Executive Summary

The Anti-Counterfeiting Trade Agreement (ACTA) is a serious threat to software companies and free software projects.

Behind closed doors, the EU, US, Japan and other countries are negotiating ACTA. ACTA will not be limited to fake goods, ACTA will contain harsh measures against patent infringements as well.

The broad and abstract nature of software patents makes infringement unavoidable, and most software systems infringe on multiple patents. All companies ignore software patents to some extent, simply because every single useful program you write infringes on several patents. Developing software is a legal minefield, competitors may always strike.

Patent trolls abuse this situation. They do not produce anything, acquire patents at low cost for instance by buying bankrupted companies. Their patents tend to have broad claims on trivial methods so that infringement is unavoidable. Patent trolls extort money from software companies.

ACTA may give competitors and patent trolls these tools: huge, deterrent damages, statutory damages, suspend the entry of goods, suspend the release of infringing goods for at least one year, destruction of goods.

The main problems with ACTA are:

* secrecy, ACTA is stealth legislation

* not limited to counterfeiting

* bona fide entrepreneurs and civilians are criminalized, and excessive civil and administrative measures can be invoked against them.

* gives patent trolls free reign

* limits access to medicine and climate technology

* may lead to Internet filtering

* legal means against counterfeiting are already available

* counterfeiting may actually be beneficial, a study shows

Unfortunately, EU anti-counterfeiting legislation is not limited to counterfeiting either. Even if ACTA does not surpass existing EU legislation, it will be detrimental. After signing ACTA, the EU is not free to change its legislation. Striking a fair balance in IP enforcement is difficult. For instance, the customs regulation led to seizures of essential medicine destined for developing countries. Laws do not always work out like intended. And developments in society may necessitate policy changes. It is essential the EU is able to make constructive policy changes in the future. ACTA will severely limit EU's ability to make appropriate refinements to intellectual property law.

It is essential the public and parliaments can scrutinize ACTA. The European Parliament asked for the ACTA documents twice. The Council did not release them.

Negotiations should be stopped until all documents are published.

See also FFII ACTA page

Transparency

Negotiations take place behind closed doors. No drafts are published. In the US, ACTA is to be adopted as an Executive Agreement, it will bypass normal processes of Congressional oversight. In the EU, ACTA will only be published after the member states reach political agreement.

ACTA will contain new rules for the enforcement of copyrights, trade mark rights, patents and other exclusive rights. Initially, ACTA will be legislation for about a billion people. There will be huge pressure on other countries to join later – to an agreement already fixed. In the end, ACTA may be new legislation for about everyone on this planet – made by a few.

In the EU decisions are normally taken as openly as possible and as closely as possible to the citizen. Preparatory legal texts are published. If full disclosure is not possible, parts are published.

In the Turco case the ECJ has stressed the importance of access to documents, including preparatory ones, especially in the case of legislation: ""Openness in that respect contributes to strengthening democracy by allowing citizens to scrutinize all the information which has formed the basis of a legislative act. The possibility for citizens to find out the considerations underpinning legislative action is a precondition for the effective exercise of their democratic rights."

The negotiating parties deny ACTA is legislation, but as a legal framework, ACTA will certainly form "the basis of a legislative act" as the ECJ formulated it. An obligatory basis even, a fait accompli.

It is essential the public and parliaments can scrutinize ACTA. The European Parliament asked for the ACTA documents twice. The Council did not release them.

Under the new Lisbon Treaty "The European Parliament shall be immediately and fully informed at all stages of the procedure." The Lisbon Treaty is violated from day one.

Negotiations should be stopped untill all documents are published.

