April 29, 2020 was a proud day for intellectual property rights (IPRs) in Costa Rica. On this day, the United States Trade Representative (USTR) removed the country from its Special 301 Watch List. Costa Rica had consecutively been on the Watch List since 1995, so its path to removal was no small feat. The country made drastic changes to its intellectual property (IP) regime to strengthen IPRs, protecting creativity and innovation.
Costa Rica’s improved IP regime and removal from the Watch List is likely to have beneficial impacts on international trade, as well as serve as an attraction mechanism for foreign direct investment (FDI). However, despite the 2020 removal, several concerning IP issues persist in the country. Costa Rican attorneys and customs officials have taken extra measures to highlight these issues advocate for changes. Meanwhile, Costa Rica has completely fallen off the USTR’s Special 301 radar, as it has not been mentioned in Special 301 Reports since its removal.
The USTR’s failure to analyze and recognize issues regarding the state of IP in Costa Rica calls into question the usefulness of the Special 301 for purposes besides that of helping the USTR maintain its own databases. This fact is disappointing considering the level of effort Costa Rican attorneys have put into collaborating with and delivering countless updates and reports to U.S. USTR representatives.
This article focuses on the impact of Special 301 Reports in Costa Rica. It first underlines how the Special 301 has benefitted the IP regime, then provides critiques and suggestions for moving forward.
Section 301 of the United States’ Trade Act of 1974 as amended (P.L. 93-618, 19 U.S.C. § 2242) gives the USTR the responsibility of investigating foreign IP policies to ensure U.S. IPR holders are protected abroad.[1] The Omnibus Trade and Competitiveness Act of 1988 substantially added to this responsibility by amending Section 301 to require annual Special 301 Reports.[2]
Special 301 Reports require the USTR to conduct an annual review of the state of IP protection and enforcement policies in U.S. trading partners around the world, and give the results to Congress’s House of Ways and Means and Senate Finance Committees.[3] The Special 301 Report’s mission is to identify foreign counties that:
1) “deny adequate and effective protection of intellectual property rights, or
2) deny fair and equitable market access to United States persons that rely upon intellectual protection.”[4]
More specifically, reports examine a range of issues limiting innovation and investment, including trade secret misappropriations, challenges with copyright piracy, the sale of counterfeit trademarked products online, barriers impeding access to health care, and systematic IP enforcement issues at country borders.[5] The USTR must complete its Special 301 Report by April 30 each year.[6]
The Special 301 Report places trading partners on one of three lists, according to the USTR’s investigation results. The Watch List is the least severe category.[7] It includes countries with specific IP protection and enforcement inadequacies requiring U.S. attention.
The Priority Watch List is the intermediate category, containing countries whose IP policies and practices concern the U.S. but do not meet the criteria for the most severe country list.[8] The USTR must develop an action plan for countries placed on the Priority Watch List. If the action plan is not met within a designated period of time, the USTR and U.S. President may take appropriate retributory actions.
The Priority List is the most severe category.[9] Countries designated to this list are labelled Priority Foreign Countries (PFCs). PFCs have the greatest actual or potential adverse effect on U.S. products due to their “onerous or egregious acts, policies or practices that deny intellectual property protection and limit market access to U.S. persons or firms depending on IPR protection.”[10] If a country is identified as a PFC, the USTR must launch a separate investigation to further examine its IPR practices.
Benefits Derived
Costa Rica was first placed on the Special 301 Watch List in 1995. The country remained there until 2020, with the exception of 2001, during which it was temporarily condemned to the Priority Watch List.
From 1995 to around 2016, Special 301 Reports predominantly identified issues in two areas of Costa Rican IP law: Patent law, and trademark and copyright infringement. Special 301 Reports were likely a motivating factor in Costa Rica finally extending its patent protection term in 1999 to comply with the TRIPS Agreement and a number of other Paris Convention requirements.[11] They also likely influenced Costa Rica’s efforts to address patent backlog from 2011 to 2013.[12]
As far as trademark and copyright infringement, Special 301 Reports during this time period emphasized the need for stronger, more deterring penalties for IP infringement in Costa Rica, as well as higher priority for IP matters and the closing of retail stores selling pirated and counterfeit products.[13] After receiving these reports, Costa Rica did see some progress regarding these matters.
However major improvements from 2016 to 2020 proved invaluable to the country’s removal from the Special 301 Watch List. First, the country took concreate steps to address unlicensed software use in the central government, a concern the USTR had been raising since the late 20th century.[14] The Copyright Registry launched an online platform to determine the level of unlicensed software being used and implement essential changes.
