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India - Patent Protection for Pharmaceutical Protection and Agricultural Chemical Products
Report of the Appellate Body
World Trade Organization
1. India appeals from certain issues of law and legal interpretations in the Panel Report, India - Patent Protection for Pharmaceutical and Agricultural Chemical Products 1(the "Panel Report"). The Panel was established to consider a complaint by the United States against India concerning the absence in India of either patent protection for pharmaceutical and agricultural chemical products under Article 27 of the Agreement on Trade-Related Aspects of Intellectual Property (the "TRIPS Agreement"), or of a means for the filing of patent applications for pharmaceutical and agricultural chemical products pursuant to Article 70.8 of the TRIPS Agreement and of legal authority for the granting of exclusive marketing rights for such products pursuant to Article 70.9 of the TRIPS Agreement. The relevant factual aspects of India's "legal regime" 2 for patent protection for pharmaceutical and agricultural chemical products are described at paragraphs 2.1 to 2.12 of the Panel Report.
2. The Panel Report was circulated to the Members of the World Trade Organization (the "WTO") on 5 September 1997. The Panel reached the following conclusions:
On the basis of the findings set out above, the Panel concludes that India has not complied with its obligations under Article 70.8(a) and, in the alternative, paragraphs 1 and 2 of Article 63 of the TRIPS Agreement, because it has failed to establish a mechanism that adequately preserves novelty and priority in respect of applications for product patents in respect of pharmaceutical and agricultural chemical inventions during the transitional period to which it is entitled under Article 65 of the Agreement, and to publish and notify adequately information about such a mechanism; and that India has not complied with its obligations under Article 70.9 of the TRIPS Agreement, because it has failed to establish a system for the grant of exclusive marketing rights. 3
The Panel made the following recommendation:
The Panel recommends that the Dispute Settlement Body request India to bring its transitional regime for patent protection of pharmaceutical and agricultural chemical products into conformity with its obligations under the TRIPS Agreement ... 4
3. On 15 October 1997, India notified the Dispute Settlement Body 5 (the "DSB") of its intention to appeal certain issues of law covered in the Panel Report and legal interpretations developed by the Panel, pursuant to paragraph 4 of Article 16 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU"), and filed a Notice of Appeal with the Appellate Body, pursuant to Rule 20 of the Working Procedures for Appellate Review (the "Working Procedures"). On 27 October 1997, India filed an appellant's submission 6. On 10 November 1997, the United States filed an appellee's submission pursuant to Rule 22 of the Working Procedures. That same day, the European Communities filed a third participant's submission pursuant to Rule 24 of the Working Procedures. The oral hearing provided for in Rule 27 of the Working Procedures was held on 14 November 1997. At the oral hearing, the participants and third participant presented their arguments and answered questions from the Division of the Appellate Body hearing the appeal.
II. Arguments of the Participants
A. Appellant - India
4. India appeals certain aspects of the legal findings and conclusions of the Panel relating to Articles 70.8, 70.9 and 63 of the TRIPS Agreement. India asserts that it has established, through "administrative instructions" 7, "a means" by which applications for patents for pharmaceutical and agricultural chemical products (often referred to as "mailbox applications") can be filed and filing dates assigned to them. India contends that, as of 15 October 1997, 1924 such applications had been received, of which 531 were by United States' applicants. Upon receipt, the particulars of these applications, including serial number, date, name of applicant, and the title of the invention were published in the Official Gazette of India. None of these applications had been taken up for examination, and none had been rejected. On 2 August 1996, the Government had stated in Parliament: "The Patent Offices have received 893 patent applications in the field of drug or medicine from Indian or foreign companies/institutions until 15 July 1996. The applications for patents will be taken up for examination after 1 January 2005, as per the World Trade Organization (WTO) Agreement which came into force on 1 January 1995". 8
5. India argues that the function of Article 70.8(a) of the TRIPS Agreement is to ensure that the Member concerned receives patent applications as from 1 January 1995 and maintains a record of them on the basis of which patent protection can be granted as from 2005. India asserts that the Panel ruled that Article 70.8(a) comprises two obligations: first, to establish a mailbox to receive patent applications for pharmaceutical and agricultural chemical products and to allot filing and priority dates to them; and second, to create legal certainty that the patent applications and the patents based on them will not be rejected or invalidated in the future. India maintains that the second obligation is a creation of the Panel.
