Tomme Rosanne Young*
As noted above, it is not possible to provide a full discussion or even a rigorous summary of the principles of contract law. However, many persons within this book’s target audience (persons responsible for negotiating, implementing, overseeing, legislating/regulating or otherwise understanding and acting in ways that relate to and impact ABS contracts), including both national and private sector negotiators, have asked for help in understanding how basic contract law applies in ABS contracts. They have defined a need of to understand how conventional contractual practices are altered by the unique characteristics and the uncertain legal situation of ABS.
Up to now, the response to this need has been limited, often dismissed with a few generic lines:
[t]he essential elements of any contract throughout the world include (i) competent parties able to be bound by the agreement through their representatives; (ii) meeting of the minds regarding the subject of the agreement – the understanding of what will be done or not done; (iii) mutual assent – a voluntary commitment to perform under the agreement; (iv) consideration – an exchange of valuable tangible things, money, promises or rights; (v) enforceability – the promises of the parties must comply with legal requirements.1
From the lawyer’s perspective, this simplification is correct and understandable. A contract lawyer would usually expect parties to obtain specialized help from experts in multinational contracts and relevant law when negotiating a contract that involves more than one national jurisdiction. In ABS, however, this expectation is not always met. Competent international commercial lawyers are costly and have limited time available. It may be difficult for a government official on a limited budget to obtain this kind of assistance, even if he has some funding for it.2
Once an international contract law expert has been hired, however, there is an additional problem. Experts in commercial law and commercial specialties usually do not have experience with or knowledge of ABS.3 Where they need to research a new area, they must invest more time, and this creates an expense that must be borne by their clients. ABS research and writing has not, up to now, addressed or identified the rules, issues and concerns that will allow modern commercial lawyers to apply contract law to ABS, and vice versa.
This Chapter is designed as a first step toward filling this gap. It provides a brief discussion of ‘general principles of contract law,’4 but assumes (and strongly recommends) that the reader will obtain further guidance from other qualified people and informational resources to address these issues. Rather than attempting to mention every contract law issue or component, it looks only at those legal issues which present the clearest initial challenges for ABS,5 which are, broadly: (i) legal certainty; (ii) the functional mechanism of contracts; (iii) the specific requirements and formalities that make a contract legally valid; (iv) the elements that make a contract ‘binding’; (v) contract types and terminology; (vi) assignment and transfers of contracts; (vii) third party rights; and (viii) special issues for international contracts.
The question of ‘legal certainty’ has been raised in the ABS negotiations, primarily as an issue of great concern to the users, seeking assurance that they will be legally authorized to use the resources, after they have complied with PIC and MAT requirements. The issue is of equal importance, however, for providers concerned that they have legal certainty regarding the rights and expectations that they have been promised under the contract.6 Both sides seek legal certainty through contracts (formal, enforceable mutual assurance about the other party's commitments and their own expectations).
The benefits of legal certainty do not depend on courts or legal action. In general a contract will only function if all parties have a ‘meeting of the minds’ about their mutual rights and duties. If the parties have certainty about the contract, they will incur fewer costs, risks and delays to resolve misunderstandings at later stages.
The following brief discussion describes the role of contracts in addressing uncertainty. It then considers the certainties and uncertainties of ABS contracts, and the manner in which contract law can help in addressing them.
In its earliest form, the contractual relationship was very simple – one person sells something he owns to another person willing to pay for it. The money and the item both change hands immediately, after which, the commercial relationship between the two parties is completed and terminated, without any written contract.7 This type of transaction is still found in today's in retail stores and markets, for example.
As commercial relationships, products and concepts became more complicated, however, it became necessary to develop a system that would increase certainty and decrease the chance of misunderstanding over a longer transaction or series of repeated transactions. Written contracts were increasingly needed.
This evolution, however, demonstrates that even written promises may not always be enough to provide legal certainty. To be enforceable – that is, to give the parties certainty that their contracts will be performed – the contract must fit into national and international legal frameworks that apply in case of a violation or other problem. The framework of contract law benefits the parties, even if the contract never comes before a court. By knowing how an impartial judge would view a con-tract's provisions, the parties are better able to write a contracts in which every party is ‘legally certain’ about what is required. This can minimize the chance that the parties will ever need to go to court.
Contract interpretation can never be absolutely certain. No two situations are identical – even if the same parties enter into a series of identical contracts, the two contracts are different in time, and may encounter a new fact, condition or problem that is not addressed in the agreement. The existence of a clear and rigorous legal system helps contract parties and negotiators make reasonable determinations about the interpretation of each provision when new situations arise. Negotiators also rely on the legal certainty of contract law, in estimating the commercial and legal risk that they accept in entering into any contract. Contract certainty cannot eliminate the risk, but it enables companies to make sound commercial decisions.
As discussed in other books in this Series, the ABS regime has in the past suffered from a wide range of uncertainty problems. Some of these uncertainties may be resolved through the international regime,8 but it is not likely that all will be addressed.
Contract law and the contracts themselves offer the primary hope of legal certainty in ABS, especially (i) the impact of ABS on contracts (i.e., how does ABS protect source countries and what does it provide to users?) and (ii) the meaning and nature of the ABS concept and its components (i.e., what are ‘genetic resources’ and how are they included in ABS?) In addition, each transaction may raise its own uncertainties (i.e., how will the contract be enforced, if some of its parties do not feel that ABS requirements have been met?) Many legal aspects of ABS are uncertain.
The following paragraphs describe some of these ABS uncertainties, and the role of ABS contracts in addressing them.
Initially, the main legal uncertainties in ABS were raised by users whose concerns focused on national provider-side ABS law. Some users noted that compliance with these laws often does not provide legal certainty about the genetic resources. Users who make no attempt to comply with ABS requirements are sometimes in a better position, both financially and practically, than those who do comply. Delays caused by long administrative processes are both costly and may lead to a competitive disadvantage. In addition, some users think that complying with national ABS processes and public participation increase the chance that they will be singled out for negative action or bad press.9
Legal certainty is also a concern of source countries and other providers, as well. They are concerned that (i) there is no legal basis for enforcing ABS rights once the genetic resources are taken to a user country; and (ii) many who utilize genetic resources may not get permission from the source country.
To date, proposals for legal certainty in ABS focus on alleviating impacts rather than addressing the causes of uncertainty. Users call on source countries to streamline and/or relax their requirements and to give positive political support to users.10 On the other hand, source countries seek to limit physical access to genetic resources and to control collection. They have tried to do this by imposing more intensive legal requirements – the opposite of streamlining.11 The result is an un-winnable debate between the advocates of increased ABS legal protection (to enhance legal certainty) and opponents claiming that legal measures actually diminish legal certainty.
One root of the problem is the fact that few countries have adopted any ABS measures and of those, only one (Japan) has adopted any measures address the ‘user side’ of ABS (although not expressed as binding law.)12 The lack of user-side measures creates a contractual imbalance. If the law is available and applicable only for one half of the contract with the other half unregulated, then the purpose of the entire contract (to give both sides legal certainty about their rights and obligations) is eliminated. A contract that is unenforceable in the user country is, at best, a general statement of ‘good faith’ – that responsible users will comply with its terms and conditions; but if they do not, the provider has no formal recourse.
Another contractual uncertainty in ABS arises from the fact that few countries have adopted any legal provisions or precedents integrating ABS with national contract law. Most countries, for example, apply different laws to different categories of contract. For example, many countries apply one set of laws to ‘commercial’ contracts and enterprises and a separate set to ‘civil’ contracts and enterprises.13 To date, no country has specifically determined which set of rules apply to ABS contracts. Similarly, the laws governing property and property-related contracts can only be applied if you know what type of property ‘genetic resources’ are. At present, one cannot be certain in any country whether genetic resources are governed by the law of ‘real property’ (land), movable property, severable property (crops, timber, etc.) intellectual property, common property, intangible property or national patrimony/government property.
Even after these basic classifications are settled, it will be necessary to determine how the special nature of the ‘ABS contract’ will be reflected in law. Article 15 seems to expect that ABS contracts will receive special consideration (sometimes called ‘user measures’) in foreign countries that are CBD Parties. For such measures to apply, however, it must be possible to distinguish an ABS contract from any other contracts. As noted in Chapter 3, many contracts carefully avoid calling themselves ‘ABS contracts’ or making any reference to ABS terminology. It will be necessary to develop some basic system enabling countries that have adopted user measures to identify ‘ABS contracts’.14
In light of the number and complexity of these deficiencies, it appears that the best (and perhaps only) way to create a reasonable legally certain system will be contractual. The contract (and contract law) must provide reciprocal, legally recognized and functional mechanisms, enforceable in every country in which the genetic resources will be collected, held or used.15
From a legal perspective, the ABS regime is not yet functional. The ABS provisions in the CBD are written as policy objectives. They do not contain the kind of specific and focused legal language that the courts need in order to function. Clearer descriptions are needed in order to create a functional ABS commercial process. Concepts found in the Convention, such as
‘access to genetic resources’;
‘benefits arising from utilization of genetic resources’;
‘country of origin’;
‘country providing genetic resources’;
‘genetic resources’; and
‘utilisation of genetic resources’
are not precisely explained or agreed. Even where there are CBD definitions (genetic resources, country providing genetic resources), those definitions are imprecise and ambiguous. They do not contain the kind of descriptions and explanations that a court or arbitrator would need to enable them to apply the law. Other concepts that used in ABS discussions and laws, such as ‘derivative,’ ‘misappropriation,’ and ‘non-commercial research’ are also unclear in the Convention and were not agreed within the original CBD negotiations. This book will not discuss the issue of ABS regime definitions,16 or the various proposals for addressing them. The following paragraphs will instead briefly consider how these uncertainties affect (and can be affected by) ABS contracts.
A court, arbitrator or agency can interpret, apply, or enforce an ‘ABS contract’ only if that contract is legally ‘unambiguous’ – that is, if its terms are clearly stated and there are clear laws on any points on which the contract was silent. Courts17 normally resolve conceptual disputes and ambiguities first by examining the specific language of the contract. Where a contract use legal terms without defining them or with ambiguous definitions, the courts can either declare the contract to be ‘invalid’ or use other sources of guidance to resolve the ambiguity. These possibilities create legal uncertainty that affects the contract from the earliest negotiations. If there is legal uncertainty about how the contract will be interpreted (what will be required), the Parties may be unable to assess its commercial, legal and practical risks or those of any particular provision(s) of the contract.
In many countries, the courts have many options (discussed in later sections of this chapter) for resolving ambiguities and uncertainties in the contract. They may determine that the contract is not valid and release the parties from responsibility, where that is the fairest option. In other cases, the court may turn to other national law (contract law and caselaw) and pre-contract negotiations to help clarify the meaning of particular provisions. Many countries' national contract law defines basic contractual and commercial terms and concepts. Those definitions will usually apply only where either (i) the parties specifically agree to adopt them, or (ii) the contract is silent (or ambiguous) on the term or concept. This important tool is generally not available yet as to ABS terms and concepts. It is important for the contract to be clear and unambiguous as to the issues and definitions mentioned above, as well as the precise obligations and rights of the parties.
In some situations, a court or arbitrator will also have the power to review evidence and testimony about the negotiations, in order to understand what the Parties believed and intended at the time they entered into the contract. At law, there are normally legal limits on the court's legal ability to receive and consider this type of evidence.
Where the user obtains physical specimens from ex-situ collections or other locations outside of their ‘country of origin,’ other questions arise.18 Different countries have very different views about whether and how benefit-sharing applies to collections in ‘intermediate countries’ (as defined in this book) in addition to or in lieu of the original source country.19
A third ABS uncertainty arises from uncertainty about when an ‘ABS contract’ is needed, and when a conventional contract for material transfer is sufficient. If an ABS contract is legally required, but a conventional contract is used (without reference to ABS), then other questions arise:
Does ABS law apply to that transaction?
What rules apply to later transfers of the material to a party who uses its genetic resources?20
To avoid unintended violation, it is important to ensure that the contract (i) fully complies with relevant ABS requirements, and (ii) states exactly which rights the user has obtained.
Contract law is not a solution to all legal problems and commercial needs. The contract mechanism is non-coercive – that is, nobody is ever required to enter into a contract. Hence, by itself, it cannot be used to require any behavior or action. It is very useful, however, in situations in which a person wants to voluntarily bind himself to specific commitments. Once a contract is formalized, however, its parties intend to be legally bound to commitments, limits and responsibilities contained in the document. This suggests that a contract-based mechanism is only one part of the legal regime that would ensure that genetic-resource users comply with ABS requirements.
Such a regime must be driven by the reasons that a person would choose to enter a binding contract. In creating a conventional contract and in analyzing the use of such contracts, one need not normally ask
‘What causes a person to enter into a contract?’
because the answer is obvious.21 The ABS regime, however, seeks to apply contract law in a way that drastically alters the forces that cause contracts to function. Thus, for ABS contract analysis, it is necessary to consider the three basic forces that make the contract system work: (i) control, (ii) motivation and (iii) value.22 The next sections examine those forces, and the nature of their impact on ABS.
If a party can legally get what he wants without a contract, he will generally prefer to do so. The question of control focuses on whether a person or company has control over the specific property, services, collaboration or other rights that are the subject of the contract (such property, services and rights are called the ‘res’ of the contract).
In normal contractual circumstances, legal control over the res is clear: A contract is necessary where one person wants to use or acquire a specific res and that res belongs to another or is under his (exclusive) control.23 If you want a res which is owned by another party, you must either get permission (a contract) from that party or find another source. Once a valid contract exists, it creates mutual types of control. The parties must either comply with the contract or agree to terminate it. Either party will be liable for remedies, penalties and other claims if he fails to comply.24
There are some commodities (air, airwaves, sunshine, etc.) that are not under any person's legal control – they are free for the taking. These can sometimes be converted into private, sellable property either by individual action (a shop which fills air tanks for divers) or by governmental action (laws which require a permit in order to use particular television- or radio-broadcast frequencies.)
Overall, ‘control’ in contract law can be expressed by a simple question:
‘Does someone or some person or agency have legal control over this res?’
The answers to this question differ, depending on what kind of res is involved. It is possible to identify several categories of property, based on how they are controlled. Although this is a complicated discussion,25 a simple summary of these categories can be provided. Property may be:
(i) un-owned, but ownable (e.g. the natural sources of freshwater);
(ii) un-ownable (e.g., sunshine (in most cases));
(iii) national patrimony;
(v) owned by possession (e.g., most kinds of movable personal property); and
(vi) owned by documentation (e.g. shares in companies, cars, land), etc.
The rules that govern ownership, control and transfer of any property will vary depending on which category of property is involved. This is difficult in the ABS context, because it is not clear which category applies to ABS.
The ABS system is based on the assumption that genetic resources can be transferred by contract. If this is true, then genetic resources must be a kind of property that is ownable and under the control of a country, community, person or entity that has the power to enter into ABS contracts. This in turn means that one who proposes to use a specific genetic resource must be able to answer the question ‘who controls this genetic resource?’
The contract is valid only when the party who is transferring the resource has legal control of it. It is difficult to know this, in light of the nature of genetic resources. Every specimen of a species possesses some genetic material that is common to all members of species, and other genetic material that is shared only with a smaller group of specimens or perhaps unique to that individual. Even when the specimen is individually owned, each of its shared genetic resources is owned by many different owners, communities or countries. There may be thousands of individuals who separately own the identical genetic resource. This range of possibilities continues to expand the more one thinks about it. For example, a particular gene-linked characteristic may be shared among all varieties his species, or even among other species within the same taxonomic genus or family. Other examples from real-life situations are equally difficult. Recently, for example, users that have identified specific genetic resources from enzymes found in dung samples, and have claimed that any person legally in possession of dung containing the enzyme has a right to the enzyme's genetic resources regardless of the source of the dung.26 This leads to the ‘paradox’ in Chapter 1 and increases contractual uncertainty.
