When Intellectual Property Is the ‘Investment’: Arbitrating against Sovereigns
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There is no shortage of disputes in which patent holders may find themselves embroiled. ‘Trolls’ challenge the patent’s validity in an attempt to extort rent. The oft-used practice of ‘evergreening’ comes under scrutiny for artificially extending patent exclusivity. Resolution of disputes such as these typically revolves around purely patent law concepts, such as utility, obviousness or prior art enablement. The same concepts, as well as contractual issues, are also at the heart of patent-based commercial arbitrations in instances where the dispute involves licensees, as discussed in other chapters.
Further, the very same intellectual property rights may, under certain circumstances, also give rise to disputes untethered from usual patent validity considerations and instead centring on the investment-backed expectations a patentee has as a consequence of having been granted a patent at all. In these far less common – but possibly very high stakes – instances, a patentee will seek compensation, or other remedies, from the sovereign state that granted the patent for having failed to protect its monopoly on the patented technology, or perhaps for having directly attacked the monopoly rights a patent affords. This chapter provides an overview, as well as practical procedural guideposts, for arbitrations of this kind.
With the rise of globalisation in the 1980s, threats to patents started to abound: if a patentee’s rights were protected in Country X, a company in Country Z might reverse-engineer the technology and, having bypassed the lengthy and costly research and development phase, offer it at a steep discount. This in turn naturally risked stifling innovation. The only international instrument designed to protect intellectual property rights internationally, the 1883 Paris Convention, was antiquated and inadequate for curbing that risk. Efforts undertaken under the auspices of the World Intellectual Property Organization (WIPO) to modernise it had failed.
The international community thus focused its attention on establishing international minimum standards for patent protection during the Uruguay Round of the Multilateral Trade Negotiations. This was achieved in the Agreement on Trade-Related Aspects of Intellectual Property Rights, appended to the 1994 Agreement Establishing the World Trade Organization (TRIPS). TRIPS offered heightened patent protections but, to obtain the developing economies’ buy-in, a mechanism was built in to allow ‘compulsory licences’. This mechanism allowed WTO Member States to grant licences to domestic firms, irrespective of the patentee’s rights or wishes, in the event of national emergency or circumstances of urgency.
In practice, compulsory licences were seldom an issue because of the developing countries’ lack of manufacturing capacity. This changed, however, when a Ministerial Declaration issued in 2001 during the Doha Round provided a mandate for ‘establishing legal machinery to enable countries lacking the capacity to manufacture generic substitutes for costly patented medicines under domestically issued compulsory licenses to obtain imports from countries able and willing to assist them without interference from the relevant patent holders’. As a result, compulsory licences were increasingly granted in the late 2000s – notably for generic drugs used in the treatment of AIDS.
Abuse of the TRIPS compulsory licensing exception (of which certain WTO Member States have reportedly been guilty) is subject to adjudication within the WTO system under Article 23 of the Dispute Settlement Understanding. As a practical matter, however, a patentee would have to persuade its government to seek redress against the other state, given that only Member States have standing to sue in the WTO. The lobbying efforts required to initiate such a process, combined with a lack of control over dispute resolution proceedings, may appear unappealing to patentees. Further, some states – such as France, Belgium and, more recently, India and China – have adopted legislation allowing compulsory licensing (under conditions other than those of TRIPS). Under these schemes, disputes would have to be resolved by the courts of the ‘infringer’ – another unattractive proposition from the patent holder’s perspective.
Another path may be available to protect patent holders’ interests, however, in the form of investor–state dispute settlement (ISDS). ISDS has become an important weapon in the modern legal arsenal of companies operating transnationally. This was made possible by the widespread use of bilateral investment treaties (BITs) and free-trade agreements (FTAs) that began after World War II. The initial aim was to foster foreign investment in support of reconstruction efforts. The use of ISDS has expanded well beyond war reconstruction, however, and, to date, more than 3,300 such agreements have been concluded worldwide. The concept is simple: two or more states agree to provide certain legal protections to the investments made on their territory by the other state’s nationals, usually subject to dispute resolution by a neutral arbitral tribunal.
