field will be able to fully benefit from the opportunities of the biotechnology revolution. The international environment for biotechnology research may be affected by eventual future changes to the TRIPs Agreement. Article 27.3 (b) of TRIPs (see above) demands a review of its provisions four years after the date of entry into force of the Agreement (i.e., in 1999). In addition, Article 71 mandates a review of the whole Agreement in the year 2000 and proposals for biotechnology-relevant IPRs provisions have also been brought forward in the context of a new ‘Millennium Round’ of trade negotiations that were to be launched in late 1999. It is not clear, however, in which direction and how far possible amendments to the Agreement would go. Some research-based companies have expressed their interests in requiring patent protection for plant and animal varieties, while some developing countries have called for an amendment of patent procedures to adequately acknowledge the contribution of indigenous farming communities. Given the controversy over many proposed changes and the limited experience with IPRs in this new field of technology, it may well be that members decide to simply maintain the status quo (Watal, 1999). Despite the significance of the institutional shifts over the past decade and its implications for developing countries, it is important to point out that there continues to be an important role for public sector research in the developing world, oriented toward basic science and toward needs that pose little commercial interest. In fact, a majority of agricultural technologies developed and disseminated by public research centers will continue to be non-proprietary and be accessible to developing world farmers without any constraint (Sampaio, 1998). Nonetheless, as argued in this paper, recent advances in agricultural biotechnology hold promising opportunities for developing countries and in order to reap the benefits of these advances, developing countries need to reform their agricultural institutions and find ways to tap the knowledge of research-based companies that define today’s research frontier. How can multilateral development organizations assist developing countries in this process? There are several areas where multilaterals can provide valuable assistance. First, they can support the development of effective IPRs institutions. This could involve the promotion of efficient administrative offices, credible enforcement mechanisms, and the advancement of regional and international cooperation in the IPRs field (e.g., the development of common language patent databases).8 Second, multilaterals could act as ‘clearing houses’ that collect information on agri-biotech-relevant issues and disseminate them to governments and other interested parties. Such information could include laws, regulations and Page 417 →standards as well as international best

practices with regard to organizational structures and technology transfer agreements. This activity could be supported by the conduct of research, for example, on the social and economic impact of new technologies. The development of on-line content and the promotion of electronic connectivity at key organizations in developing countries could facilitate the dissemination of relevant information in this context. Targeted training activities in developing countries for policymakers and research managers would also contribute to better informed decisionmaking. Third, multilaterals could support the development of local biotechnology capabilities in developing countries. As described above, this would not only promote the development of biotech applications that address the needs and demands of developing countries, but would put companies and research centers into a better position to negotiate and obtain access to privately held technology. Support could take the form of direct financing of R&D activities, especially partnership projects between research-based companies and public sector research organizations that would promote the flow of new technologies to developing countries. It may also be worth considering the support of venture capital mechanisms through which biotech start-up companies could obtain funding for commercially attractive R&D projects. Fourth, it has been suggested that multilaterals should buy key privately-held technologies for free dissemination in developing countries or, alternatively, provide minimum purchase guarantees to research-based biotech companies that consider investing in technologies that could potentially be of great value to the developing world. Some of these activities are already being implemented, others are being planned or considered by various international organizations. It has become clear, however, that the new biotech paradigm also requires rethinking of the roles of multilateral development organizations and new strategies on how to assist the developing world in light of continuous technological and institutional changes.

NOTES 1. For details about the history of modern biotechnology see U.S. Congress (1991). 2. See Financial Times, ‘Biotechnology Survey,’ October 6th, 1998; The Economist, ‘Food for thought,’ June 19th, 1999; and James (1998). Needless to say, growing consumer concerns about the safety of transgenic crops may significantly affect these projections.Page 418 → 3. As pointed out by Watal (1999), the TRIPs Agreement does not define the terms ‘microorganism,’ ‘nonbiological,’ ‘microbiological,’ and ‘essentially biological,’ leaving considerable scope for competing interpretations. 4. See Primo Braga and Fink (1998) for a general discussion of the IPRs reform process in the developing world. 5. Another ‘new’ issue of particular relevance to developing countries relates to the equitable sharing of benefits arising from new protected plant varieties that are based on farm-grown varieties of indigenous farming communities. One specific proposal to address this issue – the creation of farmers’ rights that would give farming communities the right to control the use of a particular plant variety – has recently received mounting attention in some international fora, but many practical issues remain unresolved and few countries have actually introduced legislation rewarding such rights (Barton, Lesser and Watal, 1999) 6. For an interesting analysis of the historical role of patents in encouraging technological transfer see David (1993). 7. Another example of a new class of biotechnology applications are so-called genetic use restriction technologies (GURTs) that can prevent plants from germinating seeds or that can ‘switch off particular genetic traits, thus creating a form of biological protection for plant developers – a development with striking similarity to the introduction of digital rights management technologies for information published on the Internet. GURTs have raised various ethical and social concerns. The CGIAR system, for example, has decided that it will not incorporate such technologies into its breeding materials. In response to mounting public pressure, Monsanto, which owns one key GURTs patent, announced not to commercialize this technology in its extreme form, but left the door open to commercialize GURTs that can ‘switch off particular genetic traits (see Financial Times, October 5, 1999). 8. See Primo Braga Fink and Sepulveda (2000) for a more detailed discussion of these aspects.

REFERENCES Barton, J.H., 1997, ‘Biotechnology Patenting,’ background paper prepared for the World Bank’s 1998/99 World Development Report. Barton, J.H., W. Lesser and J. Watal, 1999, ‘intellectual Property Rights in the Developing World: Implications for Agriculture,’ manuscript. Brooks, H., 1995, ‘What We Know And Do Not Know About Technology Transfer: Linking Knowledge to Action,’ in National Research Council, Marshaling Technology for Development, (Washington: National Academy Press). Colwell, R., 1995, ‘Technological Trends and Applications in Biotechnology,’ in National Research Council, Marshaling Technology for Development (Washington: National Academy Press). Page 419 →David, P., 1993, ‘Intellectual Property Institutions and the Panda’s Thumb: Patents, Copyrights and Trade Secrets in Economic Theory and History,’ in National research Council, Global Dimensions of Intellectual Property Rights, (Washington, D.C.: National Academy Press). David, P. and D. Foray, 1995, ‘Accessing and Expanding the Science and Technology Knowledge Base,’ STI Review (16): 13-68. James, C., 1998, ‘Global Review of Commercialized Transgenic Crops: 1998’, ISAAA Briefs, No. 8, (Ithaca, NY). Moses, V. and R.E. Cape, (eds.), 1991, Biotechnology: The Science and the Business, (New York: Harwood Academic Publishers). OECD, 1996, ‘Intellectual Property, Technology Transfer and Genetic Resources,’ (Paris: OECD). Primo Braga, C.A. and C. Fink, 1998, ‘Reforming Intellectual Property Rights Regimes: Challenges for Developing Countries,’ Journal of International Economic Law, Vol. 4, pp. 537-554. Primo Braga, C.A., C. Fink, and C.P. Sepulveda, 1999, ‘Intellectual Property Rights and Economic Development,’ forthcoming as a TechNet Discussion Paper, Washington, D.C.: The World Bank. Sampaio, M.J.A., 1998, ‘Intellectual Property Rights: an Important Issue for Brazilian Agriculture R&D and Related Agribusiness,’ paper presented at the workshop Intellectual Property Rights in Agriculture organized by the World Bank, Washington, D.C., June 11-12, 1998. Shear, R.H., 1998, ‘Intellectual Property, Biotechnology and Agriculture,’ paper presented at the workshop Intellectual Property Rights in Agriculture organized by the World Bank, Washington, D.C., June 11-12,1998. United States Congress Office of Technology Assessment, 1991, Biotechnology in a Global Economy, (Washington, D.C.: U.S. Government Printing Office). Watal, J., 1999, ‘Intellectual Property and Agriculture: Interests of Developing Countries,’ paper presented at the Conference on Agriculture and the New Trade Agenda in the WTO 2000 negotiations, October 1-2, 1999 at the WTO, Geneva.

____________________ * Economist, Development Research Group, the World Bank, Washington, D.C., USA. † Senior Manager, Informatics Division, the World Bank, Washington, D.C., USA. Assistance from Derek Byerlee, Mike Snyder, and Jayashree Watal is gratefully acknowledged. The views, interpretations and

conclusions expressed here are the authors’ own and they should not be attributed to the World Bank, its Executive Board of Directors, its management or any of its member countries. Page 420 →

Page 421 →CHAPTER 24 Comments on the Papers Presented by Anil Gupta and Carsten Fink /Carlos A. Braga Jean-Marie Grether* and Jaime de Melo † There is a general concern that TRIPs may be detrimental to developing countries because, unlike GATT and GATS, they involve a fair amount of inter-country redistribution. In a sense, both papers rather provide relief on this, but of a different kind. Carlos Braga has shown, in the context of agricultural bio-technologies, that there is scope for benefit-sharing between private companies and organizations in developing countries. Moreover, IPRs may help technology transfer, which is crucial to the development of the agricultural sector. However, these general considerations do not provide much information on the internal redistribution effects within developing countries. That is where Anil Gupta’s considerations are particularly enlightening, as he focuses on how institutional arrangements may alter the gains and the distribution of the gains among different stakeholders. Although it has not been considered in the papers discussed here, it is interesting to note the influence that labeling organizations concerned with sustainable development may also have on internal and international redistribution. As an illustration of this redistribution potential in the ‘equitable trade’ area, take the case of the commercialization of (mainly Ecuadorian) bananas by the Max Haavelar foundation in Switzerland. This commercialization began in 1997. Within two years, these imports rapidly reached 10% of the domestic market. For the Swiss consumer, there was no difference in price Page 422 →between the label and the no-label bananas, although the price offered by Max Haavelar to Ecuadorian growers was twice as high as that offered by other exporting companies, even excluding the premium paid for environmental-friendly practices and the respect of minimum social standards for workers. Furthermore, after two years, multinationals were induced to introduce their own labeling procedure. This anecdote shows how relatively simple arrangements can alter international and internal redistribution. Turning back to one of Anil Gupta’s concern, this labeling led Western consumers to become conscious of the fate of local communities in developing countries. Enlarging the discussion, what can be said about development and intellectual property rights from the point of view of trade theory? Back to our initial concern about the gains from the TRIPs, one can upon one of the basic instruments used by trade (and other) economists to show that those who participate in TRIPs should gain. The instrument is the revealed preference argument. This argument, based on logical reasoning, says that the observation of the outcome of a decision-process reveals the preference of the decider. Applied to developing countries and to intellectual property rights, this suggests that their participation in TRIPs and TRIMs was simply revealed preferred to their not participating. This is important, since it means one can be suspicious of arguments that suggest that countries were ‘exploited’ by these (or other) agreements, they signed. This said, caution is nonetheless warranted, as it can also be argued that this decision was taken under the fear of retaliation. Remember that TRIPs and TRIMs were part of a global agreement that on the whole was considered as beneficial by developing countries. Were they not forced to sign these particular agreements, it is probable that a number of developing countries would have changed their mind. Turning to the estimation of the welfare gains (or losses) generated by these agreements, economists have, in principle, the appropriate tools to perform the analysis. It is relatively easy to estimate the gains from the reduction of distortions, that lead to more efficient markets. This has been done for the GATT and GATS agreements, which are particularly important for developing countries relying more on MFN clauses because they have little or no negotiating power at all. However, additional problems arise when measuring effects of IPRs. Dealing with environmental effects means taking externalities into account, which can be empirically demanding. More importantly, as Robert Anderson’s

contribution to this volume made clear, market structure imports a lot in the IPRs field. As it is endogenous, an appropriate link must be established between IPRs and competition policies, which makes the analysis more difficult. According to Carlos Braga, the implementation of IPRs led to Page 423 →more trade and technological transfer. However, this trade takes place at very high prices, because of the distorted market structure. In such a (second-best) situation, as Carlos Braga was very careful to say, increased trade does not necessarily improve welfare. A third set of comments relates to the proper attribution of IPRs. As the papers on the US and European experience in this volume made clear, on top of the difficulty of finding appropriate definitions, the problem is compounded by the fact that those who finally get the property rights will try to alter the existing market structure to their benefit. Although it is only indirectly related, an example taken from the Korean experience in managing voluntary export restraints (VERs) on the US market illustrates a possible way of solving this type of problem. What the Koreans chose was a contest-based approach to the management of VERs. This approach forced Korean firms to expand their exports in other markets as a condition to obtain an export license to the (restricted) US market. In other words, only those who made additional efforts got a rent. In other words rents were made contestable rather than being given outright. We have no idea what the application of this principle would mean in the area of IPRs law, or even if it is feasible, but economists generally believe that contest-based policy deserves at least to be considered as an appropriate benchmark when it gets to the evaluation of IPRs attribution on economic efficiency. Beyond efficiency, what is really at stake is how IPRs implementation affects economic interests of different groups. Here the public choice approach, already mentioned by Jacques Bourgeois, is crucial in understanding how IPR policy is actually shaped under the lobbying influence of these various groups. But what does a ‘group’ really mean? Is it a country, or a block of countries sharing common interests, as would seem appropriate in the context of WTO negotiations? Or rather are they producers and consumers, lobbying in order to influence national policy? And how do they deal with the problems of free riding that affect collective action? This line of reasoning is very useful to analyze the evolution of IPRs and technology transfer. As an example, it can provide some explanation of why, as Carlos Braga mentioned, transaction costs are going up in the field of biotechnology. Apart from technological explanations, it can also be interpreted as resulting from a strategic move by producers to create barriers to entry. This last example illustrates the usefulness of considering the complementarities between IPRs and competition policy. But should the question be addressed at the national, the regional or the multilateral level? Here again, the political-economy approach provides a useful analytical framework. There is a now an important literature in economics that tries to Page 424 →analyze how the level of trade policy decisions (national, regional or multilateral) affects the incentives to seek protection, usually through tariffs. The same type of approach can (and should) be applied to IPRs, although we are not aware of existing studies dealing with this subject. How is the lobbying part affected when you ‘go regional’? Is it diluted as most actors feel that they are small fish in a bigger pool? Or, on the contrary, as suggested by John Barton, is lobbying likely to be reinforced, for example because the lobbying powers can exploit scale economies? Dealing with these issues deserves further interest and should improve our understanding of IPRs legislation.

____________________ * Professor, University of Neuchâtel, Neuchâtel, Switzerland. † Professor, University of Geneva, Geneva, Switzerland.

Page 425 →CHAPTER 25 Management of Plant Genetic Resources in the CGIAR: Problems, Prospects and the Quest for Equity Geoffrey Hawtin*

1. Introduction Over recent years there has been a profound transformation in the way the world views biodiversity and genetic resources. Likewise institutional structures for agricultural research are changing rapidly. Public goods and institutions are increasingly being privatized, and public support for agricultural research — national and international — is on the wane. The Consultative Group on International Agricultural Research (CGIAR) now has to operate within a very different environment from that in which it was created. These changes have special implications for the CGIAR’s work, not least in its program of activities to conserve and manage genetic resources.

2. The CGIAR The CGIAR was established in 1971 in response to a growing concern that the world was moving into an ever more dangerous situation with respect to food supplies. Unless something was done, mass starvation was foreseen as the inevitable fate of the poor in many regions, especially Asia. The solution was to create an international agricultural research system based on two already existing Centers: the International Rice Research Institute (IRRI) in the Philippines and the Wheat and Maize Improvement Center (CIMMYT) in Page 426 →Mexico. The system aimed to develop and promote science-based solutions to factors constraining the production of major food commodities. The approach was successful. Since the CGIAR’s establishment food production has increased dramatically in many regions. However, with continually growing human populations, the scourge of malnutrition still afflicts more that 800 million people worldwide, predominantly in Africa and South Asia. To meet the evolving challenge, the CGIAR has expanded and developed over the years and had a total budget in 1998 of $345 million. Today the Centers’ research is focussed not only on increasing the productivity and sustainability of food crops, but also addresses technical and policy constraints in crop, livestock, fish, forestry and agroforestry systems. The CGIAR defines its mission as being ‘to contribute to food security and poverty eradication in developing countries through research, partnerships, capacity building, and policy support. The CGIAR promotes sustainable agricultural development based on the environmentally sound management of natural resources.’ The CGIAR is an informal association of fifty-eight public and private sector agencies that supports a network of 16 international agricultural research centers around the world (see Table 1). It has no constitution, no statutes and no membership laws. It reaches decisions by consensus, not by voting. Membership in the Group is open to any government or agency that: supports the CGIAR mission, is willing to participate in shaping a research agenda based on that mission, and provides financial support for one or more of the centers to implement the research agenda. Within the CGIAR, the Centers are autonomous institutions, each having its own charter, international Board of Trustees, director, and staff. Center scientists are drawn from all over the world. Page 427 →Table 1. CGIAR International Agricultural Research Centers, Their Species, Mandates and Research Focus.

Species Research focus responsibility Phaseo/us bean, cassava, rice, Research on crops and on resource management in humid agroecosystems. CIAT* tropical pastures Collaborative strategic and applied research, promotion and transfer of new CIFOR Forestry technologies for national development. Wheat, maize, Increase productivity of resources in developing countries and agricultural CIMMYT* triticale research in concert with national research systems. Center

CIP*

Potato, sweet potato

Conduct research programmes, research and training, catalyze collaboration in solving common problems.

Barley, lentil, faba bean, durum Agricultural production in harsh, stressful, variable and semi-arid regions. World ICARDA* wheat, kabuli responsibility for the improvement of these crops. chickpea Improve production and management for sustainable benefits of low-income ICLARM Aquatic resources producers and consumers in developing countries. Through research to mitigate tropical deforestation, land depletion and rural ICRAF* Agroforestry poverty through improved agroforestry systems. Sorghum, pearl and finger millets, chickpea, Conduct research leading to enhanced sustainable food production in the semiICRISAT* pigeonpea, arid tropics. groundn4t, minor millets Identify and analyze alternative national and international strategies and policies IFPRI – for meeting the food needs of the developing world. Foster improvement in the management of water resource systems and irrigated IIMI – agriculture. Cassava, maize, plantain, cowpea, Conduct research and outreach activities with partner programmes in countries of IITA* soyabean, rice, Sub-Saharan Africa to help increase food production on an ecologically yam, agroforestry sustainable basis. species Tropical1ivestock Increase animal health, nutrition and productivity by removing constraints to ILRI* production tropical 1ivestock production.

IPGRI*

Plant genetic resources. Musa through the INIBAP programme

Encourage, support and engage in activities to strengthen the conservation and use of plant genetic resources worldwide. Research, training, scientific and technical information. Increase the sustainable production of banana and plantain.

Improve the well-being of rice farmers and consumers by generating and dissemination rice-related knowledge and technology. Help developing countries bring about sustained improvements in the ISNAR — performance of their national agricultural research systems and organizations. Strengthen the work of agricultural scientists in West Africa for technology Rice-based WARDA* generation to improve the well-being of resource poor farm families while cropping systems conserving the national resource base. IRRI*

Rice

* Centers that hold plant genetic resources collections Source: Intemational Plant Genetic Resources Institute (IPGRI), Rome

Page 428 →3. The Germplasm Collections Over the millennia since agriculture began, farmers throughout the world have domesticated hundreds of different crops, each comprising a myriad of different variants: farmers’ varieties or landraces. This vast array of genetic diversity is arguably one of humanity’s most important resources. It enables farmers and plant breeders to develop improved crop varieties adapted to new environments and needs. In establishing a genetic improvement program, an essential first step is to obtain a wide range of different types of the crop concerned, its genetic resources. This is the raw material on which genetic enhancement can be based. Thus one of the early activities of the CGIAR Centers when they established their crop improvement programs was to assemble collections of the target crop species. As the improved crop varieties developed by the Centers were adopted by farmers, particularly the semi-dwarf wheat and rice varieties that formed the basis of the ‘Green Revolution’, it became apparent that they were beginning to displace much of the genetic diversity that was originally to be found on farms. Realizing this, the Centers and others began to mount collecting expeditions to rescue the rapidly disappearing types. This, coupled with donations of materials from other breeding programs and genebanks, led to the assembly of some of the largest collections of genetic resources of the world’s major food crops. Today the CGIAR Centers house approximately 600,000 samples of crops and their wild relatives (see Table 2). These are held in the genebanks of the eleven Centers concerned with research on food crops, forages and multipurpose trees (SGRP, 1996). They are the largest international plant Page 429 →genetic resources (or germplasm) collections in the world and represent a priceless resource for current and future agriculture (Hawtin et al. 1997). Table 2. Germplasm holdings at CGIAR Centers * *Data adapted from SGRP (1996) Source: International Plant Genetic Resources Institute (IPGRI), Rome

4. Paradigm Shift When the CGIAR Centers started to assemble the collections in the early 1970s, it was generally held that genetic resources were a common good. The genetic diversity represented by farmers’ varieties and landraces was widely regarded as a product of nature. Most crop breeding at the time was carried out in the public sector, by scientists in government institutions or University departments. Genetic material was exchanged relatively freely among plant Page 430 →breeders and likewise information was widely shared. The application of Intellectual Property Protection (IPP) measures, in the form of Plant Breeders Rights (PBR), was only beginning to make an impact, and even then in just a handful of industrialized countries. This paradigm was enshrined in the FAO International Undertaking on Plant Genetic Resources (IU) which was adopted in 1983. The IU is a non-binding intergovernmental agreement that seeks to promote the conservation, exchange and use of plant genetic resources. It is overseen by the FAO Commission on Genetic Resources for Food and Agriculture (CGRFA). In adopting the IU, the parties concerned issued a statement which recognized plant genetic resources as ‘a common heritage of humanity to be preserved, and to be freely available for use, for the benefit of present and future generations’. Starting in the 1970s, and increasingly in the 1980s and 90s, advances in plant science, especially molecular genetics, resulted in a growing interest in plant breeding by commercial companies. Big profits were to be made both through the release and sale of new crop varieties for cultivation as well as through coupling new varieties

with the sale of agrochemicals. Companies increasingly came to rely on Intellectual Property Protection measures to protect their large investments in research and development. Pressure was put on national governments to strengthen their IPP legislation, and in some countries patent legislation started to take over from Plant Breeders Rights as the preferred means for protecting new innovations. All these trends led to significant erosion in the concept of genetic resources as a ‘common heritage’ and increasingly to calls for them to be recognized as a private or national resource, subject to national legislation. Parallel to these trends in the agricultural world, the environmental protection movement was gathering strength and began calling for greater national and international efforts to conserve biodiversity. Furthermore, there was a growing concern that compensation to developing countries for the use of their biological resources, especially by pharmaceutical companies based in the North, was inadequate and unfair. These concerns led to governments negotiating the Convention on Biological Diversity (CBD), which came into force in December 1993. The CBD, which is legally binding on the parties that adhere to it, aims to promote the conservation of biodiversity, its sustainable use, and the fair and equitable sharing of the benefits arising from that use. The CBD recognizes biodiversity as a resource that is subject to national sovereignty. The CBD thus enshrines a very different paradigm with respect to plant genetic resources from the one that gave rise to the International Undertaking. Recognizing an on-going need for an instrument to help regulate international access and benefitsharing arrangements for Page 431 →agricultural genetic resources, the FAO Commission on Genetic Resources for Food and Agriculture decided to re-negotiate the IU to bring it in line with the CBD and the new paradigm. In addition, at the time the CBD was adopted, it was recognized that a number of outstanding issues remained to be negotiated. These included the status of germplasm collections assembled prior to the coming into force of the Convention and mechanisms for recognizing Farmers’ Rights (see below). FAO agreed to try to find solutions to these issues within the context of the re-negotiation of the IU.

5. The Trusteeship Concept The growing calls for recognizing genetic diversity as a national resource were accompanied by concerns over the ownership status of the Centers collections. The CBD was of no help in resolving this and the Centers increasingly became the target of accusations of ‘biopiracy’. To help counter such concerns, in 1989 the Centers stated: It is the CGIAR policy that collections assembled as a result of international collaboration should not become the property of any single nation, but should be held in trust for the use of present and future generations of research workers in all countries throughout the world. (IBPGR, 1989) In order to give this concept of trusteeship greater international acceptance, in 1994 the Centers signed agreements with FAO bringing the collections within the FAO International Network of Ex Situ Collections. These agreements recognize the Centers as trustees rather than owners of the material in the collections, and obligate the Centers to maintain the collections to international standards and to make them available without restriction. They also prohibit the Centers from taking out intellectual property protection on the material and require that this condition be passed on to all subsequent recipients. The latter provision aims to ensure that the material in the collections remains in the international public domain.

6. Intellectual Property Protection and in the CGIAR The Centers have adopted the position that as publicly funded institutions working for the international public good, the products of their research should, to the extent possible, be held in the public domain (Hawtin and Reeves, 1998). Thus full disclosure is the preferred course of action in most situations. It is recognized, however, that in certain circumstances it will be Page 432 →necessary to take out IPP, e.g. to facilitate the transfer of technology, or to prevent misappropriation. The Centers have adopted a set of ‘Guiding Principles on Intellectual Property and Genetic Resources’ which form the basis of individual Center IPP policies. In summary, the Guiding Principles state that:

Centers will not take out IPP on the in-trust genetic resources and will require recipients to observe the same proscription. Centers and recipients may use the in-trust material as parents in plant genetic improvement. The varieties so produced can be protected by Plant Breeders’ Rights providing they can be used without restriction as parental material in the development of further varieties (the ‘breeders’ exemption’). Cells, organelles, genes or molecular constructs isolated from materials supplied by a Center can only be patented with the Center’s permission. In granting such permission, the Center will, if appropriate, consult with the country originally supplying the material, and will normally require that a share of any benefits derived from the use of the protected material be provided for the international public good. While the intention of the principles is clear, in practice there are a number of problems. For example, in the case of in-trust material, what is the minimum that has to be done (what is the minimum genetic distance required) before a Center or recipient is allowed to take out IPP? A major justification for the maintenance of the international collections is that they provide a resource to be used for the common good. Thus it could be argued that in order to promote the use of the materials in the collections, only a slight modification should be required before IPP is allowed. On the other hand, if little is required, then is this fair to those who developed and provided the original material, mostly farming communities in developing countries? Other problems facing the Centers include: whether or not patents (as opposed to PBR) should be allowed on varieties bred from in-trust material; to what extent genomic or sequencing information on in-trust material should be protectable; and how to decide under what conditions the Centers should provide exclusive licenses and to whom. These issues are all currently being debated within the CGIAR (Hawtin and Reeves, 1998). All these problems reflect the fact that the germplasm collections largely comprise materials developed over millennia by farming communities, and were assembled through international public funding. This occurred predominantly at a time when such materials were widely considered to be Page 433 →common property and when IPP was an insignificant factor in their exploitation. Now the materials in the collections are increasingly being accessed for private gain and their use is being restricted through the application of IPP. Furthermore such protection is often granted for what are in essence discoveries, with little or no intellectual input by the IPP claimant. It is widely argued that for most of the material in the in-trust collections, the major intellectual input was provided by those farmers and communities that bred and selected them over the course of history. Yet today it is often the person or company that adds just one or a few traits, or makes some other relatively minor modification, that reaps the major benefit (Bragdon and Downes, 1998).

7. Ethics and Equity Many of the issues confronting the CGIAR in the management of its genetic resources are of an ethical nature (IPGRI, 1997). Recognizing this, in 1998 the CGIAR adopted a statement of ‘Ethical Principles Relating to Genetic Resources’. These are provided here in Annex 1 and cover equity, the trusteeship of genetic resources, social benefits, and respect, responsibility and integrity in science. The Ethical Principles recognize the need to ensure that local communities will continue to have access to those resources and benefit from their exploitation by others. They also stress that in the pursuance of its mission, the CGIAR must take into account the principles of equity and fairness, requiring that the Centers give special attention to the needs of the resource poor and other disadvantaged members of society. It was issues such as these that led to the development of the concept of Farmers’ Rights as a counterbalance to the recognition of Plant Breeders’ Rights in the International Undertaking. Farmers’ Rights were defined in a 1989 FAO Conference Resolution as ‘the rights arising from the past, present and future contributions of farmers in conserving, improving and making available plant genetic resources, particularly those in the Centers of origin /diversity.’ Countries agreed that Farmers’ Rights should be recognized through an international fund. Unfortunately this never became a reality and the topic of how best to recognize and implement Farmers’ Rights remains under discussion in various national and international fora. Recent discussions in the FAO Commission have resulted in a general agreement that they should be recognized primarily at the national level and through funding activities within the FAO Global Plan of Action. This is a plan that was adopted by 150 countries at the

International Technical Conference on Plant Genetic Resources for Food and Agriculture held in Leipzig, Germany, in 1996. Page 434 →Translating principles such as equity and Farmers’ Rights into action is proving to be highly complex, especially as the for-profit sector expands its role in agricultural research in general and in plant breeding in particular. There are many areas of research that have traditionally been carried out by the public sector and for the public good that are now being taken over by the commercial sector. There is a growing need for a public debate, and agreement, on the current and future role of the public sector, including the CGIAR Centers, in agricultural research and development. What are those areas that require continued public sector investment and support? These might include, for example, cases of market failure such as long-term genetic resources conservation, or the genetic improvement of crops that are only of local importance or of concern only to the poor. Whatever role is to be played in future by the public sector, it will have to work in very close partnership with the private sector. There is a need for further debate to bring clarity to the ethical principles and rules that will govern these partnerships.

8. Sharing the Benefits The CGIAR Centers seek to develop products and knowledge that will benefit the poor and disadvantaged in developing countries. This is achieved both directly and indirectly through the impact of their outputs on intermediaries such as National Agricultural Research Institutes, Non-Governmental Organizations and Universities. In their management of genetic resources, the Centers seek to produce such benefits as: increased access by farmers and researchers, with a minimum of restrictions, to a wide range of genetic diversity the development and dissemination of new crop varieties that have been genetically improved to meet new needs and expectations information and documentation about the genetic materials and how they can best be deployed and used within farming systems the development of human and institutional capacity to take advantage of the Center outputs and to generate additional products and knowledge The outputs of the Centers, while targeted to the poor in developing countries are in many cases of universal application. As international public goods they are available to all. The greater ability of stronger institutions and countries to take advantage of these outputs means that in many cases it is the strong that benefit more than the weak from the work of the CGIAR. The concerns of the Centers for equity thus means that extra efforts have to be made to ensure the benefits reach the intended beneficiaries. Page 435 →The paradigm shift referred to earlier has resulted in an expectation by many countries that the exploitation of the agricultural genetic resources that originated within their borders will result in the generation of benefits, a share of which will flow exclusively back to them. Such bilateral flows of benefits, however, are extremely problematic in the case of major food crops. The genetic diversity of such species is very widely distributed and large numbers of countries are inter-dependent for the genes they need for crop improvement. In addition, the pedigrees of modern varieties of major crops are highly complex: a modern wheat variety, for example, is likely to include in its parentage genetic material originating from communities in more than twenty countries. In such circumstances it is far more appropriate to develop systems for sharing benefits multilaterally rather than bilaterally (Cooper et al. 1994). Through the current renegotiation of the IU, countries are seeking to establish a multilateral system for access and benefit sharing, particularly for those crops and their wild relatives that are important for global food security. How the CGIAR Centers will relate to such a multilateral system remains to be seen. However, it is likely that the in-trust genetic resources collections, the information on them, the breeding work of the Centers, and their activities in capacity building and the transfer of technology are all likely to be central elements in any future multilateral system.