Counterfeiting may be beneficial

Fake luxury goods are great advertising. "In a working paper she just finished this fall, 'The Real Value of Fakes,' Gosline interviewed hundreds of consumers who knowingly bought fake luxury apparel, many at 'purse parties' where such goods are sold. Gosline found that within two years, 46 percent of these buyers subsequently purchased the authentic version of the same product — even though other people could not necessarily tell the difference." See Those weirdly persistent counterfeiting statistics

See also: GAO To The Rescue Again: Suggests Counterfeiting Not Nearly As Big A Problem As Industry Claims

Legal means against counterfeiting are already available

The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), regional legislation like EU rules and national legislation already provide for measures against counterfeiting. Endangering public health, e.g. by selling fake or non-approved medicines, is already criminally prosecutable, regardless of whether patents or trademarks were violated in the process. Most importantly, only a thorough investigation as to the current legal and factual conditions could provide the justification for introducing more measures. We already saw counterfeiting may actually be beneficial.

Defining counterfeiting

Only fraudulent imitations should be regarded as counterfeiting, ambiguous cases of trademark confusion are not counterfeiting.

The Max Planck Institute (MPI) stated for the IPRED 2 directive to be proportional, it is essential to define the qualification characteristics of the elements of a crime as clearly and narrowly as possible. Proportionality is a conditio sine qua non for EU legislation (art. 5 TEC). At the bare minimum, "infringing item", "commercial scale" and "intentional infringement" have to be clearly defined. The "infringing item" has to be a look alike (identity, sameness).

Likewise, without such narrow definitions, harsh civil and administrative measures are disproportional too, as they hurt legitimate business competitors as well.

Exclusive rights limit competition, they have unclear validity and scope. Competitors can test validity and scope, if the price of infringement is adequate compensation.

Competitors can not test validity and scope, if the price of infringement is much higher, includes deterrent damages, seizures and criminal measures. Weak rights become sacrosanct, inviolable. One of the parties in a business conflict gains disproportional advantage. This advantage can easily be misused.

Disproportional anti-counterfeiting measures limit competition beyond proportion. They attack desired economical activity. A "War on Competition" resembles an autoimmune disease.

Beyond counterfeiting

ACTA will extend far beyond counterfeiting. Both the scope is too broad (which rights are covered by ACTA, like patents) and the definition of counterfeiting is too broad.

Examples

The following examples may fall under ACTA:

* a newspaper, whistle blower or weblog author revealing a document in the public interest

* Internet users accused of large scale infringement by copyright holders

* making a product or medicine or writing software (in many sectors, there are so many patents, with unclear scope and validity, it is impossible to tell whether one violates a patent),

* the production of spare parts (may violate an unexamined design right, with unclear scope and validity),

* an office worker emailing a copy of a market research report to his colleague at work,

* emailing a list of people (may violate an unexamined database right, with unclear scope and validity),

* a library, in order to preserve digital sound recordings for posterity, unlawfully breaking the technical protection measure wrapping the digital recording each time it lawfully receives a sound recording either by purchase or by legal deposit,

* ambiguous cases of trademark confusion,

* parallel importation (buying and selling of genuine products),

* and possibly: youngsters enthusiastically sharing their favorite music with friends.

In all these cases, the rights holder can go to a civil court for damages. But harsh anti-piracy measures, meant to fight criminal organizations, are excessive. A too broad definition may have far reaching consequences on legal certainty, innovation, competitiveness, freedom of speech, privacy and access to medicines, software and the Internet. ACTA could become a dangerous tool for abusive strategies.

Patents

If customs finds a shipment of Gucci handbags, they can easily find out whether these are genuine or fake. And if fake looks genuine, it's fraudulent imitation, counterfeiting. But ACTA will not be limited to trade mark counterfeiting. ACTA is not only about fake Gucci handbags, highly complex patent cases are also included.

Patents have unclear validity and scope. Whether the patent is valid, and whether the competitor infringed it, has to be decided in civil court. You can't leave that to policemen and customs officers. Patent infringements are not counterfeiting. There is no fake looks genuine, no fraudulent imitation. Patents should be excluded from any agreed framework.

Software

The broad and abstract nature of software patents makes infringement unavoidable, and most software systems infringe on multiple patents. All companies ignore software patents to some extent, simply because every single useful program you write infringes on several patents.

