Positive outcome reached at WIPO Advisory Committee on Enforcement while ACTA looms in the East

While the 6th Round of negotiations of the Anti-Counterfeiting Trade Agreement (ACTA) is taking place in Seoul, Republic of Korea from November 4-6, 2009, the 5th session of the WIPO Advisory Committee on Enforcement (ACE) met from November 2-4, 2009.

The three day meeting of the WIPO ACE concluded on a positive note with the Committee requesting the WIPO Secretariat to ramp up its work on undertaking an "an empirical assessment of the nature and extent of intellectual infringements" given the paucity of reliable data detailing the value of "international trade in IPRs-infringing goods".

The 5th Session of the ACE was chaired by Mrs. Rodica Parvu, Romania (Director-General of the Copyright Office). The two themes on the agenda included: 1) Contribution of, and costs to, right holders in enforcement, taking into consideration Recommendation No. 45 of the WIPO Development Agenda, and 2) Identifying elements for creating an enabling environment for promoting respect for intellectual property in a sustainable manner and future work.

Recommendation 45 of the Development Agenda states:

To approach intellectual property enforcement in the context of broader societal interests and especially development-oriented concerns, with a view that “the protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations”, in accordance with Article 7 of the TRIPS Agreement.

The discussion of the Committee was guided by: 1) eight expert papers commissioned by WIPO for the 5th Session and 2) three papers by Member States including A) Pakistan: "Creating an enabling environment to build respect of IP", B) Brazil: "Future work proposal by Brazil" and C) Group B: "Elements of a General Framework for future discussions in WIPO ACE".

The country papers of Pakistan, Brazil and Group B provided a conceptual framework for the program of work assigned to the WIPO Chief Economist (Carsten Fink) including a "literature review of methodologies and gaps in the existing studies", and an "analysis of various efforts, alternative models and other possible options from a socio-economic welfare perspective to address the counterfeiting and piracy challenges'."

The ACE agreed that the papers of Pakistan, Brazil and Group B and other country proposals from the floor of the Committee would serve as a basis for "selection of topics for discussion by the Committee at its future sessions, to be agreed by consensus by the Members of the Committee, in line with the mandate of the Committee".

As mentioned earlier, WIPO commissioned eight expert papers including presentations by Professor Michael Blakeney (Policy Responses to the Involvement of Organized Crime in Intellectual Property Offences), Carsten Fink (Enforcing Intellectual Property Rights: An Economic Perspective) and Sisule Musungu (The Contribution Of, and Costs To, Right Holders in Enforcement, taking into account Recommendation 45).

On the reliability of statistics pertaining measuring levels of counterfeiting and piracy, Musungu noted,

In many ways, the success of global efforts to combat counterefeiting and piracy and
other IP infringements will turn on the credibility of the data and evidence that is used by
policy-makers to design enforcement laws and procedures. While studies, such as the OECD
one, offer some insights regarding the scale of the problem and there are on-going efforts to
develop models to measure the levels of counterfeiting and piracy, including the economic
impact, there is still along way to go in establishing globally accepted and/or credible models
or data sets.

Musungu suggested that title holders could do the following in light of Recommendation 45 of the Development Agenda:

– Supplying better data and information to public institutions;
– Providing better and fuller caveats to the figures that are generated for advocacy
purposes;
– Using figures from international public institutions, such as the OECD or WIPO,
in the proper context and with due care to avoid misrepresentation; and
– Supporting public institutions in their legitimate efforts to develop credible
methodologies for studying the problem and generate better data to support
policy-making.

In Carsten Fink's paper (first published by ICTSD when Mr. Fink was Professor of International Economics, University of St. Gallen), he noted that upon closer examination, the oft-cited 200 billion dollar figure provided by the Organisation for Economic Co-operation and Development (OECD) for the estimated value of IPRs-infringing goods in international trade in 2005 (2 percent of global merchandise trade) used methodology that revealed that the figures were "more an “educated guess” than a true estimate".

Essentially, OECD staff made use of seizure rates across different product categories and exporting nations to extrapolate what a given share of IPRs-infringing trade in one individual product category means for the overall share of trade in counterfeit and pirated goods. However, the share in the relevant “fix-point” product categories—wearing apparel, leather articles and tobacco products—underlying the 200 billion dollar estimate is not based on any hard data, but rather reflects the best guess of OECD staff.

While his observations should not be construed as a critique of the OECD's analysis, he raised concerns with the use of the $ 200 billion figure in the press (including a December 4, 2007 piece in the Financial Times entitled "World 'losing' war against fakes and piracy"). Fink remarked that the OECD analysis did provide some perspicacious insight into the "relative importance of IPRs violations across different product categories" with nearly 2/3 of all seizures relating to fashion apparel, AV recordings and software. Fink further assailed estimates lost revenues due to piracy produced by industry associations representing copyright holders. He referenced a critique by the Economist (May 19th, 2005)
entitled "BSA or Just BS?" and noted that,

BSA (2007) simply assumes that, in the absence of piracy, all consumers of pirated software would switch to legitimate copies at their current prices. This outcome is unrealistic—especially in developing countries where low incomes would likely imply that many consumers would not demand any legitimate software at all. Accordingly, estimated revenue losses by software producers are bound to be overestimated.

