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論文とエッセイ（日本語） Theses and Essays (in Japanese)

仮想マガジン「インターネット評論」試作号（日本語）INTERNET REVIEW (Trial Issue) (in Japanese)

情報革命についてのエッセイとゴシップ（日本語） Essays and News on Information Revolution (in Japanese)

Theses and Essays (in English)

TRIPS and Beyond—Where Do We Go from Here?

Speech made  before the Intellectual Property Law Seminar sponsored by Asia Pacific Industrial Property Center

Tad Homma  

INDEX

Introduction

1.  TRIPS Council 

1.1.  Built-in Agenda

1.1.1.  Geographical Indications

1.1.2.  Patents

1.1.3.  Non-violation Moratorium

1.2.  Retroactive Protection of Musical Records

1.3.  Public Health and Compulsory Licensing

2.  Desired Future Agenda

2.1.  Information Revolution

2.1.1.  WIPO Copyright and Performances/Phonograms Treaties

2.1.2.  DMCA--U.S.

2.1.3.  Protection of Copyright Incumbents--Japan

2.1.3.1.  Uploading Right

2.1.3.2.  Importation Right

2.1.4.  Evaluation--Parallel Importation

2.2.  Competition

2.2.1.  Why and How Much Should We Protect Intellectual Property?

2.2.2.  Intellectual Property and Competition

NOTES

Introduction:  

Good morning, ladies and gentlemen.  I am Tad Homma.  First of all, I wish to express my deepest condolences to all those who have been affected by the Indian Ocean seismic waves of December 26, 2004. 

Compared to the tragedy of that scale, I confess that what I am going to discuss this morning--the TRIPS Agreement--seems to be too trivial to consider about seriously.  However, I will have to do it also for the sake of the reconstruction of once destroyed society. 

I am currently teaching intellectual property, competition and international trade at Nihon University Law School. 

Before joining Nihon University, I served as a Commissioner at Japan Fair Trade Commission for five years. 

Before that, I worked at Mitsubishi Electric for thirty years mostly for technology licensing and litigation.  My last position there was Executive Officer and General Manager of Technology Alliance Division. 

I was deeply involved in the Uruguay Round negotiation from beginning to end, and it is an honor for me to speak before such a celebrated audience about the TRIPS Agreement.   

I wrote a paper entitled “TRIPS and Beyond” for today’s purpose and you have a copy each before you.  It contains detailed data and citations supporting my speech.  It is the continuation of my previous paper written in 1998 entitled “TRIPS and After [1].”

Both titles may suggest my feeling that the TRIPS Agreement is quickly becoming outdated in this changing world.   

Looking at the list of today’s participants, I have found that most of you are either business executives or intellectual property specialists.   

I have decided, therefore, to begin with the foundation of the TRIPS Agreement--the WTO Agreement.  The TRIPS Agreement is a part--Annex 1C--of the Marrakesh Agreement Establishing the World Trade Organization--the WTO Agreement.    

The WTO Agreement consists of the main text and four annexes.   

The main text deals with organizational and administrative matters.  At the top of the WTO is the Ministerial Conference to be held at least once every two years.   

Immediately below the Ministerial Conference is the General Council to be held almost monthly, attended by the ambassador-class representatives of all Members.  The General Council also acts as the Dispute Settlement Body as to be discussed later. 

Under the General Council are three councils each specializing in Trade in Goods, Trade in Services and the TRIPS. 

Annex 1 consists of three agreements--A, B and C. 

Annex 1A is the Multilateral Agreement on Trade in Goods further consisting of the GATT 1994, the very core of the WTO system, and other twelve specialized agreements such as agriculture, textile/clothing, antidumping and subsidies/countervailing.  

Annex 1B is the General Agreement on Trade in Services. 

Annex 1C is the TRIPS Agreement.

Annex 2 is the Dispute Settlement Understanding that is closely related to today’s topic--intellectual property.

Annexes 3 and 4 are not directly related to today’s topic. 

The GATT 1994 sets forth the most important four principles of the WTO free-trade system, namely, 

Article 1: the most-favored nation treatment,

Article 2: binding nature of customs duties,

Article 3: national treatment, and

Article 11: prohibition of non-tariff barriers. 

There are many exceptions to these principles, including, 

Article 6: antidumping and countervailing duties,

Article 19: safeguard,

Article 20: general exceptions including intellectual property, and

Article 23: trade retaliation. 

Among these, what is most closely related to today’s lecture is of course the intellectual property exception to GATT principles. 

Let’s have a closer look at the language of the GATT Article 20, paragraph (d).

Nothing in this Agreement shall be construed to prevent .. (non-discriminatory) measures necessary to secure compliance with laws .. which are not inconsistent with the provisions of this Agreement, including those relating to .. the protection of patents, trade marks and copyrights .. 

Article 20 (d) permits certain import restriction measures necessary to secure compliance with domestic intellectual property laws.

In order to justify some import restriction measures based on intellectual property rights, the Member should establish that it is necessary to secure compliance with its domestic intellectual property laws. 

The term ‘necessary’ has been interpreted by GATT panels almost as severe as the word ‘indispensable.’

In view of the importance of this language, I repeated the same word three times.

Free trade is the standard and intellectual property is an exception.   

Let’s take an example.  Here is a little puzzling provision in the TRIPS Agreement.  Please look at Article 51, footnote 14 (b):

‘pirated copyright goods’ shall mean any　goods which are copies made without the consent of the right-holders .. where the making of that copy would have constituted an infringement of a copyright .. under the law of the country of importation. 

