K USA SPECIALSPECIAL

IN SUMMARY – USTR considers Special 301 to be a 301301 critical policy tool for pinpointing countries that are providing weak KK protections for U.S. intellectual ChinaChina andand RussiaRussia toptop thethe property rights abroad annualannual U.S.U.S. listlist of of IPRIPR offendersoffenders – The threat of such sanctions is often enough to compel nations to improve By Lisa Peets, Partner and Head of European IP Policy, their regimes Mark Young, Associate and Marney Cheek, Special Counsel, Covington & Burling LLP – USTR designated 36 countries in this n 30 April this year, the United process also provides a basis for constructive year’s Special 301 Report in the States’ trade ministry, the Office of engagement with U.S. trading partners in categories of Priority Watch List and Othe U.S. Trade Representative order to address those challenges2. Given the Watch List (USTR), released its “Special 301” report. political factors involved, however, a degree of “Special 301” is the name given to an annual controversy inevitably attaches to the process. process whereby the United States Not surprisingly, Special 301 has been AUTHORS Government identifies countries that, in its criticized by other countries because of its estimation, deny adequate and effective unilateral approach3. owners and Lisa Peets is a partner at Covington & Burling LLP. She leads the technology, protection of intellectual property rights other intellectual property right holders, in media, and communications group in (including trademark protection), or deny contrast, find the Special 301 process to be a the firm’s London office. Her practice fair and equitable market access to American highly effective way to get their issues before focuses on intellectual property and industries who rely on such protection. the U.S. Government and press for resolution. information technology, and embraces USTR is primarily responsible for both legislative advocacy and IP 1 enforcement. In this context, she has conducting the review , with assistance from Background: The “Special 301 list” worked closely with leading other U.S. Government agencies, such as the Countries that are singled out by the U.S. technology industry clients, including Department of State, and American Government through the Special 301 process many of the world’s best-known embassies overseas. It uses consultations are said to be “placed on the Special 301 list”. software and hardware companies. with affected industry groups and input from This list is broken down into three Marney Cheek is a special counsel in other private sector representatives, categories, based on the severity of the the firm's Washington office. She including those representing U.S. trademark intellectual property violations cited: advises US and foreign companies on interests, to help arrive at the designations • Countries that have the most onerous or a wide range of international trade matters, including issues related to and actions recommended in the report. egregious acts, policies, or practices and the , US free One focus of this year’s report is the global whose acts, policies, or practices have the trade agreements, and international scope of counterfeiting and piracy, and its greatest adverse impact on relevant U.S. intellectual property policy. damaging effect on goods protected by products, are to be identified as “Priority Mark Young is an associate in the trademark laws and . The worst Foreign Countries” (PFCs). A country that is technology, media, and offenders on USTR’s list, both in general and designated as a PFC can face the imposition communications group of the London because of widespread counterfeiting of trade sanctions (such as tariffs, quotas, or office. His practice focuses on intellectual property, information problems, include and . As part other measures) that could jeopardize its technology and data protection law, of its review, USTR voiced specific concerns ability to trade with the United States. Under and encompasses legislative advocacy, regarding the need for more effective law, USTR may not, however, identify a regulatory compliance and criminal and border enforcement in several country as a PFC if it is entering into good transactional work countries to stop the manufacture, import, faith negotiations, or making significant export, transit, and distribution of pirated progress in bilateral or multilateral and counterfeit goods. negotiations, to provide adequate and effective USTR considers Special 301 to be a critical protection of intellectual property rights. policy tool for pinpointing countries that are • Nations where problems are quite serious providing weak protections for U.S. but not to the level described above are intellectual property rights abroad. The placed on the “Priority Watch List”. If a Enter the Worldleaders International IP Awards 2007 by 20th July

