Merchandise Marks Amendment Bill; Patents Amendment Bill: briefing

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE

Merchandise Marks Amendment Bill B63-2002
Patents Amendment Bill B64-2002
Submission from Pharmaceutical Manufacturers Association
Merchandise Marks Act 17 of 1941
Patents Act 57 of 1978
Archive of Committee minutes

Chairperson: Mr R Davis (ANC)

SUMMARY
In its briefing on the amendments to the Patent Act and to the Merchandise Marks Act, the Department of Trade and Industry informed the committee that the Bills would have to be dealt with urgently and expressed a hope that the Bills should be passed before the end of the year. The Portfolio Committee on Sports and Recreation was also present at the meeting in order to hear the briefing relating to the Merchandise Marks Act as this impacts on sport. Hearings will be held next week on the Patents Amendment Bill.

MINUTES
Announcements
The Chair noted that the Committee would also need to adopt an annual report dealing with the work of the committee. He had prepared a report which would be circulated to the members in order to receive their comments. The report would then be formally adopted next week. He added that the committee had received an invitation from Distel, a wine and liquor company, and said that this was based on the idea that the committee would be dealing with the Liquor Bill. Nevertheless, the matter would have to be referred to the Speaker for approval. It would only be necessary to refer the matter to the Speaker if the committee was interested in taking it up and members should indicate this.

The Chair noted that the Merchandise Marks Amendment Bill would overlap with the work of the Portfolio Committee on Sports and Recreation. In that regard, he welcomed the chairperson of that committee, Ms Bengu, and its members to the meeting. The Patents Amendment Bill would overlap with the work of the Portfolio Committee on Health.

The Chair welcomed Ms Astird Ludin, Deputy Director General: Department of Trade and Industry, and stated that she would be taking the committee through the Bills. He noted that they would proactively approach interested parties in relation to the Bills.

The Chair apologized for the absence of the NCOP and explained that they were not able to attend the meeting. He stated that as both Bills on the table were S 75 Bills, the committee would proceed without the NCOP.

Merchandise Marks Amendment Bill
Ms Ludin explained that amendments were introduced to the Merchanise Marks Act in August 2001. However, these amendments did not cover all the aspects of ambush marketing as they dealt only with ambush marketing by association. She gave an example of such marketing by referring to adverts that would relate to the Cricket World Cup although not involved in the event. She stated that it would be possible for companies to indirectly market themselves at the event without having contributed to the event, and referred to this as ambush marketing by intrusion.

Ms Ludin stated that the proposed amendment would seek only to allow such behaviour with the prior approval of the event organizers. She added that this limitation would not be generally available to all events, and explained that the Minister would have the power to designate certain events as falling within the ambit of this rule. She stated that the intention behind the amendment would be to protect the brand name of the event and to encourage sponsorship of the events.

Mr Nechitenji, also from the Department, reiterated the fact that the rule would not apply to all events. He stated that it would be necessary to obtain the discretion of the Minister in declaring events as 'special events'. He added that the Act had defined the term 'protected event' and said that this emphasized the fact that the Minister would not be able to declare all events as 'special events'. He noted that the rule would apply to audio visual marketing as well, and gave the example that SABC would not be able to film and broadcast the event without prior approval. He pointed out that 'intrusion' had been well defined.

Mr Nechitenji explained that a breach of this provision would be a criminal offence and stated that this meant that other governmental departments such as the SAPS, the National Inspectorate, and agencies contracted to enforce the agreement, would be involved in the process. He added that the penalty was stipulated in the Trade Practices Act.

Mr Nechitenji noted that a trademark would include a mark for the purposes of this Act.

Discussion
Mr Turok (ANC) wondered whether the aim could not be fulfilled by regulation.

Mr Nechitenji responded that the problem would be best dealt with through legislation in their view. He noted that intrusion and association were one in the same thing, and stated that the committee had dealt with association in 2001. This meant that only one aspect of ambush marketing had been dealt with by the 2001 amendment bill. He added that although the Minister could issue regulations as an alternative to the passing of legislation, it would be necessary to take caution that he does not usurp the power of Parliament. As such, the adoption of legislation indicated that the department had opted for the more cautious alternative.

