978-0132718974 Chapter 9 Solution Manual Part 2

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International Intellectual Property Organizations

Two main international organizations take an active role in defining and protecting international

intellectual property rights: the World Intellectual Property Organization (WIPO) and the Council

for Trade-Related Aspects of Intellectual Property Rights (TRIPS Council) of the World Trade

Organization.

World Intellectual Property Organization (WIPO) – WIPO is responsible for administering

the Paris and Berne Conventions and, generally, promoting intellectual property rights. WIPO is

also a specialized agency of the United Nations.

WIPO’s promotional activities include the sponsoring and hosting of conferences for the

development of new intellectual property rights agreements. One of WIPO’s more important tasks

is to facilitate the transfer of technology, especially to and among developing countries. Another

responsibility taken on by WIPO is that of resolving Internet domain disputes.

Since 1994, the WIPO Arbitration and Mediation Center has offered Alternative Dispute

Resolution (ADR) options for the resolution of international commercial disputes between private

parties. Developed by leading experts in cross-border dispute settlement, the procedures offered

by the center are widely used to resolve disputes involving technology, entertainment, and other

intellectual property issues.

Council for Trade-Related Aspects of Intellectual Property Rights – The council is charged

with overseeing the operation of the Agreement on Trade-Related Aspects of Intellectual Property

Rights. The council is also responsible for monitoring WTO member state compliance with the

Agreement on TRIPS, for helping members consult with each other on trade-related aspects of

intellectual property rights, and for assisting members in settling disputes. The council consults

with WIPO and cooperates with WIPO’s constituent bodies.

Intellectual Property Treaties

Intellectual property rights are protected and regulated internationally by both bilateral treaties

and multilateral conventions. Bilateral treaties were the original means of preventing illegal

copying, and they were once quite commonplace. Today, most bilateral intellectual property

treaties are used by states that are not parties to the multilateral conventions.

Multilateral treaties nowadays regulate most matters relating to intellectual property rights. These

treaties generally cover industrial property or artistic property, but not both together. Moreover,

patents, petty patents, and trademarks are commonly dealt with in a single treaty, while

copyrights are dealt with separately.

Comprehensive Agreements – The principal comprehensive agreement establishing general

intellectual property obligations for most of the world’s states is the Agreement on Trade-Related

Aspects of Intellectual Property Rights.

Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement)

The purpose of the TRIPS Agreement is to create a multilateral and comprehensive set of rights

and obligations governing the international trade in intellectual property. As a consequence, the

Intellectual Property

agreement establishes a common minimum of protection for intellectual property rights

applicable within all the WTO member states. It does this in five ways:

It requires WTO members to observe the substantive provisions of the most important

existing multilateral intellectual property treaties: Paris Convention, Berne Convention, Rome

Convention, and the IPIC Treaty.

The substantive provisions of the TRIPS Agreement create obligations that are meant to “fill

in the gaps” in the other international intellectual property conventions.

The TRIPS Agreement establishes criteria for the effective and appropriate enforcement of

intellectual property rights and for the prevention and settlement of disputes between the

governments of the WTO member states.

To encourage the widest possible adoption and application of the common rules and

obligations set out in the TRIPS Agreement, the agreement establishes transitional

arrangements that give more time to developing member states and to member states in

transition from a centrally planned economy to a free market economy to comply, and even

more time to those that are the least developed.

The TRIPS Agreement extends the basic principles of the General Agreement on Tariffs and

Trade (GATT) to the field of international intellectual property rights. The national treatment

principle requires each member state to extend to nationals of other members treatment no

less favorable than that which it gives its own nationals regarding protection of intellectual

property. The transparency principle requires member states to publish and notify the Council

for TRIPS of all relevant laws, regulations, and the like and to respond to requests from other

members for information.

The TRIPS Agreement includes a provision requiring most-favored-nation treatment, under

which, “any advantage, favor, privilege, or immunity granted by a member to the nationals of any

other country [whether or not it is a WTO member] shall be accorded immediately and

unconditionally to the nationals of all other members.”

Artistic Property Agreements – The main international agreements dealing with artistic

property are the Berne Convention for the Protection of Literary and Artistic Works; the

International Convention for the Protection of Performers, Producers of Phonograms, and

Broadcasting Organizations; the Patent Cooperation Treaty; the Satellite Transmission

Convention; and the WIPO Copyright Treaty.

Berne Convention

Adopted in Paris in 1886, the Berne Convention for the Protection of Literary and Artistic Works

(Berne Convention) establishes a “union” of states that is responsible for protecting artistic rights.

Four basic principles underlie the members’ obligations:

The principle of national treatment requires each member state to extend to nationals of other

member states treatment no less favorable than that which it gives its own nationals.

