Signing of USMCA Spotlights International Copyright Protections

On November 30, President Trump and leaders from Canada and Mexico officially signed the proposed United States-Mexico-Canada Agreement (USCMA). Completion of the trade agreement's negotiation was announced in October. If approved by Congress, USMCA will replace the North American Free Trade Agreement (NAFTA). 

USMCA contains several provisions to better secure Americans' copyright protections. FSF President Randolph J. May and I address many of those provisions in our Perspectives from FSF Scholars paper, "Modernizing International Copyright Agreements to Combat Copyright Infringement." Among its pro-copyright provisions, USMCA would help American owners of sound recordings the full scope of public performance rights. Additionally, USMCA provides for stepped up enforcement through increased civil and criminal penalties for infringing activities such as "stream-ripping" and "camcording." 

However, USMCA incorporates language similar to the Section 512 "notice-and-takedown" provision contained in current U.S. copyright law. Section 512 is outdated and ineffective in protecting digital music and video content from mass infringement on popular user-upload websites. Future trade agreements and treaties should avoid that language. Congress and the Trump Administration should work to reform and update the notice-and-takedown system. We discuss these aspects of Section 512 in further detail our Perspectives paper, "Modernizing Civil Copyright Enforcement for the Digital Age Economy: The Need for Notice-and-Takedown Reforms and Small Claims Relief."

USMCA Strengthens IP Rights Protections But Can Be Improved Further

On October 1, 2018, the Trump Administration announced a new multilateral free trade agreement with Mexico and Canada, set to replace the North American Free Trade Agreement (NAFTA). In some respects, the Intellectual Property (IP) Chapter in the United States-Mexico-Canada Agreement (USMCA) would strengthen the protections and enforcement of IP rights relative to NAFTA's IP Chapter, and this is an improvement. Notably, the USMCA would implement provisions and enforcement mechanisms that should diminish the facilitation of pirated and counterfeit goods in the three member countries.

However, the proposed agreement also carries forward an outdated "notice-and-takedown" provision that does not properly protect the interests of creators and consumers.

FSF scholars recently have advocated for the modernization of NAFTA's IP Chapter. (See here and here.) And the USMCA would improve some important measures related to the protection of the rights of trademark and copyright holders. Here are some of the key provisions in the USMCA that would strengthen IP rights protections:

• Requires a minimum copyright term of life of the author plus 70 years, and for those works with a copyright term that is not based on the life of a person, a minimum of 75 years after first authorized publication. Canada currently has terms of life of the author plus 50 years and 70 years, respectively.

• Requires strong standards against the circumvention of technological protection measures that often protect works such as digital music, movies, and books.

• Enhances provisions for protecting trademarks, including well-known marks, to help companies that have invested effort and resources into establishing goodwill for their brands.

• Provides important procedural safeguards for recognition of new geographical indications (GIs), including strong standards for protection against issuances of GIs that would prevent United States producers from using common names, as well as establishes a mechanism for consultation between the member countries on future GIs pursuant to international agreements.

Additionally, the proposed agreement would require some enforcement mechanisms to deter the facilitation of pirated and counterfeit goods. Specifically, IP enforcement procedures must be available for the digital environment for copyright and trademark. The USMCA also includes procedures and penalties for unauthorized "camcording" of movies, which is a significant source of pirated movies online.

From the United States' perspective, about $1.3 trillion in annual economic activity is attributable to trade that crosses the U.S. borders with Canada and Mexico. Efforts to stop online piracy and the sale of counterfeit goods will encourage creators and entrepreneurs to develop new content and invest in new brands because they will have a greater ability to earn a return on their labor and resources.

However, there is one area where the USMCA needs work. The USMCA includes outdated safe harbor provisions very similar to the provisions adopted in the Digital Millennium Copyright Act (DMCA). In particular, the USMCA carries forward without strengthening a "notice-and-takedown" provision that does not adequately protect creators and consumers.

As Free State Foundation President Randolph May and Senior Fellow Seth Cooper stated in a February 2018 Perspectives from FSF Scholars, the notice-and-takedown provision was adopted twenty years ago and does not reflect today's digital marketplace for copyrighted works:  

"[Under the notice-and-takedown provision], copyright holders are entitled to give notice to an online service provider when infringing content is posted on its network or website. A provider receives immunity if it 'responds expeditiously to remove, or disable access to, the material that is claimed to be infringing.'"

