[A2k] The TPP’s Reckless Proposals For Damages Will Have Negative Impact On Future Reform Of IPR Regimes

Andrew S. Goldman andrew.goldman at keionline.org
Tue Jul 28 07:23:40 PDT 2015


The TPP’s Reckless Proposals For Damages Will Have Negative Impact On
Future Reform Of IPR Regimes

By James Love, Director, Knowledge Ecology International

28 July 2015

This week negotiators from a dozen countries are meeting to finalize the
rules for the Trans Pacific Partnership (TPP) trade agreement. When or if
concluded, this massive regional trade agreement will set new standards for
the grant of property rights in knowledge, and the enforcement of those

The TPP chapter on intellectual property covers all intellectual property
types included in Part II of the WTO’s TRIPS agreement, plus some others,
including not only patents, copyrights and trademarks, but also
“undisclosed information”, test data for the registration of drugs,
industrial designs, layout-designs of integrated circuits.  The rules in
the TPP are intended by the United States to become global norms,
effectively replacing TRIPS.

While there are plenty of issues in the TPP IP Chapter, this note only
addresses one set of issues — those relating to the remedies for the
infringement of intellectual property rights.  The remedies include such
topics as injunctions, damages, and the seizure or destruction of
infringing goods.

In the TPP talks, the United States, led by the Office of the United States
Trade Representative (USTR), is the proponent of the most aggressive and
tough rules for remedies.  The US wants the standards for damages to be
very high, and to go beyond TRIPS obligations for injunctions and the
destruction of infringing goods. For an “an infringer who knowingly” or
even “with reasonable grounds to know, engaged in infringing activity,” the
standards are very tough.

The US proposals reflect an unwillingness to acknowledge the obvious —
 there are reasons to differentiate, and in some cases limit remedies, to
achieve policy objectives.

Some TPP members have general rules for the infringement of patents,
trademarks, copyrights and other types of intellectual property rights, but
also exceptions to those general rules.

For example, Canada does not grant injunctions for the infringement of
copyrighted architectural plans.  In an article titled, No injunction in
case of a building <
http://laws-lois.justice.gc.ca/eng/acts/c-42/page-43.html>, the Canadian
copyright provides that:

“Where the construction of a building or other structure that infringes or
that, if completed, would infringe the copyright in some other work has
been commenced, the owner of the copyright is not entitled to obtain an
injunction in respect of the construction of that building or structure or
to order its demolition.”

The provision in the Canadian copyright law is designed to protect
investors in the construction of building, by removing the power of the
copyright holder to stop construction, or demand a building be torn down.

The United States has more limitations and exceptions to remedies for
infringement than any other TPP member, and is considering new ones.

For the enforcement of intellectual property rights, context is important.
Sometimes the point is to both stop and deter infringements. For these
situations, injunctions, seizures of infringing goods, and high, even
punitive damages may be appropriate. For other cases, the government may
want to compensate a right holder for an infringement, but not as
aggressively. For example, when Research in Motion infringed patents held
by NTP, the US government involved 28 USC 1498(a) to block injunctions so
that the infringing services could continue.  There are also cases where
the government wants to eliminate the possibility of injunctions or
seizures of infringing goods, and also limit the damages, ensuring that
royalties are “reasonable” in light of fairly detailed and specific policy
objectives and economic considerations.

For example, as part of the 2010 Affordable Care Act, the Biologics Price
Competition and Innovation Act (BPCIA) created very specific limits to the
remedies for the  infringement of a patent on biologic drug. In cases where
patents are not disclosed in a timely manner to biosimilar competitors,
there are no injunctions and either no damages, or damages limited to a
reasonable royalty [35 USC 271(e)(6)(B)].

There is a reason for the these limits on remedies.  It is not obvious
which patents one might infringe in manufacturing a biologic drug.  If the
company selling a biologic drug does not make timely and constructive
disclosures to competitors, a potential competitor will face the risk of
investing millions in the development of a biosimilar product, and then be
blocked by a patent from selling the drug. This uncertainty chills
investment in biosimilar drugs, and reduces competition. By limiting
remedies for infringement when patents are not disclosed, there is an
incentive to disclose.