Nonconditional protection is the requirement that member states must provide protection

without any formalities.

The principle of protection independent of protection in the country of origin allows authors

who are nationals of nonmember states to obtain protection within the Berne Union by

publishing their works in a member state.

The principle of common rules establishes minimum standards for granting copyrights

common to all member states.

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Rome Convention

The International Convention for the Protection of Performers, Producers of Phonograms, and

Broadcasting Organizations (Rome Convention) protects artists from the unauthorized recording

of their original performances and from the use of authorized recordings for a purpose other than

that to which the artist consented. Producers of phonograms are protected from the direct or

indirect reproduction of their works.

Broadcasters are protected from the unauthorized recording, rebroadcasting, and use of their

broadcasts. The Rome Convention also provides that a broadcaster making a public

communication or broadcast of an authorized phonogram is required to pay the producer or the

artist, or both, a single equitable payment.

Phonogram Piracy Convention

The Convention for the Protection of Producers of Phonograms Against Unauthorized

Duplication of Their Phonograms provides that member states must protect producers of

phonograms from the unauthorized reproduction and importation of their works for a period of

not less than 20 years.

Satellite Transmission Convention

The Convention Relating to the Distribution of Program-Carrying Signals Transmitted by

Satellite requires member states to take “adequate measures” to prevent the unauthorized

distribution in or from their territory of any program-carrying signal transmitted by satellite.

WIPO Copyright Treaty

The World Intellectual Property Organization Copyright Treaty was adopted for the purpose of

extending the provisions of the Berne Convention to computer programs and databases and

protecting copyright ownership information embedded in programs and databases.

Industrial Property Agreements – The principal international conventions concerned with

industrial property are the International Convention for the Protection of Industrial Property, the

Treaty on Intellectual Property in Respect of Integrated Circuits, the Madrid Agreement for the

Repression of False or Deceptive Indications of Sources of Goods, the Patent Cooperation Treaty,

and the Trademark Law Treaty.

Paris Convention

Drafted in 1880, the International Convention for the Protection of Industrial Property (Paris

Convention) establishes a “union” of states responsible for protecting industrial property rights.

Among the members’ duties is the obligation to participate in regular revisions. Three basic

principles are incorporated in the Paris Convention:

National treatment is the requirement that each member state must grant the same protection

to the nationals of other states that it grants to its own nationals.

Right of priority gives an applicant who has filed for protection in one member country a

grace period of12 months in which to file in another member state, which then must treat the

application as if it were filed on the same day as the original application.

Intellectual Property

The principle of common rules sets minimum standards for the creation of intellectual

property rights.

Treaty on Intellectual Property in Respect of Integrated Circuits

The Treaty on Intellectual Property in Respect of Integrated Circuits (Washington Treaty)

obligates member states to protect the designs used in integrated circuits. This treaty incorporates

the principles of national treatment and common rules. The common rules include the obligation

of member states to protect against the making of unauthorized copies and the importing of

contraband copies.

Patent Cooperation Treaty

The Patent Cooperation Treaty establishes a mechanism for making an international application

whose effect in each member state is the same as the filing for a national patent. The goal of the

treaty is the elimination of unnecessary repetition by both patent offices and applicants.

Agreement on Sources of Goods

The Madrid Agreement for the Repression of False or Deceptive Indications of Sources of Goods

requires its members to either deny importation to or confiscate at the time of importation any

goods bearing false or deceptive indications about their source.

Trademark Law Treaty

The Trademark Law Treaty is meant to simplify both national and regional trademark registration

systems by establishing common minimum rules.

The International Transfer of Intellectual Property

There are five ways in which intellectual property rights are transferred from one country to

another:

the owner may work the property rights abroad,

the owner may transfer or assign the rights to another,

the owner may license another to work them,

the owner may establish a franchise, or

a government may grant a compulsory license so that a third party may exploit them.

A license is a nonexclusive revocable privilege that allows a licensee to use a licensor’s property.

A license is created by contract, and standard contractual rules are used to interpret it. A license

allows a licensee to use a property for the licensee’s own purposes. Depending on the licensing

agreement, the licensee may use the property as a component in its own products, it may sell the

property or the products derived from it under the licensor’s name, or it may do the same thing

under its own name. Sometimes the licensee may even sell the property, or the products derived

from it, in direct competition with the licensor.

A franchise is a specialized license that requires a franchisee to work the property under the

supervision and control of a franchisor. A franchisee has more limited rights. It is regarded as a

unit or element of the franchisor’s business. A distributorship franchise exists when a

Intellectual Property

manufacturer licenses a dealer to sell its products. A chain-style business franchise is an

arrangement in which a franchisee operates under a franchisor’s trade name and is identified as

part of the franchisor’s business chain. A manufacturing or processing plant franchise comes

about when a franchisor provides the franchisee with the formula or the essential ingredients to

make a particular product. The franchisee then wholesales or retails the product according to the

standards established by the franchisor.