Technically speaking, importation of pirated goods does not violate our national copyright law because the illegal act was committed outside its jurisdiction.

Absent this footnote, therefore, import of pirated goods cannot be stopped and may destroy public compliance with our domestic copyright law, no matter how severely we may try to enforce it within our national boundary.

The TRIPS Agreement is therefore a logical necessity to fill the vacuums among different national laws.   

Annex 2: Dispute Settlement Understanding (“DSU”) provides for the dispute settlement mechanism of WTO with its “negative consensus” decision-making power unprecedented in the history of multilateral trade agreements of this scale. 

Dispute Settlement Body (“DSB”) adopts the report from a panel or the standing appellate body, unless denied by a consensus.

Because at least the winning party will support the report, DSB’s adoption of the report is practically automatic.  Then, the DSB issues a recommendation to the losing party to remedy its WTO-rule violation. 

If the losing party does not comply with the DSB decision, the winning party can enforce the decision through trade retaliation.

The TRIPS Agreement is the very first intellectual property-related international agreement in history with claws and fangs to enforce its rules.

Unlike other intellectual property treaties such as Paris or Berne Conventions only concerned with the interests of inventors or authors, the TRIPS Agreement should be understood in light of this WTO grand design -- a free trade machine. 

WTO is one of the most ambitious experiments of the human kind towards its ultimate welfare through the global, free economy.

Now, ten years have passed since the TRIPS Agreement was signed.  It has become part of our everyday life and therefore I am not going to take time to explain what it is and what it has done for the past ten years. 

Instead, I am going to discuss first what the TRIPS Agreement is doing currently and second what I believe it should do in the near future. 

Please note that my opinions to be stated herein are solely of my own and in no case those of the JPO, JIII or AOTS.  I will speak rather liberally as an economic-law professor sincerely hoping for the economic and social well being of our children. 

You will see during my lecture that I am sometimes critical about Japan’s intellectual property policy, because I think it lacks a clear vision of why and how much we should protect intellectual property. 

I would like you to know that intellectual property system is no paradise but a reality we have to get along with in order to make market economy to function.

1.  TRIPS Council:  

1.1.  Built-in Agenda:  

1.1.1.  Geographical Indications:  

First, I will discuss what the TRIPS Agreement is doing currently.  

TRIPS Agreement is a so-called infrastructure agreement and has certain built-in agenda to be negotiated at the TRIPS Council. 

One of such built-in agenda is the geographical indications issue.  Protection of geographical indications was brought into the TRIPS Agreement [2] at the strong insistence of France.  During the Uruguay Round negotiation, one of the most difficult issue negotiators were confronted with was agriculture.

On November 19, 1992, only two weeks after the U.S. President lost his election, the U.S. and the EU representatives reached a so-called Blair House agreement including on the pending Uruguay Round agriculture negotiation. 

France ferociously resisted the agreement and almost determined to withdraw from the GATT and even from the EU.  Ladies and Gentlemen, this is the true story. 

In order to appease France, the United States and Australia gave up the agenda they had so far been strongly opposing.  The geographical indications issue was actually a part of the agriculture negotiation.　

Article 23 of the TRIPS Agreement prohibits the use of false geographical indications for wines and spirits, even where there is no possible confusion by consumers.   

When I was much younger, there was a red wine named “Akadama Port Wine” in Japan.  It was very popular among young people because it was cheap and sweet.  It suddenly disappeared from the market.  I later learned that it was one of the first victims of the TRIPS negotiation then under way.  

The TRIPS Agreement provides for an exception for the good faith users and for the users for the preceding ten years or more [3].  This exception was entered at the strong insistence of the United States.  This has saved most of its California wines.  Japan could not save its “Akadama Port Wine” because it discontinued use of this geographical indication too hastily--a good boy syndrome.  

This episode teaches us how we should handle the GATT-type negotiation.  It is not a legal forum where logic prevail, but a battle-field between conflicting national interests.  Japanese negotiators mostly consisting of lawyers did not understand that a negotiation is a matter of threats and tradeoffs but not of discussion and persuasion. 

The TRIPS Agreement further requests the TRIPS Council to negotiate the establishment of a multilateral system of registration and notification of geographical indications for wines and spirits [4].  

The Doha Ministerial Conference of 2001 [5] agreed to negotiate the establishment of such multilateral system of registration and notification by the subsequent Ministerial Conference of 2003 [6].  It also notes the possible extension of the protection to the products other than wines and spirits.  

Despite intensive negotiations held in 2002 and 2003, the TRIPS Council could not reach an agreement, and the Cancún Ministerial Conference of 2003 [7] closed, without any meaningful result, for the reasons unrelated to the geographical indications issue.

Generally speaking, new continental countries such as the United States, Canada and Australia are reluctant to strengthen and broaden the protection of geographical indications, trying to make the registration and notification system non-binding and applicable only to wines and spirits. 

There are more than 60 communities in the United States named Paris.  There is a city named Champagne in Illinois that produces nice wines.  

Meanwhile, old continental countries such as France, Switzerland and Hungary are in favor of a stronger and broader protection, trying to make the registration and notification system binding and applicable to all products.  Recently some other countries are joining the latter camp to protect, for example, India’s famous Basmati rice [8].  

I am a Japanese and a great lover of rice of course.  When I first learned about Basmati rice, I asked my wife to find one and cook it for me.  She surfed the Internet, found a place to buy one and also a recipe, and cooked a curry dish for me.  It was really marvelous. 