Second, Costa Rica addressed a long-standing concern mentioned in Special 301 Reports over a law allowing online service providers 45 days to forward infringement notices to subscribers.[15] Instead of allowing IP infringers to benefit from a “safe harbor,” online service providers are now required to expeditiously remove alleged infringing content as part of a notice-and-takedown system.
Third, Costa Rica issued a decree requiring any geographical indication (GI) issued to include the identification of generic terms in compound names.[16] Previous Special 301 Reports mentioned the country needed this transparency and clarity regarding the scope of protection for GIs to alleviate market access uncertainty, specifically regarding opposition procedures of proposed GIs and the treatment of common food names.
Finally, as suggested by past Special 301 Reports, the Directorate General of Customs began developing an online recordation system to be implemented to improve border enforcement of IPRs.[17] Recordal systems are essential, especially for trademark protection, to allow customs officers to make full use of ex officio authority to detain and examine goods suspected to be counterfeit.
As discussed above, while Costa Rica was on the Watch List, the Special 301 provided suggestions that motivated the country to improve its IP regime. Additionally, removal from the Special 301 Watch List will likely have positive impacts on international trade, and attract FDI. These are important areas for Costa Rica, since it is a relatively small country competing in a big market.
The U.S. and other countries may be more hesitant to engage in trade or investments with Costa Rica if it is on the USTR’s Watch List. Regarding international trade, studies have shown stronger IPR protection can result in higher domestic innovation and increased technology diffusion in developing countries with the ability to innovate.[18] For countries with innovative capabilities who largely comply with TRIPS, IPR protection is linked to enhancement in economic growth, innovation, patenting, licensing agreements, international trade and FDI.[19]
While Costa Rica is still considered a “developing nation,” it is one of the top innovators in Latin America. Despite COVID-19 challenges, Costa Rica ranked third among 18 countries in Latin America in WIPO’s 2021 Global Innovation Index.[20] As countries able to innovate are the ones that tend to see the benefits listed above, Costa Rica likely stands to benefit from stronger IP laws.
Additionally, being a country with strong IPR protections is essential for attracting FDI, and encouraging Research and Development investments.[21] Protected IPRs tell potential investors there is a decreased risk of IP loss. It sends signals development will be encouraged and new technologies will be protected. The “brain drain” where educated members of the population emigrate to find favorable opportunities is also avoided if innovators are rewarded for their efforts.
Costa Rica already has many factors that are attractive to foreign investors, including a well-educated labor force, a strong focus on English-language instruction, relatively low levels of corruption, geographical proximity to the U.S., and renowned political stability.[22] The country is also becoming a leader in the technology and medical sectors. Lack of IP protections is always a deterring factor for investment. Costa Rica’s already attractive qualities combined with IP protection and enforcement would make it a paradise for new investments.
In conclusion, Special 301 Reports have benefited Costa Rica’s IP regime in certain aspects. While on the Watch List, reports motivated the country to make necessary changes and comply with international treaties. After removal from the Watch List, Costa Rica will likely be seen as more apt for international trade and FDI.
Critiques
In the last decade, Latin America has taken a divided approach on strengthening IPRs and following the USTR’s Special 301 judgments.[23] Some countries see the Special 301 Report as largely oriented toward fixing issues that interfere with U.S. trade, while many others see the reports have valuable implications for international trade, commerce, and domestic policy.
However, the USTR does not appear to use an articulated formula when designating countries to one of the three lists or determining when a country should be “upgraded” or “downgraded,” which makes it difficult for countries to predict where they will land each year.[24] In addition to reviewing the scope of each country’s IPR infringements, the USTR often considers factors such as effects on the U.S. economy, general politics, the strength and history of the country’s IPR laws, the annual NTE Report, information from private sectors and foreign governments, previous Special 301 designations and the results of U.S. and the foreign country’s efforts to achieve strong IPR protection.[25] Commitment to bilateral and multilateral agreements may also impact evaluations.[26]
This fuzzy formula adds a layer of unpredictability to each Special 301 Report, which has troubled attorneys and IP specialists in Costa Rica who have worked hard to call the USTR’s attention to current, urgent issues in the country. While no country desires to be subject to Special 301 listing, these individuals in recent years have hoped the USTR’s acknowledgement of IP issues would help spark necessary changes.
The past few years, IP attorneys and experts in Costa Rica worked enthusiastically alongside USTR representatives in the U.S., providing hard facts, evidence, and statistics regarding continuing detriments in Costa Rica’s IP regime. Many of these facts and statistics came from research conducted by Costa Rican attorneys in collaboration with INTA and ASIPI for a special October 2019 trademark and economics study called Las marcas en América Latina: Estudio de su impacto económico en 10 países de la región.[27] Detriments emphasized include the lack of a customs recordal system despite the announcement one would be implemented, the failure of the prosecutors’ offices in Costa Rica to accurately and timely process IP actions, and the intentional dismissal of cases both early and late in the procedural process, signifying less interest in using the legal system to solve IP related matters.
