U.S. FTAs Raising the Bar for Patent Owners

1. U.S. FTAs – Raising the Bar for Patent Owners Jeffrey P. Kushan, Washington D.C.

2. Overview of Presentation Overview of the Existing Environment Evolution of the standards through US negotiated agreements Bilateral agreements (IP Agreements, FTAs) Plurilateral agreements (NAFTA, CAFTA, FTAA) Multilateral Agreements (WTO, WIPO) Highlights of the FTA “TRIPS-Plus” patent standards

3. Three Types of US Agreements That Set International Patent Standards “Multilateral” Agreements Paris Convention for the Protection of Industrial Property Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) Patent Cooperation Treaty (PCT) “Plurilateral” Agreements North American Free Trade Agreement (NAFTA) Central American Free Trade Agreement (CAFTA) Bilateral Agreements Free trade agreements, IP Agreements, Investment Agreements

4. A Varying Level of Patent Standards

5. How Standards are “Set” by Agreements Obligations are imposed on Governments, not individuals, but benefits accrue to individuals Treaties/Agreements use language that specifies that Member (country) must put in place laws/practices that meet specified obligations, or set certain standards Patent rights must give their owner certain rights Countries may not require more information than specified in agreement Countries must extend rights they grant to their citizens to citizens of other members of the agreement Non-compliance is by the country in meeting the standard, not in individuals that infringe rights Violations of agreements are addressed through interactions between countries, generally no private right of action

6. The “First” Multilateral AgreementThe Paris Convention for the Protection of Industrial Property First text concluded in 1883, five successive texts, current text based on 1967 text Several core rights established National treatment (Article 2) Foreigners to be treated same as nationals (must not extend benefits only to nationals) Principle extends benefits of U.S. bilateral agreements and FTA’s to nationals of all Paris Union members Right of priority (Article 4) Precludes denial of patent on application filed in second Paris Member based on disclosures that occur within one year of filing in first Paris Union member

7. The “First” Multilateral AgreementThe Paris Convention for the Protection of Industrial Property Independence of patents (Article 4bis) Ensures that patents cannot be invalidated based on invalidation of foreign corresponding patent Excludes priority year in calculation of patent term Right of Inventor to be Named (Article 4ter) Patentability Not Conditioned on Legality of Invention (Article 4quater) Patent may not be refused/invalidated on basis that products/services are prohibited by law in a Paris Member country Analog/precursor to Article 27.2 of TRIPS

8. The “First” Multilateral AgreementThe Paris Convention for the Protection of Industrial Property Restrictions on patent forfeiture & compulsory licensing (Article 5) Importation of patented product cannot be used to justify forfeiture of rights Minimum time periods before compulsory licenses may be granted on basis of non-working of invention 4 years from filing date, 3 years from grant Patent owner entitled to block compulsory license by providing reasons for non-exploitation No forfeiture until 2 years after first compulsory license granted

9. TRIPS Builds on the Paris Floor Incorporates and applies substantive provisions of the Paris Convention [Art. 2] Makes Paris standards actionable through WTO dispute settlement procedures Adds GATT-style national treatment and “most favored nation” standards Reinforces fact that benefits granted to U.S. through bilateral agreement must be made available to all other WTO Members (and their nationals) U.S. FTA’s thus benefit nearly all patent owners (from WTO Members)

10. Key TRIPS Standards Anti-discrimination provisions [Art. 27.1] No discrimination in the availability or enjoyment of patent rights on the basis of field of technology, place of invention or location of manufacture of product Importation cannot trigger differential treatment in use of patent rights or compulsory licensing justification Patent eligibility broadly defined [Art. 27] Plant/animal exception in 27.3(b), but microorganisms must be eligible Exception for surgical/diagnostic/therapeutic methods practiced on the human/animal body [27.2] Exclusions where commercialization/use of technology prohibited as being necessary to protect public order/morality/protection of environment [note: cannot “not” patent but then allow use of the prohibited technology]