6. India asserts that the Panel justified the creation of this second obligation by invoking the concept of predictability of competitive relationships that was developed by panels in the context of Articles III and XI of the GATT 1947. India contends that this concept cannot be unquestioningly imported into the TRIPS Agreement. Furthermore, the Panel used this concept to advance the date on which India must give substantive rights to inventors of pharmaceutical and agricultural chemical products. Thus, India concludes, the Panel incorporated into the procedural requirements of Article 70.8(a) the substantive obligations set out in paragraphs (b) and (c) of Article 70.8 and turned an obligation to be carried out in the future into a current obligation.
7. India asserts that the means of filing provided by India ensures that patents can be granted when they are due. According to India, there is absolute certainty that India can, when patents are due in accordance with paragraphs (b) and (c) of Article 70.8, decide to grant such patents on the basis of the applications currently submitted and determine the novelty and priority of the inventions in accordance with the date of these applications. India insists that there is no logical link between the theoretical refusal of a mailbox application under current law and the grant of a patent in accordance with paragraphs (b) and (c) of Article 70.8 in the future.
8. According to India, the Panel interpreted into the TRIPS Agreement the requirement that a Member must eliminate any reasonable doubts that it has met the requirements set out in that Agreement. To India, the Panelís interpretation of Article 70.8(a) entails a violation of established principles governing the burden of proof.
9. India argues that the effect of the Panelís shift in the burden of proof from the complainant to the defendant was exacerbated by the standard of proof which the Panel applied to the evidence submitted by India to demonstrate that the United Statesí assertion was based on an incorrect interpretation of Indian law. In India's view, the Panel did not assess the Indian law as a fact to be established by the United States, but as a law to be interpreted by the Panel. According to India, the Panel's initiative contrasts with the cautious approach of previous panels to issues of municipal law. 9 The Panel should have followed GATT practice and given India, as the author of the mailbox system, the benefit of the doubt as to the status of that system under its domestic law. The Panel also should have sought guidance on the manner in which the Indian authorities interpreted that law. India contends that the assertion by a Member that a mailbox system exists, and that it has been set up in accordance with its domestic law, may be displaced only by compelling evidence that the mailbox is illegal in domestic law: it is essentially for the Member itself to determine the methodology by which it sets out the mailbox system in terms of its municipal laws.
10. India argues that the text of Article 70.9 establishes the obligation to provide exclusive marketing rights to a pharmaceutical or agricultural chemical product for which a patent application has been made only after the events specified in the provision have occurred. India maintains that there is nothing in the text of Article 70.9 that creates an obligation to make a system for the grant of exclusive marketing rights system generally available in the domestic law before the events listed in Article 70.9 have occurred.
11. In India's view, the Panel did not examine the context of Article 70.9 fully. There are many provisions in the TRIPS Agreement -- including Articles 22.2, 25.1, 39.2, 42-48 and 51 -- which explicitly oblige Members to change their domestic law to authorize their domestic authorities to take certain actions before the need to take such actions actually arises. India also notes that a comparison of the terms of Article 70.9 with those of Article 27, according to which "patents shall be available" for inventions, is revealing. According to India, the Panel examines Article 70.9 only in the context of Article 27, and dismisses the relevance of the distinction between "shall be available" and "shall be granted" in the wording of these related provisions because "an exclusive marketing right cannot be Ďgrantedí in a specific case unless it is Ďavailableí in the first place". 10
12. India maintains that Article 70.9 is part of the transitional arrangements of the TRIPS Agreement whose very function is to enable developing countries to postpone legislative changes. Patent protection for pharmaceutical and agricultural chemical products is the most sensitive TRIPS issue in many developing countries. To India, the Panelís interpretation of Article 70.9 has 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.
13. In India's view, the Panel did not base its interpretation on the terms of Article 70.9, nor did it take into account the context and the transitional object and purpose of this provision; instead, the Panel justified its expansive approach with the need to establish predictable conditions of competition. India contends that this notion turns an obligation to take actions in the future into an obligation to take action immediately. India notes that there are numerous transitional provisions in the Marrakesh Agreement Establishing the World Trade Organization (the "WTO Agreement") 11 that require action at some point in the future, either when a date has arrived or an event has occurred. These are all obligations that are, just like those under Article 70.8 and 70.9 of the TRIPS Agreement, contingent upon a date or event. While it would be desirable if all Members were immediately to enable their executive authorities to take the required actions even before the dates or events requiring those actions have occurred, India asserts that these provisions cannot reasonably be interpreted to imply the obligation to provide for such conditions in the domestic law in advance of that date or event.