The provisions mentioned in the ACTA document resemble the EU IPRED Directive. The EU IPRED Directive gave patent litigants great powers to harass software producers, seize documents and freeze assets. Harsh measures which are justified against commercial piracy enterprises, not against legitimate entrepreneurs. One could say that the Directive enhances legal security for right owners by introducing new legal insecurity for competitors.

Software entrepreneurs may well be careful in using these measures, the competitors could retaliate. But there is no way to retaliate against patent trolls. These companies do not produce anything, acquire patents at low cost for instance by buying bankrupted companies. Their patents tend to have broad claims on trivial methods so that infringement is unavoidable. While the IPRED Directive is meant to fight piracy, it gives trolls the means to extort entrepreneurs. Patents should never be under the scope of anti-counterfeiting measures.

While "exporting" an adopted Directive may seem uncontroversial, in this case it is not, since IPRED is disproportional. The fact the EU made a mistake before does not make it legitimate to export this Directive – the EU's actions have to be proportional.

ACTA may give competitors and patent trolls these tools:

* huge, deterrent damages

* statutory damages

* suspend the entry of goods

* suspend the release of infringing goods for at least one year

* destruction of goods

The EU would like to include third party liability for Internet service providers (ISPs) for patent infringement as well. Third party liability for patent infringements will make life easy for anyone who likes to destroy the online software distribution of a competitor. After claiming a software product infringes patents, ISPs will have to remove software repositories and stop transmissions, to be on the safe side. They may also have to ban commercial customers from the Internet after a few downloads of allegedly infringing software. Third party liability for patent infringements on the Internet is a serious threat to free software projects and software companies.

Access to medicine

In the 1980ies, Pfizer, a U.S. pharmaceutical company, started advocating to link exclusive rights with trade. With trade sanctions, developing states can be forced to adopt U.S. style protection of exclusive rights.

Companies that own private exclusive rights meet in advisory boards, advice the U.S. Trade Representative. Under the threat of possible trade sanctions, developing states sign bilateral Free Trade Agreements. Then they have to use their limited public resources to enforce U.S. companies' private rights. Money flows from poor to rich.

This "Awesome Lobbying Machine" produced bilateral Free Trade Agreements and the WTO TRIPS Agreement, 1994. TRIPS has strong protection for exclusive rights, it was made by some 50 people. TRIPS was followed by bilateral “TRIPS Plus” Free Trade Agreements. And now ACTA.

With ACTA, only the U.S. companies in the advisory boards have access to the documents. They are cleared advisors. The documents are State Secrets.

The EU seizes medicine coming from India going to Africa and South America, while in transit in Europe. The medicine is not patented in India nor in the country it goes to. After this seizures became front page news, the Dutch Minister for Development Cooperation Bert Koenders said that the EU rules have to change. We can only agree with that. But he should not forget that ACTA may make it impossible to change the EU rules.

Health groups are concerned that ACTA will limit access to medicine.

See also: Trading Away Access to Medicines

Climate change

• "Stringent intellectual property rules could hamper the spread of technology needed to fight climate change."

Paul David, professor of economics at Stanford University, California

IP-Watch

Copyright

• "If Hollywood could order intellectual property laws for Christmas, what would they look like? This is pretty close."

David Fewer, staff counsel at the Canadian Internet Policy and Public Interest Clinic, University of Ottawa, after looking at leaked ACTA documents.

Internet chapter

The US made a draft for enforcement in the digital environment. It includes third party Internet service provider (ISP) liability. To get the benefit of the ACTA safe harbors, Internet intermediaries will need to follow notice and takedown regimes, and put in place policies to deter unauthorized storage and transmission of allegedly copyright infringing content.

IDG reports that: "The U.S. wants ACTA to force ISPs to "put in place policies to deter unauthorized storage and transmission of IP infringing content (for example clauses in customers' contracts allowing a graduated response)," according to the (leaked European) Commission memo."