If the owner of intellectual property (in particular, patents or copyrights) refuses to work the

property in the country within a certain period of time, a third party may apply for a compulsory

license. The government issues such a license without the consent of the owner, so it is not

subject to the same rules that apply to licensing and franchising.

Licensing Regulations

Grants of patents, trademarks, and copyrights create monopolies. In free-market countries, these

grants run contrary to unfair competition laws. In centrally planned economies, they run contrary

to the notion of state ownership of the means of production. To balance the interests of consumers

in free-market countries and the interests of the state in planned-economy countries with the

rights of intellectual property owners, most countries treat intellectual property rights as special

exceptions to their general laws prohibiting monopolies. As such, the rights held by patent,

trademark, and copyright owners are strictly construed and limited to the narrow confines of the

grant.

Licensing arrangements involving statutory grants must, accordingly, be limited to the rights

contained in the grant. Any attempt to go beyond the scope of the grant is a misuse of the grant

and is either without effect or illegal.

Nonstatutory grants do not qualify for the special exceptions granted to patents, trademarks, and

copyrights. As such, any licensing of these rights has to comply with the appropriate unfair

competition laws.

The propriety of states adopting rules to regulate the anticompetitive aspects of intellectual

property licenses is now specifically recognized in international law. In developing countries,

anticompetition rules are commonly found in transfer–of-technology codes. In the developed

free-market countries they are found in long-standing antimonopoly legislation. The U.S.

Sherman Antitrust Act provides:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of

trade or commerce among the several states, or with foreign nations, is hereby declared to be

illegal.

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with

any other person or persons, to monopolize any part of the trade or commerce among the

several states, or with foreign nations, shall be deemed guilty of a felony.

Court-developed “rule of reason” establishes limits to the prohibitions. It requires courts to

consider the overall impact of the particular agreement on competition within the relevant market.

Courts, accordingly, must identify the precompetitive effects of the agreement and then weigh

them against its anticompetitive effects.

Intellectual Property

The EC Treaty provisions contain an express exemption (Article 81(3)) that allows the European

Commission to authorize arrangements that would otherwise violate the general prohibitions,

either through block grants or on a case-by-case basis. The commission may do so when the

overall effect of a challenged activity is one that “contributes to improving the production or

distribution of goods, or to promoting technical or economic progress, while allowing consumers

a fair share of the resulting benefit.”

Territorial Restrictions – In most countries, a restriction on the territorial scope granted in the

license of a statutory right is treated as a normal incidence of that right. Such restrictions,

however, apply only to the immediate licensee. Attempts to limit the territory in which an article

can be traded after it has left the hands of the licensee are universally condemned. The rationale

underlying this is a doctrine known as exhaustion of rights.

Although the exhaustion-of-rights doctrine first appeared as a court-made rule in the United

States and Germany, the European Court of Justice has given the doctrine its broadest application

and its most careful analysis. This is because the EU is confronted with the problem of

rationalizing the separate intellectual property laws of its member states with its own express goal

of establishing the free movement of goods among those states.

The European Court of Justice has devised another doctrine, related to the doctrine of exhaustion

of rights, to promote the free movement of goods at the expense of trademark owners. This is the

common origin doctrine. Although there is some authority for the proposition that the EU’s

common origin doctrine may apply to other forms of intellectual property, there are several good

arguments for believing that it applies only to trademarks.

It is important to note that both the exhaustion-of-rights doctrine and the common origin doctrine

apply only in cases involving the movement of goods between the member states of the EU.

When protected products are manufactured outside the EU, they may not be imported into the EU

without the express consent of the EU intellectual property owner.

U.S. courts have faced the problem of parallel imports of protected products that have been

lawfully manufactured outside the United States—a problem known in the United States as gray

marketing.

Case 9-5: L’Oréal v. eBay

Facts: The plaintiff, L’Oréal, is suing the defendant eBay, seeking to hold it partially responsible

for trademark infringement by the users of eBay’s online marketplace. The defendant eBay is the

operator of an online marketplace that facilitates the exchange of goods on the Internet by

individuals through a search engine and a secure payment system, covering a widespread

geographical area. The plaintiff is a global producer with a large product range, considerable

trademark protection, and a worldwide reputation for some of its trademarked cosmetics,

perfume, and other products. The plaintiff alleges that counterfeit L’Oréal products have been

sold on the defendant’s marketplace. Furthermore, the plaintiff has claimed that some of the

products exchanged on the marketplace were licensed for sale only in North America and were

not meant for sale in the European Economic Area (EEA). The plaintiff is seeking court orders

against the defendant in order to stop individual sellers on the electronic marketplace from

distributing trademarked products and to better protect its trademarks in the future.

