Two Achievements of the Uruguay Round: Putting TRIPS and Dispute Settlement Together

" Two Achievements of the Uruguay Round: Putting TRIPS and Dispute Settlement Together ," 37 Va. J. Int’l L. 275 (1997) (with Andreas F. Lowenfeld)

"Two Achievements of the Uruguay Round: Putting TRIPS and Dispute Settlement Together," 37 *Va. J. Int’l L.* 275 (1997) (with Andreas F. Lowenfeld)

Rochelle C. Dreyfuss & Andreas F. Lowenfeld, Two Achievements of the Uruguay Round: Putting TRIPS and Dispute Settlement Together, 37 Va. J. Int'l L. 275 (1997)

https://its.law.nyu.edu/faculty/profiles/representiveFiles/Dreyfuss & Lowenfeld - Two Achievements of the Uruguay Round_5004C54B-1B21-6206-60F9F1BE0D816562.pdf

Rochelle C. Dreyfuss
Andreas F. Lowenfeld

Apple Computer, Inc. v. Franklin Computer Corp.

Whelan Assocs. v. Jaslow Dental Lab., Inc.

Genentech, Inc. v. Regents of the Univ. of Cal.

In many ways, completion of the Uruguay Round was a miracle, a package deal with so large an agenda that no state or group of states, and no professional community, could fully grasp the significance of everything that was finally subsumed within the new General Agreement on Tariffs and Trade (GATT). The United States, for instance, was allied with the larger developing countries on agriculture, with the European Community on the other side; but on intellectual property, the United States was, roughly speaking, allied with the European Community, and it was the developing countries that were on the other-or perhaps, better, on anotherside. Add in investment issues, services, government procurement, and the traditional trade issues-subsidies, dumping, and safeguards-and the shifting conditions and interests were something like a kaleidoscope. There were two major breakthroughs in the Uruguay Round. The one that seems to have been the most surprising to the participants was agreement on a strict and binding system of dispute settlement and enforcement. 1 Under the earlier GATT dispute settlement mechanisms, parties to disputes could frustrate the system both at the beginning and at the end. In contrast, the new Understanding on Dispute Settlement, 2 to which all members of the World Trade Organization (WTO) are required to belong, precludes objection by a potential defendant to initiation of a case beyond a short delay, and precludes veto of a decision made by a panel, or, if that decision is appealed, by the Appellate Body. There is also a complex system of enforcement, complete with fairly short deadlines and provision for retaliation, in case a member state does not comply with a decision. The second significant achievement concerned intellectual property, previously the province of bilateral and multilateral agreements that generally lacked enforcement provisions. The incorporation of an Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) 3 into the GATT means that member states will, for the first time, have a place to resolve disputes concerning the recognition of copyright, patent, trademark, and related rights. Moreover, because every member must now accept all the agreements negotiated during the Uruguay Round, TRIPS signals the entry of many new states into the intellectual property community. 4 As salutary as these developments are, they raise important questions. While the enforcement system of the new WTO was probably one of the most attractive features of the GATT to the intellectual property community, the architects of the Understanding on Dispute Settlement were thinking more about curing the perceived shortcomings of the prior GATT dispute settlement mechanism-about how to handle disputes concerning measures enforced by states on imports or exports of goods-than they were about the TRIPS Agreement. They apparently gave little thought to such issues as the differences between rights in intellectual prop-erty and other forms of property, between tangible and intangible goods, between disputes that arise among countries and among firms, and between disputes that arise as a result of judicial, as contrasted with legislative, decision making. We believe it is worthwhile to begin thinking about some of these matters before the first complaint is filed. Discussion among scholars, we expect, will help disputants and dispute resolvers to understand the costs and benefits of the differing approaches that can be taken to the problems that will arise. To make their dialogue fruitful, the trade and intellectual property communities need to be made aware of the problems that each foresees. Moreover, the nature of the innovation business is such that investments are made far in advance of commercialization. If intellectual property law is to function as intended-to encourage investment in research, development, dissemination, technical training, and technological infrastructure-it must be made predictable long before disputes occur. Given the special difficulties that the TRIPS Agreement raises, we believe that it is not too soon to consider how a code establishing minimum standards should be administered. Since the trade community and the intellectual property community do not know each other well, a brief introduction is in order. Half of what we say here will be familiar to experts in the law of international trade, the other half will be equally familiar to experts in the protection of intellectual property. The GATT-the foundation agreement of 1947 essentially retained in the new GATE 1994-seeks to assure non-discrimination in restraints on trade, by prescribing national treatment on internal regulations and most-favored-nation treatment on the regulation of imports; to prevent quantitative restrictions (quotas) on exports and imports; to prevent practices deemed to be unfair distortions of the conditions of trade (dumping and subsidies), as well as to prevent defenses against unfair trade from being used for protectionist purposes; and to preserve commitments or bindings undertaken in trade negotiations. Under prior GATT practice, the parties' duties were often clarified through diplomatic negotiations or dispute resolution that avoided legalistic interpretation of the terms of the Agreement. 5 But the GAT/WTO system is now clearly more adjudicatory than 5. For a book-length development of this theme, see Robert E. Hudec, The GATT Legal System and World Trade Diplomacy (2d ed. 1990). [Vol. 37:275 in the past, as well as richer than ever before in the subjects on which member states have come together. To cope with the new and expanded law of international trade, the GATr/WTO system has created an elaborate Understanding on Dispute Settlement (DSU). The DSU provides for a Dispute Settlement Board (DSB), made up of representatives of all the member states but with a separate chairman and secretariat, a standing Appellate Body, to be discussed hereafter, and dispute panels to be established ad hoc on the basis of carefully drafted criteria. The obligations contained in the TRIPS Agreement are somewhat different than those in the GAT. Of the TRIPS Agreement's three core commitments-national treatment, mostfavored-nation treatment, and minimum standards-only the first two are obligations derived from pre-Uruguay Round versions of the General Agreement. Indeed, since they are the only provisions that address conditions that make it more difficult for foreigners, relative to domestic producers, to extract profits, they are the only ones that deal with direct obstacles to trade. 6 In contrast to the traditional GATT provisions, the minimum standards propounded by the TRIPS Agreement are based on the Berne 7 and Paris 8 Conventions, treaties that are principally aimed at promoting innovation by curbing practices deemed to constitute free riding. 9 Free riding is always a problem to those who invest in innovation. However, because a country's refusal to protect against copyists leaves all innovators operating within that country on something of an equal footing, the absence of intellectual property protection is not a direct barrier to international trade. 10 This difference in focus between TRIPS and the remainder of the GATI means that participants in disputes involving intellectual property will be moving in largely uncharted waters. They will probably not receive much guidance from the case law that developed during the resolution of prior GATT disputes. Article 3.1 of the Understanding on Dispute Settlement acknowledges formal adherence to rules and procedures followed under GATT 1947; the issues that arise under the TRIPS Agreement, however, may be too novel to make former practices helpful to dispute resolution. Moreover, the vocabulary of intellectual property and the vocabulary of the GATT sit in uneasy contrast. For instance, consider the terms "competitive" and "protective." For the intellectual property community, pro-competitive measures are those that promote innovation by maximizing the public's ability to utilize intellectual products already a part of the storehouse of knowledge. Patents, copyrights, trademarks, and trade secrets limit public access. They are, therefore, considered anti-competitive. Within the GATTIWTO system as it has emerged from the Uruguay Round, the thinking is reversed. The TRIPS Agreement, intended mainly to promote global competition, treats patents, copyrights, trademarks, and trade secrets as pro-competitive. 1 Similarly, the GATT disfavors protectionism-a word the intellectual property community has long used to describe precisely the copyright, patent, trademark, and trade secret policies that the TRIPS Agreement mandates. 12 11. A leading German scholar put the point as follows: "Industrial property rights may be viewed as competitive restrictions which can actively serve the advancement of competition...." Michael Lehmann, The Theory of Property Rights and the Protection of Intellectual and Industrial Property, 16 Int'l Rev. Indus. Prop. & Copyright L. 525, 537 (1985), quoted also by Paul Edward Geller, Intellectual Property in the Global Marketplace: Impact of TRIPS Dispute Settlement?, 29 Int'l Law. 99, 105 (1995). 12. It is not insignificant that one of the places where negotiations over the TRIPS Agreement in the Uruguay Round broke down was over the issue of parallel imports. Doctrines that deem authorized sales in one trading region to exhaust intellectual property interests in other regions have the advantage of facilitating the movement of goods. Thus, an exhaustion doctrine would be in the spirit of the remainder of the free trade provisions of the GATT. At the same time, however, these doctrines limit rights holders' ability to extract maximum profits from their intellectual products by granting distinct territorial licenses to different users. Thus, exhaustion doctrines discourage innovation and are somewhat contrary to the spirit of TRIPS. Exhaustion, then, is one issue that could have forced the drafters of TRIPS to consider the inconsistency between free trade and intellectual property protection. Instead, they provided in article 6 that "nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights." TRIPS Agreement art. 6; see Paul J. Heald, Trademarks and Geographic [Vol. 37:275 These differences may turn out to be mere semantics. But in both the world of diplomacy and the world of reasoned decision making, words have persuasive power. More important, these words represent issues that for the intellectual property community are, in many cases, acutely controversial. Intellectual property regimes were initially to be integrated by the World Intellectual Property Organization (WIPO). For many years, that effort was stalled in part because its members could not agree on issues such as whether (and when) consumer welfare is enhanced by sacrificing competition to protect profits in creative efforts.' 3 The Uruguay Round succeeded where WIPO failed for a variety of reasons. One of the reasons, it seems, was that the architects of the TRIPS Agreement used words-and a concept of minimum standardsthat allowed each state to read into the Agreement what it wished to see. 14 One may hope that the persons who administer the Understanding on Dispute Settlement will have both the authority and the expertise to clarify the meaning of the many agreements making up the WTO system. But neither the DSU, nor the TRIPS Agreement, nor the Berne or Paris Conventions, provide guidance on how minimum standards-rather than actual or optimal standards-will work in conjunction with an adjudicatory dispute resolution system that is backed with enforcement procedures. Success will depend on how well the GATTIWTO system addresses the differences between intellectual property and other trade matters. With these perspectives in mind, we examine the jurisprudential issues that the decision makers operating under the DSU will Indications: Exploring the Contours of the TRIPS Agreement, 29 Vand. J. Transnat'l L 635, 656-59 (1996). 13. See, e.g., Monique L. Cordray, GAIT v. WIPO, 76 J. Pat. [& Trademark] Off. Soe'y 121, 137-38 (1994); Evans, supra note 6, at 158. As Professor Pamela Samuelson's contribution to this symposium demonstrates, that debate has continued to be a part of negotiations within the framework of WIPO, although it is no longer disabling. See Pamela Samuelson, The U.S. Digital Agenda at WIPO, 37 Va. J. Int'l L 369 (1997). It is also significant that a similar debate rages among the member states. For example, the intellectual property laws of the United States are flexible enough to give courts the ability to take account of changing economic conditions and varying cultural trends. 14. For example, Evans, supra note 6, at 161, notes that the Punta del Este Declaration described the TRIPS negotiating group's mandate as aimed at reducing "distortions and impediments to international trade," quoting Ministerial Declaration on the Uruguay Round, Sept. 20,1986, GAIT B.I.S.D. (33d Supp.) at 25-26 (1986). "Trade distortion" was interpreted by the United States as loss of comparative advantage through failure to enforce intellectual property rights. The same term was interpreted by India as foreign government intervention in the market place in the name of protecting intellectual property rights. See also the discussion of TRIPS article 13 infra note 89. encounter-questions concerning the source of the law to be applied; the scope of Appellate Body review; and the deference that should be paid to the decisions of other rulemaking authorities, including national courts and administrative agencies. Because our focus is on actual dispute resolution, we have framed our discussion of these matters around a series of hypothetical cases, built upon the substantive issues of major concern to the intellectual property community. It is impossible to predict exactly how complaints involving the TRIPS minimum standards will evolve. Formally, disputes will always be between member states-not between intellectual property producers and consumers. There will be continuing issues on how states will choose which practices to challenge, which cases to use as vehicles for these challenges, and which states to sue. However, because the thrust of the TRIPS initiative was to induce developing countries to move toward effective protection of intellectual property, one may expect that much of the WTO litigation in this area will be between developed countries as complainants and developing countries as respondents. Moreover, although some of the complaints will surely concern clear breaches-such as failure to sufficiently prevent trademark and copyright piracy, or refusals to protect particular technologies, such as health-related inventions-we expect that many complaints will not be so straightforward. Our expectation stems from the nuanced nature of intellectual property laws. Because these laws are structured so that a country can, at any given point in its intellectual history, achieve what it regards as an appropriate balance between the proprietary interests of producers and the access needs of consumers, they are difficult to draft. Clear cases are unlikely because newcomers to the intellectual property community have little choice but to base their laws on those of developed countries. But literal conformity to the TRIPS Agreement does not tell the entire story: a state intent on preserving access can use the flexibility of the law to strip intellectual property holders of any meaningful protection. 15 These are the cases that we envision, and we expect that they will be difficult to decide. [Vol. 37:275 For example, intellectual property law creates an important distinction between the utilization of ideas and the ideas themselves. 16 Utilizations (expressions for copyright law, applications for patent law) are protectable subject matter, but the ideas themselves cannot be protected. A parallel line is drawn at the enforcement stage, where only certain uses are considered to be infringements. These distinctions are important and generally observed because they assure that the storehouse of knowledge can grow. End-uses are protected, but the building blocks of knowledge are released to all potential innovators. By providing assurance that information essential to progress remains available to all users, these distinctions make it less risky for states not previously party to the international intellectual property conventions to take the step of joining and conforming to the TRIPS Agreement. 1 7 At the same time, however, the distinctions between ideas and applications may provide a way to avoid complying with the obligations of the TRIPS Agreement. Legislation can appear to be conforming, but lack all bite. Thus, it is almost inevitable that disputes will arise over the question whether a state that has adopted conforming legislation has nonetheless failed to provide meaningful protection to innovators. One other important, though little understood, aspect of GATT dispute settlement needs to be mentioned here before we consider the first of our cases. The Understanding on Dispute Settlement contemplates several different types of disputes. Under article XXIII(1) of the GATT, retained without change from the 1947 version, the dispute resolution process can be utilized both when a member state asserts that a benefit accruing to it under the Agreement is nullified or impaired by a measure taken by another member state (a violation complaint), or when a member state asserts that any objective of the Agreement is being impeded as the result of any measure applied by another member state, whether or not it conflicts with the Agreement (a nonviolation complaint). Complaints involving failure to carry out obligations-violation complaints-are relatively easy to bring, because such breaches are presumed to cause harm.J 8 Indeed, in the half-century history of the GATT, violation complaints have been by far the most common complaints filed. Complaints alleging that countries have 16. See, e.g., 17 U.S.C § 102(b) (1994), which sets forth the scope of U.S. copyright law. 17. Reichman, Free Riders, supra note 15. undertaken activities or experienced events that have resulted in frustrating the objectives of the Agreement even when not in breach of it (that is, nonviolation complaints) have been rare, in substantial part because in such cases the burden of proving a causal relation between the challenged measure and the alleged injury rests on the complaining party. Moreover, the complaining party must demonstrate not only that it suffered a trade injury as a result of the challenged measure but that it was justified in relying on the nonoccurrence of that measure or event. In some instances, states combine violation and nonviolation complaints, that is, they assert that a challenged measure violates a given provision in a covered agreement, but even if not, the measure nullifies or impairs a benefit that the complaining member could reasonably expect to have accrued to it. Because the burdens of persuasion and proof are different in violation and nonviolation complaints, a threshold issue for a dispute panel may well be how to characterize a particular complaint. Perhaps because of the difficulty in resolving nonviolation complaints in respect of an agreement in which all the premises are new, or perhaps out of concern that vulnerability to nonviolation complaints would put too much pressure on developing countries faced with the political problem of passing conforming legislation, the TRIPS Agreement provides a five-year moratorium for nonviolation complaints. 19 Nevertheless, we begin our series of cases with this fundamental question, to illustrate the complexity of fitting together the GATT, the DSU, and the TRIPS Agreement. Macrohard is the creator of a computer program that is protected in Xandia, its home country, and elsewhere. It discovers that this program is being sold without authorization in Patria. Macrohard sues the sellers for infringement in Patria, but loses. Patria has not enacted patent protection for programs. Although Patria has enacted copyright protection, the Patrian court holds that 19. Article 64(2) of the TRIPS Agreement provides that subparagraphs 1(b) and 1(c) of article XXIII of the GATr 1994, the non-violation provisions, "shall not apply to the settlement of disputes under this Agreement for a period of five years from the date of entry into force of the WTO Agreement." This special moratorium is applicable to all member states, and is independent of the grace periods available to developing countries or countries in transition to market economies. Macrohard's program is no more than a principle, system, or method of operation, and so is excluded from protection. Macrohard contends that Patria is engaging in a pattern of nonenforcement; that what it is actually doing is refusing to provide any intellectual property protection for programs, in violation of the TRIPS Agreement." It prevails upon Xandia to bring a complaint to the WTO. After consultation fails to result in a resolution of Xandia's complaint, a panel is formed to consider the allegations. If Patria had failed to enact any protection for computer programs, the assertion by Xandia that Patria had violated article 10 of the TRIPS Agreement would be easily established. 21 Patria has, however, met the literal requirement of article 10, by providing in its legislation that computer programs may be subject to copyright; its court has simply found Macrohard's program to be nonprotectable subject matter. Thus, Patria argues to the dispute panel that it has carried out its obligations; court decisions such as Macrohard are, at most, measures that impede the attainment of an objective of the Agreement.2 Is this, then, a violation or a nonviolation complaint? If it is filed early in the life of the TRIPS Agreement, characterization of the complaint as the latter will lead to dismissal of the case by reason of the moratorium.3 If the case comes up after the expiration of the moratorium, the dispute will not be dismissed, but Xandia will be required to prove justifiable reliance and impairment of trade interests. How should the characterization question be resolved? The preliminary question, choice of law, is easily answered: since characterizing the complaint is an issue only because of the terms of the TRIPS Agreement and the GATT, GATT law applies. But what should this law be? If it is necessary to characterize the complaint in order to determine whether the moratorium applies, the issue 20. For an example of a case raising coverage issues, consider Whelan Assocs. v. Jaslow Dental Lab., Inc., 797 F.2d 1222 (3d Cir. 1986), cert. denied, 479 U.S. 1031 (1987). 21. Article 10(1) of the TRIPS Agreement requires that "[c]omputer programs, whether in source or object code, shall be protected as literary works under the Berne Convention should be determined by investigating the reasons for the moratorium. Apparently its purpose was to give the Council for TRIPS, which was provided for in the Agreement establishing the World Trade Organization, time to "examine the scope and modalities for nonviolation complaints;" accordingly, then doubts on characterization should be resolved in favor of Patria. 24 Subject matter issues are among the most difficult of all intellectual property issues. Allowing the parties' understanding of TRIPS to mature before these questions are answered makes considerable sense. 25 But if such a first case is decided as we suggest, it will be important to explain the reasoning with care-not always possible in a collegial body-so that it does not become a precedent for later cases, where, as we discuss below, the priorities and values will be different. The other reason for characterizing this complaint as a violation or nonviolation complaint is to determine whether Xandia must, as a threshold issue, demonstrate reliance and injury. In this context, one might conclude that doubts should be resolved in favor of Xandia, the complaining party. Threshold requirements determine the availability of relief. Given that dispute resolution is a primary way in which the TRIPS Agreement will be enforced, the threshold for bringing an action should not be so high as to imperil the success of the enterprise. If we are right in predicting that many complaints will be based on allegations that the flexible features of intellectual property law are systematically misinterpreted to avoid the commitments embodied in the TRIPS Agreement, it is important that the decision makers are able to reach these interpretive questions. And if the experience of countries with well-developed intellectual property law is any indication, DSU panels will need to reach the issue many times before parties achieve a genuine understanding of all its parameters. Thus, at least after the moratorium, [Vol. 37:275 it seems that such complaints should be characterized as violationtype complaints. Characterizing this complaint as a violation complaint would have the additional advantage of avoiding serious questions as to what constitutes an adequate demonstration of reliance and injury. In other parts of the WTO system, treating violation and nonviolation complaints differently makes considerable sense. Breach of a GATT obligation is itself a serious matter; thus, it is efficient for panels to presume that a nullification or impairment has occurred when a party has breached. The effect of other actions or situations is not so clear, and so it is reasonable to require the complainant to establish that harm of the sort that GAT is meant to prevent has occurred. But while prior custom and practice should certainly act as precedent for deciding issues such as the burden of proof in TRIPS disputes, 26 attention also needs to be paid to the differences between intellectual property and the other sorts of goods (and services) encompassed by the WTO system. In Case I, for example, it is the firm, rather than the complaining state, that would have the task of showing reliance. A firm such as Macrohard may have made its decision to invest in producing a major new computer program in small increments, over time, long before the dispute in Patria arose, and in response to other technological changes, as well as to various factors in the economy and in its own industry. Thus, it would probably be very difficult for Macrohard (or any other member of the computer industry) to establish that any specific decision was made in express reliance on protection in Patria. 27 Accordingly, if the TRIPS Agreement is to be successful in encouraging investment in innovation, it would be wise not to impose a severe burden of showing reliance in TRIPS cases. Indeed, given that intellectual property law is based on the premise that innovation is spurred by the promise of protection, a strong argument could be made that reliance should be presumed. To fit such a standard into the GATT/WTO system, however, would require receptiveness to treating borderline cases as violation, not nonviolation, complaints. Much the same can be said about demonstrating injury. As with reliance, this issue should be determined under the law of the 26. See DSU arts. 3.1, 26.1 27. Forest Lab., Inc. v. Pillsbury Co., 452 F.2d 621, 627 (7th Cir. 1971), is suggestive of the problem. The court could not disaggregate the users' expenditures in determining whether a user of a trade secret had paid value for it. GATT. But, as with reliance, the GAT precedents may not fit intellectual property disputes. Traditional GAT disputes have focused on loss of trading opportunities by the claimant exporting country by reason of restraints imposed by the respondent importing country; in contrast, the failure by a respondent state to enact or enforce intellectual property protection will never directly interfere with trade. In our Case I, Patria is not preventing Macrohard from selling its products in Patria. Macrohard can fully participate in the market so long as it is willing to sell its program at the competitive price. And if, as seems likely, Macrohard earned back its investment in countries where computer programs are more fully protected, Xandia might well not even be able to demonstrate that Macrohard's incentives to be innovative were harmed. To be sure, Xandia might be able to show that Macrohard earned less from sales in Patria, both in volume and in price markup, than it would have earned had Patria been in full compliance with Xandia's vision of the TRIPS Agreement, and less than it earned in other states with similar markets. Should such a showing be required before Xandia would be allowed to prevail in its complaint? Or is such a standard too high to achieve the objectives of the Agreement? In domestic copyright cases in the United States, for example, where a showing of injury is required, it often is presumed. 2 8 The thinking is that the lack of promised exclusivity distorts the market. Once the market is distorted, it is difficult to reconstruct the effect of copying or to evaluate the extent to which the creator was harmed. The law establishes a presumption of injury in order to make sure that infringement is adequately deterred. By the same reasoning, adequate enforcement of the TRIPS Agreement may require either relaxing the standard for demonstrating injury in nonviolation complaints, or treating cases such as Case I as involving a violation complaint. The above analysis leads inevitably to the next question: Is Patria meeting its international obligations, as set out in the TRIPS Agreement? Since it has enacted a copyright law covering computer programs, Patria's obligation under article 10 of the TRIPS 28. See, e.g., Apple Computer, Inc. v. Franklin Computer Corp., 714 F2d 1240, 1254 (3d Cir. 1983), cert. dismissed, 464 U.S. 1033 (1984) [Vol. 37:275 Agreement seems to be met, at least prima facie. Patria's patent law does not cover programs. That omission may be inconsistent with article 27(1), which states that, subject to stated exceptions (not including computer programs), patents shall be available "in all fields of technology." If a panel is asked to resolve this inconsistency, it should construe the TRIPS Agreement in accordance with the guidance given by the DSU. Article 3.2 of the DSU refers to "customary rules of interpretation of public international law," a vague guidepost that may or may not include the negotiating history of the TRIPS Agreement and scrutiny of the domestic laws of the members as they existed when the TRIPS Agreement entered into force. 29 We would urge that both the negotiating history and the concerns and practices of the proponents of the TRIPS Agreement be taken into account in answering the question, along with the less controversial resort to the "ordinary meaning" of the terms of a treaty in the light of the treaty's object and purpose. 30 Thus, the question whether article 27 of the TRIPS Agreement requires protection for programs should be addressed, first, by noting that it is a general provision. Article 10, on the other hand, is specifically addressed to computer programs and should take priority as the lex specialis. Second, the negotiating history of the TRIPS Agreement indicates that the developed countries were concerned about the inadequacy of the then-extant international intellectual property treaties on the issue of computer programs. 31 The dispute over the extent to which programs should be protected persisted throughout the early years of the Uruguay Round. The record shows that the discussion was limited to the question of considering computer programs as "literary works" for the purpose of extending copyright protection, 32 and that the outcome was a pro-29. Compare Vienna Convention on the Law of Treaties, opened for signature May 23, 1969, arts. 31-32, 1155 U.N.T.S. 331, 8 LL.M. 679 (1969) [hereinafter Vienna Convention] which lists the preparatory work of a treaty and the circumstances of its conclusion as "supplementary means of interpretation," with Restatement (Third) of the Foreign Relations Law of the United States § 325 cmt. e (1986), which, reflecting the American practice, is more receptive to using negotiating history and other surrounding circumstances as aids to interpretation of international agreements. 31. See Evans, supra note 6, at 164; cf. 1 The GAIT Uruguay Round: A Negotiating History (1986-1992) 2246 (Terence P. Stewart ed., 1993) [hereinafter Negotiating History], noting that several contracting parties were dissatisfied with various aspects of then-extant international intellectual property treaties; see also Samuelson, supra note 13, at 378. 32. See 1 Negotiating History, supra note 31, at 2290-91. vision expressly requiring only copyright protection. The inference would seem to be clear that the TRIPS Agreement should not be interpreted to require patent protection as well. 33 As to the domestic practices of member states, we submit that these are relevant not because they apply of their own force, but because they shed light on two significant issues: the understanding of the parties when the Agreement was signed, and the practicalities of requiring compliance with the interpretation put forth by Xandia. Here, experience supports the conclusion that Patria is not required to enact patent protection for programs. The parties were not thinking along the lines of protecting programs with patents. 4 Although patents on programs have been issued in the United States, the experience during the time of the Uruguay Round was that the sophistication required to examine patents and determine whether they have been infringed outstripped the abilities of both the Patent Office and the courts. 35 Given that the United States has long enjoyed more technological resources than are available to many of the other parties, it seems sound to conclude that article 10 in the copyright chapter of the TRIPS Agreement was intended to be the sole source of protection for computer programs, and that it should be understood as implicitly rejecting a requirement that parties provide patent protection to computer programs. 6 If, then, the focus is on copyright, and not on patent, the next question is whether Patria's decision in the Macrohard case is inconsistent with the requirement of article 10 that "[c]omputer programs, whether in source or object code, shall be protected as literary works under the Berne Convention." This is likely to be the most difficult issue in the case. Countries that have already provided copyright protection for programs have had a hard time differentiating between unprotectable programming ideas and pro- 36. See generally Reichman, Know-How Gap, supra note 25, at 768, noting that there was general reluctance to grant patents on programs in all the developed countries. The United States relented first. After that, patents on software were issued in Japan and European Union countries, but considerable ambivalence on the question remains. Professor Reichman would regard it as incompatible with the TRIPS Agreement for a member state to refuse to permit an inventor to even argue that a particular program met the standards for patent protection. Id. at 769. [Vol. 37:275 tectable expression. For its part, WIPO has wrestled with the question of protecting programs for some time but until recently has made little headway. 