14. India asserts that, under Articles 3, 7 and 11 of the DSU, panels are to make findings and recommendations only on matters submitted to them by the parties to the dispute. India therefore contends that the Panel exceeded its authority under the DSU by ruling on the subsidiary claim by the United States relating to Article 63 after accepting its principal claim under Article 70.8. If the Appellate Body were to conclude that the Panel was entitled to present findings on the United States' Article 63 claim, India asks whether the Panel was entitled to recommend simultaneously that India bring its mailbox system into conformity with Article 70.8(a) and Article 63 of the TRIPS Agreement. If the Panel was so entitled, India further asks the Appellate Body to what the recommendation relating to Article 63 refers.
B. Appellee - United States
15. The United States endorses the legal findings and conclusions of the Panel relating to Articles 70.8, 70.9 and 63 of the TRIPS Agreement. The United States asserts that the Panel correctly analyzed the text and context of Article 70.8, and focused on the failure of the system described by India to achieve the object and purpose of this provision. The United States contends that the concept of the importance of creating the predictability needed to plan future trade was developed in the context of Articles III and XI of the GATT 1947, as the Panel observed. However, it does not follow that the objectives of ensuring minimum standards of treatment and regulating competitive relationships are mutually exclusive. Protecting legitimate expectations of WTO Members regarding conditions of competition is as central to trade relating to intellectual property as it is to trade in goods that do not relate to intellectual property.
16. According to the United States, under Article 70.8, reasonable assurances of treatment must be provided for mailbox applications. The United States deems that the Panel correctly interpreted Article 70.8 to require a mailbox system under which patent applications have a secure legal status. This interpretation respects the relationship between paragraphs (a), (b) and (c) of Article 70.8, and the purpose of the mailbox system. The United States insists that the administrative system described by India does not provide a sound legal basis for filing mailbox applications. According to the United States, the Panel correctly placed the burden of proof on the United States, consistent with the Appellate Body Report in United States - Measure Affecting Woven Wool Shirts and Blouses from India ("United States - Shirts and Blouses") 12. The United States argues that nothing in the Panel's analysis had the effect of shifting the burden of proof from the United States to India, and that the Panel applied the correct standard of proof. In the view of the United States, the Panel did not require India to prove that its administrative instructions to patent offices were immune from challenge, but rather found that India had not rebutted the evidence presented by the United States regarding the likelihood that mailbox applications and patents ultimately based on them would be invalidated by such a challenge.
17. The United States asserts that the Panel appropriately considered India's factual arguments regarding the operation of the Act to Amend and Consolidate the Law Relating to Patents (the "Patents Act"), and that India's arguments represent an attempt to turn a factual question into a legal issue. While the United States acknowledges the propriety of seeking guidance from Members regarding their domestic laws, it argues that giving a Member the benefit of the doubt regarding matters of interpretation of its domestic law is not equivalent to unquestioning acceptance of the Member's position. In the view of the United States, India's argument is inconsistent with the requirement in Article 11 of the DSU that a panel make "an objective assessment" of the facts of the case. On this point, the United States recalls that the panel in United States - Restrictions on Imports of Cotton and Man-Made Fibre Underwear stated, "a policy of total deference to the findings of the national authorities could not ensure an "objective assessment" as foreseen by Article 11". 13
18. The United States contends that the Panel correctly found that India has failed to comply with Article 70.9. According to the United States, the text of Article 70.9 indicates that the obligation to establish exclusive marketing rights became effective upon the entry into force of the WTO Agreement. The ordinary meaning of the term "granted" is to "give (rights, property, etc.) formally; transfer legally" 14. The definition implies that availability and authority are necessary, but not sufficient, conditions for "granting" something. The United States asserts that the Panel correctly stated: "an exclusive marketing right cannot be "granted" in a specific case unless it is "available" in the first place"15. Moreover, the terms used in other Articles of the TRIPS Agreement reflect the context of each Article, and do not support the conclusion that there is no obligation under Article 70.9 to provide a system for granting exclusive marketing rights before a particular case arises.
19. The United States maintains that the context, object and purpose of Article 70.9 indicate that it imposes a current, not future, obligation. In the view of the United States, the Panel correctly found that the average period of time required to satisfy the conditions set forth in Article 70.9 is not relevant to the analysis. The United States further argues that India's argument is factually incorrect: the Panel found that at least one United States' company had satisfied the steps required for the grant of exclusive marketing rights, but had not applied for them in India because it could not obtain information regarding the appropriate procedure for doing so. In addition, the United States presented evidence regarding the likelihood that various products designed to treat serious medical conditions would be ready for introduction to the Indian market in advance of the timeframe described by India.