9. The Future The nature of agricultural research worldwide is changing rapidly. Private companies are moving into areas traditionally the domain of the public sector, and in many countries public support for agricultural research is on the retreat. The funds required for international agricultural research are becoming ever more difficult to obtain. If the in-trust germplasm collections are to survive in the international public domain, it is important that the necessary funding be sustained. It is unlikely that such collections would ever be maintained by the private sector. With the new paradigm, countries are beginning to introduce access legislation that could have the effect of hampering the flow of genetic materials across their borders. Such legislation might be important to ensure that benefits return to the country from the exploitation of its pharmaceutical and other industrially important biodiversity. However, unless the needs of agriculture are explicitly taken into account, there is a likelihood that such legislation could be to the detriment of crop genetic improvement. The effect of such legislation on the work of the CGIAR remains to be seen. The creation of a multilateral system for access and benefit-sharing under the IU could go a long way to promoting a more open regime for the Page 436 →exchange of genetic resources, to the ultimate benefit of all. However, for this to happen it is important that the renegotiation be concluded swiftly, before national access legislation is enacted that would impede the creation of such a system. A huge international effort has gone into the creation, development and maintenance of the in-trust germplasm collections by the Centers of the CGLAR. They underpin the world’s ability to tailor food crops to meet new needs and circumstances. As such they are a vital global resource for the future and one that must be conserved and used for the benefit of all humanity.

Conclusion The principles outlined below (in Annex 1), while not exhaustive, are intended to provide an overall statement of ethical principles relating to the CGIAR’s work in genetic resources. They are also intended to provide a basis on which individual Centers can further elaborate their own guiding ethical principles or codes of conduct, and set up monitoring mechanisms, as appropriate. In implementing the above principles, the CGIAR Centers will work in partnership with national systems and other relevant organizations.

NOTE 1. According to the definition in the World Food Summit Plan of Action, food security exists when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life. REFERENCES Bragdon, S. H. and D. R. Downes. 1998. Recent policy trends and developments related to the conservation, use and development of genetic resources. Issues in Genetic Resources No. 7. International Plant Genetic Resources Institute, Rome, Italy. 42 pp. Cooper, D., J. Engels and E. Frison. 1994. A multilateral system for plant genetic resources: imperatives, achievements and challenges. Issues in Genetic Resources No. 2. International Plant Genetic Resources Institute, Rome Italy. 42 pp. Hawtin, G.C., J. Engels and W. Siebeck. 1997. International plant germplasm collections under the Convention on Biological Diversity – options for a continued Page 437 →multilateral exchange of genetic resources for food and agriculture. In: Global Genetic Resources – Access, Ownership, and Intellectual Property Rights, eds. K.E. Hoagland and A.Y. Rossman. Pub. Association of Systematics Collections, Washington, D.C. pp. 247-262. Hawtin, G.C. and T. Reeves. 1998. Intellectual property rights and access to genetic resources in the Consultative

Group on International Agricultural Research (CGIAR). In: Intellectual Property Rights III Global Genetic Resources: Access and Property Rights. Eds. S. Eberhart, H. Shands, W. Collins and R. Lower. Pub. Crop Science Soc. of America, Inc. Madison, Wisconsin, USA. pp 41-58. IBPGR. 1989. CGIAR Policy on Plant Genetic Resources. Pub. International Board for Plant Genetic Resources, Rome, Italy. IPGRI. 1997. Ethics and Equity in conservation and use of genetic resources for sustainable food security. Pub. International Plant Genetic Resources Institute, Rome, Italy. 197 pp. SGRP. 1996. External Review of the CGIAR Center Genebank Operations. Pub. International Plant Genetic Resources Institute, Rome, Italy. 105 pp.

____________________ * Director General, International Plant Genetic Resources Institute (IPGRI), Rome.

Page 438 →ANNEX 1 THE CGIAR’S ETHICAL PRINCIPLES RELATING TO GENETIC RESOURCES INTRODUCTION The CGIAR was founded on the ethical imperative of eliminating hunger and starvation and has, since its inception, followed certain ethical principles. Increasing food security1 and alleviating poverty have long been central to the system’s science-based humanitarian mission. With the growing complexity of the problems being addressed by the research of the Centers, the expanding number of partners with whom they work and the rapidly evolving scientific, social and economic environment within which they operate, an increasing need has been felt for a clearer enunciation of the System’s underlying ethical principles. Greater transparency about what the CGIAR really stands for is important in enabling strong and unambiguous relationships to be forged with a wide range of partners. The main ethical principles are presented under four headings: Equity; Trusteeship of Genetic Resources; Respect, Responsibility and Integrity in Science; and Social Benefits. These are intended to encapsulate the essential principles followed by the CGIAR in relation to its work on genetic resources and in the pursuance of its goal: to contribute through agricultural and natural resources research and partnerships to sustainable food security and the alleviation of poverty. EQUITY The CGIAR works for the attainment of equity in the conservation, sustainable use and the sharing of benefits derived from genetic resources. This commitment to fairness requires that emphasis be given to the needs of resource poor communities and to disadvantaged members of society. The CGIAR recognizes the contribution of many different communities and individuals, especially of women, to the conservation and enhancement of genetic diversity of potential use for food and agriculture, and will strive to ensure they Page 439 →benefit from such contributions. The CGIAR will avoid situations where a foreseeable reduction of local communities’ access to, and benefits from, genetic resources might occur. The CGIAR recognizes that its major strength lies in its partnerships with national agricultural research systems and other organizations, and is committed to sharing credit in an equitable manner.

TRUSTEESHIP OF GENETIC RESOURCES The CGIAR Centers hold genetic resources in trust for the international community. In the case of plant genetic resources for food and agriculture this is, to a great extent, recognized through agreements with FAO. As trustees of genetic resources the CGIAR Centers recognize their responsibility to be impartial, transparent and fair in their administration of the trust; to respect and observe national regulations and international conventions, in particular the Convention on Biological Diversity; to be accountable for their actions; and to exercise due care and diligence in conserving the material for the use of present and future generations and in making it readily available for use for the public good. RESPECT, RESPONSIBILITY AND INTEGRITY IN SCIENCE The CGIAR’s work on genetic resources respects the general scientific principles of good faith and the search for truth. However, the CGIAR is guided by its particular humanitarian and equity-based concerns, and not the pursuit of knowledge for its own sake. The CGIAR’s scientific work, including that on biotechnology, is based on the principles of accountability, responsibility and precautionary action. For any undertaking, potential benefits shall clearly outweigh foreseeable risks, emphasizing broad societal interests such as food security, poverty alleviation and environmental sustainability. The CGIAR’s recognizes and respects the integrity of culture, tradition and the relationship of local people with their natural environments. Likewise the CGIAR respects the aspirations and culture of partner institutions and the societal context within which they operate. The CGIAR adheres to national regulations and to relevant internationally accepted codes of behavior and conduct in areas of plant and animal biology; the Page 440 →collection and transfer of genetic resources; biosafety; animal welfare; and intellectual property. SOCIAL BENEFITS The CGIAR aims to promote lasting social benefit through its research and partnerships for the international public good. In its activities on genetic resources the CGIAR strives to increase individual, local and national food and livelihood security in developing countries through sustainable advances in productivity, nutritional quality, stability and through promoting biological and food diversity. For this purpose it is accountable for the dimensions of social and gender equity and environmental sustainability in its research, human resource development and capacity building programs. The CGIAR aims to support the building of national capacity and institutions to manage, develop and conserve genetic resources.

Page 441 →CHAPTER 26 Major Legal Regimes Affecting Plant Genetic Resources (PGR): The Convention on Biological Diversity (CBD), the International Undertaking (IU) and the TRIPs Agreement Susan H. Bragdon*

1. Introduction Legal regimes evolve over time in response to changing situations and needs. Often these changes are catalyzed by scientific breakthroughs and technological advances. As Thomas Cottier notes, in the history of law there is a close relationship between the recognition of the economic and commercial value of a resource and the attribution and allocation of legal entitlements.1 Spurred by technological advances – particularly with molecular biology and genetic engineering – appreciation of the monetary and non-monetary value of genetic resources has grown leading to increasing conflict over rights and responsibilities for these resources. In the meantime, genetic resources, the foundation upon which these technologies are based, are being lost at an alarming rate.2 The speed at which these technologies are advancing coupled with the equally rapid erosion of genetic resources is outpacing the ability of societies and the law to understand, analyze and devise appropriate measures for managing the complex implications of the technologies3 and to cope with genetic erosion. Developments in the last five to ten years have significantly changed the policy environment relating to the management and control of genetic resources.4 The task of discerning all the issues of relevance to the conservation and management of genetic resources is extremely complex. The question of what legal regimes are optimal to govern the conservation, Page 442 →use and development of plant genetic resources is a critical issue in a variety of intergovernmental bodies. The problem is the answer to the questions ‘optimal for what?’ and ‘optimal for whom?’ will vary greatly depending upon where the question is asked. This is because laws and policies affecting genetic resources are being debated in the context of intergovernmental bodies with: Diverse objectives Diverse actors and interests Different power balances Different cultures, where the types and tones of arguments very depending on the particular forum. Three of the intergovernmental bodies that have probably received the most attention to-date with relation to plant genetic resources are the World Trade Organization and its Agreement on Trade-related Aspects of Intellectual Property Rights;5 the Food and Agriculture Organization and the International Undertaking;6 and the Convention on Biological Diversity.7

2. The Convention on Biological Diversity: Sovereign Rights and Access to Genetic Resources The legally binding CBD entered into force in 1993 and has since been ratified by more than 170 parties. The objectives of the CBD are three-fold: conservation of biodiversity, sustainable use of its components, and the fair and equitable sharing of benefits arising from their use. The CBD came into being largely as a result of concern over loss of biodiversity. As reflected in its first objective, it was initially conceptualized as a broad conservation treaty to cover all the elements of biodiversity: ecosystems, species and genetic diversity. Existing legal instruments were deemed both too narrow in scope and too fragmented. Recognition of the vital role of genetic resources in agricultural development, and particularly the livelihoods of local communities throughout the world, led to the incorporation of sustainable use of biological resources among the Convention’s objectives, along with the sharing of benefits arising from their use.8 Mounting international debate regarding the terms for exchanging and sharing benefits deriving from the use of genetic resources resulted in the inclusion of more detailed

obligations into the treaty. The entry into force of the CBD marked a significant shift from free to regulated access to genetic resources. Article 15, on access to genetic resources, sets up a framework of general principles for structuring the international exchange of genetic resources, premised upon the national Page 443 →sovereignty of each country over the biodiversity within its jurisdiction. The Article maintains the overall focus of the Convention on national action and through reference to ‘mutually agreed terms’ and ‘prior informed consent’ in the exchange of genetic resources it encourages negotiation between source countries and recipients for access to genetic resources, hence emphasizing a bilateral approach in this exchange. The idea is through access arrangements: Source countries have an incentive to conserve genetic resources in situ thus slowing the loss of genetic diversity; Benefits flow to source countries and help restore the imbalance created by the extension of intellectual property rights over PGR-based products; Pressure on the environment is reduced by making germplasm conservation an economically justifiable activity. Access legislation may also be a means by which countries can fulfill their CBD obligations to promote and protect indigenous innovations, knowledge and practices and to provide for equitable benefit-sharing with these communities.9 Under the CBD, several countries and some regional groups are developing or have already promulgated legislation regulating access to their genetic resources. This has a direct impact on the work of institutions involved with plant genetic resources of relevance for food and agriculture (PGRFA) including the work of national genetic resources programs. Brazil, The Philippines, Thailand as well as the countries of the Andean Pact (Colombia, Ecuador, Peru, Bolivia, and Venezuela) have adopted measures pursuant to Article 15. In addition, several countries have draft legislation under various stages of consideration, including, Fiji, India as well as Ethiopia which recently a drafted a framework document entitled ‘Legislation on Access to Biological Resources and Community Rights’. It is too early to assess the impact of such legislation. It is still unclear for example: What the effect of legislation has been on the number of requests for access (e.g., are transaction costs reasonable and the procedures sufficiently clear and efficient or has the legislation restrained exchange, causing parties to look elsewhere for access to genetic resources?); To what extent benefits have actually accrued from access transaction and; To whom benefits have actually accrued (e.g., have indigenous and local communities benefited from the transactions?).

Page 444 →3. The International Undertaking on Plant Genetic Resources The current international debate on legal regimes for plant genetic resources has its origins in the late 1970s and early 1980s when developing countries became concerned over the actions by the plant breeding industry in industrialized countries to extend intellectual property rights over ‘improved’ varieties. The concern focussed on particular on the inequity of continuing the historically free flow of germplasm which was seen as following a predominantly developing to industrialized country pathway. During this same period efforts to collect and conserve PGR in gene banks heightened and the UPOV Convention was amended to allow non-European Members leading to expanded international cooperation in the recognition of plant-related intellectual property rights.10 These events resulted in even greater attention being paid to questions of PGR ownership. The Food and Agriculture Organization of the United Nations (FAO) responded in 1983 by establishing the Global System for the Conservation and Utilization of Plant Genetic Resources. A Commission on Plant Genetic Resources was created to oversee the Global System.11 The Commission’s first major action was the negotiation of an International Undertaking on Plant Genetic Resources. Governments debated the ownership and control of

PGR in a highly politicized environment concerned with intellectual property rights being granted for plant breeders’ and national germplasm embargoes.12 The acrimonious debate on the access, ownership and control of PGR that ensued during the adoption of the IU and its further refinement was dubbed the ‘seed wars’ by the Wall Street Journal.13 In contrast to the position to be taken in less than a decade at the CBD negotiations, during these negotiations, developing countries pushed and succeeded in reflecting in the IU a broader reflection of the common heritage concept which would apply not just to the PGR situated in developing countries but to the PGR subject to plant breeders’ rights contained primarily by industry in developed countries. In the resolution by which the IU was adopted, Member States recognized that ‘plant genetic resources are a heritage of mankind to be preserved, and to be freely available for use, for the benefit of present and future generations’ and was intended to facilitate the conservation and sustainable use of PGR. The IU made clear that this open availability was to apply to all PGR, including ‘special genetic stocks’ which was interpreted broadly to include the specially bred proprietary lines of seed breeders.’14 The rejection of the relatively recently developed plant-related intellectual property rights regimes is what made the IU controversial to the seed industry and hence to governments of the industrialized world. Denmark, Finland, France, New Zealand, Norway, Sweden, the United Page 445 →Kingdom and the United States officially indicated their unwillingness to support the IU.15 In the ten years after its adoption, the IU evolved through interpretive resolutions to reflect the growing acceptance of the need to accommodate plant breeders’ rights to attract developed country interest. Because of that accommodation, the assertion of national sovereignty over PGR became the mechanism through which developing countries sought to correct the asymmetry of benefits accruing to developed and developing countries from PGR. Three interpretive resolutions were adopted. The first provided an agreed interpretation which recognized that plant breeders’ rights were not necessarily inconsistent with the IU.16 It also recognized Farmers’ Rights and defined them in a second resolution as ‘rights arising from past, present and future contributions of farmers in conserving, improving and making available plant genetic resources, particularly those in the centers of origin/diversity.’ 17 The emergence of the concept of Farmers’ Rights was motivated more as part of a political effort to right the perceived imbalance created by the growing use and expansion of plant breeders’ rights than as a legal concept. The countries agreed that Farmers’ Rights would be recognized through an international fund. Unfortunately, this fund has never been operationalized. Since the mid-1990s the Commission has been engaged in a negotiating process to revise the IU to bring it into harmony with the CBD, perhaps becoming a protocol to that treaty. In the IU debates on Farmers’ Rights there have been those who use the term as a general political concept and those who interpret it as a legal concept. Those viewing it as a legal term tend to make proposals such as defining the rights as an alternative form of IPR covering, for example, the products of farmer selection and breeding.18 Those viewing it as a political concept tend to make proposals to establish a fund to finance PGRFA conservation and development work. There is now general acceptance among the negotiators of a need for a multilateral system of exchange for PGRFA.19 Nevertheless, there are a numerous nuances and variations in viewpoint between and among negotiators. The scope of what the revised IU will cover and the question of how access will be regulated has been one of the dominant issues in the negotiations.20 Some governments would prefer to confine the scope of the IU to a relatively small number of crops, possibly categorized on two or three lists, for whom the conditions of access vary. Other countries would like to have all plant germplasm associated with food and agriculture incorporated in the IU with ‘unrestricted’ access. Among those preferring restricted lists, there is a growing willingness to accept a relatively free flow of germplasm among signatory states for those food crops already widely dispersed and utilized by plant breeders. However, plant species widely Page 446 →available and/or having a high commercial value would have their access controlled. Advocates of three-tiered germplasm exchange see the degree of access ranging from ‘free’ under a multilateral system to a ‘not free’ system subject to bilateral agreements possibly

monitored or maintained with the assistance of a multilateral facility. The debate once again turns on questions about ownership and control. Generally speaking, developing countries have approached the ‘scope and access’ defensively, concerned that they are being asked to donate their germplasm freely while industrialized countries privatize the same material through intellectual property regimes. At the same time, those developed countries advocating wide scope and access for gene bank accessions and Farmers’ Varieties generally argue that germplasm under intellectual property protection should be outside of the ‘free’ multilateral exchange system.

4. The TRIPs Agreement and Sui Generis Options for Plant Variety Protection The TRIPs Agreement is legally binding upon the – at the time of writing -131 WTO Member countries. It entered into force in 1995 and sets minimum standards for IP protection. In accordance with Article 27.3(b), Members are required to provide protection for plant varieties through patents, a sui generis system or some combination thereof. However, Members may exclude plants and animals, other than microorganisms, from patentability. While providing for exclusions from patentability, Article 27.3(b) in fact narrows the scope of exclusions previously maintained by many countries.21 A number of countries must modify their laws excluding living things from patenting; their laws will have to be revised to provide for patenting of microorganisms. The requirement of IP protection for plant varieties, in the form of either patents or a sui generis system, will also necessitate legislative changes in a number of WTO Members. In accordance with Article 27.3(b), Members will therefore need to provide for a legally enforceable right either to exclude others from unauthorized use of a protected plant variety, or to obtain remuneration for its use. The Latin term sui generis means ‘of its own kind’. However, as the TRIPs Agreement does not define what an effective sui generis system is, nor does it refer to any specific existing rights regime or treaty. Providing the minimum requirements established by the TRIPs Agreement are met,22 Article 27.3(b) leaves significant flexibility to its Members. While the provision itself is referring to a sui generis system in the narrow sense of providing some sort of IPR system for the protection of plant varieties, there is nothing to stop Members from going beyond the more narrow confines Page 447 →required.23 A country could include indigenous knowledge as a subject matter to be covered by the sui generis system or it could set up a separate system for the protection of farmers’ rights as part of the PVP system. Providing that the additional requirements do not contradict other TRIPs requirements, their addition to PVP legislation should not run afoul of TRIPs.24 This flexibility is important because national implementation of the TRIPs Agreement is relevant to the implementation of national obligations stemming from other international agreements. For instance, those devising a sui generis system of intellectual property rights protection under Article 27.3(b) will confront issues that effect a wide-range of problems relating to genetic resources and biological diversity. The sui generis system will undoubtedly have implications for systems of property rights whether these are long-standing or were developed in response to other international obligations including the CBD and eventually perhaps the IU. It is therefore necessary to be aware of the potential relationship between the sui generis system being devised and the: National access regulations (pursuant to CBD Article 15); National legislation relating to the rights of indigenous and local communities, including farmers’ rights (pursuant to the IU and CBD Article 80(j)); and The exchange of PGRFA under a revised IU. How Members deal with the flexibility inherent in Article 27.3(b) will affect the scope, nature and strength of the property rights possible within the plant variety protection system. For example, a country whose agricultural economy is mainly geared towards domestic markets and which depend largely on traditional varieties cultivated by small-scale, often subsistence, farmers will have less to gain from the introduction of strong PVP than a country with an agricultural economy primarily oriented towards markets, particularly export markets.25 Even in the latter situation, however, there is a need for better understanding of any correlation between strong PVP and

genetic diversity,26 because the conservation of traditional varieties is not just important to subsistence farmers. The genetic diversity enshrined in traditional varieties is ultimately the foundation upon which all plant breeding depends. Whatever system is devised it will have to satisfy various interests with different views on IPRs, particularly IPRs over PGR. The interests of farmers and local communities, and the seed sector and biotechnology industry will all weigh in with their distinct points of view. Some may argue that ownership of any life forms is antithetical to their moral and/or cultural system. Others may maintain they are a necessary prerequisite to economic Page 448 →development. In addition, the interests of these groups will need to be balanced against other national policy objectives. The agricultural economy of most countries is composed of various sectors. Countries may therefore wish to mix and match different forms of IPR in accordance with the needs and goals of each sector. In all cases, however, it is important to note that plant variety protection is just one piece of an overall policy package that will ultimately reflect a balancing of both narrower and larger objectives.27

5. Access and Benefit-Sharing Two of the most notable manifestations of sovereign rights over genetic resources as enshrined in the CBD, are the establishment of national access regimes and mechanisms for benefit-sharing. In addition, this assertion of sovereignty has led to the negotiation of the revision of the IU and the creation of a multilateral system of exchange of at least some subset of PGRFA. As noted in Section II. supra, experience with access legislation is recent and thus far has all had a bilateral orientation. Access legislation based on bilateral transactions, and specific references to the ‘country of origin’, as defined in the CBD, is likely to face practical problems in the case of PGRFA. The CBD defines country of origin as the country that possesses the genetic resources in in situ conditions. In situ conditions is in turn defined as ‘conditions where genetic resources exist within ecosystems and natural habitats, and, in the case of domesticated or cultivated species, in the surroundings where they have developed their distinctive properties.’ Owing to the history of agriculture, many important crops are widely distributed around the world and have developed unique adaptive characteristics in agricultural systems of regions far from their origin. For most PGRFA, it will therefore be extremely difficult if not impossible to determine the country of origin. Even in cases where multiple source countries can be identified it is unlikely that substantial revenue or other benefits will accrue to them through such bilateral arrangements, especially relative to the transaction costs which will have been based on negotiations between only two parties. Because the exchange of PGRFA is critical to food security the effect of national access legislation on the exchange and use of these resources is of particular concern. Even the term ‘access’ intimates a one way flow of genetic resources that belies the interdependence of nations with respect to PGRFA.28 Perhaps this is why the IU talks of a multilateral system of ‘exchange’ which a more accurately reflects the true situation where all countries are potential sources and/or recipients of PGRFA. Given the interdependence of nations with respect to PGRFA, relevant policy decisions made by individual countries can have significant international ramifications. If systems are being put in Page 449 →place which inadvertently restrain the exchange of PGRFA, countries may have to resort to making piecemeal exceptions or amending the legislation as they gain experience. Impeded access to agrobiodiversity, be it as a result of genetic erosion, or through restrictive access or IPR controls, increases the vulnerability of farmers by increasing risks and undermines the stability of agriculture. Despite the IU negotiations and the importance of the ex situ germplasm collections held by the Consultative Group on International Agricultural Research (CGIAR)29 to research around the world, regional organizations and national legislatures have not crafted access legislation to promote the goals of the Draft IU or to ensure the free exchange and use of germplasm within ex situ collections. In fact, not one law specifically mentions PGRFA.30 While most of these laws and bills do not actively discourage conservation, exchange, and use of PGRFA or the creation of the multilateral system of exchange, they do create substantial hurdles to the exchange and use of PGRFA held by CGIAR institutes. For example, none of the laws reviewed expressly exempt ex situ genetic

resources acquired before entry into force of the CBD or the applicable implementing legislation from access procedures. Most if not all of the laws and drafts do not clearly determine the applicability of access rules to ex situ collections. The laws generally declare that the State has sovereign rights over its genetic resources, including ex situ genetic resources and derivatives (or derived products), and grants the State the right to determine the conditions of access to those resources. The laws and drafts also extend the law’s scope to genetic resources, including ex situ genetic resources and derivatives (or derived products). In the absence of other national or international law or an agreement between the host government and the institution to the contrary, the exchange and use of these resources requires prior informed consent, the creation of an access contract, and other requirements imposed by access legislation. Although the inclusion of ex situ resources does not contravene Article 15(3) of the CBD,31 it does create substantial uncertainty concerning the application of the access requirements to ex situ resources. For example, in the absence of a superseding agreement or legislation, the situation could be envisaged whereby a CGIAR Center is required by its host country to ascertain the provider of all the genetic material in their collections and then obtain that person’s or institution’s prior informed consent before the material can be used or exchanged, regardless of when the CGIAR center collected the material. The question also arises as to whether a State can nationalize resources acquired as common heritage resources. A strong argument can be made Page 450 →that the answer is ‘no’, particularly for genetic resources for which the host country is not the country of origin. The FAO/CGIAR Agreements placing designated germplasm in trust for the world community provides support for this argument to the extent that a country hosting a CGIAR Center is a Member of the FAO. In addition, if the host government agreement between a CGIAR Center and the government of the country where the Center is located stipulates that the genetic resources held by the Centers are held ‘in trust for the benefit of the international community,’ then it is doubtful that the host country can claim ownership over those genetic resources. There are situations in which a bilateral transaction is more technically feasible than the situation presented by most PGRFA. This is more often the case with pharmaceutical concerns where the PGR of interest may be wild and highly endemic. The Biotrade Initiative of the United Nations Conference on Trade and Environment found that ill-defined or hard to protect property rights can be an obstacle for developing countries trying to benefit from increased private sector interest in bioprospecting.32 Even with successful bilateral transactions, unless specifically structured to create incentives for the conservation and sustainable use of PGR there is no guarantee that the benefits derived will be applied to PGR-related activities. Finally, while one of the main objectives of the legislation should enable source countries (and hopefully source communities) to capture a greater share of the benefits from the commercial application of their PGR, alone they cannot be expected to balance the inequities inherent in the global economy. Benefit-sharing has also been a major topic of debate in the context of the IU. Positions on what constitutes benefit-sharing vary widely. Some argue that access to genetic resources themselves is the benefit of the multilateral system Others argue that benefit-sharing should be connected to financing PGRFA conservation and development work, most logically through the Global Plan of Action for the Conservation and Sustainable Use of PGRFA.33 Though the practical difficulties with this approach for PGRFA are increasingly understood, arguments are still put forward that with the entry into force of the CBD, all access regimes and hence benefit-sharing should be through agreements with the country of origin of those resources. The ‘access is the benefit’ approach is unlikely to receive substantial support. The impetus for the IU in the first place was due to the inequities created by the property regimes applying to ‘improved’ varieties resulting from formal breeding and the landraces and traditional varieties that are often the products of generations of conservation and development. Unless the imbalance in access and accruing of benefits is corrected in some other way, access as the benefit of the multilateral system will not be sufficient. Page 451 →As doubts have grown about the strength of the market for agricultural genetic resources34 and the

feasibility of identifying a country of origin, there is an increasing realization that the major source of benefits of a multilateral system may involve assured conservation, better utilization of PGRFA and improved crop varieties. This approach would not preclude mechanisms more closely tied to the country of origin for other types of genetic resources.

6. Conclusion The genetic information stored in plants has led to important – and often quite profitable – innovations for agriculture and pharmaceutical industries.35 It has also catalyzed changes, some would argue contortions, to legal regimes affecting genetic resources. We are all mutually dependent when it comes to the conservation and use of PGR. Rich or poor, we all can benefit from its exchange. As the international community struggles with differing and often conflicting objectives in trying to define the optimal legal regime for PGR, the resources upon which humanity depends continue to rapidly disappear. Clearly, the current approaches, and the methods by which the problem is approached, are not sufficient to address the magnitude and the complexity of factors underlying the loss of plant genetic resources and its sustainable management. While there has been progress in communications among intergovernmental bodies, governments and different stakeholders, the underlying political, ethical and economic conflicts over the ownership and control of PGR remain. Only when there is true understanding of the impending crisis caused by the irreplaceable loss of genetic diversity and the political will to overcome vested interests will true change be possible. Hopefully this realization will come before it is too late.

NOTES 1. Cottier, Thomas. 1998. The Protection of Genetic Resources and Traditional Knowledge: Towards More Specific Rights and Obligations in World Trade Law. Journal of International Economic Law 555-582. 2. Paul R. Ehrlich and Edward O. Wilson, Biodiversity Studies: Science and Policy 253 SCIENCE 758 (1991) at 760 3. The strong feelings being expressed with regard to genetically modified food is a good example of the lack of synchrony between technological developments, and an understanding and acceptance of their implications.Page 452 → 4. Bragdon, S.H. and D.R. Downes. 1998. Recent Policy Trends and Developments Related to the Conservation, Use and Development of Genetic Resources. Issues in Genetic Resources No. 7. International Plant Genetic Resources Institute, Rome, Italy. 5. Final Act Embodying the Results of the Uruguay Round of Trade Negotiations, Dec. 15 1993, Multilateral Trade Negotiations (The Uruguay Round) Doc. MTN/FA, 33 I.L.M. 1 (1994) [hereinafter the ‘TRIPs Agreement’]. 6. International Undertaking on Plant Genetic Resources U.N. Doc. C/83/REP(1983) [hereinafter ‘IU’]. 7. Convention on Biological Diversity, June 5, 1992 31 I.L.M. 818. [hereinafter the ‘CBD’]. 8. Susan H. Bragdon, National Sovereignty and Global Environmental Responsibility: Can They Be Reconciled for the Conservation of Biological Diversity? 33 HARV. INT’L L.J. 381 (1992). 9. CBD, Note 8 supra, Article 8(j) 10. David S. Tilford, Saving the Blueprints: The International Legal Regime for Plant Resources, 30 Case W. Res. J. Int’l 373,409 (1998). 11. As of 23 August 1999, the Commission has 160 Member States plus the EC. 12. Mooney, P.R. ‘The Law of the Seed: Another Development in Plant Genetic Resources”, Development Dialogue I-2:7-172 (1983). 13. Jack R. Kloppensburg, Jr. and Daniel Lee Kleinman, Plant Genetic Resources: The Common Bowl, 1, 2 in Seeds and Sovereignty. 14. IU supra Note 7, Article 2. 15. Tilford Note 11, supra at n 251. 16. FAO Conference Resolution C4/89, 1989. 17. FAO Conference Resolution C5/89, 1989.

18. Bragdon and Downes, supra Note 5 at 27. 19. A number of independent studies have suggested that, while germplasm is collectively invaluable, it is next to impossible to determine the commercial worth of accessions and that the monitoring costs of tracking geneflows could exceed the actual returns to countries of origin, if they can be identified in the first place. Id. at 14. 20. Id. at 14-15 discussing the revision negotiations. 21. Article 27.3(b) provides: Plants and animals other than micro-organisms, and essentially biological processes for the production of plants or animals other than non-biological and microbiological processes. However, Members shall provide for the protection of plant varieties either by patents or by an effective sui generis system or by any combination thereof. 22. Two of the most notable of these are the national treatment (Article 3) and most favored nation requirements (Article 4). For compliance with Article 27.3(b) this means Members have to ensure that: 1) nationals of other Member States have the same rights as those granted to nationals of the country concerned; and 2) any advantage, favor, privilege or immunity granted to nationals of any other country has to be granted immediately and unconditionally to nationals of all other Member States, i.e. most-favorednation treatment.Page 453 → 23. TRIPs Agreement, Note 6 supra, Article 1 Nature and Scope of Obligations. 24. See, Implementation of TRIPs Agreement Article 27.3(b): Key Questions for Decision-makers, International Plant Genetic Resources Institute, in press [hereinafter IPGRI Key Questions]. 25. See, IPGRI Key Questions, Note 25 supra. 26. It is generally agreed that the chief contemporary reason for the loss of genetic diversity is the spread of modern commercial agriculture. The extent to which IP systems create incentives for commercial breeding it may well contribute to genetic erosion. Incentives for commercial breeding, including property rights incentives, must therefore be balanced by efforts to encourage the conservation and sustainable use of traditional varieties. See, Section V infra, for an in-depth discussion on the relationship between IP and genetic diversity. 27. See, Bragdon and Downes, Note 5 supra. 28. Kloppenburg J.R. and D.L. Kleinman ‘Seeds of Controversy: National Property versus Common Heritage’ in Seeds and Sovereignty: The Use and Control of Plant Genetic Resources 181 (Jack R. Kloppenburg ed.) 1988 (Kloppenburg and Kleinman supply an empirical framework for investigating global plant genetic interdependence that reveals that the world is ‘strikingly interdependent in terms of plant genetic resources.’) 29. The CGIAR conserves approximately 600,000 seed samples which may amount to as much as 40% of the world’s unique germplasm in storage worldwide. 30. Internal study commissioned by IPGRI, on file at IPGRI headquarters, Rome, Italy. 31. Because Article 15(3) embodies the non-retroactivity principle of law, a Contracting Party cannot claim rights under the CBD to germplasm collected prior to the CBD’s entry into force and now stored in ex situ collection outside its jurisdiction. 32. United Nations Conference on Trade and Development (1996a) The Biotrade Initiative: A New Approach to Biodiversity Conservation and Sustainable Development. Study prepared by the UNCTAD Secretariat for the Conference of the Parties to the Convention on Biological Diversity. 33. The Global Plan of Action was adopted by over 150 governments at FAO’s Fourth International Technical Conference on PGRFA in 1996. It outlines 20 specific initiatives in four broad categories: in situ conservation and development; ex situ conservation, utilization of plant genetic resources and institutions and capacity-building. 34. And the related problem of multiple sources of a particular genetic resource creating competition among source countries and thus driving prices down. 35. Groombridge, Brian ed. Global Biodiversity: Status of the Earth’s Living Resources. A report compiled by the World Conservation Monitoring Centre. Chapman & Hall, London, 1992, pg. 432-436. Famsworth, N.R. and Soejarto, D.D. 1985. Potential consequences of plant extinctions in the United States on the current and future availability of prescription drugs. Economic Botany 39(3). Hobbelink, H. 1991. Biotechnology and the Future of World Agriculture. Zed Books, London.

