The growth of foreign direct investment (FDI), which has played an increasingly important role in global economic activity and development, has bolstered the field of international investment law.
Another similarly vital area that has seen exponential growth is IP, which has become the main feature underlying national and international business, trade, and investment.
When it comes to the world’s four most successful companies in 2019— Microsoft, Apple, Amazon.com, and Alphabet (which owns Google) —their primary worth is not based on physical assets or real estate ownership. Instead, their value is driven by their ideas, inventions, creative thinking, and other knowledge-based goods, all of which are protected by various types of intellectual property rights (IPRs).
In this article, we will look at some of the new issues that have arisen as a result of intellectual property (IP) protection under the international investment law.
What are Intellectual Property Rights?
Intellectual Property Rights (IPR) are the rights that refer to the creation of minds. They typically grant the inventor unique rights to use his or her creation for a specified period.
Some of these rights include:
- Industrial Designs
- Geographical indications
- Trade secrets
What is International Investment Law?
International investment law is the body of law that controls alliances between states and foreign investors.
There is no centralised pact or institution in the international investment law system. There are over 3200 bilateral investment treaties (BITs) and investment chapters in preferential trade agreements in this field of law (collectively referred to here as “investment treaties”). These treaties are augmented by a plethora of investment contracts between government bodies and foreign investors, as well as domestic investment regulations.
Investment treaties seek to attract FDI to enhance economic development by providing certain protections to foreign investors and their investments, including some that go beyond those available to local investors. These may involve responsibilities on the part of the home state not to confiscate property, not to distinguish against the investor, and to treat the investor in a “fair and equitable” fashion. Through a process known as investor-state dispute settlement(ISDS), investment agreements often allow foreign investors to directly bring legal issues against the state government in which their investment is held.
Intellectual property provisions in International Investment Arrangements
- There are numerous multilateral treaties on IP.
- The most well-known is the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement), which was reached during the Uruguay Round of trade talks.The TRIPS Agreement sets up basic requirements that WTO members must follow, with a few exceptions.
- IP-related provisions are also common in bilateral investment treaties (BITs) and preferential trade and investment treaties (PTIAs).
- The incorporation of IP-related clauses in BITs and PTIAs highlights the importance of patents, trade secrets, trademarks, copyrights, and other IPRs in international trade relations. It is also a crucial area where fierce bargaining takes place.
Intellectual property as “investment” in bilateral investment treaties
IPRs are mostly covered under the definition of ‘investment’ in most BITs. It shows how important it is to protect one’s intangible assets from the inclusion of IPRs in the definition of ‘investment’ in BITs. IP can be a valuable strategic asset, which is especially important given the rapid development of advanced industries such as biotechnology and pharmaceuticals, which rely on patents, trade secrets and know-how protection.
The clear words referring to intellectual property rights in the definition of BIT investment has evolved over time. From the 1960s to the 1980s, BITs regularly differentiated between “industrial property rights” and “copyrights,” as well as other related subject matter such as technical procedures or processes. Recent BITs generally refer to “intellectual property rights” in a specific list of assets to be protected.
The important clauses in the BITs are as follows:
Most-Favoured Nation (MFN) treatment
MFN clauses are common in almost all BITs. An MFN clause allows an investor to assert any advantageous right available to any other state that has a BIT with the host state.Investors have used MFN provisions to assert the advantage of more beneficial procedural and substantive safeguards found in the host country’s BIT with other countries, with mixed results.
The concept of National Treatment guarantees that a foreign investor is handled on an equal footing with a domestic investor and is not subjected to unequal treatment.Many IP conventions, including the TRIPS Agreement, include the national treatment standard.
Fair and Equitable Treatment (FET)
FET is a basic concept that is frequently invoked in international law. It is also a key treatment standard under BITs and is incorporated into the TRIPS Agreement.FET about IPR enforcement procedures is requested in the TRIPS Agreement.FET principle establishes the lowest treatment standards that must be met by the host state.A lot of positive investment claims have been based on a violation of the FET standard. In broad terms, the FET principle requires states to have a consistent and reliable legal framework governing investment that fulfils investors’ realistic expectations.
