Special Feature: Differences Over GIs Threaten 2016/2017 WIPO Budget Approval

The UN World Intellectual Property Organization is a member-driven agency set up to protect IP rights worldwide. In recent years, an area of dissension and debate has been how to make the organisation – and IPRs – friendlier to developing countries. This year, however, it has become a hotspot for the global debate between developed countries over protection of geographical indications, products of distinctive character deriving from specific locations.

In May, a subset of WIPO members led by southern and central Europe agreed among themselves to create an international instrument for the protection of geographical indications (GIs) (IPW, WIPO, 21 May 2015). The agreement was called the Geneva Act, a revision of the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration.

Another group of WIPO members led by the United States, South Korea and Japan, which follow a different system for protecting GIs, raised strenuous concerns about the agreement, some calling it illegitimate. They had been permitted to attend the negotiation and offer comments, but were denied a vote on the outcome.

At the recent meeting of the WIPO Program and Budget Committee (PBC), the United States declared it will hold up the proposed budget for the next biennium, 2016/2017, if the accounting for the Lisbon treaty is not handled more transparently and separately from other agreements.

In the proposed budget from the secretariat, the Lisbon budget is combined with the budget of the Madrid system for the international registration of trademarks.

Despite these threats, Lisbon members at the PBC held their ground (see below), buffeted by the WIPO secretariat, which has indicated its opinion that the Geneva Act process was legal, but with deference to the WIPO General Assembly on points. The Lisbon members did signal agreement with more transparency on the Geneva Act budget, and have undertaken to work on a proposal to increase their internal fees for using the system in order to increase revenue.

Member state positions led PBC Chair Gabriel Duque of Colombia to remark: “I hope you are all aware that we’re in the direct path of not having the program and budget approved. I hope you are all aware of this, and start facing the consequences.”

There was no resolution on the issue at last week’s PBC, and it is expected to come up again at the next PBC in mid-September, prior to the annual WIPO General Assembly, at which a decision must be taken on the next biennium’s budget.

A WIPO secretariat spokesperson this week explained to Intellectual Property Watch the Lisbon members’ effort on fees:

“The question of the amounts of fees and reduced fees for developing countries is expected to be addressed by the Working Group for the Preparation of Common Regulations under the Lisbon Agreement and the Geneva Act. This Working Group is proposed to be created by the Lisbon Union Assembly at its upcoming meeting in October.

“We expect the publication soon of a document concerning this matter for the Lisbon Union’s consideration,” she said.

 

US Allegations and Demands

The United States, which has a robust generic foods industry and follows a trademark system, took a firm stand throughout the week against approval of the budget unless certain changes are made related to the GI issue.

In its closing statement, the US said:

“Chair, as you will recall from our opening statement and our intervention on Program 6, the United States is not in a position to approve the draft Program and Budget for 2016/17 absent the conditions we have identified, namely:

• That there be a separation of the accounting for the Lisbon and Madrid Systems – i.e., two separate programs with separate Expected Results;

• That the Lisbon System’s use of and contribution to WIPO services and operating costs are accurately reflected as expenses, whether direct or indirect, or income, as appropriate;

• That the Lisbon Budget is balanced as provided under the Lisbon Agreement, including its Geneva Act, without the use of other Unions’ Income, general Member State Contributions or income not derived from the Lisbon Union;

• That the Secretariat Conduct a Study on Lisbon’s Financial Sustainability;

• That the earmark for a diplomatic conference in the 2016/17 biennium be conditional on full participation; and

• That the Secretariat to review Annex III, including the allocation of miscellaneous income, and whether, as in the case of the rental income that is directly attributable to the Madrid Union, the miscellaneous income can be more accurately attributed according to how the assets from which this income was acquired and are being maintained.”

During the week, the US proposal received support from: Korea, Uruguay, Singapore, Panama, Japan, Canada, Argentina, New Zealand, Chile, and Australia.

Those opposing included: Portugal, France, Italy, Switzerland, Hungary, and Iran.

