Recent months have seen a lot of activity surrounding the renegotiations of the North American Free Trade Agreement (NAFTA), the agreement governing trade between the United States, Mexico and Canada. The seventh round of NAFTA renegotiations kicked off in late February with plans for an eighth round to begin sometime in March. A trilateral statement issued last November indicated that ministers from the three countries reaffirmed their commitment to moving forward on all areas of the renegotiations. A statement issued around the same time by U.S. Trade Representative (USTR) Robert Lighthizer, however, reflected the United States’ position that progress has been made on some efforts but that there has been “no evidence that Canada or Mexico are willing to seriously engage on provisions that will lead to a rebalanced agreement.”
Following the conclusion of the fifth round of NAFTA renegotiations last November, the creative, technology and innovative network industry group ACTION for Trade sent a letter dated November 30th to USTR Lighthizer and other senior officials of the Department of Commerce, U.S. Senate and U.S. House of Representatives to urge that the USTR advocate for provisions that support American creators and innovators in NAFTA renegotiations. Innovative industries which rely heavily on adequate intellectual property protections have created nearly 60 million jobs in America and contribute trillions to the nation’s economy each year.
In its letter, ACTION for Trade asks Lighthizer to consider advocating for strong IP protections and robust enforcement to benefit a diverse group of industries, including digital content producers and distributors, biopharmaceutical firms and software developers. Such IP-intensive industries account for more than $6.6 trillion in value added to the American economy in 2014, a 30 percent increase in economic added value since 2010 according to the Intellectual Property and the U.S. Economy: 2016 Report published by the U.S. Department of Commerce. Exports make up a good portion of the economic value added to the U.S. economy from IP-intensive industries. The Department of Commerce’s 2016 IP report indicated that merchandise exports from such industries reached $842 billion in 2014, just over half of total U.S. merchandise export value that year. Service-providing exports from IP-intensive industries were valued at $81 billion in 2012, representing 12.3 percent of all service-providing exports from the U.S. that year.
ACTION for Trade cites to the language of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 in which Congress directed that future trade negotiations should “further promote adequate and effective protection of intellectual property rights” through effective mechanisms. The organization is hoping that the U.S. government can take a strong stand on four priority issue areas that will promote American jobs and exports through innovation through a modernized NAFTA.
The first issue discussed in ACTION for Trade’s letter was copyright enforcement, especially the difficulty of enforcement in free trade agreements which provide safe harbor provisions which create exceptions to copyright enforcement. Brian Pomper, the executive director of ACTION for Trade, noted that these kind of provisions are related to entities in the U.S. who are charged with secondary copyright liability for inducing infringement or vicariously infringing. He gave a classic example in which a streaming video platform like YouTube could allow someone to place content on the platform in violation of copyright while profiting from the advertising revenue. “Our concern in NAFTA is that we should define safe harbor in such a fashion that actively profiting from this type of copyright infringement shouldn’t be permissible,” Pomper said.
The exceptions to copyright enforcement enabled by safe harbor provisions stems from Congressional passage of the Digital Millennium Copyright Act (DMCA) of 1998, which set up four areas of safe harbor in response to what was recent Supreme Court jurisprudence at the time on network service providers and their liability for the copyright infringement of their users. However, Pomper noted that the Internet has “blossomed in a gigantic way” since the passage of the DMCA and thus the understanding of what a safe harbor is and should be has become outdated. “ACTION is an eclectic group of associations and companies but the thing they have in common is that they believe that the international rules of the road should allow creators to receive compensation,” Pomper said. “In the context of our trade agreements and policy, we want to make it clear to our trading partners that there is secondary liability.”
ACTION for Trade moves on to request that NAFTA renegotiations include provisions for valuing innovation through market-based systems. The industry group finds regulatory pricing policies like referencing pricing ad hoc price cuts to be harmful, especially to companies in the biopharma space although digital content and software providers are also impacted. “With reference pricing, our concern is that it’s a downward spiral with all of these countries referencing each other with no appreciation for the value of the medicine,” Pomper said. Companies in ACTION for Trade are hopeful for provisions on foreign market entry which mirror those laid out in the U.S.-Korea Free Trade Agreement (KORUS FTA) which went into effect in 2012. That agreement provided U.S. companies seeking entry into the Korean market with a mechanism to provide market-based data to Korean regulators and a right to appeal decisions; regulators were also required to provide reasons for their pricing decisions.
The inventor and creator industry organization also requests that NAFTA negotiators look into unfair practices by trading partners in patent policies including restrictive patent criteria, long patent application backlogs and compulsory licensing. Pomper pointed to additional patentability requirements seen in foreign markets such as India that, although not part of the NAFTA negotiations, impose additional showing requirements for patented medicines to show that they have advanced efficacy. “This has no textual basis in any international agreement,” Pomper said, noting that such provisions go beyond the three criteria for patentability laid out by the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
Along with strong patent policy, ACTION for Trade calls for the establishment of regulatory data protection (RDP) provisions which are consistent with U.S. law, especially where medical innovations are concerned. The letter to USTR Lighthizer notes that U.S. law recognizes a 12-year period of RDP for biologic treatments and a 5-year period of RDP for small molecule treatments. Such provisions would allow the original innovators of novel medicines to submit data on the safety and efficacy of medicines while shielding that data from others who might produce generics based on the data. “If you can have generics the day after an innovative medicine is approved, it’s not fair to the original innovator who spent more than a billion dollars for approval,” Pomper said. “It undermines the incentive to innovate.”
Finally, ACTION for Trade members call on representatives from the U.S. government to negotiate for more effective enforcement systems to fight counterfeiting and commercial piracy. This January, the U.S. Customs and Border Patrol announced that 30,000 shipments of counterfeit goods valued at nearly $1.4 billion were seized at American borders during 2016, a 9 percent increase in seizures of IP-infringing goods over the previous year. Digital content creators also suffer from piracy. In 2016, there were a total of 141 billion visits to 14,000 piracy websites around the world accessed through a total of 200 million devices according to content protection data-analytics firm MUSO. “Needless to say, there is a critical need to push U.S. trading partners to develop mechanisms to effectively monitor and enforce against illicit online activity,” the ACTION for Trade letter reads.
“No one can blame anyone for wanting to get good stuff for free,” Pomper said. “That’s a natural, basic human instinct. However, our policy system should reflect that we as a society shouldn’t have a system where you can get all that for free. If you did, no one would want to continue to innovate or produce.” Pomper also noted that it’s not just the original content creator or tech developer who benefits from strong IP protection policies. The millions of jobs created through these industries include those all along the supply and distribution chains right down to the retail workers who sell goods in stores. “None of those people are billionaires but they are benefitting because we respect the IP implicit in the product,” Pomper said. “These are people who work in the store, who transport in the trucks, even the people who grow the cotton. The alternative is to buy the knock-off, which supports the black market and probably criminal elements.”
Since ACTION for Trade sent its letter to the U.S. government, not much has changed regarding the IP portions of the NAFTA renegotiations. “Historically, the negotiations tend to be controversial,” Pomper said, adding that Canada has in particular shown some obstinacy in IP-related matters. Pomper noted that, while IP was discussed in the most recent round of renegotiations, no real decisions of substance have been made. Pomper also added that it would help the United States’ position if the government filled the position of Chief Innovation and Intellectual Property Negotiator, a position created in 2015 which remains unfilled.