United States: International Client Alert - May 4 2005

WOULD YOU LIKE A BUDWEISER WITH YOUR FETA CHEESE?

On March 15, 2005, a panel of the World Trade Organization ruled on the United States’ complaint against the European Union’s scheme for the protection of geographical indicators and designations of origin (hereafter "GIs") for food, beer and other products. Under the regulation, the E.U. set up a registry for recognized GIs. Once a GI was registered on the list, a product could not be labeled with that GI unless it in fact originates from the geographical area designated by the GI.

Many of the registered GIs, such as Prosciutto di Parma (Italy), Jambon de Bayonne (France), Sainte-Nectaire (French Cheese) and Scottish Farmed Salmon, clearly function solely as GIs and were not at the heart of the dispute between the E.U. and the United States. Other registered GIs, however, such as Feta cheese, Asiago cheese and Black Forest Ham are used as generic product identifiers in the United States. In addition a GI for Czech beer, Budìjovické pivo, conflicts with a well-known trademarked beer in the United States, namely Budweiser. (The E.U. regulation prohibits use of translations of the GI, and Budweiser beer is the English equivalent of Budìjovické pivo, the name of the Czech town having been rendered in English by its German-language version Budweiser).

Although concerns about generic product identifiers protected as GIs motivated the United States complaint, the basis for the complaint was a different aspect of the E.U. regulation. Under that regulation, GIs located in a country outside the E.U. could be registered in the E.U. only if the country in which that GI is located adopted a system for GI protection equivalent to the E.U. system and provided reciprocal protection for E.U. registered GIs. The U.S. argued that this reciprocity provision violated the national treatment obligations and most-favored nation obligations under two WTO treaties: the General Agreement on Tariffs and Trade ("GATT") and under the Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRIPS").

The United States argued that the reciprocity provision violated the national treatment obligation of TRIPS. Under a national treatment obligation, a member state must treat a non-national the same way it treats its own nationals and without regard to the protections provided by the non-nationals’ home country or other nations. The E.U. argued that since the regulation at issue was based on the location of the GI and not on the nationality of the person claiming rights under the GI, the regulation was not at odds with the E.U.’s obligations to provide national treatment. The panel rejected the E.U.’s contention stating that in the overwhelming number of cases those parties seeking to invoke protection under a GI would be nationals of the country for which the GI was claimed. Simply put, U.S. corporations and citizens were, in the panel’s view, unlikely to claim protection for products originating from specified geographical regions of France.

The most-favored nation obligations of TRIPS must be accorded "unconditionally." The U.S. argued that this meant the treatment could not be conditioned upon whether the U.S. or other non-E.U. country had implemented a substantially equivalent scheme for the protection of GIs. The panel agreed with this argument.

As to the Budweiser GIs, the United States argued that the E.U. regulation violated Article 16.1 of TRIPS. Under Article 16.1, member states are required to provide that the owner of a registered trademark shall have exclusive rights to prevent all third-parties not having the owner’s consent from using the mark where such use would result in a likelihood of confusion. The United States argued that the GI regulatory scheme provided that rights in a registered GI would prevail over a prior trademark. In essence, the trademark in Budweiser held in various E.U. member states by Anheiser-Busch would be limited by the GI designation for Budìjovické. That would either mean that Anheiser-Busch could not use the Budweiser trademark or that it would be unable to restrain the use of the confusingly similar GI by the Czech brewery.

The E.U. argued that Article 24.5 of TRIPS permitted the "coexistence" of similar GIs and previously registered trademarks. In the E.U.’s view, the GI designation for Budìjovické would not allow the Czech brewery to stop Anheiser-Busch from distributing Budweiser beer. The GI would, however, prevent Budweiser from objecting to the distribution of the Czech beer using the similar GI. The panel rejected this interpretation of Article 24.5 and said that it did not modify the obligation under Article 16.1 to provide an exclusive right to prevent confusing uses.

On March 7, 2005, despite intense lobbying from anti-patent groups, opposition from several national parliaments, maneuvering from the European Parliament and allegations of procedural violations, the Council of the European Union adopted a common position on the Computer Implemented Inventions Directive ("CIID") proposal. The common position mostly follows the original CIID proposal by the European Commission, rejecting the amendments that the European Parliament adopted at its first reading of the CIID.

