Max Planck Institute for Intellectual Property and Competition Law Josef Drexl / 22 September Max Planck Institute for Intellectual Property and Competition Law The Concept of Trade-Relatedness of Intellectual Property Rights in Times of Post-TRIPS Bilateralism Keynote Lecture at the 2011 EALE Confernece Hamburg Josef Drexl 22 September 2011

Max Planck Institute for Intellectual Property and Competition Law Josef Drexl / 22 September Introduction (1) 6 September 2011:“Washington Declaration on Intellectual Property and the Public Interest” Global Congress on Intellectual Property and the Public Interest, August 2011 (180 experts, 32 countries)  Organized by i.a. American University, Columbia University, International Center for Trade and Sustainable Development (ICTSD, Geneva), Google  Conclusion: Reexamination of IP law by balancing extension of IP law with the public interest within all institutional settings What is the problem? Preamble: “The last 25 years have seen an unprecedented expansion of the concentrated legal authority exercised by intellectual property rights holders. This expansion has been driven by governments in the developed world and by international organizations that have adopted the maximization of intellectual property control as a fundamental policy tenet.” Conclusion: International IP law as the major legal source of the problem

Max Planck Institute for Intellectual Property and Competition Law Josef Drexl / 22 September Introduction (2) Historical Development: 1947:General Agreement on Tariffs and Trade (WTO) 1967:World Intellectual Property Organization (WIPO) With “Conventions” dating from the late 19th century (Paris and Berne) with “minimum standards” 1994:Word Trade Organization (WTO)  replaces GATT 1947  includes Agreement on Trade-Related Aspects of IPRs (TRIPS) with “substantive standards” 2000s:Bilateral Free-Trade Agreements  bargaining free trade for “TRIPS-plus standards”

Max Planck Institute for Intellectual Property and Competition Law Josef Drexl / 22 September Introduction (3) Objective of this keynote:  Describing the concept of trade-relatedness of IP from a legal, economic and political perspective at different stages of the development  Assessing and evaluating the effect of “IP bilateralism” on “IP maximization” from an economic perspective  No specific focus on the legal analysis of TRIPS-plus standards

Max Planck Institute for Intellectual Property and Competition Law Josef Drexl / 22 September The concept of “trade-related aspects of IPRs” Three dimensions: (1)Legal concept (2)Economic justification (3)Political strategy  Closely intertwined At different times: (1)At the conclusion of TRIPS: 1994 (2)At the time of modern bilateralism:

Max Planck Institute for Intellectual Property and Competition Law Josef Drexl / 22 September The concept of “trade-related aspects of IPRs”: The situation in 1994  Legal dimension (1)International law: Power to negotiate a new multilateral IP regime outside of WIPO and within GATT? (2)Europe: Limited power of the EU to conclude TRIPS within its common commercial policy; TRIPS as a “mixed agreement”  Economic justification (1)Immediate problem in 1994: Trade deficit of the US (2)Solution under TRIPS (a) Promoting competitiveness of US industry by making products from the “Asian Tigers” more expensive through IP protection (b) Higher levels of protection abroad will sustain balance of payments by royalty fees to be paid to IP holders in the US  Political strategy  “Package approach” (bargaining higher IP standards for trade liberalization)  Problem: Political agenda for IP extension  no “obligation” to balance interests in IP law (only “flexibilities”)

Max Planck Institute for Intellectual Property and Competition Law Josef Drexl / 22 September The concept of “trade-related aspects of IPRs”: Explaining bilateralism  Legal dimension: Three specific features of WTO/TRIPS promoting IP bilateralism (1)Art. 1:1 TRIPS: Members may implement “more extensive protection” (2) Art. XXIV GATT: Exemption from GATT- MFN for free trade areas (3)Art. 4 TRIPS: MFN – multi-lateralization of bilateral IP concessions  Political implications (1)USA: Emergence of a bilateral trade policy that is designed to promote domestic IP standards as IP standards to be respected abroad (“legal imperialism”) See: “Bipartisan Trade Promotion Authority Act, 2002  Countries that want to have preferential market access to US need to accept TRIPS-plus US standards (e.g., data exclusivity) (2) EU, Japan, EFTA (CH): Other trading nations “copy and paste” US bilateralism (3)WTO accession countries: Are forced to accept TRIPS-plus standards in order to join the WTO (e.g., China, Cambodia, next Russia); see Art. XII WTO Agreement (accession agreement between WTO and acceding country required)

Max Planck Institute for Intellectual Property and Competition Law Josef Drexl / 22 September The concept of “trade-related aspects of IPRs”: Geography and elements of TRIPS-plus  Which countries? (1)USA: Focus on Latin America and Arab countries, but also Singapore and Australia (2)EU: EC-CARIFORUM EPA as so far the only EPA with ACP countries, which includes TRIPS-plus; recently concluded with South Korea; negotiations going on with Peru/Columbia, Central America (3)Japan: Particular focus on Asian countries (incl. Indonesia, Thailand) (4)Resisting countries: Brazil, Argentina, India  Which rights? (1)Data exclusivity in pharmaceutical sector as most disputed issue (2)Fight between US und EU in the field of geographical indications (3)Copyright protection: US tries to export US concepts (full transferability; term) (4)Enforcement: e.g. criminal sanctions for patent protection (EU-Central America)