Before that time, I took little interest in the geographical indications issue because I didn’t think it’s a life-and-death matter.  Now, thanks to Basmati rice, I have become more interested in this negotiation, and have become rather sympathetic with old continental countries, because their proposal seems to be in line with the general world trend towards diversification of values.  

I am expecting to see a piece of Hokkaido White Cheese in the near future with delicately different taste than French Camembert Cheese.  

The main purpose of the current Doha Development Agenda is to open up the markets of the United States, European Union and Japan for agricultural products, and I believe that geographical indications issue is a very good, face-saving compensation for the European Union to make a concession in agriculture. 

1.1.2.  Patents: 

Next, I will discuss the built-in agenda relating to patents.  

The TRIPS Agreement provides that patents shall be available for any inventions, whether products or processes, in all fields of technology [9].  There is an exception to this rule to the effect that plant varieties can be protected by other means such as independent (sui generis) law.  This exception is to be reviewed four years after the date of entry into force of the WTO Agreement [10].  

This last sentence--a review provision--was entered at the strong request of the United States then dissatisfied with the exception that may exclude genetically modified plants from patentability.  

In the TRIPS Council, however, the United States has gradually become reluctant to review this exception because an unexpected situation had arisen:  A group of developing countries began proposing to change patent provisions of the TRIPS Agreement in line with the Convention on Biological Diversity (“CBD”) adopted at the Earth Summit Conference held in Rio de Janeiro three years before the WTO Agreement took effect [11].  

The Doha Ministerial Conference of 2001 instructed the TRIPS Council [12] to examine the relationship between the TRIPS Agreement and the CBD, including possible protection of traditional knowledge and folklore.  

Major issues include:  (1) Access to genetic resources and its benefit-sharing (“ABS”), and (2) the protection of traditional knowledge and folklore.  

As regards the ABS, the group is proposing that patent specifications based on any genetic resource should attach thereto identification of its place of origin, permission of local government and a benefit-sharing arrangement.  Similar discussions are under way also in the CBD, WIPO, UNCTAD and FAO [13]. 

I believe that incorporation of these diversifications into the TRIPS Agreement may soften or mitigate its rather harsh nature and will make it friendlier to the world.  As I will tell you later, I believe that the TRIPS Agreement is too rigid to be the platform of international trade for the coming century and should be amended to adapt itself to a more diversified world than the last half of the 20th Century. 

1.1.3.  Non-violation Moratorium: 

Next, I will discuss the non-violation moratorium issue.  WTO anticipates three different types of dispute to be decided by WTO dispute settlement body [14]: (a) breach of WTO Agreements, (b) any measure whether or not in breach of WTO Agreements and (c) the existence of any other situation [15]. 

TRIPS Agreement grants a five-year moratorium [16], during which the latter two types of disputes, commonly called the “non-violation” disputes, are not subjected to the WTO Dispute Settlement Understanding (“DSU”).  

Before this moratorium expired in 1999, some WTO Members including Canada, European Union and Japan proposed to extend the moratorium period.  They are afraid that settlement of such disputes by the strong DSU system may harm legal stability and predictability. 

The United States, however, adhered to its basic position of keeping the Agreement untouched as far as possible.  Although this five-year moratorium has already expired, the General Council recommended Members in 2001 to ‘restrain’ the complaint for these two types of dispute while the discussion is under way. 

As of the end of 2004, there are 25 DSU consultations based on the TRIPS Agreement, out of which 11 have gone to the panel and there is no non-violation complaint [17]. 

I think that type (a) is analogous to breach of contract, type (b) to tort and unjustified enrichment and type (c) to safeguard.  These are the triplets of modern civil system. 

In addition, the DSU contains a provision [18] prohibiting unilateral trade measures like the U.S. Special Section 301 [19].  

The expiry of the moratorium has made the Special Section 301 unworkable again and forever. 

I cannot understand why Japan is so eager to extend the moratorium.  If I have to choose between the DSU and the Special Section 301, I will definitely choose the DSU. 

1.2.  Retroactive Protection of Musical Records: 

Please look at Note 17.  Japan is at the top of the 25 TRIPS DSU cases listed there.  This is a very complex story, but I believe you had better prepare for it, too.  You have to understand what you signed in 1994. 

The TRIPS Agreement provides [20] that Article 18 of the Berne Convention shall apply mutatis mutandis to the rights of performers and sound recording companies. 

Article 18, paragraph 1 of the Berne Convention protects all foreign-made musical records for at least 50 years except those for which protection in its home country have already expired [21].  If you have protected musical records for only 20 years at the time of your accession to the TRIPS Agreement, you should immediately give foreign-made records additional 30-year protection retroactively.  

Paragraph 3 of the same article provides, however, that the parties are subject to any special agreement concluded between the parties and in the absence of such special agreement they are free to determine the conditions of application of this principle [22].  

Relying upon the last sentence of paragraph 3, Japan gave foreign-made musical records a retroactive protection back to 1971, the year when Japan first introduced the neighboring right and began protecting domestic musical records.  

However, the United States and the EU sued Japan before the WTO alleging that Japan should have protected foreign-made musical record retroactively for 50 years as dictated by the Berne Convention principle.  Although their allegation was not very clear, I suppose they were alleging that the TRIPS Agreement constitutes such “special agreement”.  

Japan succumbed “for political reasons” and amended its Copyright Law to protect foreign-made musical records retroactively back for 50 years.  In order to avoid reverse discrimination, Japan also applied this retroactivity to domestic musical records including those for which protection had already expired.  This resulted considerable confusions in the music industry.  