Similar cases arise when there are so-called “standards essential patents
(SEPs).  In January 2013, the US Department of Justice (DOJ) and the US
Federal Trade Commission (FTC) have published a joint “Policy Statement on
Remedies for Standards-Essential Patents” calling upon courts to limit
damages and avoid injunctions when companies have not made adequate
disclosures of patents when standards are set. This soft guidance could
become codified by statute, as it has for biologic drugs.

A somewhat different case involves orphaned copyrighted works. In June
2015, the Register of Copyrights recommended changes in copyright law to
expand access to copyrighted works.  The legislative proposal put forth by
the Register (Orphan Works and Mass Digitization,
http://copyright.gov/orphan), proposed to limit the availability of all
sorts of remedies, including injunctions, damages, statutory damages,
attorney fees and the seizures or destruction of goods.

The Register’s proposed orphan works legislation was similar to a bill that
passed the US Senate in 2008.  The Register is recommending differential
remedies that depend how the work is used, and who the infringer is.  If
the infringer “prepared or commenced preparation of a new work of
authorship that recasts, transforms, adapts, or integrates the infringed
work with a significant amount of original expression,” injunctions
preventing future infringements were eliminated.  There were more limits on
remedies if the infringer was “a nonprofit educational institution, museum,
library, archives, or a public broadcasting entity,” and if the
“infringement was performed without any purpose of direct or indirect
commercial advantage,” and/or “the infringement was primarily educational,
religious, or charitable in nature.”  In some cases, damages were set at
zero, and in other cases reasonable compensation was defined as the amount
reflecting a hypothetical agreement between the parties “with respect to
the infringing use of the work immediately before the infringement began,”
which for orphaned works, often forgotten and abandoned by the right
holders, would be a small amount of money.

A zero rate for damages is also used in some other federal statutes.  For
example, damages for infringements by a “medical practitioner” or a
“related health care entity” for patent infringement relating to the
“performance of a medical or surgical procedure.”

For patents on nuclear power, the United States can declare injunctions are
not available in cases of infringement, and set different standard for
damages.  Among other things, 42 USC 2187 requires consideration of the
extent to which an inventor has recovered its R&D costs, and the federal
government subsidized the research.

More recently the US Senate Veterans Committee has been considering a
proposal by Senator Bernie Sanders to limit damages on patent infringement
by the Veteran Administration (VA), when the infringing patents are used to
provide a drug or other medical technology for treatment and care for
veterans.  The proposal by Sanders include a definition for a reasonably
affordable royalty, that took into account the Veteran Administration
budget resources.  Sanders is trying to address a crisis in access to
treatments for the hepatitis C virus (HCV) that are so expensive the VA had
to cut off enrollment in treatment, and propose taking money from another
VA health program, just to pay for more drugs. The proposal to limit
damages came after the VA identified the current standard in 28 USC 1498 as
potentially too costly.  The suggested retail price (a standard for damages
referenced in the TPP) for this treatment is $95,000 per patient.

One way to understand the importance of the damages issue is to understand
the logic of the liability rule approach in intellectual property.

There are cases where a patent or copyright holder cannot exclude a use,
and damages are zero, such as when fair use or another exception to the
right applies.  There are also cases where the patent or copyright holder
has strong exclusive rights, and damages are a significant deterrent to
unauthorized use. A liability rule is something in between.  Users have the
freedom to use a patent or a copyrighted work, but, if they do, the holder
of the right gets paid. The issue of access and use is settled, but at what
price?  For a liability rule to work well, the rules on the amount of money
have to make sense.

The TPP proposes to ban all caps on damages for infringement, and to allow
right holders to ask courts for “any legitimate measure of value the right
holder submits, which may include lost profits, the value of the infringed
goods or service measured by the market price, or the suggested retail
price.”  This is a radical proposal, and one that may have a profound and
negative impact on future efforts to reform intellectual property right

If you cannot have rules that ensure reasonable outcomes for damages,
liability rules became irrelevant, and policy makers are left with the more
extreme cases of all or nothing regarding the patent and copyright holder
Knowledge Ecology International (KEI) is maintaining a webpage on this
week’s TPP minister’s negotiating meeting in Maui, Hawaii, available here:

Andrew S. Goldman
Counsel, Policy and Legal Affairs
Knowledge Ecology International
andrew.goldman at keionline.org // www.twitter.com/ASG_KEI
tel.: +1.202.332.2670

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