3 7 Part of the problem is that the stakes for the computer industry are very high. On the one hand, the difference between the costs of development and the costs of free riding is so great that some protection from copyists may be necessary if the programming industry is to survive. On the other hand, the basic relationships between the factors that a program manipulates must stay in the public domain so that they can be used by others, both on and off computers.3 Computer programming is a cumulative and integrated industry. Programming ideas build on one another, keeping new ideas public is important if the industry is to grow. Furthermore, "user friendliness" requires that operating systems be compatible with application programs and that application programs be compatible with one another. The only way to achieve compatibility is to keep key features from being exclusively owned-either by finding these features to be principles, systems, or methods of operation (as Patria held in the case of Macrohard's program), or by finding that new uses of these features do not infringe (which is the direction that U.S. law seems to be taking). 39 C. Lawmaking at the Frontier One might think that the WTO dispute resolution mechanism, with access to the advice of experts from around the world, would be the ideal way to resolve difficult, high-stakes open questions 37. 7This Article was completed before the WIPO Copyright Treaty, negotiated in Geneva in December 1996, could be fully studied and analyzed. It may be that the role of WIPO in the future development of intellectual property law will be stronger than suggested in the text, which would be perfectly compatible with the conclusions advanced in this paper. See infra pp. 293-96. 38. For an example, consider the invention at issue in Gottschalk v. Benson, 409 U.S. 63 (1972). The patent sought was on a method of programming a computer to convert one form for representing numbers into another form. The Court held that the patent was drawn to nonstatutory subject matter on the theory that a right to the program would, in effect, be a right over the relationship between these forms of representation. In the Court's words: "The patent would wholly pre-empt the mathematical formula [for converting from one representation to the other) and in practical effect would be a patent on the algorithm itself . For example, in Computer Assocs. Int'l v. Altai, Inc., 982 F.2d 693 (2d Cir. 1992), the court held that before determining whether a given computer program infringes a copyrighted program, the utilitarian features of the programs-ideas and elements dictated by considerations such as efficiency-need to be filtered out. The result of this filtration method is that programming techniques are kept in the public domain. such as this one. Moreover, the existence of a standing Appellate Body provides a capacity for finding the "best" rules of law for the global economy. If the DSU works as many hope, then these "best" rules might be accepted into the domestic laws of the parties (or at least, into the laws of those parties where the question has not yet been fully answered), leading ultimately to genuine global harmonization. However, lawmaking in the process of adjudication, a familiar concept to those raised in the common law, is formally circumscribed by the admonition, stated twice in the Understanding on Dispute Settlement, that rulings of the DSB "cannot add to or diminish the rights and obligations provided in the covered agreements. '40 While this statement will surely acquire considerable gloss if the intent to make dispute resolution more adjudicative becomes a reality, the GATT's history of conciliation and diplomacy is likely to exert some influence on how disputes are resolved. Thus, at least in its early stages, dispute resolution in the WTO may not be characterized by the sort of give-and-take likely to produce the "best" rule of law. Furthermore, the limited role permitted to third parties, which requires the third party to have an existing trade interest in the controversy in question, may well distort the decision making process viewed at long range. 4 ' It is well recognized that creating intellectual property requires a considerable level of sophistication. It is somewhat less recognized-but nonetheless true-that in many areas, even copying requires a measure of technical capacity. Thus, it is likely that all the early disputes in areas such as computer copyright infringement will be among states that have some degree of technological expertise; states with less capability will not be respondents or complainants; nor will they be able to show the "substantial trade interest" necessary to support interven- 41. Third parties are entitled to participate both in the consultation process that precedes formal adjudication, DSU art. 4.11, and in the actual proceedings before panels, id. art. 10. They may also participate in a limited way in appeal proceedings. Id. art. 17.4. In each context, however, it is understood that third parties must have an actual and current trade interest in the dispute, and participation in the appeal proceeding appears to be limited to members that have participated in the proceeding before the panel. [Vol. 37:275 tion. The members that participate in dispute resolution will not, therefore, be representative of the entire membership of the WTO. Since disputants will surely argue for the rules that work best for them, the early years of the Agreement are not likely to produce "best" rules when judged from the point of view of the WTO membership as a whole or from the perspective of the global economy. And, unlike adjudication within many of the parties' national courts, there is no legislative check or balance on dispute resolution in the WTO. To be sure, the TRIPS Agreement also creates a Council for TRIPS, which is charged with the duty to "monitor the operation of this Agreement." 42 Though the intent of the drafters does not appear to have been to create the Council as a rule-enunciating body, it is possible that the system will evolve in a way that will allow the Council to use the occasion of disputes to consider and articulate "best" rules. 43 But, until some body in the WTO-the panels, the Appellate Body, or the Council-develops a capacity to give generally applicable interpretations of the law, disputes will need to be resolved under some other source of law. One obvious source is the World Intellectual Property Organization. As the administrator of the Madrid Arrangement," and especially the Berne and Paris Conventions, WIPO has a special claim to a role in articulating international intellectual property norms. Its practice of appointing informal groups of experts to consider disputes under the treaties it administers provides, at least in theory, a mechanism for finding best rules. 45 Besides, drawing on WIPO resonates well with the negotiating history of the TRIPS Agreement: the Uruguay Round would not have produced TRIPS had not the administrators of WIPO participated in the identifica-42. See supra note 24. 43. See also Reichman, Know-How Gap, supra note 25, at 773, who suggests that as consensus emerges on particular issues among member states, the topics should be set [Vol. 37:275 tion of generally accepted international norms. 46 The TRIPS Agreement itself contemplates (in article 68) that the Council will consult with WIPO and "shall seek to establish ... appropriate arrangements for cooperation with bodies of that Organization. 47 We view this provision as a mandate to the TRIPS Council-and to the GATr/WTO system as a whole-to keep up with developments in intellectual property law. 48 Thus, drawing on developments within WIPO seems to be an attractive solution, at least in the early period of the WTO when both the DSU and the TRIPS Agreement are still to some extent in experimental stages, and probably in the long run as well. 49 The problem with this suggestion is that while it is in harmony with WIPO's aspirations, it fails to take into account WIPO's past performance. WIPO has tended to operate through coordinated group voting rather than through genuine consensus building. 50 For at least the last fifteen years, politicization of deliberations in WIPO has interfered with its lawmaking efforts. Indeed, one prin- WIPO Copyright Treaty, adopted Dec. 20, 1996, WIPO Doc. No. CRNR/DC94 (last modified Dec. 23, 1996) <http://www.wipo.orgfengldiplconf/distrib/94dc.htm>. We doubt that any attempt to insulate this new treaty from the system created by the TRIPS Agreement can succeed, if that is indeed the purpose of the quoted passage. The TRIPS Agreement contemplates a unified and universal system, and it was on that basis that TRIPS was accepted into the GATT/WTO system as a whole. Professor Neil Netanel, The Next Round: The Impact of the WIPO Copyright reaty on TRIPS Dispute Settlement, 37 Va. J. Int'l L. 441, 450 (1997), also believes that GATI'/WTO decision makers should take developments in WIPO into account in construing the TRIPS Agreement. 49. See Bal Gopal Das, Intellectual Property Dispute, GATT, WIPO: Of Playing by the Game Rules and Rules of the Game, 35 J.L. & Tech. 149 (1994). Of course, even if WIPO does become an important source of intellectual property law in the GATTIWTO system, that approach will not work in connection with substantive provisions where there is no separate international agreement that WIPO administers. Article 39 of the TRIPS Agreement concerning trade secrets is an example. Another is discussed in Case Il1, infra, on antitrust issues. 50. See, e.g., Evans, supra note 6, at 158. Even Professor Samuelson, in her otherwise rather optimistic account concerning the negotiation of the digital agenda in the framework of WIPO, notes that some provisions were influenced by factionalism unrelated to the merits of the measure under discussion. See Samuelson, supra note 13, at 389-90. cipal reason that intellectual property wound up in the WTO was that WIPO had become unable to keep its treaties responsive to the needs of the innovation community.51 Another reason for the embrace of intellectual property by the WTO is, of course, that only the WTO, as it emerged from the Uruguay Round, has an effective enforcement mechanism.5 If this mechanism produces a substantial body of decisions at the frontier of intellectual property law, it will inevitably exert an influence over developments within WIPO. Certainly, recent developments in WIPO suggest that it may enjoy an increasingly important role in resolving intellectual property controversies, although probably not in the context of individual dispute settlement. 5 3 It may seem attractive, at least until the transition period is over, or until an arrangement for coordination with WIPO develops, for panels working on a difficult question to consult the laws of developed countries. If a good solution to the problem of, say, drawing the line between ideas and expressions in computer program cases has been found, a panel could adopt such a solution in an international context. The member states would, under this approach, function as laboratories-much as states or provinces do in a federal system. Once one jurisdiction finds a position that appears to work over time, the GATT/WTO system would provide a mechanism for internationalizing that rule. 4 As attractive as this option may seem, however, we would urge the same caution that we suggested with respect to case-by-case adjudication. 5 5 The risk of looking to early solutions of national authorities is that predominant attention would be given to the states with the most-developed and sophisticated technology, whose priorities may not be the same as for all members of the WTO. 51. See 2 Negotiating History, supra note 31, at 2249-59. 52. State-to-state disputes under WIPO treaties can be taken to the International Court of Justice, but this method of dispute resolution has not been used. Recently, WIPO has established an arbitration center for resolution of intellectual property disputes between private parties, but that center will not be available for challenges to practices of states, such as those in the cases we discuss here. See generally Alice MacAndrew, Uncertainty as IP's Golden Age Begins, Managing Intell. Prop., Feb. 1996, at 16, noting that although WIPO can be thought of as a "think tank" of expertise, the absence of an enforcement mechanism has limited its ability to set norms of protection. 53. See supra note 37. 54. For a somewhat different approach, see Reichman, Know-How Gap, supra note 25, at 773, who suggests that a panel could take judicial notice of an emerging consensus among member states. More fundamentally, we are skeptical that there will always be a "best" rule for every problem that will arise under the TRIPS Agreement. Promoting innovation requires that care be taken not to raise the cost of knowledge to so high a level that it impedes further inventiveness. How that problem is best solved can depend on a country's intellectual and industrial development, its culture, and the types of creative work in which its citizens are engaged. Thus, the nature (and advantage) of a minimum standards regime is that where there is no "best" rule that will work in every economy, each country can tailor the law to its own needs. In short, in areas such as those presented by Case I, where the issue involves that balance between users and producers, drawing the rules from solutions worked out elsewhere-particularly in highly developed economies-may be inappropriate. Coming back to Case I, the preceding discussion leads us to urge that a panel begin by according a degree of deference to Patria's own decision in the Macrohard case. Assuming the courts of Patria have made a careful evaluation of the controversy free from improper influences or discrimination by nationality, a WTO panel ought to be reluctant to condemn the result reached by those courts. The panel might inquire whether the Macrohard case was an exception or reflected a pattern of decisions by Patrian authorities that ought to be judged by the TRIPS/WTO dispute settlement mechanism. If a policy concerning protection of computer programs emerged, the panel should inquire (1) whether Patria was furthering a goal shared by countries that protect computer programs (in this case, releasing ideas, as contrasted with applications, into the public domain); and (2) whether Patria's announced law or policy (here, its law differentiating between ideas and copyrightable expression) is recognized elsewhere. If both these inquiries result in affirmative answers, the panel should operate on a presumption that Patria's law and announced policy conform to its treaty obligations. The burden would then shift to Xandia to show the practice is inconsistent with its announced policy by failing to protect the innovations it purports to protect. Xandia might seek to demonstrate that Patria's programming cases lack justification, or that the relevant officials of Patria had disclosed an intent either [Vol. 37:275 to avoid the provisions of article 10 of the TRIPS Agreement or to discriminate against foreign holders of programming copyrights. 56 In the final analysis, a combined approach may be the best way to effectuate the concept of minimum standards. Deference to WIPO when there is an international norm on which member states have agreed would allow the WTO to assume the enforcement role long missing from the Berne and Paris Conventions. In the absence of such a norm, deference to each state's own law is appropriate, on the theory that lack of consensus is an indication that there is no "best rule" and that different economies and cultures require different rulesY In many ways, limitations on the subject matter entitled to protection provide rather coarse control over the balance between public access and private incentives. By fencing off entire fields from protection, such limitations make intellectual property law unavailable as a source of encouragement for whole industries. Moreover, they skew the decisions that individual innovators make about where to invest their resources. Ironically, industries devoted to subject matter that is considered too socially important to protect can wind up being underfunded. For this reason, it makes sense for states to be generous on the question of subject matter protectability, and then to safeguard the public's interest in access in more finely tuned ways. For example, a state may tighten the scope of what it considers infringement-adjusting the degree 57. This approach is in agreement with the views of Steven P. Croley & John H. Jackson, WTO Dispute Procedures, Standard of Review, and Deference to National Governments, 90 Am. J. Int 'l L. 193 (1996). Croley and Jackson urge deference to national outcomes on the theory that this will best promote voluntary compliance and multilateral consensus. They also suggest that the variety in cultural values of the parties, the lack of fact-finding resources by panels, and other shortcomings in international procedure argue against panel activism. Id. at 211-13. of similarity for finding infringement of copyrights, and the degree of equivalence needed for finding infringement of patents. 58 For the TRIPS Agreement, the ability to fine tune raises the danger that a member state could use these measures in the way we previously discussed for coarse tuning: to appear to comply with the Agreement while really sidestepping its obligations. As to that issue, what we have said previously applies here as well. In this section, we discuss the role of the GAIT/WTO system in considering the more subtle question of whether the particular balance that a state strikes is permissible under the TRIPS Agreement. Monastery Labs developed a new pharmaceutical for treating Sallyheimer disease. The drug, a complex organic compound bound to magnesium, is patented both in Monastery's home country, Xandia, and in Patria, a developing country that has adopted patent legislation conforming to the TRIPS Agreement. A Patrian pharmaceutical company sells the same complex compound, except that its product substitutes manganese for magnesium. Monastery Labs sued the Patrian company in Patria, but lost. The court found (1) that before Monastery Labs invented this compound, it was common knowledge that Sallyheimer sufferers had a problem with metals, so this compound was not inventive enough to qualify for protection; and (2) that Monastery's patent described "alkaline earth metal bonds" and manganese is not an alkaline earth metal, with the result that the Patrian company's product does not infringe Monastery's patent. Monastery prevailed upon the government of Xandia to bring a complaint to the WTO. Again, after consultation, the dispute was referred to a panel for resolution. The complaint alleges that Patria violated article 27(1) of the TRIPS Agreement by requiring an inventive leap rather than an "inventive step." Further, the complaint asserts that Patria permitted infringement of Monastery's valid patent, thereby violating article 28(1)(a) by failing to 58. For simplicity, the text considers only these alternatives. What is said here, however, applies to other fine-tuning provisions, such as the fair use defense in copyright law or the experimental use defense in patent law. [Vol. 37:275 prevent others from using Monastery's insight without its authorization. Patria, in its answering papers, contends that its courts applied settled principles of Patrian patent law, without discriminating by nationality, on the basis that an applicant for monopoly protection has a heavy burden of establishing both nonobviousness 9 and infringement. It is not clear, at the outset, how a WTO panel should resolve this controversy. Case H demonstrates how differently two countries could administer intellectual property laws that ostensibly comply with the TRIPS Agreement. At one time, a court in the United States, for instance, might have handled this case as follows: if it found that the identification of a metals problem was part of the art existing prior to Monastery's invention, it might consider using magnesium compounds "obvious to try." ' It would then ascertain how many metal-delivery systems there are. If there are many, it could hold Monastery's discovery patentable on the theory that the ordinary artisan would not have found this one easily. The inquiry on infringement would be, in a sense, the reverse: the court would inquire whether it would be obvious to the ordinary artisan to substitute manganese for magnesium-a question that in 59. A footnote to article 27(1) of the TRIPS Agreement states: "For the purposes of this Article, the term[] 'inventive step'... may be deemed by a Member to be synonymous with the term[ ] 'nonobvious."' 60. As all patent cognoscenti, but perhaps not all trade experts know, a patent is supposed to be given for an "invention," not merely for an improvement that would be obvious to a person of ordinary skill in the art in question. At one time the U.S. Supreme Court spoke of a "flash of creative genius" as necessary to obtain a patent. See Cuno Eng'g Corp. v. Automatic Devices Corp., 314 U.S. 84, 91 (1941). Current U.S. law, 35 U.S.C. § 103, like the law of most countries, rejects this standard as too high, but still requires an intellectual contribution that meets a standard of non-obviousness. See, e.g., Graham v. John Deere Co., 383 U.S. 1 (1966). Article 27(1) of the TRIPS Agreement states that patents shall be available for any inventions, "provided that they are new, involve an inventive step and are capable of industrial application." Whether the obviousness of trying renders an invention unpatentable depends on a combination of factors, including the number of choices available, whether the art gives some guidance in determining which alternative to choose, and the unexpectedness of the result. For example, in Novo Industri v. Travenol Lab., Inc., 677 F.2d 1202, 1208 (7th Cir. 1982), the U.S. Court of Appeals for the Seventh Circuit upheld a patent on a fungus that produced an enzyme used to make cheese. Although there were reasons in the prior art to examine this fungus along with others, the results for this fungus were unexpectedly good. Thus, even though the experiment was obvious to try, that fact did not render the invention unpatentable. another context the U.S. Supreme Court has already answered in the affirmative. 61 Accordingly, under the doctrine of equivalents as applied in the United States, 62 Monastery's patent would be considered to be infringed. One could easily imagine that Patria could take a very different approach. If it is a developing or least-developed country, the transition provisions in the TRIPS Agreement give it a grace period before it is required to extend patent protection to such products. 63 A decision to enact legislation concerning pharmaceuticals without such delay could well indicate that Patria is trying to promote indigenous research and development. A research and development industry, however, requires a technologically trained labor force. One way to encourage the creation of such a resource might be by teaching unskilled labor to work in laboratories. That strategy, in turn, would require that there be meaningful work for this labor force to do. Finding alternatives to expensive foreign medicines certainly seems like an attractive objective. Thus, it might make sense for Patria to reject the "obvious to try" doctrine and argue that in developed countries patent protection is needed in this context to motivate someone to engage in the labor-intensive effort of finding the right choice among many, but that in Patria, where a cheap labor force is looking for work, trudging through obvious alternatives requires no particular encouragement. In other words, supracompetitive profits should be reserved to those who confer genuinely unique and major social benefits by denying a separate patent to the sort of advance over prior art that Monastery's invention represents.6 Alternatively, Patria could allow its work force to train on Monastery's invention by deciding that any rights that Monastery wishes to assert must be expressly claimed in the patent document. That would release variations for domestic researchers to find. In short, whether these arguments 61. Graver Tank & Mfg. Co. v. Linde Air Prods., 339 U.S. 605 (1950). 62. A device infringes under the doctrine of equivalents "if it performs substantially the same function in substantially the same way to obtain the same result." Id. at 608 (quoting Sanitary Refrigerator Co. v. Winters, 280 U.S. 30, 42 (1929). 63. For developing countries, there is a four-year grace period. TRIPS Agreement art. 65(2). For countries that had not previously enacted legislation to protect pharmaceuticals, there is an additional five-year grace period. Id. art. 65(4). Least-developed countries may have ten years from the date of application of the substantive provisions of the Agreement to fully comply with these provisions. Id. art. 66(1). 64. Indeed, the obvious-to-try doctrine is even under attack in the United States. See, Co., 499 U.S. 340 (1991), in which the Court held that "sweat of the brow" labor cannot be the basis for copyright protection. [Vol. 37:275 are after-the-fact rationalizations or actually describe Patria's motivation, the challenged failure to grant Monastery the same protection it receives in the home country is not an obvious or clear violation of the TRIPS Agreement. 65 If this dispute were brought during the transition period allowed to developing and least-developed countries,6 Patria might argue that since it was not yet required to offer patent protection to Monastery, Xandia should not be heard to complain that Patria offers less protection than Xandia finds ideal. To evaluate this position, two issues must be decided: first, whether Patria is a country that can avail itself of the special benefits offered to developing economies, and second, the exact scope of these special benefits. Given that some fairly wealthy countries, such as Singapore, are seeking to classify themselves as developing country members for purposes of the transitional provision of the TRIPS Agreement, the first question is likely to come before the WTO soon. 67 Certainly, this is a matter that must be decided under the WTO's own law. Counting resources devoted to creative activities is not a way to resolve the question, as that would have the effect of discouraging countries from beginning to develop innovative capacity. Indeed, our belief is that the question whether a member state is a developing country should never be decided in the context of a dispute brought before a panel. Rather, we would hope that the Council for TRIPS would publish a list of developing country members, drawn from an approved list prepared by the WTO secretariat. Since we would also think that a member of the WTO cannot claim developing-country status for some purposes but not for others, the Council should advise all members on such a list that any member seeking to take advantage of the transitional rights granted by article 65 must make a declaration to that effect. Assuming that Patria qualifies as a developing country, the next question is how much leeway it should be given on that account. The basic Paris Convention does not guarantee to patent holders in one state patent protection in other member states, but leaves the issues of patentability and infringement to each member state's laws. Paris Convention, supra note 8, art. 2(1). The question here raised is how far this deference to lex fori is changed by the WTO system-the TRIPS Agreement in combination with the DSU. 66. See supra note 63. 67. See MacAndrew, supra note 52. One might conclude that the transition provisions are exclusive and that once a country moves out of the transition period (voluntarily or under the pressure of time limits), it is expected to conform its laws in every respect to the norms of the developed world. There are, however, significant reasons to refrain from taking so hard a line. It is important to remember that the impact of the TRIPS Agreement on the developing world was not comprehensively considered at the time the Agreement was drafted. The principal negotiators were almost uniformly interested in strengthening the international intellectual property regime. And because the GA'fT/WTO system requires its members to accept all the principal agreements negotiated in the Uruguay Round, 6 8 there was no practical way for any country, including Patria, to stay outside the TRIPS Agreement. Now that there is time to be more reflective, we should recognize that as far as developing countries are concerned, the TRIPS Agreement could have a substantially different impact from the remainder of the WTO agreements. One effect is obvious: the cost to member states of enforcing intellectual property rights is formidable. Monitoring is expensive, the obligation to destroy infringing materials entails high social costs, and countries with weak civil justice systems must spend the money to create them. 69 All of this is in addition to the cost of setting up copyright, trademark, and patent offices and staffing them with trained personnel. Even after these costs are borne, the TRIPS Agreement may present a significant problem to developing countries. Experience 68. WTO Agreement art. II. The only optional (so called "plurilateral") agreements concern trade in civil aircraft, dairy products, bovine meat, and government procurement. Id. Annex 4. 69. See article 41(1) of the TRIPS Agreement: "Members shall ensure that enforcement procedures... are available under their law so as to permit effective action against any act of infringement [,] . . . including expeditious remedies to prevent infringements and remedies which constitute a deterrent to further infringements." Failure to comply with that requirement would, it seems, be both a violation in itself and an element of proof in a complaint stimulated by a controversy over a particular product. Although Patria might be able to contend successfully that the decision of a particular court case does not rise to the level of a violation of the Agreement, failure to introduce and adopt legislation meeting the standard of article 41 certainly would constitute a violation. 70. See Jasna Arsid, Combatting 'Trade in Counterfeit Goods-The GATr and the EC Approaches, World Competition: L. & Econ. Rev., Mar. 1995, at 75, 86. In recognition of these problems, article 67 of the TRIPS Agreement calls on developed country Members, on request and on mutually agreed terms, to lend assistance to developing country members. Assistance, in this context, seems to consist of both technical and financial aid. shows that in other economic sectors, comparative advantage tends to shift over time. 71 As each party has (more or less) an equal opportunity to acquire an advantage in any economic sector, each trade barrier that is lowered is either a current benefit or a potential benefit. In contrast, it can be argued that a technologically undeveloped country that agrees to the TRIPS Agreement is handicapping itself. 72 Instead of following the strategy (which many developed countries once pursued) of absorbing the world's knowledge base and coming up to technological speed before protecting foreign intellectual property, a country that enters into the TRIPS Agreement at this stage, before it has a creative community in place, may well raise the costs of acquiring the knowledge it needs. 73 The TRIPS Agreement might, therefore, improve the incentives for a developing country's citizens to become innovative, but put the cost of becoming innovative out of reach. The opposite argument, which prevailed in the Uruguay Round (though one can debate how much choice the developing countries had at the end) is that by providing secure protection for intellectual property, a member state can remain in the mainstream of technological progress, while denying protection might leave it on the sidelines of innovation. 74 It was this argument, probably more than the sanc-71. See Evans, supra note 6, at 142, who argues that one reason that intellectual property was perceived as an issue that the GAIT needed to deal with was that a party's failure to protect intellectual property resulted in the inability of certain countries to utilize important comparative advantages. 72 239, 245-46 (1990). This is not to say that strengthening intellectual property rights might not, in the long run, produce welfare-enhancing effects for these countries. See, e.g., Edmund W. Kitch, The Patent Policy of Developing Countries, 13 UCLA Pac. Basin LJ. 166 (1994), noting that technology transfer is enhanced when foreign innovators are attracted to invest in technological growth within a developing country;, Keith E. Maskus, Intellectual Property Rights and the Uruguay Round, Federal Reserve Bank of Kansas City Economic Review, First Quarter 11 (1993). 74. An interesting illustration of this debate was recently provided by Martin J. Adelman & Sonia Baldia, Prospects and Limits of the Patent Provision in the TRIPS Agreement: The Case of India, 29 Vand. J. fransnat 'l L 507, 525-33 (1996). The authors draw the conclusion from India's large infrastructure in pharmaceutical production, coupled with its past failure to contribute innovations in the pharmaceutical field, that strong intellectual property protection has always been in India's interest. In contrast, J.H. Reichman uses the same data to argue that free-riding is a way for a developing economy to accumulate the skills and capital necessary to become innovative. J.H. Reichman, tions imposed by the United States, 75 that induced Brazil in the early 1990s to revamp its patent and copyright laws to protect both informatics and pharmaceuticals, and to lead the developing countries into accepting the TRIPS Agreement in the Uruguay Round negotiations. But either way, these considerations suggest that unless the TRIPS Agreement is sympathetically interpreted to safeguard public access, it could wind up preventing certain member states from ever becoming players in the intellectual property sector. 76 All of this goes to argue that on the substantive side, Patria's decision ought to be given considerable deference. Allowing Patrians to make variations on Monastery's drug without incurring the costs of infringement is one way to develop the skills Patria needs if it is ever to see advantages from joining the TRIPS Agreement. 77 Accordingly, whereas in Case I we suggested that deference to Patria's own decisions may properly depend on whether Patria was taking positions consistent with policies of states with demonstrated commitments to intellectual property, in Case II it would probably be wise for a WTO panel-at least with respect to developing countries-to defer even in circumstances where Patria's decisions look quite atypical. Even if Patria were not a developing country, the better course might well be to make it nearly impossible to prevail before the WTO on a complaint involving fine-tuning, except on an additional showing of violation of the non-discrimination provisionsnational treatment and most-favored-nation treatment. 78 Although the TRIPS Agreement is drafted as a set of standards for the protection of innovators, there are two sides to every innovation coin: the greater the protection granted to the innovator, the Compliance with the TRIPS Agreement: Introduction to a Scholarly Debate, 29 Vand. J. Transnat 'l L. 363, 381 (1996). See infra text at note 144. 76. See also article 8.10 of the DSU, which calls for at least one member of a panel to be chosen from a developing state if the controversy concerns such a state; id. art. 21.7, which requires that the impact on the economy of developing countries be taken into account in the panel's recommendations. Article 24 calls for additional consideration and restraint on the part of complaining parties in disputes with least-developed member states. 77. See generally Adelman & Baldia, supra note 74, analyzing TRIPS' effects on India's patent system. [Vol. 37:275 less is the public's access to the products of intellectual activity? 9 To the extent that DSU panels are instructed not to "diminish rights or obligations," they should be equally careful not to diminish the rights that users of innovative efforts have in particular countries. 