You may like to read our shorter analysis first, which may also be more up to date.

Extended version

"Remember, governance is a big word that includes human rights, freedom of speech, economic transactions on a worldwide basis — it touches everything. It’s everywhere, and that’s why Internet governance is topic A in many corners." Vincent Cerf, one of the godfathers of the Internet

FFII analysis Final ACTA text following legal verification, Dec 2010

For latest developments, see our ACTA blog

Introduction

The world faces major challenges

The world faces major challenges: access to medicine, diffusion of green technology needed to fight climate change, and a balanced Internet governance. While flexibility is essential to solve these major issues, ACTA (Anti-Counterfeiting Trade Agreement) codifies heightened measures.

A few years after the ratification of the 1994 WTO TRIPS agreement (Agreement on Trade-Related Aspects of Intellectual Property Rights), the AIDS epidemic took millions of lives in Africa. Protected by TRIPS, pharmaceutical companies sold AIDS medicine in Africa for prices higher than in the US. They only served a very small part of the market. The death toll was enormous. This was an unforeseen effect of TRIPS. A what-if question comes to mind: if it would have been possible to foresee this effect, would the (then) European Community have ratified TRIPS?

We now know the devastating effects that IP ("intellectual property") enforcement may have on societies. With trial and error, the world learns to deal with TRIPS (for instance, the Doha Declaration on the TRIPS Agreement and Public Health, and the WIPO Development Agenda). Since then, a new problem has emerged: climate change. Not protected by the Doha Declaration, diffusion of green technology may face worse problems than access to medicine. At this point, ACTA is proposed.

How to proceed? The "Hargreaves Review" — the UK government-commissioned study on the relationship between intellectual property and growth, indicates the direction. The Review urges the UK Government to ensure that in future, policy on Intellectual Property issues is constructed on the basis of evidence, rather than weight of lobbying. "On copyright issues, lobbying on behalf of rights owners has been more persuasive to Ministers than economic impact assessments." We urge the EU to base its IP policy on evidence as well.

Regarding piracy, the Hargreaves Review refers to the MPEE (Media Piracy in Emerging Economies) report. Relative to local incomes in Brazil, Russia, or South Africa, the MPEE report shows, the price of a CD, DVD, or copy of Microsoft Office is five to ten times higher than in the United States or Europe. Licit media goods are luxury items in most parts of the world, and licit media markets are correspondingly tiny.

We see the same pattern as in the 1990s in Africa, multinationals only serving a small part of the market. Some 90% of the people in emerging markets can only turn to illegal media copies. Under such circumstances, stronger enforcement can not solve the piracy problem. Yet, ACTA criminalises these people. Multinational media companies have asked the European Parliament not to seek the opinion of the European Court of Justice on the compatibility of ACTA with the EU Treaties. For a marginal gain, the multinational media companies are willing to compromise the EU's fundamental principles and to exclude and criminalise some 90% of the people in emerging markets. The consequences of this aggressive approach are far-reaching, both within and outside the EU.

Europe

Civil society groups and prominent academics analysed ACTA and found that ACTA goes beyond the current EU legislation and violates fundamental rights.

Opinion of European Academics on ACTA: "Contrary to the European Commission’s repeated statements and the European Parliament’s resolution of 24 November 2010, certain ACTA provisions are not entirely compatible with EU law and will directly or indirectly require additional action on the EU level." They invite "the European institutions, in particular the European Parliament, and the national legislators and governments, to carefully consider the above mentioned points and, as long as significant deviations from the EU acquis or serious concerns on fundamental rights, data protection, and a fair balance of interests are not properly addressed, to withhold consent."

Health groups pointed out ACTA harms access to medicine. See: Public Citizen on ACTA and access to medicine and Oxfam Statement regarding ACTA and Public Health.

The European Commission’s services comments to the European Academics’ Opinion on ACTA is very weak. In one case, the Commission actually even states it insisted ACTA would go further than current EU legislation. See: FFII: The EU Commission lacks basic reading skills.

A study commissioned by the European Parliament INTA committee evaluated the prior discussion, and concluded that ACTA indeed goes beyond the current EU legislation.

European Parliament INTA study on ACTA: "for those European Parliamentarians for whom conformity with the EU Acquis is sine qua non for granting consent, this study cannot recommend that they provide such consent to ACTA as it now stands." See also FFII comments on the INTA study.

After that, fundamental rights experts confirmed ACTA violates a list of fundamental rights. Douwe Korff & Ian Brown, Opinion on the compatibility of the Anti-Counterfeiting Trade Agreement (ACTA) with the European Convention on Human Rights & the EU Charter of Fundamental Rights, 2011

An academic study confirmed ACTA harms access to medicine. Sean Flynn and Bijan Madhani, ACTA and Access to Medicines, 2011

Let's take one example. In EU law, damages are based on actual loss suffered, including lost profits. ACTA goes beyond actual loss. Civil society, prominent academics and the INTA study pointed this out. The INTA study recommends: "Seeking clarification, before ratification of ACTA, from the European Court of Justice that the criteria envisaged by the ACTA for the quantification of the compensatory damages would not amount to a violation of the criterion of "appropriateness of the damage to the actual prejudice suffered" envisaged in the Enforcement of IPRs Directive;"

Korff and Brown, fundamental rights experts, conclude: "In our opinion, here too ACTA is deficient: without express clarification to the effect that damages awarded to right holders must be a reasonable reflection of actual loss, equitably assessed by a court (rather than an exaggerated assessment based on an unchallengeable but rigged formula), the Agreement violates both the right to property and the right to a fair (civil) trial of the defendants."