The CIID is designed to harmonize national laws of the EU states that presently vary widely on conditions of patentability of information technology inventions by providing uniform patent protection to inventions that use computer programs. In addition, the CIID is intended to address perceived competitive challenges in the information technology area from the United States and Japan where software-related inventions have long been held patentable.

Unlike the United States and Japan, which permit patents on software and business methods (such as Amazon.com’s patent on "one-click shopping technology"), the CIID has to comply with the European Patent Convention of 1977, which denies patentability to "software as such." As a result, the CIID proposal distinguishes between different types of inventions. Those whose operation involves the use of a computer program and which make a "technical contribution" – in other words which contribute to the "state of the art" in the technical field concerned – would be eligible for patents under the CIID. Computer programs as such or business methods that employ existing technological ideas and apply them to e-commerce would not be eligible for a patent under the proposal. However, the opponents of the CIID argue that the CIID is poorly drafted and will not prevent patentability of pure software or business methods. In its third year since the CIID was proposed, the fight in Europe over what some call the software patent directive is still not over.

Given that the CIID is decided under the "co-decision" procedure, all three "pillars" of the European Union are involved in the legislative process. Under the co-decision procedure, the European Commission proposes new legislation to both the Parliament and the Council and retains the right to withdraw its proposal at any stage.

The Parliament votes on the proposal in first reading to accept, amend or reject the proposed directive. The Council may then accept the text as voted in the Parliament, in which case the directive enters into force requiring each EU member state to adopt implementing legislation. If the Council disagrees with the Parliament text, it must adopt a common position on the draft directive, which often reflects the original proposal by the Commission.

After the adoption of the common position, the process repeats for one more time; however, this time the Parliament faces a higher hurdle to amend or reject the text of the common position adopted by the Council than it did during the first reading. Rejection or amendment of the common position by the Parliament at the second reading requires absolute majority, in other words, a majority of the total number of the Parliament body, irrespective of absences or abstentions. Moreover, the Parliament must vote within a four-month period after receiving the Council’s decision, otherwise the Council’s text becomes part of the European law. If the Parliament and the Council still cannot agree after the second reading, the Parliament and the Council would then attempt to hammer out a compromise text in a conciliation committee. The resulting text is then forwarded to the Parliament and the Council for adoption at a third reading.

With the clock started by the Council, the Parliament opened hearings on the common position before the influential legal affairs committee (JURI) on April 21. Michel Rocard, the former French prime minister and the Parliament’s draftsperson or "rapporteur" on the CIID, has outlined the two main concerns that EU parliamentarians have with the text of the CIID as adopted by the Council. First, although the Council’s version of the CIID excludes from patentable matter "software as such" to reflect the European Patent Convention of 1977, Mr. Rocard believes that the text is not clear enough to prevent patentability of pure software, which some fear would lead to abuses of the patent system and stifle innovation in the IT industry. Second, the Parliament wants to ensure that the CIID would not prevent uses of a patented technology for purposes of interoperability between different systems. Supporters of the Council’s CIID version claim that the text’s requirement for a computer implemented invention to make "technical contribution" to the art addresses concerns over potential patentability of pure software and business methods. Any further delay with the adoption of the CIID, they insist, would spell irreparable loss of competitiveness for the European IT industry to the United States and Japan.

The European Parliament is likely to vote on its second reading of the CIID in July. Regardless of the weather in Europe, the next several months will be a hot season for European lobbying groups representing the big information technology companies on the one hand and the free software movement and some small to medium IT shops on the other.

In an extensive brief filed in a qui tam case in Alexandria, Virginia, the U.S. Department of Justice argues that contracts awarded by the Coalition Provisional Authority ("CPA") for the reconstruction of Iraq are subject to the False Claims Act, notwithstanding that no U.S. appropriated funds were involved. Thus, according to the Justice Department, knowingly false claims for payment presented to the CPA would violate the False Claims Act ("FCA"), notwithstanding that there are no U.S. Government-origin funds as is typically the case in FCA actions.