It is widely acknowledged that host countries have restricted conditions under which they can expropriate overseas investment. A lawful expropriation must meet the following criteria:
(a) it must serve a public benefit,
(b) it must not be unjust or unreasonable,
(c) it must be carried out in compliance with due process, and
(d) it must be supported by proper compensation.
There are two types of expropriation:
It happens when the host state officially acquires ownership of the expropriated asset.
This occurs when there is significant and long-term interference with the investment that deprives the investor of a slew of benefits.
We shall now look at three case laws regarding the protection of IPRs under international investments laws:
- The International Centre for Settlement of Investment Disputes (“ICSID”) has ruled in favour of Uruguay in the Philip Morris v. Uruguay case. Philip Morris – a tobacco company had sued the Oriental Republic of Uruguay.
- In this case, Philip Morris Brand Sàrl (Switzerland) (“PMB”), Philip Morris Products S.A. (Switzerland) (“PMP”), and Abal Hermanos S.A. (Uruguay) (“Abal”) (collectively referred to as “Claimants”). The Oriental Republic of Uruguay is the Respondent.
- The demands relied on the Agreement on the Reciprocal Promotion and Protection of Investments between the Swiss Confederation and the Oriental Republic of Uruguay, dated 7thOctober, 1988 (“BIT”), which was entered into on 22ndApril, 1991.
- The Claimants’ main claims were that Uruguay breached the BIT in its handling of the trademarks linked with cigarette brands in which the Claimants had invested, by imposing appropriate tobacco-control policies that regulated the tobacco industry. These policies will be discussed further below.
Claimants’ objections to policie
The Claimants challenged two Uruguayan policies in this legal case:
- The first measure, known as the single presentation requirement, states that tobacco companies may only market one cigarette version per brand family. As a result, each cigarette brand should have a consistent presentation, and unique wrappers or variants of cigarettes may not be sold under the same brand. As a result of this stipulation, the Claimants were required to sell only one product version under each brand. Previously, the Claimants sold various product varieties under each brand, such as Marlboro Red, Marlboro Gold, Marlboro Blue, and Marlboro Green. Because of the single presentation requirement, the Claimants were only allowed to sell one product version under each brand, such as Marlboro Red. According to the Claimants, this reduced the company’s value due to the absence of version sales. According to reports, the Claimants were forced to pull out seven of their twelve brands from Uruguayan stores as a result of this rule.
- The second measure, known as the 80/80 Rule, increases the size of visual health warnings published on cigarette boxes. According to this rule, the size of health warnings on cigarette boxes should be increased from 50% to 80%, and only 20% of the cigarette pack could be used for trademarks, logos, and other related details. The Claimants argued that this is an improper restriction of their right to use their trademarks by prohibiting their display in the proper form, resulting in a denial of IPRs and a decrease in the worth of their investment.
Remedies requested by the parties
- The Claimants argue that Uruguay’s actions violate the Respondent’s commitments under the BIT, specifically the inability to use and enjoy investments [Article 3(1)], fair and equitable treatment and denial of justice [Article 3(2)], expropriation (Article 5), and fulfilling the commitments (Article 11), enabling them to reimbursement.
- Uruguay’s argument relies on the defense that the policies were enacted in accordance with Uruguay’s international commitments, with the single aim of protecting public health. They further contested that the policies were implemented to all tobacco companies in a nondiscriminatory way, within the scope of Uruguay’s sovereign capacity.
However, the arbitral tribunal rejected the Claimants’ claims.
The claim was filed under ICSID Convention by two US-based companies, Bridgestone Licensing Services, Inc. (BSLS) and Bridgestone Americas, Inc. (BSAM), as part of the US-Panama Trade Promotion Agreement (TPA). Panama raised several objections to the tribunal’s jurisdiction. The claimants had no “investment” under the TPA, according to one argument.