11. Key TRIPS Standards Consistent definition of patent rights [28.1] Right to prevent others without authorization from making/using/selling/offering for sale/importing patented invention, or product resulting from patented process Extends rights to products made outside WTO member by process patented in WTO Member [28.1(b)] Importation rights means patent owner authorized to preclude exhaustion of patent rights But note non-compliance not “actionable” in the WTO dispute settlement process per Article 7 Assures right of patent owner to license patent rights [28.2]

12. Key TRIPS Standards Consistent patent disclosure obligations [Art. 29] WTO Members may only require disclosure sufficient to enable practice of the invention, and optionally a best mode if known by the inventor ... shall require that an applicant for a patent shall disclose the invention in a manner sufficiently clear and complete for the invention to be carried out by a person skilled in the art and may require the applicant to indicate the best mode for carrying out the invention known to the inventor at the filing date or, where priority is claimed, at the priority date of the application. Special disclosure requirements for source/origin of materials referenced in patent, if not necessary to enable practicing of the invention, may not be imposed by WTO Members Other disclosure obligations may not be required by WTO Members as a condition of receiving/maintaining a patent

13. Key TRIPS Standards Limits on nature of “exemptions” from infringement [Art. 30] WTO Members may specify that certain conduct shall not infringe/give rise to liability “provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.” Authorizes countries to establish experimental use defense, similar minor exceptions to patent rights

14. Key TRIPS Standards Restrictions on compulsory licensing [Art. 27.1 and 31] Incorporates all Paris restrictions Adds number of additional restrictions Individualized consideration of each license – means must consider each patent, each set of parties, and each justification individually No “blanket” compulsory licensing of patents Licensee must request voluntary license on reasonable commercial terms and be refused license Compensation must reflect economic value of the patented invention

15. Key TRIPS Standards Restrictions on compulsory licensing [Art. 27.1 and 31] (cont’d) Licenses non-assignable (except with transfer of business), must be non-exclusive, shall be limited to specific purpose authorized No “dependent patent compulsory licensing” unless later patented invention represents substantial technological advance over earlier patented invention Use must be justified on domestic market conditions But note Doha clarifications Appeal right must be regarding decision to grant license, terms Patent owner can request cancellation of license if conditions justifying license change and are unlikely to recur (e.g., patent owner grants voluntary license)

16. Key TRIPS Standards Forfeiture/revocation may only be for non-compliance with conditions of patentability [Art. 27.1, 32] Term must be at least 20 years from filing date [Article 33] Right to shift burden in proof of infringement in process patent situations [Art. 33]

17. Trade Secret/Test Data Protection Article 39 addresses trade secret protection and test data protection Art. 39.1 incorporates and applies Paris 10bis standards Art. 39.2 creates protections for undisclosed information, tracking generally accepted U.S. and European standards for trade secrets Art. 39.3 creates rights in “test data” Information which must be provided to obtain authorization to market certain regulated products (drugs, agricultural chemicals) Creation of information requires considerable effort (e.g., conducting testing or clinical trials) Protection must be effective to prevent “unfair commercial use” of the data submitted, but parameters and term of protection not explicitly defined

18. Institutional Benefits from WTO Number of institutional benefits of TRIPS being in the WTO structure Transparency obligations (no secret patent office procedures, must be published) TRIPS mandates “minimum” standards (Art.1.1) – countries free to grant “stronger” rights than those specified in the Agreement Enforcement obligations (systems to permit owners of patent rights to effectively enforce those rights through transparent means) Transitional protections (historical benefit) Dispute settlement to “enforce” obligations!

19. Elevating the Standards – How It Is Done TRIPS/Paris set basic “floor” of protection Additional agreements among subsets of countries explicitly authorized by Paris and TRIPS Most modern agreements incorporate TRIPS (and thus Paris) obligations and then specify additional obligations that bind the parties to the agreements Nature of obligations Obligations defined in text of the agreements Most FTA’s accompanied by “side letters” capturing interpretations and “understandings” contemporaneous with the negotiations