Mr Turok explained his concern with the effects of the rule outside the event and said that it would be 'crazy' if the Bill meant that persons could not sell outside on the streets.

The Chair explained that he thought that the main concern was with contracts for individual employers. Thus he wanted clarification on the context of the amendment.

The Chair wanted to know who had called or the amendment, especially in light of the fact that the committee would have to treat the matter with urgency.

Mr Nechitenji responded that the urgency lay in the fact that the World Cup Cricket would be commencing in February 2003. Thus the Bill would have to be treated with the urgency that it deserves.

A committee member wanted to know who was calling for the amendment.

Mr Nechitenji dealt with the questions relating to the motivators for this legislation and explained that the same people that had called for the regulation of ambush marketing by association were behind this initiative, namely the South African Marketing Associates and the United Cricket Board. He added that the World Cricket Cup organizers were also involved. He noted that these bodies had vast experience relating to the organization of such events, and that it was in light of that that the department had chosen to pursue the matter.

Ms Ludin added that the South African Marketing Associates and the United Cricket Board were the prime movers behind the amendment.

It was questioned if sky advertisements would be included in the prohibition.

A member referred to the question of enforceability and gave the example that most of the stadiums for the World Cricket Cup would be surrounded by retailers. In the event that the amendment would be passed, he wanted to know how this would affect businesses surrounding the stadiums. In that regard, he wondered whether the impact of the amendment on ordinary South African citizens had been considered.

Mr Nechitenji responded to the questions relating to the effect and enforcement of the amendment and stated that this concern had been raised when dealing with the 2001 amendment. Nevertheless, he felt that the owner of special events should have the maximum benefit. However, the amendment would make provision for negotiations in terms of which the owners of the events could enter into contractual relationships granting others the opportunity to benefit from the event. He pointed out that the radius of the prohibition had not been stipulated in the amendment and that it would be unlikely for the prohibition to operate beyond the periphery of the location of the event.

Ms Ludin added that the events would be specially designated and that the department did not envisage the designation of many such events. She stated that only major events would fall subject to this rule and that it would be necessary to impress upon the organizers that access would have to be granted to small business.

Ms Bengu (ANC) wanted to know the extent to which other sporting federations had been involved in the process because the Bill would clearly have an impact on them.

Mr Nechitenji stated that other sporting federations had participated in 2001. Nevertheless, although they did not comment this year, he stated that they would be covered by the amendment.

Ms Bengu referred to SMMEs and wondered whether they had been given the chance to respond to the amendment as it would affect their trading in the event area.

A member wanted to know the factors taken into consideration for the declaration of an event as a special event.

Mr Nechitenji explained that the importance of intellectual property would not depend on the size of an event by on the marketing involved.

Mr Frolick (UDM) stated that the small business issue worried her because they would be potentially inhibited.

Mr Turok referred to the definition of a 'sporting event' and stated that it had been too widely drafted. This meant that the net was cast too wide, especially in light of the fact that the desire was for the definition to relate to a big sporting event.

Ms Ludin replied that the amendment would grant the Minister a great deal of discretion. She noted that any event with a national context could potentially relate to the broad public interest. However, the Minister would be granted a great deal of discretion over the matter. She pointed out that this would allow for the development of policy, without intending to result in the designation of many events as special events.

Mr Nechitenji added that other nations sell South African events as intellectual property without resulting in any benefits for the local organizers. He stated that South Africans would take advantage of this amendment if they had the opportunity to. This meant that it would be necessary to ensure that people benefit from their own endeavours. He said that this desire went beyond the scope for sporting events and explained that it was for this reason that the definition had been broadly formulated.

Mr Turok stated that the requirement for contracts with small sellers seemed to be overkill because it would not be likely in any event for them to make large amounts out of the event.

Mr Turok wanted to know whose opinions had been sought over the matter.