____________________ * Senior International Plant Genetic Resources Institute (IPGRI), Rome, Italy. Page 454 →

Page 455 →CHAPTER 27 The Concept of Farmers’ Rights, the Role of FAO and the TRIPs Agreement Martin A. Girsberger*

1. Introduction Genetic resources1 of organisms other than plants and animals were generally not used or traded in the past. With the exception of plant and animal genetic resources used in breeding, genetic resources thus had, until recently, little or no economic value. This situation fundamentally changed with the advent of modern biotechnology2 almost three decades ago. This technology enables science and industry not only to use plant and animal genetic resources more extensively, but also to exploit genetic resources of other organisms. Due to modern biotechnology, the interest in and the demand for genetic resources of all organisms has substantially increased. In contrast to past times, all forms of genetic resources now have a potential economic value. Genetic resources, however, are not evenly spread over the globe. An estimated ninety percent of all genetic resources in in situ conditions are located in the tropical and subtropical regions of Africa, Asia and South America.3 Regarding plant genetic resources for food and agriculture (PGRFA), the centers of diversity, also called Vavilov centers, are of primary importance.4 A large number of the known PGRFA has been collected over the years and is stored in ex situ facilities, many of them located in developed countries or operated by the international agricultural research centers Page 456 →(IARCs) of the Consultative Group on International Agricultural Research (CGIAR). In contrast to genetic resources, most of the financial resources and technologies relevant for the utilization of genetic resources are located in the North. As a general statement, it can thus be said that the financially and technologically rich North has little genetic resources in in situ conditions, whereas the financially and technologically poor South is very rich with genetic resources in in situ conditions. International law declares genetic resources to be subject to the sovereignty of States,5 empowering the States to determine the legal status of genetic resources. At present, genetic resources are generally qualified as elements of the public domain. With this legal status, genetic resources can be freely used by all, that is, they can be used without restriction and compensation. Free use means that those responsible for the conservation of genetic resources are unable to benefit from the increased economic value of these resources, causing their continued destruction. Law, however, can remove goods from the public domain by establishing private property rights over these goods. Existing intellectual property rights, a form of private property rights, are designed to protect industrial goods such as inventions and high yielding plant varieties, whereas traditional or non-Western goods such as landraces6 and indigenous knowledge can generally not be protected by existing intellectual property rights and thus remain in the public domain.7 The described situation – the effects of modern biotechnology, the uneven distribution of genetic resources and their legal status as elements of the public domain – has confronted the legal community with new and challenging questions.8 Because these questions not only concern legal, but also scientific, economic and political issues, viable answers have been difficult to find. One of the concepts brought forth to address these questions is the concept of Farmers’ Rights.9 According to the Commission on Genetic Resources for Food and Agriculture (CGRFA)10 of the Food and Agriculture Organization (FAO), [t]he concept of Farmers’ Rights resulted from debates in FAO concerning the asymmetric treatment given to donors of germplasm and donors of technology. A commercial variety is usually the product of applying breeders’ technologies to farmers’ germplasm, and while the former may generate returns

through Plant Breeders’ Rights, or other intellectual property rights legislation, no system of compensation for the providers of germplasm was operational. These debates finally led to the simultaneous and parallel international recognition of Plant Breeders’ and Farmers’ Rights in 1989.11

Page 457 →The only internationally accepted definition of Farmers’ Rights is contained in the present International Undertaking on Plant Genetic Resources (International Undertaking)12 of FAO. Its Annex II’13 defines Farmers’ Rights as ‘rights arising from the past, present and future contributions of farmers in conserving, improving, and making available plant genetic resources, particularly those in the centres of origin/diversity.’14 With this definition, Farmers’ Rights are limited to PGRFA and do not address the questions that arise regarding other forms of genetic resources. The International Undertaking is currently being revised. One of the aims of this revision is the further realization of Farmers’ Rights.15 Besides the International Undertaking, some proponents consider the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs Agreement)16 to be relevant for Farmers’ Rights. At issue are mainly the following three questions: Can Farmers’ Rights be regulated within the TRIPs Agreement, particularly if they are realized as intellectual property rights? Can the realization of Farmers’ Rights within FAO or the TRIPs Agreement serve as a possible trade-off in the ongoing review of Article 27(3)(b) of the TRIPs Agreement? And finally, can Farmers’ Rights be a potential sui generis system to protect plant varieties as required by sentence two of Article 27(3)(b) of the TRIPs Agreement? The purpose of this paper is threefold: (1) to introduce the concept of Farmers’ Rights and to describe the questions arising from its realization; (2) to illustrate the role FAO plays in the realization of Farmers’ Rights; and (3) to discuss the potential mutual relevance of Farmers’ Rights and the TRIPs Agreement. This paper is subdivided into six sections. Section 2 defines the terms Farmers’ Rights, plant breeders’ rights and Farmers’ Privilege, that is, the terminology necessary for an understanding of this paper. Section 3 enumerates international instruments referring to Farmers’ Rights in their wordings. Section 4 describes the questions that may arise from the realization of Farmers’ Rights and contains the author’s proposal for the categorization of these questions. Section 5 deals with the role FAO plays in the realization of Farmers’ Rights: First, it introduces the relevant FAO instruments and institutions, that is, the Global System for the Conservation and Sustainable Use of Plant Genetic Resources (Global System), the International Undertaking and the CGRFA; second, it illustrates the relationship between the Convention on Biological Diversity (Biodiversity Convention)17 and FAO; third, it describes the ongoing revision of the International Undertaking; and fourth, it provides the wording of the provisions of the revised International Undertaking on Farmers’ Rights as they currently stand. And finally, Section 6 discusses the potential mutual relevance of Farmers’ Rights and the TRIPs Agreement.

Page 458 →2. Terminology: Farmers’ Rights, Plant Breeders’ Rights and Farmers’ Privilege In order to avoid confusion, the term Farmers’ Rights as presently defined and used in the International Undertaking18 should be clearly distinguished from the terms plant breeders’ rights and Farmers’ Privilege. Plant breeders’ rights are a form of intellectual property rights specifically designed to protect plant varieties. On the international level, of primary importance regarding plant breeders’ rights are the provisions of the International Convention for the Protection of New Varieties of Plants (UPOV19 Convention).20 The TRIPs Agreement does not explicitly refer to plant breeders’ rights or the UPOV Convention. Sentence two of Article 27(3)(b) of the TRIPs Agreement merely obligates Members to protect plant varieties either by (1) patents, (2) an effective sui generis system, or (3) a combination of patents and a sui generis system. The Farmers’ Privilege,21 a term used in plant breeders’ rights legislation, limits the scope of plant breeders’ rights by allowing farmers to replant propagating material of plant varieties protected by plant breeders’ rights they harvested on their own holdings. Some laws regulating plant breeders’ rights additionally allow farmers to exchange this propagating material with other farmers. Without the Farmers’ Privilege, these actions would infringe on the plant breeders’ rights protecting the replanted or exchanged plant varieties.22

3. Farmers’ Rights in International Instruments The primary international instrument regarding Farmers’ Rights is the International Undertaking of FAO. Other international instruments referring to Farmers’ Rights in their wordings are: (1) Resolution 3 of the Conference for the Adoption of the Agreed Text of the Convention on Biological Diversity of Nairobi (Resolution 3 of Nairobi),23 which declares the question of Farmers’ Rights to be an outstanding matter that should be resolved within the Global System of FAO;24(2) Agenda 21,25 which states in Chapter 14.60(a) that ‘[t]he appropriate United Nations agencies and regional organizations should . . . [s]trengthen the Global System . . . by, inter alia, . . . taking further steps to realize farmers’ rights’;26 and (3) FAO’s Global Plan of Action for the Conservation and Sustainable Utilization of Plant Genetic Resources for Food and Agriculture (Global Plan of Action),27 which declares in para. 32 the realization of Farmers’ Rights at the international, regional and national levels to be one of the long-term objectives of in situ conservation28 and development.29

Page 459 →4. The Questions Arising from the Realization of Farmers’ Rights The realization of Farmers’ Rights raises a large number of questions, including the following: What are Farmers’ Rights intended to be and achieve, that is, what is the nature and purpose of these rights? What is the content of Farmers’ Rights? Do these rights include the right to compensation or the right to exclusive use? Who is the holder of Farmers’ Rights? Are these rights realized on the international or on the national level? How are these rights enforced? All these questions need to be answered in order for Farmers’ Rights to be realizable and workable. In the author’s view, the nature and purpose of Farmers’ Rights is decisive for the answers to all other questions arising from the realization of Farmers’ Rights. The vague provisions of the present International Undertaking of FAO, however, leave the nature and purpose of Farmers’ Rights largely undecided; in literature, authors express a wide variety of opinions regarding the nature and purpose of Farmers’ Rights.30 As a first step, it is thus necessary to reach agreement on the nature and purpose of these rights. The remaining questions arising from the realization of Farmers’ Rights are then divided into two main categories.31 Category one, which can be entitled ‘Content of Farmers’ Rights,’ deals with the issues of (1) the subject matter protected, (2) the criteria of protection, (3) the holders of Farmers’ Rights, and (4) the rights and obligations of these holders. Category two, which can be entitled ‘Variables Affecting the Realization of Farmers’ Rights,’ deals with the issues of (1) implementing Farmers’ Rights through private agreements or statutory provisions; (2) the level of the realization of Farmers’ Rights, that is, their realization on the international or national level; (3) the legal form of Farmers’ Rights, that is, intellectual property rights or alternative legal forms; (4) enforcement; and (5) the necessary institutional support, that is, handling of disputes and administrative and financial questions. In literature, several proposals are made concerning the realization of Farmers’ Rights. Most of these proposals, however, cover only a limited number of issues or are of general nature only. A great deal of conceptual work is thus necessary to find answers to the many questions arising from the realization of Farmers’ Rights.32 Because many differing interests and parties are involved in the process of realizing Farmers’ Rights, finding the necessary answers presents a formidable challenge and is likely to take considerable time.

Page 460 →5. The Role of FAO Relevant FAO Instruments and Institutions Farmers’ Rights have been discussed on the international level for several years. In this discussion, FAO has played a crucial role and can be considered as the key international organization for Farmers’ Rights. Of FAO’s instruments and institutions, the Global System, the International Undertaking and the CGRFA are of particular importance. National and international efforts for the collection and storage of plant genetic resources substantially increased in the late 1970s. Out of these efforts, a debate arose over issues such as access to, and safety and ownership of, gene bank collections on one hand, and intellectual property rights granted for plant varieties on the other hand.

As a consequence of this debate, FAO established the Global System in 1983.33 The Global System consists of the following eight elements:34 (1) the present International Undertaking, (2) the CGRFA, (3) the Global Plan of Action, (4) the World Information and Early Warning System on Plant Genetic Resources, (5) the International Networks of Ex Situ Collections and In Situ Conservation Areas, (6) the Voluntary International Code of Conduct for Plant Germplasm Collection and Transfer, (7) the Periodic Publication on the State of the World’s Plant Genetic Resources, and (8) the International Fund on Plant Genetic Resources. The International Undertaking is a legally non-binding international instrument that was adopted in 1983. The present International Undertaking consists of the International Undertaking itself and three annexes. Annex I is entitled ‘Agreed Interpretation of the International Undertaking’ and was adopted as FAO Conference Resolution 4/89,35 Annex II is entitled ‘Farmers’ Rights’ and was adopted as FAO Conference Resolution 5/89,36 and Annex III, which has no title, was adopted as FAO Conference Resolution 3/91.37 As of April 1999, 113 States adhered to the International Undertaking.38 Article 1 of the present International Undertaking states that ‘[t]he objective of this Undertaking is to ensure that plant genetic resources of economic and/or social interest, particularly for agriculture, will be explored, preserved, evaluated and made available for plant breeding and scientific purposes.’39 The CGRFA, formerly called the Commission on Plant Genetic Resources (CPGR), is an intergovernmental forum also established in 1983.40 As of April 1999, 160 States and the European Community (EC) were members of the CGRFA.41 The CGRFA is the FAO body responsible for revising the International Undertaking. Because one of the aims of this revision is the further realization of Farmers’ Rights,42 the CGRFA is of primary importance for these rights.

Page 461 →The Ongoing Revision of the International Undertaking Resolution 3 of Nairobi and FAO Conference Resolution 7/93 The Biodiversity Convention is the principal international instrument concerned with genetic resources. Its provisions apply to genetic resources of plants, animals and microorganisms in general.43 In contrast, the provisions of the present International Undertaking only apply to PGRFA.44 Due to its work within the International Undertaking preceding the Biodiversity Convention45 and its general expertise in the field of food and agriculture, FAO was considered to be the best qualified international organization to deal with the question of PGRFA. In Resolution 3 of Nairobi, the Conference thus notes that the Preparatory Committee for the United Nations Conference on Environment and Development has recommended: .... (c) The adjustment of the Global System for the Conservation and Sustainable Use of Plant Genetic Resources for Food and Sustainable Agriculture [of FAO] in line with the outcome of the negotiations on a Convention on Biological Diversity[.] With FAO Conference Resolution 7/93,46 the FAO Conference decided to revise the International Undertaking in line with the provisions of the Biodiversity Convention as was requested by Resolution 3 of Nairobi.

Stages of the Revision According to the CGRFA, the actions necessary for revising the International Undertaking can be grouped into three stages:47 Stage one deals with the integration of the three annexes into the main body of the International Undertaking and its harmonization with the provisions of the Biodiversity Convention;48 stage two deals with the issues of access to plant genetic resources and the realization of Farmers’ Rights;49 finally, stage three deals with the legal status of the revised International Undertaking and institutional matters.50 In the negotiations regarding the revision of the International Undertaking, the CGRFA has, however, not clearly distinguished the three stages. Page 462 →Overview and Results of the Recent Negotiations, with an Emphasis on Farmers’ Rights The CGRFA has negotiated the revision of the International Undertaking in several ordinary and extraordinary

sessions. In these negotiations, many draft texts for a new wording of the provisions of the International Undertaking have been discussed,51 but progress has been slow. At the 7th ordinary session of the CGRFA held in May 1997, the fourth negotiating draft for the revised International Undertaking was discussed. This fourth negotiating draft contains two proposals for the new wording of the definition of Farmers’ Rights. Proposal 1 defines the term as the rights of farmers and traditional communities to dispose of their plant genetic resources and to [fully benefit from them] [receive equitable and appropriate compensation for them]. These rights arise from the past, present and future contributions of farmers in conserving, improving, and making available plant genetic resources, particularly those in the [centres of origin/diversity] [country of origin].52 Proposal 2 defines the term as ‘the rights of farmers and farming communities, which are vested in their national Governments, to equitable and appropriate recompense for their contributions by their knowledge, innovations and practices to the conservation, improvement and availability of plant genetic resources.’53 At the 7th ordinary session, however, the CGRFA was unable to agree on the new wording of the definition of Farmers’ Rights. In the subsequent ordinary and extraordinary sessions of the CGRFA, the definition of Farmers’ Rights has not been discussed. Thus, for the moment, the definition of Farmers’ Rights in Annex II of the present International Undertaking continues to be valid.54 Due to differences of opinion, the negotiations at the 5th extraordinary session of the CGRFA held in June 1998 came to a standstill. The consolidated negotiating text resulting from this session55 contains provisions on Farmers’ Rights in Articles 2 (definition of Farmers’ Rights), 12 (substantive provisions on Farmers’ Rights) and 14 (provisions on financial matters). During the negotiations, however, the CGRFA decided to defer discussion of Articles 2 and 14; moreover, most of the wording of Article 12 remained bracketed at the end of the negotiations. To deblock the negotiations within the CGRFA, the FAO Council decided at its 115th meeting in November 1998 to convene an informal meeting of experts, which was held in Montreux, Switzerland, in January 1999.56 The resulting ‘Chairman’s Elements Derived from the Montreux Page 463 →Meeting’ (Chairman’s Elements)57 list the elements that should be included in the revised International Undertaking. One of these elements are Farmers’ Rights, which should, according to the Chairman’s Elements, be based on the following principles: • Recognition of the enormous contribution that farmers of all regions of the world, particularly those in the centres of origin and crop diversity, have made and will continue to make for the conservation and development of plant genetic resources which constitute the basis of food and agriculture production throughout the world. • The responsibility for realizing Farmers’ Rights, as they relate to PGRFA, rests with national governments. In accordance with their needs and priorities, each Party should, as appropriate, and subject to its national legislation, take measures to protect and promote Farmers’ Rights, including: the right to use, exchange, and, in the case of landraces and varieties that are no longer registered, market farmsaved seeds; protection of traditional knowledge; the right to equitably participate in benefit sharing; the right to participate in making decisions, at the national level, on matters related to the conservation and sustainable use of PGRFA.58 In the context of the equitable and fair sharing of benefits, the Chairman’s elements state that ‘[b]enefits should flow primarily, directly and indirectly, to farmers in developing countries, embodying traditional lifestyles relevant for the conservation and sustainable utilization of PGFRA.’59 Furthermore, in the context of financial

resources, the Chairman’s Elements contain the commitment to a funding strategy for the implementation of the International Undertaking. The Chairman’s Elements state that ‘priority will be given to [the] implementation of the rolling [Global Plan of Action], in particular in support of Farmers’ Rights in developing countries.’60 The Chairman’s Elements served as the basis for the ‘Report of the Chairman of the Commission on Genetic Resources for Food and Agriculture on the Status of Negotiations for the Revision of the International Undertaking on Plant Genetic Resources, in Harmony with the Convention on Biological Diversity,’61 which was submitted to the 8th ordinary session of the CGRFA held in April 1999.62 As at previous sessions, the CGRFA Page 464 →decided to establish a Contact Group63 that would, parallel to the plenary proceedings of the ordinary session, further negotiate the revision of the International Undertaking. In these negotiations, the results of the informal meeting of Montreux, that is, the Chairman’s Elements, served as an important basis and were frequently referred to. After long and difficult negotiations, the Contact Group agreed on the following wording of Article 15, which deals with Farmers’ Rights: Article 15 – Farmers’ Rights 15.1 The Parties recognize the enormous contribution that the local and indigenous communities and farmers of all regions of the world, particularly those in the centres of origin and crop diversity, have made and will continue to make for the conservation and development of plant genetic resources which constitute the basis of food and agriculture production throughout the world. 15.2 The Parties agree that the responsibility for realizing Farmers’ Rights, as they relate to Plant Genetic Resources for Food and Agriculture, rests with national governments. In accordance with their needs and priorities, each Party should, as appropriate, and subject to its national legislation, take measures to protect and promote Farmers’ Rights, including: (a) protection of traditional knowledge relevant to plant genetic resources for food and agriculture; (b) the right to equitably participate in sharing benefits arising from the utilization of plant genetic resources for food and agriculture; (c) the right to participate in making decisions, at the national level, on matters related to the conservation and sustainable use of plant genetic resources for food and agriculture. 15.3 Nothing in this Article shall be interpreted to limit any rights that farmers have to save, use, exchange and sell farm-saved seed/propagating material, subject to national law and as appropriate.64 Originally, it was envisaged to complete the negotiations within the CGRFA in order for the revised International Undertaking to be adopted at the 30th Session of the FAO Conference in November 1999. Due to slower than expected progress, these negotiations were envisaged to be concluded so that the revised International Undertaking can be submitted to the 119th Session of the FAO Council in November 2000. To advance the negotiations, the CGRFA authorized its Chairman, Mr. Fernando Gerbasi of Venezuela, at Page 465 →its 8th ordinary session held in April 1999, to convene as necessary further sessions of the Contact Group.65 The first and so far last of these sessions was held in September 1999. Regarding Farmers’ Rights, two important issues that will have to be addressed in the further negotiations on the revision of the International Undertaking are the definition of Farmers’ Rights and financial mechanisms related to these rights.

6. Farmers’ Rights and the TRIPs Agreement The term Farmers’ Rights does not appear in the wording of the TRIPs Agreement. Nevertheless, some proponents of Farmers’ Rights consider the TRIPs Agreement to be relevant to these rights for several reasons. First, some proponents suggest to regulate Farmers’ Rights within the TRIPs Agreement, particularly if they are realized as intellectual property rights. Realizing Farmers’ Rights as intellectual property rights is one of the proposals made in literature in the debate on the legal form of these rights.66 If Farmers’ Rights are realized as intellectual property rights, the TRIPs Agreement, as the primary international instrument on intellectual property rights, is likely to be in the foreground as the legal basis for Farmers’ Rights.67 Realizing Farmers’ Rights within

the TRIPs Agreement, however, would raise several problems, including the following: Farmers’ Rights would be realized on the international level. Considering that the Parties of the revised International Undertaking agree in Article 15(2) that the responsibility to realize Farmers’ Rights rests with national governments, the realization of Farmers’ Rights on the international level seems at present very unlikely. Furthermore, the realization of Farmers’ Rights as intellectual property rights would necessitate a rather detailed regulation of these rights in the TRIPs Agreement. However, the negotiations in the CGRFA resulting in the vague wording of Article 15 of the revised International Undertaking were a long and most difficult process. Based on this experience, any negotiations on the more detailed regulation of Farmers’ Rights can be expected to be very difficult, if not impossible. And finally, the competence to regulate Farmers’ Rights would have to be transferred from FAO to the World Trade Organization (WTO), an undertaking that is likely to be politically problematic. From these arguments it can be concluded that the realization of Farmers’ Rights as intellectual property rights within the TRIPs Agreement raises several problems that will be difficult to solve. Second, some proponents consider the realization of Farmers’ Rights within FAO or the TRIPs Agreement to be a possible trade-off in the ongoing review of Article 27(3)(b) of the TRIPs Agreement.68 In this review, the divergent interests of biodiversity rich and technology rich countries are likely to cause reason for dispute. Biodiversity rich countries, on one hand, Page 466 →are demanding their increased participation in the sharing of the benefits arising from the use of genetic resources in science and industry. In their view, the improved protection of intellectual property introduced in the TRIPs Agreement has primarily benefited the technology rich countries, whereas biodiversity rich countries have largely been left aside. Technology rich countries, on the other hand, are interested in the improved protection of the results of biotechnological research and development by patents and plant breeders’ rights. Depending on the nature and purpose of Farmers’ Rights, their realization either within FAO or the TRIPs Agreement could be one viable means to balance the divergent interests of biodiversity rich and technology rich countries.69 Farmers’ Rights allowing for the fair and equitable sharing of the benefits arising from the use of PGRFA will not only suit the interests of the biodiversity rich countries, but can also serve the technology rich countries as a powerful ‘bargaining chip’ when advocating the improved protection of intellectual property.70 The process of reviewing Article 27(3)(b) of the TRIPs Agreement, however, only just started. At this early stage, it is thus difficult to predict the extent and the results of the review. Nevertheless, the Members of the TRIPs Agreement might want to consider the possible effects of the further realization of Farmers’ Rights on the review process of Article 27(3)(b) of the TRIPs Agreement. Third, some proponents consider Farmers’ Rights to be a potential sui generis system as required by sentence two of Article 27(3)(b)71 of the TRIPs Agreement. This provision obligates Members to protect plant varieties72 either by (1) patents, (2) an effective sui generis system, or (3) a combination of patents and a sui generis system. Sentence two of Article 27(3)(b) of the TRIPs Agreement states that the sui generis system must be ‘effective,’ but does not otherwise specify the conditions this sui generis system must meet. Generally considered to be in the foreground as the effective sui generis system is the UPOV Convention.73 Nevertheless, the open wording of sentence two of Article 27(3)(b) of the TRIPs Agreement is seen by some exponents as allowing Members to implement alternative sui generis systems, as long as these are ‘effective’ within the meaning of sentence two of Article 27(3)(b) of the TRIPs Agreement. One potential alternative sui generis system could be Farmers’ Rights. However, as currently defined by the International Undertaking, Farmers’ Rights cover PGRFA and not plant varieties. Furthermore, the present provisions of the International Undertaking on Farmers’ Rights are rather vague. These arguments make evident that substantial conceptual work is necessary to render Farmers’ Rights an effective sui generis system within the meaning of sentence two of Article 27(3)(b) of the TRIPs Agreement. In the context of sui generis systems it is important to distinguish between the sui generis system as referred to in sentence two of Article 27(3)(b) of the TRIPs Agreement, Page 467 →which only applies to plant varieties, and other sui generis systems, which can potentially be applied to any form of intangible. Unfortunately, these sui generis systems are sometimes not sufficiently distinguished, causing unnecessary misunderstandings. In international negotiations, for example, Farmers’ Rights protecting PGRFA and indigenous knowledge are often advanced as a sui generis system within the meaning of sentence two of Article 27(3)(b) of the TRIPs Agreement. This proposal, however, does not consider the different subject matter protected by the advanced Farmers’ Rights and the sui generis system of sentence two of Article 27(3)(b) of the TRIPs Agreement, that is, PGRFA and

indigenous knowledge and plant varieties, respectively.

7. Conclusion Genetic resources have been the subject of international discussions for many years. Responsible for this increased interest in genetic resources are mainly three factors: First, the advent of modern biotechnology some thirty years ago and its effects on genetic resources; second, the uneven distribution of these resources on the globe; and third, the general legal status of genetic resources as elements of the public domain. One of the concepts advanced to address these factors are Farmers’ Rights.74 Of the several international instruments referring to Farmers’ Rights, the FAO’s International Undertaking is the most relevant. One of the aims of the ongoing revision of the International Undertaking is the further realization of Farmers’ Rights.75 After long and difficult negotiations, the Contact Group established at the 8th ordinary session of the CGRFA held in April 1999 agreed on the wording of Article 15, the provision of the revised International Undertaking on Farmers’ Rights. As it stands now, the Parties agree in Article 15.2 that the responsibility for realizing Farmers’ Rights rests with national governments. This solution clearly suggests that the Contact Group was unable to come up with a generally acceptable solution for the further realization of Farmers’ Rights on the international level. The chosen solution, however, only answers the question regarding the level of the realization of Farmers’ Rights, but does not address the many other questions arising from the realization of these rights. These questions will thus have to be addressed when realizing Farmers’ Rights on the national level. The solution found in Article 15.2 of the revised International Undertaking does not completely relieve the international community from its obligations regarding Farmers’ Rights. On the contrary, the international community should become active in at least two areas. First, many developing countries and countries with economies in transition lack the necessary legal expertise and financial means to find viable solutions for the Page 468 →national realization of Farmers’ Rights. The international community should thus provide these countries with the necessary legal and financial support, enabling them to introduce a national system of Farmers’ Rights that meets their needs. Second, in the author’s point of view, at least some of the benefits arising from the use of PGRFA should be used to fund Farmers’ Rights realized on the national level. In order for this sharing of the benefits to be fair and equitable, international action is necessary. Besides the international community, academia is called upon to assist in finding the answers to the many questions arising from the realization of Farmers’ Rights on the national level. Up to now, however, academia has been ill prepared to come up with the necessary answers. The proposals made so far in literature are often of general nature or address only a limited number of issues. Considering the many questions arising from the realization of Farmers’ Rights, one conclusion can be safely made: Academia is presented with a most difficult task that requires the dedication of substantial human resources and that is likely to take considerable time.

NOTES 1. The Convention on Biological Diversity (Biodiversity Convention), reprinted in 31 I.L.M. 818 (1992), defines in Art. 2(10) the term genetic resources as ‘genetic material of actual or potential valuef[,]’ and in Art. 2(9) the term genetic material as ‘any material of plant, animal, microbial or other origin containing functional units of heredity.’ (Id.). 2. The Biodiversity Convention defines in Art. 2(3) the term biotechnology as ‘any technological application that uses biological systems, living organisms, or derivatives thereof, to make or modify products or processes for specific use.’ (Id.). 3. Rural Advancement Found. Int’l (RAFI), Conserving Indigenous Knowledge: Integrating Two Systems of Innovation at iv (1994). 4. In general, the centers of diversity are the geographic areas where agriculture began in the Neolithic Period, that is, they are the place of origin of the agricultural plants chosen by the farmers of that time. Because present day agriculture largely depends on the same plant species, these centers serve as headquarters of PGRFA. (See Edward O. Wilson, The Diversity of Life 300 [W. W. Norton & Co. 1993]

[1992]). At least 40 countries are considered to be centers of diversity of PGRFA. (Revision of the International Undertaking: Analysis of Some Technical, Economic and Legal Aspects for Consideration in Stage II app. 3, at 54 para. 60, FAO Doc. CPGR-Ex 1/94/5 Supp. [Sept. 1994]). For a map showing the centers of diversity see The Keystone Center, Oslo Plenary Session. Final Consensus Report: Global Initiative for the Security and Sustainable Use of Plant Genetic Resources 22 (1991). 5. See, e.g., the Preamble and Arts. 3 and 15(1) of the Biodiversity Convention. 6. Landraces, or, synonymous, traditional plant varieties, can be defined as Page 469 →‘the product, at a particular moment of time, of continuous, changing evolutionary processes, that result in great variability in the genepool, but which also provide the capacity to adapt to changing human needs (expressed through selection by farmers) and environmental conditions (expressed through evolutionary pressure). It is these characteristics that give landraces their high value as sources of plant germplasm.’ (Revision of the International Undertaking: Analysis of Some Technical, Economic and Legal Aspects for Consideration in Stage II, at 7 para. 21, FAO Doc. CPGR-Ex 1/94/5 Supp. [Sept. 1994]). 7. See generally Martin A. Girsberger, The Protection of Traditional Plant Genetic Resources for Food and Agriculture and the Related Know-How by Intellectual Property Rights in International Law — The Current Legal Environment, 1 J. World Intell. Prop. 1017(1998). 8. See generally Karen W. Baer, Note, A Theory of Intellectual Property and the Biodiversity Treaty, 21 Syracuse J. Int’l L. & Com. 259 (1995) (discussing the application of intellectual property theories to biological diversity); Susan H. Bragdon, National Sovereignty and Global Environmental Responsibility: Can the Tension Be Reconciled for the Conservation of Biological Diversity?, 33 Harv. Int’l L. J. 381 (1992); Jonathan C. Carlson, Strengthening the Property-Rights Regime for Plant Genetic Resources: The Role of the World Bank, 6 Transnat’1 L. & Contemp. Probs. 91 (1996); Carlos M. Correa, Biological Resources and Intellectual Property Rights, 5 Eur. Intell. Prop. Rev. (EIPR) 154 (1992); Craig Edgar, Note, Patenting Nature: GATT on a Hot Tin Roof, 34 Washburn L. J. 76 (1994); Michael A. Gollin & Sarah A. Laird, Global Policies, Local Actions: The Role of National Legislation in Sustainable Biodiversity Prospecting, 2 B.U. J. Sci. & Tech. L. 16 (1996); Rebecca L. Margulies, Note, Protecting Biodiversity: Recognizing International Intellectual Property Rights in Plant Genetic Resources, 14 Mich. J. Int’l L. 322 (1993); James O. Odek, Bio-Piracy: Creating Proprietary Rights in Plant Genetic Resources, 2 J. Intell. Prop. L. 141 (1994); Mark Ritchie et al., Intellectual Property Rights and Biodiversity: The Industrialization of Natural Resources and Traditional Knowledge, 11 St. John’s J. Legal Comment. 431 (1996); Naomi Roht-Arriaza, Of Seeds and Shamans: The Appropriation of the Scientific and Technical Knowledge of Indigenous and Local Communities, 17 Mich. J. Int’l L. 919 (1996); Gregory Rose, International Regimes for the Conservation and Control of Plant Genetic Resources, in International Law and the Conservation of Biological Diversity 145 (Michael Bowman & Catherine Redgwell eds., 1996); Suman Sahai, The Patenting of Genes and Living Organisms: The South’s View, in Patenting of Human Genes and Living Organisms 155 (Friedrich Vogel & Reinhard Grunwald eds., 1994); Ajay K. Sharma, The Global Loss of Biodiversity: A Perspective in the Context of the Controversy Over Intellectual Property Rights, 4 U. Balt. Intell. Prop. L. J. 1 (1995); Christopher D. Stone, What to Do About Biodiversity: Property Rights, Public Goods, and the Earth’s Biological Riches, 68 S. Cal. L. Rev. 577 (1995); Mark A. Urbanski, Note, Chemical Prospecting, Biodiversity Conservation, and the Importance of International Protection of Intellectual Property Rights in Biological Materials, 2 Buff. J. Int’l L. 131 (1995); Ian Walden, Intellectual Property Rights and Biodiversity, in International Law and the Conservation of Biological Diversity 171 Page 470 →(Michael Bowman & Catherine Redgwell eds., 1996). 9. See generally Martin A. Girsberger, Biodiversity and the Concept of Farmers’ Rights in International Law: Factual Background and Legal Analysis (Studies in Global Economic Law No. 1, Thomas Cottier ed., 1999). 10. For reasons of simplicity, this paper does not distinguish between the CGRFA and its former name Commission on Plant Genetic Resources (CPGR), and only uses CGRFA. 11. Revision of the International Undertaking. Issues for Consideration in Stage II: Access to Plant Genetic Resources, and Farmers’ Rights 11 para. 38, FAO Doc. CPGR-Ex 1/94/5 (Sept. 1994) (footnote omitted). 12. Reprinted in International Undertaking on Plant Genetic Resources 1, FAO Doc. CPGR-Ex 1/94/Inf. 1 (Sept. 1994).