A related problem in ABS is the prevalent belief that a country or community can control genetic resources or traditional knowledge – i.e., prevent anyone from obtaining samples. It may be unreasonable to expect any government to prevent access, given that there may be thousands, millions or billions of samples of each subspecies in existence. There is little chance that any country can physically prevent a user from obtaining one or more specimens. Once the user has obtained biological specimens, there is even less chance that the user or provider can prevent the specimen collector from removing testing or other use of that material.
Strict control of genetic resources may be technically impossible. Each country would have to catalogue specific genetic samples of every genetic resource within their country.27 If that database were available, it could only be used to enforce ABS if (i) all national databases are interlinked, (ii) every contract granting genetic resources is recorded in that database, and (iii) the country can obtain a sample every sample being researched, every product or every other use of genetic resources. It must test and compare to the database to determine the source of genetic material or information.
The same is true of traditional knowledge, which is often held by more than one individual, and transferred through rituals or practices. It may be unreasonable to try to ‘control’ such knowledge – that is, to prevent other persons from being aware of it, or obtaining descriptions or accounts of it.
Rather than controlling them, it seems easier, legally and practically, to develop a system for controlling the right to utilize genetic resources or traditional knowl-edge.28 Attempts at controlling samples or knowledge have been relatively unsuccessful and are usually dependent on whether the holder of the protected species, genetic resources or knowledge has enough money and other support to enforce the controls himself.29
In addition to IPRs, there are many other potentially applicable examples of legal systems to control rights of use. For example, many countries control rights to the ‘airwaves.’ Although the physical right to control the airwaves does not exist, the legal right has been created. A particular company obtains a license to broadcast television, radio or other signals on a particular frequency, for example. The licensing agency has the absolute ability to oversee those who are using the airwaves. Most important, violations of this control are easy to identify – ‘misappropriation of the airwaves’ will always be observable by any person with a radio, television or other receiver tuned to the controlled frequency.
This kind of observability is not normally possible in ABS situations. It is virtually impossible for the provider or source of genetic resources to know when and how they have been utilized. A user may have dozens of ways to obtain samples of the physical material that are outside of the source country's oversight. Once he obtains the physical material, his research and development activities will happen away from scrutiny, in a laboratory which may be private property, and in a commercial situation which focuses significant attention on maintaining confidentiality and protecting ongoing research and other trade secrets. When a product is produced, it may be impossible for anyone to determine the actual source of all materials used in the final product or in the processes that produced it. The lack of physical control over the resources is clearly one way in which ABS contracts are different from other types of contracts.
Another force necessary to the functionality of the commercial contract system is motivation. In essence, the motivation issue asks
When does the motivation to take on contractual responsibilities outweigh the limitations imposed by the contract?
Motivation to enter a contract is usually commercial, based on all options, including the no-contract option. Since it is usually not possible to tightly control the collection of biological samples, importance of motivation may be critical to making ABS work.
The simplest motivation is need. If the res is controlled by some person or entity, and another party needs that res for some important purpose, a contract will be his only solution. Consider, for example, a builder who has promised to build a house of wood and stone: to do this, he needs wood, stone and other building materials and supplies. If they are owned or ownable, the builder must either get either a resource contract (direct permission to cut trees in the forest, and quarry stone in the mountains), or a purchase contract with someone who already possesses lumber and quarried stone. There are many secondary kinds of motivation. The builder may have committed to a particular type or quality of lumber, for example. The choice between suppliers may be based on legal requirements, where the law limits importation or use of wood from certain species. Motivation may also derive from quality concerns, where some types of materials are known to be better, more lasting, or otherwise higher in quality.
In ABS, the normal motivation to enter into a contract is need. It may be diminished by the ABS uncertainty problems described above – one can obtain specimens of nearly any species,30 or of traditional knowledge without going to the source country's government. Hence, he may feel no incentive to enter an ABS contract.
ABS is expected to rely on another motivation – social responsibility. This kind of motivation is parallel to modern social-responsibility certification, such as where the ultimate buyers desire a product that is certified or labeled to meet social or environmental standards.31 A difficulty for ABS, however, is the fact that ABS and genetic resource issues are not matters of general interest or awareness among consumers. Even in industries that utilize genetic resources, few people understand ABS or know why they should care about it.32 Discussions of ABS are rare and opinions range from support to open opposition. Even if the world unites in support of ABS, it would be impossible for a consumer or commercial user to know whether a particular item was created using ‘genetic resources’ and where those resources came from.
It may be impossible to create a verifiable ‘ABS label’; however, efforts are underway to integrate ABS compliance into other ethical labeling standards. Work in the BioTrade initiative,33 for example, seeks to identify a range of good sourcing practices for products from developing countries and communities, with the hope that these can be integrated into existing social/environmental/ethical certification systems such as FairTrade and the Forest Stewardship Council. These efforts are ultimately expected to go a step further, identifying standards of good practice for companies that engage in direct contracts for biological materials in developing countries.
With the question of ‘control’ already doubtful, the primary motivations for entering into an ABS contract are (i) compliance with source-country law and (ii) encouragement from the user's own country. In general, neither of these motivations is currently strong. Many users have simply stated that they will avoid ABS, by acquiring all resources (no matter what origin) from persons and entities outside of the specimen's country of origin – i.e., from middlemen.34
Consequently, it seems very important for the ABS regime to focus on developing commercial motivation mechanisms, which inspire users to participate in ABS contracts. There are many pathways for the creation of commercial motivation where none exists. ‘Legal and commercial incentives’ may be developed, by user countries or in other ways, to encourage ABS compliance.35
Value serves as a motivation of a contract in a very clear way. The parties to a contract must value what they are receiving more than what they are giving. For this purpose, ‘value’ is far more than just financial return. Other kinds of value include public opinion, future expectations, competitive advantage and access to specialized markets. The existence of the contract itself may have value, for example, where public awareness of the contract creates a basis for improved public relations.
Value motivations in the ABS system have been explored intensively. Analysts presume that value is the primary factor in determining whether an ABS contract will be negotiated and with whom. To date, however, most of the discussions of value in ABS focus on the value of specific genetic resources, especially the ‘use value’ of those resources, and the value of benefit-sharing received by countries and other providers to date. In both cases, these studies claim that value information suggests that ABS is not needed or cannot provide enough value to be worth the effort of creating the ABS regime.
There are many other potential sources of value or value enhancement in most material contracts that are not always present in ABS. One of these is the value of long-term prospects (i.e., transactions that involves or creates a continuing supplier relationship.) In some (but not all) ABS situations, however, users seek to synthesize or otherwise replicate the genetic or biochemical properties of the original samples, after which no additional natural material will be needed. Product development in some sectors may take decades, however, and in some cases require multiple re-sourcing of the original genetic material.36
ABS discussions have raised financial issues in another context as well – the costs of agency and other processes under ABS. Source countries sometimes impose time-consuming and expensive administrative processes on applications for ABS contracts. Many ABS commentators claim that high transaction costs have a serious negative impact on the value they receive and are perverse incentive to ABS contracts, perhaps even encouraging the user to avoid ABS compliance. At minimum, a user who feels that the ‘transaction costs’ are too high, may refrain from negotiations with the country, and or seek to fill his need elsewhere.
The reasonableness of administrative costs, however, must also be determined from the perspective of the source country, which may not be able to achieve other necessary objectives (e.g., protection against misappropriation) in any other way. To them the value of administrative protections must be calculated by considering the value of the interests protected, rather than by looking at the use value of the resources in the hands of the user.
Many of the normal factors which induce parties to enter binding and enforceable contracts are not strongly present in the ABS context. Hence, ABS contracts sometimes do not function in the same way as other commercial contracts. The negotiators, parties, courts, arbitrators, mediators, and supervisory bodies dealing with ABS contracts may find it difficult, impractical or unfair to automatically apply normal contractual rationales and expectations to ABS Contracts.
At the same time, many parties to ABS contracts (reasonably) expect that an ABS contract will offer the level of legal certainty regarding the rights obtained and ensuring that those rights are legally final and cannot be overturned.37 It is essential, therefore, to build a body of ‘general practice’ in ABS, which can provide a basis for creation, operation and enforcement of ABS contracts. This book assumes that the goal for ABS contracts is to function as much like other contracts as possible, while ensuring that access is fairly granted and benefits are equitably shared.
Legally, the first milestone in contract creation is ‘validity’ – whether the parties have formed a legal contract or merely a statement of intent.38 This determination rests on four legal principles:
the contractual law governing ‘validity’;
special legal exceptions that protect parties who ‘relied’ on the document (whether or not it was a contract);
the ‘contractual formalities’ and their underlying purpose; and
the designation of ‘governing law’ under the contract.
In ABS, these questions are particularly important because (i) all ABS contracts have ‘transborder’ impacts (every ABS contract involves at least two different countries); (ii) the basic functions and interpretation of ABS contracts are not well established and are ambiguous in some respects; and (iii) the provider (or some of the providers) may be traditional or rural communities or individuals.
In general, a contract is ‘valid’ when it is recognized as a legal instrument by the courts and other legal processes. It is the first step in determining whether the contract's provisions are ‘binding’ or ‘enforceable’ (2.4, below). There are up to four ‘threshold’ elements of validity.’ Specifically, validity requires that both parties
had the legal control over the res of the contract;
were legally competent when they entered into the contract;
did not defraud or deceive the other (and met their legal duties to disclose relevant information);
complied with any relevant statutes to protect some types of parties (e.g., consumers, children and communities with fewer resources)
satisfied the rules governing special types of contracts (e.g., property transfers, credit contracts, etc.) have been complied with.
The basic rules and their application are summarized below.
The ‘legal authority’ element is based on the simple rule is that one may not sell something that does not belong to him (e.g., a person who contracts to sell you the Great Pyramid of Giza is not offering a valid contract). A complication of this rule, however, notes that it is possible to enter into a contract to sell property in future, where the ‘seller’ intends to acquire the property from its current owner and then sell it to the buyer. If that contract is not fulfilled, the would-be buyer's rights are only against this would-be seller – not against the actual owner of the property.
In ABS contracts, there are two legal authority questions:
Who is granting rights to genetic resources? and On what is the basis did he obtain his right to grant them?
These ABS questions arise in a number of ways.39 Some case studies have reported that users have executed ABS contracts where the providers did not have the formal right to grant access to genetic resources.40 Each country can exercise its sovereign right under the Article 15 only by first determining which person or agency will be authorised to grant ABS rights.41 If someone without this authority, even a government official, enters into an ABS contract, that contract is probably invalid.
In some cases, legal authority problems still arise when the legally authorized person or agency signs the ABS contract. This occurs when other persons, NGOs or communities challenge the government's decision. Recently, some local and traditional communities and others have filed challenges, claiming that the contract does not comply with basic principles of national law (e.g., constitutional law, human rights, indigenous rights, community rights, civil rights). They claim that the government exceeded its legal authority in granting the ABS contract (e.g., through faulty public comment processes.)
Another type of legal authority problem relates to ‘representative authority.’ ABS decisions are sometimes legally justified by the consent/approval of a single person or a selected group (sometimes acting on behalf of the wider community). This approach presents a new legal authority question – did the person(s) signing or granting the contract have authority to act on behalf of the other providers? This question can only be answered by knowing both (i) who ‘owns’ the genetic resources at law and (ii) what requirements give a particular representative the right to act in a way that affects all owners?42
If the ABS contract is found to be legally invalid, the would-be user finds himself in a difficult position. He may have entered property, collected samples and/or taken other action in reliance on that invalid contract. If so, he might be legally liable to the true owner of the property for an amount that is difficult to determine fairly.43
Contract law requires the buyer to ensure that he is dealing with an authorized person (obtain certificates or other proof of legal authority, etc.) For conventional contracts, the law provides many ways of verifying own-ership.44 No such verification system is currently possible for genetic resources, leaving users with an unassessable risk that his ABS contract will be invalid.45
‘Legal capacity’ or ‘competence’ is fairly straightforward. For example, a contract signed by a child or a person suffering from mental illness is normally not valid due to lack of competence. Other situations, such as fraud or deceit, have the effect of converting a competent party into an incapacitated one (he is effectively rendered incompetent to make a rational decision.) A contract cannot be valid if one party lacks legal capacity.
Capacity questions, however, do not eliminate the need for both parties to ‘do their homework’. Contract law requires each party to make reasonable efforts to understand and protect his own legal interests. This concept is called ‘due diligence.’ If a party does not exert due diligence in its own behalf, he cannot protect himself, in case the contract fails or the other party violates it.
Questions of legal competence can arise in ABS, where the providers are rural communities or individuals without access to legal or professional advice (on international commercial law, for example). Work is ongoing to develop international standards of good practice in sourcing materials from indigenous communities.46 The standard developers are considering whether a user who seeks to obtain biological or genetic resources directly from a rural or indigenous community has a duty to that community. These users may attempt to meet their ‘informed consent’ duty by providing competent external advisors who can help the community to protect its rights and interests.
This issue has also (less specifically) been raised in the Bonn Guidelines, which note that ‘the involvement of relevant stakeholders should be promoted by providing information, especially regarding ... legal advice, in order for them to be able to participate effectively.’47 Although the Guidelines do not clearly call on users to pay for these services, that is implied by the phrasing which indicates that the ‘relevant stakeholders’ will be ‘provided’ with this information, rather than having to obtain it themselves. In addition, the guidelines suggest that ‘the stakeholders involved in access to genetic resources and benefit-sharing may wish to seek the support of a mediator or facilitator when negotiating mutually agreed terms.’48
In all cases, the goal is to ensure that the user who complies will be protected against claims that the providers did not have a full understanding of what they were signing and/or what their options were. This standard places a special burden on the user, however. He must locate and provide a neutral expert, knowledgeable in a combination of complex expertises (international commercial law, law of the provider country, contract negotiation, genetic resources law and, IPRs.) If that advisor is not competent to understand, explain and protect the providers' rights, the user will be responsible for any losses suffered due to the expert's lack of competence.
Fraud and/or misrepresentation can invalidate a contract, where it causes the defrauded party to be legally incompetent – ‘blinded’ by the deceitful statements – at the time of signing. This deception may effect either
intentional (one party lying to the other about the res, the rights that are granted, the meaning of various provisions in the contract, etc.); or
unintentional (one party, without actually checking, making well intentioned but uninformed statements that are incorrect.)
In cases of deception, the legal result depends on whether the person intended to defraud or to give a false or unconfirmed impression. In some kinds of contracts, the duty goes still further. Each party may have a contractual obligation to provide ‘full and fair disclosure’ of relevant facts which are in his control or knowledge, and are necessary in order for the other party to make a rational decision about whether and how to enter into the contract.49 Legally, it is sometimes difficult to determine which facts are ‘relevant’ and which information is not a ‘fact’. It would be unfair, for example, to expect one party disclose its negotiating strategies (or highest prices, points on which they will ‘be flexible’, special inducements they are prepared to offer, etc.) to the other. Similarly, the law does not require either party to tell the other all of its trade secrets. The laws stating which types of facts must be disclosed differ widely from country to country. If a party fails to disclose such a fact (whether intentionally or unintentionally), the contract may be invalidated.50
Concepts of honesty and disclosure are ingrained in ABS through PIC and MAT. The word ‘informed’ in the ‘prior informed consent’ is the key to the disclosure concept. Similarly, no agreement can be ‘mutual’ where one party has been deceived on a material fact. PIC and MAT recognize the informational needs of ABS parties, which are magnified by the fact that the subject matter is very technical across two basically unrelated fields – science/technology and law/policy.