Mr Nechitenji said that it was unfortunate that he did not have the submissions made in 2001. Nevertheless, he pointed out that a host of organizations had raised the concern. However, although only the South African Intellectual Property Lawyers commented this year, the views raised in 2002 were used to support the amendments made this year.

Mr Frolick explained that many persons would not be able to afford to enter the event grounds and would thereby resort to trading outside the event grounds. He firmly stated that major events in South Africa should be for the benefit of all South Africans. Thus he wondered why big business was being favoured at the expense of small business.

The Chair stated that the issue was not whether small or big businesses could trade at the events. Rather, the issue related to the promotion of trademarks. He gave an example of association ambush marketing as putting up adverts in support of events that one has not sponsored, and stated that this had already been prohibited. With regards to intrusive marketing, he stated that this related to the promotion of the trade marks of another.

Ms Ludin thanked the Chair for clarifying this position.

The Chair referred to the scope of the amendment and wanted to know whether it would extend to radio and television communications.

Ms September (ANC) pointed out that Intellectual Property Law Society had been consulted, thereby confirming that the amendment was solely concerned with the promotion of trademarks.

Ms September wondered whether the department had looked into the unintended consequences of the amendment.

Mr Nechitenji felt that these would be mitigated by the amendment.

A member referred the committee to the explanatory memorandum in order to indicate the consulted bodies.

Mr Turok suggested the insertion of a clause stipulating that "nothing contained in the Bill prohibits sales outside the event by small trade people" or the "advertising of non-competitive material".

The Chair proposed that the committee hold the idea at this stage as they would not be approving the Bill in this meeting. He noted that he felt that the fact that the committee received the Bill at this stage was far from ideal. Nevertheless, he said that the committee would still have to operate within that confine. He proposed that the committee should meet on Friday 25 October 2002 and that the United Cricket Board should be given the opportunity to comment on that date. He added that the Cricket Players Association would be welcome to come, and that the floor should be open to any other interested parties. The matter would be taken further from that point. He pointed out that the debates would probably surround the unintended consequences relating to the Bill as it would be necessary to avoid intruding into the development of small business.

Patents Amendment Bill
The Chair noted that this Bill would be likely to take the committee further in the direction of public hearings. He referred to Annexure A, a submission from the Pharmaceutical Industry, and noted that the committee would be working with the Portfolio Committee on Health on this Bill.

Ms Ludin explained that as the Patents Act stood at this stage, no-one would be able to conduct any research or to produce any alternatives to a patented product until the patent period expired. This meant that the patented company would effectively have at least 5 to 10 years following the expiration of the product to continue to monopolise the existence of the product. This would be the case because it would then effectively take competitors about 5 to 10 years to produce alternatives, thereby assisting the patented company with regards to research and advancement.

Ms Ludin stated that the amendment would allow for the possibility that research and development into new or alternative products can occur during the period within which the patent runs and before the expiration of the patent. She said that this would be very important for the local industry by providing the opportunity for research and development, increasing competition and consumer choices, and encouraging an increase in the quality of the products through an increase in the incentives for research and development.

Ms Ludin said that the proposal would be in line with international agreements such as the WTO. In addition, the amendment would allow South Africa to follow the initiatives taken in other countries such as the USA, Canada and EU. She noted that South Africa would probably be the first developing country to do so.

Mr Nechitenji added that there was no international best practice to turn to because practices differed worldwide. However, this meant that it would therefore be necessary only to ensure compliance with international agreements. As such, South Africa would have to follow the international trend in its own manner, thereby providing the South African Medicine Council with the opportunity to develop the international best practice.

Mr Nechitenji referred to the text of the amendment. He explained that South Africa joined the Patent Corporation Treaty in 1999 and that this had led to the use of the term 'international patent'. However, he explained that there did not exist an international patent, and said that the matter could be better described by a reference to the international phase and to the national phase. He said that the national phase would occur in situations where the treaty would allow one to designate the country within which the patent would be protected. In this case, the laws of the designated country would apply within the country. The international phase on the other hand would refer to the situation where international law applies to the patent. He explained that as the situation stood, the Act implied that South Africa operated on the international phase. The reality of the situation however was that South Africa operated on the national phase. This meant that the phrase 'national phase' would have to be inserted where applicable.