20. Before Free Trade Agreements Intellectual Property Agreements U.S. – Japan (1992) Eliminated dependent patent compulsory licensing, pre-grant opposition, required U.S. publication of applications U.S. – Hungary (1991) Implemented most TRIPS standards, product patent protection for pharmaceuticals, “transitional” patent protection (grant of exclusive rights in drug product for remaining term of corresponding U.S. product patent) U.S. – Ecuador (1992) Pre-curser to “Model” FTA standards

21. Free Trade AgreementsNAFTA NAFTA (US, Canada, Mexico) [Art. 1709] Tracks many of the TRIPS standards Extends standards in TRIPS in several respects Clearer and more precisely defined protection for test data Obligated Mexico to grant pharmaceutical product patents, and required transitional protections (e.g., right to obtain Mexican patent for unexpired term of the U.S. patent) More explicit compulsory licensing restrictions Explicit restrictions on conditions for revoking patents Term must be for 17 years from grant or 20 years from filing In general, very similar to TRIPS in language and nature of obligations

22. Free Trade Agreements U.S. has negotiated a series of bilateral and plurilateral FTA’s since NAFTA Jordan Chile Singapore CAFTA Australia Morocco Oman Bahrain Panama FTA’s being negotiated now include Thailand, SACU (South Africa customs union), Andean Pact and the Free Trade Agreement of the Americas (FTAA – entire western hemisphere) Presentation focuses on six FTAs: Australia, Chile, Morocco, CAFTA, Singapore and Jordan

23. TRIPS-Plus Measures in US FTASGeneral Obligations Standards vary by agreement, but have significant overlap All FTA’s incorporate and apply obligations in pre-existing agreements Paris TRIPS PCT UPOV (1991 Text) (concerning plant variety protection) CAFTA has clarifications regarding dates and scope of obligations Patent Law Treaty Budapest treaty on microorganism deposits All FTA’s incorporate national treatment/MFN provisions analogous to TRIPS

24. TRIPS-Plus Measures in US FTASPatent Obligations Subject matter eligibility Limits Art. 27.3(b) authority to exclude patents on plant and animal inventions Most FTA’s require patents to be granted for both plant and animal inventions (Australia, Singapore, Jordan) Some FTA’s require patents to be granted for plant inventions, but permit continued exclusion of animal inventions CAFTA has conditional obligation regarding plant inventions Pre-existing obligations from TRIPS to grant patents on “microorganism” inventions (e.g., bacterial, yeast, mammalian cell inventions) Confirms obligation in TRIPS to grant patents on new processes that use previously known compounds or compositions (e.g., Australia Art. 17.9.1)

25. TRIPS-Plus Measures in US FTASPatent Obligations Prohibition on revocation of patents All FTAs explicitly provide that patents may be revoked only for non-compliance with standards of eligibility Some specify that fraud/misrepresentation/inequitable conduct may be basis for revoking, canceling or holding patent unenforceable (e.g., CAFTA, Australia) Prohibition on “pre-grant” oppositions of patents Operates to prevent procedures that allow third party opposition to be mounted before the grant of a patent Most tie this provision to the provision limiting grounds for revocation Incorporated into Morocco, Australia, Singapore, but not CAFTA, Chile or Jordan FTAs

26. TRIPS-Plus Measures in US FTASPatent Obligations Limits on international exhaustion No exhaustion based on extraterritorial activities if patent owner has put contractual restrictions on such extraterritorial acts (e.g., Australia, Morocco) Cause of action for breach of contract relating to importation of products subject to patent (Singapore) No additional restrictions beyond TRIPS (CAFTA, Jordan, Chile)

27. TRIPS-Plus Measures in US FTASPatent Obligations Patent Term extension authority for Administrative processing delays at the patent office of the country Patent owner may extend term of patent corresponding to period that exceeds certain benchmarks: Four years from filing, or two years from request for examination (Australia, Morocco, Singapore), with special provision in Singapore where grant linked to foreign grant (i.e., extension to be same as that granted in first country) Five years from filing, or three years from request for examination (CAFTA, Chile) Not addressed (Jordan) Excludes delays attributable to the patent owner Patent Term extension authority for regulatory approval periods for pharmaceutical products Period not defined explicitly, but in terms so as to address the “unreasonable curtailment of the patent term as a result of the regulatory approval process” (Singapore, Australia, Jordan, Morocco, Chile, CAFTA)