Although arbitrations pursuant to treaties have steadily increased in number over the past two decades, examples of the use of ISDS in connection with patents remain few and far between. In two publicly known instances, the patentee has been unsuccessful. In Apotex Holdings v. United States, the case was dismissed at an early stage on jurisdictional grounds because the arbitral tribunal determined that the Canadian generic drug manufacturer’s expenses to bring a drug to market in the United States did not qualify as a protected ‘investment’ within the meaning of that term as used in the NAFTA treaty.
In Eli Lilly v. Canada, the arbitral tribunal rejected Eli Lilly’s claim that Canada’s invalidation of its patents for the compounds atomoxetine (Strattera) and olanzapine (Zyprexa) on the basis of a novel legal doctrine violated NAFTA. Specifically, Eli Lilly claimed that Canada had historically applied a version of the patent utility test pursuant to which a ‘mere scintilla’ of utility in the patent disclosure sufficed to uphold a patent. It is only in the mid-2000s that the Canadian courts began to require that an applicant identify in the patent disclosure a specific ‘promise’ of utility and support its prediction with evidence therein, as opposed to submitting post-filing evidence of utility. Eli Lilly argued that this was a stark departure from the law on which it legitimately relied to invest in Canada. The tribunal rejected the argument, essentially finding that the change in law was not a fundamental and abrupt change but rather an evolution well within the bounds of what a patentee might have expected. Interestingly, the Canadian Supreme Court reversed the position on the promise utility doctrine that Eli Lilly criticised just three months after the conclusion of the arbitration.
Importantly, the claims made in these two arbitrations were heavily fact-dependent and, for that reason, are not likely to determine the outcome of future ISDS cases in any significant way. No statement was made by the two tribunals that ISDS is an improper forum for the adjudication of a patentee’s investment-backed claims. Furthermore, the mere threat of ISDS has been sufficient, in practice, to ‘convince’ certain governments to backtrack on measures intended to foster generic competition and suppress patentee monopoly. Particularly in the face of global events requiring rapid intervention (such as a pandemic or other cataclysm), the potential for state-sanctioned intellectual property (IP) infringement may pave the way to an increased use of ISDS. Indeed, a multitude of events might allow the IP owner to utilise ISDS to protect its rights, whether it be the above-mentioned issuance by a state of a compulsory licence, a genuinely radical change in law resulting in the unexpected invalidation of an IP right, the establishment of domestic procedural hurdles depriving the IP owner of a forum in which to voice grievances, or even more ‘classic’ measures such as regulatory bans on the use of certain technology on the host state’s territory.
The next sections provide an overview of the protections that an IP owner might assert in support of a claim against a state, followed by a summary description of the arbitral process for such claim.
Substantive protections available to IP owners
Foreign investors may benefit from certain commitments by the state hosting their investment – for purposes of this article, IP rights – depending on whether this state has entered a BIT or an FTA with their home state. Although such commitments are not uniform from one treaty to the next, certain features are common across most investment treaties. These will be examined first in this section. These commitments are not, however, a blank cheque; the most frequent limitations on investment protection will be considered next.
Standards for investment protection in investment treaties
Before investing in a foreign country, the diligent investor will consider political risk, including, for example, the risk of nationalisation or civil unrest and insurgency. Political risk insurance, when available, is costly and may be perceived as inadequate or insufficient. It is therefore of comfort to the investor when an investment treaty containing an arbitration clause is in place, because such treaty will contain certain guarantees against political risk, the disrespect of which is remediable before neutral adjudicators. The most salient guarantees are briefly considered below.