13. Id. at 9. 14. Id. 15. FAO Conference Resolution 7/93, entitled ‘Revision of the International Undertaking on Plant Genetic Resources,’ reprinted in Revision of the International Undertaking. Mandate, Context, Background and Proposed Process app. 2, at 13, FAO Doc. CPGR-Ex 1/94/3 (Sept. 1994). 16. Reprinted in 33 I.L.M. 1197 (1994). 17. Reprinted in 31 I.L.M. 818 (1992). 18. Repeated for convenience, this definition reads as follows: Farmers’ Rights are ‘rights arising from the past, present and future contributions of farmers in conserving, improving, and making available plant genetic resources, particularly those in the centres of origin/diversity.’ (Reprinted in International Undertaking on Plant Genetic Resources 9, FAO Doc. CPGR-Ex 1/94/Inf. 1 [Sept. 1994]). 19. UPOV stands for the French Union Internationale pour la protection des obtentions végétales. 20. The 1978 version of the UPOV Convention is reprinted in UPOV Publication No. 295 (FEG), the 1991 version in UPOV Publication No. 221 (E). 21. See generally R.C.F. Macer et al., Zeneca Seeds, Intellectual Property Law and Plant Breeding 20-22 (K. T. Pike ed., 1992); The Crucible Group, People, Plants, and Patents: The Impact of Intellectual Property on Trade, Plant Biodiversity, and Rural Society 85-87 (1994) (discussing arguments speaking in favor of and against the Farmers’ Privilege); S.K. Verma, TRIPs and Plant Variety Protection in Developing Countries, 6 Eur. Intell. Prop. Rev. (EIPR) 281, 285 (1995).Page 471 → 22. The 1978 version of the UPOV Convention, reprinted in UPOV Publication No. 295 (FEG), provides the Farmers’ Privilege in Article 5(1). This provision requires the prior authorization of the breeder only for the production of propagating material for the purpose of commercial marketing. Thus, if the production of propagating material is for purposes other than commercial marketing, the prior authorization of the breeder is not required. With its limitation to commercial marketing, Art. 5(1) implicitly grants the Farmers’ Privilege. The 1991 version of the UPOV Convention, reprinted in UPOV Publication No. 221 (E), grants in Article 15(2) the Farmers’ Privilege as an ‘optional exception.’ Art. 15(2) of the UPOV Convention 1991 reads as follows: [Optional exception] Notwithstanding Article 14, each Contracting Party may, within reasonable limits and subject to the safeguarding of the legitimate interests of the breeder, restrict the breeder’s right in relation to any variety in order to permit farmers to use for propagating purposes, on their own holdings, the product of the harvest which they have obtained by planting, on their own holdings, the protected variety or a variety covered by Article 14(5)(a)(i) or (ii). (Id.). Art. 14(l)(a)(i) of the 1991 version of the UPOV Convention states that all production and reproduction (multiplication) of propagating material of the protected variety is, irrespective of its purpose, subject to the authorization of the breeder.’ 23. Reprinted in 31 I.L.M. 846 (1992). Resolution 3 of Nairobi is entitled ‘The Interrelationship Between the Convention on Biological Diversity and the Promotion of Sustainable Agriculture.’ 24. In Resolution 3 of Nairobi, ‘[t]he Conference . . . recognizes the need to seek solutions to outstanding matters concerning plant genetic resources within the Global System for the Conservation and Sustainable Use of Plant Genetic Resources for Food and Sustainable Agriculture [of FAO], in particular: . . . (b) The question of farmers’ rights.’ (Id. [emphasis omitted]). 25. Reprinted in Stanley P. Johnson, The Earth Summit: The United Nations Conference on Environment and Development 125 (1993). 26. Id. 27. Reprinted in Plant Genetic Resources for Food and Agriculture (last visited Mar. 10, 1999) http://web.icppgr.fao.org/gpaeng.htm. 28. Art. 2(13) of the Biodiversity Convention defines the term in situ conservation as ‘the conservation of ecosystems and natural habitats and the maintenance and recovery of viable populations of species in their natural surroundings and, in the case of domesticated or cultivated species, in the surroundings where they have developed their distinctive properties.’ (Reprinted in 31 I.L.M. 818 [1992]). 29. Reprinted in Plant Genetic Resources for Food and Agriculture (last visited Mar. 10, 1999) http://web.icppgr.fao.org/gpaeng.htm. 30. See, e.g., Miges Baumann, Der Verteilungskampf um die genetischen Ressourcen und die

Patentmöglichkeiten auf Lebensformen: Gemeinsames Erbe der Menschheit oder Monopoleigentum der Konzerne?, Dokument (Informationsdienst 3. Welt [i3w], Berne, Switzerland), Nov. 28, 1989, at 1, 5; Stephen B. Brush, Farmers’ Rights and Genetic Conservation in Traditional Farming Systems, 20 World Dev. 1617, 1623, 1624, 1627 (1992); Revision of the International Undertaking. Issues for Consideration for ‘Stage II’: Access to Genetic Resources and Farmers’ Rights 10 para. 37, FAO Doc. CPGR/94/WG9/4 (Feb. 1994); Revision of the International Undertaking. Issues for Consideration in Stage II: Access to Plant Genetic Resources, and Farmers’ Rights 12 para. 41, 12-13 para. 43, FAO Doc. CPGR-Ex 1/94/5 (Sept. 1994); David Cooper et al., A Multilateral System for Plant Genetic Resources: Imperatives, Achievements and Challenges 16 (Issues in Genetic Resources No. 2, 1994); Carlos M. Correa, Biological Resources and Intellectual Property Rights, 5 Eur. Intell. Prop. Rev. (EIPR) 154, 154 (1992); José Esquinas-Alcázar, Farmers’ Rights, Patenting Life Workshop of the European Parliament, Session on Patents, Biotechnology and Developing Countries 1-3 (Mar. 3-4, 1994) (unpublished Page 472 →manuscript, on file with author); Jill Lenne, discussion, Farmers’ Rights and Plant Genetic Resources. Recognition & Reward: A Dialogue 231 (M.S. Swaminathan ed., 1995); William Lesser, Attributes of an IPR System for Landraces, in Farmers’ Rights and Plant Genetic Resources. Recognition & Reward: A Dialogue 4, 8, 9 (M.S. Swaminathan ed., 1995); R.C.F. Macer et al., Zeneca Seeds, Intellectual Property Law and Plant Breeding 24 (K. T. Pike ed., 1992); M.P. Nayar, discussion, Farmers’ Rights and Plant Genetic Resources. Recognition & Reward: A Dialogue 45 (M.S. Swaminathan ed., 1995); Netherlands Org. for Int’l Dev. Cooperation (NOVIB) et al., Recommendations Concerning the Prevention of Patenting of Living Material and Development of the Concept of Farmer’s Rights, in Biotechnology and Farmer’s Rights: Opportunities and Threats for Small-Scale Farmers in Developing Countries app. 115, 117, 118-19 (Hans Brouwer et al. eds., 1992); Rural Advancement Found. Int’l (RAFI), Conserving Indigenous Knowledge: Integrating Two Systems of Innovation 35 (1994); June Starr & Kenneth C. Hardy, Note, Not by Seeds Alone: The Biodiversity Treaty and the Role for Native Agriculture, 12 Stan. Envtl. L.J. 85, 114-15 (1993); The Crucible Group, People, Plants, and Patents: The Impact of Intellectual Property on Trade, Plant Biodiversity, and Rural Society 46 (1994). 31. See generally Martin A. Girsberger, Biodiversity and the Concept of Farmers’ Rights in International Law: Factual Background and Legal Analysis 206-308 (Studies in Global Economic Law No. 1, Thomas Cottier ed., 1999). 32. See generally id. at 171 -328. 33. The Keystone Center, Oslo Plenary Session. Final Consensus Report: Global Initiative for the Security and Sustainable Use of Plant Genetic Resources 9 (1991). See generally David Cooper et al., A Multilateral System for Plant Genetic Resources: Imperatives, Achievements and Challenges 21-23 (Issues in Genetic Resources No. 2, 1994); The Keystone Center, Oslo Plenary Session. Final Consensus Report: Global Initiative for the Security and Sustainable Use of Plant Genetic Resources 9 (1991). 34. The elements of the Global System are listed in Revision of the International Undertaking. Issues for Consideration for ‘Stage II’: Access to Genetic Resources and Farmers’ Rights 2 para. 6, FAO Doc. CPGR /94/WG9/4 (Feb. 1994). 35. Reprinted in International Undertaking on Plant Genetic Resources 7, FAO Doc. CPGR-Exl/94/Inf. 1 (Sept. 1994). 36. Id. at 9. 37. Id. at 11. 38. These States are listed in Report of the Commission on Genetic Resources for Food and Agriculture app. B, FAO Doc. CGRFA-8/99/Rep (1999). 39. Reprinted in International Undertaking on Plant Genetic Resources 1, FAO Doc. CPGR-Exl/94/Inf. 1 (Sept. 1994). 40. Revision of the International Undertaking. Issues for Consideration for ‘Stage II’: Access to Genetic Resources and Farmers’ Rights 2 para. 5, FAO Doc. CPGR/94/WG9/4 (Feb. 1994). 41. The members of the CGRFA are listed in Report of the Commission on Genetic Resources for Food and Agriculture app. B, FAO Doc. CGRFA-8/99/Rep (1999). 42. FAO Conference Resolution 7/93, entitled ‘Revision of the International Page 473 →Undertaking on Plant Genetic Resources,’ reprinted in Revision of the International Undertaking. Mandate, Context, Background and Proposed Process app. 2, at 13, FAO Doc. CPGR-Ex 1/94/3 (Sept. 1994).

43. The provisions of the Biodiversity Convention, however, do not apply to human genetic resources. 44. Revision of the International Undertaking. Issues for Consideration for ‘Stage II’: Access to Genetic Resources and Farmers’ Rights 2 para. 6, FAO Doc. CPGR/94/WG9/4 (Feb. 1994). 45. The Biodiversity Convention entered into force December 29, 1993. (Lyle Glowka et al., A Guide to the Convention on Biological Diversity 1 [1994]). 46. FAO Conference Resolution 7/93 is entitled ‘Revision of the International Undertaking on Plant Genetic Resources,’ reprinted in Revision of the International Undertaking. Mandate, Context, Background and Proposed Process app. 2, at 13, FAO Doc. CPGR-Ex 1/94/3 (Sept. 1994). 47. See generally id. at 8-10 paras. 21-30. 48. Id. at 8 para. 24. See generally Revision of the International Undertaking. Stage I: Integration of the Annexes and Harmonization with the Convention on Biological Diversity, FAO Doc. CPGR-Ex 1/94/4 (Sept. 1994). 49. Revision of the International Undertaking. Mandate, Context, Background and Proposed Process 8 para. 25, FAO Doc. CPGR-Ex 1/94/3 (Sept. 1994). See generally Revision of the International Undertaking. Issues for Consideration in Stage II: Access to Plant Genetic Resources, and Farmers’ Rights, FAO Doc. CPGR-Ex 1/94/5 (Sept. 1994); Revision of the International Undertaking: Analysis of Some Technical, Economic and Legal Aspects for Consideration in Stage II, FAO Doc. CPGR- Ex 1/94/5 Supp. (Sept. 1994). 50. Revision of the International Undertaking. Mandate, Context, Background and Proposed Process 9 para. 26, FAO Doc. CPGR-Ex 1/94/3 (Sept. 1994). 51. See, e.g., Revision of the International Undertaking. Stage 1: Integration of the Annexes and Harmonization with the Convention on Biological Diversity, FAO Doc. CPGR-Ex 1/94/4 Alt. (Sept. 1994), which contains the first draft for the revised International Undertaking, and Revision of the International Undertaking on Plant Genetic Resources: Fourth Negotiating Draft, FAO Doc. CGRFA/IUND/4 (1997), which contains the fourth draft for the revised International Undertaking. 52. Reprinted in Revision of the International Undertaking on Plant Genetic Resources: Fourth Negotiating Draft 9, FAO Doc. CGRFA/IUND/4 (1997). 53. Id. 54. Repeated for convenience, this definition reads as follows: Farmers’ Rights are ‘rights arising from the past, present and future contributions of farmers in conserving, improving, and making available plant genetic resources, particularly those in the centres of origin/diversity.’ (Reprinted in International Undertaking on Plant Genetic Resources 9, FAO Doc. CPGR-Ex 1/94/Inf. 1 [Sept. 1994]). 55. Reprinted in Report of the Fifth Extraordinary Session of the Commission on Genetic Resources for Food and Agriculture app. C, FAO Doc. CGRFA-Ex5/98/Report(1998). 56. Experts from 20 States, the EC, IPGRI and FAO were present in Montreux. For Page 474 →a list of these experts see Report of the Commission on Genetic Resources for Food and Agriculture app. C, FAO Doc. CGRFA-8/99/Rep (1999). 57. Id. app. F. 58. Id. at 2. 59. Id. at 1. 60. Id. at 2. 61. Reprinted in Report of the Chairman of the Commission on Genetic Resources for Food and Agriculture on the Status of Negotiations for the Revision of the International Undertaking on Plant Genetic Resources, in Harmony with the Convention on Biological Diversity, FAO Doc. CGRFA-8/99/13 (Feb. 1999). 62. The documents of this session can be found online at http://www.fao.org/ag/cgrfa/docs8.htm 63. Forty States and the EC are members of the Contact Group; these members are listed in Report of the Commission on Genetic Resources for Food and Agriculture app. D, FAO Doc. CGRFA-8/99/Rep (1999). 64. Id. app. E, at 2. 65. Id. para. 28, at 6. 66. Cottier, for example, states that ‘[t]he concept of so-called farmers’ rights . . . focuses on creating a new type of intellectual or cultural property right[.]’ (Thomas Cottier, The Protection of Intellectual Property Rights: A Requirement for Technology Cooperation, Foreign Investment and Equitable Returns in Biotechnology Prospecting, in Biotechnologie für Entwicklungsländer? Chancen und Risiken der

Biotechnologie bei landwirtschaftlichen Nutzpflanzen 65, 70 [Schweizerisches Zentrum für Internationale Landwirtschaft {ZIL} ed., 1995]). Some members of the Crucible Group propose to realize community intellectual property rights, which could potentially serve as the legal form for Farmers’ Rights. (The Crucible Group, People, Plants, and Patents: The Impact of Intellectual Property on Trade, Plant Biodiversity, and Rural Society 67 [1994]). 67. Cottier regards the TRIPs Agreement as the appropriate forum for the realization of new property rights to genetic resources. He states that ‘[i]t is only within the World Trade Organization that the necessary trade-offs between industrialized and developing countries can be achieved [.]’ (Thomas Cottier, Current and Future Issues Related to the TRIPs Agreement: A European Perspective, in XXXVIth Congress of AIPPI, Montreal 1995, Workshops I-X, Information Panel 83, 91 [J. David Meisser ed., 1995]). 68. Sentence three of Article 27(3)(b) requires the review of Article 27(3)(b) four years after the entry into force of the WTO Agreement, that is, January 1, 1999. ‘This solution suggests how difficult a compromise on biotechnology-related issues has been and the need for a deeper examination of the matter.’ (Carlos M. Correa, The GATT Agreement on Trade-Related Aspects of Intellectual Property Rights: New Standards for Patent Protection, 8 Eur. Intell. Prop. Rev. [EIPR] 327, 329 [1994]). 69. Regarding the balancing of the divergent interests of biodiversity rich and technology rich countries, the CGRFA states that [t]he concept of Farmers’ Rights forms the basis of a formal recognition and reward system, intended to encourage and enhance the continued role of farmers and rural Page 475 →communities in the conservation and use of plant genetic resources. This interpretation aims at reconciling the views of the ‘technology-rich’ and the ‘generich’ countries, in order to ensure the availability of plant genetic resources within an equitable system.’ (Revision of the International Undertaking. Issues for Consideration in Stage II: Access to Plant Genetic Resources, and Farmers’ Rights 12 para. 41, FAO Doc. CPGR-Ex 1/94/5 [Sept. 1994]). 70. Regarding the relationship between the improved protection of modern inventions by intellectual property rights on one hand, and the realization of property rights to genetic resources on the other hand, Cottier states that ‘[t]here is currently still relatively little interest on the part of developed countries and industry to undertake or even press for conceptual work on farmers’ rights or comparable approaches of allocating property rights to natural genetical resources. Developed countries and their industries, however, should realize that conceptual work on revaluing natural resources is an essential ingredient to achieve fruitful cooperation in situ which often is necessary for successful research. Moreover, they should note that such work is necessary to further political progress in protecting globally their own value-added products in particular in developing countries. It is likely that attitudes of [less developed countries] toward the advancement of protection of inventions related to biotechnology and genetical engineering will depend on progress in the field of protecting traditional resources. In my view, both areas need parallel development in international fora and law. Progress can only be achieved if the equities are balanced. Both, the giving and receiving ends, need legal titles as a basis for cooperation. Without the equation, it is likely that progress in the global protection of inventions related to modern biotechnology will be much more difficult to achieve. Absence of adequate property rights granted to traditional genetical resources amounts to a powerful argument against patenting of life forms...’ (Thomas Cottier, The Protection of Intellectual Property Rights: A Requirement for Technology Cooperation, Foreign Investment and Equitable Returns in Biotechnology Prospecting, in Biotechnologie für Entwicklungsländer? Chancen und Risiken der Biotechnologie bei landwirtschaftlichen Nutzpflanzen 65, 71 [Schweizerisches Zentrum für Internationale Landwirtschaft {ZIL} ed., 1995]). 71. Sentences one and two of Article 27(3)(b) of the TRIPs Agreement read as follows: 3. Members may also exclude from patentability: ‘… (b) plants and animals other than micro-organisms, and essentially biological processes for the production

of plants or animals other than non-biological and microbiological processes. However, Members shall provide for the protection of plant varieties either by patents or by an effective sui generis system or by any combination thereof.’ (Reprinted in 33 I.L.M. 1197 [1994]). 72. The TRIPs Agreement does not define the term plant variety. This term, however, is defined in Article l(vi) of the 1991 version of the UPOV Convention as ‘a plant grouping within a single botanical taxon of the lowest known rank, which Page 476 →grouping, irrespective of whether the conditions for the grant of a breeder’s right are fully met, can be - defined by the expression of the characteristics resulting from a given genotype or combination of genotypes, - distinguished from any other plant grouping by the expression of at least one of the said characteristics and - considered as a unit with regard to its suitability for being propagated unchanged[.]’ (Reprinted in UPOV Publication No. 221 [E]). Even though Members of the TRIPs Agreement are not bound by this definition, it seems likely that they will apply an identical or similar definition, especially if they chose to protect plant varieties by plant breeders’ rights. 73. See generally, e.g., Michael Blakeney, Trade Related Aspects of Intellectual Property Rights: A Concise Guide to the TRIPs Agreement para. 8.03, at 83 (1996); Carlos M. Correa, The GATT Agreement on Trade-Related Aspects of Intellectual Property Rights: New Standards for Patent Protection, 8 Eur. Intell. Prop. Rev. (EIPR) 327, 329 (1994); Revision of the International Undertaking: Analysis of Some Technical, Economic and Legal Aspects for Consideration in Stage II app. 3, at 48 para. 36(iii), FAO Doc. CPGR-Ex 1/94/5 Supp. (Sept. 1994); Joseph Straus, Implications of the TRIPs Agreement in the Field of Patent Law, in From GATT to TRIPs — The Agreement on Trade-Related Aspects of Intellectual Property Rights 160, 186 para. 34 (Friedrich-Karl Beier & Gerhard Schricker eds., International Review of Industrial Property & Copyright Law [IIC] Studies No. 18, 1996); The Crucible Group, People, Plants, and Patents: The Impact of Intellectual Property on Trade, Plant Biodiversity, and Rural Society 53 (1994). 74. The only internationally accepted definition of Farmers’ Rights is contained in Annex II of the present International Undertaking. Repeated for convenience, this definition reads as follows: Farmers’ Rights are ‘rights arising from the past, present and future contributions of farmers in conserving, improving, and making available plant genetic resources, particularly those in the centres of origin/diversity.’ (Reprinted in International Undertaking on Plant Genetic Resources 9, FAO Doc. CPGR-Ex 1/94/Inf. 1 [Sept. 1994]). 75. FAO Conference Resolution 7/93, entitled ‘Revision of the International Undertaking on Plant Genetic Resources,’ reprinted in Revision of the International Undertaking. Mandate, Context, Background and Proposed Process app. 2, at 13, FAO Doc. CPGR-Ex l/94/3 (Sept. 1994). REFERENCES

Agenda 21, adopted June 14, 1992 (Agenda 21), reprinted in Stanley P. Johnson, The Earth Summit: The United Nations Conference on Environment and Development 125 (1993). Page 477 →Agreement on Trade-Related Aspects of Intellectual Property Rights, adopted Dec. 15, 1993 (TRIPS Agreement), reprinted in 33 I.L.M. 1197 (1994), and in The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts 365 (1994).

Annex I of the International Undertaking on Plant Genetic Resources, entitled ‘Agreed Interpretation of the International Undertaking,’ adopted as FAO Conference Resolution 4/89 (Annex I), reprinted in International Undertaking on Plant Genetic Resources 7, FAO Doc. CPGR-Ex 1/94/Inf. 1 (Sept. 1994). Annex II of the International Undertaking on Plant Genetic Resources, entitled ‘Farmers’ Rights,’ adopted as FAO Conference Resolution 5/89 at the 25th Session of the FAO Conference on Nov. 29, 1989 (Annex II), reprinted in International Undertaking on Plant Genetic Resources 9, FAO Doc. CPGR-Exl/94/Inf. 1 (Sept. 1994), and available in 1989 WL 449888. Annex III of the International Undertaking on Plant Genetic Resources, adopted as FAO Conference Resolution 3 /91 (Annex III), reprinted in International Undertaking on Plant Genetic Resources 11, FAO Doc. CPGR-Ex 1/94 /Inf. 1 (Sept. 1994). Convention on Biological Diversity, adopted June 5, 1992 (Biodiversity Convention), reprinted in 31 I.L.M. 818 (1992). Correa, Carlos M., The GATT Agreement on Trade-Related Aspects of Intellectual Property Rights: New Standards for Patent Protection, 8 Eur. Intell. Prop. Rev. (EIPR) 327 (1994). Cottier, Thomas, Current and Future Issues Related to the TRIPs Agreement: A European Perspective, in XXXVI”th Congress of AIPPI, Montreal 1995, Workshops I-X, Information Panel 83 (J. David Meisser ed., 1995). Cottier, Thomas, The Protection of Intellectual Property Rights: A Requirement for Technology Cooperation, Foreign Investment and Equitable Returns in Biotechnology Prospecting, in Biotechnologie für Entwicklungsländer? Chancen und Risiken der Biotechnologie bei landwirtschaftlichen Nutzpflanzen 65 (Schweizerisches Zentrum für Internationale Landwirtschaft [ZIL] ed., 1995). FAO Conference Resolution 7/93, entitled ‘Revision of the International Undertaking on Plant Genetic Resources, ’ adopted at the 27th Session of the FAO Conference on Nov. 22, 1993 (FAO Conference Resolution 7/93), reprinted in Revision of the International Undertaking. Mandate, Context, Background and Proposed Process app. 2, at 13, FAO Doc. CPGR-Ex 1/94/3 (Sept. 1994). Girsberger, Martin A., Biodiversity and the Concept of Farmers’ Rights in International Law: Factual Background and Legal Analysis (Studies in Global Economic Law No. 1, Thomas Cottier ed., 1999). Girsberger, Martin A., The Protection of Traditional Plant Genetic Resources for Food and Agriculture and the Related Know-How by Intellectual Property Rights in Page 478 →International Law — The Current Legal Environment, 1 J. World Intell. Prop. 1017 (1998). Global Plan of Action for the Conservation and Sustainable Utilization of Plant Genetic Resources for Food and Agriculture, adopted by the 4th International Technical Conference on Plant Genetic Resources, Leipzig, Germany, June 17-23, 1996 (Global Plan of Action), reprinted in Plant Genetic Resources for Food and Agriculture (last visited Mar. 10, 1999) . Glowka, Lyle, et al., A Guide to the Convention on Biological Diversity (1994). International Convention for the Protection of New Varieties of Plants of Dec. 2, 1961, as revised at Geneva on Nov. 10, 1972, and on Oct. 23, 1978 (UPOV Convention 1978), reprinted in UPOV Publication No. 295 (FEG), and in International Convention for the Protection of New Varieties of Plants (last visited Mar. 7, 1999) . International Convention for the Protection of New Varieties of Plants of Dec. 2, 1961, as revised at Geneva on Nov. 10, 1972, on Oct. 23, 1978, and on Mar. 19, 1991 (UPOV Convention 1991), reprinted in UPOV Publication No. 221 (E), and in International Convention for the Protection of New Varieties of Plants (last visited Mar. 7,

1999) . International Undertaking on Plant Genetic Resources, adopted at the 22nd Session of the FAO Conference as FAO Conference Resolution 8/83 on Nov. 23, 1983 (International Undertaking), reprinted in International Undertaking on Plant Genetic Resources 1, FAO Doc. CPGR-Ex 1/94/Inf. 1 (Sept. 1994), and in 1983 WL 175039. Report of the Chairman of the Commission on Genetic Resources for Food and Agriculture on the Status of Negotiations for the Revision of the International Undertaking on Plant Genetic Resources, in Harmony with the Convention on Biological Diversity, FAO Doc. CGRFA-8/99/13 (Feb. 1999). Report of the Commission on Genetic Resources for Food and Agriculture, FAO Doc. CGRFA-8/99/Rep(1999). Report of the Fifth Extraordinary Session of the Commission on Genetic Resources for Food and Agriculture, FAO Doc. CGRFA-Ex5/98/Report (1998). Resolution 3 of the Conference for the Adoption of the Agreed Text of the Convention on Biological Diversity, entitled ‘The Interrelationship Between the Convention on Biological Diversity and the Promotion of Sustainable Agriculture,’ adopted at Nairobi on May 22, 1992 (Resolution 3 of Nairobi), reprinted in 31 I.L.M. 846 (1992). Page 479 →Revision of the International Undertaking: Analysis of Some Technical, Economic and Legal Aspects for Consideration in Stage II, FAO Doc. CPGR-Ex 1/94/5 Supp. (Sept. 1994). Revision of the International Undertaking. Issues for Consideration for ‘Stage IF: Access to Genetic Resources and Farmers’ Rights, FAO Doc. CPGR/94/WG9/4 (Feb. 1994). Revision of the International Undertaking. Issues for Consideration in Stage II: Access to Plant Genetic Resources, and Farmers’ Rights, FAO Doc. CPGR-Ex 1/94/5 (Sept. 1994). Revision of the International Undertaking. Mandate, Context, Background and Proposed Process, FAO Doc. CPGR-Ex 1/94/3 (Sept. 1994). Revision of the International Undertaking on Plant Genetic Resources: Fourth Negotiating Draft, FAO Doc. CGRFA/IUND/4 (1997). Revision of the International Undertaking. Stage 1 : Integration of the Annexes and Harmonization with the Convention on Biological Diversity, FAO Doc. CPGR-Ex 1/94/4 (Sept. 1994). Revision of the International Undertaking. Stage 1 : Integration of the Annexes and Harmonization with the Convention on Biological Diversity, FAO Doc. CPGR- Ex 1/94/4 Alt. (Sept. 1994). Rural Advancement Found. Int’l (RAFI), Conserving Indigenous Knowledge: Integrating Two Systems of Innovation (1994). The Crucible Group, People, Plants, and Patents: The Impact of Intellectual Property on Trade, Plant Biodiversity, and Rural Society (1994). The Keystone Center, Oslo Plenary Session. Final Consensus Report: Global Initiative for the Security and Sustainable Use of Plant Genetic Resources (1991). Wilson, Edward O., The Diversity of Life (W. W. Norton & Co. 1993) (1992).

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* Co-Head Legal Services, Patents and Design; Department of Legal and International Affairs; Swiss Federal Institute of Intellectual Property, Berne. The views expressed in this paper are the views of the author and do not necessarily coincide with the views of the Swiss Federal Institute of Intellectual Property or any other Swiss government agency. The author would like to thank Thu-Lang Tran Wasescha, Cynthia Anderfuhren-Wayne and Andrea Schmutz for their valuable help and suggestions. Page 480 →

Page 481 →CHAPTER 28 Incentives to Bring about Conservation and Sustainable Use of Genetic Resources in the Framework of the World Trade Order Susette Biber-Klemm *

1. Introduction The World Conference on Environment and Development (UNCED), which took place in 1992,1 promoted insights into the global aspect of environmental problems and the interdependent nature of global processes. It has also furthered awareness of the interrelationship of environment conservation, economics, and development.2 In this context insight also increased into the significance of the diversity of biological life on earth, its value as a resource for the survival of mankind, and hence the necessity of its maintenance and conservation.3 Concurrently, the role of indigenous and other local communities in environmental management and development has been better acknowledged. Also, it has been recognized that their knowledge and traditional practices have been crucial for the conservation and sustainable use of natural resources.4 The Convention on Biological Diversity (CBD),5 which was concluded on the occasion of the UNCED, takes up these topics in regulating conservation and sustainable use of biological diversity. This agreement is the first legally binding international instrument which aims at comprehensive regulation of issues related to biological diversity at the global level. It covers 1) conservation of biological diversity and biogenetic resources, 2) sustainable use of their components, and 3) fair and equitable Page 482 →sharing of benefits arising from their use (Art. 1 CBD), which is of special interest in terms of international trade. Thus the CBD combines conservation of biodiversity with economy, trade, and development and indirectly states the connection between these issues. This paper explores the interface between conservation and sustainable use of biological resources and international trade while investigating ways and means of bringing about conservation and sustainable use of biological diversity in the context of international trade. The thesis is that conservation and sustainable use of biological resources make a multi-layered approach necessary and therefore that instruments to further sustainable use of biogenetic resources should and can be created in the international trading system as well. In view of this thesis, the paper explores the legal situation at the interface of biodiversity and trade. It then discusses in particular the option of creating economic incentives. It explores legal and economic motives which are at the core of this solution and submits – in the sense of an exemplary approach – selected propositions to create incentives in the WTO framework. However, before exploring the specific relationship between international trade and biological diversity, it is necessary to clarify some background issues: Thus, in a first step, the notion of biogenetic resources is defined and economic aspects are explored for loss of biodiversity and reasons for its conservation. The notion of ‘traditional knowledge’ is then introduced, and its meaning and significance are analyzed for both conservation of biological diversity and industrial processing of its components. Finally the interface between these matters with international trade is investigated.