Mr Nechitenji said that the Registrar would have to possess the power to postpone a case when awaiting the submission of further information. However, this time period would have to be limited to 3 months. He said that they had looked to other jurisdictions in this regard. He noted that should the time period be greater than 3 months, the unintended consequences in the form of backlogs, for instance, would be too great to make the policy sustainable.

Mr Nechitenji referred to the Roche Bolla Rule and explained that the rule derives its name from the plaintiff and the defendant companies within a legal dispute in the USA relating to patents. He informed the committee not to be confused by the name.

Discussion
Ms September wanted to know whether this amendment was in any way connected to the recent pharmaceuticals case.

Ms Ludin responded that the matter was not directly related to that case. However, she explained that the amendment would be a continuation of the broader issues dealt with in the case, those relating to the question whether South Africa should supply generic substances.

The Chair wanted to know whether there would be some process of actually looking at leeway more generally.

Ms Ludin explained that the amendment would be in line with the trips agreement. She pointed out that it would also be necessary to make provision for the public process.

Mr Nechitenji confirmed the statement.

The Chair referred to the process and stated that it was clearly very substantial. As such, he wanted to know the urgency over the matter and questioned whether the Bill would have to be passed before the end of 2002. In this regard, he wanted to know the motivation behind the urgency.

Mr Nechitenji stated that the need to encourage competition was essential as this would result in cheaper prices and a greater transfer of technology in the long run.

A committee member asked if the amendment would inhibit large scientific research studies.

Ms Ludin explained that the amendment would attempt to develop the needs of the large pharmaceutical companies. She stated that patents would usually be granted for a period of 20 years. However, this meant that patented companies would have 20 years to recoup in addition to an indirectly guaranteed 5 to 10 years in the event that research by other companies is prohibited within the 20 year patent period.

Mr Lockey (ANC) referred to the generic version of Neviropine and wondered whether there would not be any means within which it would be possible to compel a company to provide South African companies with the formula.

Mr Nechitenji responded that the question related to the licencing agreements and to the restrictions therein. He stated that it would not be possible to compel a company to act in a certain way with property belonging to the company. As such, the amendment would take care of this situation.

The Chair stated that the committee faced many options in this regard, and referred to compulsory licencing and research in that regard. This meant that the committee would have to identify all options before making a conclusive decision.

The Chair explained that the two Bills would be settled at different times. He pointed out that the pharmaceutical industry had already indicated its desire to speak to the committee. As such, it would be necessary to have public hearings on the Patent Amendment Act in the following week. He noted that although the door would be open for public hearings from other persons, the committee would not be spending any of its budget on inviting submissions. He directed the committee to carefully consider the amendment.

The meeting was adjourned on that note.

Appendix:
BRIEFING NOTES FOR THE PATENTS AND MERCHANDISE MARKS AMENDMENT BILL, 2002

A. PATENTS AMENDMENT BILL
A1 Introduction
The Patents Act, 1978 as it stands, is compliant to the agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS Agreement) and the Patent Co-operation Treaty (PCT) dealing with the international registration of patents. Since South Africa is a member of these international treaties, there is a need to update national legislation, and such an update may involve substantive, procedural and technical adjustments. Certain amendments are required in order to create a conducive and enabling environment for researchers, and innovators to work on a patent, which is still in force. This will inter alia, create competitiveness, technology transfer and access to cheaper and affordable health care medicines or drugs.

Below follows a detailed exposé of each and every clause:

1. Clause 2(xii)
When a person applies for "international patents", there is still a need for these "international applications" to be governed by national legislative requirements of various designated countries. This is referred to as entry of international applications into national phase(s).

Entry into "national phases of international applications" is governed by sections 43B and 43E of the Patents Act and therefore the proposed amendments are clarifying and defining these concepts.