With respect to music, Fink referenced the more "nuanced approach" of an IFPI study (2007) disclosing the "value of pirated goods (presumably valued at pirated goods prices)"; however, its methodology was not disclosed. Regarding consumer behavior with respect to the pricing of legal products, Fink cited a study by Maffioletti and Ramello (2004) which concluded that "students’ willingness to pay is generally lower than the market price for legal products" resulting in the observation that

"increased copyright enforcement would not expand sales of legitimate copies on a one-for-one basis. At the same time, the study revealed that students’ willingness to pay for a pirated copy was significantly greater than its marginal cost. This finding suggests the possibility that copyright holders respond to stronger copyright enforcement by lowering their prices to capture a larger number of consumers."

Professor Blakeney characterized the existing metrics of counterfeiting and piracy as an imprecise science on account of three reasons: 1) the criminal and clandestine nature of counterfeiting and piracy shrouded their true extent, 2) the figures produced by trade associations "are inevitably biased upward" in order to "highlight the extent extent of the trade in infringing products" and 3) the statistics produced by policy and customs authorities were "likely to be exaggerated with a view to securing favourable future budget allocations if the problems with which they are dealing are magnified".

Blakeney, Fink and Musungu all raised questions on the veracity of estimates of the value of counterfeited and pirated goods with respect to its share of world trade. In his oral presentation, Blakeney cautioned ACE members against making uninformed policy choices on enforcement predicated on "foundations of sand". Blakeney recounted how:

[i]n 1988, following the launch of the GATT Uruguay Round, the US International Trade Commission estimated losses to the U.S. economy in revenue and jobs due to IPR violations to be in the region of $US 60 billion. In 1998, following a more than a decade of TRIPS enforcement, the International Chamber of Commerce (ICC) estimated that from 5 to 7 per cent of world trade comprised counterfeit goods, a market which it estimated to be worth USD 350 billion. This statistic was repeated in a 2004 report by Union des Fabricants on Counterfeiting and Organised Crime which stated that: “Globally, an OECD report published in 1998 estimated that counterfeiting was generating 250 billion in illegal earnings annually and represented 5 to 7% of world trade”. This group of statistics was repeated so often that it they have almost become factual. Whatever their veracity, they were undoubtedly influential in precipitating the TRIPS Agreement into existence.

As the TRIPS Agreement, with its dispute-settle mechanism, was designed to thwart international trade in infringing products, Blakeney observed that this aspect of the Agreement is a dismal failure if one were to take the estimates of the OECD (2007) at face value which concluded that figure for trade in counterfeit and pirated products at $US 200 billion in 2005. Blakeney provided a final set of statistics: 1) the 2005 International Chamber of Commerce (ICC) estimating $600 billion trade in infringing good and 2): the hyperbolic figures reported by the Gieschen Consultancy in 2005 in excess of $US 3 trillion to round the mark.

As evidenced by the papers from Blakeney, Fink and Musungu, the dearth in reliable empirical evidence on counterfeiting and piracy is not commensurate with measures to enact higher standards of enforcement whether it be in bilateral free trade agreements (FTAs), regional FTAs, the ACTA negotiation, WHO Impact or the World Customs Organization.

In an insightful footnote (Fink, footnote 43, page 21), Fink stressed that "there is a certain asymmetry in international enforcement obligations. Existing international agreements and current initiatives seek to strengthen the enforcement of private rights. By contrast, there are no international obligations to enforce laws against the abuse of these rights—for example, in the form of erroneous patent awards for subject matter already in the public domain or anti-competitive business practices associated with intellectual property ownership."

The presentations by Blakeney, Fink and Musungu provided academic buttresses to the interventions of Brazil, Egypt, India and Pakistan and the concept papers of Pakistan and Brazil. In Pakistan's paper on "Creating an Enabling Environment to Build Respect for IP", the paper noted on TRIPS plus enforcement demands being made on developing countries often linked to trade and investment decisions. However, Pakistan noted that while "stricter laws and capacity building of enforcement agencies" are perceived to be the "primary means to ensure enforcement", it is not a sustainable strategy. Pakistan asserted that a sustainable strategy for creating an enabling environment to build respect for IP would first need to identify the key reasons for IPR infringement.