ABS disclosure discussions sometimes assume that the user must tell the provider whatever he knows about (i) the genetic resource, (ii) the user's intended activities, and (iii) the value of the resources.51 If they were subject to such a broadly phrased disclosure requirement, most companies would be unwilling to seek any more ABS contracts.
In commercial bioprospecting, companies may view many kinds of information to be ‘trade secrets’ – of great value only so long as they are kept secret from the company's competitors. Even basic information about the locality of sample collection and the species (or genus or family) being collected may convey hints that allow competitors to gain advantage.52 If also required to identify the characteristics being studied and research processes undertaken, company secrets can easily be lost.
Some countries have adopted special legal procedures for protecting ‘trade secrets’ that are reported to the government. For example, some laws allow an applicant company whose application or report contains ‘trade secrets’ to specifically identify those secrets. If the company complies with certain procedures, the government promises to keep that information secret.53
In ABS, there is a basic overlap between ‘trade secret’ laws (which focus on protecting commercially valuable secrets) and public participation requirements (which focus on maximizing public access to information relevant to their rights in the genetic resources.) These potentially conflicting legal objectives create uncertainties and doubts about whether and how trade-secret protections, which are commercially necessary to many companies and researchers, can function in the ABS regime. While these protections are important, PIC and MAT are designed to provide another important element – open information. Its goals are (i) to ensure that providers have sufficient information to know what constitutes ‘adequate value’ in exchange for their genetic resources; (ii) to enable government officials in ABS transactions to meet their fiduciary duty to promote the best interests of the country and its citizens; and (iii) to provide information needed to determine what those best interests are. In addition, in most countries, the government is required to maintain a level of transparency that allows members of the civil society to serve as ‘watchdogs’ of the manner in which the government sells or transfers rights in the country's genetic resources (i.e., to confirm that the transaction is fair and that the price and terms are appropriate.) Moreover, in some countries, the ‘provider’ of genetic resources may be an individual or community. Such persons are not part of the government and would not be bound by statutory trade-secret protections, if they receive confidential information under PIC.
In sum, a country or other provider can determine what is ‘fair value’ in ABS, only by knowing in detail what the genetic resources are and why they are valuable. There is no legal way to ensure that this information is kept confidential, particularly where it is shared through public participation. Although recipients of the information may promise to maintain confidentiality, such a promise may have limited value. Many persons will make a serious effort to keep the information secret, but that may not prevent all (intentional and unintentional) leaks, which eliminate the value of their efforts.54 If one thousand people know a secret and 999 keep it confidential, the ‘trade secret’ will still be irretrievably lost when the remaining person exposes it. ABS contracts and relevant law must tread a fine line between maximizing disclosure (to protect providers) and minimizing exposure of trade secrets. Without this balance, users may refuse to participate in ABS contracts.
Other types of laws may also affect the validity of a contract. For example, many countries impose special rules for contracts for the sale of land, for transfers of shares in companies, for time-payment transactions55 or for other kinds of transactions.56 Many countries specially restrict all contracts by which a private person or entity seeks to obtain ownership or other exclusive rights in State property (i.e., ‘national patrimony’, ‘crown lands’, sovereign lands, etc.)57
If ABS contracts are governed by any of these laws58, then they must meet their special requirements. Thus, each country must determine what kind of property genetic resources are, whether they can be governed by existing contract and property law, or whether new or revised contract and property laws are needed. For ABS, these provisions create two types of problems: of awareness, and of compliance. Awareness problems arise because many potential users assume that the only law that they must comply with is the ‘national ABS law’ (if any.)59 In many countries, neither users nor providers understand or seek help with the large body of national law (contract law, property law, commercial law, consumer protection, etc) which legally applies to all contracts. For ABS to become a commercially functional system, ABS contracts must be formally integrated with these non-ABS provisions in the negotiations.60
It is important to remember that these laws serve vital social, commercial and governmental issues and purposes. It is tempting to simply state, within ABS law or the contract, that various laws and restrictions do not apply to ABS; however, in order to do that, it may be necessary for ABS law to adopt provisions that address those other issues and purposes.
Presently, existing national ABS-laws are relatively simple and straightforward. They have not yet integrated special provisions to combat sophisticated transactional ploys for evading commercial restrictions. To maximize effective functioning and avoid abuses, it is usually necessary for the country's general commercial laws to apply to ABS Contracts, and for parties to obtain competent legal advice from a commercial lawyer knowledgeable about the source country's commercial laws.
There are some instances in which fairness may require that an invalid contract should be maintained and enforced. This may happen if three factors are present: (i) one party to the contract ‘relied’ on it (taking action in expectation that the contract will be fulfilled); (ii) that party was not the cause of the invalidity of the contract; and (iii) it is necessary to maintain the contract, in order to protect that party against an unjust result. For example, if a provider allows bioprospecting and testing to occur under an ABS contract, and then discovers that the contract is legally invalid, it would be unfair to terminate or unwind the contract, because the return of the genetic material and/or information obtained by the user will not prevent the user from utilizing the information of its research, products or other benefits. It is fairer if the court allows the contract to stand, and requires the user to share benefits, despite the technical invalidity.61 If the provider would prefer to invalidate the contract, however, the court may do so. The concept of reliance is a basic element of commercial fairness.62 As such, it will certainly be relevant to ABS contracts. 63
The phrase ‘contractual formalities’ has sometimes been used disparagingly, as if these formalities are ‘boilerplate’ (something simply copied into all contracts with no concern for its meaning), or ‘small print’ (something very complex and difficult to read, which is inserted by unscrupulous parties to change the meaning of the contract). In fact, however, the formalities of contracts are neither of these. They allow certainty as to when the contract becomes final, ‘facilitate proof that a final binding contract exists and confirm the seriousness of the parties' intentions.64
Many different formalities exist in different countries that can be used to for this purpose. In ABS contracts, parties sometimes include rural peoples, indigenous groups, and persons and institutions from least-developed countries; hence, many authors suggest that the contract should in each case take the form most common for these parties, even if that form is non-written and formalised by ‘kava-drinking rituals’ or other ephemeral actions.65
While this idea holds allure for many developed-country parties and their lawyers, the best interests of the parties desiring to create a functional contract are served where there is a written binding instrument that can be easily enforced in the courts of the user country. Without such an instrument, the legal certainty of the ABS contract diminishes significantly.
This same need – to be clear and enforceable – underlies all aspects of the contract, from the first written provisions to signature. Its goal is to maximize and protect the Parties' rights, not to make sure everyone is comfortable. In the words of commercial law,
Legal advice and involvement in negotiations cannot provide complete insurance against a legal challenge, however, our goal is to maximize shared understanding, and minimize the number of future disagreements that cannot be easily resolved (by referring to the text of the agreement).66
This goal is met most effectively when there is a single legal document which all parties agree reflects the entire substance of their agreement, and when it is clear that the instrument has been finally agreed and completed. Because ABS contracts are multinational in potential scope – it will be even more important to be certain that the document can valid in both the provider's and user's countries, as well as any country into which the genetic resources will be transferred or utilized.
The basic elements of any contract can be recognized, proven and applied in various countries, so long as they are written in recognizable contract form and have been adopted with formalities recognized under the ‘governing law’ of the contract.67 These are designed to make future legal actions and activities relating to the contract easier. By contrast, reliance on a traditional-for-malities-style contract may make it much more difficult and costly to prove the existence and validity of the contract (the first step in judicial and non-judicial processes to enforce contracts.)68
In any contract involving persons, entities or property from more than one country, it is usual to choose one country's law as the ‘governing law’ of the contract. Governing law provisions are sometimes misunderstood. The selection of governing law is sometimes complicated by uncertainty about other principles that might be applied in interpreting the contract. These principles include ‘choice of law’ (sometimes known as ‘private international law’), ‘customs of the industry’ (provisions that are common in certain types of contracts) and ‘traditional and customary law.’ All of these legal issues may apply, where useful to enable legal relationships to function more fairly. They can also cause confusion, however, particularly in international contracts.
The concept of ‘governing law’ is integrally linked to the question of contract validity. If the contract states a particular country's law to be ‘governing’, that statement will control;69 however, if not, there are rules for determining which country's law shall be used for this purpose.70 Governing law's primary task is determining whether a valid contract exists. If the contract is governed by the law of France, for example, then its validity will be determined under French law no matter where the contract is carried out or interpreted. This is the main purposes of ‘governing law’ provisions – to determine whether the contract is valid.
‘Governing law’ provisions may not affect the interpretation of the contract and other legal questions. The determination of which country's law applies to the substance of the contract or to claims of violation is usually decided under a very complex legal concept called ‘choice of law.’ Some issues may be decided under a contract's ‘governing law,’ while others within the same contract are decided under the law of another country.
In ABS, the selection of governing law may be difficult, because so few countries have legal provisions or precedents addressing genetic-resource concepts, and have not made decisions to aid in integrating ABS with national contract law.71
Contract law’s primary raison d’etre is to help contracts function as effective tools of commercial and civil interaction. This means that most contract laws are legal ‘safety nets’ rather than requirements. If a contract forgets to mention a key element, contract law may provide a de facto provision for the contract, which can be used as a way to make the contract valid, despite the omission.
For some kinds of contracts, a second type of safety net may also be available – legal custom. The standards of a particular industry or a particular type of contract can become so well accepted that courts apply them to every contract within that industry, unless that contract specifically says otherwise.72
At present, few ‘common practices’ have developed in ABS, because ABS has only existed for about 15 years,73 and is not implemented in national law of most countries. As discussed in 1.2, fewer than 30 countries have formal law that even mentions ABS, and at present no country has fully met its legal obligations under Article 15. Consequently, there are few (if any) accepted industry practices in ABS. The WIPO database used in this book, has obtained fewer than 50 documents worldwide, none of which have yet been judicially tested. There is still no basis for knowing that any contract provision is sufficiently accepted to justify international reliance.
When one is engaged in a transaction with a community that is very localized and functioning on the basis of tra-ditional/indigenous laws and norms, it is usually necessary either (i) to operate under that customary law, or (ii) to take special measures to ensure that all parties understand and agree to the use of other principles of law. This presents a practical challenge in ABS, both because of the special needs of these communities in negotiations and because of the need to (i) ensure the validity of ABS contracts no matter where they are signed, and (ii) enable commercial/judicial interpretation of those contracts, in any user country or in any court governing users.74
After confirming that a contract is ‘legally valid’ it is necessary to determine that it is also ‘legally binding’.75 Any valid contract is a kind of promise.76 However, not all promises are legally binding. A promise is legally binding only if it meets the criteria of enforceability. Although these criteria differ from country to country in terms of particular details, the basic concept is shared by all contract law frameworks.
The following sections briefly summarize the ABS aspects of the four critical aspects of enforceability: (i) overarching fairness principles, (ii) characteristics that must be shown in order to have a legally binding contract, (iii) specific components that a contract must contain and (iv) other factors affecting enforceability. The discussions below are designed to complement Chapter 3, which provides numerous examples of provisions from existing ABS contracts (some of the contracts presented in chapter 3 are clearly legally valid and binding/enforceable, some are legally ‘valid’ as contracts, but are not practically enforceable). Finally, there are some which are neither contractually valid nor legally binding.
In nearly every country, national law and judicial principles state that, no matter how perfectly the parties have complied with contract law, their contract will not be enforceable if it is not fair. The standards for determining fairness are often discussed under the headings ‘good faith’ and ‘trust.’ 77
Where it would be unfair or in bad faith to apply the normal rules and processes to a particular contract, the court may find it necessary to use other means to protect commercial fairness, i.e., to enforce a contract that would otherwise be invalid, or to render one which is valid to be void. 78 Increasingly, fairness among the parties, rather than strict legal factors, is relevant to determine whether a contract is binding.
While this added measure of protection may be a comfort to inexperienced negotiators, it should not be relied on, because most courts will normally expect each party to take reasonable steps to protect his own interests.79 If the court finds that one party did not take sufficient care and did not make an effort to ensure that their contract is fair and properly defends their contractual or commercial rights, then it may refuse to apply special protections of this type. Thus, parties negotiating a contract still must know exactly what the contract requires (legal certainty), and should be motivated to ensure that it meets conventional contract law standards.
To be legally binding, a contract must meet four criteria in a manner that can be objectively observed by a court or by some other external person (e.g., arbitrator, mediator, government official, or employee of one of the parties):
(i) both parties must clearly intend to be bound by the contract,
(ii) the instrument must be definite
(iii) its provisions must be unambiguous, and
(iv) it must be un-coerced.80
As examined in the following sections, each of these characteristics poses some special challenge in ABS contracts.
The concept of ‘mutual intention to be bound’ is simple. A contract or any of its specific provisions can be binding only if both parties intend this result.
In ABS, mutual intention issues usually arise where the user or collector has received permission (a contract, license or other approval) to collect particular specimens from the source country or other provider, but the provider states that this permission did not include permission to utilize the specimen's genetic resources. Under this theory, permission to collect and remove specimens is perceived to be separate from permission to commercially utilize its genetic resources: the collector and/or his transferee need some further permission before engaging in commercial use of genetic resources.81
For example, in the so-called ‘Kenya extremophiles’ case,82 the original specimens were collected by an academic researcher, who claims to have obtained permission to collect them. The collector subsequently transferred collected material and research results to a commercial user. Objectors claimed that Kenya never gave permission for the commercial use of the genetic resources of the samples taken.
If the objectors claim (that the original permission did not include commercial use of the genetic resources of the res) should be held factually and legally correct, then the original permission would be invalid due to lack of mutuality between the parties. To resolve this, the original contract must normally be unwound, however, in ABS, it may be impossible to fully unwind a contract after the resources have been collected and analysed.83 Under contract law, if an unenforceable contract cannot be unwound, the court will normally create a second contract to ensure that both sides are fairly compensated.
A second element of enforceability is definiteness. The contract's provisions can only be enforced if it is ‘sufficiently definite’ in the eyes of an external person (including a judge or arbitrator) regarding what each party must do, give or receive and when (and how).84
A contract that is too vague is not legally enforceable, for an obvious reason. The parties and their employees do not know exactly what is required of them and what they may expect from other parties during the time that the contract is operational. The details must be clear enough that the parties can apply them in the event that unexpected factors or conditions arise. Judges and arbitrators too must have clear evidence of the specific elements of the contract, in order to know what to do if the parties cannot resolve some dispute or uncertainty and ask the court to help.
‘Sufficiently definite’, however, is a matter of degree. Contracts often contain conditional terms and are still binding. For example, a purchase contract may cover ‘all apples harvested on Property X between day Y and day Z.’ Such a contract will be sufficiently definite even if the full amount of apples is unknown unless it is not possible for one party to know or verify where or when the apples were harvested.
In conventional contracts, questions of definiteness are most often discussed in relations to the sale of goods. In that type of contract, it is essential to be very clear about the precise goods transferred, the price to be paid, the conditions to be satisfied, and the schedule of performances.85 In other types of contract (e.g., for employment or for the purchase/sale/lease of land and buildings) different elements are applied to measure whether the contract is sufficiently definite.