Issue: When protected products are manufactured outside the EU, may they be imported into the

EU without the express consent of the EU intellectual property owner?

Intellectual Property

Holding: No.

Law / Explanation: The decision of the European Union Court of Justice in this case will affect

not only the defendant, eBay, but all other online auction sites. eBay and other online auction

Order: Left the determination to national courts after further facts have been presented and

developed.

Export Restrictions – Export restrictions limit, partially or entirely, the rights of a licensee to

export goods from the territory where the licensee or its production facilities are located.

In some countries, restrictions will be tolerated if they limit exports to a country where (1) the

licensor owns intellectual property rights and (2) the local laws allow the licensor to restrict

foreign imports. In other countries, export restrictions will be tolerated if the limitation applies to

a territory where (1) the licensor is manufacturing or distributing the restricted goods or (2) the

licensor has granted an exclusive license to a third party to manufacture or distribute the goods.

In the United States, export restriction agreements between competitors (so-called horizontal

competition agreements) have been held to be per se violations of the Sherman Antitrust Act. On

the other hand, agreements between a seller and a buyer (vertical competition agreements) are not

bad per se and will be tested by a rule of reason.

In the EU, export restriction agreements that affect the movement of goods between EU member

states violate the Union’s European Community Treaty’s unfair competition article (Article 81),

whether they are reasonable or not. Restrictions on exports to countries outside the EU are

prohibited only if they can be shown to have a direct effect on the member states.

Cartels – A cartel is an agreement between several business enterprises that is designed, among

other things, to allocate markets, to fix prices, to promote the exchange of knowledge resulting

from technical and scientific research, to exchange patent rights, or to standardize products.

A cross-licensing agreement is an arrangement between two parties to exchange licenses; that is,

each party is both a licensor and a licensee. A patent pool is an agreement among several owners

of related technology to “pool” their patents and other related technology. A multiple licensing

agreement involves the licensing of technology to a number of recipients by a single licensor.

The EU forbids cartel-type arrangements when they have as their purpose or effect the

prevention, restriction, or distortion of competition between EU member states. Such

arrangements may include agreements to allocate markets between competitors, horizontal price

fixing, and patent pools.

Agreements to cross-license improvements and new applications are valid for up to seven years

so long as licensees are not precluded from using their own improvements or licensing them to

third parties. On the other hand, cross-licensing agreements that involve any territorial restraint

with respect to the manufacture, use, or marketing of goods are invalid.

Intellectual Property

In the United States, cross-licensing and patent pooling are not unlawful unless they are used to

divide up territories among competitors, exclude others from competing, or otherwise restrain

trade. Moreover, a rule known as the bottleneck principle may require the participants in an

industry-wide patent exchange to grant reasonable access to any firm wishing to compete so that

no firm will be disadvantaged and competition will not be impaired. Price-fixing and division of

markets between competitors, however, are held illegal per se in both the United States and the

EU. Japan provides much broader exemptions to its basic prohibition against cartels. Likewise,

manufacturers’ rationalization cartels aimed at improving technology, productivity, product

quality, cost reduction, or any similar entrepreneurial rationalization scheme are also legal.

Exclusive Licenses – Laws in several countries expressly state that the grant of a patent,

trademark, or copyright gives the owner the right to confer either an exclusive license or a

nonexclusive license. In most other countries, both the government and the courts have held that

such arrangements are implicitly proper.

A licensee may receive sole rights (to the exclusion of all others, including the licensor),

exclusive rights (preventing everyone except the licensor from competing), or nonexclusive rights

(which allow the licensor to grant other licenses).

Case 9-6: Ransome-Kuti v. Phonogram, Ltd.

Facts: Ransome-Kuti (RK) assigned the right to publish and distribute in Africa a musical tape

entitled “Everything Scatter” to Phonogram, Ltd. of Nigeria (PLN). The agreement gave PLN and

its “successors-in-title and assigns” the sole and exclusive right to publish and distribute the work

for three years. PLN then delegated to Phonogram, Ltd. of Ghana (PLG) the right to publish and

distribute the work in Ghana. RK sued to enjoin PLG from publishing and distributing

“Everything Scatter” in Ghana, claiming that PLN had no right to delegate its duty to publish to

PLG.

Issue: Can an assignee delegate his authority to another?

Holding: Yes, if he has the contractual authority to do so.

Law: In the absence of contractual authorization, an assignee of the right to publish a copyrighted

Explanation: The agreement between RK and PLN includes their successors and assigns. The

Order: Case dismissed.