Prosperity Paper
No. 7

Protecting Intellectual Property

by Laurence R. Hefter and Robert D. Litowitz



Table of Contents

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INTRODUCTION
What is Intellectual Property?

Countries with innovative local industries almost invariably have laws to foster innovation by regulating the copying of inventions, identifying symbols and creative expressions. These laws encompass four separate and distinct types of intangible property, namely, patents, trademarks, copyrights and trade secrets, which are collectively referred to as "intellectual property."

Intellectual property shares many of the same characteristics associated with real and personal property. For example, intellectual property is an asset and as such it can bought, sold, licensed, exchanged or gratuitously given away like any other form of property. Further, the intellectual property owner has the right to prevent the unauthorized use or sale of the property. The most noticeable difference between intellectual property and other forms of property, however, is that intellectual property is intangible, i.e., it cannot be defined or identified by its own physical parameters. It must be expressed in some discernible way to be protectable. Each of the four types of intellectual property are discussed below.

What is a Patent?

Patent systems are designed to encourage the disclosure of information to the public by rewarding inventors for their endeavors. One might say that a patent is a contract between society as a whole and the individual inventor. Under the terms of this social contract, the inventor is given the exclusive right to prevent others from making, using and selling the patented invention for a fixed period of time in return for the inventor disclosing the details of the invention to the public.

Although the word "patent" finds its origins from documents issued by the Sovereign of England in the Middle Ages for granting a privilege, today the word patent is synonymously linked with this exclusive right granted to inventors. The duration of patent exclusivity varies from country to country. However, under all patent systems, once this period has expired, people are free to use the invention as they wish.

The benefits of an effective patent system can be partially illustrated as follows:

A patent rewards the investment of time, money and effort associated with research; it stimulates further research as competitors invent alternatives to patented inventions; and it encourages innovation and investment in patented inventions by permitting companies to recover their research and development costs during the period of exclusive rights.

The limited term of a patent also furthers the public interest by encouraging quick commercialization of inventions, therefore making them available to the public sooner rather than later. Patents also allow for more latitude in the exchange of information between research groups, help avoid duplicative research, and most importantly, increase the general pool of public knowledge.

A comparison of the number of inventions developed in countries with adequate patent protection with the number in countries without it demonstrates that patent systems stimulate investment in research and development. A look at the pharmaceutical industry in Italy before and after patent protection for pharmaceuticals became available in that country provides a good illustration. Prior to granting protection, there was significantly less capital invested in Italian pharmaceutical research and development when compared to the amount of money invested in the research and development of other technologies. Following Italy's enactment of patent laws protecting pharmaceuticals, the relative investment in the pharmaceutical industry in Italy rose significantly.

As stated before, the right conferred by a patent is a right to exclude others from making, using or selling the patented invention during the term of the patent. It is important to understand that a patent does not necessarily give the patent owner the right to make, use or sell the invention himself. For example, the owner of a patent for an improved method of producing a chemical compound would not be free to sell the compound made using the patented method if the compound is itself patented by someone else.

Patents are granted under national laws and, therefore, the rights are also national in scope. Thus, a United States patent can be asserted only against infringing conduct in the United States. In most countries these rights are enforceable by civil, rather than criminal, proceedings.

Accordingly, enforcement falls solely to the patent owner. In general, any act of making, using or selling the patented invention without permission infringes that patent, whether it be by the state, a corporation or an individual. Any such infringing act will give rise to liability, regardless of the infringer's intent or lack of knowledge of the patent.

Remedies for patent infringement can include injunctions, orders to deliver up or destroy infringing articles, and compensation for damages suffered by the patentee or profits made by the infringer.

An issued patent remains open to attack for invalidity, and it is a common defense for an alleged infringer to assert that the patent is invalid. Typically, patents are challenged on the ground that the claimed invention was invented by someone other then the named inventor, or that the invention would have been obvious to persons skilled in the relevant technology.

What is a Trademark and a Service Mark?

Trademarks and service marks are primarily intended to indicate the source of goods and services and to distinguish those goods and services from those of others. They also symbolize the quality of the goods or services with which they are used. Most trademarks and service marks (called "marks") are words, but they can be almost anything that can distinguish one product or service from another, such as symbols, logos, sounds, designs or even distinctive nonfunctional product configurations.

While virtually all countries recognize and offer protection for trademarks, many but not all countries recognize and protect service marks. In some countries, protection for a mark is acquired by using the mark on goods or services. In other countries, the owner must register the mark with the national trademark office before protection in that country is granted.

The duration of protection afforded a mark varies greatly from country to country. Registrations are issued for finite periods of time. However, because of the fundamental purposes of these marks--namely avoiding public confusion, encouraging competition and protecting the owners' goodwill--registrations may be renewed and thus extend indefinitely as long as the marks are used.

The owner of a mark may preclude others from using a similar mark if such use is likely to cause confusion in the minds of purchasers. Determining whether two marks are so similar as to be confusing usually involves a multi-factor analysis that compares the parties' marks, their goods or services, their advertising and trade channels, the defendant's intent in choosing its mark, and the presence or absence of actual confusion.

What is Copyright?

A copyright is an exclusive right to reproduce an original work of authorship fixed in any tangible medium of expression; to prepare derivative works based upon the original work; and to perform or display the work in the case of musical, dramatic, choreographic and sculptural works. Copyright protection does not extend to any idea, procedure, process, system, method of operation, concept, principle or discovery, regardless of the form in which it is described, explained or embodied. Rather, copyright protection is limited only to an author's particular expression of the idea, process, concept, etc. in a tangible medium.