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nation is placed on the Priority Watch List, 301 process, providing USTR with lengthy remain widely available in the city. The report the U.S. Government will carry out serious recommendations regarding weak IPR highlights the notorious Silk Street Market in bilateral discussions in an effort to resolve regimes that hurt their businesses. IP right Beijing, and the China Small Commodities the intellectual property problems identified. holders representatives such as the Market in Yiwu. The estimation that 80- Failure to resolve these problems could, in International Intellectual Property 100% of goods in certain categories sold in certain situations, lead to the country being Association (IIPA) and the International the Silk Street Market are counterfeit elevated to the PFC category. AntiCounterfeiting Coalition (IACC) illustrates the extent of the problem posed by • Nations where intellectual property coordinate the opinions of companies these outdoor markets. However, large-scale problems exist and are generally serious, but concerned with product counterfeiting and manufacturing and export of counterfeit again, not serious enough to label a country in either of the two categories cited above, are placed on the “Watch List”. As with the USTR designated 36 countries in this year’s Priority Watch List, placement on the Watch “ List indicates that particular problems exist in Special 301 Report in the categories of Priority that country with respect to IPR protection, Watch List and Watch List. enforcement, or market access for American ” industries that rely on intellectual property. piracy, an issue particularly relevant to products is perhaps of even greater concern. Failure to resolve these problems could, in trademark owners. In recent years, the The United States has called for additional certain situations, lead to the country being pharmaceutical companies also have been efforts to be made to close these operations elevated to the Priority Watch List. increasingly focused on counterfeiting issues. down, and to stop outbound infringing From mid-February until late April of each products at China’s borders. The U.S. also may elect to conduct an “Out- year, USTR examines these Other problems abound in China. For of-Cycle Review” of a particular country, recommendations and discusses them with example, USTR views the requirement of which involves ongoing bilateral engagement other U.S. Government agencies and U.S. proving identical in infringement to try to resolve specific concerns raised by embassies overseas. USTR also consults with cases, the absence of minimum (and industry that remain unresolved at the time the foreign governments themselves that deterrent) fines in administrative trademark the report issues. have been recommended for placement on enforcement cases and serious backlogs in In practice, the placing of a nation on the the Special 301 list. trademark opposition and cancellation Special 301 list rarely results in the proceedings, as weaknesses that prevent U.S. imposition of trade sanctions by the United Countries highlighted in this year’s report trademark holders from adequately and States against that country. Only in the most USTR designated 36 countries in this year’s effectively enforcing their rights. Trademark serious of circumstances, once prolonged Special 301 Report in the categories of owners have also raised growing concerns negotiations between the United States and Priority Watch List and Watch List. No about the use of the Internet, in connection the government in question have failed and countries were designated as PFCs this year. with express delivery services, for direct the country is named a Priority Foreign The Administration’s top priorities marketing of counterfeit products to foreign Country, is such action undertaken. continue to be addressing weak IPR consumers. On a more positive note, though Nonetheless, the threat of such sanctions is protection and enforcement, particularly in a vast improvement in the protection of IPR often enough to compel nations to improve China and Russia. These countries have is still required, there have been some small their intellectual property regimes.4 featured in many reports in the past5, given developments in the right direction, such as their notorious problems in the areas of the creation in Nanjing of a publicly available The process counterfeiting and piracy. , , database of registered trademarks to increase Special 301 provides industries with a formal and were also placed on the brand awareness. process through which to identify specific Priority Watch List, partly due to significant trademark-related and other IP issues in counterfeiting and piracy concerns. Russia countries around the world. Since USTR has a The U.S. and Russia concluded a Bilateral Congressional mandate to investigate these China Market Access Agreement in November problems, Special 301 is an effective tool to Despite some improvements, the report states 2006 as part of Russia’s WTO accession mobilize the resources of the U.S. Government that overall piracy and counterfeiting levels in talks, which included commitments from to address specific problems faced by U.S. IP China remained unacceptably high in 2006. A Russia to strengthen IPR protection and industries. When the process results in clear example of the challenge is the outdoor enforcement by 1 June, 2007. The USTR stronger IP laws in foreign countries, rights markets where IPR laws are routinely flouted. views this agreement as “[setting] the stage holders in all countries benefit from the U.S. Although the Xiangyang Market in Shanghai for further progress on IPR issues in Government’s engagement. was closed in 2006, infringing products in ongoing multilateral negotiation concerning Industry is heavily involved in the Special retail markets and through mobile vendors Russia’s bid to join the WTO”6. As part of