Guarantee of compensation in the event of expropriation
The most drastic action a state may take against a foreign investor is to expropriate the investment from the investor. Although there is no uniformity in defining what constitutes expropriation, there is a general consensus that expropriation exists where the state has, directly or indirectly, deprived the investor of the economic value of its investment. This can occur through an outright taking, generally in the form of a nationalisation, or, far more frequently nowadays, through measures said to be ‘tantamount to expropriation’. Such measures, taken together, result in the investor losing the substance of its investment. Examples include the imposition of considerable new taxes and the revocation of a prior government authorisation. In the case of IP rights, indirect expropriation might exist if such rights are unexpectedly taken away, whether by the executive or judiciary, against the owner’s legitimate expectations. This is essentially the position advocated in Eli Lilly. The company argued that the Canadian courts’ reliance on a novel legal doctrine to strike down its patents constituted indirect expropriation.
Although it is hardly debatable that a state’s police powers entitle it to expropriate a foreign investor, certain safeguards circumscribe that entitlement as a matter of international law and are typically built into investment treaties. Specifically, an expropriation (1) is justified if made for a public purpose, on a non-discriminatory basis, and in accordance with applicable law (which includes customary international legal principles) and (2) requires compensation, often for a minimum equal to the fair market value of the expropriated property. By way of example, the following is the expropriation clause contained in the US Model BIT:
Neither Party may expropriate or nationalize a covered investment either directly or indirectly through measures equivalent to expropriation or nationalization, except: (a) for a public purpose; (b) in a non-discriminatory manner; (c) on payment of prompt, adequate, and effective compensation; and (d) in accordance with due process of law and [Minimum Standard of Treatment.]
Depending on the language of the expropriation clause in the treaty, there is a variety of situations in which an IP owner might argue that it was expropriated – not only through traditional expropriatory measures affecting tangible assets (facilities, cash) but also through removal of IP right protection. In that respect, it should be noted that the right to compensation for expropriation of an IP right may be limited in specific instances, such as in the case of the issuance of compulsory licences in recent treaties concluded by the United States. In the 2012 Model BIT, the expropriation clause is indeed express that it:
does not apply to the issuance of compulsory licenses granted in relation to intellectual property rights in accordance with the TRIPS Agreement, or to the revocation, limitation, or creation of intellectual property rights, to the extent that such issuance, revocation, limitation, or creation is consistent with the TRIPS Agreement.
Yet, even in such an instance, it is conceivable that a patentee could bring an expropriation claim if the compulsory licence was granted to a competitor under circumstances falling outside the TRIPS requirements. For example, TRIPS requires that the licensee first attempt, for a reasonable period of time, to negotiate a voluntary licence from the patentee, or that the licence be granted as a result of a ‘national emergency’ or that the patentee receive ‘adequate remuneration. . . taking into account the economic value of the authorization’. Should any of these requirements be disregarded, the expropriation clause may be deemed operative notwithstanding the exclusion of compulsory licensing from its ambit.
Guarantees regarding treatment afforded to foreign investors
In the course of conducting business in a foreign country, an investor may face a host of regulatory hurdles and other measures imposed by state authorities affecting, to some extent, the investment or even preventing the investor from reaping any benefits from its investment. Some of these measures may be expected as part of the risks assumed by the investor, which ought to be reasonably assessed during due diligence on the host state’s legal environment, while others will appear out of the norm. It is in this situation that the investor may claim violation of a state’s international obligations under a treaty to provide appropriate treatment to its investment.
The concept that foreign or ‘alien’ investors should be afforded certain standards of treatment against arbitrary or discriminatory actions is relatively recent under international law. The concept was first articulated in Neer v. Mexico, as follows:
the treatment of an alien, in order to constitute an international delinquency, should amount to an outrage, to bad faith, to wilful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency.
The Neer doctrine remains to this day the benchmark for determining the minimum standard of treatment to be afforded to aliens, including foreign investors, but other concepts were developed in investment treaty practice that go beyond this minimum. Indeed, one of the most common – albeit not universal – concepts in investment treaties is that a foreign investor must be given fair and equitable treatment (FET), and, in any event, treatment equal to that given to the host state’s own nationals (national treatment (NT)) and, in many cases, on par with the best treatment given to nationals of other states (most-favoured nation (MFN)). Although the application of the NT and MFN clauses is quantitative in nature, as it implies a comparative analysis for the identification of discriminatory treatment based on nationality, the application of the FET clause is more qualitative and, thus, leaves more room to arbitral interpretation. To this proposed dichotomy, others have preferred another useful distinction between ‘contingent’ (NT and MFN) and ‘non-contingent’ (FET) standards of treatment.