2. Clause 32(b) and (c)
An applicant of a patent may apply for a provisional patent (12 months -provisional protection), and within three months after the twelfth month, an applicant must provide all necessary information (complete specifications) to enable the registrar of patents to grant a complete or final patent. Section 32 as it stands requires that a complete specification must fully describe… the invention… and disclose the best method of performing the invention known to the applicant at the time when the specification is lodged. In terms of section 61(e) a patent may be invalidated if the provisions of section 32 (best mode requirement) are not complied with.

However, article 29(1) of the TRIPS Agreement provides that whenever a member state chooses to include a best mode requirement in its patent legislation, the relevant date for disclosure should either be the filing date or the priority date where such is claimed.

The present wording of sections 32 and 61 are not complying with the wording of article 29(1) of TRIPS Agreement and therefore the recommended amendments are to effect the desired compliance.

3. Clause 43D
When South Africa ratified the PCT, it never renounced sovereignty over the processing of international applications of patents when they enter into a national phase. The current section 43D creates an impression that an international application is processed by the Companies and Intellectual Property Office (CIPRO) before it enters into a national phase. When an international application enters a national phase, it is treated as an ordinary (national) patent application and therefore CIPRO should treat it as such.

The recommended amendment therefore seeks to clarify that CIPRO will process the national phase of an international application.

4. Clause 43E
There are three amendments, which are to be effected in this regard, namely:

4.1 the amendment is necessary to show that compliance with the clause has to be effected within a prescribed period in the regulations;

4.2 that the amendment relate to the designation or election pertains to the Republic which is deemed to be abandoned (not of any other member state); and

4.3 the amendment also wants to empower the registrar to extend the time before or after expiry, but not by a period of more than three months. Some commentators are of the view that a period of three months is too little. This is being proposed after surveying best practices in 115 of the PCT member states.

In view of the above, it is recommended that the proposed amendments be effected.

5. Clause 43F
The amendments concerns inter alia the following:

5.1 insertion of the words "the national phase of" before the words "an international phase";

6. Clauses 45(1), 48(b) and 49(a)
The extent of the recommended amendments is to enable the purchaser of the patented article the right to dispose of or offer to dispose of any such patented article.

7. Clause 45A
Section 45A of the Patents Act as it stands overly protects the patentee or holder of a patent. This is so because no person has a right to conduct an early work on a patent before it expires after 20 years. This practice of excluding even researchers and innovators has an adverse effect to innovation, competition, research and development.

In other jurisdictions such as India, Canada, Australia, certain member states of the European Union, United States, Israel and Jordan, the authorities have legislated in their patent laws that researchers and innovators should be allowed to conduct an early work on a patent which has not yet expired. A proviso is that nobody should commercially compete with the patentee when the patent is still in force.

The advantages from this practices are mainly obvious in pharmaceutical sectors. Immediately when a patent expires, generic companies are able to release their new products into channels of commerce. This also encourages competition, which mostly leads to the lowering of prices.

In this regard South African generic companies are disadvantaged as their competitors from other jurisdictions flood the South African market with new products as soon as a patent expires.

In passing, this practice (Roche-Bolar provision) is practiced differently in different jurisdictions. There is no international best practice in place and therefore "best practices" from foreign jurisdictions should be looked at with circumspection.

If this clause is approved, it means that South African researchers and innovators will have all information relevant for their work. This includes data, which is in the hands of third parties (regulatory bodies), for example, the Medicines Control Council (MCC). This should be so as long as such data or information is not to be used in a commercial competition with the patentee.

In the United States, for example, Roche-Bolar provisions is practiced as follows:

a) Regulatory review

A regulatory body such as the Food and Drug Administration (FDA), an equivalent of the South African MCC, allows generic firms to begin testing, before the expiration of the innovator's patent, without undertaking commercial activities;

b) Patent Term Restoration

The FDA takes a long time to conduct review process on clinical trials. In the main this takes 5 years and therefore the patent period is effectively 15 years. The lost time is compensated and therefore the period of a patent is extended by 5 years.

c) Data protection

The FDA is not allowed to give to third parties commercially valuable and confidential date in the clinical dossier, known as data exclusivity. Third parties are not allowed to directly or indirectly rely on the submitted data.