EFF

ACTA may cripple our innovative companies from the start

Ed Black is president and CEO of the Computer & Communications Industry Association. He wrote an article for the Mercury News: "Third, the type of IP provisions we are forcing on our trading partners might actually harm the most innovative sectors of our economy. U.S. law includes important exceptions, such as "fair use" and limitations on secondary liability. These have been critical to the success of companies, including Internet pioneers. Many foreign countries, however, don't have these exceptions. As a result, foreign courts now threaten U.S. companies. They have penalized Google and eBay for conduct that's legal in the United States. (...) Hollywood should direct movies — not trade policy."

Europe does not have fair use provisions. European companies are even threatened in their home markets, our innovative companies may be crippled from the start.

Design rights and database rights

Design rights and database rights should not be under ACTA's scope for two reasons. First, they are relatively new, and the case law is still evolving. Second, these rights are unexamined and may often be invalid. And if they are valid, it is unclear whether the actions in question fall within the valid scope of the right.

Similar problems plague the definition of database rights, which are, according to the Commission's own report, surrounded by "considerable legal uncertainty" due to vague legal drafting. This stems largely from the unclear criterion of what constitutes "substantial investment" by the database owner, and which has recently been challenged in several ECJ decisions.

Allowing untested rights under the scope leads to disproportional measures.

Example: design rights. Dyson makes vacuum cleaners. Another company, Qualtex, made spare parts for these vacuum cleaners. Dyson sued Qualtex for infringing on its unregistered design rights, because the spare parts had the same appearance as the originals. Qualtex tried to defend itself by saying the parts had to be designed that way because of "must match" and "must fit" requirements, and in those cases design rights do not apply. The judge, however, ruled that those exceptions did not hold in this case.

This was a civil suit, and the result is that Qualtex had to stop making spare parts. Harsh measures are not in place here, it would significantly stifle the spare parts market.

Competence

Full analysis

ACTA can only be adopted after obtaining consent of the European Parliament. The Member States of the EU may still have a veto on criminal measures.

Article 218.10 of the Lisbon Treaty reads: "The European Parliament shall be immediately and fully informed at all stages of the procedure."

The European Parliament asked for ACTA documents twice. (Resolution of on the impact of counterfeiting on international trade, 18 December 2008, Regulation regarding public access to documents, 11 March 2009)

Now the Parliament does not have to ask any more. Or, will the Lisbon Treaty be violated from day one? (The answer is Yes.)

EU action has to be proportional (art 5), it is essential to define the qualification characteristics of the elements of piracy as clearly and narrowly as possible. At the bare minimum, "infringing item", "commercial scale" and "intentional infringement" have to be clearly defined. Proportionality is more important in a trade agreement than in internal rules, since a trade agreement can not easily be changed and has no evaluation moments. Either concepts have to be loose, with freedom of implementation, or they have to be formulated narrowly.

ACTA can not be concluded before the study on whether criminal measures are essential, is ready, and the criminal measures proven essential. (ECJ C-176/03)

Complaint

The Foundation for a Free Information Infrastructure (FFII) has filed a complaint with the Ombudsman against the EU Council for deliberately obstructing access to Anti-Counterfeiting Trade Agreement (ACTA) documents. As stated by an other participant in the negotiations, the EU has agreed to keep ACTA drafts secret. This way the EU hinders the proper application of Regulation 1049/2001 regarding public access to documents. The FFII asks for immediate publication of the documents.

Later it became clear governments even agreed to keep documents secret after conclusion of the negotiations.

EU rules are disproportional

The EU anti-counterfeiting measures are not limited to counterfeiting. We saw examples of that with IPRED and border measures. Striking a fair balance in IP enforcement is difficult. For instance, the customs regulation led to seizures of essential medicine destined for developing countries. Laws do not always work out like intended. And developments in society may necessitate policy changes.