20. The United States argues that the consequence of India's view of Article 70.9 is that a national of another WTO Member would have to apply for exclusive marketing rights that did not exist under Indian law, and only at that time would India be obligated to enact legislation providing such rights. There would be at least a temporary violation of a Member's rights because that Member's national would have to wait for India to enact legislation making these rights available. According to the United States, such a result is inconsistent with the principle of fostering predictable conditions of competition and does not protect the legitimate expectations of Members under Article 70.9.
21. In the view of the United States, the Panel's finding on Article 70.9 does not imply that all future obligations under the WTO Agreement should be implemented immediately in Members' domestic law. Requiring a system for granting exclusive marketing rights protects the core balance of the TRIPS Agreement with respect to pharmaceutical and agricultural chemical product patents. Under the TRIPS Agreement, the quid pro quo for taking advantage of the extended transition period for granting product patents for pharmaceutical and agricultural chemical inventions was the grant of exclusive marketing rights.
22. The United States asks the Appellate Body to affirm the Panel's decision to make findings on the Article 63 issue submitted to it by the United States. In the view of the United States, the Panel correctly addressed both the issue of India's failure to comply with Article 70.8 and its failure to comply with Article 63. The United States asserts that Articles 3, 7, and 11 of the DSU establish that the Panel acted within its authority in addressing the United States' claim: the United States submitted this issue to the Panel in both written and oral submissions and India had an abundant opportunity to respond; and the United States' characterization of its Article 63 claim is not determinative of the Panel's authority to address it.
C. Third Participant - European Communities
23. The European Communities endorses the Panel's findings concerning the failure by India to take the action necessary to implement its obligations under Article 70.8 of the TRIPS Agreement and agrees with the Panelís interpretation of Article 70.9 of the TRIPS Agreement. The European Communities supports the Panel's finding that India failed to take the action necessary to implement its obligations under Article 70.8 of the TRIPS Agreement. In the view of the European Communities, India's arguments about the Panel's interpretation of municipal law are unfounded: there is nothing in the ruling of the Panel which suggests that it did anything other than treat domestic law as a question of fact to be proved by the party asserting a breach of Article 70.8. The European Communities asserts that the Panelís findings show that the Panel treated the question of municipal law as a matter of evidence. Moreover, India's submission that the Panel's interpretation on this point be treated as a question of fact would result in it being excluded from the remit of the Appellate Body.
24. The European Communities maintains that the Panelís approach in interpreting Article 70.8(a) was consistent with the provisions of Article 31 of the Vienna Convention on the Law of Treaties ("the Vienna Convention") 16. Accordingly, in analyzing the meaning to be given to the term "means" in paragraph (a) of Article 70.8, the Panel considered that term in its context and in the light of the object and purpose of Article 70.8. The European Communities asserts that the setting up of such a mailbox mechanism is clearly not an end in itself. The objective of the mechanism cannot simply be to permit the filing of applications: such a mechanism would serve no useful purpose. The objective is rather to ensure that the novelty and priority of such applications is preserved and made available as from the date of application of the Agreement for developing countries.
25. With respect to India's claims that the Panel effectively relieved the United States of the burden of proof of adducing evidence that a breach of Article 70.8 had occurred, the European Communities asserts that the Panelís reasoning is correct. According to the European Communities, it is clear, from paragraph 7.37 of the Panelís findings, that India was not able to discharge the burden of proof upon it to demonstrate that its system for mailbox applications was not tainted with a degree of legal insecurity. In the view of the European Communities, this question relates to the Panelís appreciation of the evidence before it and is therefore not a question of law. In consequence, it falls outside the scope of the remit of the Appellate Body.
26. The European Communities supports the Panel's interpretation of Article 70.9 of the TRIPS Agreement. The European Communities maintains that Article 70.9 provides for the granting of a residual right (the exclusive marketing right) to applicants as long as the products are not patentable during the transitional period available to developing country Members. For that purpose, applicants must be able to identify the authority to whom they have to address a request for the granting of an exclusive marketing right They must also be given the opportunity to know what their rights are with regard to other potential applicants who might request exclusive marketing rights for the same product. In the view of the European Communities, Indiaís proposed reading of Article 70.9 disregards this aspect of the law on intellectual property rights that concerns the relationship between different actual or potential applicants. It is not possible to regulate this relationship by legislative or administrative action only after the relevant events have occurred, since such subsequent action would not be capable of determining the relationship between several actual or potential applicants. The European Communities insists that the protection of the exclusivity of the exclusive marketing right is a necessary component of the mechanism that is required under Article 70.9.