In its closing statement, the US said that none of its suggested edits were included in the draft Program and Budget for 2016/2017, so it is preparing to continue the discussion in September.

 

US Top Congressional Support

The US position was backed by a strongly worded letter [pdf] to WIPO Director General Francis Gurry from the highest-ranking members of the US Congress on trade and IP issues.

The bipartisan Senate and House leaders echoed the views of the administration officials, expressing “grave disappointment” in the way the revisions were adopted, as they consider the agreement will have “significant negative ramifications for businesses world-wide that depend on the use of common or generic names or on the integrity of established trademarks.”

In addition, they said they are “seriously concerned” about the way the agreement has been and is likely to be funded, arguing that it is “inappropriate that the funding mechanism for the Agreement will be supported by trademark stakeholders that will be adversely impacted by the agreement.”

The elected officials also raised the possibility of non-compliance with the 1994 World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

They concluded by saying their faith in WIPO has been “seriously undermined” and that the PBC must act to address the concerns.

The congressional letter was welcomed by the Consortium for Common Food Names industry group, which issued a press release.

 

US Explanation of its Position

In the US closing statement to the PBC, the delegate explained the US position that the Geneva Act is illegitimate, and even used the language of Lisbon against its proponents, as it calls for financial self-sufficiency.

“The United States considers the Geneva Act of the Lisbon Agreement to be illegitimate, mainly because of the way in which it was negotiated and concluded,” it said. “A small subset of this organization – a mere 28 members – excluded from full participation the vast majority of the organization, relying on Article 13 of the Lisbon Agreement under the guise of a revision to the agreement.”

“We all know that this was not a revision, but rather, a complete overhaul of the agreement by including the broader concept of geographical indications,” the US continued. “However, when it comes to making the Lisbon System financially self-sustainable – something the United States is trying to do here – the Lisbon Members continue to ignore their treaty obligations.”

“It is deeply troubling that the legitimacy deficit of the Geneva Act is being worsened by the attempts of some to perpetuate the long-standing financial deficit of Lisbon system to the detriment of all,” the US asserted. “The great majority of WIPO members, who were excluded from meaningful participation in the recent diplomatic conference, cannot and should not be asked to subsidize the few that refuse to fund their own treaty.”

Meanwhile, the US said, “Some of the more vocal Lisbon members have commented this week that the Lisbon and Madrid systems should remain in one program, with the implication that Madrid will continue to fund the deficits incurred by Lisbon. Their baseless justification is that it has always been this way, so why change it. Well, chair, the United States will not stand for the continued bootstrapping of an illegitimate, financially irresponsible system by the Madrid system, particularly when the new Geneva Act contains provisions that affirmatively undermine trademark protection, which is at the core of the Madrid Agreement.”

The US insistence on conditions related to transparency and financial sustainability signalled its larger discontent over the loss the Geneva Act represents in the global struggle over two ways to protect GIs.

It is unfortunate that [Lisbon members] shed those principles to suit their self-serving objective of gaining an upper hand in the ongoing struggle over how best to protect geographical indications,” it said.

And the US took aim at WIPO itself, suggesting that it failed to follow legal provisions:

“In addition to our concerns with the Lisbon parties in terms of implementing their own financial obligation, we are also concerned about WIPO’s stewardship of its treaties by failing to follow the legal provisions of the Lisbon agreement with respect to financing, and the provisions of the Madrid agreement with respect to the revenue, except specific fees, that is to be divided between Contracting Parties as specified by Article 8(4) and not used for other purposes to which they have not consented.”

“As we said in our opening statement, these failures raise critical concerns about transparency, accountability and governance that must be addressed,” it concluded.

The US statement from earlier in the week reflected these points as well.

So far, a dollar value of the potential loss to the generics products industries has not been made public.