Even if ACTA does not surpass existing EU legislation, it will be detrimental. After signing ACTA, the EU is not free to change its legislation. Striking a fair balance in IP enforcement is difficult. For instance, the customs regulation led to seizures of essential medicine destined for developing countries. Laws do not always work out like intended. And developments in society may necessitate policy changes. It is essential the EU is able to make constructive policy changes in the future. ACTA will severely limit EU's ability to make appropriate refinements to intellectual property law.

Unsolved issues – public cause

Even if infringing item, commercial scale and intentional are defined as sharply as possible, and even if untested rights are removed from the scope, not all proportionality issues will be solved. It is essential to protect journalists, scientists, etc.

How to protect a non professional journalist, like a weblogger? Should archiving be explicitly mentioned? Take for instance the following example:

In order to preserve digital sound recordings for posterity, a library unlawfully breaks the technical protection measure wrapping the digital recording each time it lawfully receives a sound recording either by purchase or by legal deposit. This is intentional infringement (in pursuit of a lawful purpose) in order to reformat the recordings for sensible preservation. It happens routinely for hundreds of recordings. It is thus probably on a commercial scale, and it is certainly intentional. Should Europe sign an agreement that will force us to implement laws that can jail librarians? We will have to be very careful with harsh civil measures as well.

Prior complaint

Criminal investigation authorities should not be able to act on their own initiative without a prior complaint of the rights owner, because licensing arrangements are not published and the rights owner has the fundamental right to dispose of his rights as he desires.

Secondary liability

National legal systems have their own general methods for dealing with recognized criminal offences like "attempting, aiding or abetting". The EU does not have the authority to harmonise these systems, not even after decision C-176/03. Harmonisation on a directive by directive basis will create different rules for aiding/abetting/... depending on the crime committed. The end result will be more fragmented than the current situation while losing the national context in which the original statutes were drafted. ACTA can not impose on the EU obligations it can not fulfill.

Parallel importation

Parallel importation does not involve copying at all: genuine products are sold after being imported from a country where they are already being offered to the public. Parallel importation is not piracy.

There are two kinds of parallel importation, from within and from outside the EU. Parallel importation from within the EU is not an infringement, yet there may be exceptions, as ECJ Case C-348/04 shows. In those cases that parallel importation from within the EU is an infringement, it should not be a crime.

Parallel importation from outside the EU is an infringement. The MPI wrote in its IPRED 2 position paper: "16 . Parallel importation of genuine goods which have been marketed with the consent of the right-holder in a non -EU country and/or measures accessory to such imports cannot be considered as piracy or counterfeiting. In accordance with what was said above, harmonisation of IP penalties should not be contemplated for such cases."

Likewise, ACTA should not criminalise parallel importation.

Dispute settlement

A leaked discussion paper mentions a dispute settlement committee to solve implementation issues. Dedicated committees tend to quickly become a champion for its specialty.

Misuse

Countermeasures

The Max Planck Institute, about IPRED 2: "20. The potential of a rightholder to deter potential infringers increases considerably if criminal penalties are threatened. Furthermore, procedural misuses are conceivable. A harmonisation of IP criminal sanctions, therefore, calls for countermeasures."

We believe the same to be true for ACTA.

The rights holder's role

The Commission IPRED 2 text allowed rights holders to assist in the investigations by joint investigation teams. This sparked much criticism. The MPI wrote: "The obligation of Member States to delegate functions within the conduct of criminal investigations to private parties in such a diffuse manner is therefore incompatible with the fundamental structure of a democratic society."

A subject like this should be left to the discretion of the Member States, in ACTA as well.

Information gathered can be used in civil cases?

Criminal law gives broader possibilities to gather information. Maintaining a distinction between public and private action is essential to an equitable justice system.

Harmonisation issues

ACTA may eventually lead to harmonisation. There are some serious issues with harmonisation of criminal measures. We will point them out here, so that they can be taken into consideration.

Preliminary ruling incompatible with right to a fair trial

Preliminary rulings are an essential aspect of harmonisation. If EU law is not clear, and a court has to ask the ECJ for a preliminary ruling, the process commonly takes 2-3 years. In the context of criminal law, this presents serious problems for prosecuters and defendants.