2. Terminology Before elaborating on problems and questions emerging at the interface of biodiversity conservation and international trade, the key notions of ‘genetic resources’ and ‘traditional knowledge’ must be spelled out. The notion of genetic resources is defined by the CBD in connection with notions of ‘biological diversity’ and ‘genetic diversity’ by reference to their use: ‘Genetic resources are genetic material, i.e., any material of plant, animal, microbial or other origin, containing functional units of heredity, which has an actual or potential value’ (Art. 2 [7]). Genetic resources, as viewed by the CBD, include genetic information found in both domesticated

and wild species of animal and plants. The notion encompasses resources found in in-situ conditions as well as stored ex-situ, e.g., in gene banks or botanical gardens.6 Page 483 →Traditional knowledge – knowledge, innovation, and practices of indigenous and local communities embodying traditional lifestyles (Art. 8 (j) CBD) – can be characterized as a body of knowledge which has been built by a group of people, indigenous peoples, or farming communities through generations living in close contact with nature. It encompasses most fields of technology, ranging from traditional medicinal and agricultural practices to music, design, and the graphic and plastic arts. It is often integrated in a holistic view of the world and closely linked to the cultural, spiritual, and religious life of the community. In case of traditional knowledge related to genetic resources, information can supplement the resource, e.g., knowledge on effects of medicinal plants. Or it can be integrated into the resources as is the case with seeds. In the following the notion is meant to encompass both forms of traditional knowledge.

3. Genetic Resources and Trade The advent of biotechnology and new accomplishments in robotics brought about profound changes in the agricultural and pharmaceutical industries in recent decades. It also offered new insights into use of plant and animal genetic resources.7 Consequently, interest in biogenetic and biochemical information existing in wild or domesticated species of plants, animals, and microbes has been increasing.8 Industry is investing large sums to create new products based on these resources, mainly in the sectors of plant breeding, pharmaceutical innovation, and industrial use. The search for valuable biogenetic and biochemical information has been intensified during the last two decades.9 However, biodiversity is not evenly distributed over the globe. An estimated 90% of all genetic resources are located in the tropical and subtropical regions of Africa, Asia, and South America.10 Thus an important portion of genetic resources of interest for biotechnological innovation are found in countries of the South which are economically poor but rich in biological diversity. The highly technologized and industrialized countries, which rely on biogenetic resources for industrial production, are mainly situated in the North. Thus these resources are seen as an asset of international trade and economy. In the trade context it is important to be aware of the dual character of plant and animal genetic resources: seeds, plants, and domesticated animals are on one hand goods produced for consumption as timber, textiles, food, and industrial products and are internationally traded as such. On the other hand, these same goods are of interest for the genetic information they contain. Thus, considering creation of incentives to conserve and sustain use Page 484 →of genetic resources in a trade context, two possible and different points of reference should be taken into account: first, trade in genetic information, and second, production of and trade in resources as raw materials and commodities.

4. The Value of Biological Diversity and Traditional Knowledge and the Threats from its Loss According to economic theories, the value of biodiversity can be looked at from different viewpoints: first, from that of the so-called current or direct-use value, and second, that of the long-term or optional value for evolution and global survival.11 A third type of value lies in indirect-use values of ‘ecosystem services’ provided for by biological diversity.12

Current or Direct-Use Value On one hand, current or direct-use value lies in the importance of genetic diversity for indigenous, local, and farming communities which depend on it for their everyday survival.13 On the other hand, direct-use value is given by industrial use of natural resources, e.g., in human pharmaceutical and veterinary medicine, plant and animal breeding, and food processing. The financial portion of the current value of biodiversity for industrial

production is a controversial subject. Estimations vary according to the methods applied for their calculation.14

Long-Term or Optional Value The long-term or optional value of biological diversity lies in the amount of information accumulated in the process of evolution contained in life forms. A community of animal and plants which has co-evolved over millions of years contains an encapsulated history of information that cannot be synthesized.15 This information secures continuity of natural evolutionary processes and adaptation of species to a changed world. In conserving this diversity, the option remains intact that exploration and use of currently unknown resource stocks will generate discoveries of unknown traits and characteristics and that the evolutionary process might result in unforeseeable generation of a new and useful quality.16 The loss of any species and even gene could thus limit our options for the future.17

Ecosystem Services So-called ecosystem services consist in ecosystem regulatory functions such as nutrient cycling, sedimentation processes, waste treatment, water and gas Page 485 →regulations, and others. These functions support or protect economic activity (such as agriculture), built property, or affect human welfare in other ways. The services depend on functional ecosystems which in turn depend on the systems’ level of biological diversity. In other words, the ecosystems’ resilience, i.e., their capacity to recover from external stresses and to maintain the option of change, is defined by their biodiversity level.18 Thus biodiversity provides goods and services which are necessary to maintain the planet’s ecological balance and thus to provide the basis for economic activities and – eventually – the survival of mankind.

Value of Traditional Knowledge Knowledge of farming communities and indigenous peoples makes a substantial contribution to the value of genetic resources in various ways: First, these communities contribute to global biodiversity services by sustainably using and conserving wild resources, e.g., by actively nurturing wild plants or extensively using natural resources. Second, in the case of domesticated species and varieties, the genetic information includes results of breeding efforts and the skills of generations of farmers. Third, the farming communities’ specific knowledge and experience can be of value for research and development of new products or crops.’19 Summarizing, it can be stated that genetic information and related traditional knowledge have a certain value for both local subsistence economies and industrial processing of resources. However, the value for conserving and maintaining options for the survival of mankind must also be considered. In the case of industrial processing, product value is based on both the resource itself and the technological skill added in industrial processing of the resource. It is therefore the result of efforts and accomplishments of both providers and purchasers of the basic resource. In this process, the providers contribute what could be called the ‘conservation effort’20 in the case of wild resources while providing the results of breeding skills in the case of domesticated resources. The CBD takes up this issue in regulating access to genetic resources and sharing benefits arising from commercial and other use of resources (Art. 15).

5. Loss of Biodiversity The Problem Animal and plant species are being extinguished at an accelerated rate. There are different estimates of this rate of extinction.21 According to results of scientific research, the contribution of human beings to destruction of Page 486 →biodiversity exceeds the contribution of all other species combined. This process is influenced by all kinds of human activity and productivity.22 To aggravate the situation, the losses are driven by complex and diffuse causes, often on a long-term scale. Thus, conservation of biodiversity is a cross-section-problem, regarding all types of human activities. Closely linked to the loss of biodiversity, traditional knowledge is also declining.23

In this context the system of trade in raw materials has an important influence on biological diversity. Trade liberalization favors the highest possible yield at minimal cost. This intensifies use of resources, as is the case in timber production or in so-called blue-print farming.24 In leading to this intensification, expansion of global markets and recent patterns of trade liberalization have a double impact on biological diversity: on the one hand, agricultural (crop) biodiversity is homogenized by standardizing food production and consumption.25 On the other hand, conversion and degradation of habitats is promoted by intensifying production or by abandoning use. Because the value of biodiversity cannot be allocated, the incentives of the liberalized world trade thus favor destruction of biological diversity. However, the problem does not seem to be a subject of discussion at the WTO.26 The problem of loss of biological diversity is characterized by three features: First, the loss of biological diversity is irreversible, an extinct species being lost forever. Thus, unlike almost all natural resources which have substitutes, biodiversity cannot be replaced.27 Second, the relationship between cause and effect may be a longterm, possibly an intergenerational one, and therefore difficult to perceive. And last, scientific knowledge on the amount of existing diversity and the functioning and structure of ecosystems is far from complete. A particular source of uncertainty is the so-called threshold effect in ecosystems. Thresholds are defined by critical values for either populations of organisms (i.e. for the specific diversity they contain) or for biogeochemical cycles. Once these thresholds are crossed, the ecosystem begins to loose its resilience capacity and ultimately collapses. Thus, with our actions today, which convert and modify ecosystems and lead to the loss of biodiversity, we may be pushing future generations towards this threshold level of biodiversity.28 These characteristics introduce two important elements into reflections on the maintenance of biodiversity: first the element of considering future generations (i.e. the time element) and second the question of assessing risks in scientific uncertainty. Environmental law has answered these problems with two interrelated principles, the principle of precaution and the principle of sustainable use of natural resources.29

Page 487 →The Situation of ‘Open Access’ as a Reason for Loss of Biodiversity In comparison with non-living natural resources, biogenetic resources have special characteristics. In our context, two traits are of special importance: ability to self-reproduce and the informational character of biogenetic and biochemical resources. By using modern biotechnology, access to this information can be gained from the smallest quantity of an organism: the genetic information which results from the skill of generations of breeders can be contained in one single seed. These characteristics entail that once information is acquired, it is impossible for the original owner to prove that the genetic information used was exclusively his or hers. The information becomes independent of its original source. These characteristics correspond to the fundamental paradox of information: it is valueless until revealed, but value, once revealed, cannot be appropriated. Thus, from a legal point of view, genetic diversity is in the public domain, accessible to everybody. The same is naturally true of traditional knowledge. Due to this ‘open-access’ situation,30 scientists within industrial innovation systems could use these resources up to now without the consent of their holders and without offering compensation or sharing profits, which have been substantial in several cases.31 Concerned people and communities speak of ‘piracy of traditional knowledge’ analogous to piracy of (industrial) intellectual property by countries without adequate protection of intellectual property. According to economic theories, this informational character of biological diversity and related traditional knowledge contains an important reason for its loss. Because its main value cannot be appropriated, the value of biodiversity is ignored by land-owner decisions, and diversity of plant species is sacrificed in favor of more lucrative use of land resources such as industrialized monocultures.32 Accordingly, the solution of the global biodiversity problem requires the creation of a mechanism to appropriate evolution-supplied information values. Therefore Swanson, e.g., proposes creation of an ‘informational resource right’ as a specific property right, tailored in analogy to intellectual property rights, to protect the informational value of biogenetic information.33

6. How to Bring about Conservation of Biological Diversity? The conclusion can be drawn from the above that two features are of particular importance for conservation of biodiversity: first, the multitude of human activities leading to its decline and their interrelationship; second, the Page 488 →high degree of scientific uncertainty about these processes. As mentioned, an answer to these problems is contained in the principles of sustainability and precaution. But how should these general environmental principles be spelled out to address the specific problems at the interface of international trade and biodiversity preservation?

The Principle of Sustainability – the Battle against Irreversibility In recent decades, the insight has grown that more fundamental causes than the ones traditionally invoked, such as the number of users or absence of proper quotas, are responsible for the unsustainable use of biological resources. Therefore, use of biological resources must be considered in the broadest possible context and integrated into general policy development procedures.34 Consequently, the issue of biodiversity conservation should be taken into account in all decisions concerning human use of natural resources and space. This cross-section approach is one aspect of the notion of ‘Sustainable Use’ which has been brought to the knowledge of a wide public by the Rio Conference.35 The CBD defines sustainable use as ‘use of components of biological diversity in a way and at a rate that does not lead to the long-term decline of biological diversity, thereby maintaining its potential to meet the needs and aspirations of present and future generations’ (Art. 2. 16). The principle adds several new dimensions to the process of conserving the environment in general and genetic resources in particular: First, the integration of environmental politics into all other politics, i.e., the strategy of adapting economic and social systems to the ecological restrictions.36 Second, the aspect of intergenerational equity, i.e., integrating the time factor and the interests of future generations into decision-making. This second aspect includes the criterion of irreversibility, in the case of biodiversity, the extinction of plant and animal species. Third, intergenerational equity, i.e. the aspect of global interdependence of the ecological processes and the need to respect ecological balance on a global scale as well. This aspect introduces the aspect of North-South distributive equity and development into decision making processes. According to Johnston, considering the failure of the traditional regulatory type approaches to control use of living resources,37 an important feature of the principle of sustainable use lies in an economic approach of persuasion through incentives. ‘Sustainable use as an economic concept has very little to do with setting quotas or other regulatory controls over the exploitation of living resources, rather it is about creating the right incentives so that those who manage biodiversity, the stakeholders, will be motivated to conserve it.’38 Economic theory holds that in order for any resource to be Page 489 →properly managed, the price of that resource needs to reflect all the values that society places upon it. This means internalizing the external benefits and costs associated with using a resource. In environmental law, this principle is generally realized by the ‘polluter pays’ principle (i.e., internalizing environmental costs the use of a resource), giving users the incentive to minimize environmental costs. Yet this concept does not make sense in the case of biodiversity; therefore the reverse system is necessary, i.e., internalization of the benefits which biodiversity generates.39

The Precautionary Principle As mentioned above, due to scientific uncertainty about the long-term cause-and-effect relationship regarding loss of biological diversity and the threat of collapsing ecosystems, the precautionary principle plays a crucial role in conserving biological diversity. The precautionary principle, as integrated in the Rio Declaration, reads as follows: In order to protect the environment, the precautionary approach shall be widely applied by States according to their capabilities. Where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent

environmental degradation.40

Thus, the characteristic of this principle lies in the requirement to take action to protect the environment, once a risk of irreversible damage has been identified, even without full scientific proof. Thus the principle does not address measures to be taken in a certain situation but rather the timing of remedial action. By demanding action at a earlier stage of environmental degradation, the principle shifts the burden to take decisions from scientists to policy makers.41 It further insinuates that, once a risk is perceived, scientific uncertainty works not against the environment, as in the past, but rather against the causes creating the risk.42 The legal nature of the principle is a controversial issue. Some authors, based on the ‘pattern of discourse at the international level’, international practice, and the fact that operational procedures are being established, conclude that the principle is accepted as a principle of international customary law.43 Yet others conclude the opposite, with the argument of lacking strong evidence of state practice and opinio juris.44 Moreover, it can be stated that the principle of sustainable use and the precautionary principle are closely interrelated. Both cover an enlarged time frame and aim at preserving the heritage of future generations. However, the Page 490 →focus of the two principles is different: Whereas the principle of sustainable use aims at integrating ecological, social, and economic issues and at risk avoidance by resource management, the precautionary principle indicates at which procedural point measures should be taken.

7. Legal Background The Convention on Biological Diversity The CBD links conservation of biodiversity with economical issues and takes up both conservation and sustainable use of biological resources. For the first time in international law of nature conservation, it combines conservation issues with the need to develop economically poor states. The CBD confirms the sovereignty of states over their biological resources.45 However, this right of states to dispose of their genetic resources is not unlimited. Of primordial importance in our context is the states’ obligation to facilitate access to genetic resources for the CBD’s contracting parties (Art. 15 CBD). This regulation establishes the basis for contractual relations between donor countries and prospecting firms. It prescribes that access to genetic resources be granted under the condition of prior informed consent, mutually agreed terms, and fair and equitable sharing of the results of research and development as well as of the benefits arising from the use of genetic resources. In so regulating the access to genetic resources and sharing of benefits arising from commercial and other use of genetic resources, the CBD has a direct relevance for trade issues. Of course, the same is true for regulations on access to and transfer of technology (Art. 16). The existence, value, and importance of traditional knowledge is implicitly recognized by the CBD. The pertinent Art. 8 (j) obliges parties to encourage sharing benefits arising from use of traditional knowledge. However, according to the CBD wording, this article contains an obligation to support and further traditional knowledge in the context of conserving biological diversity. The obligation also retains the reservation of national legislation. Thus it contains no legal basis to create an individual right. Therefore, traditional knowledge remains in the public domain, as does all information and knowledge which fails to fulfil the criteria of protection by specific (intellectual) property rights. One difficulty in regulating the subject matter consists in the fact that CBD obligations bind states as contracting parties and confer no rights or obligations to private entities such as research institutes and indigenous communities. Without specific regulations at the national level, regulation of access and benefit-sharing is currently left to contracts between bio-prospectors (bio-prospecting firms or scientific institutes) and public Page 491 →authorities in donor countries. However, this contractual approach has several disadvantages. First, there is no obligation to include current owners of information in the access and benefit-sharing procedure. As a result, they can not decide on the fate of their knowledge nor profit from the results of their achievements. Secondly, the

contractual solution lacks the authority to bind third parties and often betrays a disparity in negotiating powers.

The WTO and the Environment In its study on trade and environment,46 the WTO acknowledges that international trade in some instances can enhance environmental problems. However it argues that environmental problems and international trade are only indirectly linked, the reason for environmental problems being rooted in poor national environmental frameworks. According to the WTO, trade restrictions are a poor policy response to environmental degradation, as they do not reach to the cause of the problem. The appropriate answer would be to strengthen environmental policies at the national level. In order to avoid negative effects on competitiveness between national economies and industries caused by reinforcement of environmental obligations at the national level, it suggests intensifying international co-operation in environmental matters. Thus, environmental protection is not a major issue in the WTO agreements. Article XX of the GATT defines exceptions to the general rules of the most-favored nation and national treatment requirements as defined by articles I and III of the GATT. These exceptions include the option to take measures in favor of environmental issues. Such measures must answer the need to protect human, animal, or plant life or health (Art. XX [b]) or ‘relate to the conservation of exhaustible natural resources’ (Art. XX [g]). However, the panel’s practice is to interpret this article narrowly. The panel argues that ‘article XX is a limited and conditional exception from obligations under other provisions of the General Agreement, and not a positive rule establishing obligations in itself.’47 Article XX was complemented in the Uruguay Round by the Agreements on the Application of Sanitary and Phytosanitary Measures (SPS agreement) and the Agreement on Technical Barriers to Trade (TBT agreement). These agreements further specify conditions for taking discriminatory trade measures. Accordingly, the requirements which environmental trade measures must fulfil and which are of interest in our context can be summarized as follows: 1) measures must be necessary. This means that they are to be ‘least inconsistent’ with the GATT;48 2) measures must be based on scientific principles and on a risk assessment appropriate to the circumstances; and 3) measures may not be invoked in defense of extrajurisdictional Page 492 →actions, i.e., policies addressing environmental harms outside the country using trade measures.49 This last criteria, in context with the concept of ‘like products’, makes the legitimacy of measures turn on the product itself and forbids consideration of how it is produced. This means that standards of production, methods and processes, the so-called PPM standards, do not legitimate trade restrictions. Thus GATT forbids environmental standards aimed at how goods are produced, constructed, gathered, grown, or caught.50 This interpretation naturally influences implementation of the principle of sustainability in the WTO framework. The WTO refers to this principle in the preamble to the agreement establishing the World Trade Organization. There the principle is put in relation to the basic WTO objective to raise standards of living. It is stated that ‘optimal use is to be made of the world’s resources, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their [the Parties] respective needs and concerns at different levels of economic development’ (Preamble, para. 2). The principle of sustainable use is not further implemented in the legal regulations of the WTO agreements,51’ and is interpreted in a narrow sense by the GATT panel.52 In turn, the Precautionary Principle plays only a very marginal role in the WTO framework. As presented above, it boils down to requiring that environmental harm be proven in a scientifically supported way. Panel and appellate body have not decided whether the principle has an independent meaning as part of customary law. On the contrary, the appellate body argues that the principle does not ‘by itself, and without a clear textual directive to that effect, relieve a panel from the duty of applying the normal [i.e., narrow] principles of treaty interpretation.’53 The conclusion can be drawn from this that, with view to the problem of biodiversity loss, measures within international trade as such are limited or non-existent. The cases brought before the panel refer to trade restriction

aimed at protecting specific species (moreover, both cases were decided against the environmental interests).54 Yet this approach fails to address the problem of biodiversity decline as such, which rather lies in ecosystem changes by intensity of resource use. Thus, in order to address background problems of biodiversity degradation, importation measures ought to be taken against entire ranges of products such as timber from unsustainable logging or primary forests and crops resulting from blue-print farming. It can be concluded from this discussion that imposition of unilateral restrictions for trade in biodiversity-related goods to further conservation and sustainable use of biodiversity would not be legitimate, according to the present legal situation and the interpretation of the pertinent regulations. The WTO dispute-settlement bodies maintain the narrow interpretation of Page 493 →exceptions covered by Art. XX of the GATT. One important reason seems to be prevention of disguised trade restrictions, i.e., by arbitrary or unjustified discrimination under the cover of environmental measures. Thus it leaves – probably rightly and with good reason – decisions on implied questions to political bodies and processes. However, it is not likely that a political decision to strengthen the WTO environmental impact will be reached in the near future. A main difficulty, but not the only, seems to reside in differences between standpoints of developing countries with low standards in environmental protection and rich industrialized countries with high standards. Yet, as outlined above, international trade can create incentives which contribute to environmental degradation and loss of biological diversity. The WTO study on trade and environment argues that the problem consists in the absence of markets for the valuable services provided. It attributes the resulting market failures to either the missing integration of externalities or undefined property rights.55 Yet, it claims not to be the organization apt to deal with these environmental problems. To resolve the problem, it refers to management schemes at the national level and to more structured environmental co-operation among nations, a need which it considers to have become more urgent since liberalization of international trade has caused individual nations to reduce their regulatory autonomy.56 It is submitted in this context that, in arguing that ‘environmental problems and trade are only indirectly linked’, the WTO underestimates its impact. As has been demonstrated, it can be argued that conservation and sustainable use of biological diversity are closely linked to all human activities having an effect on use of space, therefore to trade as well. As the lack of markets for the valuable but presently non-marketable services provided by biological diversity are identified as the cause of the problem, and as the decline of biological diversity clearly has a global significance, it is in the WTO that trade-related instruments should be created to mitigate possible negative effects of trade liberalization by international trade. Accordingly, it is proposed to establish the necessary legal basis in the WTO framework to create positive incentives for conservation and sustainable use of biodiversity which could lead to a win-win situation for all stakeholders involved. Concluding, three possible solutions are outlined and submitted for further discussion.

Page 494 →8. Incentives to bring about Conservation and Sustainable Use of Biogenetic Resources The ‘Individualist’ Approach: Rights to Biogenetic Resources and Related Traditional Knowledge 57 According to the above, an important reason for loss of biodiversity and related traditional knowledge lies in the situation of open access of its informational values. Thus, by removing biogenetic resources and traditional knowledge from the public domain in creating property rights, information would become a tradable good and a market for biogenetic resources and related traditional knowledge could be created. Legal means to protect informational values of human creativity and innovation are a common legal instrument in industrialized countries. Historically, intellectual property rights were the legal answer to the industrial revolution. Aimed at stimulating creativity and scientific progress, they were devised, on one hand, to provide the owner an exclusive right to his creation for limited time and, on the other hand, to oblige the inventor or creator to disclose his invention.

However, as a rule, traditional knowledge and genetic information as enclosed in landraces bred by local communities cannot be protected by traditional intellectual property rights. Traditional knowledge frequently lacks the criteria of novelty, the necessary inventive step, or the level of creativity which is the prerequisite for protection by industrial IPRs. As developed by informal breeding systems of farming communities, landraces fail to fulfil the criteria of stability and uniformity and thus fail to meet the protective criteria of plant breeders’ rights.58 Thus, from the legal point of view, this information presently remains in the public domain. Therefore it is submitted to create a specific traditional intellectual property right (TIP right59) within the framework of the TRIPs agreement, designed to answer to the specific characteristics of traditional knowledge. In particular this right should not rely upon novelty but encompass pre-existing traditional knowledge and know-how relating to plant and animal genetic resources. Such a TIP right would allow assigning the profits from information use to the holders of the right, thus creating a direct incentive to conserve biological diversity. This solution could be considered for biogenetic information as contained in domesticated resources and related traditional knowledge, the right to dispose of wild resources remaining with the state. This solution is now being discussed at the interface of revising Art. 27.3 of the TRIPs agreement and CBD regulations on access and benefit sharing as well as conservation of traditional knowledge.60

Page 495 →Funding System A key element of the creation of property rights on informational values is allocating the rights to certain holders, individuals, groups, or communities. However, in many cases – especially in the domain of so-called farmers’ rights61 it can be very difficult to determine individual holders of the rights. Thus creation of a funding system is proposed. The background argument for creating an international fund lies in the significance biodiversity has for the life and survival of mankind. It can be stated that its conservation is not only a responsibility of nation-states but, as a ‘common concern’, also a task of global interest which thus falls under the responsibility of the entire community of states.62 To specify this common duty in the North-South context, it is argued that: 1) Industrialization and the resource-intensive economies of the developed world have led to environmental degradation and loss of biological diversity. In the developing countries, due to the lesser degree of industrialization, biodiversity has been preserved to a higher degree. Thus, the national economies of these countries have rendered a service to the global community for which they should be compensated. 2) In conserving biological diversity, farmers and other producers generate less income than would be the case by industrial, large-scale production. However, such less intensive production methods fulfil an important task in the public (global) interest and should be compensated for,63 and 3) developing countries are obliged by the CBD to take measures to conserve their biological diversity in the global interest. The conclusion is that industrialized and rich countries are duty-bound to compensate for the costs the developing countries incur in conserving biodiversity. The proposal is to create a funding system as provided for, e.g., in Art. 20 and 21 of the CBD and in the International Undertaking on Plant Genetic Resources of the Food and Agriculture Organization (FAO).64 It would create incentives to conserve biological diversity and contribute to covering its costs. This financial mechanism is to be underwritten by contributions from the developed countries. It is important that funds are additional and do not simply ‘replace’ other funds, e.g., from development aid. Compensation from funds could be attributed to states, thus creating incentives to conserve biological diversity at the state level. However an application system open to projects from all stakeholders involved could also be created, as proposed by Girsberger for farmers’ rights, thus creating incentives for conservation and sustainable use of biological diversity at the level of directly involved communities or individuals. In this context it is important to ensure maintenance of the options as contained in the ‘green’ and ‘blue’ boxes of the agricultural regulations.65Page 496 →These permit financing of measures unrelated to products such as research, assistance to restructuring agriculture, and direct payments under environmental assistance programs.

Systems Based on Market Mechanisms

There seems to be an increasing demand by consumers in industrialized countries for ecologically sound and economically fair products. Willingness to pay for ecological achievements, according to Hampicke,66 far exceeds the costs of minimal programs for nature conservation. The system of product declaration and eco-labeling is based on these findings. Examples of private initiatives demonstrate the success of this system in conserving biogenetic resources. Such examples are successful marketing of biological products and green cotton in Swiss supermarket chains, success of fair-trade products such as Max Havelaar, the growing acceptance and importance of certification and labeling of forests and wood by the Forest Stewardship Council, or the ‘Dolphin-Safe’ label in marketing tuna. At the national and regional levels, regulations to assure application of uniform criteria and declarations have been developed.67 The OECD Workshop on Eco-labeling and International Trade68 concludes that ‘the growing use of eco-labels reflects an important change in social attitudes to the environment, and is part of a wider movement towards the use of market-based instruments.’ In the trade context, transparency, access and credibility of eco-label schemes has emerged as an important concern. The OECD points out that, in order to tackle the trade issues raised by ecolabels – an issue related to PPMs – it could be useful to identify sensitive traded products for which it is particularly important to involve developing countries in eco-label proposals.69 Thus, it is submitted, product labeling for locally sustainable production of biodiversity-related products in developing countries could also create a market at the national and international levels. In order to find solutions acceptable for all stakeholders, the issue ought to be discussed at the international level.70 The labeling instrument was discussed in the TBT Committee and in the Committee on Trade and Environment. The issues raised included ‘the applicability of the TBT Code of Good Practice to voluntary eco-labeling programs, the extent to which eco-labeling programs based on PPMs are covered by the TBT agreement, the effects of eco-labeling programs on international trade, and questions linked to the implementation and management of those programs. However, no conclusion has been reached’.71 Yet, in the tuna-dolphin case, the GATT panel has accepted the appropriateness of voluntary eco-labels and expressly approved the US dolphin-safe labeling plan.72

Page 497 →9. Conclusion The examples presented above are only an exemplary selection of possible incentives which ought to be examined in connection with conservation and sustainable use of biological diversity at the interface with international trade. Other options which ought to be explored are, e.g., applicability of tax reductions and geographical indications73 or certification of industries for environmentally sound behavior in acquiring genetic resources and related information.74 On the whole, from the background and discussion presented, the conclusion can be drawn that maintenance of biological diversity is a basic asset for the survival of humanity. The international trade system for natural products and genetic information has an influence on the condition of the world’s biological diversity; incentives presently favor its destruction. It is submitted that instruments which permit allocation of biodiversity value to its owners and/or producers can create incentives for its maintenance. However, in viewing the complexity of the problem, it becomes evident that no simple and uniform answer will meet it. Besides the creation of incentives, a solution must combine measures which encompass rights, instruments, and institutions for their implementation. In creating such measures, it is of great importance that they are elaborated and evaluated with utmost care and in co-operation with all involved stakeholders.

NOTES 1. United Nations Conference on Environment and Development (UNCED), June 3-14, 1992, Rio de Janeiro, Brazil. 2. See, e.g., the Rio Declaration on Environment and Development (Rio Declaration), adopted June 14,

1992, 31 ILM 874 (1992), and Agenda 21: A blueprint for action for global sustainable development into the 21st century; both documents adopted by the UNCED. 3. See the Preamble of the Convention on Biological Diversity (CBD, 31 ILM 818 (1992), adopted June 5, 1992, at the occasion of the UNCED), para. 1-3, which affirms the intrinsic value of biological diversity and its ecological, genetic, social, economic, scientific, educational, cultural, recreational, and aesthetic values and points out its importance for evolution and for maintaining life sustaining systems, and declares its conservation to be a common concern of humankind. 4. See, e.g., Rio Declaration, op. cit. note 2, Principle 22; Art. 8(j) CBD; Agenda 21, paras. 36 and 41. 5. Op. cit., note 3. 6. The CBD defines in situ conditions as conditions where genetic resources exist Page 498 →within ecosystems and natural habitats and, in the case of domesticated or cultivated species, in surroundings where they have developed their distinctive properties (Art. 2 para. 13). 7. Whereas breeding new types of crop traditionally relied on traditional varieties and their wild relatives and on traditional breeding methods, biotechnology provides an opportunity to introduce qualities such as high tolerance for draught or extreme temperatures or anti-fungal and anti-viral resistance from unrelated species into agricultural crops. Moreover these results can be achieved in a much shorter time than was the case with traditional breeding methods. In pharmaceutics, robotics increase the efficiency of screening methods, allowing for tests of smaller samples in a much shorter time and at lower cost. This makes research for natural compounds technically easier, more cost efficient, and less time-consuming. See Reid, W.V. ‘Technology and access to genetic resources’, in: J. Mugabe, Ch. Victor Barber, G. Henne, L. Glowka, and A. La Viña (eds.), Access to Genetic Resources: Strategies for Sharing Benefits. African Centre for Technology Studies, Nairobi, Kenya, World Resources Institute, Washington, DC, USA, IUCN Environmental Law Centre, Bonn, Germany, 1997: 53-70, 54. 8. The CBD only speaks of genetic information, not explicitly mentioning biochemical information. However, biochemical information plays an important role in prospecting for pharmaceutical purposes. Its inclusion into the CBD is not quite clear; however, legislation on access and benefit sharing emerging at the national level seems to point in this direction (UNEP/CBD/COP/3/20, para. 32 ff.). 9. See, e.g., the case studies in: Columbia University, School of International and Public Affairs, Environmental Policy Studies Workshop 1999, Access to Genetic Resources: An Evaluation of the Development and Implementation of Recent Regulation and Access Agreements. Environmental Policy Studies, Working Paper #4, , (Nov 04, 1999), 1999:18-67; Robert P. Borris, Natural products research: perspectives from a major pharmaceutical company, Journal of Ethnopharmacology 51 (1996) 29-38; Djaja Djendoel Soejarto,’ Biodiversity prospecting and benefit-sharing: perspectives from the field’, in: Journal of Ethnopharmacology 51 (1996) 1-15. However, the importance of bioprospecting for the evolution of new products is controversial. Representatives of industry warn of overestimation. Industry frequently works with ubiquitous microorganisms, in particular bacteria. (See Access to Genetic Resources and Means for Fair and Equitable Benefit Sharing. Case Study submitted by Switzerland, Conference of the Parties to the Convention on Biological Diversity, Fourth Meeting, Bratislava, Slovak Republic, 4-15 May 1998; UNEP/CBD/COP/4/Inf. 16). Borris points out that advances in screening methodologies have also cost justified other sources of molecular diversity, e.g., compound collections and combinatorial chemistry libraries. Therefore, natural products must compete financially with these sources in order to remain of interest (Journal of Ethnopharmacology 51 (1996) 29-38, 34 and 37.) See also Georg Albers-Schönberg, ‘The pharmaceutical discovery process’, in: Timothy Swanson (ed.), Intellectual Property Rights and Biodiversity Conservation: an interdisciplinary analysis of the values of medicinal plants, Cambridge University Press, Cambridge, MA, 1995:67-92, 90-92; Bruce Aylward, Page 499 →“The role of plant screening and plant supply in biodiversity conservation, drug development and health care’, ibid., 93-126. 10. Brian J. Huntley, ‘Conserving and Monitoring Biotic Diversity: some African Examples’, in: Edward O. Wilson (ed.), Biodiversity, National Academy Press, Washington, D.C., 1988:248-260, 251. 11. See e.g. Timothy Swanson, ‘The appropriation of evolution’s values: an institutional analysis of intellectual property regimes and biodiversity conservation’, in: Timothy Swanson (ed.) 1995, op. cit. note 9, 141-175, 151-163; idem, The International Regulation of Extinction. New York University Press, New York, 1994:160-172.