27. The European Communities contends that Indiaís attempt to deny the need for a mechanism for the grant of exclusive marketing rights cannot be considered as a good faith interpretation of Article 70.9. According to the European Communities, Indiaís reference to the sensitivity of the question of exclusive rights for the marketing of pharmaceuticals and agricultural chemical products in developing countries is not relevant. The European Communities contends that the basic rule of international treaty law is "pacta sunt servanda", that is, that treaties must be observed. Moreover, treaty provisions must be read in context and treaty interpretation must be carried out in good faith. In the view of the European Communities, the TRIPS Agreement contains many provisions concerning the rights of applicants and right holders with regard to third parties; the context of the TRIPS Agreement requires developing country Members that invoke the transitional period to allow, in advance, the grant of exclusive marketing rights under Article 70.9 and to provide the relevant mechanism for the grant of such exclusive marketing rights in order to define the position of applicants and right holders with regard to other persons. According to the European Communities, Indiaís argument that this reading of Article 70.9 is not consistent with the general understanding of the kind of action that is required by Members during transitional periods, provided for in a number of other multilateral trade agreements, is misleading: it neglects that Article 70.9 deals with an obligation arising during the transitional period, not after its expiry.
III. Issues Raised In This Appeal
28. The appellant, India, raises the following issues in this appeal:
(a) What is the proper interpretation to be given to the requirement in Article 70.8(a) of the TRIPS Agreement that a Member shall provide "a means" by which applications for patents for inventions relating to pharmaceutical or agricultural chemical products can be filed?
(b) Did the Panel err in its treatment of Indian municipal law, or in its application of the burden of proof, in examining whether India had complied with its obligations under Article 70.8(a) of the TRIPS Agreement?
(c) Does Article 70.9 of the TRIPS Agreement require that there must be a "mechanism" in place to provide for the grant of exclusive marketing rights effective as from the date of entry into force of the WTO Agreement?
(d) Did the Panel, after having accepted the principal claim of the United States under Article 70.8 of the TRIPS Agreement, err by making conclusions on the alternative claim by the United States under Article 63 of the TRIPS Agreement?
IV. The TRIPS Agreement
29. The TRIPS Agreement is one of the new agreements negotiated and concluded in the Uruguay Round of multilateral trade negotiations. The TRIPS Agreement brings intellectual property within the world trading system for the first time by imposing certain obligations on Members in the area of trade-related intellectual property rights. As one of the covered agreements under the DSU, the TRIPS Agreement is subject to the dispute settlement rules and procedures of that Understanding. The dispute that gives rise to this case represents the first time the TRIPS Agreement has been submitted to the scrutiny of the WTO dispute settlement system.
30. Among the many provisions of the TRIPS Agreement are certain specific obligations relating to patent protection for pharmaceutical and agricultural chemical products. With respect to patentable subject matter, Article 27.1 of the TRIPS Agreement provides generally:
Subject to the provisions of paragraphs 2 and 3, patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application. Subject to paragraph 4 of Article 65, paragraph 8 of Article 70 and paragraph 3 of this Article, patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced. (footnote deleted)
31. However, Article 65 of the TRIPS Agreement provides, in pertinent part:
1. Subject to the provisions of paragraphs 2, 3 and 4, no Member shall be obliged to apply the provisions of this Agreement before the expiry of a general period of one year following the date of entry into force of the WTO Agreement.
2. A developing country Member is entitled to delay for a further period of four years the date of application, as defined in paragraph 1, of the provisions of this Agreement other than Articles 3, 4 and 5.
4. To the extent that a developing country Member is obliged by this Agreement to extend product patent protection to areas of technology not so protectable in its territory on the general date of application of this Agreement for that Member, as defined in paragraph 2, it may delay the application of the provisions on product patents of Section 5 of Part II to such areas of technology for an additional period of five years.
5. A Member availing itself of a transitional period under paragraphs 1, 2, 3 or 4 shall ensure that any changes in its laws, regulations and practice made during that period do not result in a lesser degree of consistency with the provisions of this Agreement.
32. With respect to patent protection for pharmaceutical and agricultural chemical products, certain specific obligations are found in Articles 70.8 and 70.9 of the TRIPS Agreement. The interpretation of these specific obligations is the subject of this dispute. Our task is to address the legal issues arising from this dispute that are raised in this appeal.
