The leak of the draft notice from the Trump Administration on the NAFTA renegotiation, which identifies at least 40 issues, will serve as the starting point for discussions once talks begin. Coverage of the U.S. interests has emphasized tariff issues, rules of origin, and tax treatment, but the digital issues should not be overlooked. The U.S. starting position looks a lot like the TPP, which suggests that we already have a very clear understanding of the text that U.S. negotiators will propose. This post unpacks some of the general language to decipher what the U.S. has in mind on intellectual property issues. A second post will review the other digital issues, including privacy and e-commerce rules.

Exceed international standards on IP

 

The key words in this paragraph on “build on the foundations” of several international agreements and IP treaties. This indicates that the U.S. will not be seeking that Canada and Mexico meet international standards, but rather exceed them. This could involve copyright term extension for Canada (to life plus 70 years from the current international standard of life plus 50 years) and digital lock rules that far exceed requirements under the WIPO Internet treaties.

Block Netflix Regulation via Market Access Rules

 

This provision sounds harmless, but the references to fair and non-discriminatory access are likely to lead to demands that Canada re-open the NAFTA culture provisions. The TPP included two exceptions to the typical Canadian carve out of culture from trade deals which are both likely to resurface in NAFTA. The TPP exception stated:

Canada reserves the right to adopt or maintain any measure that affects cultural industries and that has the objective of supporting, directly or indirectly, the creation, development or accessibility of Canadian artistic expression or content, except:

a) discriminatory requirements on services suppliers or investors to make financial contributions for Canadian content development; and 

b) measures restricting the access to on-line foreign audiovisual content. 


The first provision appears to be a permanent ban on a “Netflix tax” or virtually any expansion of Cancon contributions to currently exempt services. In fact, the scope of the provision goes far beyond just online video: the music industry and publishing industry would face similar restrictions. The exception may be limited to “discriminatory” Cancon payment requirements, but currently exempt providers (such as online video services) will argue that any Cancon payments would be discriminatory against them, because they do not enjoy many of the protections and benefits that go to the Canadian companies that make Cancon contributions as part of a regulatory quid pro quo (Netflix raised the concern when it appeared before the CRTC in 2014 and in its submission that was removed from the record).

There are similar concerns with measures restricting access to online foreign audiovisual content. Given its popularity, few would want to restrict access to Netflix (indeed, the opposite is true as many want access to more Netflix). But what if foreign services have unfair advantages over Canadian-based competition? What if a foreign music service (with videos) targets the Canadian market in a manner that raises legal concerns? The provision would seem to block the ability to take action, since new rules may restrict access to foreign content or constitute the discriminatory requirements.

New Border Measures and Seizure Powers

 

Canada significantly changed it border measures and anti-counterfeiting rules several years ago (doing so was a condition of entry into the TPP negotiations), but the U.S. is still seeking further changes to the rules. For example, Article 18.76 of the TPP sought to expand the power of customs officials by granting them the right to initiate border measures without court oversight, even for goods that are in-transit (ie. not destined to stay within the country). The in-transit issue was a major source of U.S. lobbying during the debate over Bill C-8, Canada’s anti-counterfeiting bill. Canada ultimately excluded in-transit shipments from the ambit of the bill with the government arguing that “our government doesn’t believe taxpayers should be on the hook for the cost of seizing counterfeit products that are destined for the United States that do not threaten health or safety.” The U.S. hoped to reverse Bill C-8 through the TPP and seemingly intends to revisit the issue in the NAFTA renegotiation.

The reference to stronger enforcement may also speak to expanded border measures without court oversight. The TPP required Canada to create a system to allow for the detention of goods with “confusingly similar” trademarks, a change that may be replicated in the NAFTA talks. Article 18.76 of the TPP established “special requirements related border measures” which includes allowing for applications to detain suspected confusingly similar trademark goods as well as  procedures for rights holders to suspend the release of those goods.  The required change is striking since Canada just overhauled its rules for border measures under pressure from the U.S. The Canadian approach did not include “confusingly similar” trademark goods, recognizing that such goods are not counterfeit and require border guards (who rarely have legal training) to make exceptionally difficult judgments about whether imported goods violate the law. Canada opposed the extension to confusingly similar trademarks throughout the TPP negotiations, but ultimately caved on the issue.

Expand Criminal Penalties and Damage Awards

 

The criminal penalties requirement would require changes to Canada’s already overbroad digital lock rules, which covers both rights management information and technological protection measures. The TPP required Canada to add criminal liability for rights management violations. This marked a significant change from the 2012 copyright reform package, reflecting U.S. desire for increased criminalization of copyright law. Canada opposed the change during the TPP negotiations, but ultimately caved in the final draft (Canada remained opposed as late as the Hawaii TPP round in August 2015). The draft letter suggests that the U.S. will renew its demand that Canada add criminal penalties to the law.

The reference to criminal penalties may also speak to trade secret law. Article 18.78 of the TPP included requirements for criminal penalties and procedures for trade secret violations. The inclusion of criminal penalties for trade secret violations came directly from lobbying by the U.S. Chamber of Commerce, which made the issue a top priority. Agreement was presumably reached by creating some flexibility for TPP countries. The provision contained a mandate to include penalties for at least one of three forms of trade secret breach involving at least one of five different types of harm (commercial advantage or gain, intent to injure an owner, etc.). The flexibility led some to argue that countries like Canada were already compliant with the bare minimum in the provision given the existence of an economic espionage provision in the Security of Information Act (Canada). Yet with the issue re-opened in NAFTA, the U.S. may be seeking a broader extension of the criminal penalties in such cases.

The reference to strengthening compensation for rights holders may refer to two Canadian issues. Outside of the TPP framework, it may signal a desire to re-examine Canada’s statutory damages rules, which include a cap on non-commercial infringement.  Rights holders are still entitled to seek actual damages, but the U.S. may seek to reverse the 2012 change by requiring uniform statutory damages rules for all infringement.

The reference may also revive demands that Canada create damages for individuals who break digital locks for personal purposes. Section 41.1(3) of the Copyright Act states:

The owner of the copyright in a work, a performer’s performance fixed in a sound recording or a sound recording in respect of which paragraph (1)(a) has been contravened may not elect under section 38.1 to recover statutory damages from an individual who contravened that paragraph only for his or her own private purposes.

This was an important provision during the copyright reform process since it sought to assure concerned Canadians that they would not face the possibility of statutory or significant damages for private circumventions. Since statutory damages are not available for a person that circumvents the digital locks on their DVD collection, the Canadian private purposes circumvention rule could be challenged with U.S. demands that Canada implement new damages requirements for individuals who circumvent a digital lock, even for personal purposes.