Copyright protection automatically subsists in all works of authorship from the moment of creation. The duration of copyright protection varies from country to country and can be dependent on such factors as the subject matter of the work, whether the work was made for hire, and whether the work is published. For instance, in the United States, the copyright for a work of an individual author lasts for his or her lifetime plus 50 years. However, if the work is made for hire, the copyright lasts for 100 years from the time of creation or 75 years from first publication.

The exclusive rights granted to the copyright owner do not include the right to prevent others from making fair use of the owner's work. Such fair use may include use of the work for purposes of criticism, comment, news reporting, teaching or education, scholarship or research. The nature of the work, the extent of the work copied, and the impact of copying on the work's commercial value are all considered in determining whether an unauthorized use is a "fair use."

What is a Trade Secret?

A trade secret is information that is secret or not generally known in the relevant industry and that gives its owner an advantage over competitors. Trade secret protection exists as long as the information is kept secret or confidential by its owner and is not lawfully and independently obtained by others. Examples of trade secrets include formulas, patterns, methods, programs, techniques, processes or compilations of information that provide one's business with a competitive advantage. The owner of a trade secret may recover damages resulting from the improper disclosure or use of its trade secret by another.

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Types of Intellectual Property Compared and Contrasted

A product may be protected by one or more of the four types of intellectual property protection discussed above. A common example is a household lamp with a sculptured base. The functional electric components of the lamp and the light bulb may be protected by a patent. The label on the lamp may contain a trademark identifying the source of the lamp that distinguishes it from other manufacturers' lamps. The sculptured lamp base may be considered a work of art and therefore be subject to copyright protection. Finally, the manufacturer may have compiled a list of customers who are known to buy such lamps or a list of preferred parts suppliers. If these lists have been kept confidential and secret, they may be trade secrets.

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Economic Benefits to Countries and Companies

Countries that provide for the protection of intellectual property benefit in many ways. In addition to increasing the general pool of information and knowledge, adequate legal protection fosters investment and trade. When looking for new markets or countries in which to expand manufacturing or distribution facilities, companies often look to countries that will protect their intellectual property. Companies that are active internationally often will not allow certain technologies or other intellectual property to be sold in countries that will not protect the property owner's rights. Where the owner's rights are not protected, third parties may use the property and, therefore, unfairly reap the rewards of the owner's investment in developing and marketing the property. Thus, inadequate legal protection for intellectual property acts as a trade barrier.

Companies benefit from the protection of intellectual property through the exclusive rights granted by such protection. Companies therefore often build extensive portfolios of patents, marks, copyrights and trade secrets. Such portfolios are important for both the "offensive" and "defensive" goals of the company.

Patents, marks, copyrights and trade secrets have an independent value as a business asset. This value may be actively exploited for commercial gain. Because an owner of intellectual property has exclusive rights in that property, the owner may allow others to use the property for a fee. Such licensing arrangements are quite common and lucrative. Cross-licensing is another technique used by companies to benefit from their intellectual property portfolios. When one company desires to use the intellectual property of another company, the companies may "exchange," or cross-license, the right to use certain intellectual properties owned by the respective companies. A large portfolio of intellectual property will aid a company in negotiating a cross-license with another company. Finally, because intellectual property has independent value, the property may be used to secure financing in some countries.

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Requirements and Obstacles in Obtaining Protection

As noted, intellectual property is protected on a national basis. Thus the specific scope of protection and the requirements for obtaining protection will vary from country to country. There are, however, similarities among national legal arrangements. Moreover, the current worldwide trend is toward harmonizing the national laws. The following discussion of the requirements and obstacles in obtaining protection will therefore speak in generalities. The case studies in this paper highlight the laws of certain individual regions or countries.

Patents

Even though patentability is governed by national laws, most countries have adopted similar requirements. In general, to be patentable, an invention must be novel, useful and nonobvious.

It is a prerequisite to patentability that the invention be capable of some practical application. This emphasizes the importance the patent system puts on usefulness. Although this principle remains constant, the phraseology used within the legislation of particular countries varies, e.g., in the United States patentable subject matter must be "useful," whereas in the United Kingdom it must be capable of "industrial application."

The invention must be new, that is to say, the subject matter of the invention is not or cannot be inferred to be part of what is already known. This is commonly referred to as the "novelty" requirement. New or novel in this context means "new to the public." Therefore, something that has previously been used or known but has not been made available to the public (for instance, if it has been kept a secret) is not a bar to patentability.

The invention must also be nonobvious. This prevents someone from taking advantage of the patent system and obtaining protection for something that is a mere extension or trivial variation of what is known. Generally the test for inventiveness or "nonobviousness" is based on what a reasonable person skilled in the field to which the invention pertains, at the time the invention was made, would consider to be nonobvious.

For reasons of public policy some countries do not allow the patenting of chemical compounds, but instead allow only the patenting of the processes for preparing them.

It is particularly difficult to enforce a process patent as the burden of proof is on the patent owner to show that the patent has been infringed, i.e., "copied." The patent owner must prove that a particular manufacturing process (i.e., that covered by the patent) was used to manufacture the particular chemical. This can be very difficult to show where there are many possible process variants and where access to the potential infringer's facility is not available. In practice, this is done by looking for trace impurities that are characteristic of the manufacturing process. One can imagine how complex the issues can become if, for instance, a patent protects a pharmaceutical and the pharmaceutical is made in Turkey, where there is no protection for pharmaceuticals, and exported to Finland, which provides protection only for manufacturing processes.

Over the past 15 years, many countries have changed from "process" to "product" patenting, and this trend is continuing with more countries expected to upgrade their patent laws within the next few years.