Given the various uncertainties in ABS, the challenge of contractual definiteness is rather difficult to address. To date, no court or national law has determined that ABS will be governed by the rules of a particular type of existing contract, so it is not possible to use existing law as a clear guide to the measures of definiteness. Similarly, as noted in part 2.1.2 of this chapter, the international regime negotiations have not yet specified the particular nature of ‘genetic resources,’ ‘benefit sharing’ and other key contractual elements.
For these reasons, this book will not attempt to identify specific definiteness criteria, but offers the following ‘educated guesses.’ Specifically, any ABS contract should include all three of the following:86
a precise description of the contract subject matter, or
the mechanism for later specifying the precise subject matter covered by the ABS contract (the particular species whose genetic resources are collected, are used in analytical processes, are used in the development of commercial products, etc);
a precise price and payment terms, or
a specific mechanism for determining what price will be paid and when; and
(iii) A clear statement of the scope of the interest granted to the user (e.g., the extent of the user's rights vis-à-vis specimens or genetic resources, including rights to file IPRs, other intangible rights to genetic information87 and/or particular rights in any tangible property that is transferred or collected in connection with this contract).88
For those negotiating ABS contracts, it is a challenge to create a definite contract when using indefinite terms. For example, some try to minimise ambiguity by avoiding the use of the term ‘genetic resources,’ writing a contract describing the collection of samples. In this case, the contract would be ‘sufficiently definite’ regarding the collection of samples of one or more species,89 but not regarding the utilization of its genetic resources.90
Similarly definiteness about the ‘price’ and ‘interest granted’ in bioprospecting situations may be a problem. Most basic elements for determining the value and potential use of genetic resources and the type of benefits that might be shared may be completely unknown at the time of collection.
Even where it is sufficiently definite, a contract may be unenforceable, if the parties have different understandings about the terms and conditions of the contract.91 Clearly, the ambiguities in the international ABS regime (well discussed in other parts of this book) suggest that this ambiguity may be the greatest challenge in developing ABS contracts.92
Where the parties are in an ambiguous situation, the challenge of creating an unambiguous contract must be met by private agreement of the parties. In other words, the contract must clearly demonstrate in very definite language
(i) what rights and material are to be transferred under the contract;
(ii) what benefit-shares are given in return; and
(iii) that the contract grants rights in the specific genetic resources (approval from the person, agency or government that has the right to make such a grant).
As the fourth essential characteristic, a binding contract must be ‘uncoerced’ – that is, the parties must feel that they ‘have a choice’ either to negotiate terms that they are comfortable with or to refuse to enter into the contracts. This issue is different from ‘mutual intention to be bound,’ since a party may intend to enter a contract, even when he has been coerced and feel that he has no choice but to approve the contract. Coercion can happen in many ways. In rare cases, one party may threaten the other with harm or loss if he does not enter into the contract. In others, one party may fear that if he does not enter into the contract ‘as is’, he will never be able to sell his property to anyone else.
For ABS purposes, a very mild form of coercion, sometimes called a ‘contract of adhesion’ or a ‘take-it-or-leave-it’ contract may sometimes happen. This situation arises when one party gives the other a ‘form’ or ‘standard’ contract and states or implies that no changes to the contract will be allowed – i.e., that the other party must either sign the contract as-is or walk away entirely.93 The second party may be told that he has no choice, or may be led to believe that the terms in the adhesion contract are fixed within the industry, so that no better deal is possible. In many countries, conventional contract law imposes very strict controls on contracts of adhesion. In some cases, these documents may be unenforceable, particularly where the party who uses the form is stronger than the other in the commercial sense (having more financial resources and/or access to legal advice).94
The control on contracts of adhesion does not eliminate the use of forms, but rather enables them. Forms are not considered ‘contracts of adhesion’ if they meet several criteria, regarding:
their content (that they are generally fair and balanced);
the manner in which they were created (that they take the needs and interests of both parties into account); and
the manner in which they are used (that only appropriate parties may use them, and only after they have a fair understanding of their options).
Both national law and general principles of law relating to contracts of adhesion must be applied in evaluating the use of form contracts.95 The nature of the parties is one of the most important factors in determining whether a form or other contract is coercive. Where one of the parties is less sophisticated or has less knowledge regarding commercial law or contracts, then there is a greater possibility that the use of a form contract may give that party a feeling that they have no choice or can make no changes. Typically, laws against contracts of adhesion are strongest where a large commercial entity or organization negotiates with a rural person or community.96
In ABS contract negotiations, there are two situations that raise these concerns. First, in some countries, local and indigenous communities and private individuals may be direct ‘providers’ of genetic resources, and are encouraged to negotiate ABS contracts directly.97 Adhesive provisions increase the chance that contracts will be negotiated by parties who are inexperienced in contract law and legally unsophisticated. This suggests that those negotiations may be subject to special rules and scrutiny, to ensure that they are not legally considered to be coercive.
Second, due to the multiplicity of possible ‘owners’ of the same genetic resource (see § 1.2, above), many providers have a strong ‘take-it-or-leave-it’ feeling. The provider may feel an unstated threat that the user will turn to another provider, unless the first provider accepts the terms offered with no complaint.
There are a number of ways for contract parties to ensure that their contract is not coercive. One option calls on the commercially sophisticated seller to provide separate legal and technical advisors who can help the provider understand and protect its rights.98
A second means is for the legal system to specifically adopt particular forms and models and to clarify which parts of those documents can be negotiated or changed. A number of countries have specifically adopted forms, which are still new enough that they have not yet been tested or proven in practice.
One of the most interesting examples of the adoption of a standard form genetic-resource contract is the Standard Material Transfer Agreement (SMTA) under the ITPGRFA. As further discussed in 1.4.4, there are two aspects of the SMTA negotiations which serve to ensure that the SMTA cannot be considered coercive. First, the SMTA was negotiated in a very public process by a broad base of negotiators. The primary objective of this process was to ensure that the SMTA would ultimately be fair to all users, collectors (middlemen) and providers of genetic material. Second, the SMTA is not available to just anyone – only to agricultural collections and developers of agricultural plant varieties.99
Under the standard analysis, the necessary elements of a binding contract are very simple – offer and acceptance. A contract is formed by an offer from one person (or entity), which is accepted by another person or entity.100 Unfortunately, even this relatively straightforward aspect of contracts is not as simple as first appears. The following briefly summarizes the requirements underlying the primary ‘elements’ of a contract, focusing on special issues most relevant to ABS contracts.
The most basic requirement of a contract is the need for mutual promises (‘offer and acceptance’ or ‘mutual assent’) that properly document the fact that both parties have agreed and consented to the same ‘terms of the contract.’101 In order to demonstrate mutual assent, the contract must show that the parties both agreed to the document and had the same understanding of what it means.
By law, however, the concept of mutual assent contains an element of information. A party ‘acceptance’ of an offered contract can only be valid, if he is ‘legally competent,’ as described in 2.3.1. In particular, where the offering party has sole access to critical information that would be necessary to make a responsible choice, then the law may hold that the offering party must share this information with accepting party. This concept is known as ‘informed acceptance,’102 and it is normally required by law, in order for the contract to be legally valid.
In ABS, some commentators compare the contractual concept of ‘informed acceptance’ to the CBD concept of ‘prior informed consent’ or PIC – a term that is used, but not explained, in the Convention:
Access to genetic resources shall be subject to prior informed consent of the Contracting Party providing such resources, unless otherwise determined by that Party.103
Negotiators sometimes assume that PIC and informed mutual assent are similar; however, this similarity does not run deep, and the assumption may lead to confusion. While commercial entities may view PIC as a contractual concept (i.e., a requirement that the provider must give ‘informed acceptance’ to any ABS contract), the existing national laws implementing PIC are not contractual in nature.104 In general, national ABS laws calling for PIC serve as tools of a very different process, known as ‘public participation in decision-making.’ These laws sometimes create a new hurdle in the ABS process – requiring a public meeting or other process, before the government may give final approval to the ABS contract (which will also have to meet contractual requirements of informed acceptance.) For commercial users, this confuses what they perceive as a standard commercial negotiation.
In other countries' laws, PIC and formal acceptance of the ABS contract are separate processes – one governing the contractual consent (negotiation of the ABS contract) and the other focused on public involvement and awareness.105
In other countries, however, the two are blended, with the public participating directly in negotiating and approving the ABS contract. This approach may lead to practical problems. For example, it may be difficult to know what the contract requires, when the law requires compliance with the desires of a public meeting.106 Obviously, when a large group is drafting an instrument, their multiple perspectives may not be drafted with ‘contractual specificity,’ leading to uncertainties regarding exactly what the contract means.107 Less obviously, the public's role in the drafting process may create confusion regarding the role of the ‘provider’ in overseeing or enforcing the contract. In effect, every public participant may feel that he has an ongoing right to participate in enforcement decisions, or to take legal action against the user (individually or through his community or an NGO).
Finally, sometimes parts of the ABS contract may be copied into another document, such as a (separate) government-issued license or permit for genetic resource collection and utilization and/or language from the ABS license may be inserted into that contract.108 These two documents have separate legal roles, and may be separately applied and interpreted. This double interpretation of the same language may further obscure the precise responsibilities of the user and rights of the provider.
Another element of mutual assent requires specific agreement and shared understanding of the specific terms and conditions of the contract. This concept of ‘agreed terms and conditions’ of the contract may be essentially similar to the CBD phrase – ‘mutually agreed terms’ (MAT).109
Overall, it is useful to more deeply consider the term ‘mutual.’ Contract law uses the word frequently (‘mutual intent to be bound,’ ‘mutual assent’ and, in some countries, a third concept called ‘mutuality of obligation’ or ‘consideration.’)110 ABS sounds very similar when it refers to ‘mutually agreed terms.’ These two discussions sound very similar, but in practice serve very different roles.
In ABS, Article 15 mentions MAT in two separate provisions. Article 15.4 requires MAT wherever a user obtains access to genetic resources. Article 15.7 separately requires MAT for benefit-sharing. Many possible interpretations have been suggested to explain this double reference. For some, it suggests the controversial view that access is not commercially linked to benefit-sharing.111 This view would find that ‘access contracts’ and ‘benefit-sharing contracts’ are separate and unrelated. A user who acquired genetic resources without permission (no access contract) may still be required to obtain and comply with MAT for benefit-sharing. In another possibility, an access contract may specifically state that no ongoing benefit-sharing will be required. Although many commentators assume access and benefit-sharing are always linked in some way, this point is not yet clear legally.
Like PIC, the ABS concept of MAT seeks to ensure that the source country or provider, rather than or in conjunction with a user from another country, will determine which ABS requirements apply to each con-tract.112 MAT provisions are a strong statement that the ABS rights of the source country require more than simply contractual mutuality. For ABS contracts to be enforceable their parties must separately comply with the contractual rules for ensuring that a contract is fair and enforceable, on one hand; and the sovereignty, equity and other principles underlying ABS on the other. It will be critical to ensure that the negotiations satisfy the underlying purposes of both types of MAT.
An important part of contract law is the idea that a contract may be created by ‘action,’ even if the parties have not formally agreed, or if the contract document would otherwise be considered invalid or unenforceable. This concept protects the party who takes action. If the other party accepts the actions (or transfer of material) then the law claims that he has agreed to a ‘de facto contract’ or ‘assumed contract’ – i.e., that a contract exists without a valid formal ‘agreement.’
In recent years, the concept of acceptance-by-action has been used in other ways as a different type of protection. These new innovations are normally called ‘shrink-wrap’/’click-wrap’ contracts. These contracts have a special importance in ABS, having been adopted and further adapted to be elements of the ITPGRFA and the SMTA. It is hoped that these developments will pave the way for a greatly simplified legal means of addressing some aspects of ABS.
In its most common use, the shrink-wrap/click-wrap contract is a formal written contract which says that the buyer will not take certain actions that are forbidden by law, such as infringe the seller's copyright and/or patent (by copying the software for commercial purposes or sharing it with more than a specific number of other computers) or take other actions that are legally forbidden. The contract may also specify the seller's rights and obligations in the event that the software proves defective. The contract need not be accepted in any conventional way. The contract is accepted when, the buyer opens the shrink-wrap in which the product is packaged, or clicks on a computer tab that says ‘I accept.’ If he does not want to accept, he must return the unopened package (shrink-wrap contract) or click the ‘I do not accept’ tab (after which the system will prevent him from downloading the software.) Virtually any person who acquires software or other electronic property from a legitimate vendor online or who legally obtains a CD or other protected material directly or indirectly is bound by the shrink-wrap contract.113
The legal effect (validity and enforceability) of shrink-/click-wrap contracts has not yet been confirmed. There are three main reasons that some contract lawyers question the validity and usefulness of these tools.
First, shrink-wrap and click-wrap contracts reverse the ‘acceptance by action’ concept.114 When created in law, that concept is designed to protect the weaker or less experienced party to a contract. When that person gives property or services in the expectation of future action or payment. It protects those sellers legal right to insist on payment, even if the contract is flawed or unenforceable. By contrast, shrink-/click-wrap is used by the larger, stronger party to bind smaller and individual purchasers.115
Second, some shrink-/click-wrap contracts may be ‘contracts of adhesion,’ especially when used by the stronger party in the transaction.116
Third, shrink-wrap and click-wrap contracts are only valid against users who have acquired a CD or other software directly. These concepts assume that the user obtained the item from a legitimate vendor, and either clicked his acceptance or opened the shrink-wrap. Many other users (e.g., subsequent transferees or purchasers from an illegal source) are not bound. In some cases customs officers or mailroom staff (not authorized to bind their employer) may break the shrink-wrap or click the acceptance box.117
Up to now, the software industry has responded to these concerns by limiting the coverage of the shrink-wrap and click-wrap contracts to actions and promises to do things that are already required by law – i.e., promises not to infringe the seller's copyright/patent and not to use the software for illegal purposes.
This raises an important question – If its terms are so limited, why would a seller use a shrink-wrap or click-wrap contract? The apparent answer is that118 it is very difficult to enforce national laws (including IPR law) against purchasers in another country. The shrink-/click-wrap contract converts seller-country law into a contract. In that way, those provisions are easier to enforce.119 The next section discusses the manner in which the ITPGRFA uses shrink-/click-wrap and the primary weakness of these concepts in applying them to ABS.
As used in the ITPGRFA, shrink-wrap/click-wrap mechanisms have been extended rather far beyond their use in the software context. Even before the Treaty shrink-wrap contracts have been used in the transfer of plant germplasm from International Agricultural Research Centres (IARCs) cooperating through the Consultative Group on International Agricultural Research (CGIAR).120 Any recipient of IARC germplasm became bound to the CGIAR's ‘material transfer agreement’ by opening the package containing the seeds or other material. More recently, the new ‘Standard Material Transfer Agreement’ adopted under the ITPGRFA specifically adopts the shrink-/click-wrap approach, but states that it may be accepted in any of three ways – by signature, by clicking an electronic acceptance in the material provider's website, or by opening the ‘shrink wrap’ containing the material.121
The SMTA imposes many obligations on the person who clicks or who opens the shrink-wrap. Some of these extend far beyond the type of coverage used in the software industry. For example, the SMTA imposes obligations122 on the recipient to
Recognize the Secretariat of the ITPGRFA as a ‘third-party beneficiary’ to their plant germplasm transfer contract with separate rights of information and oversight123;
Limit his use of the material to ‘purposes of research, breeding and training for food and agriculture. Such purposes shall not include chemical, pharmaceutical and/or other non-food/feed industrial uses.’124
Make the material available in future, to the extent that he conserves it, through the Multilateral System (MS) of the ITPGRFA.125
Comply with further requirements if he later transfers the material he has received under the contract to other persons,126
(perhaps most important) either
make any product that he creates using the material available to other researchers for their use without restriction, or
pay a fixed percentage of the Sales of the commercialized Product (currently 1.1% of the amount equal to 70% of the gross income from sales of the product) or, to avoid the record-keeping involved, pay a ‘discounted option amount’ over a period of years.