V. Interpretation of the TRIPS Agreement
33. As one of the fundamental issues in this appeal, India has questioned the Panel's enunciation and application of a general interpretative principle which, the Panel stated, "must be taken into account" in interpreting the provisions of the TRIPS Agreement. The Panel found that:
... when interpreting the text of the TRIPS Agreement, the legitimate expectations of WTO Members concerning the TRIPS Agreement must be taken into account, as well as standards of interpretation developed in past panel reports in the GATT framework, in particular those laying down the principle of the protection of conditions of competition flowing from multilateral trade agreements. 17
India argues that the Panel's invocation of this principle caused the Panel to misinterpret both Article 70.8 and Article 70.9 and led the Panel to err in determining whether India had complied with those obligations.18
34. The Panel stated that:
The protection of legitimate expectations of Members regarding the conditions of competition is a well-established GATT principle, which derives in part from Article XXIII, the basic dispute settlement provisions of GATT (and the WTO). 19
The Panel also referred to certain GATT 1947 panel reports 20 as authority for this principle. The Panel noted that whereas the "disciplines formed under GATT 1947 (so-called GATT acquis) were primarily directed at the treatment of the goods of other countries", "the concept of the protection of legitimate expectations" in relation to the TRIPS Agreement applies to "the competitive relationship between a Member's own nationals and those of other Members (rather than between domestically produced goods and the goods of other Members, as in the goods area)". 21
35. In Japan - Taxes on Alcoholic Beverages, on the status of adopted panel reports, we acknowledged:
Article XVI:1 of the WTO Agreement and paragraph 1(b)(iv) of the language of Annex 1A incorporating the GATT 1994 into the WTO Agreement bring the legal history and experience under the GATT 1947 into the new realm of the WTO in a way that ensures continuity and consistency in a smooth transition from the GATT 1947 system. This affirms the importance to the Members of the WTO of the experience acquired by the CONTRACTING PARTIES to the GATT 1947 -- and acknowledges the continuing relevance of that experience to the new trading system served by the WTO. Adopted panel reports are an important part of the GATT acquis 22.
36. Although the Panel states that it is merely applying a "well-established GATT principle", the Panel's reasoning does not accurately reflect GATT/WTO practice. In developing its interpretative principle, the Panel merges, and thereby confuses, two different concepts from previous GATT practice. One is the concept of protecting the expectations of contracting parties as to the competitive relationship between their products and the products of other contracting parties. This is a concept that was developed in the context of violation complaints involving Articles III and XI, brought under Article XXIII:1(a), of the GATT 1947. The other is the concept of the protection of the reasonable expectations of contracting parties relating to market access concessions. This is a concept that was developed in the context of non-violation complaints brought under Article XXIII:1(b) of the GATT.
37. Article 64.1 of the TRIPS Agreement23 incorporates by reference Article XXIII of the GATT 1994 as the general dispute settlement provision governing the TRIPS Agreement. Thus, we have no quarrel in principle with the notion that past GATT practice with respect to Article XXIII is pertinent to interpretation of the TRIPS Agreement. However, such interpretation must show proper appreciation of the different bases for action under Article XXIII.
38. Article XXIII:1 of the GATT 1994 sets out the various causes of action on which a Member may base a complaint. A Member may have recourse to dispute settlement under Article XXIII when it considers that:
... any benefit accruing to it directly or indirectly under this Agreement is being nullified or impaired or that the attainment of any objective of the Agreement is being impeded as the result of
(a) the failure of another contracting party to carry out its obligations under this Agreement, or
(b) the application by another contracting party of any measure, whether or not it conflicts with the provisions of this Agreement, or
(c) the existence of any other situation. 24
39. Article XXIII:1(a) involves so-called "violation" complaints. These are disputes that arise from an alleged failure by a Member to carry out its obligations. During nearly fifty years of experience, Article XXIII:1(a) has formed the basis of almost all disputes under the GATT 1947 and the WTO Agreement. In contrast, Article XXIII:1(b) involves so-called "non-violation" complaints. These are disputes that do not require an allegation of a violation of an obligation. The basis of a cause of action under Article XXIII:1(b) is not necessarily a violation of the rules, but rather the nullification or impairment of a benefit accruing to a Member under a covered agreement. In the history of the GATT/WTO, there have been only a handful of "non-violation" cases arising under Article XXIII:1(b). 25 Article XXIII:1(c), covering what are commonly called "situation" complaints, has never been the foundation for a recommendation or ruling of the GATT CONTRACTING PARTIES or the Dispute Settlement Body, although it has formed the basis for partiesí arguments before panels in a small number of cases. 26
40. In the context of violation complaints made under Article XXIII:1(a), it is true that panels examining claims under Articles III and XI of the GATT have frequently stated that the purpose of these articles is to protect the expectations of Members concerning the competitive relationship between imported and domestic products, as opposed to expectations concerning trade volumes. However, this statement is often made after a panel has found a violation of, for example, Article III or Article XI that establishes a prima facie case of nullification or impairment. 27 At that point in its reasoning, the panel is examining whether the defending party has been able to rebut the charge of nullification or impairment. It is in this context that panels have referred to the expectations of Members concerning the conditions of competition.
