Transfer of powers

This post is structured accordingly for your convenience: (1) Introductory quote, (2) present patent law and implications for small and medium-sized enterprises with examples, (3) transferral of regulation from one part of the ACTA agreement to another and the potential effects on international arbitration regarding the agreement.

Ralph Bendrath from the European Parliament tweeted about latest briefings from the ACTA negotiations a couple of hours ago:

#EU COM debriefing on #ACTA: Patents are now deleted from the border control chapter; EU wants them in internet & civil enforcement chapters

Now, the odds that any kind of patent provision in the ACTA agreement will have an impact on civilians is next to none. Patents enforcement basically only risks a chilling effect on businesses and entrepreneurship. There was an illustrative example from the book Intellectual Property Law*: An entrepreneur goes to a conference about hoovers in Brazil where he discovers a new exciting brand with innovative features. He decides to purchase 20 hoovers and bring them back to the European Union where he wishes to try them out on customers for later larger scale imports. Because the hoover manufacturer has not yet released the product themselves on the European market, he gets stopped at the European borders because parallell imports are not allowed (imports without consent from the rights holder). The market entrance of the new hoovers is delayed by many months because the entrepreneur, who had paid all the reasonable prices for the hoovers set by the manufacturer at the conference, could not start imports speedily.

Something like that. This happened to an entrepreneurial friend of mine who was attempting to import OpenMoko a few years back. A container of OpenMoko phones was imported to Germany from China. The Chinese manufacturer labelled the container wrong and put ”mp3 player” on the label, which caused customs control to seize the entire container and notify a patent holder for the mp3 format. The importer subsequently had to settle with the patent holder before he could access his goods. OpenMoko phones hold no ability to play mp3-files by default, in fact they were purchased without any kind of software installed. Settling the conflict in a German court would have taken so much time that the phones would have turned valueless on the consumer market, and eventually (within the space of a couple of weeks) a license fee was paid to the patent holder only so that the goods could be released from customs. Random seizures and harassment of small and mediumscale importers may well have contributed to the company’s later demise.

So present patent provisions in European border regulation have a complicated and often not harmless impact on (especially) small and mediumsized enterprises, and the apparent patent provisions suggested for ACTA do not, as far as I understand any legal analyses, surpass already existing border regulation of the union.

If Bendrath is understanding this correctly, which is assumed, the EU has suggested transferring the patent provisions from the border measures sections to the internet and civil enforcement sections of the agreement. I’m not sure if that makes a big difference if you interpret the text of the agreement literally. But one part of ACTA (as is the case of most free trade agreements nowadays) is establishing an arbitration system specific to the agreement**, which is to say, conflicts related to the agreement will not be interpreted within the framework of any present patent agreements, and, of course, also that wherever the patent rules in ACTA end up, it is against that background that any conflicts related to patents within the scope of the agreement will be interpreted.

Being conscious of some of the case law from the WTO arbitration panels (Dispute Settlement Body, DSB) is it not just a bit likely that the framework within which the provisions occur will affect their interpretation? I still can’t see how this would impact civilians – there is no cost efficient way of stopping all counterfeit or patent infringing goods carried by all civilians as they cross the border, and the possibility to randomly harass for other reasons targetted individuals by seizing their allegedly pirated goods at the border, as far as I understand, already exists. The stifling effect it may have on European entrepreneurship and market entrance of new and innovative products from extra-European territories is larger.

International arbitration typically takes place between specific exporters or importers in nation states (see for example this case from WTO about Guatemalan anti-dumping measures against Mexican concrete exporter Cruz Azul on behalf of Guatemalan enterprise Cementos Progreso SA), and we can expect arbitrations under ACTA to behave similarly with regards to defendants and plaintiffs.

This would have an impact on second-hand trade (which, btw, in the games market is theft(!!)*** according to THQ) enterprises like eBay (not necessarily their customers, other than indirectly), primarily by geographically restricting them (essentially forcing them to self-regulate) with regards to trademark and patent protected goods (some geographical division already exists though: the most popular Swedish secondhand trade site is Tradera, a Swedish eBay subsidiary), or on software developers (albeit presumably primarily commercial developers).

Of course, a geographical division has already been present for a long time in DVD sales to stop parallell imports. It’s also been present in online music stores or streaming services (one notable example of which is Spotify that for many years angered my Dutch friends by being unavailable in their jurisdiction). For European economies that are more dependent on sane patents**** and highly regarded trademarks (or geograhical indications) than US enterprises, this grab for geographical divide and rule is not so surprising.

* This was a very successful purchase accomplished with a donation from a party comrade, for which I am eternally grateful. It gave me so many insights in so many areas of intellectual property law. Thank you!

** Arbitration system essentially means conflict resolution mechanism – in the context of free trade agreements or international commercial agreements over all, they can be seen as international courts that operate outside of our normal judicial system. In the context of state-to-state agreements they, however, have an impact on how each nation state subject to the agreement can legislate or organise their commercial activities, which, as we know, in a global, capitalist market means they can pretty much define the entire framework for our society.

*** In the THQ statement this is not actually correct: THQ has removed some features from their game for the used game buyers, which apparently caused some resentment. However, it is only the license for online features that isn’t transferrable, and therefore presumably infringable. The game itself is not. I find the THQ statements slightly similar to middle-class teenagers who get angry with their fathers (or mothers) for not letting them stay out after 22:00 hours and subsequently slamming doors shouting Fucking fascists! without stopping to wonder whether or not their parents actually subscribe to a corporativistic model of organising society and the state. It’s besides the point, though.

**** This is the topic of several studies of the patent system and its costs, as well as a lot of recent criticism from large US enterprises about the bad quality of US patents. I recently saw critique of competition law taking over IPR in Europe, though, so who knows where the European regulations will head off to?

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