When the case was filed by a private whistle-blower alleging false claims for payment, the Government declined to intervene in the dispute. The defendant contractor, Custer Battles, LLC, moved to dismiss the action arguing that: the CPA is not an agency of the United States, and thus, claims under the contract were not presented to the government; and the contracts were not funded with U.S. funds. U.S. District Judge T. S. Elliss III invited the Government to file a brief setting forth the Government’s position with respect to whether the False Claims Act applies to claims presented to the CPA.

Funds used to pay the Custer Battles contracts included the following classes of funds: "Vested Funds" that were Iraqi Government funds confiscated by the United States pursuant to two Executive Orders; "Seized Funds" consisting of Iraqi- or regime-owned cash, funds and securities in Iraq that were found and seized by CPA forces in Iraq in accordance with the laws and usages of war; and "Development Funds for Iraq" ("DFI"), funds held by the Federal Reserve Bank of New York ("FRBNY") on the books of the Central Bank of Iraq. The Justice Department noted that the funding authority for both Vested Funds and Seized Funds originated and came through the U.S. Government. The CPA, as the entity temporarily governing Iraq, controlled the FRBNY account during the period the CPA existed.

Payment methods were determined through individual contracts and were made by electronic fund transfer ("EFT"), check or cash. Vested Funds were paid via all three methods; Seized Funds were paid by check or cash only. Checks were U.S. Treasury checks. DFI funds were disbursed at the direction of CPA designees either by physically shipping currency or electronically wiring transfers.

The CPA entered into two contracts with Custer Battles. The Baghdad International Airport ("BIAP") contract was initiated as a letter contract and later finalized as a firm fixed price contract in the amount of $16.48 million, to be paid from Vested Funds and Seized Funds. The Iraqi Currency Exchange ("ICE") contract was competitively awarded for $6.8 million but later increased to $12.63 million, all to be paid from DFI funds. The ICE contract was later modified to include $3.0 million for additional time and materials, to be paid out of Seized Funds.

The Justice Department noted that the FCA is the government’s major tool for combating fraud against the government. Given the major role that United States officials played in the CPA and the importance of rooting out fraud that may have occurred during the occupation of Iraq, the Justice Department sees the FCA as an important tool that should be available for any false claims presented to the CPA. The brief notes that the FCA requires two elements: presentment to a government officer or employee and a knowingly false claim.

The Justice Department argues that the Vested Funds are funds of the United States and that the President’s Executive Orders assert claims of ownership of certain blocked Iraqi funds. Once the funds were confiscated, all right, title and interest vested in the United States, and no longer belonged to Iraq.

The nature of the Seized Funds differed, according to the Justice Department, since there was no Executive Order vesting ownership of these funds in the United States. Relying on the laws and usages of war, the Justice brief argues that the United States, as the occupying force, may take possession and control over cash that is the property of the occupied state. The Seized Funds remain subject to the control of the occupying force, which the United States has authority to administer and manage. In addition, Justice argues that under international law, including customary international law, international conventions, and United Nations Security Council Resolutions, the United States was an occupying force during times relevant to the litigation and could take possession of cash, funds, and realizable securities which are strictly the property of the occupied state.

Justice recognizes that the DFI funds differ from the other funds, since the DFI funds were never accounted for on the books of the U.S. Treasury, and present a closer question as to whether they were covered by FCA. Justice notes that when Ambassador Bremer was appointed as President Bush’s envoy, he was given the authority to oversee use of U.S. appropriated funds, "as well as Iraqi state- or regime-owned property that is properly under U.S. possession and made available for use in Iraq to assist the Iraqi people and support the recovery of Iraq." Justice reasons that this made the DFI funds similar to the Seized Funds since both were controlled, administered, managed, and disbursed by the United States. Thus, by operation of international law, the United States had certain rights, interests and responsibilities over the DFI funds, and should make no difference that these DFI funds were maintained outside the U.S. Treasury at the FRBNY.