8 0 Again, this is the core difference between a minimum standard and an optimum or harmonized rule: a minimum standard allows each member state to create a law that is suited to the needs of its own creative community; an "optimum" rule would, in contrast, require each state to adopt a single law, whether it was right for its economy or not. The drafters of the TRIPS Agreement chose minimum standards, just as the drafters of the Berne and Paris Convention did. We agree with that choice because we believe that it best promotes innovation. 8 ' Further, disputes involving fine-tuning can be quite different from cases where the respondent is charged with a clear failure to protect innovative works. The failure to protect intellectual products often results in counterfeiting. In Case I, for example, Patria was countenancing sales of pirated programs. The campaign against counterfeiting was the original incentive for the Uruguay Round to become engaged in the field of intellectual property,8 and so it makes sense to entertain claims that a country is systematically failing to protect subject matter8s Of course, to the extent that Case II was decided on the ground of no infringement, there was no counterfeiting. Patria's laws permitted a product very similar to the protected product to go on the market. However, creat-79. Cf., e.g., Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994), in which the Court notes that the public interest in a copyright dispute lies both on the side of the plaintiff and on the side of the defendant. See supra text at note 39; see also article 7 of the TRIPS Agreement, which states that the Agreement's objective is to contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations. (emphasis added). We note that Judith Bello, Some Practical Observations About WTO Settlement of Intellectual Property Disputes, 37 Va. J. Int'l L, suggests that in taking this view, we are "fabricating" rights or "usurp[ing]" the role of negotiators. However, it is evident to us that any definition of an intellectual property right implies some right for users, and that the TRIPS Agreement, like the Berne and Paris Conventions, reflects this perspective. ing that product required considerable investment. Since the Patrian defendants did not get a free ride, it is unlikely that they could price Monastery out of the Patria (or world) market. Indeed, Monastery's product remains attractive to any Sallyheimer sufferer intent on purchasing the "real thing." Other issues of fine-tuning-for instance the scope of the fair use defense in copyright-call, in our judgment, for a similar approach in the WTO. The United States, for example, permits certain unauthorized uses of copyrighted materials for socially worthy purposes, so long as the "potential market for or value" of the work is not unduly sacrificed. 5 The TRIPS Agreement countenances exceptions to protection, but only for "special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the right holder. 8 6 Whether these provisions are consistent with one another is not at all clear. 87 Yet, it seems to us that panels ought to tread lightly in this area. Indeed, member states ought to resist pressures from their constituents to bring complaints involving such issues to the WTO. The extent to which fair use is considered necessary depends on fundamental national values such as the importance and extent of free speech, on artistic traditions, and on aesthetic sensibilities. 88 Setting a worldwide standard on this issue would, therefore, reduce flexibility and produce a kind of cultural homog-84. If the case were decided by the Patrian court on the ground that Monastery's invention was obvious, then counterfeiting is a possibility. If Xandia can show a persistent unwillingness to recognize any pharmaceutical inventions as inventive enough to merit protection, the case would resemble Case I. If there is no element of persistence, then Patria's decision represents a determination that not much of an investment was needed to create the invention. That determination is some indication that this is not a case where countenancing competitive sales would significantly reduce the incentive to innovate. 85. 17 U.S.C. § 107. 86. TRIPS Agreement art. 13 (with respect to copyright); id. art. 30 (with respect to patents). 87. This issue is explicitly raised in Reichman, Minimum Standards, supra note 4, at 368. 88. See, e.g., Marci A. Hamilton, Art Speech, 49 Vand. L. Rev. 73, 86-96 (1996). Many of these same points can be made with respect to cultural questions raised in the GATr system for the first time by the TRIPS Agreement. For example, may a member state erect a barrier to services when the services in question are performances and the country is concerned that the importing country's culture will drown out its own? May a member state permit unauthorized utilization of trademarks if it believes that trademarks are among the few symbols that many of its citizens can read? May a member give adapters greater leeway with copyrighted works when adaptation is needed to make the works effectively available to the domestic audience? One wonders how these questions would be addressed in the context of membership by China in the WTO, one of the major issues before the WTO as these lines are written. enization that might either induce noncompliance or turn the world into a much less stimulating environment.8 9 In the final analysis, the way to handle complaints about finetuning may be the same in all cases. There ought to be a presumption that these issues are for individual member states, with intervention by the international community only on the basis of a showing of a pattern of discrimination or failure to grant protection without defensible reasons. 90 Cases I and II were concerned with the problem of insuring that intellectual property protection does not undermine its own goals by interfering with or unduly raising the costs of innovation. Intellectual property law holds another risk-abuse of the market power created by exclusivity. For example, intellectual property licenses have been used to disguise cartel arrangements, 91 to use power in one market as leverage for dominating another market, 9 2 and to inhibit the incentive to innovate. 93 Such effects are gener-89. See Nichols, Extension of Standing, supra note 56. We understand that the argument has been made that article 13 of the TRIPS Agreement raises the level of protection afforded intellectual property holders above that which was set by the Berne Convention. The argument, which is described but not endorsed in Samuelson, supra note 13, at 401-03, and Netanel, supra note 48, at 459-60, is that article 13 of the TRIPS Agreement creates a rather restrictive test for judging the lawfulness of certain unauthorized uses of a copyrighted work: it requires that an exception to protecting the rights holder be accorded only in "certain special cases," only when the unauthorized use does not "conflict with a normal exploitation of the work," and only if it does not "unreasonably prejudice the legitimate interests of the right holder." Article 13 is drawn from the Berne Convention, supra note 7, art. 9(2). However, by the terms of the Berne Convention, this restrictive test applies only to unauthorized reproductions, not to other uses. Other uses are sometimes judged by looser standards under Berne. For example, article 10(2) allows any use that is "fair practice." In contrast, article 13 of the TRIPS Agreement is of general applicability, and so the claim is that TRIPS (the later-negotiated treaty) negates the looser provisions of Berne, such as article 10(2). Professor Samuelson notes that the WIPO Copyright Treaty of December 1996 adopts a pro-user approach to intellectual property protection. Samuelson, supra note 13, at 409. Professor Netanel provides arguments for incorporating that approach into the interpretation of the TRIPS Agreement. Netanel, supra note 48, at 470-75. We arrive at the same position as they do, but do so from the perspective of examining the concept of minimum standards. 90. See also [Vol. 37:275 ally sought to be controlled through the concept of intellectual property misuse and through invocation of competition or antitrust laws. The negotiators of the Uruguay Round did not place competition law on their agenda, and it is not clear as of 1997 that this controversial subject will be on the future agenda of the World Trade Organization. 94 The TRIPS Agreement does, however, explicitly permit members to adopt appropriate measures to control abuse of intellectual property rights, 95 and provides certain guidelines as to the form that these measures might take. 96 94. The first biennial meeting of the WTO, at ministerial level, held at Singapore in December 1996, adopted the following statement in its closing declaration: Having regard to the existing WTO provisions on matters related to investment and competition policy and the built-in-agenda in these areas, including under the TRIMs Agreement, and on the understanding that the work undertaken shall not prejudge whether negotiations will be initiated in the future, we also agree to: establish a working group to examine the relationship between trade and investment; and establish a working group to study issues raised by Members relating to the interaction between trade and competition policy, including anti.competitive practices, in order to identify any areas that may merit further consideration in the WTO framework. WTO Focus, Jan. 1997, p. 7 at 10. For a strong argument that the WTO system should include an agreement on competition law, see Eleanor M. Fox, Toward World Antitrust and Market Access, 91 Am. J. Int 'l L. 1 (1997) (1996), arguing that TRIPS contemplates some limits to antitrust law with the goal of supporting protections gained under TRIPS. Bilker, alleging that certain of its licensing practices limited the worldwide competitive opportunities of Patrian molten metal producers and chilled their incentives to innovate. Specifically, the complaint alleged that Bilker committed a per se violation of Patria's antitrust laws by requiring its licensees to accept licenses of both patents and know-how (a package license) for a period extending beyond the terms of the patents, and to undertake to assign to Bilker rights in any improvements made by the licensee (a grant back-provision). Further, the government of Patria alleged that Bilker was refusing to license the copyrights in its computerized servicing protocols. Because these protocols were the only cost-effective way to service the equipment needed to practice Bilker's inventions, the refusal amounted to a tie-in of equipment, patents, and servicing. If not an antitrust violation, Patria charged, the tie-in was a misuse of Bilker's copyrights that would render them unenforceable in litigation. Following extensive litigation, the Patrian court entered a decree enjoining Bilker from enforcing its grant-back and package-licensing provisions, and from utilizing its copyrights as servicing restrictions, anywhere in the world: Moreover, Bilker was ordered to grant worldwide licenses to Patrian firms for certain of its patented technologies at a reasonable royalty. After the Patrian court entered its decree, Xandia filed a complaint with the WTO. Under Xandian law, package licensing and grant backs are considered competition problems only when the technology being licensed has no reasonable substitutes and the patentee has substantial market power. Moreover, Xandia does not recognize the concept of copyright misuse; copyright holders are allowed absolute discretion over licensing decisions. Xandia's complaint asserts that the judgment of the Patrian court amounted to a compulsory license that violates article 31 of the TRIPS Agreement concerning the conditions of compulsory licenses, frustrates the objectives of the TRIPS Agreement set out in article 7, and undermines the principles of article 8(2), which permit only "appropriate measures" to prevent abuse of intellectual property rights. Case III illustrates the problems we noted in the Introduction concerning the differing goals of trade law and intellectual property law. When competition law is included, the problems become even harder to sort out. On the one hand, the Patrian judgment in Case III could be said to encourage innovation: freed of grant-back obligations, Patrian molten metal producers have the incentive to improve on Bilker's technology. The judgment could also be said to promote trade in that it allows Bilker's competitors to sell molten metals and related technology on a worldwide basis. Moreover, the prohibition against tie-ins and package licensing could further the objective of the TRIPS Agreement to employ technological innovation "in a manner conducive to social and economic welfare," 98 in that it may lower the worldwide cost of using Bilker's technology both during the term that the intellectual property rights are in force and after they expire. On the other hand, the judgment also might have significant anti-innovation, competition, and welfare consequences. Patria's position on licensing could substantially restrict the manner in which innovators can capture the social benefits bestowed by their innovations, and reduce their capacity to coordinate developments in their fields. To the extent these restraints are imposed as per se rules-with no investigation of their competitive effect and no opportunity for Bilker to justify its practices-they diminish the incentive to innovate without evidence that they enhance competition. Nor is it necessarily true that the Patrian approach will improve the conditions of trade. Although the judgment frees all Patrian producers to do business all over the world, not every market is large enough and stable enough to attract investors. In less-developed countries, the efficiencies produced by cooperative and coordinated decision making are sometimes needed to pool all the capital and technical capacity that is available. Without violating some of the competition norms of developed nations, these economies may have considerable difficulty in modernizing. 99 Similarly, underdeveloped economies sometimes use the promise of exclusivity to encourage technology transfers; under the Bilker decree, . 311 (1996), noting that investors are averse to the risk that expected returns will diminish by reason of vigorous antitrust enforcement. [Vol. 37:275 exclusive rights are not available because Bilker is apparently required by the Patrian judgment to license any Patrian firm that asks. 100 Finally, package licenses can be good for poor economies. Sometimes, extending royalty payments beyond the terms of the relevant intellectual property rights functions as a loan: the initial cost of licensing is lowered because part of the payment is deferred to later years (when the licensee is better able to afford them). 101 As long as there are suitable substitutes for the licensed technology, package licensing can both promote trade and enhance welfare. Tensions such as these help to explain why the architects of the Uruguay Round did not wade too deeply into the muddy waters of competition law. Appreciating these tensions does not, however, make dispute resolution easier. In this case, developing countries may seek to intervene; consultations among participants might then enable the DSB to find a method for dealing with Bilker's business practices in a manner that optimizes world trade and research in molten metals. Should the parties fail to reach an agreement, however, it is very difficult to see how a panel would go about resolving this dispute. 1 0 2 The only specific guidelines provided by TRIPS are the fourteen conditions that article 31 places on compulsory licensing. Certain of these conditions were met by Patria: the case was considered on an individualized basis, the rights holder was involved, and the disposition was subject to judicial review. 0 3 However, the scope and duration of the judgment is quite broad and includes conditions that affect rights outside of Patria. Such a disposition is permissi-100. We say "apparently" because there is doubt that a Patrian court could order Bilker to give a license for activity in Tertia contrary to the laws of that country. See, e.g., Restatement (Third) of the Foreign Relations Law of the United States § 403(2)(g) and Reporter's Note 3 (1986). 101. See Rochelle C. Dreyfuss, Dethroning Lear. Licensee Estoppel and the Incentive to Innovate, 72 Va. L. Rev. 677, 710-11 (1986). 102. Antitrust aficionados will recognize this case as inspired by the Pilkington Glass case, though that case arose prior to the effectiveness of the TRIPS Agreement and 1997] [Vol. 37:275 ble, 1 4 and the Agreement states that grant-back conditions and coercive package licensing are practices that members may by legislation specify as abusive. 0 5 It is not clear, however, whether measures to control such practices may be implemented by Patria in the absence of "judicial or administrative process"' 0 6 evaluating evidence that the challenged practices were actually produced abusive effects. 1 0 7 A WTO panel might here look for precedents from GATT dispute settlement practice; 08 but that practice was not uniform, and in any event might not be regarded as applicable. That the intellectual property/competition interface would raise difficult questions was not lost on those who commented on the TRIPS Agreement at the time it went into force. In an early article, our colleague, Professor Eleanor Fox, suggested a way to deal with at least some of the problems that will arise. She noted that, at the time that the TRIPS Agreement came into force, the European Community and the United States took widely divergent positions on this issue. In effect, their laws staked out two ends of a spectrum, with the United States taking the pro-intellectual property side, and the European Community more oriented towards competition. 0 9 She then suggested a principle of preference whereby any antitrust enforcement action by a member state that 104. Id. art. 31(c), (k). 105. Id. art. 40(2). 106. Id. art. 31(k). 107. Article 40(2), for example, speaks of "practices or conditions that may in particular cases constitute an abuse of intellectual property rights" (emphasis added). See also id. art. 31(a), which specifies that compulsory licenses cannot be authorized without considering the individual merits of the situation; cf. Ernst-Ulrich Petersmann, International Competition Rules for the GATI-MTO World Trade and Legal System, J. World Trade, Dec. 1993, at 35, 59 (1993), who interprets this clause to require case-by-case analysis. 108. See, e.g., the well-known Section 337 case in which a U.S. law providing for different procedures to challenge alleged infringing products for imports and for domestically manufactured products was held to constitute a violation of the national treatment provisions of GATT, article II(4), although the actual controversy between the competing firms, AKZO and DuPont, was settled prior to conclusion of the GATT panel proceeding. United States-Section 337 of the Tariff Act of 1930, Nov. 7, 1989, (E.C. v. United States), GATT B.I.S.D. (36th Supp.) at 345 (1989). 109. See Fox, supra note 97, at 487-88, who cites as examples the questions whether patentees may charge excessive prices, refuse all licensees, divide territories, or require grantbacks from licensees-all issues that had arisen in both the United States and the European Community at the time the TRIPS Agreement entered into force. All the cited practices appear to be valid under U.S. law, but to violate EC law. fell within this spectrum should be considered presumptively valid under the TRIPS Agreement." 0 It seems to us that such an approach could run counter to the consensus that emerged from the Uruguay Round, where member states agreed to uphold minimum standards of intellectual property law, but did not make substantive decisions regarding competition law: such disparate treatment could be interpreted to mean that in close cases, innovation policy must trump competition policy in all member states. Thus, we do not believe that a principle of deference to U.S. or European Community competition law (or something in between) should be read into the TRIPS Agreement. We do, however, think that Professor Fox offers an attractive approach for interpreting what the minimum standards of the TRIPS Agreement mean by abuse. Thus we would accept her suggestion to compare Patria's law and implementing decree with the laws of the European Community and the United States: if Patria's measures are consistent with those laws (particularly if the practice challenged by Bilker would violate the law of both jurisdictions and the remedy imposed by Patria would be consistent with both their laws), they should be upheld by a WTO panel unless expressly prohibited by the TRIPS Agreement. However, if, for instance, Patria required Bilker to issue a compulsory royalty-free license for its patented products, such an order would be inconsistent with article 31(h) of the TRIPS Agreement, regardless of U.S. or European Community law, and a challenge to the order by Xandia should be upheld by the DSU panel."' Nor does Professor Fox purport to address all of the problems raised by cases such as Case III. She does not provide a method for considering measures that fall outside the ECIU.S. competitionlaw spectrum. Such situations are easy to imagine. The competition law of the United States and the European Community may 110. See id. at 492-93. 111. Article 31 of the TRIPS Agreement provides: Where the law of a Member allows for other use of the subject matter of a patent without the authorization of the right holder,... the following provisions shall be respected: (h) the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization[.] Under paragraph (k), some other conditions are not obligatory when a compulsory license is imposed to remedy a practice determined after judicial or administrative process to be anti-competitive. Paragraph (h) is not among the conditions that may be avoided in such case. well not be appropriate for developing countries and member states in transition to market economies. States that, prior to TRIPS, lacked intellectual property protection did not have rights that could be abused, nonmarket economies had no need for antitrust laws, and many developing countries still have not reached a stage where competition policy is of major concern. 112 Once such countries begin to implement their obligations under the TRIPS Agreement by enacting intellectual property law, antitrust rules are likely to follow. However, it is not necessarily the case that any of the antitrust regimes extant at the time of the Uruguay Round will meet their needs. As we have noted, some countries may consider themselves better off sacrificing a little competition in order to attract investment in infrastructure. Conversely, a country that is trying to find technological opportunities for an emerging work force may be justified in being less tolerant of tie-ins that limit the growth of niche industries such as servicing. Even if competition law does not become a major item on the agenda of the WTO, we conclude that the relation between competition law and intellectual property law merits further study, possibly in connection with the review of the TRIPS Agreement that is due in five years' time. We would not expect this rethinking to take place in the course of a dispute settlement proceeding. How, then, after this lengthy excursion, should a dispute panel decide whether the disposition by the Patrian court in the Bilker case is consistent with the TRIPS Agreement? Given the lack of consensus on the correct balance between antitrust and intellectual property law, and given what we said in connection with Case II about not second-guessing domestic decisions regarding fine-tuning, it is tempting to start with a presumption that Patria's decision in Bilker should be sustained. Indeed, the approach of article 31 of the TRIPS Agreement is to defer to the decisions of competent national authorities. There are problems with a presumption of deference, however. Competition cases are likely to have more of an impact on rights holders than the sorts of questions raised in connection with Case II. In contrast to fine-tuning mechanisms, the decision to hold an intellectual property right unenforceable permits wholesale copying. In Case III, for example, the judgment of the Patrian court would permit anyone wishing to enter the ser-112. See generally Rodriguez & Coate, supra note 99. [Vol. 37:275 vice business to copy Bilker's servicing protocol programs; in other cases, the decision to hold a patent right unenforceable would allow anyone to enter into competition with the patentee. Indeed, such a decision may allow a product to be sold in any country that has a worldwide exhaustion doctrine.' 3 Deciding the issue simply on the basis of deference to national law therefore seems inappropriate. One approach to evaluating the validity of the decree would be for the dispute panel to examine the extent to which the Patrian court inquired into the facts of the case and then to examine whether the court analyzed these facts in a manner that would plausibly identify practices abusive to its economy. If the court has acted on the sort of facts that, say, the U.S. Justice Department uses when it proposes a consent decree, then, subject to two caveats, its actions should be considered valid. The first caveat concerns the impact of a decree on countries of very different economic development from the one that issued the decree. In Case III it is unlikely that the fact-finding in Patria would have encompassed the effect of the decree on a developing country. Thus, if a developing country member intervened in the dispute to raise the issues discussed above, the panel should supplement Patria's fact-finding with information about the effect of the decree on different economies. Deference would be accorded to Patria's decision only to the extent that its decree affects the economies of states similarly situated to Patria. The second caveat concerns Patria's per se rules regarding package licensing and tie-ins. It is not clear that the TRIPS Agreement tolerates broad orders based on per se views of particular licensing practices, that is, practices regarded as so bad (such as price-fixing, for instance) that inquiry into the reason for the practice is neither required nor permitted. Per se judgments are not necessarily alien to WTO dispute settlement: Article 3.8 of the Understanding on Dispute Settlement states that when there is an infringement by a member state of the obligations assumed under a covered agreement, the action is considered prima facie to constitute nullification or impairment. But Case I involves only a charge of violation by 113. As pointed out in note 12, article 6 of the TRIPS Agreement specifically provides that the Agreement should not be interpreted to address the issue of exhaustion. Usually, exhaustion is found when the product is sold under the authority of the intellectual property holder. Thus, whether the statement in the text is true in a given country will depend on whether the sale of a product in a country that refuses to enforce the intellectual property right is deemed to be a sale under the rights holder's "authority." a Xandian company of the law of Patria, and a response that the challenged conduct is protected by the TRIPS Agreement or that the remedy imposed by Patria exceeds what is permissible under that Agreement. It seems to us that before pronouncing on Case III, the panel should afford both sides the opportunity to present facts and economic analysis. If this is sound, Bilker ought to have the opportunity to defend its practices in the Patrian court, and to contend to that court that the TRIPS Agreement protects its practices or limits the remedies that may be imposed by Patria. If Bilker has not previously been given such opportunity, the panel should rule that Patria has not complied with the TRIPS Agreement, and should recommend that the case be reopened in that country. One of the major innovations in the Uruguay Round was agreement that decisions of dispute panels were to be treated like judgments-that is, that they could not be blocked by the losing party or even by a majority vote of the membership of the WTO. Once that decision had been taken, it became necessary to provide for some type of review, both to correct errors that might be made by an ad hoc panel and to give participants dissatisfied with the outcome a second chance to be heard. The solution, in keeping with the preference for the judicial over the diplomatic model for dispute settlement, was creation of a standing Appellate Body, made up of seven persons drawn from different constituencies included in the WTO. 114 The Appellate Body is supposed to complete its work in sixty days from the date of the appeal (ninety days for exceptionally difficult cases), and appeals are to be "limited to issues of law covered in the panel report and legal interpretations developed by the panel." 1 5 114. See DSU arts. 17 & 18. As of 1997, the members of the Appellate Body come from the United States, the European Community (Germany), Japan, New Zealand, Egypt, the Philippines, and Uruguay. The Chairman is Julio Lacarte Muro of Uruguay, who had a long career as a representative to GAT and served as the chairman of the negotiating groups on dispute settlement and institutional questions during the Uruguay Round. Members of the Appellate Body are elected for four-year terms and may be reelected once, except that three of the members first appointed, selected by lot, will have an initial term of two years, so that the entire membership will never be changed over at once. Any given appeal is heard by three of the seven members of the Appellate Body serving in rotation, without reference to their nationality. Distinguishing legal from factual questions for purposes of jurisdiction is, of course, a common problem in all legal systems. The fact/law distinction is particularly troublesome in the context of patent controversies, where resolution of issues of novelty, prior art, and scope of inventions is dependent both on determinations of fact and on interpretation of imprecise legal standards. 1 For our purposes, however, we illustrate the problem in an apparently easier context--concerning the right to register a trademark. Koka Kola, Ltd., a Xandian company, has registered its mark, KOKA KOLA, for carbonated beverages (soda pop) in Xandia and in most of the world. As a result of Koka Kola's sponsorship of every Olympic Games since World War II, it had every reason to believe that the mark was familiar everywhere. Nonetheless, when it sought registration in Patria, its application was denied, on the ground that the same mark had recently been registered by a Patrian who was in the process of starting a company to manufacture and distribute his version of Koka Kola soda pop. When Koka Kola was unsuccessful in having the other registration canceled, it persuaded the government of Xandia to bring a complaint in the WTO. According to Xandia's complaint, Koka Kola is a wellknown mark for soda pop and Patria's refusal to register it violated article 16(2) of the TRIPS Agreement. 11 7 A 116. In its first five years, the Court of Appeals for the Federal Circuit considered the fact/law distinction in eleven percent of its reported decisions. See Rochelle C. Dreyfuss, The Federal Circuit: A Case Study in Specialized Courts, 64 N.Y.U. L Rev. 1, 47-52 (1989), which also discusses the experience of the United States as it is made more complex by the right to a trial by jury. See also Markman v. Westview Instruments, 116 S. Ct. 1384 (1996), which held that the interpretation of a patent, including terms of art within its claims, is exclusively within the province of the court, not the jury. 117. Article 16(2) of the TRIPS Agreement reads in pertinent part as follows: Article 6bis of the Paris Convention (1967) [concerning the protection of wellknown trademarks] shall apply, mutatis mutandis, to services. In determining whether a trademark is well-known, Members shall take account of the knowledge of the trademark in the relevant sector of the public, including knowledge in the Member concerned which has been obtained as a result of the promotion of the trademark. Article 6bis(1) of the Paris Convention, supra note 8, reads: The countries of the Union undertake, ex officio if their legislation so permits, or at the request of an interested party, to refuse or to cancel the registration, and to prohibit the use, of a trademark which constitutes a reproduction, an imitation, or dispute panel was convened. Xandia submitted consumer surveys showing that substantial numbers of Patrian soda pop consumers recognized the mark and that an even higher percentage of consumers in larger markets recognized it. Upon consideration of these surveys and after seeing evidence that since 1980, all telecasts of the Olympic Games could be received on television sets in Patria, the panel determined that the mark was wellenough-known within the meaning of the TRIPS Agreement to qualify for the special protection offered by TRIPS article 16(2). Patria appeals to the Appellate Body, pursuant to article 16 of the DSU. Xandia might well contend that there is only one issue in this case-whether the Koka Kola mark for soda pop is well-knownand that any lay person would say that this is a question of fact. Thus, Xandia could argue that there is no basis for reviewing the panel report in the Appellate Body. Or, more subtly, Xandia might argue that given the relationship between the resolution of the appeal and the application of article 16(2) of the TRIPS Agreement, the issue sought to be put before the Appellate Body is a mixed question of law and fact, and that resolution of mixed questions is also beyond the mandate of the Appellate Body. 118 It is important to recognize in this context that the fact/law distinction is jurisdictional. Whether the Appellate Body may hear the appeal depends on an interpretation of the Understanding on Dispute Settlement and the covered Agreement in question, and cannot be decided according to the law of any particular member state. Given the reasons for creation of the Appellate Body and the limited time available for completion of its assignment, our view is that respondent parties in the appeal process-typically (as a translation, liable to create confusion, of a mark considered by the competent authority of the country of registration or use to be well known in that country as being already the mark of a person entitled to the benefits of this Convention and used for identical or similar goods. These provisions shall also apply when the essential part of the mark constitutes a reproduction of any such well-known mark or an imitation liable to create confusion therewith. 118. Mixed questions of fact and law are often treated as factual. See, e.g., Pullman-Standard v. Swint, 456 U.S. 273, 287-88 (1982), holding that the question of whether an employment practice is unlawful under Title VII of the Civil Rights Act is a question of fact. [Vol. 37:275 in Case IV) the party that prevailed before the panel-should be discouraged from raising challenges to the jurisdiction of the Appellate Body; further, if such a challenge is raised, the Appellate Body should be very reluctant to dismiss an appeal over an issue of jurisdiction. Findings of particular facts made by the panel can be accepted. For instance, in Case IV the Appellate Body need not make an independent inquiry into the broadcast history of the Olympic Games or their reception in Patria. It can satisfy itself that the information submitted to the Panel was reliable, or, if differing information was submitted, that the panel made a rational choice as to which version to accept. But as to the ultimate issuewhether Patria complied with the criterion in the TRIPS Agreement regarding knowledge of the mark in the relevant sector of the public-the Appellate Body should make its own decision, free, we would urge, from any debate about whether the decision is based on "fact" or on "law." Case IV is a clear example supporting the conclusion that a lay person's understanding of the distinction between law and fact cannot be the guiding principle governing the activity of the Appellate Body. If the Appellate Body declined to take jurisdiction of the appeal, it would, in effect, exclude itself from participating in the elucidation of one of the most important provisions in the TRIPS Agreement-the provision that enables producers to develop and maintain a worldwide marketing strategy without fear of "trademark pirates" to hold them up. If a panel can address the issue, it must be that the Appellate Body can and should do so as well. It is instructive in this context to contrast the TRIPS Agreement with the Agreement on Dumping and Antidumping Measures, 11 9 also concluded as an obligatory part of the Uruguay Round package. As with the TRIPS Agreement, the Antidumping Agreement contemplates review under WTO procedures and international standards of decisions made by national administrative or judicial authorities pursuant to national law. Under article 17.5 of the Antidumping Agreement, if the authorities of Patria (the importing country) have imposed antidumping duties on a product of Xandia (the exporting country), Xandia may, after consultations have proved unsuccessful, apply to a panel to examine whether the Patrian authorities have acted in compliance with the Agreement. However, under article 17.6, (i) ... the panel shall determine whether the... establishment of the facts [by Patria's authorities] was proper and whether their evaluation of those facts was unbiased and objective. If the establishment of the facts was proper and the evaluation was unbiased and objective, even though the panel might have reached a different conclusion, the evaluation shall not be overturned; and further: (ii) ... Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations. This provision was inserted upon the insistence of the United States, which feared that international panels unsympathetic to the provisions on dumping generally and in particular to the hard-toconfirm findings on causation of injury might hold antidumping measures ordered by the U.S. Department of Commerce and the U.S. International Trade Commission to be inconsistent with the international understanding.1 20 The last-minute solution, for what the United States delegates said was a "deal breaker," was to accord an extra degree of deference to national authorities-for dumping cases only. If Patria considers that a panel convened to review its antidumping measure has exceeded the limitations of article 17.6, such a contention could, it seems clear, be made the subject of an appeal to the Appellate Body. The Appellate Body would not be authorized to examine the underlying issues of price comparison and causation of injury (the "fact issues"), but would be limited to determining whether or not the panel had exceeded the limitations imposed by article 17.6. No provision comparable to article 17.6 of the Antidumping Agreement appears in the TRIPS Agreement,' 2 ' and we believe 120. A pattern along these lines had developed in cases brought under chapter 19 of the Canada-United States Free Trade Agreement, cheered by some but condemned by others. 121. Indeed, it is reported that when the suggestion was made that a single (deferential) standard should be made applicable to all WTO panels reviewing national administrative [Vol. 37:275 that none should be read into it either by panels or by the Appellate Body, in the guise of making rulings on "jurisdiction" or distinguishing "fact" from "law." The ultimate issue-whether denominated "fact," "law," or "mixed,"-should be considered (if a party so desires) at two levels, first by the ad hoc panel that assembles the record, hears the parties, and makes an initial deteruination, and second by the standing Appellate Body, that considers, for instance, how the Koka Kola case fits in with other intellectual property cases and with the jurisprudence of the GATI/WTO system generally. The problems in Case IV-which seemed to be the easy casedo not quite disappear even after the decision is made to consider the ultimate issue one of law. TRIPS article 16(2) calls for inquiry into "the knowledge of the trademark in the relevant sector of the public, including knowledge in the Member concerned which has been obtained as a result of the promotion of the trademark." Here, then, are several sub-issues: How much knowledge is necessary for the mark to be considered well known: must a majority of the relevant public recognize it, or is a substantial minority enough? What is the relevant sector: soda pop drinkers or all beverage consumers? What is considered promotion of the trademark in the member state: is Koka Kola considered to have promoted the mark in Patria by reason of buying air time on an event that could be picked up on television receivers in Patria, or must it have advertised on actual local broadcasts? Even after it is determined that the ultimate issue-the strength of the mark-is a question of law, the issue of characterizing these penultimate questions remains. Once again, the line between fact and law can only be drawn by reference to the underlying principles to which the adjudicatory system is dedicated, that is, by considering why line drawing is needed under the circumstances. For example, in domestic intellectual property cases in the United States, controversies, such as over the strength of a trademark, that require resolution of a series decisions, the proposal was "greeted with fury" by U.S. intellectual property interests, which did not wish to give to other countries' patent and copyright authorities the deference which the U.S. Trade Representative sought for American antidumping decisions. See Gary N. Horlick & Eleanor C. Shea, The World Trade Organization Antidumping Agreement, 1. World Trade, Feb. 1995, at 5, 31 (1995). of penultimate questions are often handled by considering those questions to be ones of fact and the ultimate question one of law. In this way, the opportunity to appeal the outcome of the controversy is preserved, yet the litigants' respect for the trial court as the primary forum for dispute resolution is maintained. 12 2 Such allocation of authority may, however, not be generally suitable to disputes under the TRIPS Agreement, where the policy interests can be very different. Dispute panels are chosen in a manner designed to promote considerable respect from the parties. Panel members are selected by the Director General of the WTO, in consultation with the Chairman and counsel of the DSB, from a roster of persons who have served in their own governments, often as judges, or in other capacities in the GATI.'23 Some are academic experts in the issues raised by the dispute. However, because the panels are chosen for a particular case, there is no assurance that members of a panel will have the same commitment to long-term consistency that is expected from the members of the Appellate Body. 124 Accordingly, one might conclude that less deference is owed to panel decisions than is accorded to court decisions in the United States. On the other hand, at least one, and possibly all members of a panel in a dispute focused on the TRIPS Agreement may be expected to be experts in intellectual property, whereas it is highly unlikely that any member of the Appellate Body possesses comparable knowledge or experience. 25 Thus, it may well be desirable for the Appellate Body to give greater deference to legal decisions of a panel in intellectual property disputes than it would in disputes about, say, export subsidies or import safeguards-and also more deference than a national appellate court would give to a trial court. Indeed, the role of the Appellate Body, as we see it, is not primarily to articulate intellectual property norms in the interna-122. See, e.g., Graham v. John Deere Co., 383 U.S. 1 (1966), where the Court held that in a patent case the ultimate issue of nonobviousness consists of four questions: What is in the prior art?; What is the difference between the applicant's invention and the prior art?; What does a person with ordinary skill in the art know?; Could such a person fill the gap? The first three are issues of fact, the last is deemed to be an issue of law. 123. See DSU art. 8. 124. In the past, the Secretariat has endeavored to fill the role of supplying the sense of continuity, and it may be expected to continue to do so in the future. 125. Of the first seven members of the Appellate Body, two are (or were) professors of law (but not intellectual property law), one was a justice of his country's Supreme Court, two were career diplomats, one was a professor of economics, and one (the U.S. member) is a practicing attorney and former member of Congress. [Vol. 37:275 tional economy, but to oversee the work of dispute panels with an eye to the general principles of open markets and nondiscrimination embodied in the GATTWTO system. In fact, as noted earlier, it is the Council for TRIPS that is charged with monitoring the operation of the Agreement and cooperating with WIPO in setting international norms. 126 The Appellate Body, then, is not the only, or even necessarily the best, source of authoritative articulation of intellectual property norms. We do suggest, however, that where system-wide rules are desirable, the provision in the DSU concerning "issues of law" should receive broad scope when applied to the TRIPS Agreement; where it is permissible for members to maintain legal regimes that differ from one another, the need for uniform interpretation of the TRIPS Agreement by the Appellate Body is less compelling, and it is "questions of fact" that should be interpreted generously. As the TRIPS Agreement is written, members have considerable discretion to maintain their own intellectual property regimes. .*. Members may, but shall not be obliged to, implement in their law more extensive protection than is required by this Agreement, provided that such protection does not contravene the provisions of this Agreement. Members shall be free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice. (emphasis added). Thus, where the panel has deferred to the respondent state's national authorities, the inclination (not to say presumption) of the Appellate Body ought to be to defer as well.u 7 In contrast, a contention by Patria that a panel has acted inconsistently with article 1 in ruling against a practice that does not clearly violate the TRIPS Agreement should be heard and determined by the Appellate Body. In such cases, the proper role for the Appellate Body is to monitor whether panels have been too interventionist, a question of judgment that does not fit easily into the "law" or "fact" classification. One might be tempted to conclude from this discussion that the Appellate Body needs wide authority only in disputes such as those 126. See supra text at note 42. 127. It is worth reminding the reader that in a transnational controversy about intellectual property, the product asserted to be protected may be the import and the challenged product domestically produced, or vice versa. illustrated by Case I, where the question was what the minimum standards require. A review of our other cases demonstrates that this is only sometimes true. It may be true for cases in the category of Case II, where the differing circumstances of member states require that they be allowed to make differing adjustments between the rights of innovation producers and innovation users. The application of the doctrine of equivalents in patent law, 1 28 for example, should probably be left to interpretation by each member state, subject to intervention by the WTO only upon a showing of discrimination. But the fact that member states have discretion under the TRIPS Agreement to implement their own legal regimes is not necessarily conclusive of the proper role of the WTO panel or the Appellate Body. For instance, Case III, the antitrust case, raised the question of the permissible extraterritorial effect of decisions of a national authority. On that issue, as in Case IV, neither the panel nor the Appellate Authority should defer to the national authority. It is up to the international authority to step in, to declare, for example, whether it is permissible for member states to order worldwide relief for antitrust violations or intellectual property misuse, and if so, whether they may do so on the basis of per se rules, without permitting justification through market-by-market analysis. Furthermore, if the Appellate Body determines that per se rules are objectionable, it will need to have a role in deciding such fact-sounding issues as when an entity occupies a "dominant position," when a technology has suitable substitutes, and how to define separate markets. In the end, we can offer only discussion of the problem, not hard rules. The Appellate Body is not a Supreme Court, but part of a process not yet tested, which will include the evolution of normsetting in WIPO, the activity of the Council on TRIPS, and the progress made among the parties in developing a shared understanding of the not always consistent values of intellectual property and competition. Two key enforcement issues are likely to confront the WTO in the intellectual property area. The first concerns enforcement by member states of the intellectual property rights that they have recognized, at least on paper. The second issue, not limited to 128. For an explanation of the doctrine of equivalents in connection with Case II, see supra notes 61-62. [Vol. 37:275 intellectual property controversies, concerns enforcement of member states' obligations, once these have been determined by the dispute settlement process. Our last case directly raises the first issue, and could well raise the second one also. This case is a continuation of Case IV. Xandia, having taken up the case of Koka Kola, has prevailed before a panel established under the DSU. The panel's decision has been upheld by the Appellate Body, and the Report of the Appellate Body has been adopted by the DSB. According to article 21 of the Understanding on Dispute Settlement, Patria is supposed to inform a meeting of the DSB within thirty days of its intention in respect of imple- mentation of the recommendations and rulings of the DSB. In this case, the ruling was that Koka Kola's trademark was widely recognized in Patria, and the recommendation was that the relevant Patrian authority cancel the registration of the local rival and approve the registration of the mark by the multinational company based in Xandia. If necessary, the Patrian authority was to seek an injunction or comparable remedy against infringement. The ruling was upheld by the Appellate Body. Patria, however, states that it is not in a position to comply with the recommendation and ruling, because its domestic law does not permit the measures recommended by the panel. Alternatively, Patria contends that its prosecutors have considerable discretion in allocating their resources, and putting a stop to trademark infringement is not a high priority. In addressing Patria's defense of lack of resources or competing priorities, a WTO panel or the Appellate Body will need to come to grips with an interesting ambivalence reflected in article 41, the General Obligations article of the TRIPS Agreement. Paragraph 1 of article 41 states that "[m]embers shall ensure that enforcement procedures.., are available under their law so as to permit effective action against any act of infringement of intellectual property rights... including expeditious remedies ... and remedies which constitute a deterrent to further infringements.' 1 29 Paragraph 5 of the same article, however, states that "[n]othing in this Part creates any obligation with respect to the distribution of resources as between enforcement of intellectual property rights and the enforcement of law in general.' 130 If Patria's concern is really the allocation of limited resources, the problem may be addressed by a recommendation of the Panel that the period of compliance be stretched out-for instance until completion of the next session of the legislature-and (if Patria is a developing country) that financial and technical resources be made available to Patria under article 67 of the TRIPS Agreement. 31 A pattern of nonenforcement by Patria, coupled with an allegation by Xandia that Patria had the resources to carry out its obligations, would be difficult to establish, and certainly could not be established in the first case. Possibly, Xandia could show that repeated efforts to bring infringement proceedings in Patria had led to no effective results. An assertion by Xandia that bringing such proceedings would be fruitless would, we expect, not be sufficient to lead to a determination that Patria was in violation of article 41(1).132 But if a pattern of non-enforcement by Patria of its laws were established, we believe that a panel could find a viola-129. The full text of article 41(1) reads as follows: Members shall ensure that enforcement procedures as specified in this Part are available under their law so as to permit effective action against any act of infringement of intellectual property rights covered by this Agreement, including expeditious remedies to prevent infringements and remedies which constitute a deterrent to further infringements. These procedures shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse. 130. The full text of article 41(5) reads as follows: It is understood that this Part does not create any obligation to put in place a judicial system for the enforcement of intellectual property rights distinct from that for the enforcement of law in general, nor does it affect the capacity of Members to enforce their law in general. Nothing in this Part creates any obligation with respect to the distribution of resources as between enforcement of intellectual property rights and the enforcement of law in general. 131. See supra note 70. 132. The problem of securing relief under domestic law is currently before the WTO between the United States as complainant and Japan as respondent, arising out of the longrunning controversies between Eastman Kodak and Fuji Film. Kodak and the United States allege, inter alia, that Fuji is engaged in anticompetitive practices in violation of Japan's antitrust and monopoly law, but that it would be fruitless for Kodak to bring a complaint against Fuji before the Japan Fair Trade Commission. [Vol. 37:275 tion, and if no improvement were apparent, the controversy could be moved into the compliance stage, as discussed below. 1 33 We think that the government of Xandia should hesitate before bringing Case V before the WTO dispute system. A better way to encourage enforcement of intellectual property rights-whether before or after litigation, as illustrated by the preceding casesmay be outside of the dispute resolution system. In many instances, we expect, intellectual property holders could serve their own cause by helping infringers find ways to utilize the investment they have sunk into infringing activities. In Case V, for example, Koka Kola may gain more by licensing to the so-called Patrian "trademark pirate" than by fighting him through to the end under the WTO system. With licensing, his plant would be utilized and Patrian workers would be employed; yet, Koka Kola could protect its marks by regulating the output for quality and quantity. If the relationship became valuable enough to the licensee, the impulse to cheat-for instance by exporting outside the territory covered by the license-might be reduced more than it could ever be controlled by a Patrian police force. 134 In the past, that is, under the GATT prior to completion of the Uruguay Round, Patria might have been able to block adoption of the panel report; even if it did not do so, it might have been able to fend off "suspension of equivalent concessions" by Xandia, because such a step required approval of a majority of the Contracting Parties, and retaliation was generally disfavored. The architects of the Understanding on Dispute Settlement sought to put teeth into the system, with an elaborate (but as yet untried) set 133. The problem of nonenforcement of laws supposed to protect internationally recognized rights is not limited to intellectual property. It became a major issue, for instance, in the negotiation of the North American Free Trade Agreement, and particularly of the so-called side agreements on environmental cooperation and labor cooperation forced through by the Clinton administration after the principal agreement had been completed during President Bush's term. Those side agreements address a concern that a treaty partner (read Mexico) would place acceptable standards on its books but not enforce them; the solution, if it can be called that, was to establish a joint commission, to which nongovernmental as well as governmental organizations could make submissions, which could lead to a process of consultation, arbitration, reports, monetary penalties, and ultimately suspension of benefits under the Free Trade Agreement. 134. On the other hand, it is worth pointing out that disputes about the enforcement of of steps applicable if the preferred dispute settlement process breaks down. First, if Patria cannot comply immediately, it will have a reasonable period of time to do so. Determination of what is a "reasonable period" is subject to approval by the DSB or to an agreement with Xandia within forty-five days of adoption of the Report, orif no agreement is reached-to binding arbitration. The arbitration is to be held within ninety days of issuance of the Report and is limited to the issue of the "reasonable period" for compliance. 135 Next, the DSU makes provision for disagreement between the parties over whether a corrective measure proposed by the respondent party is consistent with the GAIT or the covered agreement. That question is also to be referred to impartial decision makingnot by the arbitrator but by a panel, if possible the panel that heard the original dispute. 36 It is hard to imagine how there could be disagreement over implementing the ruling in the Koka Kola case, but in other cases, including other intellectual property cases, a proposed corrective measure might well give rise to continuing controversy. 137 Third, if all else fails, two more possibilities are set out in the DSU. If Patria fails within the "reasonable period" to carry out the recommendation to terminate or modify the practice found to be inconsistent with the Agreement, it may negotiate with Xandia for mutually acceptable compensation. The term is not defined in the DSU, but it seems to mean some offer by Patria of trade interest to Xandia. 3 8 If no agreement on compensation is reached within twenty days of the expiration of the "reasonable period," Xandia, the prevailing party, may, upon authorization of the DSB, retaliate 135. All of the above is set out in article 21 of the DSU. Article 21.4 indicates that the "reasonable period" shall not exceed 15 months from the date of establishment of the panel, which would leave 90 days from completion of the appellate process in normal cases, with more time to be added on if either the panel or the Appellate Body asked for additional time. 137. For instance, in the case about protection for computer programs, Patria might issue a regulation or adopt legislation that went part way, but not completely, to protecting the innovative aspects of computer programs, or that seemed to grant adequate protection but provided such slight punishment for infringement as to lead Xandia to complain that no real deterrence was involved. Of course, even in Koka Kola, if the panel recommendation included legislative reform or revised resource allocation, renewed controversy might arise about the adequacy of implementation by Patria. 138. Though the DSU does not say so, it seems clear that any offer by Patria in this context must be granted on a most-favored-nation basis, because it would not fit into any of the permitted exceptions to that most fundamental principle of the GATT/WTO system. against Patria by suspending the application to Patria (this time on a discriminatory basis) of concessions or other obligations. 1 39 Suspension of a concession or other obligation is subject to authorization by the DSB, but article 22.6 of the Understanding on Dispute Settlement provides that the DSB shall grant the authorization within thirty days of the expiry of the "reasonable period," unless it decides by consensus to reject the request. 140 What kind of suspension might be authorized? Considering that retaliation is generally disfavored in the GATrIWTO systembecause it means that not one but two distortions to normal trade will prevail-the Understanding on Dispute Settlement contains surprisingly detailed provisions in answer to this question. 141 The general principle is that the complaining party should first seek to suspend concessions or other obligations with respect to the same sector(s) as that in which the panel or Appellate Body has found a violation. If that is not practicable, the complaining party may seek to suspend concessions or other obligations in other sectors under the same agreement-in our case the TRIPS Agreement. If that is still not practicable, the complaining party may suspend concessions or other obligations under another covered agreement. Retaliation is not punishment. Article 22.4 of the DSU states clearly what has been understood in the GATT since its origins: "The level of the suspension of concessions or other obligations authorized by the DSB shall be equivalent to the level of nullification or impairment." Should Xandia now propose to refuse to recognize trademarks owned by nationals and companies of Patria? Or trademarks on soft drinks? On all food products, or all products sold in grocery stores? We worry about all proposals of this kind. Any form of trade retaliation brings with it a substantial measure of injustice, because it nearly always affects persons that have had no prior involvement in the controversy. 142 We suspect that the adverse 139. See DSU art. 22.2. 140. If the respondent party, Patria in our example, objects to the level of the suspension proposed or claims that the suspension is not consistent with the principles discussed hereafter, the DSU makes provision for still another arbitration, to be completed within 60 days of the expiry of the "reasonable period." 141. DSU art. 22.3-6, 22.8. 142. A striking illustration of this point occurred in the mid-1960s, when the United States retaliated (with authorization of the GATI) against restraints by the European Community against imports of poultry by imposing high tariffs on panel trucks and brandy. An importer of Spanish brandy protested that it was a wholly innocent bystander sideswiped by a controversy with which it had no connection whatever. The protest succeeded effects of retaliation-trade distortion and injustice-could be more severe if implemented in a tit-for-tat last act in an intellectual property dispute than in the traditional fields of exchange of goods. For example, consider a Xandian factory tooled to manufacture high-quality merchandise under license from a Patrian company. The factory may have been very expensive to build, and it may well employ a large and expensive workforce. If Xandia retaliates by refusing to recognize the Patrian company's trademark, it may be that the price of the output will have to be lowered because of confusing use of the mark in Xandia. At that point, it may no longer be profitable to keep the factory in operation. Retaliation will, in short, have idled an expensive assembly line, hurting both Xandian enterprises and Xandian workers, with some loss also to the Patrian firm whose royalty income is reduced, but with no gain for the original injured party, Koka Kola. Perhaps more significant, retaliation of this kind could have an adverse effect on consumers and on the market place. Trademark law, after all, is partly geared to consumer protection. Unambiguous signals denoting particular goods allow consumers to make informed purchasing choices. Without effective signals, search costs increase. When they do, the unseen hand of the marketplace begins to allocate resources inefficiently. Even after the retaliation is withdrawn, these effects could persist. Having lost the ability to control their marks and send clear messages to their customers, producers will have difficulty notifying consumers that the meaning of the mark has been restored. An alternative might be for Xandia to announce that its retaliation would take the form of a refusal to register new trademarks originating in Patria. Continuing to enforce old marks would preserve the reliance interests of those who owned or licensed marks in Xandia at the time the retaliation took effect. However, the refusal to register new marks might also lead to confusion among consumers and distortions of the market. Xandian consumers traveling abroad or receiving signals on television or the internet would be exposed to the way that marks are used outside Xandia, and consumers outside Xandia might well be exposed to the unauthorized usages permitted inside Xandia. Indeed, the whole problem in the court of first instance, but failed on appeal. See Star Indus., Inc. v. United States, 320 F. Supp. 1018 (Cust. Ct. 1970), rev'd, 462 F.2d Allowing Xandia to refuse to recognize marks that are new to Xandia will not, therefore, contain the possibility of confusion in a meaningful way. On the one hand, this means that despite the apparently limited nature of the retaliation, it could have a large enough impact on Patrian business to inspire Patria to conform its behavior to the requirements of the TRIPS Agreement. On the other hand, however, the impact of even this narrow action could be unacceptably high, for there is no way to prevent dislocations in other markets. As in Case Ill, administration of the TRIPS Agreement needs to be sensitive to extraterritorial effects of intraterritorial actions. Given that any retaliation focusing on trademarks is unattractive, the next-favored retaliatory measure would be cross-agreement, that is, still within the field of intellectual property governed by the TRIPS Agreement, but addressed to patents or copyrights, rather than to trademarks. Refusal to enforce or register patents and copyrights originating in Patria, however, would raise many of the same issues of expropriation that are raised by canceling or refusing to register trademarks. Although the danger of confusing consumers would not be present, the problem of frustrating the reliance interests of rights holders and licensees would exist at least equally. 14 3 Moreover, there might well be an extraterritorial effect if products could be exported from Xandia into countries that recognize a doctrine of worldwide exhaustion of copyright and patent rights. It may be that cross-sectoral retaliation would be the most attractive alternative for Xandia, as in the action taken in 1988 by the United States against Brazil under the famous Section 301, when the Reagan administration imposed 100% tariffs on imports of microwave ovens, quality writing paper, and a number of other products from Brazil, in retaliation for that country's refusal to grant patent protection for pharmaceutical products. '"4 143. Cf. Genentech, Inc. v. Regents of the Univ. of Cal., 939 F. Supp. 639,643 (S.D. Ind. 1996), in which the court suggested that a federal state's refusal to recognize a patent right would be a deprivation of a property right. 144. See Proclamation No. 5885, 53 Fed. Reg. 41,551 (1988). Brazil called for creation of a GATI panel to rule on whether the U.S. action was legal under GATT, and a panel was in fact convened, but the President of Brazil announced that he would seek legislation to provide patent protection for pharmaceuticals, and the U.S. sanctions were withdrawn before the panel could issue a ruling. The difficulty in fashioning an appropriate form of retaliation is not a reason to disparage either the TRIPS Agreement or the Understanding on Dispute Settlement. The whole thrust of the WTO dispute settlement regime is that retaliation should never take place. Retaliation should be considered a pain to Patria and Xandia so severe that both member states would be induced to reach agreement before it came to this last of the seven steps provided in the DSU. 145 That the reciprocal pain comes more quickly in the intellectual property area may be attributable to the fact that in contrast to goods, which can be only in one place at one time, intellectual property, being intangible, travels in many directions and can come to rest in many places at once. The moral we draw is that the initial steps in the dispute settlement process, that is the work of the panels and the Appellate Body, should be carried on with great care in the intellectual property area-terra incognita for the GATI/WTO system-with attention not only to the outcome of a given case but to the persuasiveness of the reasoning and explanations, for the parties and for the wider interests at stake. Writing at the beginning of a new era, we have been so bold as to make up cases, because there were no actual cases on which to report. We have no doubt that real cases will come up-sooner rather than later-and that they will raise issues such as those that emerge from our hypotheticals. Overall, we believe that dispute settlement in the WTO can be applied to disputes about intellectual property, though adjustments will be necessary. More than in other trade disputes, the controversy regarding intellectual property issues between states is likely to be a continuation, and a surrogate, for controversies between firms. Thus, the character of these controversies may be considerably different from other trade disputes. Moreover, procedures in TRIPS Agreement disputes will need to be responsive to the special problems of 145. The steps are: 1) consultation; 2) presentation before a panel; 3) appeal to the Appellate Body; 4) approval of the Report by the DSB; 5) agreement on termination within a reasonable period; 6) agreement on compensation within a reasonable period; 7) retaliation. It is understood that an agreement between the parties can halt the process at any time. [Vol. 37:275 trading in intangibles. Most of all, the concept of minimum standards requires careful consideration. Where consensus among nations is clear, as it is with respect to counterfeiting and piracy, "best rules" have emerged (or will surely emerge) that promote both trade and innovation. Where consensus has not emerged, however, minimum standards represent an agreement to disagree on the optimal level of protection. Imposing a level of protection that was not bargained for (and is not expressly stated in the Agreement) may, in the short run, promote trade and enrich current rights holders, but it may also work hardship on individual states. Most worrisome, high standards of protection can raise the costs of innovation and impede the creation of new knowledge. If the intellectual property community knew little about state-tostate dispute settlement, it is equally true that the drafters of the Understanding on Dispute Settlement in the Uruguay Round thought little about intellectual property. Even as it required two persons with different professional backgrounds to write this paper, so we hope that readers with background in only one of the fields will begin to think about the other. We surely have not solved all the problems, and there may well be problems at the intersection of TRIPS and DSU that have not occurred to us. We do hope that we have provided some guidance, not only to those who will serve as WTO panelists and members of the Appellate Body, but to those persons, both in the public and in the private sector, who will need to decide whether to bring an intellectual property complaint before international decision makers, whether to defend or to settle such a complaint, and-most importantwhether the international institutions of legal discipline will deter conduct that ought to be deterred, while leaving room for innovation that ought to be encouraged. For an argument that minimum intellectual property standards are a free trade issue, see Gail E. Evans, Intellectual Property As a Trade Issue-The Making of the Agreement 47. TRIPS Agreement art. 68. 48. We note that article 1 of the recently concludedWIPO Copyright Treaty, adopted Dec. 20, 1996, provides that: This Treaty shall not have any connection with treaties other than the Berne Convention, nor shall it prejudice any rights and obligations under any other treaties.

