The USMCA: Intellectual property and digital trade

Welcome to Gowling WLG's – GoXL - an on-line tool to provide you with the information that you need to learn about and stay up-to-date on IP laws and procedures 

My name is Scott Jolliffe – I'm here with my partner Wendy Wagner
We're going to talk about the United States, Mexico, Canada Trade Agreement and the provisions in the agreement that deal with Intellectual Property Rights, Digital Trade, and Privacy laws in Canada

Just as a reminder, our discussion today is for information purposes only and should not be taken as providing legal advice. 

USMCA General:
The UMCA is a tri-lateral trade agreement signed by the 3 countries on November 30, 2018, and then further revised December 10, 2019

The Canadian Government passed the Canada United States Mexico Implementation Act on March 13, 2020 to give effect to most of the changes required by Canada to comply with the USMCA

The Agreement came into effect in all three countries on July 1, 2020, and is known as CUSMA in Canada, the USMCA in the US, and the T-MEC in Mexico. We'll just refer to it here as the USMCA. 

IP Provisions:
This Trade Agreement provides the most comprehensive package of IP coverage of any international trade agreement since the Trade Related Aspects of Intellectual Property Agreement (TRIPS) in 1994 

Essentially, it brings Canada and Mexico in line with modern US law in many of areas of IP 

It also sets a new standard for the negotiation of future trade agreements by the US, Canada and Mexico 

Many of the IP obligations under the USMCA had already been adopted by Canada over the last two years

Mexico itself has recently adopted a new Industrial Property Law to implement the changes required in Mexico to comply with the Agreement

Interestingly, the USMCA is a Living Agreement in the sense that it creates a new inter-governmental Committee on IP Rights (the IPRC) to consider
o New approaches to reducing IP infringement
o Strengthening the border enforcement of IP rights
o Exchanging information on the value of trade secrets
o Enhancing procedural fairness in the choice of venue in patent disputes
o Mediating disputes over Geographical Indications (GI's)

Patents:
As regards patents, several of the USMCA provisions relating to patentable subject matter, transparency of the patent system and data protection were already incorporated into Canada's patent laws

For example, the period of protection for confidential data submitted for marketing approval for pharmaceuticals and agricultural chemicals will remain at 8 years in Canada, not the 10 year period as originally agreed upon in November 2018

But Canada will be required within 4½ years to implement a Patent Restoration Term, allowing for the recovery of time lost in the prosecution of a patent due to "unreasonable delays" by the Patent Office

Trademarks:
In the trademark area, many of the USMCA obligations relating to trademarks have been part of Canada's trademark laws for many years, including the registrability of certification marks and the abolition of register user requirements 

Other obligations provided in the Agreement are reflected in the amendments to the Trademark Act that came into effect on June 17, 2019, including the adoption of the Madrid Protocol, the Singapore Treaty, and the Nice classification system. 

But to comply with the Agreement, Canada will be required to provide protection for "collective marks" and make modifications to its protection for Geographical Indications 

Canada will also be required to create new provisions for the imposition of statutory damages for trademark counterfeiting 

Copyright:
In the copyright area, the USMCA requires a term of copyright protection for the life of the author plus 70 years, and no less than 75 years from the date of first authorized publication for a work created by an entity

Canada now has 2½ years to adopt this extended term, whereas the current term of protection in Canada is the life of the author plus 50 years

The USMCA also requires the establishment of "safe harbors" for legitimate internet service providers, protecting them from liability for infringement by their users, provided they comply with "notice and take-down" requirements 

Canada was granted exception to this, allowing it to continue to use its "notice and notice" approach, without ISPs having to adopt the take-down requirement

Trade Secrets:
Regarding trade secrets, the USMCA also provides very strong recognition and protection for trade secrets, similar to US federal and state trade secret laws

The Agreement requires the parties to adopt laws 
o to prevent the misappropriation of trade secrets, including by governments and state-owned enterprises
o civil and criminal remedies against the theft of trade secrets, and
o judicial measures to prevent the disclosure of trade secrets during litigation

Canada has already amended its Criminal Code to enhance protection against the misappropriation of trade secrets

However, it remains a question whether Canada will be required to adopt legislation to provide stronger civil remedies to protect trade secrets 