In either case, the amount shall be paid into the Fund established under Article 19.3f of the ITPGRFA,127 and
transfer that responsibility to any person obtaining his patents on such product;
share ‘all non-confidential information that results from research and development carried out on the Material,’ with all other researchers, through the information system created under the Treaty;128 and
submit to arbitration and agree to the application of UNIDROIT's legal standards in the interpretation of his duties under the contract.129
There is no doubt that these are all valid contractual obligations. What is unique is that they may be imposed without formal signature by the user. By using shrink-wrap/clickwrap, the SMTA may bind the recipient, even if he has not read or understood the contract, but simply opened the wrapping or clicked his acceptance. Under normal principles of ‘adhesion’ (discussed above), the SMTA would appear to be a classic ‘take-it-or-leave-it’ contract. It is not a ‘contract of adhesion, however, for three reasons. First, the international negotiations that created the SMTA were undertaken in a way that was very protective of the interests of all potential parties to the contract. Second, the SMTA's terms are clearly designed to offer benefits and responsibilities in an agreed and balanced way. Third, and most important, SMTA is only available to agricultural researchers and developers of plant varieties for food and agriculture – expert groups whose interests were clearly addressed in the ne-gotiations.130 The ITPGRFA does not specifically state an affirmative duty of the providers of resources under the MLS to ensure that only agricultural researchers and variety developers use the resources, but it is clear that the parties had this expectation. As such, the Treaty imposes a duty on the IARCs and other facilities within the MLS to screen users. Assuming that only highly knowledgeable experts within this relatively small international profession use the MLS's shrink-wrap and click wrap contracts, then a court or arbitrator would be more willing to consider click/shrink SMTAs to be binding on these persons (i.e., not contracts of adhesion.)
In addition, of course, the same basic concerns described in 220.127.116.11, above also pose challenges to the further legal development of the SMTA.
The SMTA's use of shrink-wrap and click-wrap contracts, suggests other innovative possibilities for the use of the shrink-wrap/click-wrap mechanism in ABS. For example, it might be possible to ‘click-wrap’ a country, requiring all persons entering and leaving the country to click (or otherwise signify) ‘I accept’ to a contract which states that they may not collect biological samples for the purposes of using their genetic resources, or of transferring them to others for such use. If they do not signify acceptance, they could be prevented from entering the country. If they do accept, however, they would be contractually bound to comply with the country's bioprospecting and ABS rules, and their obligation may be enforceable under contract law in courts in the user country or elsewhere.131 Given that many countries already maintain records of every person who enters and leaves the country, this wrap system would not place added burdens (inspection, etc.) on customs officials. Their only job would be to ensure that each person clicks (or otherwise signifies) their acceptance of the contract.
Two other contractual areas that may affect enforceability and the objectives of ABS contracts relate to the assignment of rights and duties under a contract and the recognition of ‘third party rights under a contract.’ These two issues connect to a third – whether and how contracts may restrict the later use of genetic resources. There are many differences among countries in how they address these issues. In addition, ABS adds new and different questions, which are currently undecided and somewhat controversial.
The transfer of genetic material is one of the most difficult challenges of the ABS regime. Some aspects of the benefit-sharing and enforcement objectives in the regime are difficult to apply if the resources are transferred, under current legal systems. Conventional contract law addresses the transfer of the res in a few limited situations. Normally, however, the buyer of goods believes that he can do whatever he chooses with them, once he has completed the purchase. This general rule is not always correct. Several factors may justify restraints on transfer including the following:
(i) the underlying purpose of the contract may require restrictions on future transfer of the res. Such provisions are normally discouraged in law, unless there is special justification.132
(ii) the purchaser may not have purchased all rights with regard to those goods. For example, even after purchasing a copyrighted book, photograph or software program, the purchaser may not copy the item for commercial use. Some intellectual property rights are virtually unlimited in time, meaning that this restriction could continue for as long as the person owns the book, even if the publisher from whom it was purchased has ceased to exist and the author has died.
Transfer of rights and duties under an ABS contract may be subject to different legal principles. Depending on national law and the intent of the parties, restrictions on transfer may be legally justified. If national law considers ‘genetic resources’ to mean only physical specimens (samples), then one would normally expect few limitations on transfer. If ‘genetic resources’ includes an intangible or informational component, then transfer could be subject to restrictions (which may be very difficult to enforce). The international regime negotiations will have a significant impact on the assignability of rights under ABS contracts already in existence or being written now.
Connected to the physical or legal transfer of the res of a contract, each contract must consider two additional questions:
(i) whether a party may formally assign his contractual rights and duties, and
(ii) whether the other party must approve this assignment.
In a majority of contract-related transfers, only the second question matters. The party is allowed to assign his rights as he chooses. He will only have to seek the other party's consent in order to assign the duties owed to that party. There are a few exceptions to this rule, depending on the type of resources, rights or duties being assigned. If the rights/property and duties are inextricably linked together, then the other party may have a right to refuse his consent to that assignment. These rules are very difficult to interpret in individual contracts, but they apply only when the contract does not specifically address the issue.133
Many ABS cases to date have involved transfers of genetic resources without formal assignment.134 These disputes essentially claim that both the original user and the transferee will be liable for benefit-sharing in the event of such transfers. ABS contracts will be less risky where the parties can come to some agreement clarifying whether formal assignment and permission are necessary when transferring the genetic material and/or transferring the benefit-sharing obligation.
A third element of the contract which is critical to ABS is the issue of ‘third-party rights.’ Under conventional contract law, the general rule is that a contract only binds its own parties (and their assignees), and that they are the only persons who have rights under the contract. It can sometimes recognize rights of a ‘third party’ (one who is interested in the contract, but not directly bound by it); however, but only in special situations. This third-party beneficiary may have some rights, if he is an ‘intended beneficiary’ of the contract, but not if he is an ‘incidental beneficiary.’
An intended beneficiary is someone named or particularly identified in the contract as a recipient of some kind of benefit, which is a direct objective of the contract.
An incidental beneficiary receives some type of benefit in the contract, but that benefit is not a purpose of the contract.135
The intended third-party beneficiary may be specifically named in the contract, or this status may be determined from the effects of the contract. Typically, the former is preferable for the parties, as they can then be very precise about the particular rights intended and the scope of those rights.
ABS contracts, by nature, involve many types of third-party beneficiaries. For example, the SMTA specifically names the Governing Body of the ITPGRFA as a third-party beneficiary. Under this provision, the Governing Body may take action to enforce SMTA's reporting obligations. Another group of beneficiaries under the SMTA are those who receive (or hope to receive) payments from the ITPGRFA's Fund.136 The SMTA does not mention their status, but they are clearly intended to be third-party beneficiaries.
In other ABS situations, members of the civil society have sometimes asserted rights under the contract or alleged that the contract was not legally granted because it failed to take their rights into account. Here also, it will be useful if the ABS contracts can specifically address the rights of non-Parties who claim to have rights in genetic resources. It may not be possible for the parties to cut off third party rights in ABS, which are created by statute in some countries. By clearly discussing those rights, however, the parties stand a better chance of creating a legally certain contract, and decreasing their risk of external challenge.
A multiplicity of document names have been used as titles of various ABS contracts. Although sometimes confusing, the selection of a particular title does not limit the nature of the document and its legal implementation, which is determined by all of its terms and contents, regardless of the instrument's title. Thus, for example, a document may be titled ‘memorandum of understanding’ (a contractual type that is generally considered nonbinding) may be a binding if its contents (i) are expressed in binding terms and (ii) meet the requirements of validity and enforceability.
There are some situations, however, in which an instrument's title may have a legal effect. This is most common when a law specifies special requirements applicable to a particular form or category of document.137 In addition, the instrument title may impact the interpretation of a contract in countries whose national contract law makes a distinction between ‘commercial contracts’ and ‘civil contracts.’138 Hence, there may be many reasons to choose a particular title or instrument type.
As discussed in Chapter 3, many countries have adopted form ABS contracts, with specific mandatory names and formats. In other situations, ABS contracts have taken many different titles. Although far from comprehensive, Table 2 provides a very brief comparison among a number of different instrument titles. It is offered as a starting place for the negotiator's research.
Table 1 Some comparisons among various types and titles of instruments
One frequently asked question relates to the difference between an ‘ABS contract’ and an ‘ABS permit’ (or ‘bioprospecting permit.’) In some countries, a statutory permit is used to address the issues, rights and duties that are in other situations addressed in ABS Contracts. In some countries, both are possible: the user would get a ‘permit’ if he deals with one agency or community, but a ‘contract’ if he deals with another community or agency in the same country. Some countries use a different term (neither ‘permit’ nor ‘contract’) and do not make it clear which type of instrument is involved.
General contractual principles commonly note that, from the perspective of the government agency, the primary difference between the use of statutory permits and contracts is administrative simplicity. The processes and standards for permit issuance are often streamlined, when compared with contract negotiation. Permit processes are set by statute or regulation, and usually designed by the agency or official who will do the work of issuing the permit. When compared with the process necessary for a country or agency official to get permission to execute a binding contract on behalf of the country, permit processes normally require less internal ‘red tape’ and fewer mandatory approvals from higher officials. Similarly, revocation of a permit may be quicker and more effective than terminating a contract. In addition, in the source country, permit enforcement is usually easier than bringing contractual action for redress.
At the international level, the situation is quite different. Enforceability of national permits is much more difficult, as compared with contracts, when the enforcement occurs outside the source country. Foreign courts are often unwilling to enforce another country's national law, even where they have the legal authority to do so, but do enforce contracts from foreign countries. While a permit might have the same legal force as a contract within the source country, its enforcement may be much more difficult when dealing with a user and genetic resources located in another country.139 Other government-issued instruments (licenses, memoranda, etc.) fall between a permit and a contract, and their enforceability may be difficult to determine.
Finally, it is useful to consider the possible role of ‘specialized contract law’ – that is, individual laws that apply only to particular kinds of contracts. There are many kinds of specialized contracts that are governed by special laws. Some types of transactions such as lending, insurance, transfers of shares in companies, and patents all are governed by special laws in nearly all countries. In some countries, for example, a court or arbitrator evaluating a dispute or interpreting a contract must first determine whether that contract is a ‘commercial contract’ or a ‘civil contracts’ or whether the parties were ‘mercantile enterprises’ or not.
It may be difficult or impossible to apply specialized laws to ABS, unless the legislative bodies have specifically enabled and authorized this application. For example, the Convention on the International Sale of Goods (CISG) is applicable only to ‘international contracts for the sale of goods’. It is not applicable to other kinds of contracts. For this purpose, the CISG defines the concept ‘international contracts for the sale of goods’ very precisely.140 This means, for example, that it may not be legally useful to interpret an ABS contract as an ‘international contract for the sale of goods’ until the affected countries' laws have all determined that genetic resources are ‘goods’ for this purpose. A CISG contract must transfer items that have already been ‘produced,’ suggesting that ‘intangibles,’ immovable property and bulk transfers of raw materials are not covered.141 Similarly, in ABS the laws governing land and ‘immovable property’ may be potentially relevant, if national law or the contract clarifies which category of property includes genetic re-sources.142
If a contract is not ‘international’ or is not a ‘sale of goods,’ then CISG principles are not intended to apply. As a practical matter, they may not address relevant points, and application of the CISG principles may not provide a fair and reasonable outcome. ABS contracts can specify the application of CISG or other commercial contract principles; however, it is not clear that those principles will enhance the courts' understanding of, or ability to interpret, ABS terms and concepts that are currently not fully understood.
It is possible for one or more countries to develop specialized contract law for ABS contracts; however, no country has done so up to now. In developing such provisions, it may be useful to consider other types of specialized contract law, which may offer interesting analogies and approaches.143 One possibility, discussed below, which is currently under study, involves the development of a system similar to modern ‘antitrust law,’ which has many parallels to the ABS regime, both in terms of the balance of legislative objectives to be served (to protect citizens, consumers and competitors against commercial activities that harm the national economy and commercial structures, while not unduly interfering with commercial practice and income generation) and in terms of the complexity and flexibility needed to ensure that the regulatory system works fairly for both users and providers.144 Similar discussions arise frequently regarding ‘intellectual property rights,’ which are, in some aspects, parallel to ABS. These laws exist in many countries, but are focused narrowly on particular properties that are defined by statute.145 Useful lessons may be gleaned from examining these laws, but they probably cannot be effectively used in ABS contracts until special provisions have been adoped through the national legislative process, regarding how they apply to ABS.
‘Internationality’ and ‘trade’ present important challenges for commercial contracts, especially those that cross national borders. These are very important issues in ABS contracts. Although some countries regulate both domestic and foreign users of their genetic resources,146 ‘ABS contracts’ under the CBD are international by definition – ABS rules apply only where a user from one country utilizes genetic resources with origin in another country.147 In addition, biological material (as opposed to ‘genetic resources’) may be legally taken without reference to ABS, and later transferred to users outside of the source country for use in genetic research. The initial collection and transfer in such a case may not trigger ABS processes; however, the later ‘utilization’ of its genetic resources may be covered by the ABS regime (depending on the results of the international regime negotiations.)148
Like all international commercial contracts, ABS contracts are subject to many rules and principles of international and commercial law, beyond the basic issues of multi-national contract implementation and enforcement.149 The following sections briefly consider two such questions:
(i) the relevance of international trade law to ABS; and
(ii) a possible role for of antitrust law as a prototype for the ABS regime.
Since no country has adopted national legislation implementing Article 15.7 of the CBD, it is not possible to provide final advice on these issues – present opinions are, at most, speculation. The following sections only raise a few critical issues.
Initial examination of the impact of international trade law on ABS transactions has led most analysts to conclude that there is no real overlap between ABS contracts and international trade law.150 Hence, the following is not a detailed analysis, but suggests possible justification for re-examination of the issue.
The various WTO requirements focus only on the questions of enabling trade by those who wish to sell their goods. Broadly speaking, no country is required to purchase (or commit to purchase) anything, only to open their markets to enable purchase in case anyone chooses to do so. Most important, trade law does not require any country, entity or person to sell its resources to any other person, entity or country, whether domestic or foreign unless the seller chooses to do so.151 This overarching principle parallels national law, under which one normally has completely unfettered discretion to choose whether he wishes to sell or transfer his property at all, and if he chooses to sell, he may freely decide which buyer he will sell to.152 There are only a few very limited exceptions to this principle, based on urgency and non-commercial issues.153
Where the resource is owned or controlled by government, there may be additional rules based on the government's duties of ‘transparency’ and ‘fiduciary obligation’ owed to its citizens. These duties are owed to the citizens of the country, and are often the basis on which public participation laws are founded. Apart from these, however, a governmental unit that is in charge of governmental property cannot normally be forced to sell that property.154
There are some types of governmentally held property that cannot, by law or policy, be transferred to any private person. This rule differs from country to country. Where the government seeks to sell, grant or acquire property of an ambiguous character (i.e., genetic resources), it may be necessary to determine whether that property is ‘sovereign property’ requiring compliance with fiduciary protections, ‘public services’ which must be offered to all equally if they are to be sold at all or property of some other type. These questions are sometimes legally difficult to answer.
