US-Canada-Mexico trade agreement provisions on injunctions and damages

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Knowledge Ecology International | 1 October 2018

US-Canada-Mexico trade agreement provisions on injunctions and damages

by Claire Cassedy

The text of the proposed new U.S.-Canada-Mexico trade agreement is out, and available here from USTR.

The agreement includes 34 chapters, 11 agreement annexes and 12 side letters. This is the first time the public has seen the text, even though it is now extremely difficult if not impossible to change. But not everyone has been in the dark.

A variety of businesses have had preferred access and input through the USTR and Department of Commerce advisory committee systems (USTR, DOC). For example, the Department of Commerce Industry Trade Advisory Committee for Chemicals, Pharmaceuticals, Health/Science Products and Services (ITAC 3) has representatives from Eli Lilly, AdvaMed (a medical device manufacturer) and the U.S. generics association (AAM), as well as a variety of agriculture and chemical firms. The Industry Trade Advisory Committee for Intellectual Property Rights (ITAC 13) has representatives promoting the interests of drug manufacturers (including Gilead, Pfizer, J&J and the trade associations BIO, AAM and NAM), publishers (including the Walt Disney Company and trade associations such as the Entertainment Software Association (ESA), the International Intellectual Property Alliance, and the Copyright Clearance Center), and a variety of other companies, trade associations and consulting companies, such as the Ford Motor Company, Gallo Winery, Genaesis, LLC and Galaxy Systems, Inc.

The lack of transparency of the negotiations and the asymmetry regarding access to the text for well connected businesses as compared to the general public have been long standing areas of controversy, and the bias against transparency has been largely bipartisan. For example, President Obama opposed public access to the ACTA, TPP and TISA negotiating texts, as did Senator Ron Wyden, when he became Chairman of the Senate Finance Committee (reversing his earlier position when he had less power to enact changes).

It will take some time to understand the agreement, which requires a careful reading of not only chapters on specific issues, like intellectual property, services or digital trade, but also other chapters which may be relevant, such as the initial provisions and definitions, the chapters on dispute resolution, investment, government procurement, competition, state-owned enterprises, and others, as well as the several annexes and side letters.

A few things have jumped out in a first look at the text, and this note addresses briefly two issues, injunctions and damages.

Injunctions

One topic KEI has followed closely throughout the ACTA and TPP negotiations concerns injunctions, and here the agreement seems to track the WTO requirements in Article 44 of the TRIPS, which is good, particularly since the United States and Canada both have areas where injunctions are not available by statute. For example, the United States eliminates the availability of injunctions in certain cases involving biologic drugs, use of patents, copyrights and other intellectual property rights for use by or for the federal government, and in several specialized statutes, such as for nuclear energy, semiconductor chips, certain uses of trademarks, etc. In Canada, “when the construction of a building or other structure that infringes or that, if completed, would infringe the copyright in some other work has been commenced, the owner of the copyright is not entitled to obtain an injunction in respect of the construction of that building or structure or to order its demolition.” (40.1) These exceptions are allowed in the new agreement.

Damages

Unfortunately, the damages provisions in the new trade agreement are dangerous, and create a norm that is in conflict with national laws, including in particular, several in the United States. Among the provisions on damages are the following:

Section J: Enforcement
Article 20.J.4: Civil and Administrative Procedures and Remedies

1. Each Party shall make available to right holders civil judicial procedures concerning the enforcement of any intellectual property right covered in this Chapter.87

. . .

3. Each Party shall provide 88 that, in civil judicial proceedings, its judicial authorities have the authority at least to order the infringer to pay the right holder damages adequate to compensate for the injury the right holder has suffered because of an infringement of that person’s intellectual property right by an infringer who knowingly, or with reasonable grounds to know, engaged in infringing activity

4. In determining the amount of damages under paragraph 3, each Party’s judicial authorities shall have the authority to consider, among other things, 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.

5. At least in cases of copyright or related rights infringement and trademark counterfeiting, each Party shall provide that, in civil judicial proceedings, its judicial authorities have the authority to order the infringer, at least in cases described in paragraph 3, to pay the right holder the infringer’s profits that are attributable to the infringement.89

6. In civil judicial proceedings with respect to the infringement of copyright or related rights protecting works, phonograms or performances, each Party shall establish or maintain a system that provides for one or more of the following:

(a) pre-established damages, which shall be available on the election of the right holder; or
(b) additional damages.90

(a) pre-established damages, which shall be available on the election of the right
holder; or

(b) additional damages.91

8. Pre-established damages under paragraphs 6 and 7 shall be in an amount sufficient to constitute a deterrent to future infringements and to compensate fully the right holder for the harm caused by the infringement.