Not only are the utilitarian aspects of new and useful inventions patentable, but many countries also extend patent protection to novel, ornamental industrial designs. In the United States, this form of protection is known as a Design Patent, while in many European countries, the property right in an industrial design is referred to as a Design Model.

In addition to the usual subjects of patent protection such as devices, chemical compositions and processes, some countries provide patent protection for living matter. For example, asexually reproduced varieties of plants, excluding bacteria, uncultured plants and tuber propagated plants can be protected as can sexually reproduced plants (by seed) excluding bacterial, fungi and first generation hybrids.

Trademarks and Service Marks

As with all intellectual property, trademark and service mark laws are national in origin. Some countries grant rights to the first person to use the mark in the course of business, while other countries grant rights to the first person to obtain a registration in that country. In "first-to-use" countries, rights may subsist without registering the mark with the national trademark office. However, registration is still desirable because it is presumptive evidence of the validity of the mark and the owner's right to use that mark. It also appears on the national register of marks providing notice to the world of the owner's use and claim of ownership. Some countries require that the mark be used in commerce prior to the issuance of a registration, while other countries permit registration based on the intent of the applicant to use the mark in the future. Following the use or registration of a trademark, the owner must use the mark or it may become subject to attack by others on the ground that the owner has abandoned it.

At a minimum, most countries require that a mark be distinctive, i.e., capable of distinguishing the goods or services of the owner of the mark from the goods or services of others. To determine whether a mark meets this test, one must determine the "strength" of the mark.

A mark's strength is usually measured across a spectrum. This spectrum includes, from weakest to strongest, terms that are generic, descriptive, suggestive, arbitrary and fanciful. At the weakest end of the spectrum lie words, symbols or devices that are not capable of distinguishing goods because they are common terms used to identify the goods themselves, e.g., book, table, chair. Such terms are called generic terms and are not protectable as trademarks.

The next category is comprised of descriptive terms. A mark is descriptive if it describes the intended purpose, function, physical characteristic, laudatory quality or end use of the product. Examples of descriptive marks include SAVMOTOR for an engine oil additive intended to prolong the life of an automobile engine, MICRO for wheel weights that are very small, and SUPREME for wine allegedly of superior quality. Because they are not inherently distinctive, a descriptive term cannot be protectable as a mark until, through extensive sales and advertising, the term has come to identify the source of the goods bearing the mark. In the United States, when a descriptive mark achieves this level of distinctiveness, it is said to have acquired a "secondary meaning."

In contrast to descriptive marks, suggestive marks do not immediately describe the goods with which the mark is used, but rather require thought, imagination or perception to reach a conclusion about the nature of the goods. Suggestive marks are considered inherently distinctive and protectable without first acquiring secondary meaning. Examples of suggestive marks may include HERO for fire extinguishers or GREYHOUND for bus transportation services.

Arbitrary marks are words, symbols, and devices that are in common use but, when used on the goods of the trademark owner, neither describe nor suggest the quality of those goods. Examples of arbitrary marks include ARROW for liqueurs, APPLE for computers, and CAMEL for cigarettes. Like suggestive marks, arbitrary marks are inherently distinctive and secondary meaning need not be proven.

The most distinctive marks are fanciful marks. A fanciful mark is a "coined" word or symbol invented or selected for the sole purpose of functioning as a mark. Examples of fanciful marks include EXXON for gasoline, KODAK for photographic supplies, XEROX for photocopying equipment, and CLOROX for bleach. Fanciful marks are traditionally afforded the greatest scope of protection.

Copyrights

To secure copyright protection, the work in question must be an "original" work of authorship fixed in a tangible medium of expression. Works of authorship that fall within this definition may include:

  • literary works (including computer programs);
  • musical works and accompanying lyrics;
  • dramatic works and dialogue;
  • pantomimes and choreographic works;
  • pictorial, graphic and sculptural works;
  • motion pictures and other audiovisual works; and
  • sound recordings.

It is important to note that the laws of many countries do not limit the type or form of work because authors are continuing to invent new ways of expressing themselves.

The test for the originality of a work is usually two-pronged. First, the work of authorship must originate from the author, in the sense that it must have actually been independently created by the author and not copied from other works. Secondly, the work must contain a sufficient amount of originality so as to be more than a trivial variation over preexisting works.

To be copyrightable, a work must be "fixed in a tangible medium of expression." A work is "fixed" when its embodiment in a tangible medium is sufficiently permanent or stable as to permit it to be perceived, reproduced or otherwise communicated for a period of time that is not transitory. The means, manner or medium of fixation is irrelevant.

Copyright registration in most countries is relatively straightforward and inexpensive. Although copyright protection subsists from the moment the work is fixed in a tangible expression, copyright registration confers additional important benefits in some countries. In those countries with a registration system, registration may be a prerequisite to initiating legal action to stop others from infringing a copyright, and/or for recouping the costs, including attorney's fees, of enforcing those rights. In addition, in some countries, a copyright registration constitutes prima facie evidence of the validity and ownership of the copyright.

Trade Secrets

Trade secrets are not registered like other forms of intellectual property, and are not creatures of statutes. Instead, the judicial systems of each country determine the requirements for obtaining trade secret protection. Some of the factors commonly considered include:

  • the extent to which the information is known outside of the business,
  • the extent to which the information is known by employees and others involved in the trade secret owner's business,
  • the extent of the measures taken to guard the trade secrets,
  • the value of the information to the owner and his competitors,
  • the amount of money or effort expended by the trade secret owner in developing the secret, and
  • the effort required by others to acquire or duplicate (through reverse engineering) the information.