41. The doctrine of protecting the "reasonable expectations" of contracting parties developed in the context of "non-violation" complaints brought under Article XXIII:1(b) of the GATT 1947. Some of the rules and procedures concerning "non-violation" cases have been codified in Article 26.1 of the DSU. "Non-violation" complaints are rooted in the GATT's origins as an agreement intended to protect the reciprocal tariff concessions negotiated among the contracting parties under Article II 28. In the absence of substantive legal rules in many areas relating to international trade, the "non-violation" provision of Article XXIII:1(b) was aimed at preventing contracting parties from using non-tariff barriers or other policy measures to negate the benefits of negotiated tariff concessions. Under Article XXIII:1(b) of the GATT 1994, a Member can bring a "non-violation" complaint when the negotiated balance of concessions between Members is upset by the application of a measure, whether or not this measure is inconsistent with the provisions of the covered agreement. The ultimate goal is not the withdrawal of the measure concerned, but rather achieving a mutually satisfactory adjustment, usually by means of compensation. 29
42. Article 64.2 of the TRIPS Agreement states:
Subparagraphs 1(b) and 1(c) of Article XXIII of GATT 1994 shall not apply to the settlement of disputes under this Agreement for a period of five years from the date of entry into force of the WTO Agreement.
The meaning of this provision is clear: the only cause of action permitted under the TRIPS Agreement during the first five years after the entry into force of the WTO Agreement is a "violation" complaint under Article XXIII:1(a) of the GATT 1994. This case involves allegations of violation of obligations under the TRIPS Agreement. However, the Panel's invocation of the "legitimate expectations" of Members relating to conditions of competition melds the legally-distinct bases for "violation" and "non-violation" complaints under Article XXIII of the GATT 1994 into one uniform cause of action. This is not consistent with either Article XXIII of the GATT 1994 or Article 64 of the TRIPS Agreement. Whether or not "non-violation" complaints should be available for disputes under the TRIPS Agreement is a matter that remains to be determined by the Council for Trade-Related Aspects of Intellectual Property (the "Council for TRIPS") pursuant to Article 64.3 of the TRIPS Agreement. It is not a matter to be resolved through interpretation by panels or by the Appellate Body.
43. In addition to relying on the GATT acquis, the Panel relies also on the customary rules of interpretation of public international law as a basis for the interpretative principle it offers for the TRIPS Agreement. Specifically, the Panel relies on Article 31 of the Vienna Convention, which provides in part:
1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
44. With this customary rule of interpretation in mind, the Panel stated that:
In our view, good faith interpretation requires the protection of legitimate expectations derived from the protection of intellectual property rights provided for in the Agreement. 30
45. The Panel misapplies Article 31 of the Vienna Convention. The Panel misunderstands the concept of legitimate expectations in the context of the customary rules of interpretation of public international law. The legitimate expectations of the parties to a treaty are reflected in the language of the treaty itself. The duty of a treaty interpreter is to examine the words of the treaty to determine the intentions of the parties. This should be done in accordance with the principles of treaty interpretation set out in Article 31 of the Vienna Convention. But these principles of interpretation neither require nor condone the imputation into a treaty of words that are not there or the importation into a treaty of concepts that were not intended.
46. In United States - Standards for Reformulated and Conventional Gasoline 31, we set out the proper approach to be applied in interpreting the WTO Agreement in accordance with the rules in Article 31 of the Vienna Convention. These rules must be respected and applied in interpreting the TRIPS Agreement or any other covered agreement. The Panel in this case has created its own interpretative principle, which is consistent with neither the customary rules of interpretation of public international law nor established GATT/WTO practice. Both panels and the Appellate Body must be guided by the rules of treaty interpretation set out in the Vienna Convention, and must not add to or diminish rights and obligations provided in the WTO Agreement.
47. This conclusion is dictated by two separate and very specific provisions of the DSU. Article 3.2 of the DSU provides that the dispute settlement system of the WTO:
... serves to preserve the rights and obligations of the Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law. Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.
Furthermore, Article 19.2 of the DSU provides:
In accordance with paragraph 2 of Article 3, in their findings and recommendations, the panel and Appellate Body cannot add to or diminish the rights and obligations provided in the covered agreements.
These provisions speak for themselves. Unquestionably, both panels and the Appellate Body are bound by them.
