Antigua Gambit: The House Always Wins

U.S. copyright owners have learned recently that they may have lost a bet they hadn’t placed.

As reported elsewhere, the WTO has agreed to allow the twin-island nation of Antigua and Barbuda to set up an online service providing what the US government has called a “government authorized piracy.”

How is this possible?

The story begins a decade ago. In 2003, Antigua and Barbuda filed a WTO complaint against the United States, complaining of restrictions against Antigua’s “cross-border” gambling trade due to US laws regulating online gambling. The WTO panel held that the US laws violated “market access” rules under the General Agreement on Trade in Services. The scope of the violation was narrowed on appeal, but both countries remained in dispute following the panel decision over compliance.

Antigua then requested a compliance panel in 2006. The panel held in favor of Antigua, and upon adoption of the panel report, Antigua began to pursue trade sanctions against the US. However, Antigua felt that ordinary trade sanctions would not be effective because of the disparity in size between the two countries’ economies. Instead, it sought “cross-retaliation” sanctions, a remedy provided under the WTO’s Dispute Settlement Understanding under limited circumstances. Through the WTO, countries may suspend benefits provided by other WTO agreements other than the one at issue to settle trade disputes.

Among these other agreements is TRIPs, an international agreement that governs intellectual property rights. Antigua sought to suspend its obligations under TRIPs; the WTO’s Dispute Settlement Board (DSB) authorized the suspension, though the amount of retaliation was later limited to $21 million per year. The two countries continued to be unable to reach a settlement, leading to the most recent events. Antigua sought to implement its cross-retaliation sanctions, and on Monday the WTO authorized Antigua “to set up a website to sell materials that infringe on U.S. copyrights without paying the American copyright holders.”

While suspension of TRIPs obligations has been pursued previously in two other disputes, up to this point no other country has ever actually applied this type of sanction. Its potential application raises several concerns.

First, it raises a question of fundamental fairness about the appropriateness of punishing an unrelated group for circumstances beyond their control. U.S. copyright owners have found themselves chips in a high-stakes international game with no recourse. In addition, TRIPs obligations implicate many downstream stakeholders -- distributors and licensees, for example -- who rely on stable IP rights to function, so suspension of these obligations would affect many individuals and companies in other sectors and even other countries.

Second, application in this situation seems to run counter to the purpose of cross-retaliation. Since the 1990s, Antigua has set itself up as a safe haven for offshore gambling. Licensing of gambling services make up a significant portion of the country’s revenues. Cross-retaliation as a remedy is, in theory, supposed to provide leverage to smaller, less-developed countries in trade disputes against larger nations. But the Antigua gambling industry is composed of large, international corporations.

Finally, if a settlement is not reached and Antigua moves forward with its plan, there are still unresolved issues regarding implementation. How would the intellectual property be valued, and how will the site be monitored to ensure the sanction is limited to the $21 million per year set by the DSB? And what would be the impact of Antigua’s proposal on international IP agreements not administered by the WTO? These are just a few of the issues that remain up in the air after Monday’s announcement.