In many ways, completion of the Uruguay Round was a miracle, a package deal with so large an agenda that no state or group of states, and no professional community, could fully grasp the significance of everything that was finally subsumed within the new General Agreement on Tariffs and Trade (GATT). The United States, for instance, was allied with the larger developing countries on agriculture, with the European Community on the other side; but on intellectual property, the United States was, roughly speaking, allied with the European Community, and it was the developing countries that were on the other-or perhaps, better, on anotherside. Add in investment issues, services, government procurement, and the traditional trade issues-subsidies, dumping, and safeguards-and the shifting conditions and interests were something like a kaleidoscope.

There were two major breakthroughs in the Uruguay Round. The one that seems to have been the most surprising to the participants was agreement on a strict and binding system of dispute settlement and enforcement. 1 Under the earlier GATT dispute settlement mechanisms, parties to disputes could frustrate the system both at the beginning and at the end. In contrast, the new Understanding on Dispute Settlement, 2 to which all members of the World Trade Organization (WTO) are required to belong, precludes objection by a potential defendant to initiation of a case beyond a short delay, and precludes veto of a decision made by a panel, or, if that decision is appealed, by the Appellate Body. There is also a complex system of enforcement, complete with fairly short deadlines and provision for retaliation, in case a member state does not comply with a decision.

