By Kevin E. Noonan —

On April 28th, Ambassador Robert Lighthizer, U.S. Trade Representative (USTR), issued the 2017 Special 301 Report.  According to the USTR website, "[t]he 2017 Special 301 Report underscores the Administration's key trade priority of ensuring that U.S. owners of IP have full and fair opportunity to use and profit from their IP around the globe.  The theft of IP has resulted in distorted markets and unfair trade practices that harm American workers, innovators, service providers, and small and large businesses," language much more combative and less conciliatory than the USTR has used in recent years.  Noting that this is the first Special 301 Report of the Trump Administration, Ambassador Lighthizer states that "[t]he Administration is committed to using all possible sources of leverage to encourage other countries to open their markets to U.S. exports of goods and services and provide adequate and effective protection and enforcement of U.S. IP rights," calling this "the top trade priority" of the new Administration.  The Report reflects the Administration's resolve to "aggressively defend Americans from harmful IP-related trade barriers."  He backs up these assertions with statistics, such as there being 45.5 million American jobs that depend (directly or indirectly) on IP-intensive industries.  The differences between the Trump Administration and those that have preceded it are illustrated by the bluntness of the language and lack of finesse in stating its intentions:

The Report reflects the resolve of this Administration to call out foreign countries and expose the laws, policies, and practices that fail to provide adequate and effective IP protection and enforcement for U.S. inventors, creators, brands, manufacturers, and service providers.  The identification of the countries and IP-related market access barriers in this Report and steps necessary to address those barriers are a critical component of the Administration's aggressive efforts to defend Americans from harmful IP-related trade barriers.

Clearly, the intent is to "take names" although the efficacy of attempts to fulfill the other part of that memorable phrase remains to be seen.

As it has done for the past several years, the Report highlights China as a country in which both "[l]ongstanding and new IP concerns merit attention," including with respect to "coercive technology transfer requirements, structural impediments to effective IP enforcement, and widespread infringing activity" (enumerated as "trade secret theft, rampant online piracy and counterfeiting, and high levels of physical pirated and counterfeit exports to markets around the globe").

The USTR also cites India for what he calls "lack of sufficient measurable improvements to its IPR framework" and "new issues that have negatively affected U.S. right holders over the past year, particularly with respect to patents, copyrights, trade secrets, and enforcement."

New this year is a citation to Canada and Mexico (U.S. NAFTA partners) for "lack of adequate authority for customs officials to seize and destroy counterfeit and pirated goods at the border" in a more general comment on "troubling trends in counterfeiting and piracy." These trends include "[d]igital piracy of U.S. movies, music, books, software and other works."  The European Union is cited, as it has previously, for "negative market access aspects" of its policies regarding geographical indications.

The Report also announces that the USTR has closed "Out-of-cycle" reviews of Pakistan and Spain, "who have both undertaken improvements in recent years":   Pakistan "has maintained positive momentum in its efforts to reform its IP regime," whereas Spain "has strengthened its criminal laws for IP infringement and demonstrated a continued commitment to tackling online piracy."  Out-of-Cycle reviews will continue for Colombia and Tajikistan and the USTR will commence an Out-of-Cycle review for Kuwait.

The Report is promulgated pursuant to Section 182 of the Trade Act of 1974, as amended by the Omnibus Trade and Competitiveness Act of 1988 and the Uruguay Round Agreements Act (enacted in 1994).  The Trade Representative is required under the Act to "identify those countries that deny adequate and effective protection for IPR or deny fair and equitable market access for persons that rely on intellectual property protection."  The Trade Representative has implemented these provisions by creating a "Priority Watch List" and "Watch List."  Placing a country on the Priority Watch List or Watch List is used to indicate that the country exhibits "particular problems . . . with respect to IPR protection, enforcement, or market access for persons relying on intellectual property."  These watch lists are reserved for countries having "the most onerous or egregious acts, policies, or practices and whose acts, policies, or practices have the greatest adverse impact (actual or potential) on the relevant U.S. products."

The USTR reviewed  "more than 100" of this country's trading partners and identified eleven countries on a "Priority Watch List" (the same number as last year) and another 23 countries on the "Watch List" (just like last year), all relating to deficiencies in intellectual property protection in these countries.  The Priority Watch List in the 2017 Report cites the same countries as in the 2016 Report (Algeria, Argentina, Chile, China, India, Indonesia, Kuwait, Russia, Thailand, Ukraine, and Venezuela).  Countries on this list "present the most significant concerns this year regarding insufficient IP protection or enforcement or actions that otherwise limited market access for persons relying on intellectual property protection."  On the Watch List this year are Barbados, Bolivia, Brazil, Bulgaria, Canada, Columbia, Costa Rica, Dominican Republic, Ecuador, Egypt, Greece, Guatemala, Jamaica, Lebanon, Mexico, Pakistan, Peru, Romania, Switzerland, Turkey, Turkmenistan, Uzbekistan, and Vietnam.