ACTA's damages beyond actual loss upset millennia of legal tradition. The decision to do this, is a grave decision. It should not be taken lightly, nor should the importance and the detrimental effects be obfuscated. Even, since the decision violates fundamental human rights, it can not be taken.

To stimulate startup companies, the EU legal situation should minimize market entrance risks for innovators. Even a mere allegation of infringement may easily lead to market exclusion. Startup companies often do not have enough resources to litigate. Established players in late stages of their own market life cycle may abuse their rights portfolios. Risk reduction for startups is key to improve investment conditions. The actual needs of innovators should be in the center.

In contrast, ACTA contains excessive civil measures. ACTA's damages beyond the actual prejudice have a disproportional negative effect on startup companies, which do not have deep pockets. Provisional injunctions lower the burden of proof.

ACTA also includes criminal measures. ACTA can be used to criminalise newspapers revealing a document, office workers forwarding a file and private downloaders; whistle blowers and weblog authors revealing documents in the public interest and remixers and others sharing a file if there is an advantage. This advantage may be indirect, a concept we believe to be too unclear to incorporate in criminal law.

Regarding ACTA's criminal measures, Korff and Brown conclude: "In our opinion, ACTA, by not including a de minimis exception to its compulsory and draconian enforcement regime, fails to ensure adequate protection of the right to freedom to obtain and disseminate information, the right to freedom from unreasonable search and arrest, the right to inviolability of the home, and the right to the peaceful enjoyment of one’s possessions, and thus violates those rights."

ACTA will give a competitive advantage to United States businesses who will enjoy a more flexible system. First, since the US sees ACTA as a voluntary agreement. Second, the US will exclude patents from the scope. Third, the US has a more flexible copyright system. Some of the United States’ most successfull new companies are based on fair use of copyrighted material. The European system of fixed flexibilities is not flexible enough in a rapidly changing world.

ACTA will create an ACTA Committee, which anticipates future amendments to ACTA. Requests to include language that the ACTA would operate in an open, inclusive and transparency manner were ignored.

As a policy instrument against dangerous products, ACTA fails. Serious crimes such as making and selling fake inefficient or hazardous medicaments are not primarily IP infringements, but criminal acts jeopardizing public health and safety.

Lobbying on behalf of rights owners has been persuasive to the Commission as well. The Commission refused to commission independent assessments of the effects ACTA will have on access to medicine and the diffusion of green technologies needed to fight climate change. Could ACTA be just as detrimental as TRIPS, or even worse? The Commission does not want to know.

The European Commission refused to commission independent assessments and gave a very weak response to the European Academics’ Opinion on ACTA. It never provided proof ACTA's criminal measures are essential. We believe the European Parliament now has to take responsibility.

We urge the Parliament to seek an opinion of the European Court of Justice on the compatibility of ACTA with the EU Treaties.

See also: The EDRi booklet on ACTA offers a nice introduction to ACTA (pdf)

Contents

Extended version
Introduction
1. The world faces major challenges
2. Europe
Analysis ACTA text

Analysis ACTA text

Behind closed doors, the European Union, United States, Japan and other governments negotiated the Anti-Counterfeiting Trade Agreement. ACTA will contain new international norms for the enforcement of copyrights, trade mark rights, patents and other exclusive rights.

The negotiating parties released the "final" ACTA text. See for differences with earlier versions the compare page.

A 2011 version does not contain substantial changes other than: "This Agreement shall remain open for signature by participants in its negotiation,17 and by any other WTO Members the participants may agree to by consensus, from 1 May 2011 until 1 May 2013."

See also the FFII ACTA page and our our ACTA blog.

ACTA's damages beyond actual loss upset millennia of legal tradition

In the TRIPS agreement, damages are based on adequate compensation. The EU IPR Enforcement Directive (IPRED) provides damages appropriate to the actual prejudice suffered, including lost profits.

ACTA's damages are higher than the damages in current EU legislation, the acquis. ACTA's damages may include the value of the infringed goods or services measured by the market price, or the suggested retail price (Art 9.1, ex Art 2.2).

ACTA ARTICLE 9.1: " Each Party shall provide that, in civil judicial proceedings concerning the enforcement of intellectual property rights, its judicial authorities have the authority to order the infringer who, knowingly or with reasonable grounds to know, engaged in infringing activity to pay the right holder damages adequate to compensate for the injury the right holder has suffered as a result of the infringement. In determining the amount of damages for infringement of intellectual property rights, a Party’s judicial authorities shall have the authority to consider, inter alia, any legitimate measure of value the right holder submits, which may include lost profits, the value of the infringed goods or services measured by the market price, or the suggested retail price."

Suggested retail price damages are higher than actual prejudice. Amount multiplied by suggested retail price may lead to enormous damages, a serious problem for mass digitization projects. The legal situation may be unclear, enormous damages are a strong disincentive.

Startup companies confronted with damages beyond the actual prejudice would suffer great harm. Rights holder overcompensation hampers desired freedom to act in the market and leads to excessive transaction costs and consumer prices.

ACTA's damages are also a threat to consumers, for instance, if they copy a hard disk. A 2 terabyte hard disk can contain 540.000 songs. Copyright holders can claim a euro per song damages multiplied by 540.000 = 540.000 euro. While the actual loss may be zero.