The "secrecy" of an alleged trade secret is the most important factor to be considered. If the information claimed to be a trade secret is available through any legitimate means and is obtained in this way, then the information is no longer "secret" and may become ineligible for protection. However, if the owner has taken reasonable steps to protect the information, but the trade "secret" information nonetheless is publicly disclosed, the courts in many countries may still grant protection. Such "reasonable" steps may include requiring those persons who encounter the information as the result of normal business ventures to sign confidentiality and nondisclosure agreements.

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Costs vs. Benefits

As with all business related activities, economics play a large role in the determination of whether to protect intellectual property. Companies must weigh the potential value of an intellectual property right against both the probability of realizing that value and the costs of securing, enforcing and maintaining that right.

There are no hard and fast rules that determine the potential value of a given intellectual property right. What is valuable to one individual or company may be worthless to another. There are certain obvious factors that contribute to the potential value of the intellectual property, including the potential value of exclusive or other rights, assignments or licenses, cross-licenses, enforcement against infringers, and as collateral for securing financing.

A trademark or service mark may be a very valuable asset. For example, it is widely believed the German automobile manufacturer "BMW" recently purchased the British automobile manufacturer "Rover" primarily to obtain its portfolio of desirable trademarks including "Land Rover," "Range Rover," "Triumph," "Austin," and "MGB." On the other hand, a trademark may be virtually worthless if consumers associate it with poor quality.

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National Policy and International Accords

Countries that protect intellectual property -- copyrights, patents, trademarks and other forms of intangible property -- provide an incentive for capital investment in research and may aid the ability to develop new products. Adequate legal protection also fosters investment and trade. Companies looking for new markets or for locations for manufacturing or distribution facilities often look to countries that will protect their intellectual property.

Yet where the owner's rights are not protected, third parties may use the property and unfairly reap the rewards. The damage resulting from such unauthorized use includes lost domestic and export sales and royalties, other financial losses, and harm to producers' reputations.

Many countries have national laws aimed at protecting intellectual property, but little international law exists in this area. Several multi-national treaties and conventions have been negotiated that oblige member countries to provide some minimum standard of intellectual property protection to foreign nationals. The most recent of these, the TRIPS agreement, was achieved as part of the Uruguay Round accord of December 1993. The United States was one of the staunchest supporters of this agreement in negotiations.

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United States Policy and the USTR Report

The United States encourages all countries to eliminate trade barriers that affect U.S. exports of goods and services and direct investment by U.S. citizens (including corporations) in other countries. According to U.S. policy, the inadequate protection of intellectual property rights is a significant trade barrier.

An annual report on significant foreign trade barriers is prepared by the United States Trade Representative (USTR) and is submitted to the president, the Senate Finance Committee and appropriate committees in the House of Representatives. If warranted, the United States will impose trade barriers against particular countries under what is known as a "Special 301" or "Super 301" action.

Section 301, a provision of the U.S. Tariff Act of 1974, gives the United States the authority to negotiate to eliminate a large range of foreign trade practices. Action requires a finding that a foreign government has denied U.S. rights under a trade agreement, or has taken action that is inconsistent with, or otherwise denies benefits to, the United States under a trade agreement; or has engaged in an act, policy or practice that is unjustifiable, unreasonable or discriminatory and that burdens or restricts U.S. commerce.

Super 301 is a provision of U.S. trade law that requires the U.S. trade representative to identify in 1994 and 1995 "priority foreign country practices" -- the elimination of which would have the greatest potential for the expansion of U.S. exports. Identification triggers a Section 301 investigation.

In contrast, "Special 301" authority is aimed at enhancing the United States' ability to negotiate improvements in foreign intellectual property regimes through bilateral or multilateral initiatives. The statute requires annual identification of those countries which deny adequate and effective protection of intellectual property rights or fair and equitable market access for U.S. citizens relying on intellectual property protection. The most egregious cases among these are then identified and may be investigated. A "Special 301" action involves a six-month investigation, with a possible 90 day extension, at the end of which trade sanctions can be imposed. Due to the economic power of the United States, the action has been applied with some success against some countries.

The recent 1994 USTR report criticizes 33 jurisdictions for inadequate intellectual property protection, namely: Argentina, Australia, Brazil, Canada, Chile, People's Republic of China, Colombia, Dominican Republic, Egypt, El Salvador, European Union, Guatemala, Gulf Cooperation Council, Honduras, Hungary, India, Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Pakistan, Peru, Philippines, Poland, Russia, Singapore, South Africa, Taiwan, Thailand, Turkey, and Venezuela.

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International Cooperation

There is very little international law governing intellectual property. However, there is a remarkable amount of transnational uniformity, which results from treaties and international conventions. These treaties and conventions usually oblige member countries to provide minimum norms of intellectual property protection and to extend the protection for the benefit of foreign nationals. Several of the more important treaties and conventions are discussed below.

The Paris Convention

The International Convention for the Protection of Intellectual Property is probably the single most important multilateral treaty on intellectual property, and is better known as the "Paris Convention." Most industrialized nations and many developing countries are parties to this convention and are referred to collectively as the Paris Union. To date, 56 countries have ratified the latest revision of the text, which covers a wide range of intellectual property rights including patents, industrial designs, trademarks, trade names, service marks, collective marks and unfair competition. The Paris Convention grants foreign nationals the same protection and benefits accorded to nationals of any other member country, without discrimination.

One of the most important provisions of the Paris Convention relates to "Convention Priority." An applicant's priority date is the date on which an application is first filed in the applicant's home country. The convention allows the applicant to claim this date as the effective date on which an application for the same patent, industrial design, utility mark or trademark was filed in any other member country, provided that the application is filed within 12 months (for patents and utility marks) or six months (for industrial design and trademarks) from the claimed priority date. This removes the need and cost to file all the separate country applications at the same time to obtain effective protection. Under the convention priority filing system, intervening third party applications cannot act as bars to the owner's application if the owner files within the prescribed time.