The first problem arose in connection with the Firestone trademark. The background was, BSLS was the registered owner of the Firestone trademark in Panama, and BSAM was the licensee to whom BSLS had granted a license to use the Firestone trademark in Panama. While Panama agreed that BSLS’s registered trademark qualified as an investment under the TPA, it objected that BSAM had an investment due to the grant of the license to use the trademark.
The second issue concerned the Bridgestone trademark. The Bridgestone trademark, on the other hand, was owned by the Japanese parent company of the Bridgestone Group (BSJ), which had no rights under the TPA. However, BATO, a wholly-owned subsidiary of BSAM, was granted a license to use the Bridgestone trademark in Panama (a U.S. entity). Panama also challenged BSAM’s claim that the last-mentioned license was an investment under the TPA.
The dispute was regarding the distinction between ownership of trademarks and licenses to use these trademarks, and then whether either satisfied the TPA’s definition of investment.
The tribunal determined that a registered trademark formed an eligible investment subject to the owner’s exploitation. The remaining issue was whether a licensee’s use of a trademark could be considered an investment.
The tribunal ascertained that a license must be exploited by the licensee in the same way that a trademark must be exploited by the owner in order to constitute an investment.
Nevertheless, one prerequisite of the TPA was that in order for a license to have the attributes of an investment, it must confer rights on the license holder under the law of the host state, in this particular instance, Panama. Proof from Panamanian law established that a licensee of a trademark possesses the right to use the trademark.
The tribunal determined that both licenses constituted TPA investments, clearing the way for trademark owners and licensees to seek treaty protection if the situation arose.
On March 16, 2017, the arbitral panel in the international investment arbitration of Eli Lilly v. Canada issued the first final award ever seen on patents and international investment law, establishing a new platform for adjudicating patents. The arbitral panel had to consider whether Canadian courts met international investment law treatment standards when they cancelled Eli Lilly’s Canadian patents on the compound olanzapine (Zyprexa Patent) and the use of the compound atomoxetine for managing attention problem disorder (Strattera Patent). Even though the award rejects all assertions argued by the US pharmaceutical company Eli Lilly against Canada, these arbitral proceedings set the benchmark for future patent litigation under international investment law.
The Zyprexa and Strattera patents were cancelled by the Federal Court of Canada in 2010 and 2011 for a complete absence of utility under Canadian patent law, citing the “promise utility doctrine”. This doctrine is made up of three parts: (i) the recognition of a “promise” in the patent declaration upon which utility is assessed; (ii) the restriction on using post-filing proof to demonstrate utility; and (iii) the necessity that pre-filing proof to assist a sound forecast of utility to be included with the patent.According to the Federal Court, both Eli Lilly patents failed to fulfil this standard because the patent specifications lacked the real basis for the inventor’s sound forecasting of utility. These decisions were upheld by the Federal Court of Appeal and the Supreme Court of Canada.
In reply to the rejection of its Canadian patents, Eli Lilly initiated international investment arbitration against Canada under Chapter 11 (Investment) of the 1994 North American Free Trade Agreement (NAFTA) among Canada, the United States, and Mexico.
In the arbitration proceedings, Eli Lilly claimed that the cancellation of its Zyprexa and Strattera patents (filed in 1991 and 1996, respectively) was unfair and inequitable treatment in violation of NAFTA Article 1105 and expropriation in violation of NAFTA Article 1110.In this regard, Eli Lilly contended that the ‘promise utility doctrine’ was a dramatic shift from Canada’s conventional utility norm as well as the utility norms used by Canada’s NAFTA partners, the United States and Mexico.It asserted that for years, Canada had practiced the conventional utility test, which required only a trace of utility, but under that test, pharmaceutical patents were on no occasion noticed to fall short on utility till the introduction of the “promise utility doctrine” in the mid-2000s.