Suggested retail prices for patent infringements are beyond any proportion. For instance, software may contain hundreds of patents, from multiple rights holders. The "invention" - if there is any - is only a tiny aspect of the product in such cases. Still, the first rights holder going to court can get damages on suggested retail price, the second and third too, etc. The entire market value rule (EMVR) systematically results in the overcompensation of patent owners relative to their inventive contributions to society.

"Patent experts increasingly see the EMVR as a deeply defective approach to patent damages, and call for 'more rigorous, empirical approaches' that 'provide adequately detailed evidence of consumer-driven demand,' as well as a realistic analysis of the importance of a particular patented invention in a product that may contain dozens, hundreds or even thousands of inventions, not to mention significant investments and outlays entirely unrelated to the patented invention." KEI letter to the European Parliament

ACTA's damages go beyond actual loss. Civil society, prominent academics and the INTA study pointed this out. The INTA study recommends: "Seeking clarification, before ratification of ACTA, from the European Court of Justice that the criteria envisaged by the ACTA for the quantification of the compensatory damages would not amount to a violation of the criterion of "appropriateness of the damage to the actual prejudice suffered" envisaged in the Enforcement of IPRs Directive;"

ACTA will hamper startup market entry

ACTA footnote 2 says: "A Party may exclude patents and protection of undisclosed information from the scope of this Section."

It is important to note that the inclusion of patents and data protection within ACTA’s enforcement mandates remains the default position. The provision that a country "may exclude" suggests that such exclusion should be the exception rather than the rule. This language may thus encourage countries to apply the ACTA civil enforcement provisions to patents and data exclusivity, and could be used by trading partners for this purpose.

The Commission already stated it does not want to make a distinction between rights. As a result, ACTA's draconian civil measures will extend to patents.

To stimulate startup companies, the EU legal situation should minimize market entrance risks for innovators. FFII members mostly operate in digital markets, in these markets, innovators are often confronted with patent minefields. In the software field, there are so many patents with a broad scope that infringement is often unavoidable.

While the European Patent Office aims at improving quality, it is simply too costly to split wheat for chaff. Many patent professionals regret the situation. According to a Stanford Law School article, patent offices are rational ignorant, strengthening the examination process is not cost effective. "Because of this, society would be better off spending its resources in a more searching judicial inquiry into validity in those few cases in which it matters than paying for a more protracted examination of all patents ex ante." Basically this means that the costs of judicial inquiry into validity of a patent falls on the shoulders of the alleged infringer. For startup companies such costs are often too high to bear. An allegation of infringement may easily lead to market exclusion. The same is true for open source projects.

Established players in late stages of their own market life cycle may abuse the patent system to stifle entrants and emerging competitors, patent trolls drain market entrants in a phase where they want to grow. The innovation system should reap the full benefit for innovative companies and consumers.

The "Hargreaves Review" — the UK government-commissioned study on the relationship between intellectual property and growth, observes: "6.19 Industries working in sequential technologies therefore face a "double whammy": the incentives provided by patents are reduced, while the negative consequences, in the form of thickets which must be navigated, are increased. This means that while for non-sequential inventions, such as a new drug or medical treatment, having a patent system generally yields higher welfare than not having one; in a fully sequential case, higher welfare and more innovation may be more likely to result from the absence of patenting opportunities.17 Over time, as digital technology becomes pervasive across the economy, this represents a serious concern. (...)

6.21 Computer programs provide an important example of a sequential innovation environment where the double whammy mentioned above strikes. Given the pace of change in the digital world and the strongly sequential nature of innovation in computer programs, the problems arising from thickets in this environment are particularly severe and it is essential that changes do not worsen the situation."

Risk reduction for startups is key to improve investment conditions; risks of know-how drain and risks of IPR enforcement abuse need to be carefully balanced. The actual needs of innovators should be in the center.

The lesson to learn from the US is: try to limit the number of patent infringement cases and damages. In contrast, ACTA contains excessive civil measures against patent infringements. Holders of huge patent portfolios may decide to eliminate competition from startups, small and medium sized enterprises and open source projects, on their own, or by using a proxy, a patent troll. Patent trolls acquire excessive power.

The FFII advises to reduce market entrance risks for innovative companies, to find a fair balance between established companies and startups. In its present form, ACTA is detrimental.

Patent trolls

Patents create a legal minefield in the software development field. Software is full of ideas, and unfortunately, full of patents. Software patents hamper competition, follow up innovation and interoperability. They cause legal uncertainty and high consumer prices. All software developers ignore software patents to some extent, simply because every single useful program you write infringes on several patents.

The situation is abused by non-practicing entities or patent trolls. They 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. Then they extort entrepreneurs. It is not possible to retaliate against them. They do not produce anything, do not infringe themselves.

Unavoidable patent infringements combined with strong measures gives patent trolls the option to tax startups and small and medium sized enterprises. Patent trolls acquire excessive power. EU law should contain measures against abuse by patent trolls.

United States: patent litigation battlefield

"We are the constant target of patent lawsuits, many of which are frivolous and more than half are filed by non-practicing entities," Mike Holston, general counsel of Hewlett-Packard

"We find ourselves in a situation with more patent infringement suits than ever before and each one costs as much as $4 million," John Thompson, chief executive of software developer Symantec.