The Berne Convention

The Berne Convention, established in 1886, is the principal transnational convention relating purely to copyright protection. The Berne Convention is based on national treatment, and imposes minimum norms of copyright protection. Like the Paris Convention, the Berne Convention grants foreign nationals the same protection and advantages as those granted to nationals of any member country, without discrimination. The membership of the Berne Convention has increased from an initial membership of 10 to over 90 countries including nearly all leading economic countries.

Under the Berne Convention, and its six subsequent amendments, copyright protection is automatic throughout all member countries without the need to comply with any formalities.

International Filing Systems

There is currently no single way to obtain truly international protection of intellectual property. The closest current approaches to such international protection are those provided by the following conventions establishing international application filing systems.

European Patent Convention

The European Patent Convention (EPC) created the European Patent Office ("EPO"), which is based in Germany. The convention currently applies to most European Economic Community member states and to several other European countries. The EPC provides for a single application in English, German or French, on which a central search and examination is carried out. Once the patent is accepted for grant, and the appropriate fees and translations are submitted, the single application is converted into a bundle of individual national patents. The system also allows an opposition to the grant to be lodged at the EPO within nine months from patent grant. Subsequent issues of validity, however, must be dealt with on a country by country basis by individual national courts.

Patent Cooperation Treaty ("PCT")

This system, which includes many countries in addition to European countries, similarly provides for the filing of a single application designating the member countries from which patents are desired. Although the single filing takes place under the auspices of the World Intellectual Property Organization ("WIPO"), a specialized agency of the United Nations system that seeks to promote international cooperation in the protection of international property, the actual filing is made either in the United States or the EPO. The single application is searched, and it is possible to request a nonbinding opinion on patentability. After the payment of the appropriate fees and the filing of appropriate translations, the application is converted into a bundle of individual national applications, which are then subject to examination by individual national patent offices.

The Madrid Agreement

The Madrid Agreement concerns the international filing of registration applications for trademarks. It enables registration of a trademark in WIPO's International Bureau in Geneva, in much the same way as the PCT provides for international filing of patent applications. WIPO acts as the administering agency for actions taken under the Paris Convention.

Once registered with WIPO, a trademark is protected in each member country. Therefore, the protection obtained is governed by the national laws of the individual member countries and is limited by national laws.

The Madrid Protocol

Signatories to the Madrid Agreement and other countries are negotiating a new agreement referred to as the Madrid Protocol. The Madrid Protocol aims to obtain protection for trademarks through international recognition, and is to be policed by the WIPO, which will maintain records of all applications. It is proposed that each registration will be effective for 10 years, although this period would be indefinitely extendable on request for additional 10 year terms.

NAFTA

The North American Free Trade Agreement (NAFTA) is a general trade agreement between Canada, Mexico and the United States that imposes general requirements for both the domestic and international treatment and enforcement of intellectual property rights.

NAFTA significantly advances protection of intellectual property in Mexico. However, it also requires that the United States and Canada make certain changes. The agreement recognizes the need, at a minimum, to accede and give effect to the main international conventions relating to intellectual property, i.e., the Paris Convention (intellectual property), the Berne Convention (copyrights), the Geneva Convention (protects phonograms or audio works), and the Union for the Protection of New Varieties of Plants (UPOV).

Under the UPOV, protection is given to plant varieties that:

  • belong to one of the botanical species on the national list;
  • are distinct from commonly known varieties;
  • are sufficiently homogeneous; and
  • are stable.

In essence, NAFTA requires each member country to extend protection to foreign nationals equivalent to the protection granted to domestic rights holders.

GATT/TRIPS

The Uruguay Round of international trade negotiations, launched under the auspices of the General Agreement on Tariffs and Trade (GATT) in Punta del Este, Uruguay, in September 1986, came to a conclusion seven years later on December 15, 1993. The result of the negotiations was a comprehensive set of agreements, including one on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

The TRIPS agreement is considered to be among the most important parts of the world trade pact. In essence, the agreement requires member countries to adopt a certain minimum standard of international property protection. For example, in the area of trademarks, the agreement defines which types of marks are eligible for protection, and states that internationally well-known marks shall enjoy additional protection.

Under the TRIPS agreement, member countries are obliged to rewrite national laws to make them conform to internationally agreed norms for the protection of patents, trademarks, copyrights, industrial designs, trade secrets, and integrated circuits (semiconductor chip mask works). It also broadens the areas of protection to include technological areas -- such as pharmaceutical products, computer software, and inventions and works arising from new technologies -- that are not currently protected in many countries.

The TRIPS agreement also attempts to prevent any use of geographical terms that may mislead consumers as to the origin of goods. Some aspects of the agreement relating to the use of such geographical terms have not been completely resolved, but the TRIPS agreement does provide for future negotiations on unresolved issues. For example, during the GATT/TRIPS negotiations the United States and others argued that the term "champagne" had become a generic term for a certain type of beverage; the European Union argued the contrary view. Ultimately, the United States passed GATT legislation requiring the Patent and Trademark Office to treat all false geographical indications for wines and spirits (e.g., BORDEAUX wine originating from anywhere other than the Bordeaux region of France) as unregisterable.

In the area of copyrights, the agreement requires compliance with the latest (1971) rules of the Berne Convention.

Under the TRIPS agreement, countries will amend their national legislation and practices to conform with the agreement's provisions according to the following timetable: developed countries over one year; former Soviet block and developing countries over five years; and less developed countries over 11 years.