A typical FET clause includes language such as ‘[e]ach Contracting Party shall ensure fair and equitable treatment of the investments of investors of the other Contracting Party.’ Although there is no comprehensive definition as to the scope of the FET standard, it is well accepted that a state violates FET if it takes measures substantially affecting an investment against the investor’s legitimate expectations upon which it relied to make the investment (e.g., a significant deviation of the legal landscape), or in the event of a miscarriage of justice.
As a practical matter, impugned state measures in ISDS arbitration can often be labelled as both expropriation and an FET violation, depending on their magnitude, which allows claimants to resort to the latter as a fallback position from the former. Indeed, a finding of expropriation requires that the state measures deprived the investor of substantially all of its investment, whereas FET allows for a ‘looser’ quantification of damages. In this respect, it is useful to refer again to Eli Lilly, in which the company argued that the Canadian courts’ determination was unfair and inequitable, because the promise utility doctrine was a departure from the state of the law existing at the time it made the investment.
For the aggrieved IP owner, resorting to the FET, NT and MFN clauses may be possible in instances where it can be demonstrated, for example, that a domestic company is given preferential treatment in the context of a race to regulatory approvals, or if new and unexpected requirements are imposed by the executive or judiciary for maintaining IP rights.
Full protection and security guarantee
As a corollary to a state’s FET obligation, states most often commit to ensure the full protection and security (FPS) of an investment. Ordinarily, FPS protections are rolled into a single clause with FET, such as in the UK Model BIT:
Investments of nationals or companies of each contracting party shall, at all times, be accorded FET and shall enjoy full protection and security in the territory of the other contracting party.
Like FET, FPS is a non-contingent standard of protection, but unlike FET, it is absolute in nature (was the investment fully protected by the state or not?). It should thus suffer no subjective consideration when it comes to its application, because it requires no evaluation of the state’s decision-making process. Instead, FPS focuses only on the effects of the measures taken by the state, or the state’s failure to act, on the investment. A typical example is the destruction of an investor’s facilities in the host state as a result of an armed conflict or riots. This sort of clause may find more subtle applications, however, in the context of IP rights. Indeed, to the extent that a patent is intended to provide a monopoly to its holder, state-sanctioned infringement could be argued to violate the obligation to ensure full protection and security to the investment.
Limitations on investment protection in investment treaties
An IP owner’s ability to resort to ISDS may be limited by (1) the scope of protections contained in the applicable treaty, (2) police powers exercised for the public interest or (3) express exclusions, or a combination of these.
Definition of protected investments
The first significant limitation on the ability to resort to ISDS by IP owners – or indeed any investor – lies with the scope of the definition of the term ‘investment’ in the applicable treaty. Historically, investment treaties have most commonly covered every kind of asset and would include an illustrative, rather than exclusive, list of protected assets. In modern treaties, efforts have been made to provide more specificity as to what constitutes an investment, including by inserting requirements such as that there be commitment of capital, expectation of profit and assumption of risk. Be that as it may, investment treaties often expressly include IP rights within the scope of the definition of the term ‘investment’ – and if they do not, it is hardly debatable that they should be considered a category of protected intangible assets, barring express exclusion.
