Article 70.9 of the TRIPS Agreement

4.21 The European Communities and their member States argued that, in view of the fact that the Panel and the Appellate Body had already found in the earlier dispute that the present Indian domestic r�gime concerning the patent protection of pharmaceutical and agricultural chemical products was inconsistent with India's obligations under Article 70.9 of the TRIPS Agreement, it followed pursuant to Article 3.8 of the DSU that there was a presumption according to which this breach of the relevant WTO rules by India had an adverse affect on the European Communities and their member States as the other party to this dispute. In these circumstances, the burden was on India to rebut the presumption according to which India's present domestic r�gime for the patent protection of pharmaceutical and agricultural chemical products nullified or impaired benefits accruing to the European Communities and their member States under Article 70.9 of the TRIPS Agreement.

4.22 India argued that the interpretation of Article 70.9 of the TRIPS Agreement by the Panel in the earlier case had not been based on Article 31 of the Vienna Convention on the Law of Treaties and the Panel had incorrectly interpreted Article 70.9 as requiring implementation of its provisions before specified events had occurred.

The terms of Article 70.9

• According to Article 70.9, exclusive marketing rights must be granted by India to a pharmaceutical or agricultural chemical product for which a patent application had been made in accordance with Article 70.8(a) only after the following events had occurred:

• There was nothing in the text of Article 70.9 that set out the obligation to make a "system" for the grant of exclusive marketing rights generally available in the domestic law before the events listed in this provision had occurred. The terms of Article 70.9 stipulated that exclusive marketing rights "shall be granted" to specified products. The Panel, however, had interpreted this provision as if it read: "the competent authorities of the Members shall have the authority to grant exclusive marketing rights", i.e. whether or not such rights had to be granted.

• India had not denied the grant of exclusive marketing rights to any product meeting the above conditions. The Panel had faced the same fact in the earlier dispute but had nevertheless concluded that India did not comply with its obligations under Article 70.9 of the TRIPS Agreement because it had failed to establish under its domestic law "a system" that enabled the executive branch of India to grant exclusive marketing rights as of the entry into force of the WTO Agreement.⁶⁰

Context

• That the previous panel had expanded the meaning of Article 70.9 beyond its terms became obvious when the text of Article 70.9 was read in its context. There were many provisions in the TRIPS Agreement which explicitly obliged Members to change their domestic law to permit their authorities to take certain action in favour of interested parties. Thus, according to Articles 42-48 of the TRIPS Agreement, the judicial authorities of Members "shall have the authority" to grant certain rights. Article 51 obliged Members to "adopt procedures" to enable right holders to prevent the release of counterfeited or pirated products from customs. Article 39.2 required Members to give natural and legal persons "the possibility of preventing" the disclosure of information. According to Article 25.1, "Members shall provide for the protection" of certain industrial designs and Article 22.2 obliged Members to "provide the legal means for interested parties to prevent" certain misuses of geographical indications. The terms of all these provisions of the TRIPS Agreement clearly created an obligation to empower the executive authorities to take specified actions before the need to take such actions actually arose. The question for the Panel therefore was: if the drafters had intended Article 70.9 to entail the obligation to create in the domestic law the legal authority for the grant of exclusive marketing rights, why had they not repeated the wording used in one of the numerous provisions that explicitly provided for the creation of the authority to grant rights to interested parties?

• A comparison of the terms of Article 70.9 with those of Article 27 according to which "patents shall be available" for inventions was also revealing. The ordinary meaning of "available" was "obtainable". Article 27 thus clearly created the obligation to make patents obtainable under domestic law before any application for a patent must be accepted. Article 70.9, by contrast, merely stipulated that "exclusive marketing rights shall be granted" to specific products after the occurrence of specified events. There was nothing in these terms that suggested that such rights must be obtainable in the domestic law.

• The Panel had examined Article 70.9 only in the context of Article 27, not any of the other provisions cited above. The relevance of the distinction between "shall be available" and "shall be granted" in the wording of these related provisions was tersely dismissed by the Panel as follows: "The implementation of Article 70.9 requires a system under which applications for exclusive marketing rights can be made"⁶¹ because "an exclusive marketing right cannot be 'granted' in a specific case unless it is 'available' in the first place".⁶²

• The Panel was of course factually correct when pointing out that, after the events set out in Article 70.9 had occurred with respect to a particular product, the distinction between "shall be available" and "shall be granted" lost its practical relevance because a change in domestic law might then in any case be required. However, this begged the question that was before the Panel, namely: does a Member have to make exclusive marketing rights available in its domestic legislation before these events have occurred? It was simply not logical to conclude that exclusive marketing rights must be made available in the domestic legislation before these events because such availability was in any case necessary once the events had occurred.