12. See e.g. G. C. Daily, Nature’s Services: Societal Dependence on natural ecosystems. Island Press, Washington D.C., 1997; Costanza Robert et. al., ‘The value of the world’s ecosystem services and natural capital’, in: Nature, vol. 387 (1997) 253-260; Edward O. Wilson, The Diversity of Life, Harvard University Press, Cambridge Massachusetts, 1992:308. 13. See Conserving Indigenous Knowledge, Integrating Two Systems of Innovation, an independent study by the Rural Advancement Foundation International (RAFI), UNDP, Nairobi, 1994:22/3. 14. RAFI e.g. states that the current value of South medicinal plants to the North is estimated conservatively at $32 billion (US) annually (idem). For crops, RAFI estimates that the annual contribution of crop genetic resources as distributed by the gene banks of the International Agricultural Research Centres (an important part of which has been collected in developing countries) contribute al least $5 billion to the agricultural production of developed countries (cited in Martin A. Girsberger, Biodiversity and the Concept of Farmers’ Rights in International Law. Factual Background and Legal Analysis. Studies in Global Economic Law, Peter Lang, Berne, 1999:64). On the other hand, Stone argues that the commercial value of biodiversity for pharmaceutical and industrial uses is ‘almost certainly’ overestimated in political discussion. He indicates values between $0.90 and $2 per hectare for bioprospecting sites and a maximum of $20 a hectare for the world biodiversity ‘hot spots’. He concludes that ‘if these figures are anywhere near correct – and no rush of pharmaceutical houses is materializing to cast doubts on them – the agitation over equitable sharing of wealth has been blown far out of proportion’ (Review of European Community & International Environmental Law (RECIEL), Vol. 6, Issue 3, 1997:231-238, 233). 15. Timothy Swanson, The international regulation of extinction, New York University Press, New York 1994:246. 16. Timothy Swanson, 1995, op. cit. note 11, 161/2; Lyle Glowka, Françoise Burhenne-Guilmin, and Hugh Synge, A Guide to the Convention on Biological Diversity, IUCN Environmental Policy and Law Paper No. 30, IUCN, 1994:9. 17. Isamil Serageldin, ‘Equity and ethics: Twin challenges, twin opportunities’, in: International Plant Genetic Resources Institute (IPGRI) (ed.), Ethics and Equity in conservation and use of genetic resources for sustainable food security, 1997, 1-31. 18. See Edward B. Barbier, ‘Ecological Economics, Uncertainty and Implications for Policy Setting Priorities for Biodiversity Conservation’, OECD Proceedings, Page 500 →Investing in Biological Diversity, the Cairns Conference, Cairns Australia, 25-28 March 1996:115-140, 116; Robert Costanza et al., ‘The value of the world’s ecosystem services and natural capital’, Nature, Vol. 387, May 15, 1997:253-260. 19. According to Farnsworth, 25% of all pharmaceuticals sold with a value of over $8 billion contain active substances derived from plants. And 74% of the 119 most often used plant-derived drugs are used for the same purpose that native people use them. (Norman R. Farnsworth, ‘Screening Plants for New Medicines’, in: E.O. Wilson, (ed.), Biodiversity, National Academy Press, Washington D.C. 1988:99-118, 104, 116. See also the statistics and case studies in RAFI, Enclosures of the Mind: Intellectual Monopolies, 1996:25-30. 20. Including, e.g., the active nurturing of wild plants by Indigenous (see RAFI 1994, op. cit. note 13, 22 /3) or the loss of profits by extensive resource utilization. 21. Generalizing, it can be stated that in comparison to the natural extinction rate, the present is between 1,000 and 10,000 times higher, and that in the last 65 million years these rates have never been so high. 22. As main reasons for this evolution are named: first, conversion, modification, or fragmentation of animal and plant habitats by changes in land use; second, degradation of habitats through pollution by industrial and/or agrarian sources; third, over-exploitation of natural resources due to demographic pressures; and fourth, reduced diversity of domesticated and cultivated species as a consequence of replacing a great variety of traditional plant varieties and animal species by a small number of modem highyielding varieties. 23. Gupta estimates that this erosion of knowledge is sometimes a greater threat than erosion of the resources itself. He argues that information of potential value might be lost forever: traditional knowledge as a rule being handed down orally. (Anil K. Gupta, this volume). 24. Industrial agriculture, focusing on maximizing commercially important yields and productivity through use of monoculture systems and uniform technologies, including high-yielding seeds, agrochemicals, irrigation, mechanized equipment, and large infrastructure developments. FAO/Netherlands Conference on

the Multifunctional Character of Agriculture and Land, Maastricht, Netherlands, September 12-17,1999, Background Paper 1: Agricultural Biodiversity, 20. 25. FAO/Netherlands Conference on the Multifunctional Character of Agriculture and Land, Maastricht, Netherlands, September 12-17, 1999, Background Papers, Summaries, vii. 26. At the WTO High Level Symposium on Trade and Environment, it was raised by Vananda Shiva, Indian activist and director of Research Foundation for Science and Technology and Ecology. She spoke of ‘an environmental non-discipline – created by the free trade rules – that destroys biodiversity and encourages non-sustainable use’. See: International Institute for Sustainable Development: Report on the WTO’s High-Level Symposium on Trade and Environment March 15-16, 1999, http://www.wto.org (June 25, 1999). 27. Irreversibility in context with environmental law is an approach chosen by French environmental lawyers. See the special issue of Revue juridique de I’environnement, 1998. See also Jan H. M. Pieters, ‘Economic Instruments for Page 501 →Dematerialization and Containment: Two Systematic Approaches to Conserve Biodiversity’, in: OECD (ed.), Investing in Biological Diversity: The Cairns Conference. Proceedings of the OECD International Conference on Incentive Measures for the Conservation and the Sustainable Use of Biological Diversity in Cairns, Australia, March 25-28, 1996: 369-384, 369/70. 28. See Edward B. Barbier, Ecological Economics, Uncertainty and Implications for Policy Setting Priorities for Biodiversity Conservation, in; OECD, op cit. note 27, 115-140,120. 29. Rio Declaration, op. cit. note 2. 30. The notion of ‘open access’ is cited from Achim Lerch, Verfügungsrechte und biologische Vielfalt. Eine Anwendung der ökonomischen Analyse der Eigentumsrechte auf die spezifischen Probleme genetischer Ressourcen, Metropolis Verlag, Marburg, 1996:78. 31. RAFI states that at least 7,000 medical compounds in the Western pharmacopeia are derived from plants. The annual value of developing-country germ plasma to the pharmaceutical industry could be as high as $47,000 million by the year 2000 (op. cit. note 13, 1994:30). Further examples ibid, 13-15. 32. Timothy Swanson, 1995, op. cit note 11, 146-151. 33. Ibid, 173. This proposition to create an intellectual property type of rights for the genetic information not influenced by man, is a controversial subject in literature. However, the discussion in this paper focuses on protecting informational values generated by or contained in human know-how and skill. 34. Samuel Johnston, ‘Sustainability, Biodiversity and International Law’, in: Michael Bowman and Catherine Redgwell, International Law and the Conservation of Biological Diversity, Kluwer Law International, London, The Hague, Boston, 1996:51-69,52. 35. The notion has its origin in the report of the World Commission on Environment and Development, the so-called Brundtland Report (Our Common Future, Oxford University Press, Oxford, New York, 1987, 43-46). 36. Ulrich Petschow et. al, Nachhaltigkeit und Globalisierung: Herausforderungen und Handlungsansätze, Springer, Enquete-Kommission ‘Schutz des Menschen und der Umwelt’ des 13. Deutschen Bundestages (ed.), Berlin etc., 1998:192-195. 37. Such as taking-quotas, conservation areas. 38. Op. cit., note 34, 59. 39. See Johnston, ibid., 59/60. 40. Op. cit., note 2, principle 15. See also the CBD, Preamble, Para. 10. For examples in other international legal instruments, see David Freestone and Ellen Hey, ‘Origins and Development of the Precautionary Principle’, in: idem., The Precautionary Principle and International Law: The Challenge of Implementation, International Environmental Law & Policy Series Vol. 31, Kluwer Law International, The Hague/London/Boston, 1996, 3-28. 41. Alexandre Kiss, ‘The Rights and Interests of Future Generations and the Precautionary Principle’, in: David Freestone/Ellen Hey, op.cit., note 40, 19-28. 42. Idem, 13.Page 502 → 43. James Cameron/Juli Abouchar, ‘The Status of the Precautionary Principle in International Law’, in: David Freestone and Ellen Hey, op. cit., note 40, 29-52, 52. 44. Catherine Tinker, State Responsibility and the Precautionary Principle, in David Freshman and Ellen Hey, op. cit. note 40, 53-71, 53, with indications on the controversial discussion in literature.

45. And thus concluded the international discussion on the legal status of biological resources which had, as its counterpart, the thesis that biological resources were part of the ‘common heritage of mankind’ and thus accessible for everybody. 46. Hakan Nordström and Scott Vaughan, Trade and Environment, WTO Special Studies 4, fall 1999. 47. Panel Report in the Tuna I Case, as cited in the Shrimp Case, para. 7.36 (Tuna and Dolphin cases: Mexico-US, GATT Doc. 21/R, September and USA-EU, May 1994, neither adopted; Shrimp case: US, Import Prohibition of Certain Shrimp and Shrimp Products, adopted on 6 November 1998, WT/DS58/AB/R (Appellate Body) and WT/DS58/R (Panel). The panel concludes further that ‘when invoking article XX, a Member invokes the rights to derogate to certain specific substantive provisions of GATT 1994 but that, in doing so, it must not frustrate or defeat the purposes and objects of the General Agreement and the WTO Agreement or its legal obligations under the substantive rules of GATT by abusing the exception contained in article XX (Shrimp Case, para. 7.40). 48. In the SPS Agreement this criteria is spelled out regarding measures which must be avoided if ‘there is another measure reasonably available, taking into account technical and economic feasibility, that achieves the appropriate level of protection and is significantly less restrictive to trade’. 49. See Daniel C. Esty, Greening the GATT; Trade, Environment, and the Future. Institute for International Economics, Washington, DC, 1994, 48-50; Ulrich Petschow et. al, 1998, op. cit., note 36, 192-195. 50. See also Ulrich Petschow et.al., op. cit., note 36, 193-195. An example of this policy is the tuna-dolphin case, where the panel decided that the US import ban on non-dolphin-safe Mexican tuna violated GATTs national treatment requirement which preempts trade measures based on production methods. Yet the panel concluded that labeling of tuna-products as dolphin-safe did not violate GATT rules because it was designed to prevent deceptive advertising practices on all tuna products, whether imported or domestically produced (Daniel C. Esty, op. cit., note 49, 268). 51. Ulrich Petschow et al., op.cit., note 36, 190, citing T. Anderson et al., Trading with the Environment. London, 1995). 52. In the shrimp case, the panel puts the principle of sustainable development in relation to the preambles of the GATT and the WTO Agreements, which refer to ‘entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment’ in international trade relations. It argues that ‘while the WTO Preamble confirms that environmental considerations are important for the interpretation of the WTO agreement, the central focus of that agreement remains the promotion of economic development through trade; and the provisions of GATT are Page 503 →essentially turned toward liberalization of access to markets on a nondiscriminatory basis. (Op. cit., note 47 para. 7.41, 285.) From this argument it concludes that member states are only allowed to derogate from GATT provisions as long as, in doing so, they do not undermine the WTO multilateral trading system. Such undermining would occur when guaranteed market access and nondiscriminatory treatment within a multilateral framework would no longer be possible (Ibid., para. 7.44, 286). 53. In the case on EC measures concerning meat and meat products (hormones), Appellate Body Report, 16 January 1998, WT/DS48/AB/R, para. 124. See also the Panel Report, 18 August 1997, WT/DS26/R/USA, paras. 8.157 and 8.158. 54. Protection of dolphins in the tuna and dolphin cases and sea turtles in the shrimp case. 55. Op. cit., note 46, 1, 2. 56. Ibid., 59. 57. For more details, see Susette Biber-Klemm, ‘Biotechnology and traditional knowledge – legal means to balance the equities’, Proceedings of the International Conference on Biotechnology in the global Economy, International Journal of Biotechnology (forthcoming). 58. For more information on plant breeders rights, see Martin A. Girsberger, ‘The Protection of Traditional Plant Genetic Resources for Food and Agriculture and the Related Know-How by Intellectual Property Rights in International Law – The Current Legal Environment’, The Journal of World Intellectual Property, Vol. 1, No. 6, 1998:1017-1078. 59. See Thomas Cottier, ‘The Protection of Genetic Resources and Traditional Knowledge: Towards more Specific Rights and Obligations’, in: World Trade Law. Journal of International Economic Law, 1998, 555-584.

60. See: Preparations for the 1999 Ministerial Conference: The TRIPs Agreement. Communication from Kenya on behalf of the African Group. World Trade Organization, WT/GC/W/302, 6 August 1999; Preparations for the 1999 Ministerial Conference: Proposal on Protection of the Intellectual Property Rights to the Traditional Knowledge of Local and Indigenous Communities. Communication from Bolivia, Colombia, Ecuador, Nicaragua, and Peru. World Trade Organization, WT/GC/W/362,12. 61. See Martin A. Girsberger in this volume. 62. See Principle 7 of the Rio Declaration, op.cit., note 2. 63. The connection between rural development and sustainable agriculture presently is discussed in the framework of the FAO/EU under the heading of the ‘multifunctional character of agriculture’. See for an overview over the Conference on this subject co-organized by FAO and the Netherlands on 12-17 September 1999, the report by the chairman as distributed to WTO member states, Doc. WT/CTE/W/127. 64. Appendix III. The International Undertaking is reprinted in CPGR-ex 1/94/Inf. 1., see also Martin A. Girsberger, this volume. 65. Agreement on Agriculture, Appendix II. 66. Cited from Ulrich Petschow, op. cit., note 36, 270.Page 504 → 67. See, e.g., for Switzerland: Verordnung über die biologische Landwirtschaft und die entsprechende Kennzeichnung der pflanzlichen Erzeugnisse und Lebensmittel vom 22. Sept. 1997, SR 910.18; for the EU: Council Regulation (EEC) No 880/92 of 23 March 1992 on a Community Eco-label award plan. 68. London, 1994; Doc. OCDE/GD(97)105: Eco-Labeling: Actual Effects of Selected Programs. 69. On this subject see also Daniel C. Esty, op. cit., note 49, 134/5, 171; Ulrich Petschow, op. cit., note 36, 183. 70. Inclusion of the eco-labeling issue in WTO negotiations has been proposed by the European Communities. The EC propose the expansion of certain provisions of the TBT agreement, with view to development of multilateral guidelines on labeling, including establishment of ‘clear and non-discriminatory rules for the creation and administration of eco-labeling schemes based on a life-cycle approach (see: WTO, General Council, Preparations for the 1999 Ministerial Conference: EC Approach to the TBT Agreement, Communication from the European Communities, 27 July 1999, WT/GC/W/274). 71. WTO Special Study on Trade and Environment, op. cit., note 46, Appendix I, para. 92. 72. See above, note 50. 73. See, e.g., the Turkish proposal for extension of added protection for Geographical Indications to other products, WT/GC/W/249. 74. In the context with economic incentives to conserve biodiversity, see also OECD, Investing in Biological Diversity, Proceedings of the Cairns Conference on Incentive Measures for the Conservation and the Sustainable Use of Biological Diversity in Cairns, Australia, 25-28 March 1996. See also Susette BiberKlemm, op.cit. note 57 and Thomas Cottier, op cit. note 59.

____________________ * Senior Lecturer, Faculty of Law, University of Basel, Basel, Switzerland. The paper is the result of a research project financed by the Swiss National Science Foundation.

Page 505 →CHAPTER 29 Comment: Some Thoughts on Managing the Interface between Intellectual Property, Genetic Engineering and Sustainable Development Mary E. Footer* All four of the papers that have been presented within the framework topic of ‘Intellectual Property, Genetic Engineering and Sustainable Development’ have in one way or another focused on some of the very complex legal and policy issues facing the international scientific community, governments, industry and the public at large. Geoff Hawtin explained how the Consultative Group on International Agricultural Research (CGIAR) has had to respond to the paradigm shift of plant genetic resources (PGR) as ‘a common heritage of mankind’, freely available for use by present and future generations, to PGR being considered as a national and/or private resource, subject to national legislation with restricted access and control and/or intellectual property protection. This was picked up by Susan Bragdon in her paper in which she dwelt on the changing policy environment related to the management and control of PGR with a careful exposé of the nexus between the environment, agriculture, trade and intellectual property rights, through a variety of international agreements, instruments and régimes. It led her to the conclusion that, despite efforts to further revise the International Undertaking on Plant Genetic Resources (the IU), in order to bring it into line with the Convention on Biological Diversity (CBD), and the recognition of the importance of the remaining ex situ germplasm collections held in CGIAR research stations across the globe, little has been done to actively promote the draft IU revision or to ensure that the free exchange and use of crop germplasm will not be unduly encroached upon by national access legislation. On the latter point, it was Susan’s view that plant genetic resources for food and agriculture (PGRFA) is best protected by the creation of a multilateral exchange system. Furthermore, Article 27:3 (b) of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs), leaves considerable flexibility to WTO Members as to the scope and coverage of plant variety protection (PVP), indigenous knowledge or even the protection of farmers’ rights under a PVP scheme. Page 506 →Martin Girsberger discussed the concept of farmers’ rights, as provided in the IU, and explored the role of the Food and Agricultural Organization (FAO) in realizing those rights and the prospects for their regulation under the WTO Agreement on Trade Related Aspects of Intellectual Property (TRIPs) as a possible trade-off in the revision of Article 27:3 (b) TRIPs. Susette Biber-Klemm then turned to the issue of complementary legal incentives for the conservation and sustainable use of plant and animal genetic resources. According to her, the raw materials of genetic resources and the information they contain are both marketable assets in global trade. She called for serious study of the effects of free trade regimes on biodiversity and the possibility of introducing financial incentives to compensate the costs of conservation in developing countries. Taken together this group of papers demonstrates how complex and fragmented the current international system is for the sustainable management and use of genetic resources. The presence of different actors, objectives, interests, cultures and power balances, as Susan Bragdon explained, is further undermined by the blend of public and private spheres of operation, particularly in relation to PGRFA that Geoff Hawtin noted. Not only has publicly funded scientific research given way to increased privatization but also the grant of patents over PGR and the use of plant breeders rights in protecting plant varieties has strengthened the encroachment of property rights over genetic resources, that were previously held to be public goods, freely accessible and exchangeable because they were in the public domain. The entry into force of the CBD has hastened the assertion of national sovereignty over biodiversity and hence PGR; Article 15 CBD is seen by many countries as the basis for correcting the asymmetry of access and benefits that previously accrued to developed countries in favor of developing countries. The current state of affairs prompts me to raise some further issues and questions. First, it appears that national PVP legislation in line with either the 1978 or 1991 version of the International Convention on the Protection of

Plant Varieties (UPOV) is becoming increasingly common in many developing countries. Often such legislation is drafted with the help of technical and financial assistance of donor countries under one form of Page 507 →development aid package or another. What is less well known, but equally discernable, is that many developing countries are adopting national seed legislation that is often more patent-orientated and restrictive than necessary for their purposes, particularly where agricultural production is geared towards domestic markets that rely primarily on traditional varieties of crop germplasm, used by small-scale subsistence farmers, rather than largescale, export-orientated agricultural production. I would therefore propose expanding Susan’s agenda in calling not only for an assessment of the impact of access and benefit-sharing legislation on developing countries, and the extent to which the rights of indigenous and local communities are protected, but also for a review of proposed or existent seed legislation in those countries. Second, it seems critical, as Susette Biber-Klemm has indicated that we should not ignore the financial issue. Who will fund and monitor the conservation and use of biogenetic resources? The prospects for an international funding system look bleak if we consider that in the field of PGRFA, the International Fund for Plant Genetic Resources established in 1989, under the FAO Global System, is still not operational. The obvious lack of political will at the international level to support such a fund is no doubt symptomatic of two trends. One is the increasing number and diversity of different stakeholders in the international system for the management of genetic resources; these currently include public, private, community, individual, corporate and non-profit actors and interests. The other is the very success of the CBD’s objectives in emphasizing that ownership and access of genetic resources are best dealt with by sovereign governments through national access and benefit-sharing legislation while the exchange and marketing of scarce genetic resources should be achieved through bilateral agreements. Third, the funding issue also highlights the difficulty of linking specific benefits with specific communities due to the multiplicity of actors, objectives, interests and instruments. Additionally, the paradigm shift of genetic resources (and hence PGR) as sovereignty-based underpins the CBD and is reinforced by Article 27:3(b) TRIPs, which encourages WTO Members to legislate for the protection of PVP through patents, a sui generis system, or both. Both developments under the CBD and TRIPs call for a re-assessment of the legal concepts of ownership and custodianship that do not easily accommodate a system of multilateral benefit-sharing, based on extended international reciprocity, and which allows for the concept of international stewardship such as exists within the CGIAR system. This leads me to my fourth point. Not only does the outlook for international funding look bleak but I am also pessimistic about the future of a revised IU. Presently, the intention is to reconcile the aims and objectives of Page 508 →the IU with the CBD by incorporating a revised form of the IU into a protocol to the Convention. (The proposed protocol may include the three elements present in the different resolutions, appended to the IU, including the acceptance (through interpretative statements) of plant breeders’ rights, the assertion of national sovereignty over PGR and the declaration on farmers’ rights but this is not clear.) Moreover, there remains the unresolved question, to which Geoff Hawtin alluded, of the future of the collections of ex situ crop germplasm, currently held in international agricultural research centers (IARC’s), that were collected prior to the entry into force of the CBD and which are held in trust under the 1994 FAO/CGIAR agreements for the benefit of all humanity. As long as the Conference of the Parties (COP) to the CBD continues to assert that this issue resorts under the FAO Global System and not the CBD, it appears unlikely that there will be sufficient international backing for the creation of a multilateral system of exchange of PGRFA of the type that Geoff Hawtin and Susan Bragdon propose. Fifth, revision of the IU also focuses on the concept of farmers’ rights, as elaborated upon by Martin Girsberger, but perhaps we should ask ourselves: Who are the farmers? Surely, we must be able to answer this question before we can arrive at an agreed definition of the term ‘farmers’ rights’. Given its relatively recent appearance (in Annex II of Resolution 5/89 to the IU), the concept has thus far failed to gain widespread recognition and acceptance among countries outside of its specific application to PGRFA under the IU. Ironically, the very fact that such rights have been vested in the international community, as trustee for present and future generations of farmers, will not have helped its development as a broader concept, identifiable and applicable in the context of national legislation to regulate access and benefit sharing and/or the grant of intellectual property rights.

Finally, I wonder to what extent exceptions for national policy objectives related to the conservation and management of genetic resources, including plant or animal genetic resources, as set out in Article XX GATT 1994, subparagraphs (b) ‘necessary to protect human, animal or plant life or health’, or (d) ‘necessary to secure compliance with laws or regulations...’ or (g) ‘relating to the conservation of exhaustible natural resources...’, could be invoked in the case of a conflict between trade liberalization and those policies. Commercial exploration and use of genetic resources has grown considerably over the past few decades with the rise of the biotechnology industry to the extent that one can now speak of markets for genetic resources. The following example may illustrate the point. It is not inconceivable that a WTO Member may seek to justify a trade measure, for example an import/export prohibition, or restriction, on crop germplasm and the related transfer of genetic information and technology, protected by intellectual property rights – patents or PVPs – in violation of Articles 1, II or XI GATT Page 509 →1994. Alternatively, it might impose a border ban on imported crop germplasm and related genetic information and technology, as part of a domestic conservation program of PGRFA, in contravention of Article III GATT. The WTO Member in question might well do this, on the grounds that it is protecting its PGRFA, as part of a program for the management and conservation of its exhaustible natural resources (perhaps to include the preservation of existing in situ collections of PGRFA, or to allow for the protection of traditional knowledge systems linked to improvement of crop germplasm) and that such PGRFA conservation measures are essential to its economic well-being, as prescribed in its access regime on genetic resources. Many such systems may inadvertently restrain the flow of genetic resources, particularly PGRFA, thereby impeding access to agrobiodiversity and crop diversification, but they may also impede commercial access to and exchange of crop germplasm and related genetic information by legitimate entities, the effects of which would not only be trade restrictive but might unduly lock-up a country’s national resources in ways that it had not anticipated. It should be borne in mind that reliance on one of the exceptions, listed in Article XX GATT 1994 such as subparagraphs (b), (d) or (g), as a justification for the import/export restriction or discriminatory internal law, or regulation, is no easy matter. In recent years there has been a significant development towards a more principled GATT/WTO jurisprudence on environmentally based trade measures. Briefly, developments in Article XX case law call upon WTO Members to balance market-access conditions contained in substantive GATT obligations with their right to protect the environment including, as in this case, to conserve and manage their genetic resources. Moreover, when invoked, the exception is limited and conditional in its application; since the Gasoline case, a two-tiered test calls for preliminary justification of the measure under one of the listed exceptions (a) to (j), such as Article XX(g), and an appraisal of the measure under the introductory clauses, or chapeau, of Article XX. This means that the measure must not be ‘arbitrary’, ‘unjustifiably discriminatory’ or constitute a ‘disguised restriction on trade’. Furthermore, in line with the case law of Gasoline and Shrimp/Turtle, a WTO Member’s design of a measure, which prohibits or restricts the import/export of crop germplasm and is aimed at the conservation of PGRFA, would have to demonstrate that the means for achieving the policy objective of protection and conservation of PGRFA is reasonably related to the ends, to the extent that the relationship between them is both ‘substantial’ (Gasoline) and ‘observably a close and real one’ (Shrimp/Turtle). Both cases, but particularly Shrimp-Turtle, apply the test of proportionality in considering the design and structure of the conservation measure which must not be ‘disproportionately wide in its scope and reach in relation to the policy Page 510 →objective of protection and conservation’ of the exhaustible natural resource. A final point to note when applying Article XX(g) is that the PGRFA conservation measure would have to be made effective in conjunction with domestic regulations that are applied to the conservation and management of PGRFA in the WTO Member country.

____________________ * Senior Lecturer, Amsterdam Center for International Law, University of Amsterdam, Amsterdam, The Netherlands.

Page 511 →CHAPTER 30 Comments on the Papers Presented by Geoffrey Hawtin, Susan H. Bragdon, Martin A. Girsberger, and Joseph Straus Reinhard Quick* I would like to start my remarks with an anecdote. I was pleasantly reminded of this seminar during my summer holidays. We went to see some of the canyons in the south-western United States. In one of them we were heavily attacked by mosquitoes. Our guide, a Navaho-Indian, showed us a plant, which the people of his tribe use as a mosquito repellent. It seemed to work since he was much less bitten than we were with our chemical mosquito repellent. So I asked myself whether the Navaho-nation could claim an indigenous right on such repellent if, for example, a pharmaceutical company produced a mosquito-repellent on the basis of the same plant used by the NavahoIndians and after having isolated the active substance from the plant? Or should one argue that the knowledge is in the public domain and can therefore no longer be protected by intellectual property laws? Having in mind the papers presented today and our discussions I think that the basic answer to the issue is clear. It is up to the state to decide. So, in this case it is up to the United States to decide. The US has however not ratified the Biodiversity Convention. My guess would therefore be that the Navaho-nation cannot seek the protection of its traditional knowledge. It could perhaps attack the patent of the pharmaceutical company on the mosquito repellent for lack of novelty. Page 512 →The four papers on which I will comment have clearly demonstrated the shift in international law from free access to genetic resources to a regulated access. The Biodiversity Convention has attributed these resources to the nation in which they are found. The papers also show that economic operators have a growing interest in having access to genetic resources. They want to develop new products using traditional biological methods or modern biotechnology. The common thread of the papers is the issue on how access and benefitsharing should be regulated so that biodiversity can be maintained. I would like to discuss three points under this common theme: (1) the notion of public and private ownership, (2) Benefit-sharing and (3) protection of intellectual property. I was struck by one point in Geoffrey’s paper, namely the free access to the collections of the International Rise Research Institute and the Wheat and Maize Improvement Centre. Geoffrey has made a case for continued public sector involvement by demonstrating that the private sector has no interest in housing huge germplasm collections. Yet given the shift of paradigm and the interest of economic operators in these collections one wonders whether the material in the collections can remain in the international public domain. Can we continue to argue that the centres are the trustees rather than the owners of the material in the collections? Should access to the materials should be given away for free or only upon payment of a certain access-fee? With respect to benefit-sharing addressed by Susan I would stress two ‘buzz’-words: mutually agreed terms and prior-informed-consent. Article 15 of the Biodiversity Convention clearly establishes that the access is subject to national legislation. Access requires prior-informed-consent and Benefits should be shared fairly and equitably. So there are possibilities for win-win situations both for the resource-rich countries and for the economic operators. So what are these benefits? One can make the following distinctions: monetary benefits, namely up-front payments or royalties, i.e. royalties on the products produced as a consequence of the access. There are nonmonetary benefits and I would particularly refer to the transfer of technology, the training of personal and the transfer of data. Benefit-sharing is accepted by economic operators, yet several problems arise when it comes to materialising the actual benefit. First and foremost companies often tell us that there are unrealistic expectations from the donor countries on what is to be earned as a consequence of the access. Second there is often still a lack of sufficient protection of intellectual property in the country concerned. A third problem is that the access legislation is not yet in place or that the research institutes with whom the companies work do not know enough about the legislation itself or about how it works.

