Canada Lumped In With China In U.S. Government’s Intellectual Property Naughty List

[Wilhelm]

Every year, the Office of the United States Trade Representative (USTR) puts out a report known as the Special 301 Report, which is basically the naughty list for countries that the United States deems to have insufficient intellectual property laws or protections. It’s a crazy system where patent and copyright holders complain to the USTR when they don’t like the way a law has been implemented or when they are unhappy about the outcome of a court case and the country might then find themselves listed in the annual Special 301 Report.

The designations the USTR uses are “watch list” and “priority watch list” and the list of countries found on these lists each year often comes as a surprise. While one might (correctly) predict that a country like China might find itself on the priority watch list, several of the United States’ trading partners also make the list. In the most recent report, released last month, a total of 36 countries ended up on one of the two watch lists, with 12 countries on the “priority watch list” including: Algeria, Argentina, Canada, Chile, China, Colombia, India, Indonesia, Kuwait, Russia, Ukraine, and Venezuela.

It’s a bit disconcerting to see countries like Canada or Chile lumped in with a country like China on this priority watch list, but at the end of the day, the USTR decides who to put on these lists largely because of rightholder complaints. Who ends up on the list isn’t necessarily about rampant piracy or counterfeiting, but about how rightholder friendly the laws and enforcement of intellectual property are.

The USTR notes that Canada was placed on the priority watch list in 2018 because of “lack of customs authority to inspect or detain suspected counterfeit or pirated goods shipped through Canada, concerns about IP protections and procedures related to pharmaceuticals, deficient copyright protection, and inadequate transparency and due process regarding the protection of geographical indications.” But looking at the claims individually, it is clear that Canada is acting well within the scope of its international copyright obligations and is simply on the list because rightholders want greater protections.

The World Trade Organization (WTO) Agreement on Trade Related Aspects of Intellectual Property Rights, also known as the TRIPS Agreement, provides the minimum international standards for intellectual property law. The drafters of the TRIPS Agreement were careful, however, to leave plenty of flexibility for countries to implement these standards in the best manner for their domestic context. TRIPS flexibilities have been critical in ensuring balanced intellectual property system, including permitting critical limitations and exceptions under copyright and allowing countries to protect public health. While countries may have additional obligations because of accession to other treaties and trade agreements, TRIPS provides the international minimums.

Under the TRIPS Agreement, there is now obligation for states to apply border measures to in-transit goods, for example. This makes sense for a variety of reasons, including the fact that a good might be infringing under the laws of, say, the United States, but that same good might not have any intellectual property protections in the countries of import or export. There is no reason for customs to police products that did not originate in their country and will not enter the channels of commerce in their country. Nonetheless, the USTR cites the decision by Canada not to police in-transit goods as one reason warranting the country’s placement on the “priority watch list.”

The deficient copyright protection allegation refers at least in part to a string of decisions in Canada interpreting the country’s fair dealing law in a way that favors education. The law and the decisions fall squarely within what is permitted under international agreements. In fact, the uses that Canadian courts have upheld could also comport with fair use under United States law. The Special 301 Report takes a different view, though, and calls the fair dealing exception the “ambiguous education-related exception to copyright that has significantly damaged the market for educational publishers and authors.” Never mind that the United States’ fair use statute is much more broad than the Canadian fair-dealing exception.

While some countries (particularly smaller developing countries) do feel pressure emanating from the Special 301 process and will testify before USTR to demonstrate the process they have made in changing their intellectual property laws, others recognize the unilateral report for what it is: an industry complaint list that has no actual consequence. A Canadian memo from 2016, for example, notes, “The Government of Canada does not recognize the validity of the process as the findings tend to rely predominantly on allegations from U.S. industry stakeholders rather than on objective analysis.”

Ultimately there is no reason to have this annual report. The United States looks like a bully, attempting to exert political influence at the behest of rightholders, pressuring countries to change what are generally internationally compliant intellectual property laws. If the USTR truly believes a country has violated the TRIPS Agreement, it can file a complaint before the WTO. If a rightholder believes that a country has violated a bilateral or multilateral trade agreement, the appropriate remedy is through a process laid out in the agreement (usually investor-state tribunals, which have their own problems that I will not get into here). Instead, the USTR engages in an annual unilateral bullying exercise, attempting to influence countries into adopting United States’ style protections on patents and copyright, while complaining about the use of many of the same exceptions and flexibilities enjoyed in the United States.