The Report also notes the USTR's continued efforts to enhance public engagement.  In addition to written comments (from 57 interested parties, including 16 trading partner governments), there was a public hearing on March 8, 2017 that heard testimony from "representatives of foreign governments, industry, and non-governmental organizations" (where the comments and a transcript of the hearing are available on the USTR website).

The Report identifies "foreign trading partners where IP protection and enforcement has deteriorated or remained at unacceptable levels and where market access for Americans who rely on IP protection has been unfairly compromised." For almost all countries mentioned in the Report, "IP enforcement is lacking," based on (a) "[in]adequate or [in]effective border enforcement against counterfeit and pirated goods"; (b) copyright piracy in Argentina, China, Greece, Mexico, Romania, Russia, Switzerland, Tajikistan, Thailand, Turkmenistan, Ukraine, Uzbekistan, Venezuela and Vietnam; (c) restrictive patentability criteria in Argentina, Canada, India, and Indonesia and "[in]adequate and [in]effective protection for regulatory test or other data submitted by pharmaceutical and agricultural chemical producers"; (d) inadequate trade secret protection in China and India; and (e) negative market access effects on regulatory agencies in the European Union.

The Report contains two Sections (on "Developments in Intellectual Property Rights Protection and Enforcement" and "Country Reports") and two Annexes on particular issues (the statutory bases of the Report, and government technical assistance and capacity building efforts).  In Section I, the Report reiterates its raison d'etre, that:

Intellectual Property (IP) infringement, including trademark counterfeiting and copyright piracy, causes significant financial losses for right holders and legitimate businesses around the world. It undermines U.S. comparative advantages in innovation and creativity, to the detriment of American businesses and workers. In its most pernicious forms, IP infringement endangers the public. Some counterfeit products, including semiconductors, automobile parts, and medicines, pose significant risks to consumer health and safety. In addition, trade in counterfeit and pirated products often fuels cross-border organized criminal networks and hinders sustainable economic development in many countries. Because fostering innovation and creativity is essential to U.S. economic growth, competitiveness, and the support of an estimated 45 million U.S. jobs that directly or indirectly rely on IP-intensive industries, USTR works to protect American innovation and creativity with all the tools of U.S. trade policy, including through this Report.

It then reviews "Initiatives for Strengthen IP Protection and Enforcement Internationally," citing "important developments in 2016 and early 2017."  These include a pilot program in China for specialized IP courts and recognition in China of trade secrets as being eligible for IP protection.  In Honduras, the Report cites attempts to prevent unauthorized retransmission of satellite signals and rogue cable providers, and India is cited for eliminating certain administrative patent (dis)incentives. Brazil is commended for taking "significant steps" to reduce a backlog of patent and trademark examination.  In the Arab world, Kuwait and the United Arab Emirates are mentioned for adopting legislation related to improvements in copyright protection and criminal penalties for IP infringement, respectively; Kuwait has also acceded to the Patent Cooperation Treaty. With regard to collective action, the Report notes that Kenya became the 56^th member of the 1991 Act of the International Union for the Protection of New Varieties of Plants Convention (UPOV 91), directed to protecting breeders' rights and incentivize plant-breeding activities.  Also, 95 nations are parties to World Intellectual Property Organization (WIPO) Performances and Phonograms Treaty (WPPT) and the WIPO Copyright Treaty (WCT).

The Report contains once again this year a subsection on "best practices" among U.S. trading partners, including "cooperation and coordination," with positive developments in this regard including in Paraguay related to the activities of the National Directorate for Intellectual Property (DINAPI); in Malaysia with regard to its Special Anti-Piracy Task Force for "deterring and preventing networks that distribute counterfeit and infringing goods"; and in Thailand for establishing an interagency IP enforcement committee and subcommittee, led by both the Prime Minister and his Deputy.  Brazil and Malaysia are also mentioned for creating specialized IP enforcement units.  Even putatively IP-cognizant and supportive countries, like the UK, are mentioned for conducting IP educational campaigns.