 

PBC Decision

The PBC outcome document, the List of Decisions, captured the discussion (under Program 6) this way:

• Took note that the following issues were raised by some Delegations in respect of Program 6, and were referred to the 24^th session of the PBC:

• Separate the Accounting for Lisbon and Madrid Systems – i.e., two separate programs with separate Expected Results;

• Ensure that the Lisbon System’s use of and contribution to WIPO services and operating costs are accurately reflected as expenses, whether direct or indirect, or income, as appropriate;

• Balance the Lisbon Budget as provided under the Lisbon Agreement, including its Geneva Act, when it comes into force, without the use of other Unions’ Income, general Member State Contributions or income not derived from the Lisbon Union;

• Request that the Secretariat conduct a Study on Lisbon’s Financial Sustainability;

• Request that the earmark for a diplomatic conference in the 2016/17 biennium be conditional on full participation; and

• Request that the Secretariat review Annex III, including the allocation of miscellaneous income, and whether, as in the case of the rental income that is directly attributable to the Madrid Union, the miscellaneous income can be more accurately attributed according to how the assets from which this income was acquired and are being maintained.

 

Lisbon Defenders Hold Ground

During the PBC, Lisbon revision proponents took the floor to defend the Geneva Act, explaining how the revision negotiation and the budgeting process fit with WIPO rules.

France said in initial comments that it is fully in support of transparency and more information on the budget, but feels this could be provided without modifying the whole structure of the budget.

The delegate also said there are similarities between the systems of protection for marks and GIs, and also that the cross-cutting nature of the WIPO budget has existed since the 1990s, and should be maintained.

In addition, she said, these principles are in line with the fundamental mission of WIPO, which is the promotion of all types of intellectual property rights. France said other systems have run deficits, including Patent Cooperation Treaty (PCT), now considered the cash cow of WIPO.

“I think we should give the Lisbon system the same opportunity” to grow into “maturity” and self-sufficiency, the French delegate said, who added it is hoped the new Geneva Act will help Lisbon finances.

As to inclusion, during the negotiations, an amendment was inserted into Geneva Act from the US delegation, France noted.

The possibility of doubling fees for Geneva Act users will be discussed by Lisbon Union Assembly in October, she said.

Some of the US proposals seem to fall outside the PBC, the delegate argued, and they will come back to it at the next PBC meeting in September.

Italy said as regards more transparency in the budget, it is in favour of more detail on the figures on Lisbon. This can be done without any change to the budget structure, it said, suggesting that it can be provided by secretariat in separate Q&A document.

Madrid and Lisbon have been under same program for many years, Italy said, and separating them would create precedent by putting responsibility for a budget under a unit. Also, the delegate added, Madrid and Lisbon both deal with GIs.

Information about both systems is available on the WIPO website, though the Lisbon information is directly accessible from homepage of the website, she added.

The October Lisbon Union will discuss increasing fees, she noted.

About 70 percent of Lisbon Union accumulated deficit since 2009 is related to meetings of the working group on the development of the Lisbon System, staff costs and related information and promotion, she said. Processing transactions for Lisbon registry represents only 30 percent of total workload, she said.

The deficit of the Lisbon System is estimated to increase to about CHF 1.5 million in the 2016/2017 biennium, she said. The increase is mainly for the promotion of the international GI system under the new Geneva Act. This is fully under the scope and mandate of WIPO, she said.

“GIs are intellectual property rights, like copyrights, trademarks, patents, and industrial design,” and WIPO needs to be committed to it, the Italian delegate said.

If a small amount of WIPO’s miscellaneous income is used to promote a new IP system, this will not be detrimental to other programs and will contribute to more global provision of IP services to its members, the delegate argued.

Hungary agreed that income and expenses of the Lisbon Union can be transparently reflected, but it did not see the need for separate budgetary program. It said it would need more time to examine all aspects of the US proposal but would not be in a position to support proposals that seem to be contrary to WIPO financial regulations, such as removing the discretion of the director general with respect to the Lisbon budget.

Hungary said the Lisbon system cannot be compared to other systems, in part because appellations of origin and GIs are based on geographical locations, making them limited in number.

The various points above were echoed by Portugal, Iran – which noted that in its IP office registration of Madrid and Lisbon is the same – Algeria, and the Czech Republic. Mexico and others said more time is needed to assess the US proposal and the situation, and would come back at the next PBC in September.