I do not think that you can answer the question on whether Article 15 CBD has led to positive effects. We have not enough experience to give a Page 513 →clear yes or no. The issue has required a lot of re-thinking in companies and still requires implementation of intellectual property protection in biodiversity-rich countries. We will see whether the end of the TRIPs transitional period and the coming into force of intellectual property laws in resource-rich countries has a positive effect on access and benefit-sharing. Turning to my third subject I have to admit that I am rather disappointed. I expected an answer from the authors of the four papers on how the concept of sui-generis protection contained in Article 27.3(b) TRIPs should be put into practice. After having read the papers and heard the presentations my basic premise remains unchanged. If a country wants to attract investment it should rely on an effective and efficient IP-system without the optional exclusion. I acknowledge that the TRIPs agreement leaves some room, yet will it be beneficial for a WTO member to establish a sui-generis system or would it not be better just to accept full patent protection for biotechnological inventions? Martin’s paper has addressed the issue without giving a specific description of a sui-generis system. Today we have heard about farmers’ rights and we have all read Thomas’ article on traditional resource rights, yet I am somewhat disappointed that we cannot discuss a concrete proposal. I have to say that Martin did give some ideas, yet the specific scope of a farmer’s right remains unclear. I think economic operators want to have clarity about the scope of the protection under a sui-generis system before they will support it. Yet, what we hear today and what we read is not reassuring: this is a complex issue, it will require a lot of time and a lot of conceptional work. We can agree on the concept of a sui-generis system but unless we have proposal which we can subject to a TRIPs scrutiny the discussions will remain circular. It is no secret that I have my doubts whether a sui-generis system can work and will be beneficial to the country introducing it. I also recognise Professor Straus’ statement that a harmonised system would probably be better than many different systems. But if it is not possible to have a harmonised system, I would prefer that the different systems developed under Article 27.3(b) TRIPs compete with each other. Such a competition will eventually show which system prevails. Finally I would like to challenge Martin’s suggestion that the introduction of a farmers’ right could be considered as a possible trade-off in the ongoing review of Article 27.3(b) TRIPs in order to balance the divergent interests between biodiversity-rich and technology-rich countries. One might speak of a trade-off politically but what would biodiversity-rich countries get if they introduced a sui-generis IP system with a lesser scope of protection than a traditional patent system. If they continued to exclude plants and animals from patenting I cannot see a trade-off but only an economic disadvantage. If economic operators have a choice they will invest in the Page 514 →biodiversity-rich country with the strongest IP protection and will be reticent to conduct research in countries with a poor IP system even if that system will be, or will eventually be made, TRIPs compatible.

____________________ * Verband der Chemischen Industrie (German chemical industry association), Head of the Brussels Liaison Office, Brussels, Belgium.

Page 515 →CHAPTER 31 What Is the Future Role for the CBD in the Preservation of Plant Genetic Resources and Biological Diversity: A Plea for Policy Coherence Christoph Bail* This chapter looks at a number of inter-linked international processes relating to the conservation and sustainable use of genetic resources taking the CBD as a starting point. It argues that there is a need, if not obligation, to ensure coherence of the actions taken under different treaties and within different organizations such as the CBD, WIPO, FAO and the WTO/TRIPs and outlines some concrete actions, which could be taken. Finally, it discusses the CBD’s role in defining the framework for policy coherence in this area and in promoting a strong interrelation and a proactive dialogue.

1. The CBD as a Basis for Improved International Cooperation Traditional measures for preserving biodiversity have proven insufficient. The Convention on Biological Diversity (CBD),1 which is the most comprehensive environment treaty in existence, represents the international recognition that a more holistic approach and better international co-operation in this area are necessary. New incentives are urgently needed; in particular market based ones. In this respect the uses of genetic resources and distribution of the benefits from such uses deserve special attention. The fair and equitable sharing of benefits arising from the utilization of genetic resources is one of the main objectives of the CBD along with the conservation of biological diversity and the sustainable use of its components (Article 1). Page 516 →The CBD strikes a balance between a Party’s authority to regulate access and its obligation to facilitate access to genetic resources for environmentally sound purposes by other parties. It endorses the sovereign right of states over their biological resources (Article 3) and the consequent authority of national governments to determine access to genetic resources (Article 15.1). Such access shall be subject to the prior informed consent of the provider country (Article 15.5) and is granted on mutually agreed terms (Article 15.4). There are a number of related articles in CBD which should be considered in this context. Article 8(j) directs Parties, subject to their national legislation, to respect, preserve and maintain knowledge, innovations and practices of indigenous and local communities and promote the wider application of such knowledge and practices and encourage the equitable sharing of benefits arising from the subsequent utilization. Article 16 makes the important link between access to genetic resources; transfer of technology and intellectual property rights (IPRs). Article 19 deals with the distribution of the benefits of biotechnology and creates the basis for the negotiations of a protocol on the safe transfer, handling and use of living modifies organisms.2 The CBD thus provides for a comprehensive set of principles, rights and obligations of varying specificity and degree of binding character on access and benefit sharing. Today’s international debate evolves around two conceptions. Developing countries feel that they are not being, and have traditionally not been, allocated an equitable share of the benefits from genetic resources which to an overwhelming extent are located on their territory; developed countries are worried about the prevention of access to genetic resources (and thus ultimately the generation of benefits) that strict national access regimes might entail. In addition, indigenous communities voice concerns over the way their traditional knowledge is being used considering that they mostly neither receive a fair share of the benefits nor possess the appropriate means to protect their knowledge from undue uses.3 The EUs priorities on access and benefit sharing focus on bridging these conceptual gaps and finding practical solutions promoting sustainable development in light of the CBD objectives and provisions. They include raising awareness on the importance of genetic resources in developed and developing countries and promoting a

transparent dialogue between providers and users to identify ‘best practices’. This demands a review of relevant policies, legislation, administrative procedures and contractual arrangements, including all stakeholders. Page 517 →The CBD contains few ‘hard law’ obligations and many ‘soft law’ commitments. It is not a static treaty but a process towards consensus building and operational instruments. This is also true as regards the developments and prospects for access and benefit sharing. After a long period of dialogue of the deaf, agreement was reached on the need to make progress at the fourth Conference of the Parties in Bratislava in 1998.4 This commitment was then reinforced at an inter-sessional meeting in Montreal in the summer of 1999. The Parties also set up a Panel of Experts composed of government officials and representatives from NGOs, industry, as well as indigenous and local communities. The Panel was given a broad mandate for bridging the different conceptions on a number of issues including: Prior informed consent by provider countries, mutually agreed terms for benefit sharing, recognition of sui generis rights for traditional knowledge, disclosure of the country of origin in the context of patent applications, identification of best practices, regulatory procedures and any other alternative forms of incentive measures. The Panel engaged in a comprehensive debate and identified common understandings between providers and users as well as the main stumbling blocks, serving as basis for a further analysis in the run-up to and at the COP5 in Nairobi.5

2. Mutual Supportiveness with Other International Agreements While this step was somewhat of a breakthrough it is clear that not all solutions can be found in the context of the CBD. Access and benefit sharing of genetic resources involves a number of other issues with bearing on national and international law, one of the most obvious being intellectual property rights (IPRs). The CBD recognizes explicitly the interrelation between its own objectives and IPRs, stating that contracting parties shall co-operate to ensure that IPRs are ‘supportive of and do not counter to its [CBD’s] objectives’ (Article 16.5). While this provision is ‘subject to national legislation and international law’ it gives an important policy message. This provision relates inter alia to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs),6 which was negotiated in parallel to the CBD. TRIPs obliges the Members of the WTO to meet minimum standards for protecting IPRs. It lays down the principle that any inventions, i.e. basically anything, discovered by humans and not found in nature, is eligible for being patented (Article 27.1). This principle was previously reflected in the laws of many countries but was through TRIPs extended to all its parties. The agreement provides for the possibility of exclusion of animals and plants from patentability (Article 27.3.b). Parties must however provide for patenting of microorganisms and microbiological processes as well as for an effective form of IPRs on plant varieties (patents or sui generis system). Page 518 →It has been argued that there is an inherent conflict between the CBD and TRIPs. The arguments put forward are based on ethical considerations about whether ‘patenting of life forms’ should be allowed, as well as on practical concerns such as about the possibilities of obtaining protection under TRIPs for a patent on a product developed in contravention of the CBD. There has also been an inconclusive discussion about which agreement should have precedent according to Article 22 of the CBD and the rules of the Vienna Convention Increasingly, the concept of ‘mutual supportiveness’ between the two agreements defended by the EU is gaining ground. This is not limited to WTO and TRIPs but concerns a number of other agreements, most importantly, agreements under the World Intellectual Property Organization (WIPO), the International Union for the Protection of New Varieties of Plants (UPOV) and the Food and Agriculture Organization (FAO), in particular the revision of the Undertaking on Plant Genetic Resources. Before setting out some ideas on how the mutual supportiveness can work in practice, it is necessary to explain the rationale for this concept. Firstly, the principle of mutual supportiveness has been recognized in a number of relevant agreements, notably in article 16.5 of the CBD. Secondly, the Parties to these different international agreements are largely the same. As states cannot be assumed to undertake conflicting commitments it is implied that these agreements are meant to be coherent and should be interpreted and applied in light of this. Finally, the

agreements arguably all serve a common overarching purpose: providing means for the promotion of sustainable development. It is difficult to argue that trade liberalization is an objective in itself rather than a means to achieve the wider objectives stated in the preamble to the Marrakesh Agreement establishing the World Trade Organization or that the harmonization of patent law is required under some higher principle of inalienable rights rather than providing the stimulation of innovation, sustainable development and distributional justice. Therefore, there is a strong case for arguing that, in the interest of promoting sustainable development, measures within the scope of the different agreements should be taken with a view to render the principle of mutual supportiveness effective in practice.

3. Possible Steps Which concrete incentives for the effective implementation of access and benefit sharing arrangements can be established under these varying agreements? This paper does not pretend to introduce an exhaustive list of such measures but only to present some possibilities. One idea put forward is to agree an obligation of disclosure of the origin of genetic resources in Page 519 →relation to application for intellectual property rights, where the applicant has this information. The EU has already taken an important step forward in this regard in its own Directive on biotechnological inventions 7 by encouraging the disclosure of the origin of biological materials used in biotechnological inventions, although this is not made a condition of patentability. Article 22 of TRIPs allows for the protection of products, which are defined through geographical indications. This could provide protection for some products which are known by the locations from which they have originated and possibly be used for furthering the objectives under the CBD. Other possibilities to protect knowledge, innovations and practices of indigenous and local communities such as the use of trademarks and the protection of trade secrets could also be explored. Also we should not be afraid to explore the possibility of creating new systems and agreements. WIPO is currently exploring the IP possibilities for the protection of traditional knowledge (TK) (Article 8(j) of the CBD) and has a comprehensive work programme that should lead to the presentations of different options. Better documentation and registration of TK would be an important first step. Issues like collectivity in creation and ownership of TK as well as the use and recognition of customary law in relation to TK deserve further study. New legal concepts which attempt to take into account these specificities of traditional knowledge e.g. ‘Traditional Resource Rights’ are being tried out at national level (e.g. in the Philippines). Finally, the revision of the International Undertaking on Plant and Genetic Resources (IU) is a very important process in this context. Following the adoption of the CBD the FAO conference decided in 1993 to revise the IU to bring it in harmony with the CBD.8 The IU is intended to ensure that plant and genetic resources of economic and/or social interest, particularly for agriculture, will be explored, preserved, evaluated and made available for plant breeding and scientific purposes. Considering the clear objective of the revision, it will be an important test for the actual willingness of the international community to effectively take on board the principles of the CBD. The outcome will depend upon the flexibility among the parties regarding the creation of market based incentives for the conservation of genetic resources combined with the establishment of an appropriate public policy framework and development aid for capacity building purposes. It is essential that the principle of mutual supportiveness between a revised undertaking and other international agreements be not undermined in the process. Eventually, the revised IU could become an instrument under or even a legally binding protocol to the CBD.

Page 520 →4. Towards a Coherent Policy Framework It is however not enough to identify ideas for concrete solutions if this process is to be successful. The process will not yield results until the principle of mutual supportiveness and coherence permeates the institutional framework including CBD, FAO, WIPO, TRIPs and the overall WTO process. This demands the realization by policy makers that a coherent negotiation perspective has to be taken to reach the overall objectives.

Looking at the different fora involved, WIPO has an important role in identifying innovative IPR solutions. It is an organization which is very good on technical grounds and provides a normally non-politicized forum for a constructive learning process. However, it has rarely provided for a negotiation setting towards the balancing of divergent interests and the harmonization of IPR protection. That is the reason why the area of substantive harmonization of IPR regimes was essentially transferred from WIPO to the WTO. The WTO, on the other hand is a politically strong organization with effective dispute settlement mechanisms and potentially a very good negotiation forum. One of the challenges in the context of the WTO is that its policy objectives need to be clarified. On the one hand, non-discrimination (Most Favored Nation and national treatment), transparency and trade liberalization are still the main principles. On the other hand, there is the overarching objective of sustainable development and the harmonization of the intellectual property protection. But how do these principles fit together? Does the harmonization of intellectual property rights worldwide not also require counterbalancing rules on competition and fair distribution of benefits? Moreover, the integration of environmental considerations and of the internalization of external costs in the context of WTO rules is still far from being addressed in an operational way. While the GATT has been transformed into the WTO, the formulation of its policy objective has not been redefined. The failure of the Seattle meeting to launch a new trade round demonstrated the difficulty of defining a balanced agenda and policy objective for the WTO. One option would be to progressively transform the WTO into the institution providing the framework for competition in global markets to promote sustainable development. As long as this is not the case, the WTO remains an incomplete segment of a coherent policy framework yet to be created. The CBD has arguably a broader mandate and a more comprehensive objective than any of the other relevant treaties or fora. It deals with both conservation and sustainable use of biodiversity, i.e. all our ecosystems. Another interesting element is the fact that the Global Environment Fund is related to the CBD which provides for the possibility to discuss some of the financial questions which are combined with progress on these issues at international level. It would seem that in the context of the Page 521 →CBD it is easier to balance interests in the area of the use of genetic resources than is currently the case in the WTO where the industrialized world seems to have little to offer to the developing countries in return for the concessions it wants. The CBD is, however, still a weak framework agreement. Furthermore, it still lacks an essential party: the United States. If the US would, following the next presidential election and a change of chairmanship of the US Senate’s Committee on Foreign Relations, decide to ratify the CBD, this would drastically improve the situation. Without the US as a party it is very complicated to reach any meaningful results. This was for a long time evidenced by the negotiations on the Biosafety Protocol. Looking at the WTO and the CBD, the two processes have a lot to offer each other. There are a number of issues identified under the CBD which could provide for ‘offers’ to developing countries in an overall process, for example the protection of traditional knowledge or incentives for information and benefit sharing in the context of applications for patents on biotechnological inventions. There has been considerable discussion on what can be done in the context of the upcoming revision of TRIPs Article 27.3.b. Any revision should of course respect the general objectives and principles of the agreement, but there seem to be a number of possibilities for the WTO /TRIPs to contribute more specifically to the objective of access and benefit sharing agreed in the CBD. At the fifth Conference of the Parties of the Convention of the CBD, the process initiated in Bratislava on access and benefit sharing with regard to genetic resources bore fruit and a decision was taken to launch a negotiation process on access and benefit sharing. Article 11 of the COP decision on access and benefit sharing concludes the following: The Conference of the Parties ‘decides to establish an Ad Hoc Open-ended Working Group, composed of representatives, including experts, nominated by Governments and regional economic integration organizations, with the mandate to develop guidelines and other approaches for submission to the Conference of the Parties and to assist Parties and stakeholders in addressing the following elements as relevant to access to genetic resources and benefit-sharing, inter alia: terms for prior informed consent and mutually agreed terms; roles, responsibilities and participation of stakeholders; relevant aspects relating to in situ and ex situ conservation and sustainable use; mechanisms for benefit-sharing, for example through technology transfer and joint research and development; and

means to ensure the respect, preservation and maintenance of knowledge, innovations and practices of indigenous and local communities embodying traditional lifestyles relevant for the conservation and sustainable use of biological biodiversity, taking into account, inter alia, work by the World Intellectual Property Organization on intellectual property right issues. The above mentioned elements should, in particular, serve as inputs when developing and drafting; Legislative, administrative or policy measures on access and benefit-sharing; and Contracts or other arrangements under mutually agreed terms for access and benefit-sharing. The results of the deliberations of the Working Group, including draft guidelines and other approaches, shall be submitted for consideration by the Conference of the Parties at its sixth meeting.’ This negotiating mandate should, in due course, lead to a comprehensive as well as operational instrument addressing all relevant aspects of access and benefit sharing.

Page 522 →5. Conclusion In conclusion, parties to the CBD have an international obligation to enhance the incentives to conserve biodiversity and promote its sustainable use through appropriate access and benefit sharing arrangements for genetic materials. The CBD needs to clarify this obligation and provide an overall framework including guidance for the other relevant international agreements. This could also contribute to raising confidence in processes like the WTO/TRIPs which have been seen as driven by exporter or producer interest only. However, if the environment and trade processes continue to be seen as running on separate tracks, there is very little scope for constructive negotiations and trade-offs. Also, if we neglect to take coherent action there could be further backlashes within all international fora generated by public opinion and the frustration of developing countries. The European Union has a very important role to play as a forerunner in promoting the necessary coherence in these different fora at international level.

NOTES 1. The CBD was adopted in May 1992 in Nairobi and opened for signature at the Rio Earth Summit in June 1992. It entered into force on 29 December 1993. At present it has 175 Parties, including the European Community. 2. The Cartagena Protocol on Biosafety was adopted in Montreal on 29 January 2000.Page 523 → 3. For a further account of the relevant CBD provisions relating to access and benefit sharing and a comprehensive overview of industrial practices, see ‘The Commercial use of Biodiversity’ Kerry ten Kate & Sarah A. Laird, Earthscan Publications Ltd. 1999. 4. See COP decision IV/8. 5. See report of the Panel of Experts on Access and Benefit sharing UNEP/CBD/COP/5/8. For a follow up of developments under the CBD as regards access and benefit sharing see www.biodiv.org. 6. 33 I.L.M. 1197 (1994). 7. Directive 98/44/EC of 6 July 1998 on the legal protection of biotechnological inventions. O.J. L 213, 30.7.1998, p. 13. 8. For a detailed account of the different steps of the revision, see the paper presented at this conference by Mr. A. Girsberger ‘The Concept of Farmer’s Rights, the Role of FAO, and the TRIPs Agreement’.

____________________ * Head of Unit Development and Environment; Directorate-General Environment; European Commission, Brussels, Belgium The author is indebted to Stefan Olsson for his assistance and valuable input to this paper. The views expressed in this document are solely those of its author. Page 524 →

Page 525 →CHAPTER 32 ROUNDTABLE DISCUSSION ON PART III

Transcript of Roundtable Discussion 28. August 1999, Bern, Switzerland

J. Watal I have only one question. I would like to ask about the difficulties of defining a derivative.

R. Quick I have a question concerning Geoffrey Hawtin ‘s idea that plant varieties are possible for derivatives but not under patent protection. I find there is a certain inconsistency. You said plant varieties are made available whereas you have a ‘locking up” in a patent system. I challenge that statement because what the patent application does is explain what has been done and that is what is the topic for me. I would like to have some clarifications on that.

A. Otten I have couple of questions on benefit sharing. Is it part of the concept of benefit sharing that the country which was the source of the genetic material would have free access to proceeds of the material? Automatic licensing or what form would it take to improve varieties that have been faced with that genetic material? And then, is there any thought being given to making a distinction in the international regime between basic food crops and other types of maybe less essential cash crops or commercially oriented crops?

Page 526 →G. Hawtin Regarding the definition of a derivative, we face a rather different situation in the CGIAR than does UPOV, although UPOV is also struggling with the definition. One of UPOV’s concerns is to try to ensure that if you take someone else’s variety and just add a single gene to it, you cannot claim it as your own variety. You haven’t done enough to justify such a claim. Now the question we’re asking in the CGIAR is a little different. As trustees of germplasm collections we wish to maximize the use made of these collections. If an accession is taken from a CGIAR genebank and only a minor modification is made (such as the addition of a single gene or merely a single plant selection), should IPRs be allowed on the resulting variety or not? We do not wish to discourage any reasonable use of the germplasm. A fine balance has to be drawn between promoting the widespread use of the germplasm collections and protecting the interests of those that have contributed material to the collections. The CGIAR does not itself register varieties. We provide materials, directly from the collections and germplasm improved by our breeders, to breeding programs around the world, but especially in developing countries. These programs have traditionally mostly been in the government sector but increasingly we also send material to private sector breeders. Why is plant variety protection generally preferred over patents by the CGIAR germplasm managers? The issue relates in large part to the research exemption provided under UPOV. A variety protected by plant breeder’s rights is freely available for anybody to do further breeding work. There is no need to even refer back to the holder of the right and this, in effect, keeps material in the public domain as regards its availability for further breeding. The sharing of the benefits derived from plant breeding with the communities and/or countries from which the materials originated poses many problems. One real difficulty is how to distribute benefits when many different source countries and communities are involved. There is a substantial difference between major food crops and some other crops in this regard. If you take, for example, a modern rubber variety, it is generally relatively simple to trace its pedigree, and the source of its parental lines. A modern wheat variety, however, may have parental

material originating from more than 20 countries and possibly from 50 or more communities in those countries. Some of the parental lines might have been collected decades ago. Thus in many cases it can be very complicated – if not impossible – to try to link specific benefits with specific communities. There’s a growing recognition that a logical way around this is to provide access and benefits through an equitable multilateral system rather than trying to link benefit sharing to specific genetic resources through bilateral agreements. Page 527 →A related difficulty is posed when trying to identify the ‘country of origin’ of a particular genetic resource. The Conventional on Biological Diversity talks about the rights of the country of origin of materials. According to the definition provided in the Convention, the country of origin of agricultural biodiversity is that country in which it obtained its distinctive properties. A wheat variety is likely to have in its parentage distinctive properties that have accumulated in many different places all over the world since wheat was first domesticated in West Asia some ten thousand years ago. Tracing the origin of all the ‘distinctive properties’ of a variety is, of course, an impossibility. This contrasts markedly with the situation that is more common in pharmaceuticals where tracing a distinctive property (a single bioactive chemical of interest, for example) is relatively straightforward. In this case the chemical – which might have been identified in part as a result of indigenous knowledge – may ultimately be synthesized in a single factory and sold by a single company. It was uses of biodiversity such as this, rather than the normal agricultural situation, that dominated in minds of the negotiators of the Convention on Biological Diversity. Agriculture is quite different. Take the case of the so-called ‘Green Revolution’ varieties, the semi-dwarf wheat and rice varieties that helped dramatically increase grain production in developing countries the 1970’s and 1980’s. These varieties were developed through public funding and depended on extensive international cooperation, incorporating genes from many developing and developed countries. They spread largely from farmer to farmer and through the small-scale seed sector and were unprotected by IPRs. In such a system a system that has proven its worth to world agriculture – how can there be any ‘formal’ system of benefit sharing linked to the supply of specific genes? The difference between public and private sector breeding programs is increasingly difficult to define. The traditional public sector has come to take on many of the characteristics of private sector, such as increasingly using IPRs. For internationally publicly funded institutions such as the CGIAR Centers it is impossible to try to distinguish between public and private sector institutions when we distribute materials. So, when we send out materials from the in-trust germplasm collections we use the same Material Transfer Agreement for all. However, in our dealings with the private sector we do try and use our research partnerships to leverage access, on favorable terms, to proprietary technologies that can be useful to developing countries. With respect to the policies of the Royal Botanical Gardens at Kew, the situation they are facing relates more closely to the situation I described earlier with the pharmaceutical industry than to the agricultural situation faced by the CGIAR Centers. Kew’s main ‘clients’ tend to be ‘bioprospectors’. Thus the policies on benefit-sharing that Kew has adopted, while relevant to their circumstances, are far less so for the CGIAR which Page 528 →deals almost exclusively with plant genetic resources for food and agriculture. Any germplasm collecting carried out by the CGIAR Centers is always done in full agreement with the country concerned and with the local communities. However, because many countries do not yet have legal and institutional systems in place to authorize and monitor such collecting missions in response to the Convention on Biological Diversity, actual collecting in the field over the past few years has slowed down considerably. This is clearly an unintended side effect of the Convention and I fully agree with suggestion that it would be very helpful to document this.

R. Quick I might have a naive view on patents but I find your research exemption argument somewhat outside of my comprehension. I have always thought that when patents expire then researchers get free access published and when researchers have free access they can of course repeat the invention, and they can repeat the invention for their own purposes in order to do further research on it and even further produce products from it because – and I always thought that this is the rationale for patent systems – the invention was made public. And then you have

exclusified the inventor and I can’t build my research on existing patented material in order to add something to it. Therefore I don’t understand your research exemption here.

T. Cottier May I invite Joseph Straus briefly to give us the state of art on the question of research exemption, including what I think is also important here, that is dependent licensing. I think there are some misunderstanding on this point.

J. Straus I will try to do so very briefly. In principle, what Reinhard Quick just said is correct in that – at least in Europe – we have a statutory research exemption and at least under the case law of Germany and of the UK, everybody is allowed to use the patented invention in order to improve it for instance to find other uses as long as they don’t simply use them as research tools. A research exemption – at least in Europe – exists and plant breeders in Europe have also quite clearly stated that due to the research exemption provisions in the plant breeders law one always has both accesses. So since in the end the material on the market is a variety you can use it for further breeding and you do not violate a patent as long as the end product that you would like to Page 529 →market, does not fall under the patent claims, you would have an independent invention. Otherwise you would be dependent. In order to ease this quite tense relationship between plant breeders and patent owners a cross-licensing provision has been introduced in the directive, allowing for licenses both ways, in the case you cannot negotiate one. Additionally and I repeat, that also on the plant breeders rights, in the case of hybrids one does not have a research exemption because a repeated use of parental lines is not allowed in order to breed a new variety. However, I’m just trying to make it clear that patent law is, also in this respect, not as horrible as is generally assumed. In the United States however, the question of the research exemption has to be viewed from a different angle but that’s again something which should not bother you that much. It’s a problem for the breeders in the US but not, in my opinion, for the centers.

A. Gupta Another dimension I wanted to mention is that according to recent statistics developing countries account for just 4 percent of world research and development expenditures. This means that 96 percent of expenditures related to the creation of science and technology is in the developed countries. It is in science and technology that we face the most dramatic a symmetry in the north-south-context. And this also has implications in terms of the use of the intellectual property system. There is a need to review the system to make it be more symmetric. My second comment relates to the sui generis and traditional knowledge protection. There have been very negative comments by some participants and Joseph Straus has left us with critical statements relating to this issue. I would like to recall that in the last ten years 2 new sui generis systems have been created, one related to integrated circuits. The law originally is from 1984 but the treaty of Washington was adopted 1989. And the second one related to protection of databases. So I think if some people are proposing the idea of the sui generis be developed for farmer’s varieties, for traditional knowledge etc., I think this is nothing so new in the idea as such, in order to be rejected so strongly. I personally think that both the reason of equity and in efficiency are strong enough reasons to develop some specific protection for traditional knowledge. I would not argue for a system under which you confer exclusive rights. I do not think this will work but the purposes of the system should be quite clear. Richard Owens has made some comments on this, and I agree that the objective should be to promote the preservation of knowledge and also to avoid misappropriations. Perhaps we need a system which operates in a way similar to the trade-secret system under which there is no exclusive right, but one can act when some malpractice take place. I Page 530 →will not expand on this, but wanted to emphasize that there is a necessity for further work on this. Finally I would like to follow some of John Barton’s comments. In my opinion, TRIPs has developed standards for the protection of innovators and other type-holders’ interests and there is now perhaps the need to develop similar standards to avoid abuses or to protect consumers and competitors from abuses within the system. We

have pointed out that in the area of biotechnology for instance, this is quite common because of the use of very broad claims and other practices. So I would argue that there is an opportunity – perhaps in a new round if it takes place – to operationalize some articles in the TRIPs Agreement such as Article 8 paragraph 2 and Article 40 in order to make rules relating to the abuse of intellectual property, more clear, and to develop effectively an interface between intellectual property rights and competition rights.

T. Wasescha Just to make the connection between what Richard Owens has said and what Christoph Bail and Adrian Otten have also stated. I would like to refer to some conversations we have had a few years ago with Anil Gupta about biodiversity and IPR. Anil Gupta asked us what could be done in order to avoid problems. And on the basis of his request or let’s say reflection, we have developed a two-track approach in Switzerland. Here with me today are a few colleagues working in the team and we have discovered that we cannot do anything in this field without industry, which is one of the main economic operators. We have succeeded in convincing the industry to participate with us in this adventure. And they agreed to work on a draft code of conduct which is a real progress compared to what they were thinking two years ago. So this code of conduct would be anchored within the Convention on Biological Diversity. Biodiversity. With this code of conduct as Christoph Bail said, we work closely and we would like to propose and discuss it in Costa Rica in this small work shop taking place in October 1999. Now this code of conduct, of course, only covers a part of the real activities of the real world of the economy and business people. And it is based on experience made by enterprises like Novartis, and Roche and small, medium sized enterprises. So it is real work. Now we have noticed that there is a certain area which cannot be covered by IPR or which is still in a gray area and here comes the usefulness of the work undertaken by WIPO. Yes, you identify the lacuna, and we pick up from there. Then perhaps we can set up some system which might complete this code of conduct. Everything is still in the first stage, but we are confident that with the cooperation of the industry we can move very fast. Page 531 →Now I would like to talk in parallel about this second approach we also pursue. We think that too many people are talking about the new system, but nobody has talked or at least used more the idea of better exploiting the existing system. Why don’t we tell, developing countries, to use more IPR? In contrast, what we said to them was, don’t do that, just wait until the transition period ends and then you will use it. The more they wait, the longer they miss the train. So our approach is that perhaps we are going to launch some pilot project in order to help a community to better use IPR, the existing system. And whenever there is no such IPR under the existing system, which covers their traditional knowledge, then we are ready to sit down and talk and discuss and perhaps devise some new things. On the sui generis approach, I agree with what Adrian Otten has said, that we should not waste too many great expectations on sui generis protection. The negotiators were thinking about the UPOV Convention. Now it is quite clear that we can have a system like the UPOV convention without being party to it, but nothing prevents a country from having a system which covers farmer’s rights as long as the system does not nullify or annul the efficiency of the sui generis system as the UPOF’s.

M. Matsushita I just wanted to make one point regarding Article 40 of TRIPs in connection with Carlos Correa’s remark on abuse control. What Article 40 says is that the member can come up with his own legislation on restricting practices and it cites three examples. It doesn’t say much. But it seems to me that there is one problem in Article 40. That is if you leave each country to come up with it’s own legislation then there may be a great disparity of the legislation on the protection of R&D in connection with patent licensing, and so on. And then what may happen is that the licensors may grant the license or direct license to those countries where the regulation is lax rather than stringent. So that may put some constraint on the legislation. So this is sort of like a race to the bottom kind of situation.. And so it seems to me that you need some kind of convergence with regard to the content of this Article 40. Now if you look at the European situation, we’ve got a bloc exemption of the patent- and know-how-licensing; in Japan we have a detailed guidelines like the European ones; and in the United States you have adjusted antitrust guidelines. I’m not saying that the WTO should copy those regimes but I think it’s really quite worthwhile studying them and then coming up with a list of the restrictive business practices, incorporated into patent licenses

and so forth. This could then perhaps be used as a guideline – not necessarily to amend TRIPs – but to serve as some kind of benchmark. I think the time will come when this sort of exercise will be necessary.

