NAFTA's Nifty for Multimedia.

Fran Smallson and G. Glenn Nash. "NAFTA's Nifty for Multimedia." Morph's Outpost on the Digital Frontier, March 1994, p.10.

To flourish in today's global economy, the multimedia industry must distribute its products both in the United States and abroad. For many industries, and especially the multimedia industry, adequate intellectual property protection is essential to the financial success of international distribution. In this regard, 1993 qualifies as a watershed. The year saw the conclusion of two critical international trade agreements--The North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT)--that will strengthen intellectual property protection. This month's column will examine how NAFTA, which took effect in January 1994, will affect the multimedia industry, and it will also highlight several issues concerning GATT. The North American Free Trade Agreement (NAFTA): The Standards of Protection NAFTA is a multilateral trade agreement among the United States, Mexico, and Canada that, among other things, provides for the strongest international intellectual property protection ever negotiated. The intellectual property provisions (Chapter 17 of the agreement) are sure to be used as a model in negotiations with many other countries. NAFTA mandates minimum standards of protection and requires each country to treat nationals of another country in a manner that is no less favorable than that accorded its own nationals. In general, this "national treatment" means that a multimedia product owned by a U.S. national and distributed in Mexico and Canada will receive, at minimum, the same degree of intellectual property protection in those countries as native products. This guarantee, however, will not apply in all situations. For example, one limited exception to NAFTA's national treatment standard allows countries to limit performers' rights with respect to the public performance or broadcast of a sound recording to those that they would enjoy in their own country, i.e., reciprocity instead of national treatment. More significantly, Canada has reserved the right, through its "cultural industries" exemption, to derogate from NAFTA's national treatment obligation as well as from other NAFTA obligation to the extent that they affect cultural industries. Affected industries include the music, film, sound recording, publishing, radio, television, cable, and satellite industries. This exemption could spell trouble for the multimedia industry, which draws on multiple content sources that may be considered "cultural." This issue merits close attention by the multimedia industry. We will keep you posted on new developments. Copyrights Piracy and other unauthorized copying or public communication of works cause considerable losses for U.S. copyright industries. NAFTA addresses this problem for copyright owners by guaranteeing them exclusive rights similar to those provided under U.S. law. Multimedia developers will be pleased by NAFTA's definition of computer programs as literary works. This definition increases the scope of copyright protection for the software industry in Mexico, where computer programs were previously not specifically defined as literary works. NAFTA also provides copyright protection for databases and significantly enhances protection for sound recordings by providing protection similar to that afforded other copyrighted works. Furthermore, copyright owners now have legal recourse to prohibit rental of computer programs and sound recordings in both Canada and Mexico. Under NAFTA, copyright owners also now enjoy complete freedom to transfer their rights. Moreover, NAFTA safeguards the right of the transferee to enjoy all the benefits of the transferred rights, including the right to collect royalties that would other wise be payable to the party that originally held those rights. An important feature of NAFTA is that new subject matter discovered through technological innovation and that qualifies as original expression will automatically receive protection. This provision takes account of the pace of continuing technological change in the multimedia industry and obviates the need to amend NAFTA in the future to accommodate new technologies. For multimedia producers, the concept of moral rights could be a critical one. Some countries grant a copyright owner the right to maintain certain degrees of control over a work even after it has been sold to another. Such residual control may include the right to object to any distorting or modification of the work. For multimedia developers who rely on digital modification of works, this limitation could prove problematic. Fortunately, NAFTA does not require recognition of these rights. Multimedia producers doing business in other countries should be aware of the possible power of this right and should check any given country's domestic laws with respect to moral rights before distributing products there. Patents The current debate about Compton's NewMedia patent underscores the relevance of patent law to multimedia development, be it hardware or software. NAFTA requires that patents be available for any inventions in all fields of technology so long as they are new, nonobvious, and useful. The agreement provides patent protection for all inventions for 20 years from the date of the filing of the patent or for 17 years from the date of the patent grant. Trade Secrets One problem for multimedia producers trying to conduct international business has been the lack of protection for confidential information in some countries. Other countries place limitation on how long proprietary information can remain confidential. This lack of protection can frustrate software development and wreck strategic alliances when the disclosure of confidential information is critical to the transaction. NAFTA, however, affords such protection for trade secrets. Specifically, the agreement requires each member country to provide legal means to prevent unauthorized disclosure of trade secrets that are in a tangible form. Under NAFTA, countries may not limit the duration of protection of trade secrets or discourage or impede the voluntary licensing of trade secrets. This feature of NAFTA, which is a first for any international agreement, should alleviate some of the reluctance to do business because of lack of trade secrets protection. Semiconductor Chips NAFTA also prohibits the copying of semiconductor circuit layouts. This form of protection is important for the multimedia industry in terms of, for example, game systems, in which programs are encoded in hard circuits. Mexico, however, has until January 1998 to implement this prohibition. Multimedia distributors should take note of this delay. The General Agreement on Tariffs and Trade (GATT) The successful conclusion of the GATT Uruguay Round of trade negotiations in December 1993 points to the extension of many of the intellectual property protections found in NAFTA. The GATT negotiations led to an agreement on intellectual property rights--the Agreement on Trade Related Aspects of Intellectual Property Rights, Including Trade in Counterfeit Goods ("TRIPS"). The provisions of TRIPS are for the most part similar to the intellectual property provision of NAFTA. These similarities are by no means coincidental. Both agreements are based on the so-called Dunkel Text, the treaty released by the Uruguay Round of the GATT in December 1991. In some significant respects, however, the intellectual property provision of GATT are weaker than those of NAFTA. The national treatment obligation under NAFTA is stronger and more straightforward than that under TRIPS. This difference has raised fears that countries will allow derogations with respect to new technologies, which will adversely affect U.S. rights holders. In addition, unlike NAFTA, GATT does not explicitly grant complete freedom to copyright owners to transfer their rights. Finally, dates of implementation vary. NAFTA took effect January 1 1994. Under TRIPS, many countries have from one to 11 years to implement the intellectual property provisions. Thus, many of the benefits will not be realized for years to come. But on balance, 1993 was a landmark year for the international protection of intellectual property rights. The multimedia industry, as it pushes the global frontier, is bound to benefit from these changes. They reflect a concerted effort to safeguard creative endeavors and open up new markets. Advances in this industry will require the continued evolution of intellectual property rights at the global level. Stay tuned for continued specific country updates as well as reports on bilateral and multilateral developments. Fran Smallson and Glenn G. Nash specialize in high technology and international law with the law firm of Donahue, Gallagher, Woods & Wood, with offices in Oakland, San Francisco, Mill Valley, and Walnut Creek, California. For additional information , contact Fran Smallson at 415-381- 4161.