It was after these interventions that the chair said, “I hope you are all aware that we’re in the direct path of not having the program and budget approved. I hope you are all aware of this, and start facing the consequences.”

The situation did not get better as the US soon took the floor to repeat its demands.

 

WIPO Secretariat Responses

During the PBC, the secretariat went through the list of issues raised by members and gave explanations and responses.

For instance, the WIPO comptroller, referring to the budget, said Lisbon numbers are very small so they don’t appear in some tables, but can be included by footnotes to table 2 and table 3.

The Madrid and Lisbon expenditures have not been separated simply because the secretariat has not had a decision from the PBC asking them to separate it. Madrid and Lisbon expenditures are combined in program 6, however on the income and expenditure of the unions, she said WIPO has a results-based budget and presents a view of the organisational budget by Union and are presented in accordance with the current methodology, as in Annex 3. The income and expenditure of Madrid and Lisbon are shown separately in table 11, she said.

On the concern that Lisbon relies on Madrid revenues and the reason Lisbon is at deficit, she noted that table 11 shows the income for each union clearly separated. She described the sources of income for the Madrid Union (including some income from a dedicated Madrid Union building in Meyrin). For the Lisbon Union, the income comes from Lisbon fees, a small portion from arbitration fees, and a share of other income, which is equally distributed to each union, she said. All of the sources of income are reported in more than one location, including in segment reports in the financial statements.

Details can be provided in the question and answer document being provided, she added.

The WIPO legal counsel addressed a suggestion for a footnote in the program and budget that the 5 percent discretion the director general usually has to transfer funds between accounts not be applied for Lisbon. The counsel said this would override program and budget financial regulations put in place by the PBC and the General Assembly, but it could be done, it would just have to be approved by General Assembly.

In answer to a question about whether any budget transfers to Lisbon in the past 10 years can be shown, the comptroller said they cannot show separate transfers from before 2014, as a separate accounting for Lisbon only came into being in the current (2014/2015) biennium.

For the current biennium, some CHF 430,000 was transferred to Lisbon for the purposes of the diplomatic conference. The initial cost for this was CHF 130,000, so where the cost was higher than the initial budget because there was a change in location (it was moved from Portugal to Geneva).

As to whether the Lisbon Union is carrying its share of WIPO expenses, the comptroller repeated that the secretariat follows the current methodology, which does not separate out Lisbon from Madrid, but noted some available details that exempt Lisbon and the Hague System from certain contributions.

The Madrid Union has a building in Meyrin that was purchased for the union by a decision several decades ago, and it gets rent income from it. Income of about CHF 750,000 from services provided there, including rental of parking spaces to WIPO employees, a data centre, telephone antennas, an ATM in the lobby, parking for another organisation, and so forth, gets divided equally among all unions under WIPO methodology.

As to how the Lisbon deficit can be covered, the comptroller said there is no concept of covering under WIPO accounting. There are budgets and some have been in deficit, some in surplus. Overall, WIPO is in surplus, with PCT among the contributors, and Lisbon and Hague have been in deficit.

The secretariat official responsible for Lisbon said in response to a request that the secretariat is looking into developing a forecast for demand for Lisbon.

As to the fact that Lisbon fees have not increased in many years, a proposal to increase Lisbon fees by 100 percent is before the union in October, he noted.

On concern that technical assistance related to Lisbon be neutral and balanced, the secretariat official said all technical assistance provided by WIPO is demand-driven within WIPO rules. When a request for assistance on GIs is received, “the full range of protection mechanisms has always been offered,” he said. The Geneva Act includes language to reflect this concept, he added.

A request for more detailed data is duly noted, the official added.

The United States asked about what the roughly CHF 400,000 for the Geneva Act diplomatic conference included. The secretariat responded that there was no travel included. The biggest expense was interpretation, then hospitality, coffee breaks, captioning, and security.

In sum, discussions on all issues are to be continued in September.