EU “Third Country” IP Report Targets China (Again), adds Saudi Arabia to Priority List, and drops USA

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The European Commission recently issued its biannual report on the protection and enforcement of intellectual property rights in “third countries”. (I was a bit confused about this terminology, wondering which nations constitute “second countries” but apparently it is standard EU parlance used to describe any country not part of the EU, the assumption being that at least two countries form the EU so any country not within the Union must be a “third country”. Britain now qualifies as a third country so I wonder if it will figure in the EU’s next report.) The report has been issued since 2006 although two years ago the EU added a new “Watch List” report covering notorious online and offline markets for pirated and counterfeit goods, similar to the Notorious Markets Report issued periodically by the US Trade Representative’s Office (USTR). That EU report can be found here.

The terminology is a bit confusing because the EU describes its report on notorious markets as a counterfeit and piracy “watch list”. “Watch List” (and “Priority Watch List”) is also the term used by USTR to designate foreign countries according to the degree to which, according to USTR’s assessment, they fail to protect the IP of US companies through weak legislation or inadequate enforcement. Last year there were 11 countries on USTR’s Priority Watch List (the most serious category in terms of weak protection) and 26 on the Watch List, including two EU countries (Greece and Romania).

The EU Third Country IP report also identifies and names (and shames) specific countries, but does so on the basis of Priority 1 (most serious), Priority 2 (serious problems and little or no progress), and Priority 3 (fewer problems but still concerns). The EU also has a special class of countries where there is a bilateral Free Trade Agreement in place, yet IP problems persist. Canada, Mexico, South Korea and Vietnam fall into this category.  Canada gets a negative shout-out for, among other things, its overly broad education fair dealing exception which has damaged the market for educational publishing, a concern that is widely shared by the Canadian publishing industry and its collective rights management organization, Access Copyright. The only Priority 1 country on the EU list is China. There are five in the category of Priority 2 (India, Indonesia, Russia, Turkey, Ukraine) and seven listed as Priority 3 countries (Argentina, Brazil, Ecuador, Malaysia, Nigeria, Saudi Arabia and Thailand). Saudi Arabia and Nigeria were new additions to the list. Two countries no longer on the EU’s Priority 3 list are the Philippines and the USA.

The inclusion in past years, and the exclusion this year, of the USA warrants an explanation. The EU report covers all aspects of IP, including copyright, patents, trademark and design. There are no issues in most of these categories but there is an ongoing copyright dispute with the US that the EU seldom fails to raise, the WTO Irish Music Case. The case was brought in the WTO against the US by the EU in 2000, based on a complaint by the Irish Music Rights Organization (IMRO), a collecting society for Irish music. It involved the non-payment of royalties for music played in US bars, restaurants, stores and malls distributed via radio or television sets. The IMRO claimed that a lot of this music was Irish. US law (Copyright Act Section 110 (5) provides small businesses with an exemption from paying collecting society royalties as long as the music is incidental to the business (e.g. “background music”). This was found by a WTO Panel to be incompatible with US obligations under the TRIPS IP Agreement, forming part of WTO commitments, and the Berne Convention. The panel estimated the amount of lost revenues at $1.1 million annually and determined that the US should bring its legislation into compliance with its international commitments, failing which the EU could retaliate in like amount.

USTR was unable to convince Congress to amend the legislation and instead, in 2001, Congress voted a one-time lump sum payment of $3.3 million covering the first three years as compensation. This was in lieu of the EU suspending equivalent benefits to US exporters to the EU, as allowed by WTO. Since that payment, no further compensation has been paid and the WTO non-compliant legislation remains in force. In short, it is an ongoing irritant that the EU has used in the past as part of its reason for listing the US in its IP report as a transgressor. (There were some other reasons as well, including labelling of alcoholic beverages). Now that the EU and US are edging closer to the start of bilateral trade negotiations (under threats from the Trump Administration to impose unilateral import tariffs on European cars, (mis)using the WTO’s national security clause as the justification for this action), the EU has clearly decided that discretion is the greater part of valour. The official explanation for dropping the US from the report is the following;

“The US was removed from the priority list in light of the good cooperation in international fora such as the TRIPS Council and the OECD as well as its engagement in bilateral discussions in the context of the Trans-Atlantic Working Group on IPR. Nevertheless, the Commission services remain concerned about the lack of progress in implementing the WTO panel decision on Irish Music”

While the US is off the list, the EU is not dropping the music issue. Trade negotiators never let go of an advantage. If US-EU trade negotiations begin, you can be sure that resolution of the Irish Music Case, and the lost $1 million in annual revenues, will be one of the files in the hands of the EU negotiators. It’s called negotiating coinage.

It’s worth noting however that the amount at issue pales in comparison to the $7.5 billion in damages that the WTO recently estimated the US has incurred as a result of non-compliant EU subsidies to Airbus over the years. As a result of the WTO ruling in this case that goes back 15 years, the US has imposed retaliatory tariffs not only on Airbus planes but also on French and Spanish wines, German tools, Scotch whisky, and a range of other EU products. But later this year the WTO will rule on an EU countersuit accusing the US Government of “illegally” (according to WTO rules) subsidizing Boeing over many years, and the EU will almost certainly put in place its own retaliatory tariffs against US products. Of course it would make sense for both sides to disarm, and hopefully in the end that is what will happen.

Going back to the EU’s IP Priority List, in terms of who is on the list–rather than who is not–China gets pride of place again this year as the sole country in the Priority 1 category. Among the complaints are invalidation of patent appeals against Chinese infringers, registration of bad faith trademarks, short duration of protection for designs, delays to amendments to the copyright law including a need to extend the period of copyright protection and forced IP transfer. In addition, China is the major source of counterfeit and pirated products arriving in the EU with 80% of customs seizures of such products originating in China or Hong Kong. Many countries are on the EU list (Nigeria and UAE are examples) because of their role as trans-shipment points for these counterfeit and pirated goods. Saudi Arabia gets added because of “high scale satellite and online piracy and ineffective means to tackle them”. Broadcasting of the allegedly Saudi-based BeoutQ pirate sports channel by majority Saudi-owned and based Arabsat (which I wrote about here), is specifically mentioned.

Just as USTR pursues copyright and IP enforcement abroad because it is important to the US economy and to US innovation and creativity, so too does the same economic rationale apply to the EU. The Third Country report estimates that IPR intensive industries generated almost 40% of all jobs in the EU in the 2014-16 period (83.8 million) and contributed 45% of GDP. Copyright intensive industries alone accounted for 7.5% of employment, 6.9 % of GDP, (over one trillion Euros in value) and 15.3 million jobs. Copyright industries also ran a trade surplus of 92 billion Euros, second only to patent based products. All this helps explain why innovative economies like the EU and US are so vigilant in protecting their IP and in advancing the case for better IP and copyright protection globally. (Cue to Irish background music).

© Hugh Stephens 2020. All Rights Reserved.

 

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