48. For these reasons, we do not agree with the Panel that the legitimate expectations of Members and private rights holders concerning conditions of competition must always be taken into account in interpreting the TRIPS Agreement.
1. WT/DS50/R, 5 September 1997.
2. WT/DS50/4, 8 November 1996.
3. Panel Report, para. 8.1.
4. Panel Report, para. 8.2.
5. WT/DS50/6, 16 October 1997.
6. Pursuant to Rule 21(1) of the Working Procedures.
7. India's appellant's submission, p. 10.
8. See Panel Report, Annex 2.
9. India cites Panel Report, Canada - Measures Affecting the Sale of Gold Coins, L/5863, 17 September 1985, unadopted, paras. 58 and 59; and Panel Report, United States - Measures Affecting the Importation, Internal Sale and Use of Tobacco, adopted 4 October 1994, DS44/R, para. 75.
10. Panel Report, para. 7.56 and note 112.
11. Done at Marrakesh, Morocco, 15 April 1994.
12. Adopted 23 May 1997, WT/DS33/AB/R.
13. Adopted 25 February 1997, WT/DS24/R, para. 7.10.
14. The United States cites H.W. Fowler and F.G. Fowler (eds.), The Concise Oxford English Dictionary (1990), p. 514.
15. Panel Report, para. 7.56, note 112.
16. Done at Vienna, 23 May 1969, 1155 U.N.T.S. 331; 8 International Legal Materials 679.
17. Panel Report, para. 7.22.
18. India's appellant's submission, pp. 5-8 and 21.
19. Panel Report, para. 7.20 20. In particular: Panel Report, Italian Discrimination Against Imported Agricultural Machinery, adopted 23 October 1958, BISD 7S/60, paras. 12-13; Panel Report, United States - Taxes on Petroleum and Certain Imported Substances, adopted 17 June 1987, BISD 34S/136, para. 5.22; and Panel Report, United States - Section 337 of the Tariff Act of 1930, adopted 7 November 1989, BISD 36S/345, para. 5.13.
21. Panel Report, para. 7.21.
22. Adopted 1 November 1996, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, p. 14.
23. Article 64.1 of the TRIPS Agreement reads:
24. Article XXIII:1 of the GATT 1994.
25. Previous panels have found "non-violation" nullification or impairment in only four of 14 cases where it was alleged: Working Party Report, Australia - Subsidy on Ammonium Sulphate, adopted 3 April 1950, BISD II/188; Panel Report, Germany - Imports of Sardines, adopted 31 October 1952, BISD IS/53; Panel Report, Germany - Import Duties on Starch and Potato Flour, noted 16 February 1955, BISD 3S/77; and Panel Report, European Communities - Payments and Subsidies Paid to Processors and Producers of Oilseeds and Related Animal-Feed Proteins, adopted 25 January 1990, BISD 37S/86.
26. See, generally, F. Roessler, "The Concept of Nullification and Impairment in the Legal System of the World Trade Organization" in E.-U. Petersmann (ed.), International Trade Law and the GATT/WTO Dispute Settlement System (Kluwer, 1997), pp. 123-142; and E.-U. Petersmann, The GATT/WTO Dispute Settlement System: International Law, International Organizations and Dispute Settlement (Kluwer, 1997), pp. 170-176.
27. See, for example: Working Party Report, Brazilian Internal Taxes, adopted 30 June 1949, BISD II/181, para. 16; Panel Report, United States - Taxes on Petroleum and Certain Imported Substances, adopted 17 June 1987, BISD 34S/136, para. 5.1.9; Panel Report, Canada - Administration of the Foreign Investment Review Act, adopted 7 February 1984, BISD 30S/140, para. 6.6; Panel Report, Japanese Measures on Imports of Leather, adopted 15/16 May 1984, BISD 31S/94, para. 55; Panel Report, Japan - Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages, adopted 10 November 1987, BISD 34S/83, para. 5.11; Panel Report, European Economic Community - Restrictions on Imports of Apples, adopted 22 June 1989, BISD 36S/135, para. 5.25; and Panel Report, United States - Measures Affecting the Importation, Internal Sale and Use of Tobacco, adopted 4 October 1994, DS44/R, para. 99.
28. See, in general, E.-U. Petersmann, "Violation Complaints and Non-violation Complaints in International Law" (1991) German Yearbook of International Law 175.
29. This is codified in Article 26.1(b) of the DSU.
30. Panel Report, para. 7.18.
31. Adopted 20 May 1996, WT/DS2/AB/R, pp. 16-17.
Continue on to Part 2 of India - Patent Protection for Pharmaceutical and Agricultural Chemical Products