Since the trade community and the intellectual property community do not know each other well, a brief introduction is in order.

Half of what we say here will be familiar to experts in the law of international trade, the other half will be equally familiar to experts in the protection of intellectual property.

The GATT-the foundation agreement of 1947 essentially retained in the new GATE 1994-seeks to assure non-discrimination in restraints on trade, by prescribing national treatment on internal regulations and most-favored-nation treatment on the regulation of imports; to prevent quantitative restrictions (quotas) on exports and imports; to prevent practices deemed to be unfair distortions of the conditions of trade (dumping and subsidies), as well as to prevent defenses against unfair trade from being used for protectionist purposes; and to preserve commitments or bindings undertaken in trade negotiations.

These differences may turn out to be mere semantics. But in both the world of diplomacy and the world of reasoned decision making, words have persuasive power. More important, these words represent issues that for the intellectual property community are, in many cases, acutely controversial. Intellectual property regimes were initially to be integrated by the World Intellectual Property Organization (WIPO). For many years, that effort was stalled in part because its members could not agree on issues such as whether (and when) consumer welfare is enhanced by sacrificing competition to protect profits in creative efforts.' 3 The Uruguay Round succeeded where WIPO failed for a variety of reasons.

One of the reasons, it seems, was that the architects of the TRIPS Agreement used words-and a concept of minimum standardsthat allowed each state to read into the Agreement what it wished to see. 14 One may hope that the persons who administer the Understanding on Dispute Settlement will have both the authority and the expertise to clarify the meaning of the many agreements making up the WTO system. But neither the DSU, nor the TRIPS Agreement, nor the Berne or Paris Conventions, provide guidance on how minimum standards-rather than actual or optimal standards-will work in conjunction with an adjudicatory dispute resolution system that is backed with enforcement procedures. Success will depend on how well the GATTIWTO system addresses the differences between intellectual property and other trade matters.

With these perspectives in mind, we examine the jurisprudential issues that the decision makers operating under the DSU will Indications: Exploring the Contours of the TRIPS Agreement, 29 Vand. J. Transnat'l L 635, 656-59 (1996).

13. See, e.g., Monique L. Cordray, GAIT v. WIPO, 76 J. Pat. [& Trademark] Off. Soe'y 121, 137-38 (1994); Evans, supra note 6, at 158. As Professor Pamela Samuelson's contribution to this symposium demonstrates, that debate has continued to be a part of negotiations within the framework of WIPO, although it is no longer disabling. See Pamela Samuelson, The U.S. Digital Agenda at WIPO, 37 Va. J. Int'l L 369 (1997). It is also significant that a similar debate rages among the member states. For example, the intellectual property laws of the United States are flexible enough to give courts the ability to take account of changing economic conditions and varying cultural trends.

14. For example, Evans, supra note 6, at 161, notes that the Punta del Este Declaration described the TRIPS negotiating group's mandate as aimed at reducing "distortions and impediments to international trade," quoting Ministerial Declaration on the Uruguay Round, Sept. 20,1986, GAIT B.I.S.D. (33d Supp.) at 25-26 (1986). "Trade distortion" was interpreted by the United States as loss of comparative advantage through failure to enforce intellectual property rights. The same term was interpreted by India as foreign government intervention in the market place in the name of protecting intellectual property rights. See also the discussion of TRIPS article 13 infra note 89.

encounter-questions concerning the source of the law to be applied; the scope of Appellate Body review; and the deference that should be paid to the decisions of other rulemaking authorities, including national courts and administrative agencies. Because our focus is on actual dispute resolution, we have framed our discussion of these matters around a series of hypothetical cases, built upon the substantive issues of major concern to the intellectual property community.