Despite the general conclusion noted above that modern international trade law does not appear to conflict with or affect ABS,155 three points of recent discussion suggest a possible need to re-analyse some aspects relating to the role of trade in ABS.
First, in current discussions, some delegations have proposed in light of countries' commitments to grant each other ‘access’ to genetic resources, that the regime should require each country to ensure that all persons, regardless of nationality, have ‘equal access’ to the country's genetic resources. This language suggests that, in future, ‘trade discrimination’ principles may be applied to ABS – i.e., each country will be under a legal duty to enter into an ABS contract with any user for any of the countries' genetic resources at any time. If an attempt is made to develop such a policy, its impact on other national sovereignty issues – such as controls on foreign investors – may be both difficult and controversial in international commerce. Consequently, it may be important to further investigate the consequences that would arise, if all countries are required to provide ‘equal access’ to their natural resources and other wealth.
Second (perhaps an outgrowth or response to calls for equal access), some discussions have raised the possibility of another limit on international ABS contracts. They suggest that the right to collect and/or utilize genetic resources should only be granted where the user promises to use the genetic resources only in countries that have adopted ‘user measures’ implementing Article 15.7.156 This provision, too, may have global trade impacts.
Finally, a few analysts have suggested that there is a body of ‘genetic-resource issues’ which might usefully be considered together. These analysts propose merging the following into a single unified regime:
biosafety (the introduction of living modified organisms – i.e. products of the utilization of genetic resources);
alien species introduction (including products of new variety development, which also may use genetic resources)157; and
ABS/bioprospecting and genetic research.
Arguably, the policy purposes and international developments on these three issues are closely interlinked, even where national positions on each one are inconsistent. If they are re-linked, it may be possible to broaden ABS negotiations at all levels from the international regime negotiations to individual contracts. Countries may be able to link ABS compliance to other issues, such as streamlining permission to introduce LMOs and alien species within the country.158 This linkage could extend further, enabling linkage between the user government's promotion and enforcement of ABS rights and the source country government's promotion and enforcement of laws controlling video piracy or other patent violations involving foreign companies' IPRs.
Based on these new discussions, it appears essential to revisit the question of whether international trade law has any impact on ABS. Although the above discussion does not alter the basic conclusion that ‘ABS is not a trade issue,’ it does suggest a need to explain trade rules more clearly in the ABS negotiation forum and to analyse whether international trade law could limit countries’ sovereign right to decide who may acquire their resources. One way that the international ABS negotiations could ultimately become tied to trade issues might be to interlink it with open markets, commercial piracy and the avoidance of trade discrimination.
Antitrust law is a relatively recent addition to the law of commercial relationships. Although it takes somewhat different forms in each country, at least some elements of antitrust law have been adopted in most developed and many developing countries. The basic objective of antitrust law is relatively simple – balancing the needs of fair trade and commercial development. This suggests that antitrust law may have at least some potential lessons for ABS. One such important lesson is the extent to which the underlying legal mechanism and approach of antitrust law may be useful in development of the ABS regime. In this respect, it should be noted that antitrust law offers unique qualities that may be useful and necessary in ABS implementation.
For instance, many commentators have suggested that CITES and customs law, patent law, and environmental permit laws could be used to enable ABS implementation. It has been suggested that these existing legal systems could be used to implement ABS controls on transfers of genetic resources, by ‘piggy-backing’ additional ABS provisions and requirements on the agencies already responsible for implementing existing controls. Unfortunately, upon closer scrutiny, these proposals are seen to be impractical for many reasons. The agencies charged with these customs, patent and environmental permit systems are already overburdened with tasks that require the application of detailed and rigorous technical requirements (lists, standards, etc.) to a large number of companies or transactions.159
In addition, the work of these agencies is usually sectorally funded, whether from the budget of a particular ministry or agency, or from application fees paid by a specific commercial sector. The only way to add more burdens to these agencies will be to take on the commitment to pay a large share of their funding.160 Even then, most agencies would not welcome an arrangement which forces them to broaden their work to a cover a new sector and a very large number of transactions and inspections. Although an agency is already overseeing the same general group of regulated persons, the addition of a new set of regulatory standards would require significant additional administrative work, training and the development of rules and procedures on genetic resources that are relatively inflexible – specific and definite enough to enable a cadre of low-level inspectors and functionaries to apply them in this highly technical area.161
By contrast, antitrust law is directed at questions of fairness and equity across the entire commercial realm. It focuses on the impact of which companies or a commercial sector may have on the entire commercial market and on the social welfare of society. It recognizes the need to eliminate or control characteristics that are ‘monopolistic’ – i.e., conditions unfair to other persons or entities whether in the market, in the supply chain or otherwise dependent on an open and competitive market. Since it is not possible to define a specific set of characteristics, indicators and conditions that denote an antitrust violation, the antitrust agency normally has a very broad mandate to promote equity, by overseeing and investigating various types of commercial behavior. To accomplish this mandate, such agencies operate relatively flexibly, supplementing their formal role with informal mechanisms for the review of contracts and other business arrangements.162
The parallels between ABS and antitrust law are probably apparent from the foregoing description. Although it uses a commercial/trade-focused tool, ABS is intended to achieve an important social/environmental objective. Both ABS and antitrust share the goal of ensuring that trade and the protection of commerce does not cause harm to important social and governmental objectives, while recognising and protecting the needs and value of trade and commerce. This indicates that there may be some potential to develop a close relationship between the achievement of the objectives of antitrust laws and the achievement of ABS objectives. These similarities suggest that synergies or economies of scale may be found to justify linking ABS oversight to antitrust agencies. This issue should probably be examined in more detail.
* Tomme Rosanne Young is an independent consultant on environmental law and policy, currently based in Bonn, Germany.
1 Gollin, 2002. See also Laird, 1999 (providing a 3-page summary of ‘what a contract must include’ that omits any reference to or discussion of legal issues standards for functional legal instruments or contractual law obstacles to be addressed), and Tobin, 1999 (1-page listing of a few ‘key contractual provisions’ without reference to content of such provisions or legal issues underlying them.)
2 A country may have few locally available lawyers with significant experience in international commercial contracts, by comparison to the level of demand for their services. In the modern world of ‘globalised trade’ their time will be normally both expensive and overbooked by foreign and domestic companies who better recognise their need for qualified expert services.
3 As of 3 December 2007, the CBD's Roster of ABS Experts included 66 names from 13 countries, of which 32 are from Venezuela, 10 from Costa Rica, and a total of 9 from any European country (one from Czech Republic, two from European Commission, and six from Poland). No experts are listed from North America or Japan. Only 5 identify themselves as legal experts, while a few others' resumes indicate work in legal policy issues.
4 Most authors agree that such principles exist, but also note that they are not found in a single code of fixed rules and standards. Discussions of these principles are based on similarities and/or a common core of principles found in various countries' national contract law and practices. Farnsworth, 2006, at 903. Even within these principles, there is tremendous contract-law variation from country to country, including basic elements of the contractual framework. For example, some countries apply one set of contract laws to ‘commercial’ transactions and a separate set for ‘civil.’ Tallon, 1983; and Zimmerman, 2005. In countries using these categories, the dividing line between ‘commercial’ and ‘civil’ differs from one to the next. This presents a special challenge for ABS – a new legal theory whose categorization is not yet clear. It may be impossible in those countries to know which law applies to an ABS transaction.
5 As noted in the Introduction to this Part, one cannot generally provide ‘black letter’ legal analysis of basic contractual principles relevant to ABS contracts, due to the volume and variability of contract law. Each country's basic contract law is set forth and analyzed in a large body of legal writing. Application of each country's existing contract law to ABS will require careful detailed analysis. Only after this has happened can general principles based on existing law be determined.
6 CBD-related research and attention to this issue is summarised in Young, 2005a.
7 A large proportion of national contract law is still focuses on the rules for this type of transaction. The evolution of their national law to address longer-term contracts, including distribution and sourcing contracts, is still ongoing. See Visser 't Hooft, 2002, at 23.
8 Following the adoption of the regime, however, its provisions will probably need to be implemented by national legislation and administration.
9 Claims of ‘biopiracy’ and other misappropriation of genetic resources are difficult to prove. They are most commonly raised where public participation requirements have made individuals, NGOs and communities aware that the user is accessing their country's resources. Hence, many claim that a user who has attempted to obtain ABS permission is more likely to be the object of a claim of ‘biopiracy’ than a user who did not make any such attempt (and whose actions may not be known.) Young, 2005a,
10 See, e.g., the Bonn Guidelines at §§ 13, 33, and Ten Kate and Laird 2002.
11 This control issue is discussed in Fernández, 2007. As a consequence of their uncertainties, provider and source countries have imposed stricter responsibilities on the initial phases of the transaction (negotiations, public participation, PIC and MAT) over which they have control, hoping that this will to increase the protection for their genetic resources, and will have some non-legal effect after the user, his assets and the genetic resources are beyond the source country's jurisdiction. (see also Tvedt and Young, 2007 at Ch 3.)
In addition, tightened control of in-country collection processes creates a ‘research squeeze’ limiting action by researchers are often operating on small budgets and have no intention of obtaining commercial benefit from their work. Accordingly, many researchers, botanical collections and research institutions strongly propose that their work should be subject to an exception. See, Davis, K., 2007, Biber-Klemm, 2007, Demeth, 2007, and Gröger, 2007. By contrast, many high-profile allegations of ‘biopiracy’ or misappropriation of genetic resources are directed at situations in which the genetic resources were originally removed from the source country under a non-commercial research project or permission. Young, 2006a. A ‘research exception’ would be functional if it could ensure that the researcher/collector passes through complete ABS requirements when it transfers the resources. (Schindel, 2008.)
12 The lack of ‘user-side measures’ is discussed in detail in Tvedt and Young, 2007, at chapter 3.
13 This distinction is relatively common in some civil law countries, although the nature of these distinctions cannot be predicted from one country to another. Discussed in Tallon, 1983; and Zimmerman, 2005. For another discussion, see Farnsworth, 2006, at 906-908. In Germanic (civil law) countries this distinction is based on the nature of the parties and the activities within the contract – whether they are ‘merchants’ and ‘mercantile enterprises.’ In Roman law countries (civil law countries deriving practices more directly from Roman law and the Code Napoleon) the question sometimes turns on whether a the agreement concerns a ‘mercantile act.’ In common law, this distinction is not made where the same contract law applies to all, however, additional special provisions apply to some types of contracts (for the sale of goods, chattel leases, etc.)
14 Many negotiators and commentators in AHWG-4, 5 and 6 have suggested that contracts executed before the CBD negotiations began should be considered as ‘ABS contracts. If this designation is to have a legal function, it will be necessary to create some standard for determining what a contract must address/contain, in order to be deemed an ‘ABS Contract,’ and to determine which practices of industry, research, and inter-community integration that will apply to ABS contracts. This can be answered only based on the particular law of the countries involved, the particular sectors and resources involved, and many other factors.
15 Every country includes some users. See Fowler et al., 2001. Thus, every CBD Contracting Party, whether developed or developing, is obliged under Article 15.7 to adopt user measures.
16 These issues are well discussed in other publications, including the other books in The ABS Series.
17 As noted, contractual relations are often based on the parties' view of ‘what a court would do.’ They can best obtain legal certainty when their contract is drafted to meet the court's standards. Although most contracts are never examined by any court, if both parties conform to accepted legal and contractual standards, the parties can be more legally certain regarding their own rights and duties, and their expectations from the other party.
18 Since most species are distributed over more than one country, there may be multiple ‘countries of origin’ for each. Similarly, the origin of traditionally derived agricultural varieties is the country in which it developed its ‘distinctive properties’ although such varieties too are often disseminated across a wide area. Finally, similar species may share similar ‘distinctive properties’ of interest to researchers.
19 The CBD speaks of benefit-sharing with the ‘country of origin of the genetic resources’ – the source country (in the parlance of this Part) unless another country is ex-situ holder and can demonstrate that it has ‘acquired the genetic resource in accordance with the CBD.’ CBD, Art. 15.3, discussed above. The standards for proving such an acquisition are not yet agreed. If it has happened, the acquiring country would be considered a ‘secondary source’ country (as used in this Part).
20 Some ABS laws require an ABS contract for any transaction involving genetic resources; others do not. This inconsistency among countries creates a high level of uncertainty for the parties. See Young 2006a. In some cases, claims of ‘biopiracy’ are asserted where a valid contract for material transfer has been granted, claiming that this grant violates law or equity. Discussions in the international regime negotiations propose creating a unified definition of ‘misappropriation of genetic resources.’ If adopted, this approach could solve two problems, increasing certainty and eliminating one of the main obstacles that has prevented countries from adopting ‘user-side’ ABS measures.
21 Few ABS discussions have focused on the fact that ‘exchange is the mainspring of any economic system that relies on free enterprise.’ See, e.g., Farnsworth, 2006, at 905.
22 The following discussion draws significantly from the theoretical constructs and analysis found in Macneil, 1980.
23 In countries using code napoleon or Roman legal systems, this question is well understood under a principle of patrimony. Oversimplified, this concept says that each person has a patrimony (which might be considered ‘legal control’) over those things which are his own. He can divest or transfer his patrimony only through a legal action (a ‘juridical act.’) Klimas, 2006, at 6.
24 Even in countries known to be ‘litigation-avoiding’, the contract system creates a type of claim and obligation that is normally worthwhile only where it will produce some practical benefit or return to all parties. See, e.g., JAPAN: Civil Code, Art. 1, §§ 2–3, which requires that ‘the exercise of (contractual) rights and performance of (contractual) duties shall be done in good faith and in accordance with the principles of trust,’ and that ‘no abuse of rights is permissible.’
25 CBD Secretariat, 2007b.
26 Personal communication with R. Lettington, April 2005. Documents of the discussions of this issue were not at that time made publicly available.
27 This approach is exemplified in Costa Rica's Instituto Nacional de Biodiversidad (InBio), which has over the past 25 years amassed a very large database and material collection of all or nearly all members of certain phyla present within the Country. See www.inbio.ac.cr.
28 See, e.g., Tvedt & Young, 2007, at 4.1.2, for a more detailed analysis of the reasons that it is legally easier to control ‘rights to utilize genetic resources’ than it is to control the resources themselves. In addition, in 3.5 and 6.2, that book notes that ABS enforcement difficulties are so great that the most practical approach to an ABS regime may be one that relies on the adoption of sufficiently strong incentive measures.
29 Frequent mention of intellectual property rights as a pattern for ABS often ignores two facts: (i) the holders of intellectual property are currently facing severe challenges from ‘pirates’ in other countries who make and sell ‘knock-offs’ of property containing patented or copyrighted information; and (ii) IPR enforcement is primarily dependent on actions by the person holding the patent/trademark/copy rights, suggesting that the high cost of filing and maintaining an IPR is relatively small compared with the cost of defending it. Bentley and Sherman, 2004.
30 Even the rarest endemic species can be found in collections around the world. Many important genetic resources are available on local markets as food or medicines. Physical samples can be legally obtained from such locations without a permit.
31 A desired label may relate to the type or source of the material (e.g., ‘Hoodia from Southern Africa’), or ‘ethically sourced (e.g., ‘purchased from the San people’). Eventually this desire leads to certification like the Forest Stewardship Council's forest product labels. See Young 2006b.