Enforcement
In the enforcement area, the USMCA calls for significant measures to enhance border controls to stop IP infringement:
o it calls for strong measures to prevent the importation and in-transit shipment of counterfeit goods
o requires that Customs Officials have the authority to inspect, detain and destroy counterfeit goods, and
o and encourages collaborative border enforcement operations through the IPRC 

The Agreement also calls for enhanced remedies for IP Infringement, including:
o civil and criminal penalties
o liability of direct infringers, as well as aiders, abettors and governments
o and it requires that enforcement procedures be available to prevent digital infringement of trade-mark, copyright and other related rights

There is likely more that Canada will have to do in terms of border enforcement, statutory damages for trademark infringement, and civil remedies for the misappropriation of trade secrets

That's it for the IP side.
Let me turn this over to Wendy to talk about the Digital Chapter and Privacy

The Digital Trade Chapter is a brand new component of the trading relationship between the United States, Canada and Mexico. 

It's not surprising that NAFTA didn't focus on these protections, since that agreement was negotiated even before dial up Internet! The world has changed a lot in a few decades.

Inclusion of the Chapter was an important negotiating objective for the United States, in recognition that digital trade is a huge contributor to the U.S. economy, the home of giant digital services providers like Facebook, Amazon, Google, Netflix and many others. 

The objective of the Chapter is to ensure that there are as few barriers as possible to digital trade. 

The Chapter acknowledges that, in some cases – like rules that restrict cross border transfers of personal information -  these barriers exist because of legitimate policy objectives to protect consumers

As a result, the Chapter also encourages the adoption by the parties of baseline measures to protect privacy and data security, while ensuring that these protections do not become barriers to the freeflow of information that is necessary to conduct many of these services. 

What are some of the key requirements that the Chapter puts in place to ensure that digital trade can be maximized? 

First, the Chapter restricts the USMCA parties from imposes customs duties or similar charges on importations or exportations of digital products and services
Importantly, it also says that if "internal taxes, fees or charges will be imposed, that needs to be done in a non-discriminatory manner. 

If you've been paying attention to the news, this has recently become a very tense issue between France and the United States  –   the United States on July 11 imposed a 25%25 tariff on French luxury products in retaliation for France's imposition of a 3%25 digital services tax that the U.S. says discriminates against U.S. companies like Google, Facebook and Apple.

The U.S. is investigating similar digital services taxes adopted or being considered by 10 other countries, including Britain, India and Turkey,
There are also number of other important requirements in the Chapter. 

The Agreement seeks to ensure that data can be transferred across borders, which is very important to service providers like Cloud companies and software as a services – also enormous industries in the United States

For similar reasons, it restricts the ability of the Parties to impose data localization measures that require companies to store and process data locally 

There are still some notable exceptions – the "parties" and their "procuring entities" are still permitted to place restrictions on data transfers in the case of "sensitive information" – this should allow the Canadian federal government and provinces to continue to impose restrictions on cross border transfers of personal information that is under the custody or control of a government entity.
It seeks to facilitate digital transactions by permitting the use of electronic authentication and signatures

The Chapter also protects against forced disclosure of proprietary computer source code and algorithms. This will be important to watch as Canada develops a new legal framework of AI or Artificial Intelligence, since those proposals include consideration of rights of access to AI algorithms by consumers, similar to GDPR.
Also notable is the requirement for all three parties to adopt laws that limit the civil liability of internet platform providers for Third Party Content, to protect those providers from "Host Liability". 

It will be interesting to watch how this develops in Canada since these laws are mainly governed by the common law and there is no statutory regime similar to the U.S. Communications Decency Act. 

In recognition that some of the restrictions on digital trade exist with a view to protecting consumers, the Chapter does acknowledge that each country should offer enforceable consumer protections for privacy and data security
The basic idea is that if each country has a satisfactory regime for the protection of these rights, then consumer data should, in theory, be freely tradable amongst the countries because it will be adequately protected no matter where it is processed and stored

However, the requirements are very basic, and the content and enforceability of such laws is left up to each country so that we can expect that there will still be wide variations. 

It remains to be seen whether inclusion of the Chapter will have a harmonizing effect as the three countries further refine and develop their privacy and cyber security laws, for example, by using the APEC Cross Border Privacy Rules to facilitate cross – border information transfers while protecting privacy, and by mandating that companies obtain binding certifications as is contemplated by those APEC CBPRs. 

Thanks Wendy – and thank you for joining us on GoXL. Of course, if you have any questions about any of this or any other legal matters, please do not hesitate to contact us.