The TRIPS accord includes enforcement provisions which provide for the use of improved international dispute settlement procedures under the World Trade Organization (WTO) for disputes between countries. The accord also permits cross-sectoral retaliation for a violation of TRIPS obligations; if a country fails to protect patents, for example, it could face retaliation in an unrelated sector.

European Union

The European Union is currently considering certain agreements, which, if implemented, would create "Community Patents" and "Community Trademarks."

The Community Patent Convention (CPC) proposes the creation of a Community Patent that would cover the entire European Union and be subject to common legislation on validity, enforcement, etc. The convention will most likely require that disputes be litigated in national courts at first instance. Final appeal, however, would be to the proposed Community Patent Appeal Court.

The current feeling of interested parties is that the Convention will not be implemented within the foreseeable future, because the legal framework for its implementation has not yet been completely settled and the great success of the EPO has reduced the CPC's attractiveness.

Similarly, the Community Trademark Convention proposes the creation of a Community Trademark, which would cover all European Union member states.

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CASE STUDY: The U.S. Patent System

The patent system in the United States differs in several ways from what may be considered to be the worldwide "norm," if such a "norm" really exists.

Currently, a U.S. patent has a term of 17 years from grant, which is to say that the patent term does not begin while the application is pending; it begins only when the patent is actually granted. It can be a matter of years before a patent is granted from the time the patent application is first filed.

In compliance with the GATT, after June 8, 1995, a U.S. patent will have a term of 20 years from the date of the first filing of the application. Most other patent systems already have patent terms that run for a fixed term from the date the patent application was first filed. For instance, the United Kingdom, Germany, France, Japan, Canada and many other countries have patent terms of 20 years from first filing of the patent application.

The United States is unique in its approach to the allocation of patent rights. This is unchanged by the upcoming lengthening of the U.S. patent term. In the United States, patent rights are granted to the "first to invent" rather than the universally accepted approach of the "first to file." Consequently the United States has a unique "Interference System," which it uses to determine which party was the first to invent.

The basic principles of novelty, utility and nonobviousness apply as prerequisites to patentability in the United States. However, with regard to the determination of both novelty and nonobviousness, what constitutes prior use or public knowledge, i.e. "prior art," differs considerably from standards commonly adopted elsewhere. Although subject matter described in a printed publication or patent will constitute prior art, whether or not it is published or patented in the United States, the same is not true of subject matter in public use or known to the public. In these latter cases, only use or knowledge within the United States or its territories constitutes prior art. Many countries determine the applicability of prior art without geographic limitations.

The United States grants a one-year grace period from the time that an invention is disclosed to the public to the time that the patent application must be filed. In other words, as long as an application for a patent is filed not more than one year from the date the subject matter is publicly disclosed, the applicant may obtain a patent. Elsewhere, the patent application must be filed before any disclosure is made to the public. Thus, in other countries, the inventors' freedom of use and publication of their inventions is greatly restricted. Some countries seek an intermediate level of freedom. For example, Indonesia grants a six-month grace period for use or public display, but only where the use is found to be experimental and the public display is at an exhibition.

The United States requires that the best mode for working the invention be disclosed as part of the patent application. The majority of countries impose no such requirement, and therefore an inventor may possibly "hide" the best way of using or making the patented product or process. However, this practice is antithetical to the underlying purpose of a patent system because it hinders disclosures of technological innovations.

In the United States, patent applications are not published or indexed until after they are granted. Thus, third parties may not oppose the grant of a patent nor even know an application has been filed. Other countries publish the patent applications and have procedures for third parties to object to the granting of a patent. The European Patent Office, for example, has such a procedure.

Finally, the United States requires maintenance fees to be paid at three-and-a-half years, seven-and-a-half years and eleven-and-a-half years after the original grant of a patent while other countries require annual maintenance fees.

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CASE STUDY: The Modernization of Trademark Protection in Indonesia

Indonesia has been on the "watch list" of the U.S. Trade Representative since 1989 as a result of inadequate protection of patents, trademarks and copyrights. However, Indonesia recently began to modernize its intellectual property laws to bring them into conformity with established norms. One area where Indonesia has been active is trademark law.

A new trademark law, which was passed July 23, 1992, came into force April 1, 1993. The protection awarded to trademark owners under this new legislation is substantial, providing both civil and criminal liability for trademark infringement, unfair competition and counterfeiting.

In addition, it is now possible to register service marks and collective marks as well as trademarks. This gives the public added assurance as to the source and quality of services and goods.

The new law also provides for the publication of applications within six months of the initial filing of the application and allows third parties to object to the registration of the mark. This acts as a further safeguard to prevent the granting of marks that would lead to public confusion regarding the origin of goods and services.

The government has created a special Board of Appeal that will have final authority to decide cases involving trademarks. This procedure, it is hoped, will lead to greater certainty and finality.

It is now possible to assign a mark without also assigning the goodwill of the business that the mark represents. It is also possible to license (exclusive and nonexclusive) marks for both goods and services. However, it is not possible to limit the license to specific geographic regions within Indonesia. These changes give marks greater value as assets.

The new law grants protection under a first-to-file system as opposed to a first-to-use system. Under the new law, marks must be used in Indonesia within three years from registration, otherwise the registration may be revoked. Third parties may request the nullification of a registered mark within five years from registration through an application to the Central-Jakarta District Court. These safeguards are designed to encourage the use of marks within the country and to prevent pirates from using the system for the sole purpose of stopping third parties from using particular marks in Indonesia. It is yet to be seen how well the system will work in this regard.

Finally, under the new law, a mark will be protected through registration for 10 years. However, protection may be extended indefinitely for 10-year periods.