The question then is whether the actions and expenses undertaken by the claimant should be deemed factually to amount to a protected investment. In that respect, it is useful to refer to Apotex. In that case, Apotex mainly argued that it had invested millions of dollars in developing its products and preparing and filing its submissions to the US Food and Drug Administration (FDA) for the sole purpose of commercialising its products in the United States. As such, its FDA application was manifestly a covered investment under NAFTA, as were its commitments of capital in the United States, such as the purchase in the United States of raw materials for its drugs. The Apotex tribunal found, however, that ‘each of the specific activities and expenses relied upon by Apotex simply supported and facilitated its Canadian-based manufacturing and export operations’ thus not a US investment, and the contemplated sales of its products in the United States were ‘those of an exporter, not an investor’. With respect to the question of protection of intangible assets, it appears significant that Apotex is a generic producer that had not actually obtained an IP right in the host state but had only applied for one (contrary to Eli Lilly, for example).
Non-precluded measures clause
Notwithstanding that an IP owner may hold a qualified investment under a treaty, it may be difficult to obtain reparation from the host state if the underlying investment treaty contains a non-precluded measures (NPM) clause. NPM clauses expressly contemplate that the host state may adopt measures that are otherwise inconsistent with its treaty obligations to protect foreign investment if the application of such a measure meets the requirements set out in the clause. Traditionally, NPM clauses have been aimed at carving out national security and public order from the ambit of investment treaties. More recently, they have included other public interests, such as the conservation and protection of the environment, natural resources or life and health.
Particularly in the context of IP rights, NPM clauses might be raised as a defence by the respondent state, on the basis that IP rights were disregarded for the common good of the nation – for example, the issuance of a compulsory licence for the development of a generic drug. The strength of such a defence would arguably vary depending on whether the NPM clause is of a ‘self-judging’ type of not. Indeed, some NPM clauses refer to public interests gauged objectively, whereas others will do so subjectively – on the state’s own judgment. For example, compare:
The provisions of this Agreement [. . .] shall not be construed so as to preclude the adoption or enforcement by a Contracting Party of measures which are necessary to protect national security, public security or public order.
Nothing in this Treaty shall be construed [. . .] to preclude a Party from applying measures that it considers necessary for the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.
Finally, the state may raise this sort of defence even in the absence of an NPM clause in the investment treaty, based on the doctrines of force majeure and necessity, which are well embedded in customary international law (by default applicable in ISDS arbitrations).
Certain investment treaties contain specific exclusions pertaining to IP rights, typically in reference to the applicability of TRIPS. For example, Article 14.5 of the BIT between the United States and Uruguay provides that ‘Articles 3 [NT] and 4 [MFN] do not apply to any measure covered by an exception to, or derogation from, the obligations under Article 3 or 4 of the TRIPS Agreement, as specifically provided in those Articles and in Article 5 of the TRIPS Agreement.’ For another example, compulsory licences may specifically be excluded from the scope of a BIT, generally in connection with the protections against expropriation without compensation. As mentioned above, it may be possible, under certain circumstances, to assert colourable expropriation claims notwithstanding such exclusion (i.e., when the impugned measures fail to meet TRIPS requirements).
Procedure for investment-based disputes against states
As a preliminary matter, it is notable that, contrary to traditional commercial arbitration, the ISDS system provides for arbitration without privity. This is because the signatory states to the investment treaty give advance consent to arbitrate disputes brought by any qualified investor bearing the nationality of the other signatory state. Also contrary to commercial arbitration, ISDS lies outside of any given court system, at least in most cases, as explained below. Accordingly, IP owners may, through thoughtful corporate structuring, gain access to a supranational order, along with a dedicated judicial forum, by virtue of having obtained IP rights in one such signatory state.
Because the state has given advance consent to arbitrate, proceedings may commence at the investor’s election, subject of course to any additional requirements contained in the treaty (e.g., the submission of a notice of dispute followed by a cooling-off period to allow for negotiations ahead of commencing formal proceedings). An aggrieved IP owner wishing to commence arbitration proceedings against a state under an investment treaty ordinarily has several options among which to choose. By far the most common forum is the International Centre for Settlement of Investment Disputes (ICSID), established in Washington under the eponymous multilateral convention concluded in 1965. As explained below, there are advantages and potential disadvantages with ICSID arbitration. Another common forum is the Permanent Court of Arbitration in The Hague (PCA), which frequently administers proceedings involving states under the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL). Other commonly used fora include the Stockholm Chamber of Commerce (especially in connection with disputes arising under the Energy Charter Treaty) or the International Chamber of Commerce, based in Paris.