According to Art. 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms, everyone is entitled to a fair and public hearing within a reasonable time. However, it is impossible to request a preliminary ruling and have a conclusion of the trial within a reasonable amount of time. In each case in which a preliminary ruling is asked, the suspect's right to a timely trial will almost certainly be breached, since such requests normally take 2-3 years to move through the system. This is unacceptable as a matter of human rights.

Moreover Directives undermine the State's ability to effectively prosecute the very crimes they describe. Dutch courts have already reduced the punishment, or even dismissed cases, if the suspect is forced to wait too long before his or her trial, in view of the above ECHR article. In short, the State may lose its case or have its desired punishment drastically lowered because the ECJ -- a crucial component of harmonisation -- is fundamentally incompatible with criminal proceedings. The ECJ may try to provide an "expressway" for criminal cases - but a rush procedure is hard to reconcile with the requirements of a fair trial and the presumptio innocentiae.

The system of harmonisation is designed without criminal law in mind. Preliminary rulings make it impossible to add criminal law without redesigning the system of harmonisation on a fundamental level.

Underlying substantive law not harmonised

A directive is supposed to create uniform enforcement, but the underlying substantive law is not harmonised. Even limitation to those areas of intellectual property law that have been harmonised would not help. For example, copyright law is still fairly different in the Member States, even though the minimum standards have been harmonised by directives. E.g, only in the Netherlands is every piece of printed matter protected by copyright, regardless of its level of originality (normally an explicit requirement in copyright law). Germany has a large body of copyright contract law, while the Netherlands has nothing in this area.

Criminal law systems differ considerably as well: e.g. in some Member States "legal persons" (companies) can only be fined, while in others the "factual leaders" can be imprisoned.

Distortion of carefully balanced national law systems

If ACTA resembles the Commission's or EP's IPRED 2 versions, the carefully balanced national procedural law systems risk being distorted.

Moreover, criminal law should be malleable, in case it fails to achieve the effects intended by the legislator. On a national level it is possible to change criminal laws when these problems inevitably arise. This will be much harder on a EU level. Criminal law may lose its precision and adaptability, and therefore its legitimacy.

Attachment: The Turco case

In the landmark ECJ judgment on the Turco case (joined cases C-39/05 P and C-52/05 P) the Court stressed the importance of the public right of access to the documents of the institutions. In general (45) and especially in the case of legislative acts (46 and 47). While ACTA is not a legislative act in the strict sense, it will be legally binding for the member states. ACTA is de facto legislation. ACTA texts should be made directly accessible.

45:

• "In that respect, it is for the Council to balance the particular interest to be protected by non-disclosure of the document concerned against, inter alia, the public interest in the document being made accessible in the light of the advantages stemming, as noted in recital 2 of the preamble to Regulation No 1049/2001, from increased openness, in that this enables citizens to participate more closely in the decision-making process and guarantees that the administration enjoys greater legitimacy and is more effective and more accountable to the citizen in a democratic system."

46:

• "Those considerations are clearly of particular relevance where the Council is acting in its legislative capacity, as is apparent from recital 6 of the preamble to Regulation No 1049/2001, according to which wider access must be granted to documents in precisely such cases. Openness in that respect contributes to strengthening democracy by allowing citizens to scrutinize all the information which has formed the basis of a legislative act. The possibility for citizens to find out the considerations underpinning legislative action is a precondition for the effective exercise of their democratic rights."

47:

• "It is also worth noting that, under the second subparagraph of Article 207(3) EC, the Council is required to define the cases in which it is to be regarded as acting in its legislative capacity, with a view to allowing greater access to documents in such cases. Similarly, Article 12(2) of Regulation No 1049/2001 acknowledges the specific nature of the legislative process by providing that documents drawn up or received in the course of procedures for the adoption of acts which are legally binding in or for the Member States should be made directly accessible."