A key issue for the application of Article 39.3 is to determine the nature and extent of the obligation to protect "against unfair commercial use". As noted, the interpretation of this rule has created considerable controversy.
The TRIPS Agreement mandates the protection of "undisclosed information" in the framework of the discipline of "unfair competition". Article 39.1 of Agreement stipulates that
"in the course of ensuring effective protection against unfair competition as provided in Article 10bis of the Paris Convention (1967) Members shall protect...the data submitted to governments or governmental agencies in accordance with paragraph 3".
Article 10bis of the Paris Convention requires protection against "unfair competition", defined as
"any act of competition contrary to honest commercial practices in industrial or commercial matters".
The discipline of unfair competition protects fairness in commercial activities. As mentioned, there are no universal moral values or a unique concept of what is "honest" in commercial behaviour. The definition of what constitutes "fair" or "honest" practices varies among countries. They may include competitor's misrepresentation, fraud threats, defamation, disparagement, enticement of employees, betrayal of confidential information commercial bribery, among others. In many but not all jurisdictions, the misappropriation of trade secrets is regulated under unfair competition law, as is the case with the TRIPS Agreement.
The present status of international competition law in the Paris Convention is outlined in Box 5.
International protection against unfair competition under
the Paris Convention
• Pursuant to Art.10 bis (1), the contracting states are obliged to ensure citizens of other contracting states "effective protection against unfair competition".
• In Art.10 bis (2) (general clause), unfair competition is defined as any act of competition which is "contrary to honest practices in industrial or commercial matters".
• Three cases are named in Art.10 bis (3) which "in particular shall be prohibited", namely creating the risk of confusion, discrediting competitors through false allegations and making misleading indications or allegations about one's own goods. This list is not enumerative, so that other competitive acts can also be covered by the general clause.
• Pursuant to Art.10 bis (1) of the Paris Convention, appropriate legal remedies must be made available to the citizens of other contracting states, in order to ensure the effective repression of acts contravening Art.10 bis; these must also include the power of federations and associations to take legal action (Art.10 ter (2)).
Source: Henning-Bodewig, 1999, p. 173.
Under the discipline of unfair competition, protection is not based on the existence of "property" rights. Hence, the provision of protection under such discipline does not give rise to claims of property rights, including in respect of trade secrets and data submitted for marketing approval. There is only "possession" of this information. The TRIPS Agreement itself, in Article 39.3 refers to undisclosed information "under the control" of a person, in clear contrast to the concept used in the sections relating to other categories of intellectual property rights.25 A comparison between patents and trade secrets protection illustrates this important difference (see Box 6):
25 See, e.g., articles 16.1 and 28.1 which refer to the "owner" of a trademark and of a patent, respectively.
Patents vs. undisclosed information
• A patent confers property rights.
• A patent owner obtains the exclusive use of his/her rights. This means he/she is the only one who can use the invention, commercialize the product, etc. A patent owner can prevent any other person from using that invention. Even if a third party has developed the same product in an independent manner, without knowing or relying on the technology of the patent owner, the former is not allowed to use it, since the exclusive rights conferred are absolute.
• In the case of undisclosed information, under most legal systems, there is only "possession" of certain information.
• The value of undisclosed information does not lie in the inventive step or novelty - even a list of clients can be protected, though obviously this is not an invention - but in the fact that the undisclosed information has commercial value and in the fact that it is secret.
• Unlike patents, which in general last for 20 years from the filing date, in the case of undisclosed information there is no defined time limit. Undisclosed information is protected as long as it is kept undisclosed. The duration of the protection, therefore, depends on the factual situation, not on any legal provision.
Though during the TRIPS negotiations the United States suggested the consideration of undisclosed information as "property" - in accordance with the concepts developed in its own legal system - that approach did not find support, particularly from European and developing countries.26
26 On the different approaches in continental and common law with regard to trade secrets, see Coleman, 1992; Font Segura, 1999.
The TRIPS Agreement clearly does not treat undisclosed information as "property".27 The fact that TRIPS deems "undisclosed information" to be a "category" of intellectual property does not imply, as mentioned before, the existence of a property right.28
27 According to Engelberg, U.S. law does not recognize "any property rights in the data submitted to support an application for approval of a new drug... The non-patent, market exclusivity provisions of the Drug Competition Act of 1984 were created as an arbitrary means of providing investment incentive for the development of drug products that had little or no patent protection and not as a purposeful determination to create a new form of intellectual property based on undisclosed data".
28 It is generally accepted, particularly under European law, that unfair competition is one of the disciplines of industrial property, and it is in this sense that article 1.2 should be interpreted.
Because the TRIPS agreement embraces an unfair competition approach to undisclosed information, a logic consequence of the Agreement is that Article 39 does not obligate countries to confer exclusive rights.
Exclusive rights are merely one "TRIPS-plus" option to deal with issues covered by Article 39.3. There are heavy costs and ethical concerns associated with such an approach, however. In the absence of mechanisms that permit the use of the data, an exclusive rights system leads to the need for competitors to duplicate tests (often involving suffering of animals) in order to reach results that are already known.
The Article 39.3 obligation may be implemented through less onerous means, such as through the legal faculty to impede the use of information acquired through dishonest practices (e.g. espionage, breach of confidence), as background for an independent submission for marketing approval.
Implementing legislation may also require the subsequent user to pay compensation, without providing for exclusive rights. The U.S. FIFRA, for instance, recognizes the possibility of using the originator's test data for the approval of a subsequent application, without the originator's consent but with payment of compensation. The law thus establishes a form of compulsory licensing for such data. The United States required such a compulsory licence - without payment of compensation - in approving Dow Chemical's acquisition of Rugby-Darby Group Companies. Approval of the merger was contingent on the issuance of a licence for registration data to all potential competitors (see Box 7).
Compulsory licensing in the U.S. involving test data
Acquisition of shares of Rugby-Darby Group Companies by Dow Chemical Co.
The Federal Trade Commission required Dow to license to potential entrants, intangible dicyclomine assets, including all formulations, patents, trade secrets, technology, know-how, specifications, designs, drawings, processes, quality control data, research materials, technical information, management information systems, software, the Drug Master File, and all information relating to the United States Food and Drug Administration Approvals that are not part of the acquired company's physical facilities or other tangible assets.
In sum, Article 39.3 - interpreted according to the ordinary meaning of the words used, in their context (notably Article 39.1) and taking into account the object and purpose of the Agreement as expressed in Articles 7 and 8 - does not require the granting of exclusive rights.29 The obligation that it imposes may be satisfied by other means, not specified in the Agreement. As stated by UNCTAD in relation to data covered by Article 39.3,
"authorities are not prevented... from using knowledge of such data, for instance, to assess subsequent applications by third parties for the registration of similar products" (UNCTAD, 1996, p.48).
29 See also Watal (2001) who concludes that "in the end in the TRIPS text there is no clear obligation not to rely on the test data for the second or subsequent applicants nor a fixed duration of market exclusivity, failing which the first registrant is assured reasonable compensation. This is a clear contrast to the corresponding provisions in NAFTA" (p. 199).