32 This lack of understanding is graphically demonstrated by recent user surveys in Germany, Belgium and UK. See, Latorre, 2005; Holm-Müller et al., 2005 and Dedeurwaerdare, 2006
33 Current activities and outputs of the BioTrade initiative on benefit-sharing can be found online at http://www.biotrade.org/BTFP/BS/Benefit-sharing.htm.
34 Henkel, 2006. See generally, Young, 2005a.
35 This issue is discussed in Tvedt and Young, 2007, at 2.7.4, 3.5, 6.1 and 6.2.
36 The time estimates for commercial product development from genetic resources vary by sector. Estimates in the pharmaceutical sector are usually between one and four decades.
37 Normally, if a government grants a right or permit, there is a specific time period during which officials and members of the public may challenge that grant. After that period has elapsed, the grant is ‘final’ and cannot be invalidated in that way (although they may be rescinded by other actions.).
38 For more information on contractual ‘validity,’ see Farnsworth, 2006, at 911 et seq., and Neumayer, K. 1999.
39 The question of legal authority for ‘genetic resources’ is legally paradoxical, due to the possibility discussed above that there may be multiple unrelated owners of the same genetic material, but with only one being party to the ABS contract. The user's assumption that he may legally patent the genes obtained assumes that this one owner can give away rights in the genetic material on behalf of all other owners. Until resolved, this lack of a rational, consistent and equitable theory of the ‘ownership’ of genetic resources may create serious uncertainties that invalidate the contract or have other legal consequences.
40 See, e.g., Laird and Lisinge 1998, Verolme 1999.
41 CBD, Art. 15.1. Stating that, unless a country formally decides not to regulate access to genetic resources, access is a sovereign right of each country, granted only with that country's consent. CBD Art. 15.3.
42 Obviously, this question is most problematic where local communities or residents have collective rights in the genetic resources. In many cases, these communities are not incorporated in a way that gives one person administrative authority. Some community organizations are non-mandatory, so that one may live in the region but not be represented by the organization. If the organization represents most holders of the genetic resources, but not all, then it may not be legally authorized to enter into the ABS contract. In addition, many genetic resource transactions, although based in a single community, extend beyond that community, affecting people who are not governed by it.
43 The would-be buyer would be able to bring an additional claim against the would-be seller in such a case, but only if the would-be seller had sufficient assets to pay the claim.
44 For example, in nearly all countries the registration of rights in land and immovable property is proven by deed or other document from an official land registry. See Ruiz and Lapeña, 2007, at 4.1.2.
45 ‘Proof of legal authority’ is a common requirement in commercial contracts. The breadth of national approaches to this type of proof is discussed at length in Sinnott, 1998. That proof must normally come from a legally competent external source, rather that a simple statement by the party himself (a government official has no incentive to declare that his own decision has exceeded his statutory, administrative or legal authority.) Often, authority is proven by certificate from a higher level – e.g., a corporate resolution giving a particular person authority to enter into the contract commitments on behalf of the corporation. Persons acting on behalf of government usually provide formal confirmation from another (higher) level (an official letter from the Attorney General/Minister/President, a statute granting authority, etc.)
46 The BioTrade initiative is currently seeking to develop Guidelines on ethical sourcing practices for companies obtaining biological materials from developing countries (See draft concept note: Practical Guidelines for Equitable Sharing of Benefits of Biological Resources in BioTrade Activities, 3 March 2007.) That guideline specifically considers it to be the duty of a party seeking to purchase these materials to provide independent legal/technical advisors to the provider community.
47 Bonn Guidelines, Art. 19.a.
48 Bonn Guidelines, Art. 21.
49 Many basic facts known only to one party should, in fairness, be known by both sides before the negotiations are concluded. Such a duty might also arise, if you had known that hazardous materials have been spilled in the property being transferred, since it may not be possible to determine this with ‘due diligence’. By contrast, the seller does not have a duty to disclose whether the plumbing works or whether the property is infested with pests, because expert inspection is available. See, generally, Marsh, 1994, pp. 112–139.
50 Furmston, 2001, at 291–354 provides a discussion from one country whose practices have been widely studied and adopted (UK). For other jurisdictions' approaches, see Marsh, 1994, at pp. 112–139.
51 Extreme versions of this approach are found in some of the ‘ABS certificate’ proposals, which list a large number of facts to be disclosed in a certificate that will potentially have a wide circulation. See, e.g., the documents of the CBD Meeting of the Group of Technical Experts on an Internationally Recognized Certificate of Origin/Source/Legal Provenance, 25–27 Jan. 2007, especially: ‘Consideration of an Internationally Recognized Certificate of Origin/Source/Legal Provenance’ UNEP/CBD/GTE-ABS/1/2; and ‘Compilation of Submissions Provided by Parties, Governments, Indigenous and Local Communities, International Organizations and Relevant Stakeholders Regarding an Internationally Recognized Certificate of Origin/Source/Legal Provenance’ UNEP/CBD/GTE-ABS/1/3, and addenda, The BioTRADE Initiative’s proposed standard for the sourcing of biological ingredients in commercial products is also relevant to this question. See footnote 46.
52 If one researcher expends significant funds to identify and locate a target species or genus, he may have a restricted budget for the next phases of his work. A competitor with more funds to spend and access to the first researcher's initial information, could have a head-start and quickly surpass the original researcher.
53 Under these laws, the information shall be excluded from public records or publicly accessible files, and the officials charged with responsibility for access to the information will be subject to both institutional and personal penalties for violating the secrecy.
54 This type of promise would require each secret-holder to accept liability for the harms caused by leaking the secret. Even then, the entity requiring trade secret protection would bear the burden of proving (i) who leaked the secret; and (ii) that the ‘leaker’ was bound by that promise. And he can only be compensated if the promisor has sufficient assets. Individual providers and rural communities rarely have sufficient assets to compensate for commercial injuries such as the loss of trade secrets or release of preliminary research data.
55 Many countries place limits on the rate of interest that may be charged. These laws look beyond the contract, since a contract may have the same effect as extreme interest rates, even if it does not specifically call the additional charges ‘interest.’
56 A number of countries, for example, forbid contracts of extremely long duration (above 5 years, for example), unless they comply with certain special requirements. (UNITED STATES: Uniform Commercial Code § 2[201.) This general rule dates back to the 1600s, in Britain, where it was embodied in the ‘Statute of Frauds and Perjuries’ (UNITED KINGDOM: Charles II, 1677: An Act for prevention of Frauds and Perjuryes.‘, Statutes of the Realm: volume 5: 1628–80 (1819), pp. 839–42.) The concept is also embodied in law of many civil law countries.
57 Laws controlling the sale of government property to individuals are designed to prevent abuses, including by ensuring that the government official who approves the transaction is not (legally or financially) related to the person or entity purchasing the property. Over decades of applying these controls, many kinds of disguised relationship have been found. As a consequence, the law now focuses on many disguised abuses.
58 As discussed in chapter 1, the CBD Secretariat has recently undertaken a preliminary study of the ‘status of genetic resources’ in countries by considering those countries' land-ownership laws. It has not yet done the next steps in this process, examining national laws relating to other types of property.
59 As noted in 1.2.5, few countries have adopted such laws.
60 Compliance with these laws is not as easy as it sounds. Most have been developed over decades or centuries to prevent abuse of commercial processes. For instance, laws against ‘usury’ (illegally high rates of interest) have evolved and become more complex, in order to address many different contractual ploys through which some have tried to take advantage of weaker parties by creating contracts that have the effect of usury, without specifically imposing a usurious interest rate. For a general discussion see Beatson. and Schrage, 2003, Chapter 8; Marsh, 1994, at pages 290 – 309.
61 See Beatson, Schrage, 2003; Cohen; McKendrick, eds, 2005, at 81–82; Marsh, 1998 at 101–108; Klimas 2006 at 73–126.
62 It recognises that equity between contracting parties may be different from the terms of the contract.
63 For more discussion of reliance, see, e.g., Farnsworth at 907. (‘With the development of competitive markets and the specialization of labour, it became essential to provide a general basis for the enforcement of promises, even before any performance by either party. Such transactions are a far cry from the simple credit transactions such as the loan of money or sale of goods.’)
64 For 15 centuries, the law has stated that a contract will exist where it meets certain strict forms of words and procedures of signing. See Zimmermann, 1996, which includes a discussion of the contractual formalities in the Code of Justinian (6th Century) and how they have come down to modern contract law.
65 See, e.g., Gollin, 2002, at 312; Laird, 1999, and Chon and Ghosh, 2000.
66 Personal communication, John Pierce, circa 1982. Probably available in publications. Based on notes of personal consultations with him, beginning in 1981.
67 Internationally agreed contractual systems have developed over 1–2 centuries. Countries have special processes for verifying contracts, by a certificate or affidavit, confirming the identity of the signatories, and/or the contract's validity. In some countries, this process is relatively simple and quick; in others, very complex and time consuming. An excellent summary of processes and issues involved in documenting multi-country contracts is found in McClean, 2002, at Part II.
68 See, McClean, 2002, at chapter 2; Farnsworth, 2006, at 920-922. For a contrary perspective on the use of traditional formalities, see Laird, 1999, noting that written documents ‘go against a more friendly atmosphere of research collaboration;...require too much time and investment for short-term research projects;... can be understood by communities only with legal or other expert assistance; [or] can be made with the wrong party or parties within a community.’
69 A key drafting question is ‘‘What country should be the ‘governing law?’ ’’ In most commercial contracts, one would base this choice on the countries' rules of ‘contract validity’, as well as practical questions (e.g., How easy will it be to get a certificate or other proof of the validity of the contract, if needed in future?).
70 If a contract does not state which is the ‘governing law,’ a court will normally consider to be the law of the country in which the contract was signed to be the governing law. This can be problematic where the parties are from (and signing in) different countries.
71 See § 18.104.22.168, above.
72 For example, in Japan, the law states that ‘Where custom differs from any provisions of laws or ordinances which are not concerned with public policy, it shall be deemed that the parties intended to conform to such custom, and that custom shall prevail.’ JAPAN: Civil Code, Art. 92. (Translation in Visser ‘t Hooft, 2002.) See Asahi Shoseki Hanbai K.K. v. Suzuki Takashi and Saijō Kanji, 1045 Hanrei Jihō 105 (Tokyo District Court, 30 September 1982.) (invalidating a 20-year contract for textbook distribution because customarily these types of contracts are not of such long duration.) Per Visser ‘t Hooft, 2002 ‘In certain situations, custom can be an important source of law, having an important function in filling the gaps between formal law and social reality. A court might hold that widely accepted commercial practices are part of a contract, even if not included in writing.’ (at 24.)
73 Laws and legal principles normally develop at a glacial pace. By comparison to contract/property law, which evolved over many centuries, ABS is a quite new phenomenon.
74 See footnote 66.
75 The legal meaning of the term ‘binding’ is not always understood. In the normal course, this term is not relevant to conventions and legislation, which are always legally ‘binding’ in the sense that all persons are required to comply with them. The questions raised in ABS, regarding whether the law is ‘binding’ focus on the fact that ABS contracts cannot be enforced as a practical matter. In normal legal usage, ‘binding’ refers to enforceability of contract promises. To determine whether a contract is ‘binding’, one must ask whether the law can and will enforce that contract.
76 ‘No legal system has ever been reckless enough to make all promises enforceable. In theory, one can approach the question of enforceability from two opposite extremes – by assuming that promises are generally enforceable, subject to certain exceptions, or by assuming that promises are generally unenforceable, and listing the exceptions to that general rule. Both civil law and common law have made this latter assumption.’ Farnsworth, 2006 at 907.
77 Marsh, 1994, at chapter 1; Beatson, J and E Schrage, 2003, Chapter 9.
78 See generally Marsh, 1994, pp. 290–309.
79 Reimann, M and R Zimmermann, 2006, at Chapter 29.III.
80 The UNIDROIT Principles of International Commercial Contracts, 2004, express these principles. The formal application of these principles is limited to ‘contracts for the sale of goods.’ It is not clear that they are applicable to an ABS contracts, which may be a ‘sale of goods’ a transfer of intangible property, a grant of a legal right, or some other type of transaction (see footnote 138, below). See also Marsh, 1994, pp.290–309.
81 This leads inevitably to the connected question – Which activities constitute ‘utilization of genetic resources’ (requiring ABS permission), and which are not? This issue is discussed in Tvedt and Young, 2007.
82 Discussed in detail in Mgbeoji, 2006b.
83 For Kenya, it would not be possible to ‘un-ring the bell’ (once the commercial user has identified the species' genetic and biochemical information and related knowledge, those gains cannot be rescinded.) Appropriate remedies would be sought through an ‘implied contract’ which assumes that the parties have agreed to be bound to payment and other specific benefit-sharing obligations. The specific compensation that is fair in this instance would be selected by the court.
84 For example, an agreement to sell one apple to buyer in exchange for immediate payment of five cents, is very definite. An element of potential uncertainty is added, however, if the seller agrees to a discounted price, in exchange for the buyer's promise to buy tomorrow. What if tomorrow's apples taste bad or are rotten? What if funds are in the bank, and tomorrow is a bank holiday? Other such questions might include the situation in which a seller may intend to sell the apple ‘as is,’ while the buyer intended to buy only if it were edible. If the parties did not discuss this in advance, then the law may have to decide whether buyer's obligation was sufficiently mutual and definite. Other questions focus on whether the contract included a specific purpose (i.e., to make apple pies), and which party will bear the risk that the flavor of the apples will prevent this purpose?
85 Folsom, 2004, at 70–125.
86 Based in part on the CSIG, Article 14; discussed in Folsom, 2004, at page 40.
87 In particular, where it grants an intangible right, the contract must clearly describe that right. Contracts relating to patents, for example, must specify the right granted very precisely. Such a contract may grant anything from a right to use the innovation once, to a license for large scale commercial use or to the transfer of the entire patent (all rights to control other uses of the innovation).
88 The range of rights in immovable property is extremely broad, with specific rules and rights for every type. A right in land may be inter alia outright ownership, lease, a right to use the property, the right (limited or unlimited) to collect specimens from the land or a right to cross the land at any time.
89 Where a contract states that the user will later identify the samples collected, it is sufficiently definite if it provides a clear mechanisms for that identification and for determining what price will be paid.
90 See the Kenya Extremophiles case, discussed in 22.214.171.124 above. The right to collect specimens of biological material is normally not restricted by law, unless the species involved is legally protected, or when the specimens were collected on land that one may not legally enter. In other instances, these collection activities are only subject to legal control is when they are done for purposes of utilizing genetic resources. This issue is discussed throughout Tvedt and Young, 2007.
91 This difference in understanding is only relevant where the contract is ‘ambiguous’ from the perspective of an outsider reading the contract document. If the contract appears to be unambiguous on paper, then the fact that one party states that he had a different view is not a basis for declaring it unenforceable.
In law schools, a classic example of ambiguity is this: Consider a sales contract that does not specify which party will pay shipping costs, in a country which has no law stating who must pay those costs where the contract is silent. The seller reasonably believes that the buyer will pay all shipping costs, and the buyer believes that all such costs will be borne by the seller. If other factors are equal, the court or arbitrator may find the parties never agreed on price and refuse to enforce the contract.
