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The proposed free Trade Agreement of the Americas (FTAA), which is currently being negotiated by the U.S. Trade Representative (USTR) and representatives of dozens of other countries in the Western Hemisphere, contemplates the creation of the world’s first hemispheric free trade zone. If ratified, the FTAA will unite 34 North, Central and South American countries into a single $13 trillion free market comprising 800 million consumers. See www.ustr.gov/releases/2003/02/03-08.htm. The FTAA is scheduled to be ratified by January 2005 and is now in its second draft form. Its proposed text covers numerous trade-related topics, and currently includes a chapter on intellectual property. At least one country, Brazil, has proposed that the IP section be excised from the FTAA draft and that the topics covered therein be instead handled through World Trade Organization negotiations. This proposal is currently pending for discussion and decision by the FTAA negotiating representatives. Several of the IP provisions contained within the current, second draft of the FTAA would, if enacted, effect significant changes in U.S. IP law. See www.ustr.gov/regions/whemisphere/ftaa2002/secondtext.htm. While at this stage it is difficult to determine how many of these proposed provisions will survive the negotiating and ratification process, it is likely that the USTR will strongly advocate for positions that do not fundamentally clash with established U.S. statutory and case law. Analysis of the state of FTAA negotiations is particularly imprecise, given that the second draft text contains, in many sections, multiple (and often rival) forms of proposed language on various topics. The alternate proposals of respective negotiating members are generally simply recited in serial fashion, with brackets indicating that no consensus has been reached as to which of the multiple proposed provisions to incorporate. No firm schedule has been set for formulating a third draft text or otherwise reconciling the multiple, and divergent, proposals for the various provisions, including the IP provisions. Still, the breadth of certain of the FTAA’s currently proposed provisions suggests that at least some would-be FTAA members are forcefully arguing in favor of substantive policies that are fundamentally inconsistent with longstanding U.S. IP concepts. Patentable subject matter For example, � 9.5.1 of the FTAA second draft, entitled Patentable Subject Matter, currently contains a proposed subsection that goes well beyond the landmark Trade Related Intellectual Property Rights (TRIPS) agreement, negotiated in the Uruguay Round of GATT (General Agreement on Tariffs and Trade) multilateral trade negotiations (1986-94), or any other IP treaty in existence today in attempting a comprehensive definition of patentable subject matter. This proposed version of Subsection 9.5.1.5 also sets forth what shall not be considered an invention within the FTAA jurisdictions. Among other things, neither “[e]conomic or business plans, principles or methods and those related to purely mental or industrial activities or to games,” nor “[c]omputer programs per se,” would be considered inventions within the FTAA. This version of � 9.5.1.5, if ratified, would render moot the past 10 years of significant change and today’s ongoing debate concerning the nature, extent and value of business-method and software algorithm patent rights that are to be recognized in the United States. Specifically, it would effectively abolish the current U.S. consensus in favor of recognizing fairly broad protection for business-method and software patents. The proceedings of FTAA negotiations are not publicly available. But it appears from conversations with individuals involved in the negotiations that the USTR (which consults with the U.S. Patent and Trademark Office and the Copyright Office on IP-related aspects of trade agreements) will take a strong position against any anti-business-method/algorithm provisions in the FTAA draft. Yet U.S. policies and USTR arguments favoring recognition of rights in such subject matter have to date enjoyed lukewarm support at best from other foreign jurisdictions such as Japan and Europe. Similar disputes may arise regarding draft language that would constrain the patentability of certain living organisms, genetic material and medical or surgical treatment methods. Utility models Also of interest to patent practitioners is proposed language in the FTAA that contemplates the creation of patent protection for “utility models”-which have served in other jurisdictions as a sort of watered-down version of a utility patent. According to draft language for � 9.7.1 of the FTAA, utility models would be protected by either patents or utility model certificates, and would not be available for processes or methods of any kind, nor chemical substances or compositions. Rather, they would be limited principally to “new” mechanical apparatuses. It is interesting to note that the current FTAA draft does not include a requirement of nonobviousness or an inventive step for these utility models. Nor does the FTAA set forth any examination or prior-art search requirement before the issuance of a utility model. The draft language does, however, forbid member nations from creating “exceptions . . . [that] unreasonably conflict with a normal exploitation of the protected models . . . [or] unreasonably prejudice the legitimate interests of the owner of the protected model.” Arguably, the forbidden “exceptions” would include any exception that denied utility models the full benefit of the United States’ statutory presumption of patent validity. See 35 U.S.C. 282. The seeming requirement that utility models be given equal dignity with full utility patents, combined with the apparent absence of substantive examination or a nonobviousness or inventive-step requirement, suggests several problematic scenarios. For example, the statutory presumption of patent validity, and the requirement that patent invalidity be proven by clear and convincing evidence might, if applied to