The United States experiences a patent litigation battlefield, especially in the mobile market. In the U.S, even major companies, owning huge patent portfolios, want patent reform. They wish to limit the number of patent infringement cases and damages. Pharmaceutical companies oppose even a limited reform that would help major ICT companies.

Hewlett-Packard holds about 30,000 patents and is granted an average of four every day. With lower damages, trolls and small sized companies can not hurt HP, while HP can still strike against smaller competitors. A limited reform helps major companies, not small and medium sized companies, which are very innovative and provide for much employment.

The lesson to learn from the US is: try to limit the number of patent infringement cases and damages. In contrast, the Commission seems to want to make patent litigation just as popular in the EU. The EU may well succeed in that, with adoption of EU wide litigation (the Union patent). Furthermore, the Commission wants higher damages.

Startup companies face excessive damages

Damages beyond the actual prejudice have a disproportional negative effect on startup companies. See above: ACTA's damages beyond actual loss upset millennia of legal tradition

Injunctions limit market entrance

ACTA contains injunctions in civil cases (Art 8.1, ex Art 2.X.1). With an injunction a competitor or patent troll can force a company to withdraw from the market – while infringement is unavoidable.

ACTA also contains injunctions against third parties (Art 8.1, ex Art 2.X.1). ACTA adds "inter alia" and has a broader formulation of third party than the current EU legislation. ACTA includes third parties who are not intermediaries, like suppliers of raw materials and software. This may impact access to medicine and the ICT sector.

Provisional measures lower burden of proof against startups

ACTA contains effective provisional measures, inaudita altera parte, against party or third party to prevent an infringement of any intellectual property right from occurring (Art 12, ex Art 2.5).

Before an infringement is proven, provisional measures allow actions to interrupt or suspend competition. A suspicion of infringement is enough to invoke these measures. The potential for abuse of provisional measures against startups is high, as all provisional measures can be implemented even "without the other party having been heard".

Interlocutory (provisional) injunctions used as an enforcement remedy, are particularly damaging for startups. Provisional injunctions have a lower threshold of evidence. As the costs of a subsequent court case are often too high for startups, the interlocutory injunction will often be a definitive judgment, terminating the startup’s market entry. This, in effect, lowers the burden of proof necessary to carry out enforcement measures against a suspected infringement.

EU law needs measures against abuse of provisional measures to ensure a fair balance between established companies and startups. ACTA forcloses essential reforms.

Other civil measures

An alleged infringer has to provide information (Art 11, ex Art 2.4).

ACTA's Internet chapter article (Art 27, ex Art 2.18.1) includes expeditious remedies to prevent infringement and remedies which constitute a deterrent to further infringement against an act of intellectual property rights infringement, this includes patents. This 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. The other ACTA Internet chapter measures may include patents.

ACTA will hamper the fight against 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)

Health groups point out issues with regards to access to medicine. The inclusion of patents in ACTA causes most of these problems. Much less documented than issues with access to medicine are issues with diffusion of green technology. It is a more recent and diffuse issue. Not protected by the Doha Declaration, diffusion of green technology may face worse problems than access to medicine. Furthermore, medicines are often protected by a limited amount of patents. Complex products on the other hand may be covered by many patents. For instance, software systems may be covered by hundreds of patents.

The fight against climate change will inherit the problems in the software field. In a general way, like trivial patents, amassing of patents, patent trolls, frivolous lawsuits, hampering of follow up innovation and high transaction costs. And in direct ways, there are green software and business patents, e.g. on regulating traffic toll fees based on traffic volume/pollution. And many modern products, like hybrid cars, contain software. To win the fight against climate change, fast diffusion of green technology is needed. Not only policy makers know this, patent trolls know this too.

EPO, UNEP & ICTSD studied the role of patents in accessing green technology. In a podcast, Nikolaus Thumm, Chief Economist of the European Patent Office, said that the key facilitator of technology transfer is licensing. He mentions people giving away essential parts of their technologies.

Patent trolls are not known for giving away anything. Injunctions will give patent trolls excessive power. The high damages ACTA proposes will drive up the costs for diffusion of green technology. While the funds are already limited, for instance, the fight against AIDS seems lost, due to lack of money. The same may happen with diffusion of green technology. The other earlier mentioned heightened civil enforcement requirements will restrict government flexibility, impede innovation and slow the development and diffusion of green technology as well. The heightened damages may invoke an accelerated patent arms race, making the problems worse.

Unconsidered in ACTA is the situation presented in matters of public health surveillance, crisis management, civil and environmental response and related situations where cross-jurisdiction information exchange and the data associated therewith could constitute "infringing" activities. Under ACTA, both information and technology associated with data collection, aggregation, assembly and transmission and analysis could be impaired greatly enhancing the complexity of responding to events like SARS, the Avian Influenza and crisis response to natural and manmade disasters.

ACTA also evidences a clear lack of awareness on the manner in which green technology in the energy and infrastructure sectors operate. The majority of systems (for example, wind turbines, water turbines, and solar collectors) rely on cross-border up-time-management software and systems. ACTA explicitly and adversely impacts the ability to transmit grid and local data, operate feedback mechanisms to energy suppliers, and operate security protocols across international rail, air, and shipping infrastructure applications. Once again, in an effort to be responsive to the media industry, a far larger component of the global IT infrastructure is being overlooked. This, in the short term, will create unintended liabilities and, in the long term, like we’ve seen in the flow of energy from Russia into Europe, may be the source of highly politicized controversy and impairment.