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CASE STUDY:
A Comparison of Trade Secret Protection:
The United States and Europe

The doctrine of trade secret protection in the United States is based on the legal principles of both contracts and torts. The contract issues include situations where an agreement is made between two or more parties to protect trade secrets or where a confidential relationship exists, i.e., an officer of a company is under a duty not to disclose trade secrets. The tort issues arise under principles of unfair competition. Further, in many states it is a criminal offense for an employee to steal trade secrets from a company.

Generally, the protection of trade secrets in Europe, with the noted exception of France, is based solely on contractual principles. Although contractual obligations make it possible to enforce nondisclosure agreements and the like, it is not possible to prevent theft, industrial espionage, subversion of employees or other misappropriation by competitors who have no contractual relationship with the trade secret owner.

However, in some European countries legislation regarding unfair competition may afford the trade secret owner greater protection than that afforded under contract law. For example, Hungary has implemented unfair competition legislation that prohibits the misappropriation of business secrets. Business secrets are broadly defined as any fact, information, solution or data linked to economic activities that the owner reasonably expects to remain confidential.

An owner of a trade secret may also be able to use the criminal laws of European countries to enforce trade secrets. Most have criminal laws that cover theft and industrial espionage. In fact, in Denmark, the majority of the law regarding trade secret protection is in the form of criminal legislation, and it covers the invasion of privacy, electronic espionage, theft and handling stolen goods. A noted exception, however, is the United Kingdom where the appropriation of a trade secret, in itself, does not constitute theft.

Although protection of trade secrets in Europe is considered relatively adequate, it is not as strong as the protection afforded under the laws of the United States.

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CASE STUDY: The Universal Copyright Convention (U.C.C.)

Signed/Effective:     September 6, 1952.
Revised:              Paris 1971.
Membership:           Over 80 countries worldwide.

Concept:             National treatment.   Each member state is
                      required to confer the same copyright      
                      protection to foreign works eligible under 
                      the Convention as is granted to its own    

                      nationals.

Legal Obligations:    Member states must have laws that effect   
                       the following:

Article I:
Provision of adequate and effective protection of the rights of authors and other copyright proprietors in literary, scientific and artistic works, including writings, musical, dramatic and cinematographic works, and paintings, engraving and sculpture.

Article II:
Nationals of other contracting states receive the same protection as received by the nationals of the contracting state (published and unpublished).

Article III para. 1:
All formalities that can be required by a member state are satisfied if copies of the work bear the symbol accompanied by the copyright proprietor s name and the year of first publication placed in such a manner and located as to give reasonable notice of claim of copyright.

Article IV:
Provision of a minimum copyright term of 25 years from publication, or life of the author plus 25 years.

"Berne Safeguard Clause":
Article XVII prohibits a Berne Convention country from denouncing Berne and relying on the U.C.C. in its relations with other members of the Berne Convention.

Paris Revision 1971:
Notwithstanding the terms of the U.C.C., developing countries may disregard the Berne Safeguard Clause, under certain circumstances and may obtain compulsory licenses to translate copyrighted works for teaching, scholarship and research purposes, and may reproduce copyrighted works for use in systematic instructional activities.

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Bibliography

Further Reading

Baumgarten, John A., and Michael A. Epstein. International Protection of Intellectual Property: Current Issues and Directions. 12th ed. Englewood Cliffs, New Jersey: Prentice Hall Law & Business, 1991.

Beier, F. K. "The European Patent System." Vanderbilt Journal of Transnational Law. 14 (Winter 1981): 1-15.

Bochnovic, John."The North American Free Trade Agreement (NAFTA): Patent Law Changes for Canada, the United States and Mexico." Patent World. 52 (May 1993): 21-24.

Bochard, William M. "A Trademark Is Not a Patent or a Copyright." The United States Trademark Association Executive Newsletter. 1983.

Cornish, W. R. Intellectual Property: Patents, Copyright, Trademarks and Allied Rights. 2d ed. London: Sweet & Maxwell, 1989.

Dam, K. W. "The Growing Importance of International Protection of Intellectual Property." (Section Symposium: Legal Problems Affecting the Multinational Corporation.) International Lawyer. 21 no. 3 (Summer 1987): 627-638.

Diamond, Sidney A. "How to use a Trademark Properly." The United States Trademark Association Executive Newsletter. No. 38, 1983.

Dorr, Robert C. and Christopher H. Munch. Protecting Trade Secrets, Patents, Copyrights, and Trademarks. New York: Wiley Law Publications, 1990.

Gotlieb, Charles. "Should the U.S. Adopt a First to File Patent Rule?" Legal Reference Quarterly. 12(2/3) (1992): 133-169.

Jacobs, A., ed. Patents Throughout the World. 4th ed. New York: Trade Activities, 1989.

Leaffer, Marshall A., ed. International Treaties on Intellectual Property. Washington, D.C.: The Bureau of National Affairs Inc., 1990.

Lee, C. Lewis, and J. Scott Davidson. Managing Intellectual Property Rights. New York: Wiley Law Publications, 1993.

Morcom, C. "The Madrid Arrangement- Implications for the Community Trademark." EIPR: European Intellectual Property Review 10 (1989): 343-345.

Oddi, A. S. "The International Patent System and Third World Development: Reality or Myth?" Duke Law Journal. No. 5 (November 1987): 831-878.

Pfanner, K. "The World Intellectual Property Organization." International Review of Industrial Property and Copyright Law 10 no. 1 (1979): 1-19.

Safran, D. A. "Protection of Inventions in the Multinational Market Place: Problems and Pitfalls in Obtaining and Using Patents." North Carolina Journal of International Law and Commercial Regulation. 9 (Winter 1983): 117-132.