It is impossible to predict exactly how complaints involving the TRIPS minimum standards will evolve. Formally, disputes will always be between member states-not between intellectual property producers and consumers. There will be continuing issues on how states will choose which practices to challenge, which cases to use as vehicles for these challenges, and which states to sue. However, because the thrust of the TRIPS initiative was to induce developing countries to move toward effective protection of intellectual property, one may expect that much of the WTO litigation in this area will be between developed countries as complainants and developing countries as respondents.

Perhaps because of the difficulty in resolving nonviolation complaints in respect of an agreement in which all the premises are new, or perhaps out of concern that vulnerability to nonviolation complaints would put too much pressure on developing countries faced with the political problem of passing conforming legislation, the TRIPS Agreement provides a five-year moratorium for nonviolation complaints. 19 Nevertheless, we begin our series of cases with this fundamental question, to illustrate the complexity of fitting together the GATT, the DSU, and the TRIPS Agreement.

Macrohard is the creator of a computer program that is protected in Xandia, its home country, and elsewhere. It discovers that this program is being sold without authorization in Patria. Macrohard sues the sellers for infringement in Patria, but loses. Patria has not enacted patent protection for programs. Although Patria has enacted copyright protection, the Patrian court holds that 19. Article 64(2) of the TRIPS Agreement provides that subparagraphs 1(b) and 1(c) of article XXIII of the GATr 1994, the non-violation provisions, "shall not apply to the settlement of disputes under this Agreement for a period of five years from the date of entry into force of the WTO Agreement." This special moratorium is applicable to all member states, and is independent of the grace periods available to developing countries or countries in transition to market economies.

Macrohard's program is no more than a principle, system, or method of operation, and so is excluded from protection. Macrohard contends that Patria is engaging in a pattern of nonenforcement; that what it is actually doing is refusing to provide any intellectual property protection for programs, in violation of the TRIPS Agreement." It prevails upon Xandia to bring a complaint to the WTO. After consultation fails to result in a resolution of Xandia's complaint, a panel is formed to consider the allegations.

How should the characterization question be resolved? The preliminary question, choice of law, is easily answered: since characterizing the complaint is an issue only because of the terms of the TRIPS Agreement and the GATT, GATT law applies. But what should this law be? If it is necessary to characterize the complaint in order to determine whether the moratorium applies, the issue 20. For an example of a case raising coverage issues, consider Whelan Assocs. v. Jaslow Dental Lab., Inc., 797 F.2d 1222 (3d Cir. 1986), cert. denied, 479 U.S. 1031 (1987).

21. Article 10(1) of the TRIPS Agreement requires that "[c]omputer programs, whether in source or object code, shall be protected as literary works under the Berne Convention

should be determined by investigating the reasons for the moratorium. Apparently its purpose was to give the Council for TRIPS, which was provided for in the Agreement establishing the World Trade Organization, time to "examine the scope and modalities for nonviolation complaints;" accordingly, then doubts on characterization should be resolved in favor of Patria. 24 Subject matter issues are among the most difficult of all intellectual property issues.

Allowing the parties' understanding of TRIPS to mature before these questions are answered makes considerable sense. 25 But if such a first case is decided as we suggest, it will be important to explain the reasoning with care-not always possible in a collegial body-so that it does not become a precedent for later cases, where, as we discuss below, the priorities and values will be different.

Much the same can be said about demonstrating injury. As with reliance, this issue should be determined under the law of the 26. See DSU arts. 3.1, 26.1 27. Forest Lab., Inc. v. Pillsbury Co., 452 F.2d 621, 627 (7th Cir. 1971), is suggestive of the problem. The court could not disaggregate the users' expenditures in determining whether a user of a trade secret had paid value for it.

GATT. But, as with reliance, the GAT precedents may not fit intellectual property disputes. Traditional GAT disputes have focused on loss of trading opportunities by the claimant exporting country by reason of restraints imposed by the respondent importing country; in contrast, the failure by a respondent state to enact or enforce intellectual property protection will never directly interfere with trade. In our Case I, Patria is not preventing Macrohard from selling its products in Patria. Macrohard can fully participate in the market so long as it is willing to sell its program at the competitive price. And if, as seems likely, Macrohard earned back its investment in countries where computer programs are more fully protected, Xandia might well not even be able to demonstrate that Macrohard's incentives to be innovative were harmed.

The above analysis leads inevitably to the next question: Is Patria meeting its international obligations, as set out in the TRIPS Agreement? Since it has enacted a copyright law covering computer programs, Patria's obligation under article 10 of the TRIPS 28. See, e.g., Apple Computer, Inc. v. Franklin Computer Corp., 714 F2d 1240, 1254 (3d Cir. 1983), cert. dismissed, 464 U.S. 1033 (1984) [Vol. 37:275 Agreement seems to be met, at least prima facie. Patria's patent law does not cover programs. That omission may be inconsistent with article 27(1), which states that, subject to stated exceptions (not including computer programs), patents shall be available "in all fields of technology." If a panel is asked to resolve this inconsistency, it should construe the TRIPS Agreement in accordance with the guidance given by the DSU.

Professor Reichman would regard it as incompatible with the TRIPS Agreement for a member state to refuse to permit an inventor to even argue that a particular program met the standards for patent protection. Id. at 769.

. For example, in Computer Assocs. Int'l v. Altai, Inc., 982 F.2d 693 (2d Cir. 1992), the court held that before determining whether a given computer program infringes a copyrighted program, the utilitarian features of the programs-ideas and elements dictated by considerations such as efficiency-need to be filtered out. The result of this filtration method is that programming techniques are kept in the public domain.

such as this one. Moreover, the existence of a standing Appellate Body provides a capacity for finding the "best" rules of law for the global economy. If the DSU works as many hope, then these "best" rules might be accepted into the domestic laws of the parties (or at least, into the laws of those parties where the question has not yet been fully answered), leading ultimately to genuine global harmonization.

However, lawmaking in the process of adjudication, a familiar concept to those raised in the common law, is formally circumscribed by the admonition, stated twice in the Understanding on Dispute Settlement, that rulings of the DSB "cannot add to or diminish the rights and obligations provided in the covered agreements. '40 While this statement will surely acquire considerable gloss if the intent to make dispute resolution more adjudicative becomes a reality, the GATT's history of conciliation and diplomacy is likely to exert some influence on how disputes are resolved. Thus, at least in its early stages, dispute resolution in the WTO may not be characterized by the sort of give-and-take likely to produce the "best" rule of law.

In each context, however, it is understood that third parties must have an actual and current trade interest in the dispute, and participation in the appeal proceeding appears to be limited to members that have participated in the proceeding before the panel.

[Vol. 37:275 tion. The members that participate in dispute resolution will not, therefore, be representative of the entire membership of the WTO. Since disputants will surely argue for the rules that work best for them, the early years of the Agreement are not likely to produce "best" rules when judged from the point of view of the WTO membership as a whole or from the perspective of the global economy. And, unlike adjudication within many of the parties' national courts, there is no legislative check or balance on dispute resolution in the WTO.

To be sure, the TRIPS Agreement also creates a Council for TRIPS, which is charged with the duty to "monitor the operation of this Agreement." 42 Though the intent of the drafters does not appear to have been to create the Council as a rule-enunciating body, it is possible that the system will evolve in a way that will allow the Council to use the occasion of disputes to consider and articulate "best" rules. 43 But, until some body in the WTO-the panels, the Appellate Body, or the Council-develops a capacity to give generally applicable interpretations of the law, disputes will need to be resolved under some other source of law.

51. See 2 Negotiating History, supra note 31, at 2249-59. 52. State-to-state disputes under WIPO treaties can be taken to the International Court of Justice, but this method of dispute resolution has not been used. Recently, WIPO has established an arbitration center for resolution of intellectual property disputes between private parties, but that center will not be available for challenges to practices of states, such as those in the cases we discuss here. See generally Alice MacAndrew, Uncertainty as IP's Golden Age Begins, Managing Intell. Prop., Feb. 1996, at 16, noting that although WIPO can be thought of as a "think tank" of expertise, the absence of an enforcement mechanism has limited its ability to set norms of protection.

53. See supra note 37. 54. For a somewhat different approach, see Reichman, Know-How Gap, supra note 25, at 773, who suggests that a panel could take judicial notice of an emerging consensus among member states.

More fundamentally, we are skeptical that there will always be a "best" rule for every problem that will arise under the TRIPS Agreement. Promoting innovation requires that care be taken not to raise the cost of knowledge to so high a level that it impedes further inventiveness. How that problem is best solved can depend on a country's intellectual and industrial development, its culture, and the types of creative work in which its citizens are engaged. Thus, the nature (and advantage) of a minimum standards regime is that where there is no "best" rule that will work in every economy, each country can tailor the law to its own needs. In short, in areas such as those presented by Case I, where the issue involves that balance between users and producers, drawing the rules from solutions worked out elsewhere-particularly in highly developed economies-may be inappropriate.

They also suggest that the variety in cultural values of the parties, the lack of fact-finding resources by panels, and other shortcomings in international procedure argue against panel activism. Id. at 211-13.

of similarity for finding infringement of copyrights, and the degree of equivalence needed for finding infringement of patents. 58 For the TRIPS Agreement, the ability to fine tune raises the danger that a member state could use these measures in the way we previously discussed for coarse tuning: to appear to comply with the Agreement while really sidestepping its obligations. As to that issue, what we have said previously applies here as well. In this section, we discuss the role of the GAIT/WTO system in considering the more subtle question of whether the particular balance that a state strikes is permissible under the TRIPS Agreement.

The complaint alleges that Patria violated article 27(1) of the TRIPS Agreement by requiring an inventive leap rather than an "inventive step." Further, the complaint asserts that Patria permitted infringement of Monastery's valid patent, thereby violating article 28(1)(a) by failing to 58. For simplicity, the text considers only these alternatives. What is said here, however, applies to other fine-tuning provisions, such as the fair use defense in copyright law or the experimental use defense in patent law.

[Vol. 37:275 prevent others from using Monastery's insight without its authorization. Patria, in its answering papers, contends that its courts applied settled principles of Patrian patent law, without discriminating by nationality, on the basis that an applicant for monopoly protection has a heavy burden of establishing both nonobviousness 9 and infringement.

It is not clear, at the outset, how a WTO panel should resolve this controversy. Case H demonstrates how differently two countries could administer intellectual property laws that ostensibly comply with the TRIPS Agreement. At one time, a court in the United States, for instance, might have handled this case as follows: if it found that the identification of a metals problem was part of the art existing prior to Monastery's invention, it might consider using magnesium compounds "obvious to try." ' It would then ascertain how many metal-delivery systems there are. If there are many, it could hold Monastery's discovery patentable on the theory that the ordinary artisan would not have found this one easily.

Whether the obviousness of trying renders an invention unpatentable depends on a combination of factors, including the number of choices available, whether the art gives some guidance in determining which alternative to choose, and the unexpectedness of the result. For example, in Novo Industri v. Travenol Lab., Inc., 677 F.2d 1202, 1208 (7th Cir. 1982), the U.S. Court of Appeals for the Seventh Circuit upheld a patent on a fungus that produced an enzyme used to make cheese. Although there were reasons in the prior art to examine this fungus along with others, the results for this fungus were unexpectedly good. Thus, even though the experiment was obvious to try, that fact did not render the invention unpatentable.

another context the U.S. Supreme Court has already answered in the affirmative. 61 Accordingly, under the doctrine of equivalents as applied in the United States, 62 Monastery's patent would be considered to be infringed.

63. For developing countries, there is a four-year grace period. TRIPS Agreement art. 65(2). For countries that had not previously enacted legislation to protect pharmaceuticals, there is an additional five-year grace period. Id. art. 65(4). Least-developed countries may have ten years from the date of application of the substantive provisions of the Agreement to fully comply with these provisions. Id. art. 66(1). 64. Indeed, the obvious-to-try doctrine is even under attack in the United States. See, Co., 499 U.S. 340 (1991), in which the Court held that "sweat of the brow" labor cannot be the basis for copyright protection.

[Vol. 37:275 are after-the-fact rationalizations or actually describe Patria's motivation, the challenged failure to grant Monastery the same protection it receives in the home country is not an obvious or clear violation of the TRIPS Agreement. 65

B. Special Treatment for Developing Countries

If this dispute were brought during the transition period allowed to developing and least-developed countries,6 Patria might argue that since it was not yet required to offer patent protection to Monastery, Xandia should not be heard to complain that Patria offers less protection than Xandia finds ideal. To evaluate this position, two issues must be decided: first, whether Patria is a country that can avail itself of the special benefits offered to developing economies, and second, the exact scope of these special benefits.

Assuming that Patria qualifies as a developing country, the next question is how much leeway it should be given on that account.

The basic Paris Convention does not guarantee to patent holders in one state patent protection in other member states, but leaves the issues of patentability and infringement to each member state's laws. Paris Convention, supra note 8, art. 2(1). The question here raised is how far this deference to lex fori is changed by the WTO system-the TRIPS Agreement in combination with the DSU.

66. See supra note 63. 67. See MacAndrew, supra note 52.

Even after these costs are borne, the TRIPS Agreement may present a significant problem to developing countries. Experience 68. WTO Agreement art. II. The only optional (so called "plurilateral") agreements concern trade in civil aircraft, dairy products, bovine meat, and government procurement. Id. Annex 4.

72 239, 245-46 (1990). This is not to say that strengthening intellectual property rights might not, in the long run, produce welfare-enhancing effects for these countries. See, e.g., Edmund W. Kitch, The Patent Policy of Developing Countries, 13 UCLA Pac. Basin LJ. 166 (1994), noting that technology transfer is enhanced when foreign innovators are attracted to invest in technological growth within a developing country;, Keith E. Maskus, Intellectual Property Rights and the Uruguay Round, Federal Reserve Bank of Kansas City Economic Review, First Quarter 11 (1993).

All of this goes to argue that on the substantive side, Patria's decision ought to be given considerable deference. Allowing Patrians to make variations on Monastery's drug without incurring the costs of infringement is one way to develop the skills Patria needs if it is ever to see advantages from joining the TRIPS Agreement. 77 Accordingly, whereas in Case I we suggested that deference to Patria's own decisions may properly depend on whether Patria was taking positions consistent with policies of states with demonstrated commitments to intellectual property, in Case II it would probably be wise for a WTO panel-at least with respect to developing countries-to defer even in circumstances where Patria's decisions look quite atypical.

Even if Patria were not a developing country, the better course might well be to make it nearly impossible to prevail before the WTO on a complaint involving fine-tuning, except on an additional showing of violation of the non-discrimination provisionsnational treatment and most-favored-nation treatment. 78 Although the TRIPS Agreement is drafted as a set of standards for the protection of innovators, there are two sides to every innovation coin: the greater the protection granted to the innovator, the Compliance with the TRIPS Agreement: Introduction to a Scholarly Debate, 29 Vand. J. Transnat 'l L. 363, 381 (1996).

See infra text at note 144. 76. See also article 8.10 of the DSU, which calls for at least one member of a panel to be chosen from a developing state if the controversy concerns such a state; id. art. 21.7, which requires that the impact on the economy of developing countries be taken into account in the panel's recommendations. Article 24 calls for additional consideration and restraint on the part of complaining parties in disputes with least-developed member states.

See supra text at note 39; see also article 7 of the TRIPS Agreement, which states that the Agreement's objective is to contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations. (emphasis added).

We note that Judith Bello, Some Practical Observations About WTO Settlement of Intellectual Property Disputes, 37 Va. J. Int'l L, suggests that in taking this view, we are "fabricating" rights or "usurp[ing]" the role of negotiators. However, it is evident to us that any definition of an intellectual property right implies some right for users, and that the TRIPS Agreement, like the Berne and Paris Conventions, reflects this perspective.

ing that product required considerable investment. Since the Patrian defendants did not get a free ride, it is unlikely that they could price Monastery out of the Patria (or world) market. Indeed, Monastery's product remains attractive to any Sallyheimer sufferer intent on purchasing the "real thing."

85. 17 U.S.C. § 107. 86. TRIPS Agreement art. 13 (with respect to copyright); id. art. 30 (with respect to patents).

In the final analysis, the way to handle complaints about finetuning may be the same in all cases. There ought to be a presumption that these issues are for individual member states, with intervention by the international community only on the basis of a showing of a pattern of discrimination or failure to grant protection without defensible reasons. 90

III. VIOLATION OF ANTITRUST LAWS, PATENT MISUSE, AND COMPULSORY LICENSING

90. See also [Vol. 37:275 ally sought to be controlled through the concept of intellectual property misuse and through invocation of competition or antitrust laws. The negotiators of the Uruguay Round did not place competition law on their agenda, and it is not clear as of 1997 that this controversial subject will be on the future agenda of the World Trade Organization. 94 The TRIPS Agreement does, however, explicitly permit members to adopt appropriate measures to control abuse of intellectual property rights, 95 and provides certain guidelines as to the form that these measures might take. 96 94. The first biennial meeting of the WTO, at ministerial level, held at Singapore in December 1996, adopted the following statement in its closing declaration:

Having regard to the existing WTO provisions on matters related to investment and competition policy and the built-in-agenda in these areas, including under the TRIMs Agreement, and on the understanding that the work undertaken shall not prejudge whether negotiations will be initiated in the future, we also agree to: establish a working group to examine the relationship between trade and investment; and establish a working group to study issues raised by Members relating to the interaction between trade and competition policy, including anti.competitive practices, in order to identify any areas that may merit further consideration in the WTO framework. WTO Focus, Jan. 1997, p. 7 at 10.

For a strong argument that the WTO system should include an agreement on competition law, see Eleanor M. Fox, Toward World Antitrust and Market Access, 91 Am. J. Int 'l L. 1 (1997) (1996), arguing that TRIPS contemplates some limits to antitrust law with the goal of supporting protections gained under TRIPS.

A. Tensions Between TRIPS, Trade Law, and Antitrust

Case III illustrates the problems we noted in the Introduction concerning the differing goals of trade law and intellectual property law. When competition law is included, the problems become even harder to sort out. On the one hand, the Patrian judgment in Case III could be said to encourage innovation: freed of grant-back obligations, Patrian molten metal producers have the incentive to improve on Bilker's technology. The judgment could also be said to promote trade in that it allows Bilker's competitors to sell molten metals and related technology on a worldwide basis. Moreover, the prohibition against tie-ins and package licensing could further the objective of the TRIPS Agreement to employ technological innovation "in a manner conducive to social and economic welfare," 98 in that it may lower the worldwide cost of using Bilker's technology both during the term that the intellectual property rights are in force and after they expire.

On the other hand, the judgment also might have significant anti-innovation, competition, and welfare consequences. Patria's position on licensing could substantially restrict the manner in which innovators can capture the social benefits bestowed by their innovations, and reduce their capacity to coordinate developments in their fields. To the extent these restraints are imposed as per se rules-with no investigation of their competitive effect and no opportunity for Bilker to justify its practices-they diminish the incentive to innovate without evidence that they enhance competition.

Nor is it necessarily true that the Patrian approach will improve the conditions of trade. Although the judgment frees all Patrian producers to do business all over the world, not every market is large enough and stable enough to attract investors. In less-developed countries, the efficiencies produced by cooperative and coordinated decision making are sometimes needed to pool all the capital and technical capacity that is available. Without violating some of the competition norms of developed nations, these economies may have considerable difficulty in modernizing. 99 Similarly, underdeveloped economies sometimes use the promise of exclusivity to encourage technology transfers; under the Bilker decree, . 311 (1996), noting that investors are averse to the risk that expected returns will diminish by reason of vigorous antitrust enforcement.