It is apparent that their next target is other east Asian countries.  They are eager to recover the protection of Elvis Presley and the Beatles still popular there 30 years after their last recording. 

1.3.  Public Health and Compulsory Licensing: 

Next, I will discuss public health and compulsory licensing issue.  This is not a built-in but a new agenda.  

During the Uruguay Round negotiation, I was strongly impressed with a remark made by an Indian diplomat that drug price would rise due to patent monopoly and more should die as the result [23].  

Faced with serious public health problems especially those resulting from AIDS, tuberculosis, malaria and other epidemics, a group of developing countries proposed in the TRIPS Council in 1999 to discuss the relationship between the TRIPS Agreement and access to medicines. 

In view of the importance of this problem, the Doha Ministerial Conference of 2001 took up this matter and adopted a political declaration as summarized below [24]:  

(1)  Ministers refused to amend the TRIPS Agreement and instead confirmed that better access to medicines can be achieved through the interpretation and implementation of the current TRIPS Agreement.

(2)  Ministers confirmed that current public health crisis can be regarded as the ground for compulsory licensing.

(3)  Ministers agreed to grant LDCs further ten-year extension for their obligations with respect to pharmaceutical product patent and undisclosed information until 1 January 2016 [25]. 

(4)  Ministers instructed the TRIPS Council to find an expeditious solution to the so-called “export compulsory license” problem. 

This last point may need some explanation.  For some WTO Members with insufficient or no manufacturing capacities of modern medicines, a compulsory manufacturing license is of no use.  They need a compulsory license to have those medicines manufactured in foreign country.  The U.S. and the EU are afraid of possible diversion of such medicines.  

During the year 2002, the TRIPS Council could not agree upon anything including such basic points as legal mechanisms to implement the system [26], extent of the diseases and medicines, and the definition of countries to be covered by the system.  

As regards the subject diseases, the United States requests a clear definition, while LDCs hold that AIDS, tuberculosis and malaria are just examples.  

In 2003, although final agreement seems to be still far away, a statement was adopted at the General Council expressing Members’ common understanding that they will do their best to prevent importation of diverted medicines.  

This last point is a laughing matter because they have prohibited parallel importation of drugs that do not exist at all yet.  I believe this matter should be decided as quickly as possible with no delaying tactics.  Thousands of people are dying everyday from these diseases. 

2.  Desired Future Agenda: 

2.1.  Information Revolution: 

Now, I will discuss what I believe the TRIPS Agreement should do in the near future.  

You may be aware that the current built-in agenda of the TRIPS Agreement is really trivial and not a life-and-death matter excepting the public health issue.  But I think a real life-and-death matter is entering into the TRIPS Agreement.  It is copyright.  

As one of the built-in-agenda, the TRIPS Council is discussing possible accession of WIPO Copyright Treaty and Performances & Phonograms Treaty into the TRIPS Agreement [27].  

2.1.1.  WIPO Copyright and Performances & Phonograms Treaties: 

When the TRIPS Agreement was signed in 1994, it was already out of date.  TRIPS Agreement could not handle the arrival of information revolution.  

Even at that time, the Internet was changing the world so drastically, but copyright provisions of the TRIPS Agreement was of no help to resolve new legal problems such as unauthorized uploading of copyrighted works or circumvention of technological protection of copyright.  

In December 1996, WIPO adopted two copyright-related treaties.  These are the WIPO Copyright Treaty (“WCT”) and the Performances and Phonograms Treaty (“WPPT”) [28].  Both treaties took effect in 2002 with required ratification by thirty countries [29]. 

The treaties are to establish:　

(1) a ‘public communication right’ that prohibits unauthorized public communication of protected works either by wire or wireless means [30],　

(2) an ‘uploading right’ that prohibits unauthorized uploading of protected works [31], and　

(3) a ‘distribution right’ that prohibits unauthorized distribution of protected works [32]. 

The treaties also make it unlawful:　

(4) to circumvent technological measures to protect copyright or neighboring rights [33], and　

(5) to remove or tamper with Rights Management Information, including any code limiting the conditions of use of 

the transmitted information [34].  

Here is an episode showing the dangerous nature of copyright.  A WIPO committee draft contained a provision to make unlawful temporary storage of protected works in a computer memory during the browsing on the Internet [35].  It met strong oppositions from the U.S. telecommunications and Internet industries and was finally abandoned.  

If this were adopted, it would certainly have created a legendary "use right" for the benefit of copyright owners:  For example, using a cookbook is not a copyright infringement unlike copying it.  Under the committee proposal, however, reading a CD-ROM cookbook on a computer screen would have constituted copyright infringement, because part of the cookbook is at least temporarily stored in a computer memory.  

These issues caused a controversy between the two most influential industries in the United States.  The copyright-holding industries such as motion picture, sound recording and computer software, strongly supported these rights.  

With such rights, they could collect huge amount of royalties from the copyright-using industries such as Internet service providers and telecommunications companies as contributory or vicarious infringers. The latter are liable on behalf of millions of users who are reproducing protected works during up- and downloading.  

Furthermore, reproduction means fixation of a work on a tangible media and therefore only downloading was the suspected act under conventional copyright concept.  WCT and WPPT have created a new copyright concept by making uploading illegal. 

2.1.2.  DMCA−U.S.: 

Next, I will discuss the United States.  In 1998, the United States enacted a Digital Millennium Copyright Act (“DMCA”).  It prohibits:　

(1) gaining unauthorized access to a work by circumventing a technological measure [36], 　

(2) manufacturing or selling products and services primarily used to circumvent technological measures controlling access or reproduction [37], and 　

(3) tampering with copyright management information [38]. 