"In the late 1990s there were far fewer Internet users and far fewer online platforms for user posting of content. Today, user-upload websites such as YouTube, Vevo, Dailymotion, and SoundCloud make massive amounts of music and video content available. Regrettably, users of those websites and others post far too much infringing content. For example, between 2011 and 2015, the sound recording industry issued over 175 million takedown notices to various online providers."

"As a result of mass online infringement and the burdensome nature of the notice and takedown process, copyright owners lose revenues that they would receive otherwise from legitimate sales of copies to consumers."

Compared to NAFTA, the USMCA takes some important steps to modernize and strengthen the protection and enforcement of IP rights to account for a burgeoning digital marketplace. But it's not perfect. Congress and the Office of the United States Trade Representative still need to find a way, in the context of negotiating trade agreements, to revise the "notice-and-takedown" regime in a way that adequately protects creators and consumers.

Trade Negotiations Should Focus on IP Protections, Not Retaliation

The ongoing controversies regarding international trade, including the current negotiations over the North American Free Trade Agreement (NAFTA) that are coming to a head one way or the other, have increased attention on the economic importance of international trade. With the intense focus on the United States’ position in the current NAFTA talks and other negotiations, it is important to understand that economists across the political spectrum overwhelmingly favor free trade policies. At the same time, advocating for improved international protections for intellectual property rights is entirely consistent with promoting free trade.

The consensus among economists is that free trade policies are superior to tariffs and other protectionist measures in promoting economic growth and higher wages. Free trade can also lead to increasing returns to scale from larger markets, the exchange of ideas through communications and travel, and the spread of technology by exposure to new goods and production methods. Economists find that any localized economic benefits from protectionism tend to be short-lived, and in any event are greatly outweighed by the tremendous benefits spread throughout the rest of the economy.

Nonetheless, free trade policies are not nearly so popular among non-economists, on both the left and the right ends of the political spectrum. Opponents typically claim that free trade leads to fewer jobs, lower wages, and harm to domestic industries. Economists respond that if a country follows protectionist policies, it harms itself more than its trading partners, which can be seen in recent sharply negative reactions in financial markets to threats of trade wars. While it is possible that threats of retaliation can lead countries to back off from protectionist policies, such threats are risky because the country threatening retaliation will usually harm itself more than its trading partners if the threat is carried out.

Trade policies create unusual political alliances. Most Republican leaders in recent years have generally favored free trade policies. This view is shared by prominent Democrats like President Bill Clinton and many liberal economists like Paul Krugman. But President Trump campaigned against certain U.S. trade agreements, and in one of his first acts as President, he withdrew the United States from the Trans-Pacific Partnership (TPP). Fareed Zakaria, usually a harsh critic of the President from the left, recently expressed support for the current administration’s approach, stating: “Previous administrations exerted pressure privately, worked within the system and tried to get allies on board, with limited results. Getting tough on China is a case where I am willing to give Trump’s unconventional methods a try. Nothing else has worked.”

It should be noted that President Trump claims he is actually a supporter of free trade. In his 2017 State of the Union Address, President Trump said: “I believe strongly in free trade, but it also has to be fair trade.” If so, President Trump’s actions could be seen as seeking better deals from trading partners. Indeed, President Trump has indicated that he may be willing to reconsider the United States rejoining the TPP, which is a positive development.

None of this is to say that existing trade agreements, such as TPP and NAFTA, cannot be improved. This is certainly true, for example, with regard to the failure to protect intellectual property. Theft of intellectual property is rampant. A 2017 Organization for Economic Cooperation and Development report found that the global value of international and domestic trade in counterfeit and pirated goods in 2013 was between $710 billion and $917 billion, and the global loss in value of digital piracy in movies, music and software in 2015 was $213 billion.

But these opportunities to improve trade agreements do not undermine the benefits of policies favoring free trade. Strengthening measures to prevent such theft, rather than retaliation, should be the focus in negotiating multilateral or bilateral trade agreements. This certainly includes the ongoing NAFTA negotiations in which the Trump Administration thus far has not made strengthening IP protections the priority it should be. Well-defined and stronger protections in trade agreements for copyrights, patents, trademarks and trade secrets would help stimulate growth in IP-intensive industries, increase U.S. exports, and improve economic competitiveness without the economic harms that result from protectionism.