With regard to government activities, the Report discusses "innovative mechanisms that enable government and private sector right holders to donate or license pharmaceutical patents voluntarily and on mutually-agreed terms and conditions," including WIPO's Medicines Patent Pool and the WIPO Re:Search Consortium directed to neglected tropical diseases.  Government compliance with IP rights in software "can set the right example for private enterprises" (citing Mexico) as well as adopting "best practices" for government officials in this regard.  Several multilateral initiatives are also discussed, including activities of the World Trade Organization (WTO) such as discussions on "Intellectual Property and Innovation: Sustainable Resource and Low Emission Technology Strategies" (the U.S., EU, Japan, Switzerland, Canada, and Taiwan), "Intellectual Property and Innovation: Regional Innovation Models" (the U.S., Australia, the EU, Japan, Switzerland and Taiwan) and "Intellectual Property and Innovation: Inclusive Innovation and Micro-, Small-, and Medium-Sized Enterprises" (the U.S., Australia, the EU, Japan, Switzerland and Taiwan). Bilateral and regional initiatives discussed in the Report include the U.S.-India Trade Policy Forum, Trade and Investment Framework Agreements (TIFAs) between the United States and more than 50 trading partners, endorsement of a set of "Best Practices in Trade Secret Protection and Enforcement Against Misappropriation" by Asia-Pacific Economic Cooperation (APEC) Leaders and Ministers, and continued engagement with members of the Caribbean Community and Common Market regarding "inadequate and ineffective copyright protection and enforcement."

In a section entitled "IP Protection and Enforcement and Related Market Access Challenges," the Report discusses topics including border control and criminal enforcement against counterfeiting of trademarked goods (including "semiconductors and other electronics, chemicals, automotive and aircraft parts, medicines, food and beverages, household consumer products, personal care products, apparel and footwear, toys, and sporting goods").  The Report states that such counterfeit goods harm "consumers, legitimate producers, and governments," particularly with regard to pharmaceutical and biologic drug products.  The Report enunciates particular concern for such activities in China, India, Indonesia, Russia, Peru, Lebanon and Guatemala, and alleges that 90% of all counterfeit drugs entering the U.S. come from China, Hong Kong, India and Singapore.  While commending Singapore for coordinated actions with U.S. Customs and Border Protection agents against such trafficking, the Report states more generally that "[m]any countries [] do not provide penalties that deter criminal enterprises engaged in global trademark counterfeiting operations" and that "[e]ven when such enterprises are investigated and prosecuted, the penalties imposed often are low, making such penalties merely "the cost of doing business." Accordingly, the Report "urges" U.S. trading partners to "undertake more effective criminal and border enforcement against the manufacture, import, export, transit, and distribution of counterfeit goods."

The Report next turns to online and broadcast piracy of copyrighted works, citing the "increased availability of broadband Internet connections around the world" as being a "boon" to the U.S economy and foreign trade.  But while advances in technology have enabled U.S. creative producers to better distribute copyrighted materials it has also made the Internet "an extremely efficient vehicle for disseminating infringing content, thus competing unfairly with legitimate e-commerce and distribution services that copyright holders and online platforms use to deliver licensed content."  Illicit camcording is a particular concern in the Report, with stakeholders reporting a "significant increase" in pirated movies in the year since the last Special 301 Report (almost doubled in Mexico and India).  Changes in the law in individual trading partner countries is suggested, illustrated by the necessity in some countries for law enforcement to observe someone camcording a motion picture and illegally distributing it.  Added to the camcording problem are variety of ways to steal copyrighted content directly from legitimate providers, such as "stream-ripping" of live sports programming and online piracy of games and prerecorded content.  Rights enforcement capability as well as government action across multiple jurisdictions are mentioned as important needs, as are government actions to prevent domestic "safe havens" for online copyright infringers.  Other aspects of copyright enforcement contained in the Report are royalty payment and administration regimes including collective management organizations (CMO), which the Report states are "flawed or non-operational" in many countries (Argentina, India and the UAE, specifically).

Trademarks and impediments to obtaining and enforcing them in some countries make up the next topic in the Report, with Argentina, Brazil, India, Malaysia and the Philippines having "slow" opposition proceedings and Russia and Panama having no administrative opposition proceedings. Even registering (i.e., making a record of) trademarks is problematic in some countries, with "unnecessary administrative and financial burdens" imposed on owners and there being unnecessary difficulties in maintaining and enforcing trademarks (albeit without naming any countries where these and other difficulties contained in the Report have arisen).  There are also issues with cybersquatting and particularly with country code top-level domain names (ccTLDs) for U.S. rights holders.  The governments of China, Macedonia, Pakistan, Panama, Paraguay, South Korea, Taiwan, Tajikistan, Thailand, Turkmenistan, Ukraine and Vietnam are named for unlicensed use of software, and the Report cites a commercial value for such illicit use of software at $52 billion worldwide.