This exclusive data is protected as an intellectual property and the term of protection is 5 years.

The US has included this practice in bilateral agreement with Jordan.

Australia grants patent restoration provided the review process lasted more than 5 years. Israel allows patent extension limited to 14 years from the first marketing approval in any country belonging to the Paris Convention. The EU provides patent term restoration, through the use of Supplementary Protection Certificates (SPC) as a stand alone measure. SPCs provide an effective patent term of 15 years from the date of first marketing approval. The extension covers only the pharmaceutical product that is the subject of the regulatory process, not the entire scope of the original patent.

Article 39(3) of TRIPS also provides that members shall protect such data against disclosure, except where necessary to protect the public or unless if steps are taken to ensure that the data are protected against unfair commercial use.

It is clear from the above that there is no uniform approach to the Roche-Bolar-style system and each country or jurisdiction will have to take circumstances, which are close to its heart. In this regard it is proposed that the clause be approved as it is. The MCC should start to determine how it is coping with the review process and then determine whether restoration of patent should be considered. Data Protection in South Africa is catered for in many legislation, including the Constitution. Protection of data in this area should be addressed within the intellectual property law reform. All these issues should be addressed within the context of health needs, innovation, research and developmental and competition issues.

Recently, members of the Pharmaceutical Manufacturers' Association of South Africa (PMA) submitted that the Roche-Bolar provisions should be applied as in the US - Annexure A. However, it should be remembered that the amendments in this clause are intended to cover all disciplines of patents, i.e. beyond pharmaceutical and agro-chemical patents. There is no universal application of the Roche-Bolar-type system and it is recommended that the clause be approved.

B. MERCHANDISE MARKS AMENDMENT BILL 2002

B1 Introduction
Ambush marketing by "intrusion" is where a marketer who is not seeking an association or connection with an event, but rather gives his or her own brand or other insignia exposure through the publicity attracted by the event and without the authorization of the event organizer.

A good example of ambush marketing by intrusion is where advertisements for a product are placed inside or outside a stadium where a sponsored event is taking place - without authorization. The ambush marketer's objective is to use the event as a springboard to promote his or her brand or product, but without incurring the financial and other obligations of the sponsor. This suggests that the event organizer would have to enter into contractual arrangements with would-be intruders or they would be committing an offence.

As it may be recalled, in 2001/02 the Department of Trade and Industry (the dti) recommended that ambush marketing by association should be legislated for in the Trade Practices Amendment Act, 2001. Ambush marketing by intrusion is not the same as by association.

Ambush marketing by intrusion makes it possible for the Minister of the dti to enter into negotiation with event organizers with a view of determining whether the event is in the public interest or not. The Minister would consider, inter alia, whether or not the event would empower small, micro and medium enterprises and black empowerment.

1. Clause 1
a) This purports to define what an event is. Some commentators are of the view that the words "over a specified period of time" should be inserted after the words "a series of such happenings". The rationale is that clause 15A(a) contemplates a clearly defined termination period of any event. It is recommended that the insertion be considered;

Some commentators submit that since the role of the organizer of an event is central to the legislation, it (organizer) should be defined - Annexure B. It is recommended that the definition be considered;

b) A mark does not include a trade mark but for the purpose of section 15A, it shall include a trade mark;

c) Protected event has to be designated by the Minister in terms of section 15(A)(1); and

d) Trade mark is as defined in section 15A, and in terms of section 1 of the Trade Marks Act, 1993, and includes a well-known mark as defined in section 35 of the Trade Marks Act;

2. Clause 15A
In the main, it is recommended that section 15A be inserted in Act 17 of 1941. The purpose for such is to enable the Minister to apply his mind in designating an event as a protected event. The riding factor is that the designation should be guided by issues, which are in the public interest.

Any person who contravenes such prohibition shall be guilty of an offence.

Clause 15A(2) also apply to the use of a trade mark in relation to visual representation of such a trade mark as well as to trade marks which are capable of being audibly reproduced.

In view of the above, it is recommended that Clause 15A be approved.