utility models, give utility model owners a significant and unfair advantage by endowing their unexamined, and perhaps barely novel, “inventions” with an unwarranted imprimatur of originality. Neither the USTR’s negotiating position on utility models, nor the current status of this draft language, is known at this time. Also of interest is draft language in � 9.6.1 that contemplates a regionwide exhaustion of rights policy. Generally, exhaustion of rights doctrines limit the ability of a patent or trademark holder to prevent sale or distribution (including importation), without his consent, of products that have been lawfully licensed or put on the market in a particular territory. TRIPS leaves the issue of how exhaustion doctrines will apply to transborder activities within a free trade zone to the discretion of each country’s national law. The North American Free Trade Agreement offers some guidance in giving patent holders the option of suing in the United States against those who, without authorization, import products made abroad using a patented process. Language in draft � 9.5.6 of the FTAA, however, goes beyond either of these agreements. Specifically, the proposed language provides that “a patent shall not confer on its owner the right to proceed against a third party making commercial use of a product protected by the patent once that product has been introduced into the commerce of any member country by the owner or another person authorized by, or with economic ties to, the owner of the patent.” Similar proposed language would apply “regional exhaustion” policies to trademarks as well. See FTAA, � 9.1.4. Such language, if implemented, would severely limit the opportunities for policing imports or sales in the United States of “gray-market” patented or trademarked goods. Instead, any good distributed under valid license or authorization in any FTAA member country could be freely resold in any other member country. Reports from the negotiating arena indicate that the USTR is strongly defending the traditional U.S. policy-namely, that exhaustion of patent or trademark rights should occur on a nation-by-nation basis-against the vehement arguments of other FTAA negotiating parties in favor of regional exhaustion. Internet disputes In another potentially significant proposal to “address the problem of cyber-piracy of trademarks,” the current FTAA draft includes a requirement that each signatory country’s network information center (NIC) participate in the uniform dispute resolution procedure (UDRP) for Internet domain name disputes. See FTAA, � 1 (13.1). Each NIC is responsible for administering top-level Internet domain names in a particular country. The UDRP was developed in 1999 by the nonprofit Internet Corp. for Assigned Names and Numbers (ICANN), which was designated by the U.S. Department of Commerce in 1998 to manage, among other things, the Internet’s domain name system. The UDRP provides an extrajudicial mechanism by which trademark owners may quickly, and less expensively, resolve issues related to cybersquatting or cyberpiracy, which is the practice of registering a domain name corresponding to a particular mark of another party, usually for the purpose of selling the domain name to the trademark’s owner. Currently, the UDRP applies only to the .biz, .com, .info, .org and .net top-level domains, and a few country-code top-level domains, including .ac, .mx and .tv. Other top-level domains have different dispute resolution procedures. The current FTAA draft would make the UDRP applicable to all disputes concerning country-code top-level domain names within the FTAA’s boundaries. While there are many large trademark-holding corporations that might see this expansion of the UDRP as a desirable development, the UDRP’s application in the United States, though generally viewed as largely successful, has not been without controversy. Many criticize the UDRP as being slanted in favor of corporate trademark owners at the expense of noncorporate domain registrants or of freedom of speech. Others have attacked the UDRP’s streamlined procedures as lacking in basic due process protections. The proposed inclusion of the UDRP as a global solution for domain registration disputes under the latest FTAA draft seems likely to heighten national and international debate over whether the UDRP is a desirable one-size-fits-all solution to the vexing problems raised by alleged cybersquatters. In view of the significant changes to U.S. IP law that could result if these provisions, or variants of them, survive the FTAA drafting process, it seems prudent to continue to monitor the progress of the FTAA negotiations, and to continue to evaluate the potential effects of its draft as it continues to evolve. Such monitoring may prove especially advisable in the case of the FTAA because-while some treaties or conventions are subject to clause-by-clause “opt outs” at the ratification stage-any amelioration of those proposed provisions of the FTAA that are inconsistent with current U.S. law will have to take place in the drafting and negotiation phase or not at all. This is so because the FTAA has been placed on a special ratification track that will require Congress to make a single “up or down” vote accepting or rejecting the final proposed FTAA text in its entirety. Whatever the outcome of the FTAA drafting process, the sometimes widely divergent nature of the current rival proposals for its IP chapter calls attention to the fact that patent, copyright and trademark rights are increasingly the subject of often-fractious international trade negotiations. These disputes reflect the increasing importance of IP in global investment decisions and in the protection and growth of new technologies. They also reflect the importance of formulating IP policies that take into account the interplay of various national and international constituencies and their sometimes disharmonious approaches to IP protection. Jeffrey D. Sullivan and Eric Roman are associates in the New York intellectual property department of Baker Botts.

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