• There were numerous transitional provisions throughout the various WTO agreements that required action at some point in the future, either when a date had arrived or an event had occurred. Tariff concessions must be reduced in stages.⁶³ Import restrictions on textiles must be removed after a ten-year transitional period.⁶⁴ Developing countries must phase out export subsidies for any product that had reached a certain share of world trade.⁶⁵ These were all obligations that were, just like those under Article 70.8 and 70.9 of the TRIPS Agreement, contingent upon a date or event. If the logic applied by the Panel to Article 70.9 was correct, then all the transitional provisions under the WTO Agreement imposing an obligation as from a future date or event would have to be interpreted to comprise the additional obligation to change the domestic law in anticipation of the future date or event. This was, however, obviously not intended by any of these transitional provisions.

• The Panel, though repeatedly urged to do so by India, had not examined the context of Article 70.9 fully. No reference was made in the Panel's findings to, for instance, Articles 42-48 of the TRIPS Agreement, according to which the judicial authorities of Members "shall have the authority" to grant certain rights and which thus clearly expressed the notion that the Panel had discovered in Article 70.9. The Panel's failure to examine this central interpretative issue was impermissible. The question therefore remained: if the drafters had intended Article 70.9 to entail the obligation to create in the domestic law the legal authority for the grant of exclusive marketing rights, why had they not repeated the wording used in one of the numerous provisions that explicitly provided for the creation of authority to grant rights?

Object and Purpose

• The Panel was of the view that the purpose of Article 70.9 was to oblige the developing countries concerned to establish as of the entry into force of the WTO Agreement in their domestic law the authority to grant exclusive marketing rights. However, this had not been, and could not possibly have been, the intention of the drafters. The products covered by Article 70.9 of the TRIPS Agreement were mainly pharmaceutical and agricultural chemical products. It took considerable time - often more than ten years - to obtain a patent for such products and the necessary marketing approvals, first in the country of origin and then in the country in which an exclusive marketing right was sought. There was therefore no need to require immediate legislative action and there could therefore not have been cause for urgency in the minds of the developed countries.

• Moreover, Article 70.9 was part of the transitional arrangements of the TRIPS Agreement whose very function was to enable developing countries to postpone legislative changes. Patent protection for pharmaceutical and agricultural chemical products was the most sensitive TRIPS issue in many developing countries. The Panel's interpretation of Article 70.9 had the absurd consequence that the transitional arrangements would allow developing countries to postpone legislative changes in all fields of technology except in the most sensitive ones. Neither developed countries nor developing countries could, therefore, realistically be presumed to have sought an immediate change of domestic law to provide for exclusive marketing rights when negotiating the text of Article 70.9. When the drafters had agreed to stipulate that exclusive marketing rights "shall be granted" after certain events had occurred rather than stipulating that they "shall be made available" immediately, they had clearly meant that legal action ensuring the grant of such rights would be required only in respect of products that had completed the five time-consuming procedural steps listed in Article 70.9.

4.23 India further argued that the Panel had, in the previous case, interpreted Article 70.9 on the basis of the concept of the predictability of conditions of competition and, although it had rejected this concept as a basis for interpreting the TRIPS Agreement, the Appellate Body had failed to reverse the Panel's interpretation.

The concept of predictability of conditions of competition did not justify an interpretation of Article 70.9 according to which there must be a mechanism in place to provide for the grant of exclusive marketing rights before such rights were due

• The Panel claimed that it had interpreted the TRIPS Agreement in accordance with the customary rules of treaty interpretation.⁶⁶ In fact, however, the Panel had neither based its interpretation on the terms of Article 70.9, nor had it taken into account the context and the transitional nature and purpose of this provision. Instead, it had based its expansive approach essentially on the idea that the function of Article 70.9 was to create predictability as to the future conditions of competition. The Panel had expressed this idea as follows:

• In justifying its broad interpretation of Article 70.9, the Panel had referred to its findings on Article 70.8(a) where it had found that the achievement of "security and predictability ... is one of the central goals of the dispute settlement mechanism" and that the function of the TRIPS Agreement was to create "the predictability needed to plan future trade". If a system for the grant of exclusive marketing rights was non-existent, so the Panel had argued, there was a lack of legal security that was likely to discourage applications for exclusive marketing rights.⁶⁸ The notion of predictability of conditions of competition had thus been the logical foundation of the Panel's decision to turn an obligation which, by its terms, only required actions after certain events had occurred into an obligation to take action immediately.

• In examining India's appeal from the report of the Panel, the Appellate Body had rejected the Panel's reliance on the notion of conditions of competition as a means to expand the obligations under the TRIPS Agreement.⁶⁹ It had ruled:

The Appellate Body had failed to reverse the interpretation of Article 70.9 by the Panel even though that interpretation had been based on the notion of predictability of conditions of competition which the Appellate Body had rejected as a basis for interpreting the TRIPS Agreement

• As to Article 70.9 of the TRIPS Agreement, India had submitted the following legal issues to the Appellate Body in accordance with Article 17.6 of the DSU:

• Article 17.12 of the DSU stipulated that "the Appellate Body shall address each of the issues raised in accordance with paragraph 6 during the appellate proceeding". The Appellate Body had carried out this task by making the following findings:

• The Appellate Body's ruling did not contain a single reference to India's extensive argumentation based on the text, context and objective of Article 70.9. Having rejected the notion of predictability of conditions of competition as a basis for expanding the obligations under the TRIPS Agreement beyond its terms, it would have been logical for the Appellate Body to reverse the Panel's ruling on Article 70.9 of the TRIPS Agreement in the previous case because it was founded on that very notion. Instead, the Appellate Body had made findings that were either unexplained or concerned matters which were not in dispute, thereby denying India its procedural rights under Article 17.12 of the DSU.

