Pirates of the Caribbean: US Intellectual Property Rights to Walk the Plank?

Pirates of the Caribbean: US Intellectual Property Rights to Walk the Plank?

The government of Antigua and Barbuda has recently published a press release detailing their plans on establishing a statutory body to oversee the monetization and exploitation of the suspension of American intellectual property rights. The World Trade Organization (WTO) authorized the suspension of US IP rights in the small twin-island nation earlier this year. The organization overseeing these developments, the WTO Remedies Implementation Committee, is in the final stages of preparing legislation to be submitted to the Antiguan Parliament.

The suspension of US intellectual property rights stems from a dispute between Antigua and Barbuda and the United States concerning online gambling sites. In 1994, Antigua and Barbuda had passed the Free Trade and Processing Zone Act, 1994 allowing licenses to be granted to organizations applying to open online casinos. The industry became quite lucrative and the online gambling industry became the second-largest employer in Antigua reporting peak revenues of $2.39 billion in 2001 (although other sources quote a much lower value).

The trouble started in the early 2000s when the United States Department of Justice began cracking down on internet gambling sites based in foreign jurisdictions. Several pieces of federal legislation, including the Federal Wire Act, the Travel Act and the Illegal Gambling Business Act, prohibit (or were proposed to prohibit at the time) financing, managing, supervising, directing, or owning a gambling business. This had a profound effect on Antigua and Barbuda's online gambling industry. The profitable sector, once accounting for 59% of global online gambling in 2001, shrunk to less than 7% of global online gambling market in 2007 with revenues of less than one billion.

Antigua and Barbuda began challenging the United States' prohibition on cross-border online gambling services in 2003, alleging these constraints were against the United States' obligations under the General Agreement on Trade in Services (GATS). In November 2004, the panel established by the Dispute Settlement Body (DSB) determined that the United States failed to "accord services and service suppliers of any other Member treatment no less favorable than that provide for under the terms, limitations and conditions specified in the US Schedule" contrary to Articles XVI:1 and XVI:2 of the GATS. The US appealed the decision but the Appellate Body upheld the ruling.

In May 2005, the United States said it intended to implement the DSB's recommendations concerning changing the laws and it was given 11 months and 2 weeks to do so. However, they never really seemed to get around to it as in June 2006, Antigua and Barbuda requested a panel be established under Article 21.5 of the Dispute Settlement Understanding (DSU). The DSU applies when there is a "disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings".

In March 2007, the panel confirmed that the United States had failed to properly address the rulings of the DSB. Article 22.2 of the DSU provides that in situations where a member "fails to bring the measure found to be inconsistent with a covered agreement into compliance" within a reasonable period of time the innocent member may "request authorization from the DSB to suspend the application to the Member concerned of concessions or other obligations under the covered agreements." In this case the agreements include both those under the GATS and intellectual property rights covered under the agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). In December 2007, the Arbitrator assessed Antigua's annual losses due to US restrictions on online gambling websites to be US$21 million. On January 28, 2013, the DSB authorized the suspension of concessions and obligations Antigua owed to the United States in respect to their intellectual property rights.

While Antigua and Barbuda are not the only country to demand compensation for the United States' refusal to lift restrictions on Internet gambling (for example, a compensation deal was reached with the EU), they are the only country to pursue the somewhat uncommon remedy of a suspension of intellectual property rights. Perhaps they are insisting on this remedy in the hopes of negotiating a better deal. The US$21 million annually awarded by the DSB is much less than the billions the online gambling industry was claimed to be worth. In this sense it may not seem as though the punishment is sufficient for the US's transgression. However, cross-retaliation in TRIPS (suspension of concessions in a sector of trade different than the sector in which the trade injury was suffered) is proposed to offer members with less economic power a meaningful mode of redress against more-developed WTO members. The threat of the suspension of IP rights could result in rights-holders pushing the government to settle the matter in an alternate manner. At this point it is not exactly clear what US intellectual property might be sold by Antigua and Barbuda or if there will be any rules concerning bundling and minimum prices. Theoretically, this could pose major problems to US IP rights-holders as their intellectual property could be sold for a mere pittance. While government authorized piracy may be anathema to some, it is certainly a valuable bargaining chip for future negotiations. With the government in the final stages of developing a platform to monetize the suspension of IP rights, it looks likes intellectual property rights are poised to take the plunge.

Corey McClary is an IPilogue Editor and a JD candidate at Osgoode Hall Law School.