The World Trade Organization Suspends United States Intellectual Property Rights in Retaliation for Trade Restrictions Deemed Improper Under the General Agreement on Trade in Services

Geneva, Switzerland – The World Trade Organization (“WTO”) has granted its permission for the twin-island nation of Antigua and Barbuda (“Antigua”) to disregard intellectual property rights granted by the United States (i.e., patents, copyrights and trademarks).  The decision follows nearly ten years of negotiations and litigation pursuant to a 2003 complaint to the WTO by Antigua.

In the United States, there are three separate federal laws (the “Wire Act,” the “Travel Act” and the “Illegal Gambling Business Act”) and various state laws promulgated by Louisiana, Massachusetts, South Dakota and Utah that prohibit certain means of delivering gambling services, most particularly the interstate delivery such services.  The dispute centered on the conformance of these laws with an international trade agreement when the laws restricted online gambling services offered in the U.S. by Antigua.  [NB: Other WTO members participated as complainants but, by 2009, the U.S. had negotiated agreements with each of them.]

Via its attorneys, Antigua alleged that, together, the federal and state restrictions amounted to discrimination against foreign companies and constituted a breach of the United States’ agreement under the WTO’s General Agreement on Trade in Services (“GATS”).  Antigua stated that its economy, which had, without the restrictions, included a substantial volume of online gambling services offered to the residents of the U.S., had been significantly damaged.

The United States argued that it was, in fact, in compliance with the GATS and that the WTO’s interpretation of the GATS did not reflect the original intent of the U.S.  It stated that the broad language allowing foreign companies to provide “other recreational services” should not be interpreted to supersede the U.S.’s longstanding restrictions on interstate gambling under federal law.  It also argued that the regulation of interstate gambling fell within the GATS public morals exception.

In 2004, the WTO issued its first ruling in favor of Antigua.  A series of appeals and negotiations followed.  In 2007, the U.S. initiated an attempt to resolve the dispute by engaging in the WTO process that allows clarification of the agreement.

Later in 2007, an Arbitrator determined that Antigua was impaired by the U.S.’s actions in the amount of $21 million per year and suspended Antigua’s WTO obligations to the United States with the limitation that the suspension could affect trade between the United States and Antigua by no more than $21 million per year.

 On January 28, 2013, the WTO granted a similar “authorization to retaliate” by suspending U.S. intellectual property rights within Antigua up to $21 million per year.  This sanction not only has the effect of harming innocent property holders, it was designed with that goal in mind.

According to Mark Mendel, an attorney for Antigua in this case, this sanction is not designed to compensate Antigua but rather “to pressure the bad government [the United States] domestically.”  Specifically, he says, the retaliation is designed to damage private – and innocent – third parties within the U.S.  This would be done in an attempt to force those private parties to pressure the U.S. government to comply with the GATS as interpreted by the WTO.  Given that ten years of litigation and negotiation have failed, the only way to protect these innocent third parties appears to require the U.S. to change its laws.  If the U.S. does not change its laws or otherwise come into compliance with the GATS, as interpreted by the WTO, the penalty will be borne by a multitude of innocent parties when their private property is taken without payment.

Practice tip #1: The U.S. has successfully negotiated with every country but Antigua in this dispute.  As a result of this failure to reach an agreement that allows the U.S. to keep its laws intact, it appears that the WTO is attempting to force the U.S. to repeal its laws against interstate gambling by legalizing what is all but universally recognized as theft.  This “retaliation” was designed not to compensate Antigua but to punish innocent holders of U.S. intellectual property and thereby cause pressure from those individuals and companies to demand that, in effect, the U.S. cede this portion of its sovereignty to the WTO.

Practice tip #2: Companies should consider proactively registering their .ag domain name(s), as the reach of federal legislation such as the “Anticybersquatting Act,” which is designed to protect company names against improper use as a domain name by another company (or “cybersquatting”), is unclear.

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