It is interesting to note that the United States has wisely forgotten the “uploading right” requested by WCT/WPPT.  

DMCA creates civil remedies and criminal penalties.  There are several exceptions to the above, such as the use in reverse engineering, encryption research, public libraries, law enforcement, etc.  

DMCA limits the liability of an online service provider (“OSP”) for copyright infringement in several important situations.  The most important exemptions in the Act cover two common OSP activities: (1) storing material on an OSP's system at the users’ request, such as a Web page or chat room and (2) referring users to material at other online locations by means of, for example, a search engine or a hypertext link [39].  

In July 2001, a Mr. Dmitry Sklyarov, a Russian programmer, who visited the United States to attend an industry conference was arrested by the FBI for alleged violation of the DMCA.  According to the FBI, his Russian employer, ElcomSoft, was selling software online that defeats Adobe’s e-Book encryption and Mr. Sklyarov was its developer.  

Despite Adobe’s petition not to criminalize an individual, he was detained in jail for weeks and was finally acquitted in a plea bargain to testify against ElcomSoft at the trial.  

In December 2002, ElcomSoft was also acquitted by a jury finding that it was not guilty because of lack of criminal intent.  

The Department of Justice did not appeal, saying that it will not pursue similar case any more. 

2.1.3.  Copyright Protectionism−Japan: 

2.1.3.1.  Uploading Right: 

Next, I will discuss Japan.  Immediately after the signing of the WCT/WPPT and even before the enactment of the DMCA in the United States, Japan amended its Copyright Law in 1997 in literal compliance with the treaties, in particular, to prohibit unauthorized uploading of protected works to servers accessible from general public, a goal even the United States could not attain.  

A Ministry of Education official writes in a law journal [40] an article proudly entitled “Japan Again Won a World-Race of Internet-countermeasure” as summarized below.  

An amendment to the Japanese Copyright Law has passed the Diet and promulgated.  It gives the broadcasting industry (wire or wireless), an uploading right against unauthorized re-transmission of programs through the Internet or otherwise.  Japanese Copyright Law has always pioneered the world in Internet-countermeasure regulations, that is, creating and granting the rights against unauthorized transmission of information through the Internet or otherwise.  In as early as 1986, we gave copyright-holders a right against unauthorized transmission of copyrighted works from servers for the first time in the world.  

Sorry, I have to intervene here.  In 1986, there was no such thing as the Internet as we know now.  This amendment targeted a “cable karaoke” then becoming popular in Japan.  This is a typical example of Japan’s premature bureaucratic intervention into a new technology.  Now I will return to the Ministry of Education article.  

In 1997, only half-a-year after the signing of the WCT and WPPT, we gave right-holders including authors, performers and sound recording companies a right against unauthorized uploading of protected works for the first time among industrialized countries.  At present, only Japan and Australia have these Internet-countermeasure regulations in copyright law.  It is well known that the United States, for lack of these legislations, is toiling over Napster lawsuits.  Furthermore, only Japan in the world has completed the legislation against the circumvention and tampering of the anti-copying/anti-access technological measures for all the copyrighted works, performances, sound recordings and broadcasted programs (wire or wireless).  [Underlines added].  

It strikes me that this official completely lacks historical vision of how information revolution took off in the United States.  As you know, the Internet is a child of thousands of computer nerds working during their free time without any governmental assistance or interference.  Information revolution is the product of free, creative activities of the people, but not the product of bureaucracy. 

In November 2001, Kyoto police arrested a couple of young men who uploaded copyrighted music without authorization and also a programmer who wrote and distributed a peer-to-peer program that enabled such uploading, for direct and contributory infringement of uploading right, respectively.  Apparently, Japan is vigorously nipping every bud of information revolution.  

Please do not misunderstand me.  I am not recommending to ignore a treaty obligation.  I am recommending to be more careful before signing a treaty. 

2.1.3.2.  Importation Right against Music CDs−Japan: 

Next, I will tell you a story about how copyright can distort free and fair trade among nations [41].  

For years, major Japanese sound recording companies (herein “Japanese labels”) have been lobbying to establish an importation right--a right to prohibit importation-- under Japanese Copyright Law, against music CDs made in other Asian countries under their license. 

They are eager to license other Asian countries for local production of Japanese popular music (“J-Pop”) CDs that are becoming more and more popular there recent years, but do not want those CDs to return to Japan at an import price far lower than their Japanese price.  

Generally speaking, a J-Pop album costs $25 a piece in Japan, while the same album made under license in other Asian countries costs less than $10.  

It is a common business practice to obligate local licensees not to export their CDs back to Japan, but Japanese labels do not seem to trust their licensees in binding their customers not to export to Japan (that may cause some concern to their local competition authorities). 

Their effort has proven more than successful.  In April 2004, the Ministry of Education, Culture and Science introduced a bill at the Diet to amend Japanese Copyright Law.  The bill passed the Diet in June.  The Amendment will most probably take effect as of January 2005.  

In short, the key text of the Amendment runs as follows [42]:  

A right-holder making, or having made under its license, identical musical CDs both in Japan and in a foreign country can stop importation of such foreign-made CDs into Japan, only if such importation hurts his anticipated domestic profit unreasonably.   

The amendment gives copyright- and neighboring right-holders, Japanese or foreign, a power to stop, under certain conditions, importation of all musical CDs made in foreign country under license from the holder, Japanese or foreign, of Japanese copyright or neighboring right.  