Pakistan's submission reiterated the need for "impractical assessments of the extent of counterfeiting and piracy" before embarking on norm-setting for higher standards of enforcement. Pakistan identified nine factors precipitating IPR infringement including the following:

  • Huge margins between the prices of original and pirated items offer significant profit incentives to individual and organized IP infringers. Quite clearly, business models are not adequately addressing the pricing-cost involved in selling products (especially pharmaceuticals, books, music, movies). Unreasonably, higher costs along with barriers to access, do provide some justification to the consumers to use counterfeit and pirated goods.
  • Invariably, in bilateral trade agreements, higher standards of IPR protection are demanded in return for trade and market access. This reinforces the view that IPRs are an external imposition, rather than a domestic need.
  • The IP enforcement agenda is pursued at different international fora such as WCO, UPU, WHO. Developing countries are increasingly concerned that the limitations of their diplomatic and technical resources and infrastructure, diverting resources from development and even other law enforcement requirements to the protection of IPRs is often difficult to justify.
  • Technological breakthroughs have facilitated IPR infringements. It is now comparatively easier to copy, share, reproduce and reverse engineer the protected materials/works. For instance, despite all encoding efforts, infringement is still a very real issue in the digital environment.

As part of its recommendations, Pakistan suggested nine measures (four of them are included here): A) conducting "independent, objective and empirical assessments of the nature and extent of IPR infringements, B) address the "socio-economic welfare needs of countries particularly for access to medicines and educational materials at affordable prices through use of TRIPS flexibilities and alternate business models for price reductions...", C) "develop international guidelines for levels of IPR protection in the bilateral and regional FTAs, in accordance with TRIPS agreement. Such guidelines should be followed in the negotiations on FTAs", and D) [u]undertake independent socio-economic impact assessments of the existing and future IP norms".

Brazil's submission for the future work of ACE was indeed a call for action for a "qualitative change in the approaches to dealing with the subject of 'enforcement' of intellectual property rights within WIPO". Brazil cautioned against embarking on a "one size fits all approach" noting that violations of IPRs did not exist in a void. Thus, Brazil called for an approach that could combine a "plurality of instruments to combat intellectual property infringements" tailored made to the specific social and technical needs of countries. Echoing Pakistan's position, Brazil's paper requested that the work program of the ACE develop methodologies for measuring the economic and commercial impact of counterfeiting and piracy "taking into account the diversity of economic and social realities" and stage of development.

In conclusion, the ACE agreed that the papers of Pakistan, Brazil and Group B and other country proposals from the floor of the Committee would serve as a basis for "selection of topics for discussion by the Committee at its future sessions, to be agreed by consensus by the Members of the Committee, in line with the mandate of the Committee". This particular point, although rather bland sounding on first glance, was the result of nearly a half day's negotiation; originally certain developing countries including Egypt, Pakistan, Brazil and India suggested that future work of the ACE be modeled after the approach taken by WIPO's Standing Committee on the Law of Patents (SCP) by establishing an open-ended, non-exhaustive list of topics for future discussion. The country papers are annexed to the conclusions of the chair as part of the official record of the Committee.

The conclusions of the chair noted that the country papers of Pakistan, Brazil and Group B provided the impetus to the Chair to invite the Chief Economist of WIPO to respond to the questions of delegations "including with a view to the feasibility of undertaking an empirical assessment of the nature and extent of intellectual property infringements, and the availability of respective data". As a result of negotiation, the 6th session of the WIPO ACE would consider the following:

"Developing on the substantive study contained in WIPO/ACE/5/6 [paper of WIPO Chief Economist, Carsten Fink], to analyze and discuss IPRs infringements in all its complexities by asking the Secretariat to undertake:

  1. A literature view of methodologies and gaps in the existing studies;
  2. Identification of different types of infractions and motivations for IPR infringements, taking into account social, economic and technological variables and different levels of development
  3. Targeted studies with an aim to developing methodologies that measure the social, economic and commercial impact of of counterfeiting and piracy on societies taking into account the diversity of economic and social realities, as well as different stages of development;
  4. Analysis of various efforts, alternative models and other possible options from a socio-economic welfare perspective to address the counterfeiting and piracy challenges'.

The WIPO Advisory Committee on Enforcement (ACE), recognizing that informed policy choices on enforcement measures must be predicated on sound empirical evidence, has taken a positive step forward. Recommendation 45 of the Development Agenda instructs WIPO to approach the question of intellectual property enforcement in the context of a broader societal interest delineated by Article 7 of the TRIPS Agreement which states:

"[t]he protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations."

Recommendation 45 of the Development Agenda has clearly permeated the sinews of the ambitious work program of the WIPO ACE instructing the International Bureau to undertake a literature survey of existing methodologies, to develop robust methodologies for measuring the social, economic and commercial impact of counterfeiting and piracy, and to consider alternative models to address the twin challenges of counterfeiting and piracy. This work program, complements the conclusions of the Chair which noted that the expert presentations provided, inter alia, "suggestions for closer analysis to give meaning to Recommendation No.45 of the WIPO Development Agenda, such as the effects of seizures of goods in transit; safeguards in relation to provisional measures; the scope of criminalizing intellectual property infringements; and possible abusive enforcement practices, such as in the context of competition law, unjustified threats to sue, and the abuse of intellectual property enforcement measures". The deliberations of WIPO's 5th Advisory Committee on Enforcement stands in stark contrast to the shadowy conclaves of of the ACTA negotiations, an exercise in non-transparent, uninformed policy making.