Page 532 →S. Bragdon I just want to pick up on a couple of points actually from both Mary Footer and from Reinhard Quick. One was interesting as Mary Footer asked where we are with seed legislation and went on turning to questions about plant variety protection. The point that stands out from the discussion but is so often lost as we become focussed on specific issues, is that instruments such as seed legislation or pvp are each part of a policy package. I think we often spend a great deal of time talking about how intellectual property rights affect biodiversity and genetic resources and to some extent that is appropriate but not if this consideration is at the expense of considering other instruments which are having an equally strong, and in some cases perhaps stronger, impact on diversity. It seems sometimes that the focus on IPRs may inadvertently have the effect of us not looking at these other instruments. Seed legislation, for example, has strong implications in terms of genetic diversity and if one were able to get to ensure that the IPR system was sympathetic and supportive of diversity this would be for naught if seed legislation was in place that undermined it. So it’s something I think we need to keep in mind as we are talking about implementation of the TRIPs Agreement. With regard to the discussion on UPOV, it will be interesting to see how that treaty develops now that more developing countries are adhering to it. It is my understanding that there was a bit of a rush to sign onto the 1978 Agreement as it became clear that the 1991 Agreement would enter into force and foreclose that possibility. Just a quick comment on operations of the CG and the changing scope and nature of the public sector. In my mind a growing, prosperous and strong private sector is not and moreover should not, be exclusive of there being a strong public sector. In fact, the growing role of the private sector is all the more reason that we need to have robust public sector. John Barton spoke rather ominously about what he described as the oligarchical situation in the United States and the need to counteract this with more vigorous use of antitrust laws and other mechanisms. I would add that the public sector is another very important way to keep options open and promote competition. So I would feel quite the opposite from our previous speaker that a growing role for the private sector decreases the need for public sector involvement. The public sector needs to be robust and focus on those things for which the private sector will never have an interest yet are critical to the health of the planet and global food security.

Page 533 →J. Straus Let me make some more general remarks, since my talk was limited to the situation in Europe only. Firstly, after having heard the interventions related to traditional knowledge and farmer’s rights, I may recall a remark of Isaac Newton who noted that we all stand on shoulders of our predecessors. Thus, our entire technology is build upon existing knowledge. In every patent application one can see how much existing knowledge forms the basis of an invention, which is to be considered as a step forward in the development of technology. Therefore, it is difficult to see how traditional knowledge could be rewarded by anything else than funds from public sources. Providing any kind of exclusive rights beyond those available under the intellectual property rights scheme appears, to my understanding, not realistic. I can claim that I was probably the first, or at least among the first, who, at a WIPOHigh Technology Meeting in 1986 in India, suggested that the only way to protect genetic resources and to collect proceeds from their exploitation would be the use of intellectual property rights (‘Plant Biotechnology, Industrial Property and Plant Genetic Resources – Some Thoughts with Regard to India and Southeast Asia’). In this latter respect I could imagine a bargain between industrialized and developing countries in the sense that industrialized countries would introduce into their laws provisions along the lines proposed by the European Parliament during the debate on the adoption of the Directive on the legal protection of biotechnological inventions. In other words, they could introduce into patent laws provisions obliging the applicant to indicate the source country of plant or animal material to which the respective invention relates, the entitlement for the use of that material, etc., i.e. compliance with local laws on access to and benefit sharing from genetic resources. However, this should be parallelled with the acceptance by developing countries that naturally occurring substances, including biological material, such as DNA, are to be regarded as subject matter which has to be patented under Article 27 (1) TRIPs, provided the usual patentability requirements are met. Although I could agree with nearly everything what Carlos

Correa said this morning, I have serious problems in accepting his opinion, advocated by the way also by some others present here, that natural substances could be excluded from patent protection under the TRIPs Agreement. If WTO Members are obliged to patent micro-organisms, which by all means are also naturally occurring, and are higher life forms as compared with, e.g. tissues, cells or DNA, how could then they be allowed to exclude naturally occurring substances from patent protection without violating TRIPs. To my understanding, the acceptance of industrialized countries to introduce into their patent laws special provisions of the kind mentioned, and, on the other hand, of developing countries to put out of Page 534 →question the patentability of naturally occurring products, could provide for a fair balance of interests. However, I have some sympathy for the decision of the Council and the Commission of the European Union, not to accept the proposal of the European Parliament at this point in time. Such a move should not be undertaken unilaterally, but should be provided either under the TRIPs Agreement, or in special rules under CBD. I do not believe that such rules would violate TRIPs. They could be seen in the context of other formal requirements, e.g. those regarding the naming of the inventor(s) under the US law. The situation could also be compared with that of the research exemption under Article 30 TRIPs. With regard to the latter, Mike Kantor communicated the generic pharmaceutical producers, when TRIPs was negotiated, that it would not conflict with the US Hatch-Waksman Act. Thus, clinical trials with patented drugs, to his understanding, do not violate TRIPs. Whether a rule allowing the use of patented products as research tools would also be covered by that TRIPs provision, however, seems doubtful. Let me now turn to the UPOV Convention and its relationship with TRIPs Article 27 (3) (b). I have doubts on compatibility of the UPOV 1978 Act with TRIPs, since under that Act members are allowed to protect within eight years of accession, only 24 genera or species. For breeders of those genera and species which are not listed in the list of protected taxa, the system cannot be viewed as an ‘effective sui generis system’ in the sense of Article 27 (3) (b) TRIPs; they do not enjoy any protection! Lastly, I would like to comment on the problem of multiple licenses required in the area of biotechnology in order to be able to bring a product on to the market. John Barton, has very correctly addressed this issue. It is true that even large companies have serious difficulties to cope with it. However, we should have more confidence into our courts, which could, as in the past, ease the problem in practice. There are also some alternatives, which could be used by industry to counteract undesirable patenting by early publication of relevant data. Recently, under the leadership of the Wellcome Trust, ten large pharmaceutical companies formed a socalled SNPs (Single Nucleotide Polymorphisms) Consortium. Its Members agreed that they will produce within two years about 300.000 SNPs and put them immediately into public domain in order to prevent that others, such as Human Genome Sciences (HGS) or Incyte Inc. could get patents. The Consortium decided to treat SNPs as precompetitive information and to seek patents only further downstream. That is all and I thank you very much for the opportunity to add some general remarks to what I have said in my presentation.

Page 535 →R. Howse I wanted to make a brief comment on Susette Biber-Klemm’s paper and Mary Footer’s remarks and the relationship between them. Susette Biber-Klemm raised the issue of using incentive mechanisms to protect biodiversity including that for nature swaps. But the empirical evidence about the years under direct environmental aid-release and swap formations is not very encouraging and I would refer to what I think is the best study, which is ‘Institutions for Environmental Aid’ edited by Bob Keohane where he looked at the variety of these attempts including the World Bank-based global environmental facility. Also, I was a bit surprised by the reference to the lack of consensus in the WTO, about trade measures versus protectionism, environmental protectionism in Mary Footer’s remarks about Article XX g). In a way there’s a limited need for further consensus. Article XX g) of the GATT as many of you are aware, at least allows for trade measures to protect exhaustible natural resources and I think this is really clear from the way that 20 g) was interpreted by the Appellate Body in the Turtles Appeal. Biodiversity as a value is really reflected in the relevant meaning of exhaustible national resources in Article XX g), and indeed as the Appellate Body noted, the idea of sustainability is in fact even incorporated into the opening provisions of the WTO Agreement itself. So I’m not sure how much further consensus there will need to be within the WTO, to use trade measures if one can imagine the appropriate or useful use under Article XX g) for biodiversity purposes. But of course, in order to get Article XX applied, one has to violate some provision of the GATT and so I was interested if Mary Footer might wanted

to comment a bit on that problem and also speak about what kinds of measures might used in an Article 20 litigation in the biodiversity context.

M. Footer I sort of threw it out, I haven’t thought it through completely yet, and it would depend also exactly what type measure, whether it would be goods-related It just occurred to me that so far many of these issues are being dealt with in some way or another within the remit and the challenge under Article XX, so in another way, it could be a policy measure of some type, maybe access legislation is the right one. I don’t think this [access legislation] is completely unthinkable.

Page 536 →T. Cottier This brings us to the end of these two days. I think it would be asking too much to draw an oral summary or a conclusion at this point of time. It would be a burden on you and I probably would not be able to do it, after all the aspects, the information and the thoughts we received during these two intensive days. We had a very interesting exchange on the interface of the GATT, GATS and TRIPs Agreements. We discussed the areas of conflicts. We discovered the similarities. We discovered the differences, the new elements which the TRIPs Agreement brought into the WTO system. And certainly, we learnt a lot on the relationship between intellectual property and competition in these new areas of technology. I think there is a lot of food for thought also for the competition law community here. With respect to plant genetic resources, the aim was probably not to come up with solutions today, but to again work through the complexities of these issues and mainly to bring people from different fora together. Furthermore, I’m very pleased that there seems to be one conclusion although there is certainly no conclusion as to how the new paradigm should be approached, how equity should be achieved whether or not by new rights or not. Clearly it seems to be and nobody really objected but this has to be a joint effort by different fora. And if this forum, today or tomorrow, is in a position to make a small contribution towards this objective, then I think our goal has been achieved.

Page 537 →Part IV: Conclusions Page 538 →

Page 539 →CHAPTER 33 Conclusions Thomas Cottier and Petros C. Mavroidis The three parts of this volume, its chapters and papers and discussions allow a number of conclusions to be drawn. It is fair to say that we are only now beginning to understand the profound institutional implications of importing positive or affirmative standards of intellectual property protection into the WTO and its effective dispute settlement and enforcement system. There is no doubt that the TRIPs Agreement amounts to one of the great successes and achievements of the Uruguay Round multilateral negotiations. More than anything else, the Agreement is the fruit of a powerful and concerted effort of producers, governments and trade negotiators of industrialized countries. It is a powerful answer to increasingly important non-tariff distortions and market access restrictions on products of the information and high-technology age, resulting mainly from the absence of adequate protection in many countries, including industrialized nations. It is a prime instrument of positive or affirmative integration, which harmonizes legal standards within the WTO. It is a great achievement in support of the rule of law domestically and in international economic relations as it defines the rules of the game and protects from excessive claims. It also bears the potential of enhancing the flows of knowledge and transfer of technology as protection of property improves in many quarters of the World. The conclusions in this volume, however, are less optimistic. Many of the papers in this volume carry a critical voice and question these achievements from a legal and economic perspective. The achievement and success is analyzed in terms of inadequate welfare analysis, in particular for developing Page 540 →countries, and criticized as a one-sided result from a lack of considering other fundamental values which today find expression in fundamental rights and policies seeking to realize them, for example in health care. Whether or not we conceive IPRs as containing human rights aspects themselves or not, it is important to look at their implications on these broader issues with a view to frame future rights taking into account the very goals of welfare creation. Looking at the difficulties to interface goals of sustainable economic and social development and lack of protection of informal sectors, traditional lifestyles and knowledge in many countries, we realize that the past and present architecture for complex negotiations no longer provides a sufficient framework. Papers in Part III, and I in particular call for integrated negotiations on trade and environment, obliging us to recognize these deficiencies. The failure to launch the Millennium Round in December 1999 and increasing doubts on the functional legitimacy of the WTO in its present structures make this an important subject for further work. It is important to design an architecture which will in future negotiations harbor all pertinent aspects and interests in relating to IPRs, as much as to other regulatory areas of the trading system. The proper qualities of IPR standards also show in difficulties to integrate them into the overall rules of the WTO system. It is unclear, at this stage, whether or not the agreement is a self-contained body of positive standards and prescriptions, or whether it should and can be read in conjunction with other Agreements, in particular the GATT 1994. The analysis provided in Chapter I suggests that interpretation may go either way, depending as to whether TRIPs is considered a sui-generis instrument within WTO or not. The extrapolation of effective treaty interpretation on GATT and GATS and other agreements suggests that the standards should not be considered in isolation but have to be read as part of the overall system seeking to dismantle unwarranted protectionism. This may result in enhanced, but also in a reduced, impact of intellectual property. Parallel imports are a prime example in point. Restrictions of trade by IPRs may, or may not, be legitimate in different constellations. The analysis of national or regional systems shows a great variety of different approaches, according to prevailing national interests in different sectors. While it is clear that the system, for goods reasons as authors argue, does not set uniform standards one way or the other, we conclude that the issue of parallel imports cannot be exclusively dealt with as a matter of Article 6 of the Agreement. First, parallel trade in trademarks is dealt with under Article 16 TRIPs Agreement in its own terms, relying upon consumer deception. There is broad agreement on this idea and approach, and it can be found explicitly or implicitly with various qualifications in the different jurisdictions

examined. Second, restrictions of parallel trade are, and remain, essentially quantitative restrictions and anticompetitive restrictions of Page 541 →national treatment, which need particular justification. One lesson to be learned from difficulties with the doctrine of exhaustion is that the concept, however applied, is constitutionally overbroad and ill-suited to serve best different sectors. We agree that more empirical research is necessary. The point is, however, that such research necessarily has to focus on different and sensitive sectors and results may imply different results for different sectors. In the end, Article XX GATT 1994 is likely to provide a better avenue to address the problems than wholesale doctrines within IPRs. Effective treaty interpretation certainly will make it clear that WTO does not and cannot impose a restrictive doctrine of national exhaustion in patent law or other forms of IPRs. It goes against the grain of the overall multilateral trading system of which TRIPs is one of its integral – and not separate – parts. The integration of the TRIPs Agreement also has to be achieved with respect to judicial control and treaty interpretation. The doctrine of legitimate expectations, refuted by the Appellate Body in India-Patents, has been misinterpreted to include excessively intrusive objectives and effects. What it meant to establish is to assess treaty provisions and entitlements on the basis of good faith and evaluate them in light of what the right holder (and the Member State) may reasonably expect in context. We share the concerns voiced for deference, but this should rather be sought in interpreting standards in accordance with economic welfare analysis, taking into account in context all pertinent and competing policy goals existing in or derived from their context On the part of Members, we agree that the doctrine of legitimate expectations should translate into restraint of making aggressive use of adversial dispute settlement and working more closely in capacity building in developing countries. Long-term legitimacy and acceptance of TRIPs and the multilateral system depends on responsible conduct and use of rights. The work of the TRIPs Committee shows an impressive record in assisting implementation. But it also reveals significant resource deficiencies in the ways and means WTO capacity building is conducted as a long term project in many countries of the globe. This is yet another sign of architectural deficiencies of the WTO. Throughout the volume, the relationship of IPRs and competition laws and policies is addressed. Beyond parallel trade, the issue arises in the problem of increasing concentration in the genetic engineering sector of the pharmaceuticals and seed industry. The grant of rights, and the complexity and legal uncertainty of patenting in biotechnology stimulates a concentration process. We are faced with reviewing formerly held views whether these challenges can be sufficiently dealt with on the basis of national or regional competition policies, in particular in light of the impact of concentration for smaller and developing countries. Is it sufficient to allow countries to address restricted business practices domestically, leaving the impact on exports of Page 542 →concentration processes to often young and insufficiently equipped competition authorities in developing countries? The educational record undertaken by the Working Group on the Interaction of Trade and Competition is significant. However, we conclude that issues relating to IPRs and competition policies in the field of biotechnology have not yet been sufficiently taken up. They need to be included in joint agenda of both work in competition laws and IPRs. The examination of patent laws and policy in biotechnology reveals one of the most pertinent and unresolved problem as to how far such rights should extend and reach. The problem of exclusions raises important ethical and competition issues. Again, different jurisdictions show large variations, and it is by no means clear which of the approaches for seeds – patents or plant variety protection – is best suited. Developing countries started to make use of the possibility to enact effective sui generis protection, and the volume contributes to pertinent criteria for developing effective protection, as required by the Agreement. The fundamental challenge, however, does not rely so much in a choice between patents and other forms. It rather lies in a fundamental tension with the traditional systems of treating existing plant genetic resources traditionally as part of common heritage. The interface of the CGIAR system or the Multilateral System of FAO, which sees main benefits in open access, is challenged by processes of privatization both of the industry and in managing genetic resources under national access legislations. Restrictions of access can be justified as a means to realize the concept of farmers’ rights and recognition of traditional knowledge and lifestyles. But these policies under national sovereignty may result in threatening long-term food security. The goals of equity and rebalancing the classical IPR system itself require more thought-provoking approaches operating on the international level. The IPR system must become

multifunctional. It is evident that modern biotechnology depends on effective IPR protection. But such protection requires rebalancing within and outside the TRIPs Agreement. Such approaches are explored in this volume. Part of it consists in further developing the IPR system to become responsive to grassroot development. Part of it consists in improving evidence on prior art and legal recognition of traditional practices and knowledge systems. Additional tools are required: the creation of traditional intellectual property rights, the creation and funding of common heritage categories, and the greening of the patent system by introducing prior informed consent and mechanisms of benefit sharing as recognized under the CBD. Further, tools of trade policy need to be explored beyond labeling or geographical indications. They may involve new approaches in tariff structures, new classifications in agricultural support measures. Page 543 →Much work lies ahead in this respect. Whatever the solutions, it is fair to conclude that they can only be achieved by means of an integrated approach, which transgresses the proper provinces of IPRs, trade policy and environmental goals. Again, we are faced with a problem of an appropriate architecture for the conduct of successful and complex negotiations, interfacing trade, competition and sustainable development. In the end, the three Parts of this book need to be considered together, offering a comprehensive layout and proposals to solve interrelated problems. Continued insistence on classical IPRs, as they emerged from the mechanical age, will not do in order to preserve and develop the achievements of the TRIPs Agreement in the age of biotechnology and information. It is at this point that we realize that the incorporation of this system into the WTO triggered a complex and dynamic process of standard-setting for which not only in terms of appropriate solutions on substance, but also in terms of procedures and participation in the law-making and adjudicative process creative, constructive and far-sighted visions are required. Architecture will be of key importance. The functional traditions of the WTO need to make way to more integrated approaches, perhaps under the umbrella of a future Multilateral Economic Organization. The problems exposed in this volumes indicate as to the constituencies – trade, intellectual property, competition, environment, health, food and agriculture, culture, producers and consumers, dealers, international funding, capacity building – all need to be included. Governments are not able to do the arbitrage of all these interests themselves. These processes also need to take place in appropriately interlinked international fora under a structure which is in a position to make fully informed and debated policy choices before packages return to national parliaments for approval and implementation. Page 544 →

Page 545 →Annex Page 546 →

Page 547 →The Legal Texts GATT Provisions Article XX General Exceptions Subject to the requirement that such measure are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: (a)

…

(b)

necessary to protect human, animal or plant life or health;

(c)

…

(d) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including those relating to customs enforcement, the enforcement of monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices; (e)

…

(f)

…

(g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with the restrictions on domestic production or consumption. TRIPs Provisions Article 6 Exhaustion For the purpose of dispute settlement under this agreement, subject to the provisions of Articles 3 and 4 nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights. Page 548 →Article 8 Principles Member may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement. Appropriate measures, provided that they are consistent with the provisions of this Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology. Article 27 Patentable Subject Matter 1. Subject to the provisions of paragraphs 2and 3, patents shall be available for any inventions, whether products

or processes, in all fields of technology, provided that they are new, involve and inventive step and are capable of industrial application. 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 place of invention, the field of technology and whether products are imported or locally produced. 2. Members may exclude from patentability inventions, the prevention within their territory of commercial exploitation of which is necessary to protect ordre public or morality, including to protect human, animal or plant life or health or to avoid serious prejudice to the environment, provided that such exclusion is not merely because of the exploitation is prohibited by their law. 3. Members may also exclude from patentability: (a) diagnostic, therapeutic and surgical methods for the treatment of humans and animals; (b) plants and animals other than micro-organisms, and essentially biological processes for the production of plants or animals other than non-biological and microbiological processes. However, Members shall provide for the protection of plant varieties either by Page 549 →patents or by an effective sui generis system or by any combination thereof. The provisions of this subparagraph shall be reviewed four years after the date of entry into force of the WTO Agreement. European Community Treaty Provisions Article 30 The provisions of Articles 28 and 29 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States. Directive 98/44/EC of the European Parliament and of the Council of 6 July 1998 on the Legal Protection of Biotechnological Inventions Article 4 1. The following shall not be patentable: (a) plant and animal varieties; (b) essentially biological processes for the production of plants or animals. 2. Inventions which concern plants or animals shall be patentable if the technical feasibility of the invention is not confined to a particular plant or animal variety. 3. Paragraph 1(b) shall be without prejudice to the patentability of inventions which concern a microbiological or other technical process or a product obtained by means of such a process. Page 550 →Article 6 1. Inventions shall be considered unpatentable where their commercial exploitation would be contrary to ordre public or morality; however, exploitation shall not be deemed to be so contrary merely because it is prohibited by law or regulation. 2. On the basis of paragraph 1, the following, in particular, shall be considered unpatentable:

(a) processes for cloning human beings; (b) processes for modifying the germ line genetic identity of human beings; (c) uses of human embryos for industrial or commercial purposes; (d) processes for modifying the genetic identity of animals which are likely to cause them suffering without any substantial medical benefit to man or animal, and also animals resulting from such processes. European Patent Convention Provisions Article 53 Exceptions to Patentability European patents shall not be granted in respect of: (a) inventions the publication or exploitation of which would be contrary to “ordre public” or morality, provided that the exploitation shall not be deemed to be so contrary merely because it is prohibited by law or regulation in some or all of the Contracting States; (b) plant or animal varieties or essentially biological processes for the production of plants or animals; this provision does not apply to microbiological processes or the products thereof. Page 551 →Convention on Biological Diversity Article 8 In-situ Conservation Each Contracting Party shall, as far as possible and as appropriate: (a) Establish a system of protected areas or areas where special measures need to be taken to conserve biological diversity; (b) Develop, where necessary, guidelines for the selection, establishment and management of protected areas or areas where special measures need to be taken to conserve biological diversity; (c) Regulate or manage biological resources important for the conservation of biological diversity whether within or outside protected areas, with a view to ensuring their conservation and sustainable use; (d) Promote the protection of ecosystems, natural habitats and the maintenance of viable populations of species in natural surroundings; (e) Promote environmentally sound and sustainable development in areas adjacent to protected areas with a view to furthering protection of these areas; (f) Rehabilitate and restore degraded ecosystems and promote the recovery of threatened species, inter alia, through the development and implementation of plans or other management strategies; (g) Establish or maintain means to regulate, manage or control the risks associated with the use and release of living modified organisms resulting from biotechnology which are likely to have adverse environmental impacts that could affect the conservation and sustainable use of biological diversity, taking also into account the risks to human health; (h) Prevent the introduction of, control or eradicate those alien species which threaten ecosystems, habitats or species;

(i) Endeavour to provide the conditions needed for compatibility between present uses and the conservation of biological diversity and the sustainable use of its components; (j) Subject to its national legislation, respect, preserve and maintain knowledge, innovations and practices of indigenous and local communities embodying traditional lifestyles relevant for the conservation and Page 552 →sustainable use of biological diversity and promote their wider application with the approval and involvement of the holders of such knowledge, innovations and practices and encourage the equitable sharing of the benefits arising from the utilization of such knowledge, innovations and practices; (k) Develop or maintain necessary legislation and/or other regulatory provisions for the protection of threatened species and populations; (l) Where a significant adverse effect on biological diversity has been determined pursuant to Article 7, regulate or manage the relevant processes and categories of activities; and (m) Cooperate in providing financial and other support for in-situ conservation outlined in subparagraphs (a) to (1) above, particularly to developing countries. Article 15 Access to Genetic Resources 1. Recognizing the sovereign rights of States over their natural resources, the authority to determine access to genetic resources rests with the national governments and is subject to national legislation. 2. Each Contracting Party shall endeavour to create conditions to facilitate access to genetic resources for environmentally sound uses by other Contracting Parties and not to impose restrictions that run counter to the objectives of this Convention. 3. For the purpose of this Convention, the genetic resources being provided by a Contracting Party, as referred to in this Article and Articles 16 and 19, are only those that are provided by Contracting Parties that are countries of origin of such resources or by the Parties that have acquired the genetic resources in accordance with this Convention. 4. Access, where granted, shall be on mutually agreed terms and subject to the provisions of this Article. 5. Access to genetic resources shall be subject to prior informed consent of the Contracting Party providing such resources, unless otherwise determined by that Party. 6. Each Contracting Party shall endeavour to develop and carry out scientific research based on genetic resources provided by other Contracting Parties with the full participation of, and where possible in, such Contracting Parties. Page 553 →7. Each Contracting Party shall take legislative, administrative or policy measures, as appropriate, and in accordance with Articles 16 and 19 and, where necessary, through the financial mechanism established by Articles 20 and 21 with the aim of sharing in a fair and equitable way the results of research and development and the benefits arising from the commercial and other utilization of genetic resources with the Contracting Party providing such resources. Such sharing shall be upon mutually agreed terms. Article 16 Access to and Transfer of Technology 1. Each Contracting Party, recognizing that technology includes biotechnology, and that both access to and transfer of technology among Contracting Parties are essential elements for the attainment of the objectives of this Convention, undertakes subject to the provisions of this Article to provide and/or facilitate access for and transfer

to other Contracting Parties of technologies that are relevant to the conservation and sustainable use of biological diversity or make use of genetic resources and do not cause significant damage to the environment. 2. Access to and transfer of technology referred to in paragraph 1 above to developing countries shall be provided and/or facilitated under fair and most favourable terms, including on concessional and preferential terms where mutually agreed, and, where necessary, in accordance with the financial mechanism established by Articles 20 and 21. In the case of technology subject to patents and other intellectual property rights, such access and transfer shall be provided on terms which recognize and are consistent with the adequate and effective protection of intellectual property rights. The application of this paragraph shall be consistent with paragraphs 3, 4 and 5 below. 3. Each Contracting Party shall take legislative, administrative or policy measures, as appropriate, with the aim that Contracting Parties, in particular those that are developing countries, which provide genetic resources are provided access to and transfer of technology which makes use of those resources, on mutually agreed terms, including technology protected by patents and other intellectual property rights, where necessary, through the provisions of Articles 20 and 21 and in accordance with international law and consistent with paragraphs 4 and 5 below. 4. Each Contracting Party shall take legislative, administrative or policy measures, as appropriate, with the aim that the private sector facilitates access to, joint development and transfer of technology referred Page 554 →to in paragraph 1 above for the benefit of both governmental institutions and the private sector of developing countries and in this regard shall abide by the obligations included in paragraphs 1, 2 and 3 above. 5. The Contracting Parties, recognizing that patents and other intellectual property rights may have an influence on the implementation of this Convention, shall cooperate in this regard subject to national legislation and international law in order to ensure that such rights are supportive of and do not run counter to its objectives. International Convention for the Protection of New Varieties of Plants Provisions Article 3 Genera and Species to be Protected (1) [States already members of the Union] Each Contracting Party which is bound by the Act of 1961/1972 or the Act of 1978 shall apply the provisions of this Convention, (i) at the date on which it becomes bound by this Convention, to all plant genera and species to which it applies, on the said date, the provisions of the Act of 1961/1972 or the Act of 1978 and, (ii) at the latest by the expiration of a period of five years after the said date, to all plant genera and species. (2) [New members of the Union] Each Contracting Party which is not bound by the Act of 1961/1972 or the Act of 1978 shall apply the provisions of this Convention, (i) at the date on which it becomes bound by this Convention, to at least 15 plant genera or species and, (ii) at the latest by the expiration of a period of 10 years from the said date, to all plant genera and species. Page 555 →Article 14 Scope of the Breeder’s Right (1) [Acts in respect of the propagating material] (a) Subject to Articles 15 and 16, the following acts in respect of the propagating material of the protected variety shall require the authorization of the breeder:

(i) production or reproduction (multiplication), (ii) conditioning for the purpose of propagation, (iii) offering for sale, (iv) selling or other marketing, (v) exporting, (vi) importing, (vii) stocking for any of the purposes mentioned in (i) to (vi), above. (b) The breeder may make his authorization subject to conditions and limitations. (2) [Acts in respect of the harvested material] Subject to Articles 15 and 16, the acts referred to in items (i) to (vii) of paragraph (1)(a) in respect of harvested material, including entire plants and parts of plants, obtained through the unauthorized use of propagating material of the protected variety shall require the authorization of the breeder, unless the breeder has had reasonable opportunity to exercise his right in relation to the said propagating material. (3) [Acts in respect of certain products] Each Contracting Party may provide that, subject to Articles 15 and 16, the acts referred to in items (i) to (vii) of paragraph (1)(a) in respect of products made directly from harvested material of the protected variety falling within the provisions of paragraph (2) through the unauthorized use of the said harvested material shall require the authorization of the breeder, unless the breeder has had reasonable opportunity to exercise his right in relation to the said harvested material. (4) [Possible additional acts] Each Contracting Party may provide that, subject to Articles 15 and 16, acts other than those referred to in items (i) to (vii) of paragraph (1)(a) shall also require the authorization of the breeder. (5) [Essentially derived and certain other varieties] (a) The provisions of paragraphs (1) to (4) shall also apply in relation to Page 556 →(i) varieties which are essentially derived from the protected variety, where the protected variety is not itself an essentially derived variety, (ii) varieties which are not clearly distinguishable in accordance with Article 7 from the protected variety and (iii)

varieties whose production requires the repeated use of the protected variety.

(b) For the purposes of subparagraph (a)(i), a variety shall be deemed to be essentially derived from another variety (“the initial variety”) when (i) it is predominantly derived from the initial variety, or from a variety that is itself predominantly derived from the initial variety, while retaining the expression of the essential characteristics that result from the genotype or combination of genotypes of the initial variety, (ii) it is clearly distinguishable from the initial variety and (iii) except for the differences which result from the act of derivation, it conforms to the initial variety in the expression of the essential characteristics that result from the genotype or combination of genotypes of the initial variety. (c) Essentially derived varieties may be obtained for example by the selection of a natural or induced mutant, or of a somaclonal variant, the selection of a variant individual from plants of the initial variety, backcrossing, or transformation by genetic engineering.

Article 15 Exceptions to the Breeder’s Right (1) [Compulsory exceptions] The breeder’s right shall not extend to (i) acts done privately and for non-commercial purposes, (ii) acts done for experimental purposes and (iii) acts done for the purpose of breeding other varieties, and, except where the provisions of Article 14(5) apply, acts referred to in Article 14(1) to (4) in respect of such other varieties. (2) [Optional exception] Notwithstanding Article 14, each Contracting Party may, within reasonable limits and subject to the safeguarding of the legitimate interests of the breeder, restrict the breeder’s right in relation to any variety in order to permit farmers to use for Page 557 →propagating purposes, on their own holdings, the product of the harvest which they have obtained by planting, on their own holdings, the protected variety or a variety covered by Article 14(5)(a)(i) or (ii). Annex II (FAO Conference Resolution 5/89) of the International Undertaking on Plant Genetic Resources Farmers’ Rights THE CONFERENCE, Recognizing that: plant genetic resources are a common heritage of mankind to be preserved, and to be freely available for use, for the benefit of present and future generations, full advantage can be derived from plant genetic resources through an effective programme of plant breeding, and that, while most such resources, in the form of wild plants and old landraces, are to be found in (b) developing countries, training and facilities for plant survey and identification, and plant breeding, are insufficient, or even not available in many of those countries, plant genetic resources are indispensable for the genetic improvement of cultivated plants, but have been (c) insufficiently explored, and in danger of erosion and loss, (a)

Considering that: in the history of mankind, unnumbered generations of farmers have conserved, improved and made available plant genetic resources, the majority of these plant genetic resources come from developing countries, the contribution of whose (b) farmers has not been sufficiently recognized or rewarded, the farmers, especially those in developing countries, should benefit fully from the improved and increased (c) use of the natural resources they have preserved, there is a need to continue the conservation (in situ and ex situ), development and use of the plant genetic (d) resources in all countries, Page 558 →and to strengthen the capabilities of developing countries in these areas, (a)

Endorses the concept of Farmers’ Rights (Farmers’ Rights mean rights arising from the past, present and future contributions of farmers in conserving, improving, and making available plant genetic resources, particularly those in the centers of origin/diversity. These rights are vested in the International Community, as trustee for present and future generations of farmers, for the purpose of ensuring full benefits to farmers, and supporting the continuation of their contributions, as well as the attainment of the overall purposes of the International Undertaking) in order

to:

ensure that the need for conservation is globally recognized and that sufficient funds for these purposes will be available; assist farmers and farming communities, in all regions of the world, but especially in the areas of origin (b) /diversity of plant genetic resources, in the protection and conservation of their plant genetic resources, and of the natural biosphere; allow farmers, their communities, and countries in all regions, to participate fully in the benefits derived, at (c) present and in the future, from the improved use of plant genetic resources, through plant breeding and other scientific methods. (a)