This power is now far stronger than is necessary to stop backflow from Asian countries as envisaged by Japanese labels at first.  This is the necessary outcome of the non-discrimination principle of the TRIPS Agreement.  

Suppose, for example, one of the American Five Majors, who owns a copyright or neighboring right in Japan and is making identical CDs in the United States, decides to divide the two geographical markets to maximize its joint profit, it will undoubtedly stop parallel importation of cheap U.S.-made CDs into Japan to protect its Japanese licensee’s higher price product.  

The only chance by which Japanese labels could avoid this unwanted situation is to manipulate the term “unreasonable.”  They have to make importation from Asian countries “unreasonable” and from the U.S./EU “reasonable.”  

They may probably use the domestic-foreign price-differential as the measure of such reasonableness.  If they adopt the 50% threshold, for example, imports from Asia can be effectively stopped while those from the U.S./EU cleared.  

My concern is how Japan’s Asian trade partners feel about this situation.  Do they welcome it because it may invite investment from Japanese labels for local production of J-Pop CDs under license?  Or, do they hate it because selling a CD in their country at a price lower than in Japan is a dumping and will injure their domestic industry and culture?  

I think the latter is the case.  I am afraid that it is against the idea of the long-awaited East Asian Community declared at Japan-ASEAN summit conference held in Tokyo in December 2003.  It is not a Japan-specific problem as I will discuss immediately below.  

2.1.4.  Evaluation—Parallel Importation:  

Unlike patent right granted to a skilled inventor for 20 years through examination and registration, copyright is granted to everyone for 50 to 90 years without any formality.  Copyright is, therefore, more prone to an abuse than patent right and should be monitored more carefully.  

Copyright is quickly replacing patent right as an ultimate weapon for monopolists in the information age.  

The United States is toiling over how to make a balance between protection and use, while Japan is rushing towards stronger protection.  Information revolution is going on in the United States, not in Japan.  

One of the most sensitive problems the TRIPS Agreement should solve in the near future is the parallel importation problem as illustrated in Japan’s experience in CD importation right issue discussed above.  

Despite heated arguments during the Uruguay Round, TRIPS Agreement could not decide upon this matter [43].　

Dissatisfied with this result, the United States is vigorously trying to establish a global regime through bilateral trade agreements or FTAs against parallel importation of goods covered by a piece of intellectual property right.  

The public health matter discussed above is a part of this more general discrepancy between importing and exporting cultures. 

2.2.  Competition:  

2.2.1.  Why and How Much Should We Protect Intellectual Property? 

Now, I will enter the more basic questions.  Although I have been involved in the TRIPS negotiation since its beginning in 1986, I still have a very basic, unanswered question:  Why should we protect intellectual property?   

My Japanese and American colleagues have provided me with various answers to this question such as the following:  

  (1)  Intellectual property is property.  Therefore, it should be protected as a matter of ethics.  

  (2)  Intellectual property gives people an incentive to create.  Therefore, its protection promotes innovation.  

None of those answers has convinced me.  Please don’t be scared.  I am not going to take time on this unending question.  What I need now is just a provisional answer as the basis of the next question of how much we should protect intellectual property.  What I have in mind is the following explanation:  

Currently we live in a market economy, like it or not.  Market economy at least requires a legal framework consisting of (1) a clear definition of property and (2) clear rules of transaction [44].   

In order for us to sell a piece of information on the market, it must first be made visible−or defined as a copyright.  In order for us to sell an idea on the market, it must be packaged and wrapped as a patent right.  This is one of the two very basic rules of our society.  Piracy and counterfeit therefore destroy the very basis of our society.   

This hypothesis leads to the following conclusion:  Protection of property right should be necessary minimum for market economy to function.  Its excessive protection will lead to a monopoly and will destroy the society, too.  The first requirement of our society, namely, definition of information merchandize has been accomplished by the TRIPS Agreement, maybe more than enough. 

2.2.2.  Intellectual Property and Competition:  

Now, what we have to solve is the next question:  How much should we protect intellectual property, or how much should we pay for a piece of intellectual property?   

My answer is very simple: let competition decide the price.  

In order for competition to decide an optimum price, we need the second requirement—rules of fair competition.  

Only free and fair competition can determine the optimum price, at which we can attain the most efficient distribution of resources and maximum output.  

Lack of competition will lead to a monopoly, hence unreasonably high price and low supply [45].  

The United States has the strongest intellectual property laws and at the same time the strongest antirust laws in the world.  

The tension—or check and balance—between these two social forces, sometimes swinging to the right and the left, has ignited information revolution there.  

There are some evidences in the TRIPS Agreement to support my observation:  

Articles 8 and 40 are two of the most important achievements of the TRIPS Agreement in suppressing unilateral and joint exercise of monopoly power based on intellectual property, respectively.  

Article 8, paragraph 2 admits that appropriate measures may be needed to prevent the abuse of intellectual property rights by right-holders.  

Article 40 admits that some intellectual property licensing practices may restrain competition.  It also permits Members to adopt appropriate measures to prevent or control such practices. 

Even the U.S. semiconductor industry that was so hostile against the compulsory licensing during the TRIPS negotiation admits that they need one to remedy an anti-competitive practice [46].  

I have a huge collection of U.S. court decisions that have made intellectual property rights “unenforceable” because their exercise violated antitrust laws or misuse doctrine [47].  

Also, there are many instances where a United States monopolization case has been settled in a consent judgment including compulsory licensing of intellectual property [48].  