ACTA exceeds current EU legislation

Contrary to EU Commission statements, ACTA does exceed the acquis, the current EU legislation. Above we mentioned damages based on suggested retail price. We also mentioned that regarding injunctions, ACTA includes third parties who are not intermediaries, like suppliers of raw materials and software. This may impact access to medicine and the ICT sector.

ACTA's trade mark border measures include confusingly similar goods.

There are no IP criminal measures in the acquis, ACTA goes further than the acquis. ACTA's criminal measures criminalise ordinary companies and individuals. See our pdf for details and more examples.

In the introduction we mentioned the Opinion of European Academics on ACTA, the INTA study and the Korff and Brown study.

More: EU Commission first reaction and FFII response: Certainly, the professors should know the difference between 'shall' and 'may' and IP-Watch.

ACTA will give a competitive advantage to US businesses

The United States, long time ardent supporter of stronger enforcement, will exclude patents from the scope of ACTA. This will give the US the freedom to fine tune it patent enforcement regime. The EU will not have this freedom. We see this as a strategical mistake.

The TACD points to the issue of binding versus voluntary:

ACTA is a legally binding treaty for the EU and EU member states but only a voluntary global benchmark for the US. While the EU considers it a legal obligation, the US considers ACTA a "voluntary agreement" that despite clearly contradicting a number of US laws will have no legal impact in the US. Therefore, ACTA will give a competitive advantage to US businesses who will enjoy a more flexible system, for example with the US "fair use" of copyrighted material, while European innovation, especially SMEs will be constrained by the binding obligations of ACTA and other new EU legislation that will increase costs and risks in Europe with regards to copyright enforcement. The US Supreme Court has recently ruled that a law very similiar to ACTA that established very high damages and penalties for IP violations was unsconstititional. (end TACD)

Note that the US did not ratify the Convention of Vienna on the law of Treaties.

In the US, the Congressional Research Service (CRS) found inconsistencies with US law. The CRS also observes that ACTA, as an executive agreement that reportedly will not be submitted to Congress for approval, does not reduce, constrain , or otherwise impact the authority and prerogative of Congress to enact measures that change federal law. The US considers itself not bound by ACTA, while the EU will be bound by ACTA. For this reason, scrutiny should be more strict in the EU.

Will ACTA shift the competitive advantage to China?

In 10 to 20 years, the Anti-Counterfeiting Trade Agreement (ACTA) may give China a competitive advantage over the EU. ACTA codifies an overcompensation of rights owners in an international agreement. China is building up a massive patent portfolio. When the competitive advantage shifts to China, the EU may like to assess its patent policy. But, after signing ACTA, the EU will have no way to reform its intellectual property rights enforcement regime.

In November 2010 the State Intellectual Property Office of China published a document called the "National Patent Development Strategy (2011-2020)". The New York Times quotes David J. Kappos, director of the United States Patent and Trademark Office, pointing to the Chinese targets for 2015 and calling them "mind-blowing numbers". An October 2010 Thomson Reuters research report forecasts that China would surpass the United States in patent filings in 2011. China also wants to double the number of patents that its residents and companies file in other countries. The NY Times observes that China’s strategy is guided and sponsored by the state, and asks whether that should be a source of concern for the United States, and perhaps a trade issue?

In a post called "China joins the patent trolls; wake up America", John Bennett comments: "If you are behind in the patent race, file like mad and be prepared to litigate." He adds that this competitive challenge will force the rich developed countries to assess its patent policies.

Parties may exclude patents from the scope of ACTA. The United States will keep its options open. The US, long time ardent supporter of stronger enforcement, will exclude patents from the scope of ACTA. This will give the US the freedom to reform its patent enforcement regime. China, India and Brazil may never sign ACTA, keeping their options open. The EU will not exclude patents from the scope of ACTA. The EU limits its options, will not be free to reform its patent enforcement regime. It is a strategical mistake to accept more obligations than other parties.

With ACTA, the Commission follows a short term policy, disregarding future effects.

With ACTA, the industrialised countries try to strengthen their competitive advantage over the emerging economies. The United States is mainly interested in protecting copyright and trade marks. The EU is mainly interested in better protection for geographical indications (Champagne, Parma cheese).

ACTA introduces the entire market value rule which systematically results in the overcompensation of patent owners relative to their inventive contributions to society. ACTA's heightened damages go beyond current EU law. In the TRIPS agreement, damages are based on adequate compensation. The EU IPR Enforcement Directive (IPRED) uses damages appropriate to the actual prejudice suffered, including lost profits. ACTA's damages may include the value of the infringed goods or services measured by the market price, or the suggested retail price. Suggested retail price is higher than actual prejudice. ACTA codifies harmful provisions in international rules and consequently prevents domestic reform.

Impact assessments

In an Answer given by Mr De Gucht on behalf of the Commission on Parliamentary questions 27 September 2010 E-4292/2010, De Gucht states: "Regarding the conduct of an impact assessment of the implementation of ACTA, the Commission notes that, since it is bound not to go beyond the EU acquis it has based its assessment of the impact of ACTA on the studies made for the 2004 Directive on the enforcement of Intellectual Property Rights (Directive 2004/48/EC(2)) and for the 2006 proposal for a directive on criminal enforcement of IPR (COM(2006)168 final) (not adopted)."

