Weak Intellectual Property Laws are Trade Barriers

The United States doesn't like New Zealand's proposed patent exclusion for computer programs, lack of patent term extensions and an unfavourable environment for innovative medicines. What has now emerged in a recent report is that the United States considers these to be significant trade barriers.

Background to the Report

The 2011 National Trade Estimate (NTE) Report on Foreign Trade Barriers is the twenty-sixth in an annual series that surveys significant foreign barriers to U.S. exports. Every year the U.S. Trade Representative is required to submit to the President, the Senate Finance Committee, and appropriate committees in the House of Representatives, an annual report on significant foreign trade barriers.

There is a statutory requirement of an inventory of the most important foreign barriers affecting U.S. exports of goods and services, foreign direct investment by U.S. persons, and protection of intellectual property rights. Such an inventory facilitates negotiations aimed at reducing or eliminating these barriers. The report also provides a valuable tool in enforcing U.S. trade laws, with the goal of expanding global trade and strengthening the rules-based trading system, which benefits all economies, and U.S. producers and consumers in particular.

Trade barriers are broadly defined as government laws, regulations, policies, or practices that either protect domestic products from foreign competition or artificially stimulate exports of particular domestic products.

The report classifies foreign trade barriers into nine different categories. These categories cover government-imposed measures and policies that restrict, prevent, or impede the international exchange of goods and services. They include:

1. Import policies
2. Government procurement
3. Export subsidies
4. Lack of intellectual property protection
5. Services barriers
6. Investment barriers
7. Government-tolerated anticompetitive conduct of state-owned or private firms that restricts the sale or purchase of U.S. goods or services in the foreign country‘s markets;
8. Trade restrictions affecting electronic commerce
9. Other barriers

Intellectual Property Rights Protection

One of the sections of the report deals with New Zealand. The report notes that:

'New Zealand generally provides for strong IPR protection and enforcement. Recent developments include the introduction of a new patent bill. Although the draft bill strongly supports New Zealand’s objective of improving its patent system, the United States has concerns over certain elements of the current draft bill.'

Computer programs

The report notes that:

'[t]he exclusion from patent eligibility of computer programs is of particular concern as it is unconstitutional with patent eligibility standards in other developed economies and is a departure from New Zealand’s current Patents Act.'

What the report is saying is that the proposal to exclude computer programs from patent protection is a significant trade barrier as far as the US is concerned.

The report on Australia does not include any such admonishment. There is no legislative exclusion for computer programs in Australia. The report notes that:

'Australia generally provides strong intellectual property rights (IPR) protection and enforcement through legislation that, among other things, criminalizes copyright piracy and trademark counterfeiting.'

What might be surprising to some is that the approach to intellectual property rights within the European Union does not provide a significant trade barrier either. As many of us know, the European Patent Convention includes a specific exclusion for computer programs as such. Nevertheless the report notes that:

'[t]he EU and its Member States generally provide strong protection for intellectual property rights (IPR). However, U.S. industry has concerns regarding the implementation of key provisions of EU IPR directives and overall IPR protection in some Member States.'

The concerns noted are unrelated to patent policy.

Why does the current European exclusion provide no significant trade barrier for the European Union? Why does a proposed exclusion in New Zealand provide a significant trade barrier for New Zealand?

I suspect that doing away with the exclusion to keep us aligned with Australia would address this trade barrier. Alternatively, amendment of our proposed exclusion to align it with Europe may also achieve the same goal, as far as the US is concerned.

Patent term extension

Patent term extension (or lack of) also appears to be a significant trade barrier as far as the US is concerned. Apparently the proposed bill in New Zealand does not include other provisions in keeping with international best practices.

One example given in the report is that:

'the bill does not include provisions allowing for patent term restoration, which would enable rights holders to recoup the effective patent term lost due to delays in the marketing approval process. The absence of such a provision makes it more difficult for an innovator to recoup his investment in developing new medical products.'

Although the report refers to "restoration" it means "extension". In this business we are used to people using different words to talk about the same thing.

Other barriers - Pharmaceuticals

A US report on trade barriers would not be complete without a dig at Pharmac.

According to the report the U.S. pharmaceutical industry has strong concerns regarding restrictions to access to New Zealand’s pharmaceutical market. The New Zealand government is the primary purchaser of pharmaceuticals in the country. Within a budget set by the Minister of Health, PHARMAC determines which medicines to fund, negotiates prices with pharmaceutical companies, and sets the subsidy levels and conditions.

The report notes that:

'[US i]ndustry representatives criticize PHARMAC for a lack of transparency, timeliness and predictability in the reference pricing process and for unreasonable delays in reimbursing new products. Combined, these issues create an unfavorable environment for innovative medicines. PHARMAC is reportedly working to improve transparency and increase stakeholder involvement in its processes. The pharmaceutical industry has also reached out to partner with the government of New Zealand and other stakeholders to achieve better provision of quality medicines, as well as better health and economic outcomes.'

Where to from here?

The report doesn't tell us anything we don't already know. The US considers that our proposed patent exclusion for computer programs, our lack of patent term extensions and an unfavourable environment for innovative medicines caused by PHARMAC are all significant trade barriers.

It is now a question of what changes we want to make to address these trade barriers. Our proposed patent exclusion for computer programs is not yet a trade barrier. Removing it will require no change to our current environment. Food for thought.

Photo courtesy of author BeckyCortino under Creative Commons licence.