In preparation for the 2022 Special 301 Report, USTR representatives worked closely with Costa Rican experts to form reports over these IP concerns, and it was highly anticipated that these reports would be well contemplated in the Special 301. Therefore, it was discouraging when the 2022 Special 301 Report was released with no mention of Costa Rica and its current struggles.
The time and effort taken by Costa Rican experts to collaborate with the USTR unfortunately did not pay off for Costa Rica, as it received no help implementing IP changes to solve urgent matters. While still hoping to work with the USTR in the future, there is newfound hesitancy that such work will have the mutual benefits desired in Costa Rica.
Suggestions Moving Forward
The USTR’s Special 301 Report benefited Costa Rica in the past by motivating the country to improve its IP regime. Likewise, Costa Rica’s 2020 removal from the Special 301 Watch List has and likely will continue to have advantages for international trade and FDI. Nonetheless, the USTR’s failure to mention Costa Rica in its past few Special 301 Reports despite insistence from Costa Rican IP experts calls into question the utility of the Special 301 as a means to build public policy outside the United States and be used by non-U.S. citizens.
Moving forward, it would be useful if the USTR better defined criteria for designating countries to one of the three Special 301 lists. Additionally, it would be appreciated if the updates and reports provided by officials from countries such as Costa Rica were better accounted for in Special 301 proceedings, allowing urgent IP issues to be solved more quickly and efficiently and permitting the Special 301 to better benefit countries outside of the U.S.
[1] Congressional Research Service. "Section 301 of the Trade Act of 1974: Origin, Evolution, and Use." CPS Report, 14 Dec. 2020, pp. 19-24, sgp.fas.org/crs/misc/R46604.pdf.
[2] Id. at 19.
[3] Bhala, Raj. International Trade Law: A Comprehensive Textbook. 5th ed., vol. 4, Carolina Academic Press, 2019, Ch. 33, pp. 1033-1078, 4 vols.; See also 19 U.S.C. § 2242(a).
[4] Id at 1066.
[5] USTR. "Special 301." ustr.gov/issue-areas/intellectual-property/special-301.
[6] See Bhala, Raj. (supra, footnote 3 at 1065)
[7] See Congressional Research Service (supra, footnote 1 at 20) (Paragraph generally)
[8] Id. (Paragraph generally)
[9] Id. (Paragraph generally)
[10] Id.
[11] USTR. "2000 Special 301 Report." Apr. 2000, p. 22.
[12] USTR. "2011 Special 301 Report." Apr. 2011, p. 46-47.
[13] USTR. "2003 Special 301 Report." Apr. 2003, p. 20; USTR. "2004 Special 301 Report." Apr. 2004, p. 24; USTR. "2007 Special 301 Report." Apr. 2007, p. 38.
[14] USTR. "2020 Special 301 Report." Apr. 2020, p. 30.
[15] USTR. "2019 Special 301 Report." Apr. 2019, p. 81.
[16] USTR. "2020 Special 301 Report." Apr. 2020, p. 30.
[17] Id. at 30.
[18] Cabaleiro, Goretti, and Felipe Salce. "The State of Intellectual Property Rights (IPRs) in Latin America and its Implications for Innovation and Growth." International Journal of Technology Management & Sustainable Development, vol. 19, no. 1, 18 Nov. 2020, pp. 23-42.
[19] Id.
[20] WIPO. "Global Innovation Index 2021: Costa Rica." 2021, www.wipo.int/edocs/pubdocs/en/wipo_pub_gii_2021/cr.pdf.
[21] Hindman, David. The Effect of Intellectual Property Regimes on Foreign Investments in Developing Economies, 23 Ariz. J. Int'l & Comp. Law 467 (Paragraph generally)
[22] CINDE. “Why Costa Rica is a Natural Hub for Life-Centered Solutions.” 2022, www.cinde.org/en/why.
[23] See Cabaleiro, Goretti, and Felipe Salce (supra footnote 18).
[24] See Congressional Research Service (supra, footnote 1 at 20).
[25] Id. at 22.
[26] Id.
[27] Inter-American Association of Intellectual Property, and International Trademark Association. “Las marcas en América Latina: Estudio de su impacto económico en 10 países de la región” Oct. 2019, https://www.cnc.cl/wp-content/uploads/2020/03/Latin-America-Part-2-Repor...