The Commission disregards that the EU can change its legislation, but will depend on others to change ACTA. ACTA codifies harmful provisions in international rules and consequently prevents domestic reform.

The impact assessments do not assess possible negative effect on ICT, access to medicine and diffusion of green technology.

The impact assessments do not assess the effects of China's ambitious patent program. Assessment are still te be made.

Food technology is covered by patents as well and diffusion of food technology, to fight hunger in the world, and also to solve problems caused by climate change, will be impacted by the inclusion of patents in ACTA. Diffusion of food technology has different characteristics than diffusion of green technology and medicine. It deserves its own assessment.

Criminal measures

ACTA can be used to criminalise newspapers revealing a document, office workers forwarding a file and private downloaders; whistle blowers and weblog authors revealing documents in the public interest and remixers and others sharing a file if there is an advantage. This advantage may be indirect, a concept we believe to be too unclear to incorporate in criminal law.

See our analysis at our blog.

In the Introduction we quote Korff and Brown.

ACTA Committee

ACTA will create an ACTA Committee, which anticipates future amendments to ACTA. KEI notes: "Among other things, the ACTA Committee may adopt rules that 'include provisions with respect to granting observer status,' as well as for 'any other matter the Committee decides necessary for its proper operation.' Requests to include language that the ACTA would operate in an open, inclusive and transparency manner were ignored."

Copyright

Fight against media piracy

Media Piracy in Emerging Economies is the first independent, large-scale study of music, film and software piracy in emerging economies, with a focus on Brazil, India, Russia, South Africa, Mexico and Bolivia.

"Based on three years of work by some thirty-five researchers, Media Piracy in Emerging Economies tells two overarching stories: one tracing the explosive growth of piracy as digital technologies became cheap and ubiquitous around the world, and another following the growth of industry lobbies that have reshaped laws and law enforcement around copyright protection. The report argues that these efforts have largely failed, and that the problem of piracy is better conceived as a failure of affordable access to media in legal markets."

One of the report's major findings is that "prices are too high. High prices for media goods, low incomes, and cheap digital technologies are the main ingredients of global media piracy. Relative to local incomes in Brazil, Russia, or South Africa, the retail price of a CD, DVD, or copy of MS Office is five to ten times higher than in the US or Europe. Legal media markets are correspondingly tiny and underdeveloped."

This conclusion will now not be surprising: "Enforcement hasn’t worked. After a decade of ramped up enforcement, the authors can find no impact on the overall supply of pirated goods."

When industry doesn't serve 90% of markets, a call for stronger enforcement is unfounded and should be disregarded. It is detrimental.

Fair use

EU copyright flexibilities are not mandatory. This creates legal uncertainty and limits growth of startup companies. Many EU copyright flexibilities have to be made mandatory. See: Institute for Information Law, Response to the Green Paper on Copyright in the Knowledge Economy.

Furthermore, some of the United States’ most successfull new companies are based on fair use of copyrighted material. The European system of fixed flexibilities is not flexible enough in a rapidly changing world. European startup companies should have the advantage of such flexibility too. The EU should introduce an open norm such as a fair use system. Fair use would be an appropriate implementation of the EU proportionality principle.

As long as the EU’s material law does not contain an open norm, zero enforcement against fair use infringements should be considered. (which is not uncommon in law systems, and happened in the Criminal measures aimed at ensuring the enforcement of intellectual property rights directive proposal (COD/2005/0127) European Parliament position).

A strong fair use and a reverse Berne’s Three-Step Test could provide a solution for many problems in the copyright field. See "Towards A New Core International Copyright Norm: The Reverse Three-Step Test – Daniel J. Gervais" and "Charter for Innovation, Creativity and Access to Knowledge" (Legal Demands, under F)

Internet

"When Bob and I started writing the specs for the Internet in 1973..." Only a handful of people can start a sentence anything like that. Today, Vint Cerf, one of the godfathers of the Internet, stood on a stage at the Google campus and addressed attendees of Atmosphere, the company’s cloud computing event.

When asked what he would tell the developer of the Next Big Thing, the technology that could replace the Internet, Cerf said, "Shoot the patent lawyer."

The room, which was full of chief information officers for large, proprietary companies, burst into both laughter and applause.

Cerf continued, "Bob [Kahn] and I knew we could not succeed if we tried to protect the Internet’s design. As it turns out that worked out really well, and I think that’s still pretty good advice."

"The open ability to develop new applications and try them out has been vital to the Internet’s growth and to the space in which we currently operate. It has interesting ways of enhancing both sides of the equation."

He told the audience, "Remember, governance is a big word that includes human rights, freedom of speech, economic transactions on a worldwide basis — it touches everything. It’s everywhere, and that’s why Internet governance is topic A in many corners."

The fight against trademark counterfeiting

Claims are massively overstated

On its website, the EU Commission states: "OECD estimates that infringements of intellectual property traded internationally (excluding domestic production and consumption) account for more than €150 billion per year (higher than the GDP of more than 150 countries). According to the OECD counterfeiting and piracy undermine innovation, which is key to economic growth."

On July 13, 2010, Karel De Gucht, EU Commissioner for Trade, used the same number during a public briefing in the European Parliament LIBE Committee (Committee on Civil Liberties, Justice and Home Affairs).

The Dutch Ministry of Economic Affairs uses the same number, but calls it a calculation.

This estimate seems massively overstated.