Trade secrets also raise issues for American industry, spanning "a wide variety of industry sectors, including information and communications technologies, services, pharmaceuticals, manufacturing, and environmental technologies."  Evidence for risk to U.S. companies of trade secret misappropriation comes from a variety of sources according to the Report, including the U.S. Office of the National Counterintelligence Executive (ON- CIX), which has identified China and India as countries posing particular impediments to obtaining effective remedies against trade secret thieves.  The problem is even more critical in Brazil, Indonesia and Nigeria, where companies can be compelled to disclose, inter alia, source code protected as a trade secret. Despite recognizing these challenges, the Report also commends China, the EU, Kazakhstan and Taiwan for strengthening or "working to strengthen" their trade secret protection regimes.

There is increasing evidence that in some countries governments are incentivizing domestic indigenous innovation that can require U.S. companies to give up IP rights as the price of market entry.  Examples of such policies cited in the Report are:

• Requiring the transfer of technology as a condition for obtaining regulatory approvals or otherwise securing access to a market, or for allowing a company to continue to do business in the market;

• Directing state owned enterprises (SOEs) in innovative sectors to seek non-commercial terms from their foreign business partners, including with respect to the acquisition and use or licensing of IP;

• Providing national firms with an unfair competitive advantage by failing to effectively enforce foreign-held IP, including patents, trademarks, trade secrets, and copyright;

• Failing to take meaningful measures to prevent or deter cyber-intrusions and other unauthorized activities;

• Requiring use of, or providing preferences to, products or services that contain locally- developed or owned IP, including with respect to government procurements;

• Manipulating the standards development process to create unfair advantages for national firms, including with respect to the terms on which IP is licensed; and

• Requiring the submission of unnecessary or excessive confidential business information for regulatory approval purposes and failing to protect such information appropriately.

Countries identified in the Report as employing at least one of these practices include China, India, and Nigeria.

Market barriers to pharmaceuticals and medical devices make up a separate portion of the Report, there the USTR maintains that "[m]easures including those that are discriminatory, nontransparent, or otherwise trade-restrictive, have the potential to hinder market access in the pharmaceutical and medical device sector, and potentially result in higher healthcare costs," citing Brazil and India for adding tariffs in the form of taxes on imported medicines. Other market access restrictions cited in the Report include "unreasonable regulatory approval delays and non-transparent reimbursement policies" that can "impede a company's ability to enter the market, and thereby discourage the development and marketing of new drugs and other medical products."  Algeria, Austria, Belgium, China, Columbia, Czech Republic, Ecuador, Hungary, Italy, Lithuania, New Zealand, Portugal, Romania, South Korea, Taiwan and Turkey have policies regarding pharmaceutical and medical device market access that raise concerns in the Report (specific examples of which are set forth for each country).

The last specific areas of concern discussed in the Report are geographical indications, with the policies of the EU in this regard being "particularly concerning."

Section I of the Report ends by mentioning the role of intellectual property and the environment and intellectual property and health as areas of concern raised by stakeholders in their comments.  In India, for example, compulsory licensing of "green" technology "will discourage, rather than promote, investment in and dissemination of green technology innovation, including those technologies that contribute to climate change adaptation and mitigation." The Report contains an affirmation of the provisions regarding IP and public health set forth in the Doha Declaration and pledges not to "impede its trading partners from taking measures necessary to protect public health." And the final portion of the Report discusses efforts at dispute resolution of IP matters under the GATT/TRIPS provisions as they are implemented by the WTO.

Section II of the Report is a detailed, country-by-country discussion for each country on the Priority Watch List and the Watch List, relating to the activities (or lack thereof) of each country that results in placement of that country on these lists.

As it has for the past several years (and across otherwise very different Administrations), the U.S. Trade Representative Special 301 Report provides insights into both the concerns of U.S. IP rights holders and the Administration's intentions to work with, cajole, coerce, or threaten other countries to increase protection for IP rights of U.S. IP rights holders.  The substance of the Report is similar to Reports issued during the Obama Administration, but there is less recognition of areas where our trading partners have rectified lapses in IP protection and more emphasis on protecting American rights (albeit less pugnaciously than might have been expected from this Administration).  Ironically, much of what the Report espouses was contained in the Trans-Pacific Partnership Agreement from which the President withdrew as one of the first acts of the new Administration (see "Why President Trump Is Wrong about Trans-Pacific Partnership Agreement").  As with last year's Report, however, the tone and tenor of this Report is robustly assertive regarding IP rights and America's intention to negotiate international agreements and confront its trading partners in ways that protect American innovation and commercial interests.