The United States, so hostile against the compulsory licensing in international forum, actually has a history of hundreds of compulsory licensing court decisions.  

Those court decisions have undoubtedly deterred thousands of attempted anticompetitive behaviors by private parties.  

This is the result of a litigious society in the United States with nearly one million practicing lawyers.  Half of these lawyers are fighting intellectual property monopolists and competition law is their weapon.  Japan is quickly following this move producing three thousand practicing lawyers a year.  Our choice is between a bureaucratic society governed by a Big Brother or a litigious society where citizens protect themselves.  

Graph 1 shows that the U.S. businesses have been collecting a huge amount of royalties from other countries where they meet no challenge from local competition laws.  

Because other major industrialized countries are almost break-even or slight deficit, the main payer of this huge American trade surplus is undoubtedly developing country groups, although not indicated in the graph.  I recommend you to make this type of statistics for your country if not available yet.  Intellectual property problem is at the same time international trade problem.  Therefore I am teaching both.  

I note with some concern that the sharp increase in the U.S. surplus towards the end of the 20th Century coincides with the period of China’s quick economic growth.  

Graph 1:  Technology Trade Balance (in Billion Yen)

Prepared by Tad Homma using data from the Annual White Paper on Science & Technology, Government Science & Technology Office (updated as of 2005-5-27).  

It is time also for developing countries to begin searching for an optimum balance between the social efficiency and the monopoly losses created by intellectual property systems.  

Returning to the former weak protection of intellectual property is not realistic.  Any optimum balance between the benefits of inventors and consumers, creators and users, software and hardware suppliers, and developed and developing countries will only be achieved in a tension between strong intellectual property laws and strong competition laws.  

Intellectual property law is an engine for innovation and competition law is its steering wheel.  For developing countries, too, competition law fights foreign monopolists.  

This is one of the reasons why the United States is not eager to export its competition system abroad, unlike its intellectual property system.  It is interesting to note from recent WTO dispute settlement cases that Argentina and Brazil are trying to invoke compulsory licensing based on anti-competitive practices allegedly committed by U.S. drug monopolies and that the U.S. is trying to calm them down by bilateral means [49]. 

Articles 8 and 40 of the TRIPS Agreement anticipate future international negotiation on the so-called restrictive business practices in technology licensing transactions, and a new negotiation agenda, Trade and Competition, has emerged at the WTO Singapore Ministerial Conference of 1996.　

I am fully aware that the competition agenda has met strong oppositions from developing country groups and, together with other “Singapore” issues, and was finally abandoned at the DDA Framework Agreement reached in August, 2004.  The U.S., reluctant about this agenda from the beginning, seems to be satisfied with the result.　

I am also aware of many strong criticisms also in developing countries that the Uruguay Round made a mistake in permitting intellectual property to enter the WTO, a market access machine [50].  I really agree with these criticisms.  But it is no use crying over spilt milk.  

These criticisms have caused in developing countries a general feeling against TRIPS-type agreements (sometimes called the “infrastructure” agreements), I understand.  

Because it is impossible to turn the clock back for ten years, I believe that what we should do or can do now is to introduce a system that will fight by nature the intellectual property monopoly.　

Thank you very much for listening.

Notes:

1. TRIPS AND AFTER—A REALIST’S VIEW <http://tadhomma.ld.infoseek.co.jp/TripsAft3.htm>

2. Section 3, TRIPS Agreement.

3. Article 24, paragraph 4.

4. Article 23, paragraph 4.

5. The Fourth Session of WTO ministerial conference.

6. Paragraph 18 of the Declaration.

7. The Fifth Session.

8. Here, one of the participants from India indicated that “Basmati” is not the name of a place, but a corruption of “aromatic” in Sanskrit.  Thank you. Geographical indications are defined as 'indications which identify a good as originating in the territory of a Member.., where a given quality..is essentially attributable to its geographical origin (Art. 22 (1)).  A geographical indication is therefore not necessarily the name of a place.  Basmati Rice is a good identified as originating in the Punjab whose quality being attributable to the Punjab.  

9. Article 27, paragraph 1.

10. Paragraph 3, subparagraph (b), the third and the last sentences.

11. The U.S. signed the CBD in 1993 but has not ratified yet.

12. Paragraph 19 of the Declaration.

13. E.g., The PR-IUPGR: 1983 International Undertaking on Plant Genetic Resources.

14. Article XXIII.

15. Subparagraphs 1(a), 1(b) and 1(c), respectively.

16. Article 64, paragraph 2.

17. TRIPS-related DSU cases (* denotes panel cases):

 18. Article 23, paragraph 1 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”), Annex 2 of the WTO Agreement.  

19. Special 301 Priority/Monitoring Countries:

20. Article 14, paragraph 6.

21. Article 8, paragraph 1:  This Convention shall apply to all works which, at the moment of its coming into force, have not yet fallen into the public domain in the country of origin through the expiry of the term of protection.  Article 7, paragraph 1:  The term of protection granted by this Convention shall be the life of the author and fifty years after his death.

22. Article 8, paragraph 3:  (3) The application of this principle shall be subject to any provisions contained in special conventions to that effect existing or to be concluded between countries of the Union.  In the absence of such provisions, the respective countries shall determine, each in so far as it is concerned, the conditions of application of this principle.

23. Asahi Shimbun, October 10, 1991.

24. Declaration on the TRIPS Agreement and Public Health.

25. Transition Periods (TP):

  (1) Accept drugs/agricultural chemicals patent applications during transition period.