The OECD 2008 report: "To date, no rigorous quantitative analysis has been carried out to measure the overall magnitude of counterfeiting and piracy. (...) Analysis carried out in this report indicates that international trade in counterfeit and pirated products **could have been up to** USD 200 billion in 2005" (emphasis added). The OECD only provides the highest estimate.

Felix Salmon used the OECD's own data to try to come up with a realistic estimate: "If 8% of counterfeit imports are worth $385 million, then the total value of counterfeit trade is $4.8 billion. A far cry from $200 billion, to be sure." Then he analyses how the OECD arrived at its $200 billion number. He concludes: "And that, ladies and gentlemen, is where the $200 billion number comes from. You guess what the maximum amount of counterfeiting is in the countries where it's most prevalent, being careful to use no empirical data in the process. You then double that number, double it again, and apply it to the amount of world trade: presto, you've got $200 billion."

In 2009, the OECD published an update. Using a complicated calculation, the estimate is raised. The complicated calculation hides the fact it still is an estimate.

A 2010 US Government Accountability Office report is critical about the OECD estimate: "While experts and literature we reviewed provided different examples of effects on the U.S. economy, most observed that despite significant efforts, it is difficult, if not impossible, to quantify the net effect of counterfeiting and piracy on the economy as a whole. For example, as previously discussed, OECD attempted to develop an estimate of the economic impact of counterfeiting and concluded that an acceptable overall estimate of counterfeit goods could not be developed. OECD further stated that information that can be obtained, such as data on enforcement and information developed through surveys, 'has significant limitations, however, and falls far short of what is needed to develop a robust overall estimate.' One expert characterized the attempt to quantify the overall economic impact of counterfeiting as 'fruitless,' while another stated that any estimate is highly suspect since this is covert trade and the numbers are all 'guesstimates.'" (pages 28 and 31)

Professor Michael Geist refers to a 1997 US Government Accountability Office report: "Second, the data contained in the GAO report suggests that the claims associated with counterfeiting are massively overstated. The Industry Committee previously heard from witnesses who noted that there have claims that 5 to 7 percent of world trade involves counterfeit products (some even argue that is growing). The GAO study points to the U.S. Compliance Measure Program, a statistical sampling program, that randomly selects shipments to check for their compliance with the law, including IP laws. Of 287,000 inspected shipments from 2000 - 2005, IP violations were only found in 0.06 percent of shipments - less than one tenth of one percent. This large random sample suggests that counterfeit products are actually only found in a tiny percentage of shipments. Moreover, the GAO notes that despite increases in IP seizures, the value of those seizures in 2005 represented only 0.02 percent of the total value of imports of goods in product categories that are likely to involve IP protection. In other words, the evidence from an independent, U.S. government sponsored agency points to a far different reality from that presented to the two parliamentary committees investigating counterfeiting."

The Dutch Accountability Office is very critical about the counterfeiting numbers as well ("major shortcomings"). The Office also writes that the shortcomings are known, but still the numbers are used in public documents and for new policy.

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.

There is no indication that TRIPS agreement provisions provide inadequate protection.

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

A EU study reaches the same conclusion. "Fake goods are fine, says EU study. A new European Union-funded report has declared that buying designer goods can benefit consumers and the companies whose brands are being ripped off."

A vicious circle

Professor Annette Kur, Max Planck Institute, Munich, in a presentation: "Lastly, some rather 'incorrect' thoughts… The modern plagues of counterfeiting and piracy did not come out of nowhere – to some extent, they are rooted in the development of IP protection itself. The wider the gap becomes between production costs and the gains achieved by protected items, the more illegal copying it will attract… If rightholders are compensated for their losses by granting ever stronger rights, also the attraction will increase, and so on. It is doubtful whether imposing (ever more) drastic sanctions is able to break the vicious circle – experiences in other areas tell a different, sad story.

What to do? It is unlikely that the battle against infringement in general, and counterfeiting in particular, will be won by deploying more, and harsher sanctions. It is at least equally important that the IP system as such re-gains general acceptance and approval. Contrary to what is often held, this is not just a matter of 'education' – it might mean that the system has to change. Apart from that, serious crimes such as making and selling fake inefficient or hazardous medicaments should be targeted for what they are – not (primarily) as IP infringements, but as criminal acts jeopardizing public health and safety."

Fight dangerous products, not counterfeiting

To combat risks for public health is not primarily an IP issue. Resources are limited, especially in developing countries. Developing countries are be better off with a focus on fighting dangerous products, whether IP rights are involved or not. Up to 80% of the active ingredients in US drugs are now made overseas, many in countries where regulatory oversight does not meet US standards. Developed countries too may be better off with a focus on fighting dangerous products, whether IP rights are involved or not.

Defining counterfeiting

Only fraudulent imitations should be regarded as counterfeiting, like fake Gucci handbags (a trade mark infringement). Ambiguous cases of trademark confusion are not counterfeiting, they do not involve fraudulent imitation.

There may be a legitimate call for fraudulent imitations of other rights to be called counterfeiting too. Say a fraudulent imitation of a wine, protected by a Geographical Indication. But patent infringements are never so clear to be called counterfeiting. They do not involve fraudulent imitations.

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.

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 counterfeiting.