The modernization of NAFTA creates an opportunity to encourage cross-border free trade, while, at the same time, strengthening international intellectual property protections to make sure innovation and creativity are rewarded.

Don't Withdraw from NAFTA, Strengthen It

With NAFTA negotiations underway, Tom Donohue, President and CEO of the U.S. Chamber of Commerce, recently wrote an article in the Wall Street Journal explaining why an exit from NAFTA would be harmful to U.S. consumers and entrepreneurs. I agree with him that, instead of withdrawing from NAFTA, President Trump should focus on improving areas that need fixing, such as strengthening NAFTA’s Intellectual Property (IP) Chapter in order to better protect the rights of artists, creators, and inventors throughout North America.

In his article, Mr. Donohue explains why withdrawing from NAFTA would be detrimental to the entire U.S. economy:

Fourteen million American jobs depend on trade with Canada and Mexico, which are by far the U.S.’s largest export markets. Our North American neighbors buy more than $600 billion in U.S.-manufactured goods each year, more than the next 10 largest markets combined.

Thanks to NAFTA, virtually all North American trade is tariff-free. After withdrawing from the deal, tariffs on all products would snap back to an average of 3.5% for the U.S., 4.2% for Canada, and 7.5% for Mexico—a terrible deal for all three countries.

The increased tariffs would hit American consumers and exporters in the pocketbook, but the losses would accumulate well before that. Supply chains would shift away from the U.S., as Canada and Mexico looked to their other free-trade partners, in Europe and Asia, for manufactured goods and food. Hundreds of thousands of American jobs would be lost, and that’s a conservative estimate. 

In a July 2017 blog, “Strengthen NAFTA’s IP Chapter,” I contended that withdrawing from NAFTA would eliminate strong protections of IP rights that have been established among the U.S., Canada, and Mexico. While there is room to strengthen the existing protections, removing them entirely surely would be harmful to securing protection of copyrights and patents here in the U.S. and throughout North America.

In the blog, I discussed some of the areas where NAFTA’s IP Chapter can be improved. For example:

Some parts of Canadian and Mexican IP laws, along with enforcement practices, do not protect U.S. interests. For example, the position of both Canada and Mexico with regard to the transshipment of counterfeit and pirated goods into the United States is too relaxed. This places a high burden on U.S. border officials to police illicit trade. Pirated and counterfeit digital goods have become increasingly available since NAFTA was implemented in 1994, just before the digital economy started to grow. The distribution of pirated and counterfeit goods was listed as a key area of weakness for both Canada and Mexico in the Global IP Center’s (GIPC) 2017 International IP Index.

Stronger IP rights protections will incentivize more innovation and investment in all three NAFTA member countries. This will benefit artists and inventors in the member countries by helping to ensure that they receive the just rewards for their labors, and it will also benefit the entrepreneurs and consumers that undergird thriving market-based economies. With $1.3 trillion in annual economy activity and 14 million jobs on the line in the United States, President Trump should not be focusing on withdrawing from NAFTA but rather on updating the treaty, including in a way that strengthens the all-important Intellectual Property Chapter.

Strengthen NAFTA's IP Chapter

President Trump has been critical of the North American Free Trade Agreement (NAFTA), a trilateral free trade agreement involving the United States, Canada, and Mexico, stating that he would withdraw the U.S. from the 23-year-old agreement. He even drafted an executive order that would have removed the United States, but he ultimately decided not to issue it.

Still, President Trump apparently remains concerned about NAFTA, and this is a concern to hundreds of millions of North American consumers and entrepreneurs who benefit from the economic prosperity that NAFTA has fostered. Instead of contemplating withdrawing the U.S. from NAFTA, President Trump should focus his attention on modernizing NAFTA. In this regard, he should focus special attention on strengthening NAFTA’s IP Chapter in order to better protect creators and inventors throughout North America.

Withdrawal from NAFTA would have detrimental economic effects on the North American economy. The daily volume of economic trade among the three member countries is over $3.5 billion. From the United States’ perspective, about $1.3 trillion in annual economic activity crosses U.S. borders with Canada and Mexico. There are also 14 million U.S. jobs that directly depend on trade with Canada and Mexico. In other words, hundreds of millions of consumers and entrepreneurs throughout North America value the economic benefits of NAFTA, including access to inexpensive goods and services, low barriers to entry for entrepreneurs, and of course, the enjoyment of artistic creations that protections of intellectual property rights enable.