[Vol. 37:275 exclusive rights are not available because Bilker is apparently required by the Patrian judgment to license any Patrian firm that asks. 100 Finally, package licenses can be good for poor economies. Sometimes, extending royalty payments beyond the terms of the relevant intellectual property rights functions as a loan: the initial cost of licensing is lowered because part of the payment is deferred to later years (when the licensee is better able to afford them). 101 As long as there are suitable substitutes for the licensed technology, package licensing can both promote trade and enhance welfare.

Tensions such as these help to explain why the architects of the Uruguay Round did not wade too deeply into the muddy waters of competition law. Appreciating these tensions does not, however, make dispute resolution easier. In this case, developing countries may seek to intervene; consultations among participants might then enable the DSB to find a method for dealing with Bilker's business practices in a manner that optimizes world trade and research in molten metals. Should the parties fail to reach an agreement, however, it is very difficult to see how a panel would go about resolving this dispute. 1 0 2

The only specific guidelines provided by TRIPS are the fourteen conditions that article 31 places on compulsory licensing. Certain of these conditions were met by Patria: the case was considered on an individualized basis, the rights holder was involved, and the disposition was subject to judicial review. 0 3 However, the scope and duration of the judgment is quite broad and includes conditions that affect rights outside of Patria. Such a disposition is permissi-100. We say "apparently" because there is doubt that a Patrian court could order Bilker to give a license for activity in Tertia contrary to the laws of that country. See, e.g., Restatement (Third) of the Foreign Relations Law of the United States § 403(2)(g) and Reporter's Note 3 (1986).

101. See Rochelle C. Dreyfuss, Dethroning Lear. Licensee Estoppel and the Incentive to Innovate, 72 Va. L. Rev. 677, 710-11 (1986).

102. Antitrust aficionados will recognize this case as inspired by the Pilkington Glass case, though that case arose prior to the effectiveness of the TRIPS Agreement and 1997]

[Vol. 37:275 ble, 1 4 and the Agreement states that grant-back conditions and coercive package licensing are practices that members may by legislation specify as abusive. 0 5 It is not clear, however, whether measures to control such practices may be implemented by Patria in the absence of "judicial or administrative process"' 0 6 evaluating evidence that the challenged practices were actually produced abusive effects. 1 0 7 A WTO panel might here look for precedents from GATT dispute settlement practice; 08 but that practice was not uniform, and in any event might not be regarded as applicable.

B. Resolving the Tensions: Some Suggestions

108. See, e.g., the well-known Section 337 case in which a U.S. law providing for different procedures to challenge alleged infringing products for imports and for domestically manufactured products was held to constitute a violation of the national treatment provisions of GATT, article II(4), although the actual controversy between the competing firms, AKZO and DuPont, was settled prior to conclusion of the GATT panel proceeding. United States-Section 337 of the Tariff Act of 1930, Nov. 7, 1989, (E.C. v. United States), GATT B.I.S.D. (36th Supp.) at 345 (1989).

109. See Fox, supra note 97, at 487-88, who cites as examples the questions whether patentees may charge excessive prices, refuse all licensees, divide territories, or require grantbacks from licensees-all issues that had arisen in both the United States and the European Community at the time the TRIPS Agreement entered into force. All the cited practices appear to be valid under U.S. law, but to violate EC law.

Nor does Professor Fox purport to address all of the problems raised by cases such as Case III. She does not provide a method for considering measures that fall outside the ECIU.S. competitionlaw spectrum. Such situations are easy to imagine. The competition law of the United States and the European Community may 110. See id. at 492-93. 111. Article 31 of the TRIPS Agreement provides:

Where the law of a Member allows for other use of the subject matter of a patent without the authorization of the right holder,... the following provisions shall be respected:

(h) the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization[.] Under paragraph (k), some other conditions are not obligatory when a compulsory license is imposed to remedy a practice determined after judicial or administrative process to be anti-competitive. Paragraph (h) is not among the conditions that may be avoided in such case.

[Vol. 37:275 vice business to copy Bilker's servicing protocol programs; in other cases, the decision to hold a patent right unenforceable would allow anyone to enter into competition with the patentee. Indeed, such a decision may allow a product to be sold in any country that has a worldwide exhaustion doctrine.' 3 Deciding the issue simply on the basis of deference to national law therefore seems inappropriate.

a Xandian company of the law of Patria, and a response that the challenged conduct is protected by the TRIPS Agreement or that the remedy imposed by Patria exceeds what is permissible under that Agreement.

It seems to us that before pronouncing on Case III, the panel should afford both sides the opportunity to present facts and economic analysis. If this is sound, Bilker ought to have the opportunity to defend its practices in the Patrian court, and to contend to that court that the TRIPS Agreement protects its practices or limits the remedies that may be imposed by Patria. If Bilker has not previously been given such opportunity, the panel should rule that Patria has not complied with the TRIPS Agreement, and should recommend that the case be reopened in that country.

Members of the Appellate Body are elected for four-year terms and may be reelected once, except that three of the members first appointed, selected by lot, will have an initial term of two years, so that the entire membership will never be changed over at once. Any given appeal is heard by three of the seven members of the Appellate Body serving in rotation, without reference to their nationality.

Distinguishing legal from factual questions for purposes of jurisdiction is, of course, a common problem in all legal systems. The fact/law distinction is particularly troublesome in the context of patent controversies, where resolution of issues of novelty, prior art, and scope of inventions is dependent both on determinations of fact and on interpretation of imprecise legal standards. 1 For our purposes, however, we illustrate the problem in an apparently easier context--concerning the right to register a trademark.

Koka Kola, Ltd., a Xandian company, has registered its mark, KOKA KOLA, for carbonated beverages (soda pop) in Xandia and in most of the world. As a result of Koka Kola's sponsorship of every Olympic Games since World War II, it had every reason to believe that the mark was familiar everywhere. Nonetheless, when it sought registration in Patria, its application was denied, on the ground that the same mark had recently been registered by a Patrian who was in the process of starting a company to manufacture and distribute his version of Koka Kola soda pop. When Koka Kola was unsuccessful in having the other registration canceled, it persuaded the government of Xandia to bring a complaint in the WTO.

According to Xandia's complaint, Koka Kola is a wellknown mark for soda pop and Patria's refusal to register it violated article 16(2) of the TRIPS Agreement. 11 7 A 116. In its first five years, the Court of Appeals for the Federal Circuit considered the fact/law distinction in eleven percent of its reported decisions. See Rochelle C. Dreyfuss, The Federal Circuit: A Case Study in Specialized Courts, 64 N.Y.U. L Rev. 1, 47-52 (1989), which also discusses the experience of the United States as it is made more complex by the right to a trial by jury. See also Markman v. Westview Instruments, 116 S. Ct. 1384 (1996), which held that the interpretation of a patent, including terms of art within its claims, is exclusively within the province of the court, not the jury.

117. Article 16(2) of the TRIPS Agreement reads in pertinent part as follows: Article 6bis of the Paris Convention (1967) [concerning the protection of wellknown trademarks] shall apply, mutatis mutandis, to services. In determining whether a trademark is well-known, Members shall take account of the knowledge of the trademark in the relevant sector of the public, including knowledge in the Member concerned which has been obtained as a result of the promotion of the trademark. Article 6bis(1) of the Paris Convention, supra note 8, reads:

The countries of the Union undertake, ex officio if their legislation so permits, or at the request of an interested party, to refuse or to cancel the registration, and to prohibit the use, of a trademark which constitutes a reproduction, an imitation, or dispute panel was convened. Xandia submitted consumer surveys showing that substantial numbers of Patrian soda pop consumers recognized the mark and that an even higher percentage of consumers in larger markets recognized it. Upon consideration of these surveys and after seeing evidence that since 1980, all telecasts of the Olympic Games could be received on television sets in Patria, the panel determined that the mark was wellenough-known within the meaning of the TRIPS Agreement to qualify for the special protection offered by TRIPS article 16(2). Patria appeals to the Appellate Body, pursuant to article 16 of the DSU.

A. Jurisdiction to Hear the Appealk The Fact/Law Distinction

118. Mixed questions of fact and law are often treated as factual. See, e.g., Pullman-Standard v. Swint, 456 U.S. 273, 287-88 (1982), holding that the question of whether an employment practice is unlawful under Title VII of the Civil Rights Act is a question of fact.

Case IV is a clear example supporting the conclusion that a lay person's understanding of the distinction between law and fact cannot be the guiding principle governing the activity of the Appellate Body. If the Appellate Body declined to take jurisdiction of the appeal, it would, in effect, exclude itself from participating in the elucidation of one of the most important provisions in the TRIPS Agreement-the provision that enables producers to develop and maintain a worldwide marketing strategy without fear of "trademark pirates" to hold them up. If a panel can address the issue, it must be that the Appellate Body can and should do so as well.

It is instructive in this context to contrast the TRIPS Agreement with the Agreement on Dumping and Antidumping Measures, 11 9 also concluded as an obligatory part of the Uruguay Round package. As with the TRIPS Agreement, the Antidumping Agreement contemplates review under WTO procedures and international standards of decisions made by national administrative or judicial authorities pursuant to national law. Under article 17.5 of the Antidumping Agreement, if the authorities of Patria (the importing country) have imposed antidumping duties on a product of Xandia (the exporting country), Xandia may, after consultations have proved unsuccessful, apply to a panel to examine whether the

Patrian authorities have acted in compliance with the Agreement. However, under article 17.6, (i) ... the panel shall determine whether the... establishment of the facts [by Patria's authorities] was proper and whether their evaluation of those facts was unbiased and objective. If the establishment of the facts was proper and the evaluation was unbiased and objective, even though the panel might have reached a different conclusion, the evaluation shall not be overturned; and further:

Once again, the line between fact and law can only be drawn by reference to the underlying principles to which the adjudicatory system is dedicated, that is, by considering why line drawing is needed under the circumstances. For example, in domestic intellectual property cases in the United States, controversies, such as over the strength of a trademark, that require resolution of a series decisions, the proposal was "greeted with fury" by U.S. intellectual property interests, which did not wish to give to other countries' patent and copyright authorities the deference which the U.S. Trade Representative sought for American antidumping decisions. See Gary N. Horlick & Eleanor C. Shea, The World Trade Organization Antidumping Agreement, 1. World Trade, Feb. 1995, at 5, 31 (1995).

123. See DSU art. 8. 124. In the past, the Secretariat has endeavored to fill the role of supplying the sense of continuity, and it may be expected to continue to do so in the future.

125. Of the first seven members of the Appellate Body, two are (or were) professors of law (but not intellectual property law), one was a justice of his country's Supreme Court, two were career diplomats, one was a professor of economics, and one (the U.S. member) is a practicing attorney and former member of Congress.

[Vol. 37:275 tional economy, but to oversee the work of dispute panels with an eye to the general principles of open markets and nondiscrimination embodied in the GATTWTO system. In fact, as noted earlier, it is the Council for TRIPS that is charged with monitoring the operation of the Agreement and cooperating with WIPO in setting international norms. 126 The Appellate Body, then, is not the only, or even necessarily the best, source of authoritative articulation of intellectual property norms. We do suggest, however, that where system-wide rules are desirable, the provision in the DSU concerning "issues of law" should receive broad scope when applied to the TRIPS Agreement; where it is permissible for members to maintain legal regimes that differ from one another, the need for uniform interpretation of the TRIPS Agreement by the Appellate Body is less compelling, and it is "questions of fact" that should be interpreted generously.

As the TRIPS Agreement is written, members have considerable discretion to maintain their own intellectual property regimes.

One might be tempted to conclude from this discussion that the Appellate Body needs wide authority only in disputes such as those 126. See supra text at note 42.

127. It is worth reminding the reader that in a transnational controversy about intellectual property, the product asserted to be protected may be the import and the challenged product domestically produced, or vice versa.

illustrated by Case I, where the question was what the minimum standards require. A review of our other cases demonstrates that this is only sometimes true. It may be true for cases in the category of Case II, where the differing circumstances of member states require that they be allowed to make differing adjustments between the rights of innovation producers and innovation users.

In the end, we can offer only discussion of the problem, not hard rules. The Appellate Body is not a Supreme Court, but part of a process not yet tested, which will include the evolution of normsetting in WIPO, the activity of the Council on TRIPS, and the progress made among the parties in developing a shared understanding of the not always consistent values of intellectual property and competition.

Two key enforcement issues are likely to confront the WTO in the intellectual property area. The first concerns enforcement by member states of the intellectual property rights that they have recognized, at least on paper. The second issue, not limited to 128. For an explanation of the doctrine of equivalents in connection with Case II, see supra notes 61-62.

[Vol. 37:275 intellectual property controversies, concerns enforcement of member states' obligations, once these have been determined by the dispute settlement process. Our last case directly raises the first issue, and could well raise the second one also.

This case is a continuation of Case IV. Xandia, having taken up the case of Koka Kola, has prevailed before a panel established under the DSU. The panel's decision has been upheld by the Appellate Body, and the Report of the Appellate Body has been adopted by the DSB. According to article 21 of the Understanding on Dispute Settlement, Patria is supposed to inform a meeting of the DSB within thirty days of its intention in respect of imple- mentation of the recommendations and rulings of the DSB. In this case, the ruling was that Koka Kola's trademark was widely recognized in Patria, and the recommendation was that the relevant Patrian authority cancel the registration of the local rival and approve the registration of the mark by the multinational company based in Xandia. If necessary, the Patrian authority was to seek an injunction or comparable remedy against infringement. The ruling was upheld by the Appellate Body.

Patria, however, states that it is not in a position to comply with the recommendation and ruling, because its domestic law does not permit the measures recommended by the panel. Alternatively, Patria contends that its prosecutors have considerable discretion in allocating their resources, and putting a stop to trademark infringement is not a high priority.

A pattern of nonenforcement by Patria, coupled with an allegation by Xandia that Patria had the resources to carry out its obligations, would be difficult to establish, and certainly could not be established in the first case. Possibly, Xandia could show that repeated efforts to bring infringement proceedings in Patria had led to no effective results. An assertion by Xandia that bringing such proceedings would be fruitless would, we expect, not be sufficient to lead to a determination that Patria was in violation of article 41(1).132 But if a pattern of non-enforcement by Patria of its laws were established, we believe that a panel could find a viola-129. The full text of article 41(1) reads as follows:

Members shall ensure that enforcement procedures as specified in this Part are available under their law so as to permit effective action against any act of infringement of intellectual property rights covered by this Agreement, including expeditious remedies to prevent infringements and remedies which constitute a deterrent to further infringements. These procedures shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse. 130. The full text of article 41(5) reads as follows:

C. Enforcing the Decisions of the Panel or Appellate Body

134. On the other hand, it is worth pointing out that disputes about the enforcement of

of steps applicable if the preferred dispute settlement process breaks down.

137. For instance, in the case about protection for computer programs, Patria might issue a regulation or adopt legislation that went part way, but not completely, to protecting the innovative aspects of computer programs, or that seemed to grant adequate protection but provided such slight punishment for infringement as to lead Xandia to complain that no real deterrence was involved. Of course, even in Koka Kola, if the panel recommendation included legislative reform or revised resource allocation, renewed controversy might arise about the adequacy of implementation by Patria.

138. Though the DSU does not say so, it seems clear that any offer by Patria in this context must be granted on a most-favored-nation basis, because it would not fit into any of the permitted exceptions to that most fundamental principle of the GATT/WTO system.

Should Xandia now propose to refuse to recognize trademarks owned by nationals and companies of Patria? Or trademarks on soft drinks? On all food products, or all products sold in grocery stores? We worry about all proposals of this kind. Any form of trade retaliation brings with it a substantial measure of injustice, because it nearly always affects persons that have had no prior involvement in the controversy. 142 We suspect that the adverse 139. See DSU art. 22.2. 140. If the respondent party, Patria in our example, objects to the level of the suspension proposed or claims that the suspension is not consistent with the principles discussed hereafter, the DSU makes provision for still another arbitration, to be completed within 60 days of the expiry of the "reasonable period."

141. DSU art. 22.3-6, 22.8. 142. A striking illustration of this point occurred in the mid-1960s, when the United States retaliated (with authorization of the GATI) against restraints by the European Community against imports of poultry by imposing high tariffs on panel trucks and brandy. An importer of Spanish brandy protested that it was a wholly innocent bystander sideswiped by a controversy with which it had no connection whatever. The protest succeeded

Perhaps more significant, retaliation of this kind could have an adverse effect on consumers and on the market place. Trademark law, after all, is partly geared to consumer protection. Unambiguous signals denoting particular goods allow consumers to make informed purchasing choices. Without effective signals, search costs increase. When they do, the unseen hand of the marketplace begins to allocate resources inefficiently. Even after the retaliation is withdrawn, these effects could persist. Having lost the ability to control their marks and send clear messages to their customers, producers will have difficulty notifying consumers that the meaning of the mark has been restored.

Given that any retaliation focusing on trademarks is unattractive, the next-favored retaliatory measure would be cross-agreement, that is, still within the field of intellectual property governed by the TRIPS Agreement, but addressed to patents or copyrights, rather than to trademarks. Refusal to enforce or register patents and copyrights originating in Patria, however, would raise many of the same issues of expropriation that are raised by canceling or refusing to register trademarks. Although the danger of confusing consumers would not be present, the problem of frustrating the reliance interests of rights holders and licensees would exist at least equally. 14 3 Moreover, there might well be an extraterritorial effect if products could be exported from Xandia into countries that recognize a doctrine of worldwide exhaustion of copyright and patent rights.

Writing at the beginning of a new era, we have been so bold as to make up cases, because there were no actual cases on which to report. We have no doubt that real cases will come up-sooner rather than later-and that they will raise issues such as those that emerge from our hypotheticals. Overall, we believe that dispute settlement in the WTO can be applied to disputes about intellectual property, though adjustments will be necessary.

More than in other trade disputes, the controversy regarding intellectual property issues between states is likely to be a continuation, and a surrogate, for controversies between firms. Thus, the character of these controversies may be considerably different from other trade disputes. Moreover, procedures in TRIPS Agreement disputes will need to be responsive to the special problems of 145. The steps are: 1) consultation;

2) presentation before a panel; 3) appeal to the Appellate Body; 4) approval of the Report by the DSB; 5) agreement on termination within a reasonable period; 6) agreement on compensation within a reasonable period; 7) retaliation. It is understood that an agreement between the parties can halt the process at any time.

[Vol. 37:275 trading in intangibles. Most of all, the concept of minimum standards requires careful consideration. Where consensus among nations is clear, as it is with respect to counterfeiting and piracy, "best rules" have emerged (or will surely emerge) that promote both trade and innovation. Where consensus has not emerged, however, minimum standards represent an agreement to disagree on the optimal level of protection. Imposing a level of protection that was not bargained for (and is not expressly stated in the Agreement) may, in the short run, promote trade and enrich current rights holders, but it may also work hardship on individual states. Most worrisome, high standards of protection can raise the costs of innovation and impede the creation of new knowledge.

For an argument that minimum intellectual property standards are a free trade issue, see Gail E. Evans, Intellectual Property As a Trade Issue-The Making of the Agreement

47. TRIPS Agreement art. 68. 48. We note that article 1 of the recently concludedWIPO Copyright Treaty, adopted Dec. 20, 1996, provides that: This Treaty shall not have any connection with treaties other than the Berne Convention, nor shall it prejudice any rights and obligations under any other treaties.