The Justice Department brief concludes that for all the funds, it is clear that Custer Battle’s claims were ultimately presented to " an officer or employee of the United States Government or to a member of the Armed Forces of the United States" satisfying the "presentment" test under the FCA. Defendants’ claims for any of the funds under the two contracts would violate the FCA if the claims are shown to have been knowingly false because those claims were for money or property to be paid out of or provided by the United States. For these reasons, the Justice Department concludes that the Custer Battles’ claims presented to the CPA under the two contracts are subject to False Claims Act. Judge Elliss converted the defendants’ motion to dismiss to a motion for summary judgment. His ruling on the motion and the application of the False Claims Act to Custer Battles’ claims is expected shortly.

On April 15, 2005, the Bureau of Industry and Security ("BIS") fined Medi-Link International $17,500 for failure to keep records of exports from the United States as required by BIS’s rules. The fine was agreed to by Medi-Link in settlement of charging letter sent to Medi-Link by BIS.

The charging letter alleged that between 1999 and 2002, Medi-Link exported, on eight occasions, medical equipment from the United States to Iran without a license from BIS. The exports were alleged to have been done with knowledge that export without a license was a violation of law. The charging letter also alleged that Medi- Link failed to keep required records of these exports.

Even though the charging letter alleged both the illegal exports and the failure to maintain records, the settlement agreement entered into between BIS and Medi-Link imposed fines only for failure to keep adequate records. Although the reason for this is not expressly stated, it seems clear that the absence of export records may have hindered the ability of BIS to substantiate the export charges.

In this regard, it is important for exporters to keep adequate records of all exports, whether or not a license is required for such exports. Section 762.2 of the Export Administration Regulations requires that complete records be kept on all exports and be retained for five years. The original records must be retained (rather than copies) unless the exporter complies with detailed regulations defining acceptable reproductions that may be maintained in the place of originals.

It may well have been the case that Medi-Link’s exports were not as alleged by BIS to Iran, but instead to destinations for which a license was not required. Even so, Medi-Link was still found to be in violation of export regulations because it was unable to provide records that would demonstrate, among other things, the destination of the shipments at issue.

Gone are the days when visitors can travel to the United States confidently with only a passport and valid visa (or expectations to enter under the "Visa Waiver Program"). Many tales of difficulties at the ports of entry are surfacing throughout the United States. It is understandable why additional measures have been implemented due to the US PATRIOT Act and the Homeland Security Act. However, certain difficulties that travelers experience cannot be explained or anticipated by the traveler.

In addition to the enhancement of security measures, the Homeland Security Act reorganized the immigration and customs agencies. As a result, these agencies were combined and then re-divided into various agencies. The Customs officers now working as immigration inspectors at the U.S. ports of entry received minimal training for their new role. For this reason, they are placed on the frontline and perform the initial review of travelers. If they have questions or become confused, they immediately send travelers to secondary inspection, which houses the more experienced immigration officers. This is happening quite frequently, and unfortunately, most people placed in secondary will miss any connecting flights, as secondary inspection could take many hours to clear.

For this reason, it is important that anyone traveling to the United States review their immigration history and/or their purpose of entry to determine whether any potential issues could arise at the port of entry. We recommend that travelers ensure that past visits to the United States were done in accordance with the laws. This may be evidenced by carrying current or expired passports containing entry stamps showing their location on certain dates. If a traveler has previously overstayed even one day, it is likely that they will be denied entry and returned home. Under these circumstances, it will be necessary for the traveler to obtain a waiver and a new visa at the Consulate or Embassy in their own country in advance of any future travel. Thereafter, they should not have a problem with that overstay.

As for nonimmigrant workers, in addition to a valid visa and passport, it is suggested that workers carry with them a recent pay stub, a short current letter from the employer confirming employment and the original approval notice. Other workers who may be in the process of obtaining permanent residency should have an advance parole document for re-entering the United States. Those applicants also holding "H" or "L" visas are permitted to travel internationally and re-enter using their H or L visa. (But again, having the additional documents described above would be prudent.) It is also advisable to have your attorney write a letter indicating the legal authority for any re-entries of workers if they have experienced difficulties in the past.

In our current climate of security concerns and government reorganization, it is vital that travelers and employers take the suggested steps described above to facilitate the international travel of their workers and visitors to the United States.

The International Client Alert is prepared by the International Practice Group of Powell Goldstein LLP as a client service. The information discussed is general in nature and may not apply to your specific situation. Legal advice should be sought before taking action based on the information discussed.