  (2) Doha Declaration:  Further 10 year TP (-2016) re drug product patent and trade secrets.

26. As regards the legal instruments, there are three different positions: (1) a long-term waiver of Article 31(f) , (2) a revision of Article 31(f) and (3) an expansive interpretation of Article 30.

27. Article 71, paragraph 1.

28. http://www.wipo.int/treaties/en/ip/wct/index.html   http://www.wipo.int/treaties/en/ip/wppt/index.html

29. As of June 2004, 39 countries have ratified both WCT and WPPT.

30. WCT Art. 8.

31. WCT Art. 8 and WPPT Art. 14.

32. WCT Art. 6 and WPPT Art. 8.  However, contracting parties are free to determine the conditions of the exhaustion of the right after the first sale of protected works.  During the committee negotiation, the U.S. insisted upon the inclusion of importation concept into the distribution right to prohibit parallel importation of protected works.  This effort proved unsuccessful.  This is a continuation of a dispute during the TRIPS negotiation that failed to establish copyright importation right unlike patent and IC mask work.  The Treaty requests contracting parties to establish general distribution right. 

33. WCT Art. 11 and WPPT Art. 18.   Hereafter, I will use the word 'copyright' to include 'neighboring right' unless distinction is necessary.

34. WCT Art. 12 and WPPT Art. 19.  This may look innocent at a glimpse.  Suspicion arises, however, that this may have something to do with parallel importation issue, too.  Software manufacturers are inclined to put a district code in their software and to permit only the player devices that can decode it to play such software.  The district code may be regarded as a right management information.

35. WCT draft Art. 7.

36. 17 U.S.C. 1201(a)(1).

37. 17 U.S.C. 1201(a)(2), (b).

38. 17 U.S.C. 1202(b).

39. 17 U.S.C. 512(c), (d).

40. NBL No. 741 (July 15, 2002).

41. For details, see http://tadhomma.ld.infoseek.co.jp/CDImpRight01.htm

42. Article 113, Section 5 [Excerpt/Underline added]:  Where a copyright- or neighboring right-holder who is publishing himself or having others publish commercial musical records purported for distribution within Japan (hereinafter “Japan Distribution Records”) is publishing or having others publish identical commercial musical records purported for distribution solely outside Japan (hereinafter “Foreign Distribution Records”), an act of, knowingly, importing such Foreign Distribution Records for distribution in Japan, distributing the same in Japan, or possessing the same for the purpose of distribution in Japan is regarded as an infringement of such copyright or neighboring right, only in case the profit expected for such copyright- or neighboring right-holder from the publishing of such Japan Distribution Records is unreasonably undermined due to distribution in Japan of such Foreign Distribution Records.

43. TRIPS Agreement has left this problem unanswered except a status quo language at Article 6:  “...Nothing in the agreement shall be used to address the issue of the exhaustion of intellectual property rights.”

44. Robert Keohane suggests a possibility of an ideological hegemony.  ROBERT O. KEOHANE, AFTER HEGEMONY − Cooperation and Discord in the World Political Economy (Princeton, New Jersey, Princeton University Press, 1984).  He also emphasizes the importance of defining or establishing "property rights" as the basis of an international regime but did not say that his "property rights" include intellectual property rights. Id. , at 11, 18, 62, 87 and 97.

45. Under free competition, an equilibrium price is given at the intersection of demand and supply (cost) curves.  Here, the most efficient distribution of resources and the maximum output are attained.  The poorest consumer can buy a product supplied at the highest cost.  Richer consumers and more efficient suppliers enjoy their respective surpluses.  These two surpluses will be invested to stimulate economy.  If monopoly exists, however, the monopolist lowers the output and necessarily raises the price until his profit reaches the maximization point.  At this point, consumers lose and monopolist gains the same amount (transfer).  Nevertheless, real problem lies in the deadweight losses both consumers and suppliers will incur.  These are the net social losses that no one gains.  Surpluses are deprived and the economy shrinks. 

46. Article 31, subparagraph (c).

47. E.g., International Salt v. U.S., 332 U.S. 392 (1947)/Kobe, Inc. v. Dempsey Pump Co., 198 F.2d 416 (10th Cir. 1952)/Walter Brulotte v. Thys, 379 U.S. 29 (1964)/Walker Process Equipment, Inc. v. Food Machinery and Chemical Corp., 382 U. S. 172 (1965)/Zenith Radio v. Hazeltine Research, 395 U. S. 100 (1969)/Lear v. John Adkins, 395 U.S. 653 (1969)/Handguards v. Ethicon, 601 F. 2d 986 (1979), 748 F. 2d 1282 (1984)/Digidyne v. Data General, 734 F. 2d 1336 (9th Cir. 1984), cert. denied 473 U.S. 908 (1985)/International Wood Processors v. Power Dry, 792 F. 2d 416 (4th Cir. 1986)/Lasercomb America v. Reynolds, 911 F. 2d 970 (4th Cir. 1990)/Feist Publications, Inc. v. Rural Telephone Service Co., Inc, 499 U.S. 340 (1991)/Sega Enterprises v. Accolade, 977 F.2d 1510 (9th Cir. 1992).

48. E.g., United Shoe 1953/Kodak 1954/IBM 1956/Xerox 1975.  

49. See footnote 17, DS171/196 and DS199.

50. E.g., T. N. Srinivasan, The TRIPS Agreement: A Comment Inspired by Frederic Abbott’s Presentation (29 November 2000) http://www.econ.yale.edu/~srinivasan/.