Modernizing NAFTA by strengthening IP rights protections, especially to take account of the digital economy that was almost non-existent when NAFTA was negotiated, would be helpful. In a recent blog post, John Murphy, the U.S. Chamber of Commerce’s Senior Vice President for International Policy, discusses some key areas where NAFTA could be modernized to benefit consumers and entrepreneurs in all three member countries. In recent comments submitted to the Office of the U.S. Trade Representative and the Trade Policy Staff Committee, Mr. Murphy specifically addresses aspects of NAFTA’s IP Chapter that could be better enforced and some that should be updated.

Some parts of Canadian and Mexican IP laws, along with enforcement practices, do not protect U.S. interests. For example, the position of both Canada and Mexico with regard to the transshipment of counterfeit and pirated goods into the United States is too relaxed. This places a high burden on U.S. border officials to police illicit trade. Pirated and counterfeit digital goods have become increasingly available since NAFTA was implemented in 1994, just before the digital economy started to grow. The distribution of pirated and counterfeit goods was listed as a key area of weakness for both Canada and Mexico in the Global IP Center’s (GIPC) 2017 International IP Index.

Also, with respect to pharmaceutical patents, Mexico has not fully implemented the regulatory data protection provisions of NAFTA and neither Mexico nor Canada meets the standard in U.S. law of twelve years of regulatory data protection for biologic products. The U.S. Chamber of Commerce suggests that both countries provide at least five years of patent term restoration that grants full rights to compensate for the patent life lost to patent office and regulatory approval delays. Also, the judicial systems in both countries should provide effective enforcement of patents and compensation for patent infringement. Needless to say, Canada and Mexico scored relatively low on the patents category of GIPC’s International IP Index.

The U.S. Chamber of Commerce listed a number of recommendations that should be part of an updated IP Chapter in NAFTA:

• Commitment to full national treatment without carve outs.

• Re-commitment to strong base terms of protection for patents, copyrights and related rights, trademarks, and designs, and establishment of a statutory commitment to protect trade secrets.

• Exclusive rights for all forms of IP regardless of business models.

• Guarantee of technology-neutral patent eligibility for all industry sectors strictly based on the international norm of novelty, usefulness, and non-obviousness.

• Clear and carefully-defined rules for exceptions to rights across all forms of IP.

• Rule of law mechanisms that enable IP owners to maintain, commercialize, and defend their rights, including, for example:

o   Prohibition of forced transfer of IP rights and government interference in commercial technology agreements;

o   Strong legal protections against circumvention of technological protection measures for the digital marketplace, with appropriate exceptions;

o   Patent linkage rules that enable pharmaceutical innovators to resolve patent disputes before potentially infringing products enter the market; and,

o   Patent term extension and restoration to address bureaucratic delays.

• Statutory protection for proprietary information, including trade secrets as well as regulatory test data submitted to governments, and establishment of criminal penalties for trade secrets theft, including by means of a computer system.

• Deterrent-level civil and criminal remedies in law, backed up by effective enforcement efforts, to combat trade in counterfeit goods, among other goals, and halt damage to iconic U.S. brands and the jobs that depend upon them.

• Appropriate and effective safe harbor mechanisms for intermediary liability.

• Ensure NAFTA partners implement relevant international IP agreements in domestic law.

• Participation in partnership with the United States in a forward-looking norm-setting agenda through multilateral treaties and trade agreements to ensure that U.S., Canadian, and Mexican IP interests are promoted around the world.

The U.S. Chamber’s comments regarding modernizing NAFTA’s IP Chapter conclude this way:

Ensuring full implementation of existing NAFTA rules and upgrading Canadian and Mexican IP laws would give American creators and innovators an expanded regional platform to launch new products and services with the assurance that their IP is protected. In turn, Canada and Mexico would be better able to enjoy the benefits of the research and development investments and creative work taking place in their own markets, which due to a weak IP environment too often are lost to foreign competitors. Likewise, modernizing NAFTA’s IP provisions would strengthen the digital economy throughout North American by powering the knowledge sector, which is critical to driving digital growth.

Stronger IP rights protections will incentivize more innovation and investment. This will benefit consumers, entrepreneurs, artists, and inventors in all three member countries. With $1.3 trillion in annual economy activity and 14 million U.S. jobs on the line, President Trump should be focusing not on withdrawing from NAFTA but rather on updating it in a way that strengthens the IP Chapter.