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the agreement, the Russian government has These countries remained on the Priority particular problems. The rise of Internet committed to deter counterfeiting through Watch List in 2007. The United States trading in and severe delays in the criminal penalties, strengthen border believes stronger IPR enforcement actions judicial process in the are also enforcement, and bring Russian laws into are required in each of the countries to cause for concern. compliance with WIPO and international combat the availability of pirated and IPR norms. counterfeit products. Despite USTR keeping Russia on the Despite calls from the pharmaceutical Priority Watch List and announcing plans to , , and industry and the IACC that the Czech conduct an Out-of-Cycle Review, some Egypt, Israel, Lebanon and Turkey rounded Republic should be placed on the Priority industry groups are reported to doubt the out the PWL list this year, although Watch List because of market access barriers effectiveness of this decision7. Russia has counterfeiting and piracy were less of a to pharmaceuticals and counterfeit markets been on the Priority Watch List since 19978, concern in these countries. on its borders, the country did not feature on and the trademark and copyright industries the Special 301 list at all. USTR instead have pressed to have Russia elevated to a decided to conduct an Out-of-Cycle Review Priority Foreign Country so that the U.S. Despite the IACC recommending Vietnam be on the country. could bring trade sanctions against Russia placed on the Priority Watch list due to signs for ongoing violations. Yet despite the of counterfeiting growing in scope, scale and Other countries of interest prominence of concerns regarding IPR complexity, USTR decided to keep the The U.S. Government often has to weigh protection and enforcement in Russia, the country on the Watch List. Although the progress in one area — such as copyright — U.S. Government has rejected against problems in other areas — industry claims to elevate Russia and such as protection. In these has instead decided to remain focused cases, industry often does not speak on bilateral engagement to address Despite USTR keeping with one voice. For example, in the IP-related challenges. USTR cites the “ case of both and this criminal investigation of allofmp3.com, Russia on the Priority Watch year, USTR decided that progress on reputed to be the world’s largest List and announcing plans to copyright issues warranted keeping server-based pirate music website, as these countries on the Watch List, one example where bilateral conduct an Out-of-Cycle Review, even though some U.S. industries engagement has been effectively used some industry groups are called for the countries to be elevated. to address weaknesses in Russia’s IP With respect to Brazil, the regime. While acknowledging small reported to doubt the Biotechnology Industry Organization successes such as this one, U.S. (BIO), IACC and PhRMA (the industry has repeatedly voiced its effectiveness of this decision pharmaceutical trade association) frustration with respect to progress in ” recommended that Brazil be placed on Russia on these issues. the Priority Watch List for lacking data protection, lax border control and Thailand United States encourages further progress on customs enforcement, and for failing to USTR reports production and distribution of IPR enforcement initiatives, it acknowledged reduce the backlog of patent applications and infringing copies of trademarked products, Vietnam had made significant improvements to provide protection for biotechnology such as apparel and footwear, remains to its IPR legal and enforcement regimes, . The USTR acknowledged these widespread in Thailand. However, the culminating in Vietnam’s accession to the problems, but was impressed by Brazil’s elevation of the country to the Priority WTO in January 2007. increased efforts regarding copyright Watch List has attracted some controversy, enforcement and so lowered it from the especially with regard to the Thai , Malaysia, and the Priority Watch List to the Watch List. As an government’s use of compulsory licenses for Philippines acknowledgement of the pharmaceutical pharmaceuticals9. USTR meanwhile Belize was lowered from the Priority Watch industry’s concerns, USTR agreed to conduct maintains the decision was based on a range List while Malaysia, Mexico and the an Out-of-Cycle Review to monitor the of IPR enforcement problems, with the past Philippines all remained on the Watch List. progress the country has made, and to year “being characterized by an overall This ranking was in accordance with evaluate areas of ongoing concern. deterioration in the protection and recommendations of the IACC, which cited Similarly, Pakistan was lowered from the enforcement of IPR in Thailand”. ineffective enforcement of IP rights and Priority Watch List in 2006 because of its legislative deficiencies in Belize and Mexico, efforts to combat optical disc piracy. While Argentina, Chile, India, , and counterfeiting of a wide variety of the pharmaceutical industries voiced strong and others on the PWL List products in Malaysia and the Philippines, as concerns about Pakistan’s data protection Enter the Worldleaders International IP Awards 2007 by 20th July

