Co-Authors Gregory Shaffer and Jack Lerner
Now that Congress has granted President Barack Obama "fast-track" authority to conclude the Trans-Pacific Partnership (TPP), a trade and investment treaty among twelve countries on the Pacific Rim, where do we go from here?
This treaty is about much more than trade liberalization and regulatory cooperation, which are not objectionable goals. Rather the major problem is that the TPP binds the United States to substantive policy positions favoring particular interest groups, such as on intellectual property (IP), which ties lawmakers' hands in such a manner that will be extremely difficult to amend, essentially creating a "legislative lock-in." IP matters in this case because the TPP's massive intellectual property chapter threatens to severely undermine the flexibility of Congress and the courts to adapt IP law to new developments and new knowledge.
For example, the TPP contains many provisions restraining governments' ability to reign in pharmaceutical pricing. Given the dramatic rise in U.S. healthcare costs, including Medicare, it makes little sense for Congress to thwart its future ability to curtail these costs because of the TPP.
Congress is shackling itself in two ways. First, through the grant of trade promotion authority, Congress removes its power to amend the agreement's text. This loss of Congressional power is not a problem when it comes to traditional trade issues such as tariffs. But it is a major problem when it comes to the details of regulation, such as IP regulation, because regulatory details have severe implications for public welfare. Trade promotion authority fetters Congress so that it cannot reshape the legal texts, precluding reforms.
Second, after the TPP is enacted, if it hurts America's interests, Congress can't easily amend the law afterwards. Rather, the treaty will bind Congress so that eleven other countries would have to approve any amendment. Otherwise, the United States would be in violation of international law and subject to sanctions.
Even more damaging to America's interests, to enforce these provisions, the TPP allows multinational companies to sue the U.S. as well as TPP member countries before private arbitral tribunals if the country amends or interprets its IP laws in ways that a company alleges violates TPP constraints. The process - called investor-state dispute settlement - bypasses U.S. courts and the decisions of these private tribunals cannot be appealed.
In short, Congress will have put itself in a policy straight jacket at a time of rapid technological change. If the U.S. binds itself to detailed IP commitments in the TPP, it could impact interests that range from patents to copyrights and this should matter to the U.S. public and here's why. What if the TPP causes harm to U.S. interests? Congress will have to get eleven other countries' agreement to change the law or the U.S. must pay damages.
We provide two key examples of why this matters on IP (and there are many more):
* Patent Reform and Small Businesses. The U.S. patent system is a mess. Patent proliferation interferes with innovation in its high tech industry, and patent trolls prey upon small businesses. The America Invents Act of 2012 made significant reforms, including new post-grant review procedures. And Congress is considering further reforms, including heightened pleading standards and fee-shifting. Whether these reforms would be possible under TPP is a mystery, particularly as the agreement is still secret. But we do know that they would likely be challenged under the TPP's private arbitration system, costing American taxpayers millions in legal fees just to start.
* Patent Standards. The U.S. Supreme Court created and is refining important exceptions to the foundational question: what is patentable. However, under the TPP, private companies will be empowered to challenge important judicial developments and also thwart them. That's what Eli Lilly did when it took advantage of NAFTA's arbitration process to contest a Canadian ruling denying monopoly rights on a drug used to treat attention deficit disorder. The Canadian Supreme Court reasoned that the company's study involving only 22 patients provided insufficient evidence of efficacy. Eli Lilly claimed that the patent's invalidation violated investor privileges and sued, seeking nearly half a billion dollars in damages.
Congress now has only one vote left to approve or reject the TPP, without amendment. So what can Congress do? Congress still can play a role, even if a severely reduced one. During the negotiation of the final text, Congress can press the Obama administration to safeguard its flexibility to adapt U.S. patent laws. Congress can also demand that the administration eliminate the ability of companies to hold it hostage over IP regulations through threats of frivolous lawsuits before private arbitral panels.
Most importantly, members of Congress should not trade away their ability to govern.
Gregory Shaffer is Chancellor's Professor and Director of the Center on Globalization, Law, and Society at the University of California, Irvine School of Law
Jack Lerner is Assistant Clinical Professor and Director of the Intellectual Property, Arts, and Technology Clinic at the University of California, Irvine School of Law
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