Samuels, Jeffrey M. Basic Facts About Trademarks. Washington, D.C.: U.S. Department of Commerce, Patent and Trademark Office, 1992.

Task Force of the Chamber of Commerce. Technology Transfer and the Developing Countries. Washington, D.C.: Chamber of Commerce of the United States, 1977.

White, T. A. Blanco. Patents for Inventions and the Protection of Industrial Designs. 5th ed. London: Stevens & Sons, 1983.

White, T. A. Blanco and Robin Jacob. Kerley's Law of Trade Marks and Trade Names. 12th ed. London: Sweet & Maxwell, 1986.

Sources of Information

"EPC Revisions Highlight EPO's 1991 Annual Report." BNA's World Intellectual Property Report, 6, no. 7 (July 1992): 184.

"Examination of I.P. Provisions of North America Free Trade Agreement." BNA's World Intellectual Property Report, 6, no. 12 (December 1992): 344-346.

"GATT Negotiators Hail TRIPS Pact as Success." BNA's Patent, Trademark & Copyright Journal, 47, no. 1162 (January 13, 1994): 222-223.

Leffert, Deborah. "Special 301 Checklist: Which Countries Fail to Protect Drugs?" Patent World 58 (December 1993/January 1994): 34-39.

MacLaren, Terrence F., ed. Worldwide Trade Secrets Law. New York: Clark Boardman Callaghan, 1993.

Manual for the Handling of Applications for Patents, Designs and Trade Marks Throughout the World. Utrecht, The Netherlands:

Manual Industrial Property BV, 1936, (1927).

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Contacts

International Organizations

Committee of National Institutes of Patent Agents
c/o Doctor Elisabeth Jung
Clemens-strasse 30
Munich 40 Germany

International Association for the Protection of Industrial Property
Bleicherweg 58
CH-8027 Zurich, Switzerland
Tel. 1-204-1212 - Fax 1-204-1200

International Association for the Advancement of Teaching and
Research in Intellectual Property
Calle Eduardo
Dato 2
Departadol O-C
Madrid, Spain

International Copyright Information Center
c/o Association of Publishers
1718 Connecticut Avenue, NW. Seventh Floor
Washington, D.C. 20009 United States
Tel. 202-232-3335 - Fax 202-745-0694

International Intellectual Property Association
Hunter Drive
Post Office Box 476
New Vernon, New Jersey 07976 United States
Tel. 201-538-6473 - Fax 201-538-7062

World Intellectual Property Organization
32 Chemin des Colombettes
12, Geneva, Switzerland
Tel. 41-22-730-9111 - Fax 41-22-735-5428

International Trademark Association
1133 Avenue of the Americas
New York, New York 10036-6710 United States
Tel. 212-768-9887 - Fax 212-768-7796

National and Regional Organizations

Africa

African Regional Industrial Property Organization
Harare, Zimbabwe

African Intellectual Property Organization
(Organisation Africaine de la Propriete Intellectuelle)
Yaounde, United Republic of Cameroon

Asia

Asian Patent Attorneys Association
c/o Asamura Patent Office
331-340 New Ohtemachi Building
Tokyo, Japan
Tel. 3-211-3651

Japan Patent Information Association
5-16-1, Toranomon
Minato-ku
Tokyo 105 Japan
Tel. 3-503-6181

Central Europe

European Association of Industries of Branded Product
19, rue de l'Orme
B-1040 Brussels, Belgium
Tel. 2-734-1240 - Fax 2-734-6702

European Patent Office
Erhardstrasse 27
D-8000 Munich 2 Germany
Tel. 89-23990 - Fax 89-2399-2892

Latin America

Inter-American Association of Industrial Property
(Asociacion Interamericana de la Propiedad Industrial)
Maipu 757, Piso 5
1006 Buenos Aires, Argentina
Tel. 1-325-3688 - Telex 23612 PYM

Inter-American Copyright Institute
(Instituto Interamericano de Direito de Autor)
Faculty of Law of the University of Sao Paulo
Largo de Sao Paulo, SP, Brazil
Tel. 11-211-9498 - Telex 011-34027

United States

American Copyright Council
c/o 1718 Connecticut Avenue, NW.
Washington, D.C. 20009 United States
Tel. 202-232-3335

American Copyright Society
345 West 58th Street
New York, New York 10019
Tel. 212-582-5705

Pacific Industrial Property Association
Post Office Box 3477
Grand Central Station
New York, New York 10163

American Intellectual Property Law Association
2001 Jefferson Davis Highway Suite 203
Arlington, Virginia 22202 United States
Tel. 703-415-0780 - Fax 703-415-0786

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Laurence R. Hefter is a partner in the firm of Finnegan, Henderson, Farabow, Garrett & Dunner. He is a frequent lecturer and writer in the fields of trademarks, unfair competition, franchising and litigation. He has served on the Board of Directors of the International Trademark Association and the American Intellectual Property Law Association, and as an adjunct professor at the National Law Center at George Washington University.

Robert D. Litowitz is a partner in Finnegan, Henderson, Farabow, Garrett & Dunner. He has lectured and written in the fields of trademark law and has practiced before the International Trade Commission. He is a member of the International Trademark Association and the American Intellectual Property Law Association.


United States Information Agency March 1995

Project management was provided by Finnegan, Henderson, Farabow, Garret & Dunner. Finnegan, Henderson, et al. is one of the largest intellectual property law firms in the United States. Its attorneys specialize in litigation, counseling and licensing in all areas of intellectual property including patents, trademark, copyright, trade secrets and unfair competition.

Prosperity Paper Series
Office of Thematic Programs/Economic Security
Editor: Jeanne S. Holden
Design: Barbara Morgan

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