92 The ABS ambiguities currently being discussed may be only the ‘tip of the iceberg.’ Even after ‘key ABS terms and concepts’ are agreed by the ABS regime negotiators, a second tier of ‘sleeping ambiguities’ may become obvious through experience. For example, after the term ‘genetic resources’ is clearly defined, contract parties may still have to define what constitute ‘the results of research using’ genetic resources – i.e., what information must be shared under the ‘research clause’ of article 15.7, and when this sharing must occur. Discussed in Tvedt and Young, 2007, at 4.3.2.
93 Contracts of adhesion are often pre-printed forms. This format gives the party the feeling that he may not change the terms and must agree to the entire contract.
94 Similarly, some contracts may be considered unconscionable where a commercially stronger party uses this strength to obtain an unfair advantage over the weaker party (for example, the price received by the weaker party may be grossly undervalued.) In a further recognition of this concept, many countries have adopted consumer protection laws and other statutes to protect parties in other unequal negotiation situations. See, e.g., Lord, 2007 at chap.18 ‘Unconscionable Agreements.’
95 More details about the use of form contracts are discussed below at 3.1.
96 Furmston, 1993, at pp. 399–444.
97 See, e.g., ABS law of Australia, Costa Rica, and Brazil. All of which are developing governmentally mandated form contracts to maximize fairness in the negotiations.
98 The Biotrade initiative, referenced in footnote 32, is considering recommending this option.
99 ITPGRFA § 12.3(a).
100 In a few countries, two additional elements – known as ‘consideration’ and ‘mutuality’ – are required. A summary of some of these issues is contained in the UNCITRAL Convention on Contracts for the International Sale of Goods, at Articles 14–23. As noted in footnote 78, above, the CISG is primarily intended for commercial sale of ‘goods’ and may have limited application to ABS.
101 In contract cases, the question of mutual assent usually involves deciding whether the ‘offer’ was intended as an offer or just as an opening of discussion, and whether an ‘acceptance’ was truly acceptance or a ‘counter-offer’ restarting the negotiations. The most common issues of mutual assent are described in Klimas, 2006, at 19–96.
102 At this point, it will be clear to the reader that the various concepts described in this chapter are overlapping, as the ‘informed’ element of ‘informed acceptance’ is basically identical to ‘legal competence’ as described in 126.96.36.199 and 188.8.131.52.
103 CBD, Article 15.5. In the CBD, the term Contracting Party means a country that has become a party to the CBD (see CBD, Preamble, first line, et passim.) It does not refer to the individual parties to an ABS contract.
104 The operation of national PIC laws in the Philippines provides a useful example of how PIC is different from normal contract view of ‘informed acceptance’ and how it may inhibit users from seeking ABS contracts. Benevidez, 2004.
105 This is similar to EIA, which may often involve two separate governmental processes at the same time in different agencies: (i) the decision to approve development or commercial action and (ii) the EIA process. In many countries, although public participants do not make the contract/licensing decision, they contribute to the EIA process, giving comments which must be addressed by both deciding bodies. See, Morris, P and R Therivel, 2001.
106 In the Philippines, for example, each individual community holds its own public participation process through which the entire community participates in the drafting of MAT between the user and that community. This can be a challenge where a bio-prospecting project canvases a large region, as the user must comply with many very different contracts and identify imprecise community boundaries, so that each specimen's precise collection point is linked to particular MAT. Benevidez, P., 2004.
107 One example of this phenomenon is, of course, CBD Article 15, which was drafted by a large ‘committee’ of delegations, resulting in a document whose precise legal meaning is still uncertain and being hotly debated 17 years later.
108 In many instances, the law requires that the ABS relationship is defined in more than one different instrument, whether all are negotiated at the same time, or at different stages of the contract.
109 CBD, Arts. 15.4 and 15.7.
110 This last term means that, for some countries, a contract cannot exist if it is unilateral (with only one party committing to any action, payment, transfer of property, etc.) In countries that require ‘consideration’, there must be some mutuality of obligation – that is, the receiving party must give something in return. This requirement is tenuous where a law or contractual practice says that a ‘token consideration’ – i.e., payment of US $1 – can convert an agreed gift into a binding contract.
111 Compare Ten Kate and Laird, 2002 (which states that benefit-sharing only applies when linked to an access contract), with Tvedt and Young, 2007 at 3.3. Other discussions suggest that the contract must be renegotiated (come to new MAT) at least once after the contract has been bound. See Glowka, 1998. Under contract law, the original contract would probably not be binding on either party in this case, since the contract would fail basic legal tests, such as ‘definiteness.’ (see § 184.108.40.206)
112 Current trends are seeking to maximize the recipients' control over technical assistance. See, for example, the GEF Resource Allocation Framework (RAF), which gives recipient countries a voice in selecting projects and activities that can be funded in their country. The RAF is available online at http://www.gefweb.org/documents/council_documents/GEF_C27/documents/C.27.Inf.8.Rev.1_RAF.pdf. For further information see Hårstad, 2005.
113 Although shrink-wrap/click-wrap contracts are used every day, there is not yet any clear national or international law addressing their validity and enforceability. In deciding to use this mechanism in the ITPGRFA, the negotiations noted that the process needed for ‘validation of such contract forms in national systems of law is still in its early stages.’ Moore and Moore, undated.
114 As discussed in 2.3.2, above under the term ‘reliance.’
115 See 220.127.116.11, above.
116 (See 18.104.22.168, above.) Shrink-/click-wrap contracts raise some question about whether the software purchaser has any actual knowledge of the contents of these contracts. Many persons admit that they simply click ‘accept’ without any serious attempt to read and understand what they are accepting. This failure to read the fine print is a classic indicator of a contract of adhesion. In the ITPGRFA's negotiations, this issue was discussed by the Interim Committee for the International Treaty on Plant Genetic Resources for Food and Agriculture. Moore and Moore, undated.
117 A court might require proof that the person holding the software actually opened the wrap. Such proof that may be problematic, especially in international material transfers, where packages are often opened on loading docks, in mailrooms, in individual offices, or in customs. None of these persons is authorized to adopt a binding contract on behalf of their employer The ITPGRFA, having noted that most shrink-wrap parcels containing plant germplasm are opened in customs, is working to develop systems to address this ambiguity and ensure that it does not invalidate shrink-wrap SMTAs.
118 1.2.6, and see Cabrera and Lopez, 2007; at 1.2.4, 1.2.5, 2.1.5 and 2.6, in Tvedt and Young, 2007; at Chap. 3 and Young, et al. 2007, at chap 11.
119 See Convention on Biological Diversity. 2007.
120 Discussed in Moore and Tymowsky at page 119–128.
121 ITPGRFA, SMTA, Article 10. Under the SMTA, the choice among these options is expected to be a formal decision (‘the Provider and the Recipient may choose the method of acceptance.’) In practice, however, the collections usually allow the recipient to choose the method.
122 In addition to the listed items, the SMTA includes a number of other requirements. It is arguable (and often argued) that these are required by law, and thus no different from the more conventional use of shrink-wrap/click-wrap mechanisms. See SMTA Art. 6.2.
123 SMTA, Art. 4.3 and 4.4. The concept of third party rights is discussed below, at 2.6.3.
124 SMTA, Art. 6.1.
125 SMTA, Art. 6.3.
126 SMTA, Art. 6.4 and 6.5.
127 SMTA, Art. 6; Annex 2; and see definition of ‘Sales’ in Article 2.
128 SMTA, Art. 6.9. The information system is created under ITPGRFA Art. 17.
129 SMTA, Art. 6.4 and 6.5.
130 Although the ITPGRFA is not clear about this point, it may be reasonably inferred from the following provisions:
Art. 7.2(b) – ‘National Commitments and International Cooperation’: International cooperation shall, in particular, be directed to... (b) enhancing international activities to promote conservation, evaluation, documentation, genetic enhancement, plant breeding, seed multiplication; and sharing, providing access to, and exchanging, in conformity with Part IV, plant genetic resources for food and agriculture and appropriate information and technology.
Art. 12.3(a) – Facilitated access to plant genetic resources for food and agriculture within the Multilateral System: Such access shall be provided in accordance with the conditions below: (a) Access shall be provided solely for the purpose of utilization and conservation for research, breeding and training for food and agriculture, provided that such purpose does not include chemical, pharmaceutical and/or other non-food/feed industrial uses.
131 As noted in Convention on Biological Diversity, 2007a, (and see, Young 2006a, and Tvedt and Young 2007), it is very difficult to enforce national laws and regulations in foreign courts. One cannot eliminate all enforcement problems by using contracts, but it is much easier to get access to and action in foreign courts where the action is based on contract.
132 Consider, for example, a donor who wants to give his art collection to his local museum, with the stipulation that it may never be sold or donated to any other institution. Usually, once the donation is complete, the restriction will no longer apply. To achieve his wish, the donor will have to change the transaction. Instead of donating, for example, he can lend or lease the collection to the museum on a long-term basis. This keeps the transaction ‘alive’ (as a continuing loan rather than a completed donation) so that the stipulation will continue to prevent further sale or transfer of the collection.
133 A transfer of ABS contract rights, duties and resources may create legal problems such as ambiguity in defining the benefits shared and the need to determine how a claim may be presented, in the event of a post-transfer violation. The user's obligations in ABS obligations often include answering inquiries and reporting on activities through the years following the original transaction. To remain in compliance with such a requirement, the user who has transferred some of the genetic resources would have to maintain and report oversight of all persons to whom the resources have been transferred.
134 See Young, 2006a.
135 For instance, a contract may designate a particular bank or trust company as the fiduciary that will hold certain property or payments from one party, and verify the other party's compliance before paying out these funds or transferring the property. The trust company earns a fee for this service, but that benefit (to the trust company) was not a purpose of the contract. The trust company is thus an unintended beneficiary.
136 See ITPGRFA, Art. 19.3f.
137 In some countries, for example, if a legal document is titled a ‘deed’ or ‘mortgage,’ that title will be presumptive evidence of the party's intent.
138 See footnotes 4 and 13 and accompanying text.
139 In ABS, many (perhaps most) claims of violation arise when the user and the genetic resources are outside of the source country. Young, 2006a. It is important to remember that, although the currently envisioned ABS framework involves only one source country, it may involve more than one user country. The particular user who obtains the ABS contract may operate (or conduct research activities) in more than one country, may provide the samples to other researchers under contracts for specific work, or may transfer the genetic resource to other users.
140 CISG, Art. 2; and see Folsom, 2004 at 28, et seq. on the extent to which this definition excludes other kinds of transactions and raises questions about other kinds of contract.
141 Currently, for example, courts are split over whether a contract for standing timber constitutes a transfer of ‘goods’ under that Convention, because (i) they have not been produced until standing timber has been harvested; and (ii) some argue that standing timber, being affixed to the ground, is immovable property. Folsom, et al., 2004.
142 At most, biological specimens (plants) taken might be ‘severable’ from property, which under some countries' law would mean that they are the property of the landowner or landholder, but in other countries this might not be the case.
143 Currently, in ABS, there are many apparently different views about what category might be used to interpret and enforce ABS contracts. Some commentators address ABS contracts and related discussions as if the transaction were a sale of goods. See, e.g., AUSTRALIA 2002, ‘Nationally consistent approach for access to and the utilisation of Australia's native genetic and biochemical resources,’ available online at http://www.cbd.int./abs/measure.shtml?id=7805. Others view it as a transfer of something similar to intellectual property. See, e.g., Shiva, V. Undated.’Free Trade Industrial Agriculture Rules Threaten the World's Farmers: The World Trade Organization Trade Related Intellectual Property Rights Agreement’, available online at http://www.ifg.org/pdf/int’l_trade-shiva_WTO.pdf_1.pdf. Still others assume that the issues involved should be governed by the law of land and immovable property. See, CBD Secretariat, 2007b.
144 The possibility of using the IPR system, whether as a model or directly, as the ABS's implementation system was discussed in the Crucible Group's published conclusions – a useful resource on this issue. The Crucible II Group, 2000 and 2004.
145 Discussed in 2.6.2, below.
146 Three examples are Australia, Costa Rica and Brazil. Tvedt and Young, 2007, at 3.3.
147 CBD Article 15, in general.
148 Tvedt and Young, 2007, at 4.1 and 4.2.
149 Basic questions regarding international enforcement and remedies, discussed in detail in Young, 2007, are not reiterated here, except where they are directly relevant to contractual drafting.
150 An excellent initial paper laying out this fact was presented by Heike Baumüller, then at ICTSD, in a Roundtable on the Practicability, Feasibility, and Cost, of Certificates of Origin, (Vilm, Germany) 9–10 November 2007 leading inevitably to her decision that further analysis of the issue would not be productive. While a number of student and post-doc studies have examined the issue as a theoretical or hypothetical matter, the practical reality – that international trade law cannot force anyone to sell their property unless they choose to, and that no country will realistically want it to be otherwise – remains generally unassailable, in light of the impact of such a holding on other trade. Consequently, barring a major change, such studies can only be of academic interest.
151 To date, the authors are aware of no international cases claiming that a country or other entity has violated international trade law by refusing to sell its resources or other property at the request or demand of any person, nor has any case suggested that, where a government chooses to sell some of its resources to a particular buyer, it must give an equal opportunity and/or price to another buyer.
152 For example, a seller or provider of goods or services may sometimes be bound by a rule of ‘non-discrimination,’ where his business serves a ‘public function’ – providing services and commodities that should be available to all citizens without discrimination. In common law, this concept is clear, and it is well recognized that public functions are sometimes (frequently) performed by private entities. See Martin and Turner, 2006. In the United States, this concept is embodied within two larger concepts of ‘equal protection under the law’ (a right guaranteed by the US Constitution), and ‘Civil Rights (embodied to some extent in the Federal Civil Rights Act of 1964.)
153 Ibid. In addition, national law sometimes includes special emergency provisions, under which private property may be taken without the owner's approval, in times of dire emergency, or where the owner made a promise of ‘non-competition’ at the time that he acquired the property. See Jefferson, 1996, at part 1.
154 The fiduciary is not always required to take the best price, but may consider other factors in determining which is the best deal in the interests of the country.
155 The WTO tribunals have regularly surprised all sides by their unique conclusions in environmental cases. Consequently, the authors cannot be certain that ABS will not at some point be subject to scrutiny by a WTO tribunal. Until such a case is filed, however, analysis of what would happen if WTO did apply to require countries to provide access to genetic resources continue to be primarily academic speculation.
156 See Lettington and Dogley, 2006. This issue has been presented in early drafts of a book in this series (Cabrera and Lopez, 2007), but was withdrawn for further study, and will be analysed in a future publication.
157 See Young, 2006c, and citations therein.
158 The user who can prove that he engaged in benefit-sharing in the course of the development of a product, may obtain other permits or preferential position in the queue for product introduction.
159 Irene Sprotte ‘The permit and certificate system of CITES’ in European Regional Meeting on an Internationally Recognized Certificate of Origin / Source / Legal Provenance, 24–29 October, 2006.
160 Often, the agency or industry providing funding for a given agency normally also plays a critical role in determining the institution's priorities, staffing and responsibilities. This approach has been prevalent in patent agencies (usually funded by the fees paid by patent applicants) and agricultural ministries (sometimes funded by agriculture-oriented companies).
161 Young, 2004.
162 See, for example, the Japanese Fair Trade Agency, which provides informal review of some types of contracts to ensure that they are not violations of the act. (See Visser ‘t Hooft, 2002 at 99, discussing the role of informal review of a distributorship contract, as described in the case of Kao v. Egawakikaku, a part of the case of Shiseido v. Fujikhonten, 1474 Hanrei Jihō.
< previous section < index > next section >