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THE “NEW NAFTA” AND HOW IT WILL AFFECT INTELLECTUAL PROPERTY LAW

Posted on Oct 24, 2018 in Articles

First it was Mexico that agreed to a new trade accord with the United States. Less than one week later, Canada joined the agreement as well. With that, the stage is set for the 24-year-old North American Free Trade Agreement (NAFTA) to end and the U.S. Mexico Canada Agreement (USMCA) to take its place. Once the USMCA is submitted to Congress, a 60-day review period will begin before it can be signed by the president.

Canada’s agreement to the USMCA should come as no surprise, as the Office of U.S. Trade Representative reports that, in 2017, goods imported into the United States from Canada totaled $299.3 billion. With such a high reliance on the U.S. market, Canada was under tremendous pressure to “strike a deal.”

While a large number of NAFTA provisions remain, the USMCA includes several substantial changes. By 2023, 75 percent of a car will need to be manufactured in North America in order to cross its borders tax free. Also by that year, 40 percent of car manufacturing labor will need to be paid at least $16 per hour. Canada’s dairy industry has been slightly opened, with U.S. farmers now having the ability to reach 3.6 percent of that tightly protected market. The USMCA terminates after 16 years, but every six years the signatories can agree to a 16-year extension.

In the intellectual property world, one of the changes from NAFTA is the new term of protection for biologics (drugs having genetically engineered proteins that target specific ailments). The term for biologics has been a thorny issue for years, with pharmaceutical companies wanting longer terms (in order to maximize exclusivity, and thus profit) and consumer advocacy groups desiring shorter terms (in order to make these drugs more affordable). The current term for biologics in the United States is 12 years. Before the United States withdrew from the Trans Pacific Partnership (TPP), the version of the TPP awaiting Congressional approval included a biologics term of five years. The USMCA requires that all signatories provide biologics with at least 10 years of market exclusivity.

Copyright term will also receive a boost from the USMCA. The current term of a copyright in the United States is the life of the author plus 70 years. For a work made for hire, the duration is 95 years from first publication or 120 years from creation, whichever is shorter. The term of a copyright in Canada usually expires 50 years after the death of the creator. The USMCA requires that copyright protection shall be “not less than the life of the author and 70 years from the author’s death.” Canada will thus need to change their national copyright laws to comply with this USMCA provision.

With regard to the internet, USMCA provides “take down” provisions that require internet service providers (ISPs) to remove content that infringes copyrights and that limit liability for copyright infringement not controlled, initiated or directed by the ISPs. Canada meets legislative requirements that provides an exemption to this provision. Thus while a Canadian ISP must advise customers of copyright infringement allegations, the ISP is not required to remove the material that is allegedly infringing.

USMCA also requires that all signatories have a domain name dispute mechanism. This system must be modeled after the uniform Domain Name Dispute Resolution Policy (UDRP). Both the United States and Canada already have systems in place to comply with this requirement.

An online database must be publicly available to obtain contact information regarding domain name registrants. While Canada maintains such a database (called a WHOIS database), contact information is maintained in private by default. A mechanism exists, however, to obtain domain name registrant contact information in the event of a dispute.

A number of provisions for providing border protection are significantly stronger than what was required by NAFTA. Each party to the USMCA has the right to “initiate border measures … against suspected counterfeit trademark goods or pirated copyright goods under customs control.” The goods must be imported, destined for export, in transit, or admitted into or exiting from a free trade zone or a bonded warehouse.

The USMCA also provides additional protection to patents. Patents are required to receive term adjustments when a patent grant is delayed through no fault of the applicant. Time is required to be added to a patent term when a patent issues more than three years after filing of an examination request or five years after initial filing of the patent application. The United States has had this provision in their laws for 20 years. Patent term adjustment, however, is completely new to Canada. Canada will have four and a half years to create implementing laws for this provision.

In terms of trademarks, USMCA requires pre-established damages for trademark infringement. In lawsuits involving counterfeiting, USMCA requires the establishment of “pre-established damages … in an amount sufficient to constitute a deterrent to future infringements and to compensate fully the right holder of the harm caused by the infringement.” Current U.S. law complies with this provision for pre-established damages; requiring statutory damages between $1000 and $200,000 per counterfeit mark. If a court determines the counterfeit use was willful, damages may increase to up to $2,000,000 per mark. Canada will need to implement legislation in accordance with this provision of the USMCA.

While the USMCA has been agreed to in principle, a 60-day review period must be completed, and enabling legislation must be drafted before Congress can cast its vote. Also delaying the process is the requirement that the U.S. International Trade Commission complete a full analysis of the agreement. Given all of the timing, it is unlikely that that a Congressional vote will take place before the end of the year. Complicating matters is the possibility that the Democratic party will have control of one chamber of Congress following midterm elections. Should that occur anything could happen, from Congressional approval, to the deal getting scrubbed. Major news outlets have described the USMCA as basically a “done deal” but that is certainly not accurate. While it is imperative that a trade deal exist between the United States, Canada and Mexico so that all three parties can achieve economic growth, the USMCA is moving along an uncertain path, and we will not know until next year whether the agreement will go into effect in its present form, with modifications, or not at all.

Reprinted with permission from the October 23, 2018 issue of The Legal Intelligencer. © 2018 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

By Lawrence E. Ashery

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