In reply, Canada denied Eli Lilly’s claims of the latest significant shift in Canadian utility law. As per Canada, because the word “useful” was not described in the Canadian Patent Act, its meaning had to develop by way of jurisprudence. Canada contended that what Eli Lilly portrayed as a single “promise utility doctrine” was three separate well-established patent law rules.
The panel dismissed Eli Lilly’s claims because it found no important or dramatic change in the patent law of Canada.The proofbefore the panel only demonstrated that Canada’s utility prerequisite evolved incrementally between the time the Zyprexa and Strattera patents were allowed and then revoked.As a result, the arbitral panel rejected Eli Lilly’s argument and instructed the pharmaceutical company to pay the costs of arbitration (US 749,697.97 in total) as well as 75% of Canada’s expenses of representation.
Procedure for resolving investment-related conflicts with states
As an initial point, unlike traditional commercial arbitration, ISDS allows for arbitration without privacy. It is because the signatory nations to the investment treaty give their advance consent to arbitrate conflicts brought by any competent investor of the other signatory nation. In addition, unlike commercial arbitration, ISDS occurs outside of any particular court system, at least in most cases. As a result, by acquiring IP rights in one of these signatory nations, IP owners may gain access to a supranational organization as well as a committed judicial council through careful organizational strategizing.
A dissatisfied IP owner who wishes to initiate arbitration proceedings against a nation under an investment treaty usually has several alternatives to choose from. The International Centre for Settlement of Investment Disputes (ICSID), located in Washington, is the most popular platform. The other popular forums include the Permanent Court of Arbitration in The Hague (PCA), the Stockholm Chamber of Commerce or the International Chamber of Commerce.
However, two procedural questions merit attention since they emphasize the significance of the investor’s or IP owner’s preference of forum.
The first point to consider is the possibility of safeguarding the investment. A stockholder must show that his or her investment is safeguarded by the applicable treaty. Even so, in an ICSID arbitration, the investor must also prove that the conflict falls within ICSID’s jurisdiction under the Washington Convention. The Convention, on the other hand, does not describe “investment.” As a result, a stockholder may be confronted with the task of establishing the state’s permission under a BIT to arbitrate a conflict over a particular investment, as well as proving that the investment counts as such under the ICSID procedure.To summarize, an IP owner should carefully consider whether the IP rights they plan to affirm would withstand scrutiny under this “double-barreled test” before deciding on a platform in which to bring their contention.
IPR enforcement through Investor-State Arbitration
There could be various causes why investor-state arbitration has not played a significant role in IPR enforcement.The vast majority of IPR infringements are the result of specific individuals’ actions that are not ascribable to states or their parts.
The investment chapters of IIAs do not establish self-governing significant guidelines for IPR protection. As a result, an assertion based on an infringement of the treatment of IPRs as investments may indeed be difficult to prove. It is to be seen if the IP standards provided for in RTAs can be successfully combined with the significant and operational provisions provided for in RTAs.
The amount of foreign investment in IPRs is rising as international economic amalgamation grows. Today, almost no foreign investment will take place unless intangible assets are included as part of the investor’s property value.The value of investments in IPRs is increasing, with increased international movement and the desire of many corporations to create globally recognized brands. Considering the significance of IPRs as one of the most important assets of many businesses, it is clear that protecting this property is of critical importance to businesses both locally and in their global operations.
The connection between international investment law and intellectual property is complicated, disjointed, and mainly unresolved. The role of local law in determining the contours of IPR protected by IIAs is unknown, as is the extent to which the use of IP must benefit a host state to qualify as a protected investment.
Nonetheless, recent developments indicate an intentional effort at productive amalgamation of international investment law and intellectual property law.These include the efficient subservience of expropriation standards to rights under IP treaty in some recent IIAs, as well as the clear and specific attaching of protected IPRs to their survival under domestic law.Such endeavours are still fragmented and may only give slight clearness.
Working towards simplifying common legal exclusions and encouraging better communication on these topics where consensual reassurance may reinforce the efficient protection of IPRs appears to be the way to go in the future.
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