Normal trade mark infringements

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

Ambiguous cases of trademark confusion are not counterfeiting, they are business conflicts. Like the conflict between Apple Corps Ltd, founded by The Beatles, and Apple Computer Inc. By addressing all infringements, ACTA sees Apple Computer Inc. as a counterfeiter. There is no reason to seize Apple computers, laptops and iPhones at the border or to destroy Apple Computers Inc's production facilities. Apple Computer Inc. is a company, not a criminal organisation. Business conflicts can be solved by paying a reasonable sum of money.

Analysis of the ACTA draft reveals many issues with regards to access to medicine. The inclusion of trade mark infringements in ACTA causes some of these problems.

There is no indication that TRIPS agreement provisions provide inadequate protection.

Remove design rights and database rights from ACTA

Design rights should not be under ACTA's scope for two reasons. First, they are relatively new, and the case law is still evolving. Second, unregistered EU Design rights arise automatically. Registered EU Design applications are given essentially no substantive examination. They are often of very dubious validity. And if they are valid, it is unclear whether the actions in question fall within the valid scope of the right.

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. Either you do not infringe, you make a small profit. Or you do infringe, and your production facilities can be destroyed. Here too, Russian roulette.

Clearly, there is a huge difference between falsely labelled spare parts (fraudulent imitation, counterfeiting, trade mark infringement) and "generic" spare parts (correctly labelled, no counterfeiting, competitive product).

Earlier analysis

The ACTA November 2010 text analysis http://action.ffii.org/acta/Analysis-November

The ACTA August 2010 text analysis http://action.ffii.org/acta/Analysis-August

The ACTA April 2010 text analysis

http://action.ffii.org/acta/Analysis-April

The earlier (pre ACTA text release) analysis

http://action.ffii.org/acta/Analysis?action=recall&rev=146

Context

To understand ACTA, we may like to take a look at the 1994 WTO TRIPS agreement. Prior to TRIPS, Europe and the United States could develop their own economies with low intellectual property (IP) rights protection. For instance, the Netherlands abolished patents in 1869, and did not reintroduce them until 1912.

The TRIPS agreement changed this. It forced developing countries to adopt U.S. style protection and enforcement of intellectual property rights. The world wide enforcement of IP rights created a money flow from poor to rich and limits access to medicine in developing countries.

In the 90ties, AIDS took millions of lives in Africa, pharmaceutical companies only served the upper side of the market for prices even higher than in the U.S. In 1997, President Mandela of South Africa signed a law to ensure the supply of affordable medicines. The U.S. and the EU started to pressure South Africa, the U.S. prepared trade sanctions. 41 Pharmaceutical companies sued Mandela. Then, public outrage over what was happening forced companies and governments to withdraw.

Ultimately, this led to the Doha Declaration on the TRIPS Agreement and Public Health, WTO, 2001, a declaration that affirms the right of developing countries to protect the health of their populations. Since then, there is a pattern of "efforts to confuse the IP issues with those of substandard or spurious medicines" taking place at a number of international fora, according to Indian Ambassador Ujal Bhatia.

In 2008 and 2009, claiming to follow EU rules, Dutch customs seized essential medicines. Generic AIDS medicine not patented in India, nor in, for instance, Nigeria, was seized while in transit in the EU.

After these seizures became front page news, the then Dutch Minister for Development Cooperation Bert Koenders said that the EU rules have to change. This statement was welcomed by many. But the EU is still exporting in transit border measures in free trade agreements, like the EU – South Korea FTA.

Confusion

Pharmaceutical companies try to minimize the effects of the Doha Declaration. They try to overextend the definition of counterfeiting. They try to label generic medicine as counterfeit. The EU customs regulation and the EU IP enforcement directive (IPRED) do not make a distinction between counterfeiting and normal infringements. This led to the "Dutch seizures" of essential medicines, meant for developing countries. Likewise, music companies try to blur the definition of commercial scale, in order to criminalise non-commercial behaviour. We witnessed this in the European Parliament first reading plenary vote of the EU criminal measures IP directive proposal (IPRED 2) and now in ACTA.

Pharmaceutical companies want patent protection to be as strong as possible. This creates problems in other sectors as well. The software field is plagued by patents. In the U.S., even major software companies, owning huge patent portfolios, want patent reform. Pharmaceutical companies oppose this.

With ACTA, the U.S. and EU try to export their excessive enforcement.

An awesome Lobbying Machine

In the 1980ies, Pfizer, a U.S. pharmaceutical company, started advocating to link exclusive rights with trade. [1] With trade sanctions, developing states can be forced to adopt U.S. style protection of exclusive rights.

An Awesome Lobbying Machine

We start in the lower left corner. 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.

The "Awesome Lobbying Machine" produced bilateral Free Trade Agreements and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS, 1994). TRIPS has strong protection for exclusive rights and limited flexibilities. According to a senior US trade negotiator, "probably less than 50 people were responsible for TRIPS." [1] TRIPS was followed by bilateral "TRIPS plus" Free Trade Agreements. And now ACTA.

Europe and the U.S. could develop their own economies with low IP protection. Emerging economies do not have that possibility.

[1] DRAHOS, P., with BRAITHWAITE, J., Information Feudalism, Who Owns the Knowledge Economy?, Earthscan Publications Ltd, 2002

Attachment: The Turco case

In the landmark ECJ judgement 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.

On 22 October 2002 Mr Turco submitted a request to the Council for access to, among others, document number 9077/02, an opinion of the Council’s legal service on a proposal for a Council Directive laying down minimum standards for the reception of applicants for asylum in Member States.

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."

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