Max Planck Institute for Intellectual Property and Competition Law Josef Drexl / 22 September The concept of “trade-related aspects of IPRs”: The “country-club” approach as a new development  “Country-club” approach:  Like-minded trading nations negotiate an agreement to fix higher standards of IP as a reference point for bilateral agreements  Anti-Counterfeiting Trade Agreement (ACTA)  Agreement on enforcement of IP law among countries that want to promote protection of IP (most important for copyright enforcement on the internet)  For a long time negotiated in secret with strong opposition from civil rights groups (data protection, etc.)  Not yet ratified by EU Parliament and national parliaments  What about a country-club approach of developing countries as a strategy against IP standards?

Max Planck Institute for Intellectual Property and Competition Law Josef Drexl / 22 September Some economic considerations: Overview  Economics of intellectual property  Economics of international trade  Economics of competition  Development economics  Institutional economics

Max Planck Institute for Intellectual Property and Competition Law Josef Drexl / 22 September Some economic considerations: Economics of intellectual property Classical theories  Public goods theory  Subject-matter of protection as “international public goods”  If there are sufficient incentives in some countries for the production of such goods, no need to protect them the same way in other countries  Property rights theory  IP protection as an efficiency trade-off (striking the balance between exclusivity and access)  Efficiency can be assessed nationally and internationally  Exporting the efficient standard of IP protection in developed countries to the whole world may lead to inefficient over-protection globally

Max Planck Institute for Intellectual Property and Competition Law Josef Drexl / 22 September Some economic considerations: Economics of international trade  General theory on the welfare enhancing effects of international trade (Ricardo)  Principle of “mutual concessions” as the tool of trade liberalization  Mutual benefits of the parties will increase general welfare  Problem of weighing trade with IP: Effects of IP on domestic economy difficult to assess  Short-term benefits of trade liberalization v long-term IP concessions  Distorting effect of “progressive bilateralism” Trade benefits progressively disappear when other nations also conclude FTAs, while parties remain bound by IP concessions

Max Planck Institute for Intellectual Property and Competition Law Josef Drexl / 22 September Some economic considerations: Economics of competition  Competition among nations Competitive pressure pushes nations to accept IP concessions for enhanced market access  Cross-border competition among firms  Today: IP and competition law pursuing complementary goals  Positive: IP protection may promote transfer of technology  But: Uniform global IP protection not needed for a level playing field of competition (without international exhaustion, IP market largely remain domestic in scope)  Negative: Extension of protection for already existing subject-matter has adverse effects on innovation  Creation of market entry barriers for firms from emerging and developing countries (also trade marks)

Max Planck Institute for Intellectual Property and Competition Law Josef Drexl / 22 September Some economic considerations: Development economics Does “IP bilateralism” promote sustainable development?  IP may lead to more FDI and transfer of technology But: Why is it necessary to oblige developing countries to accept high standards of IP if this is in their own interest? Also: How much additional incentives are created by TRIPS-plus as compared to TRIPS?  Poverty and lack of social systems aggravate problem of access to essential goods (drugs, food, education) in developing countries  Economic costs of the same level of protection much higher in developing countries  Price discrimination based on rejection of international exhaustion can only mitigate the problem

Max Planck Institute for Intellectual Property and Competition Law Josef Drexl / 22 September Some economic considerations: Institutional economics  Public choice: Question of the most adequate design for reaching most efficient decisions  Right-holders are better organized and have more targeted interests, while public interests are rather diffuse  risk of inefficient rent-seeking  Rent-seeking may be more successful on the international level: Negotiation agenda exclusively set by the governments; intransparency of the diplomatic process (eg, ACTA); lack of democratic control  Where democratic consent is required, Parliaments also face the problem of the “package approach”  International law may be used as a leverage for domestic IP expansion and makes it more difficult to repeal “IP maximization” also in developed countries

Max Planck Institute for Intellectual Property and Competition Law Josef Drexl / 22 September Conclusion: The concept of “trade-related aspects of IPRs” - Where are we today?  Legal concept (1) Substantive IP standards in many “trade agreements” (2)Art. 207 TFEU: exclusive competence of the EU for “commercial aspects” of IP Problem: Using trade policy for changing internal EU law  Economic justification? (1) Higher levels of IP protection may lead to more investment in emerging economies and reduce production in former industrialized countries (2)Bargaining free trade with IP will not contribute to solving the problem of the trade deficit at a long run (3)IP provisions in bilateral trade agreements have a tendency to unjustified over-protection  Political strategy? (1)“copy and past” bilateralism makes no legal sense in the MFN world – race for ever higher IP standards (2)Governments are not well informed on the economic impact of IP bilateralism (3)Reasons for misguided policy are mostly institutional ones