28. TRIPS-Plus Measures in US FTASPatent Obligations Grace period provisions Provides that disclosures that occur up to a year prior to the filing of the patent application may be disqualified as being patent-defeating in certain situations Disclosure must originate from patent applicant/inventor and must not be more than 12 months prior to the filing date of the patent Incorporated into Australia, CAFTA, Chile, Morocco, but not Singapore or Jordan

29. TRIPS-Plus Measures in US FTASPatent Obligations Additional restrictions on compulsory licensing authority Extends Paris/TRIPS standards to all justifications for compulsory licenses (not just “non-working”) of inventions, and limits grounds to remedying anticompetitive practices, public non-commercial use/national emergency, and non-working of invention (Jordan, Singapore, Australia) Not addressed in CAFTA, Chile, Morocco

30. TRIPS-Plus Measures in US FTASPatent Obligations Patent standards Utility/industrial application standard to be met if invention has a substantial, specific and credible utility (Australia, Morocco, CAFTA) Disclosure standards: Sufficient disclosure if disclosure enables one to practice invention without undue experimentation (Australia, Morocco, CAFTA) Adequate written description concept of “possession” of claimed invention established by written description (Morocco, Australia, CAFTA) Limited to microorganisms situations, with Budapest-compliant deposit recognized as being sufficient to enable (Jordan)

31. TRIPS-Plus Measures in US FTAS“Regulated Product” Standards “Bolar” exemption Clarifies that use of patented invention authorized to generate information needed to support approval of marketing authorization application related to pharmaceutical products Authorizes uses that are connected with the generation of data necessary to meet requirements of domestic regulatory process, not “foreign” regulatory procedures Reflected in all FTA’s “Patent Linkage” provision Prohibition on grant of marketing approval prior to expiration of patent term, unless with consent/acquiescence of patent owner Notice to patent owner of request for marketing approval for a “generic” product Incorporated into all FTAs (Morocco, Australia, Singapore, Chile, Jordan, CAFTA)

32. TRIPS-Plus Measures in US FTAS“Regulated Product” Standards “Test data protection” Obligations require Member to defer approval of “generic” version of drug for certain periods of time following approval of the “pioneer” version of the drug product Generic application is drug application that does not contain evidence from clinical investigations as to safety or effectiveness of the drug product Simply includes “bioequivalence” data comparing generic to pioneer product Obligations vary in terms of the expression of the obligation, terms of protection required, and other variables Generally consistent principles from the FTAs: Minimum of five years of protection (following pioneer approval) for drugs containing a “new chemical entity” (active ingredient not previously approved in another drug product) Usually at least three years of non-approval of generic for “new uses” or products that include “old” chemical entity as active ingredient Specifies that obligations apply whether there is direct or indirect reliance on the clinical test data (e.g., where country bases approval on prior US FDA approval, or where data has been provided to the regulatory authority)

33. Enforcing Rights Compliance with treaty obligations an issue that is resolved through interactions between governments, not private parties Exception-investor state disputes where the non-compliance can lead to measurable impact Certain US agreements incorporate right of action for compensation (e.g., NAFTA)

34. Enforcing Rights WTO dispute settlement process Leads to simple answer – compliance, or non-compliance of measure Threat of trade sanctions is the “pressure” to drive change Only prospective relief is granted Changes to measure benefits future events Individual patent owners cannot get compensated for non-compliance prior to completion of the dispute Governments can get “compensated” for value past non-compliance through ability to affect future balance of trade with the other party (i.e., authority to levy $100M in punitive tariffs for the $100M harm caused by non-compliance of the measure)

35. Conclusions The composite of standards imposed through US FTAs is an “increased” level of protection in selected countries over the baseline of protection standards defined in TRIPS Locking countries into required minimum standards leads to future agreements that are based on those standards Another multilateral patent treaty (WTO, WIPO, elsewhere) is many years away, so the FTA route is the only short-term means if increasing patent standards above the TRIPS level