• The Appellate Body did not explain how Article XVI:4 of the WTO Agreement could determine the scope of the obligations under Article 70.9 of the TRIPS Agreement. Article XVI:4 merely stated how the obligations under the WTO agreements were to be implemented and was therefore relevant only once it had been determined that there was an obligation under one of the WTO agreements that required implementation. The issue before the Appellate Body had been whether there was such an obligation. India had pointed out that there were numerous transitional provisions throughout the various WTO agreements that required action at some point in the future, either when a date had arrived or an event had occurred. If Article XVI:4 of the WTO Agreement was relevant for the interpretation of Article 70.9 of the TRIPS Agreement, then all transitional provisions under the WTO Agreement imposing an obligation as from a future date or event would have to be interpreted to comprise the additional obligation to change the domestic law in anticipation of the future date or event. This was however obviously not intended by any of these transitional provisions. India had specifically requested the Appellate Body to address this issue but the Appellate Body had failed to do so.

• Contrary to what the Appellate Body suggested, the parties to the previous dispute agreed that Article 70.9 entered into effect on the date of entry into force of the WTO Agreement. However, India had claimed that Article 70.9 set out an obligation to accord exclusive marketing rights that was triggered by events which had not yet occurred. At issue before the Appellate Body had thus been the content of Article 70.9, not the date of its entry into force. When the Appellate Body wrote that "India has an obligation to implement the provisions of Article 70.9 of the TRIPS Agreement effective as from the date of entry into force of the WTO Agreement, that is, 1 January 1995" it turned the issue of content (on which the parties disagreed) into a question of entry into force (on which they agreed).

• From the standpoint of developing country Members, it was distressing that the Appellate Body had not considered it necessary to deal with India's argument that the Panel's interpretation of Article 70.9 had the consequence that the transitional arrangements would allow developing countries to postpone legislative changes in all fields of technology except in the most sensitive ones. It was also regrettable that the Appellate Body had not taken into account that the Panel's ruling ignored the implicit option available in the TRIPS Agreement to developing countries to cut short the transitional period, if they so chose, and provide for product patents even before the end of the transitional period instead of having to accept the obligation of providing exclusive marketing rights.

Continuation: Article 70.9 of the TRIPS Agreement

⁶⁰ Document WT/DS50/R, paragraph 8.1

⁶¹ Document WT/DS50/R, paragraph 7.56

⁶² Document WT/DS50/R, footnote 112

⁶³ Paragraph 2 of the Marrakesh Protocol to the GATT 1994

⁶⁴ Article 9 of the Agreement on Textiles and Clothing

⁶⁵ Article 27.5 and 27.6 of the Agreement on Subsidies and Countervailing Measures ("SCM Agreement")

⁶⁶ Document WT/DS50/R, paragraph 7.60

⁶⁷ Document WT/DS50/R, paragraph 7.22

⁶⁸ See the references to paragraphs 7.30 and 7.41 in paragraph 7.62 of document WT/DS50/R.

⁶⁹ "The legitimate expectations of the parties to a treaty are reflected in the language of the treaty itself." (See document WT/DS50/AB/R, paragraph 45.)

⁷⁰ See, for example, the report of the Working Party on Brazilian Internal Taxes, adopted 30 June 1949, BISD II/181, paragraph 16; Panel Report, United States - Taxes on Petroleum and Certain Imported Substances, adopted 17 June 1987, BISD 34S/136, paragraph 5.1.9; Panel Report, Canada - Administration of the Foreign Investment Review Act, adopted 7 February 1984, BISD 30S/140, paragraph 6.6; Panel Report, Japanese Measures on Imports of Leather, adopted 15/16 May 1984, BISD 31S/94, paragraph 55; Panel Report, Japan - Customs Duties, Taxes and Labeling Practices on Imported Wines and Alcoholic Beverages, adopted 10 November 1987, BISD 34S/83, paragraph 5.11; Panel Report, European Economic Community - Restrictions on Imports of Apples, adopted 22 June 1989, BISD 36S/135, paragraph 5.25; and Panel Report, United States - Measures Affecting the Importation, Internal Sale and Use of Tobacco, adopted 4 October 1994, DS44/R, paragraph 99.

⁷¹ Document WT/DS50/R, paragraph 7.18

⁷² Document WT/DS2/AB/R, adopted 20 May 1996, pages 16-17

⁷³ Document WT/DS50/AB/R, paragraphs 40 and 43