9. In awarding additional damages under paragraphs 6 and 7, judicial authorities shall have the authority to award such additional damages as they consider appropriate, having regard to all relevant matters, including the nature of the infringing conduct and the need to deter similar infringements in the future.

——Footnotes

87. For the purposes of this Article, the term “right holders” shall include those authorized licensees, federations and associations that have the legal standing and authority to assert such rights. The term “authorized licensee” shall include the exclusive licensee of any one or more of the exclusive intellectual property rights encompassed in a given intellectual property.

88. A Party may also provide that the right holder may not be entitled to any of the remedies set out in paragraphs 3, 5, and 7 if there is a finding of non-use of a trademark. For greater certainty, there is no obligation for a Party to provide for the possibility of any of the remedies in paragraphs 3, 5, 6, and 7 to be ordered in parallel.

89. A Party may comply with this paragraph through presuming those profits to be the damages referred to in paragraph 3.

90. For greater certainty, additional damages may include exemplary or punitive damages.

91. For greater certainty, additional damages may include exemplary or punitive damages.

There is a lot to unpack on this text, but I’ll focus here on a few (of several) examples where the requirements of the agreement are in conflict with U.S. law, starting with patents.

Damages for patent infringement in the United States are set out in 35 USC § 284, which is for the general standard, as well as in other statutes dealing with narrower cases, where there are exceptions to the general rule.

35 USC § 284 reads, in full, as follows:

Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.

When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed. Increased damages under this paragraph shall not apply to provisional rights under section 154(d).

The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.

The core standard is “damages adequate to compensate for the infringement” which can be “in no event less than a reasonable royalty for the use made of the invention by the infringer.”

The text of the new agreement has a different standard which the United States Trade Representative has been advocating for in several negotiations, including the ACTA and TPP agreements. It would require that in a patent infringement case, a court have the authority to consider damages based upon a value that is “measured by the market price, or the suggested retail price” of the infringed goods.

In determining the amount of damages under paragraph 3, each Party’s judicial authorities shall have the authority to consider, among other things, 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. [24.J.4(4)].

The most aggressive part of the text is the suggested retail price, which rarely is the same as “damages adequate to compensate for the infringement,” the general requirement of 35 USC § 284.

Even more problematic are provisions in U.S. law where there are specific limitations on damages for patent infringement, such as in the Biologics Price Competition and Innovation Act of 2009 (BPCIA) which provides that in some circumstances, damages for infringement are limited to a reasonable royalty. Consider 5 USC § 271(e)(6)(B), which reads as follows:

‘‘(B) In an action for infringement of a patent described in subparagraph (A), the sole and exclusive remedy that may be granted by a court, upon a finding that the making, using, offering to sell, selling, or importation into the United States of the biological product that is the subject of the action infringed the patent, shall be a reasonable royalty.

When a similar provision was proposed in the TPP, Representative Eshoo wrote to the USTR to register an objection in a October 20, 2015 letter. Eshoo cited the BPCIA provision, which she described as, “an important mechanism to increase timely transparency of relevant patents for biologic drugs, and to decrease the risks of expensive litigation for biosimilar manufacturers.” Eshoo also noted that the provision would leave the U.S. exposed to acts brought under the investment provisions of the agreement, and “also limit the ability of Congress to provide statutory limitations on damages for other important intellectual property infringement problems.”

There are other areas where patent damages are limited by statute, for example, the “measure of damages” in 42 USC § 2184/2187 for certain patents used for the production of nuclear power, where a court is required to consider “the extent to which, if any, such patent was developed through federally financed research.”

In cases where the infringement of a patent is by a medical practitioner, the damages are zero, according to 35 USC § 271(c).

Even more problematic for copyright

The provisions in the new agreement on copyright are even more aggressive than in the case of patents or other types of intellectual property, and they create similar problems for the United States, both for existing laws and areas where legislation has been proposed, such as for orphaned copyrighted works. The issues regarding trade agreement standards for damages and U.S. law were the subject of a July 22, 2015 letter to the head of the U.S. Copyright Office, Maria A. Pallante. Pallante ignored these warnings during the TPP negotiations. She is now a lobbyist for book publishers.

Among the areas where the United States will face potential suits by investors are cases where state universities are protected under the doctrine of state sovereign immunity from damages for patent or copyright infringement. State sovereign immunity, which was addressed in a series of court cases including Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank in 1999, eliminated the ability of patent, copyright or trademark owners to obtain damages for infringement by state governments and state universities. This decision has provided an important safeguard for many academic researchers, since the U.S. does not have a statutory research exception for use of patented inventions. The exemption from damages has also made it easier for universities to digitize book collections.