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regime as part of the 2007 process, USTR Dispute Settlement Body in April 2005. l (last accessed 6 June 2007). announced it would keep Pakistan on the 3 Special 301 is often viewed as an Watch List in 2007 and conduct an Out-of- Conclusions unpopular mechanism in the international Cycle Review to monitor Pakistan’s progress As part of efforts to protect trademarks community. To be placed on the list can on data protection issues. against counterfeiting in an increasingly raise concerns about a nation’s ability to global market place and to advocate for attract international investment, and is strong trademark protections in foreign considered an international Many industry associations recommended countries, trademark owners may be wise to embarrassment. For example, after Canada be elevated to the Priority Watch List work with their U.S. industry partners to declaring 2002 to be a year of intellectual in their submissions to USTR, and it was make their concerns known and ensure they property protection, ’s leaders were widely assumed that Canada would at least be are heard by institutions such as USTR that somewhat dismayed by USTR’s decision to the focus of special attention10. Such are prepared to take concrete action to keep it on the Priority Watch List that year. recommendations were based on reports of increase IPR protection and enforcement. (“Taiwan in copyright crackdown”, Financial widespread, unauthorised recording of films in The Special 301 process provides a unique Times, 2 May, 2002.) cinemas, concerns with customs enforcement, opportunity for direct bilateral engagement 4 Ireland, for example, adopted a and disappointment over the country’s failure on trademark issues of particular concern in sweeping new copyright law in 2000, to extend the term of copyright protection specific countries. While the bilateral nature partly in response to having been and to ratify the WIPO Internet treaties11. In of the Special 301 process is often criticized featured on the Special 301 Watch List. the end, however, USTR kept Canada on the by foreign countries, at times USTR’s focus Ireland has not been included in the Watch List (where it has been for many yields tangible results and increased Special 301 list since. years), though the Assistant USTR for protection for trademark holders. K 5 China, for example, (along with Brazil, India, Intellectual Property Rights, Victoria Espinel, Mexico and Thailand) was placed on the reportedly warned that “[USTR’s] patience Notes Priority Watch List in the first year of the on these issues is not unlimited”12. “301 list” being released. When Washington 1 The obligation on the USTR to provide the warned it would invoke the Special 301 Several industry groups called for the EU report derives from Section 182 of the Trade provisions against China in 1995, Beijing to remain on the Watch List. This included Act of 1974 (Trade Act) (19 U.S.C. 2242), as described this as “barbarous”, and PhRMA, which argued that government amended by the Omnibus Trade and threatened it would respond by doubling price controls for pharmaceuticals justified Competitiveness Act of 1988 and the tariffs on a range of imports from the U.S. if its inclusion. In the end, the EU was Round Agreements Act (enacted in 1994). the U.S. imposed sanctions. “China removed from the Watch List, primarily 2 USTR press release dated 04/30/07, issued threatens to retaliate over U.S. plans for because of its adoption of new regulations with this year’s report, available at sanctions” , Financial Times, 2 January, 1995. concerning geographical indications http://www.ustr.gov/Document_Library/Press_ 6 See p.1 of the Executive Summary of 2007 following an adverse ruling by a WTO Releases/2007/April/SPECIAL_301_Report.htm Special 301 Report, available at, http://www.ustr.gov/assets/Document_Library Priority Watch List Watch List Out-of-Cycle Review /Reports_Publications/2007/2007_Special_30 China Malaysia Brazil 1_Review/asset_upload_file36_11121.pdf 7 ”USTR’s Special 301 Report Falls Short of Industry Russia Belize Mexico Czech Republic Demands”, World Trade Online, May 2007. Argentina Pakistan Pakistan 8 Connie Neigel, Piracy in Russia and China: A Different U.S. Reaction, 63—FALL LAW & Chile Brazil Philippines Russia CONTEMP. PROBS. 179, 188 (2000). Egypt Canada 9 See, for example, comments of Knowledge Economy International (KEI) in World Trade India Online, supra 9 Israel 10 See, for example, “U.S. Copyright Report More Rhetoric Than Reality”, blog of Lebanon Taiwan Professor Michael Geist, available at, Thailand http://www.michaelgeist.ca/content/view/18 90/135/ Turkey 11 The WIPO Copyright Treaty (WCT) and the WIPO Ukraine Performances and Phonograms Treaty (WPPT), Venezuela Vietnam both of which entered into force in 2002. 12 See World Trade Online, supra 9

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