The specifics guiding the arbitral proceedings will depend on the arbitration rules applied to the case. Regardless, there is quasi-uniformity in the conduct of the arbitral process, which is not dissimilar from that of a commercial arbitration: the same type of preliminary issues are considered (whether issues should be bifurcated, whether a party is entitled to interim measures), the same type of written submissions are filed by the parties (often two rounds each, separated by a document disclosure phase) and the same type of evidentiary hearing is held (an opening statement followed by cross-examination of parties’ witnesses and experts and concluded by closing arguments). As the arbitral process is discussed in other chapters, there is no need to dwell on it further. Two procedural issues deserve attention nonetheless, because they illustrate the importance of the choice of forum by the investor or IP owner.
The first issue is that of the scope of investment protection. As discussed above, an investor must demonstrate that its investment is protected under the relevant treaty. In an ICSID arbitration, however, the investor must additionally demonstrate that the dispute falls within the jurisdiction of ICSID under the Washington Convention. Indeed, its Article 25(1) specifies that ‘[t]he jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre.’ The Convention does not, however, define the term ‘investment’. Thus, an investor may be faced with the issue of having to establish consent of the state under a BIT to arbitrate the dispute over a specific investment and also prove that the investment qualifies as such as a matter of ICSID practice.
There has been considerable debate as to what constitutes an investment under international law – which led scholars and treaty drafters alike to identify a series of features an investment typically has, such as contribution to the host state’s economy, expectation of gains and assumption of risks. Suffice to say that an IP owner should cautiously assess, before selecting a forum in which to bring its claim, whether the IP rights it intends to assert would pass muster under this ‘double-barrelled test’.
The second issue is that of award recognition and enforcement. ICSID is known as a self-contained system because the dispute is adjudicated by a panel of arbitrators and any recourse against the award is also adjudicated within the ICSID apparatus, by another, entirely separate, panel of ad hoc annulment committee members. This mechanism is to be distinguished from other international awards, which are subject to the oversight of the courts located at the judicial seat of the proceedings. As to the enforceability of the award, Article 54 of the Washington Convention provides that ‘[e]ach Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State.’ This is also to be contrasted with international commercial awards, which are subject to set aside proceedings at the seat, and enforcement proceedings in any other competent jurisdiction, under the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards and local law. An IP owner concerned with finality of the award may thus be drawn to ICSID arbitration rather than arbitration in another forum, as all non-ICSID awards (including awards rendered in a PCA-administered arbitration under the UNCITRAL rules) will be subject to court oversight.
This is not to say, however, that an ICSID award will automatically be enforceable anywhere and in toto. Importantly, Article 54 specifically refers to the fact that only pecuniary obligations are enforceable and even then, only to the extent that they might have been ordered in ‘a final judgment of a court in that State’. This naturally raises the question of sovereign immunity, for example, which is not treated uniformly throughout the world. To simplify, there is a divide between jurisdictions that adopt the doctrine of relative immunity, whereby a state is not immune from execution in instances where the assets against which enforcement is sought are used for commercial – as opposed to governmental – purposes, and those that adopt the doctrine of absolute immunity, pursuant to which state assets are never attachable unless the sovereign’s immunity from execution has been specifically and expressly waived. Therefore, the selection of an arbitral forum by an IP owner might include consideration of the nature of relief requested, and, in the event monetary remedy is sought, identification of jurisdictions where attachable sovereign assets are located.
This chapter is intended to provide a high-level analysis of possible benefits of the ISDS system as an alternative forum for an IP owner seeking relief – or structuring its legal protections. Although this chapter has mainly focused on arbitration related to patent rights, the possibility to resort to ISDS for the resolution of IP-related disputes may extend well beyond patents. The exercise of IP rights in foreign countries is expanding, whether it be through production of hardware or creation and licensing of software. The explosion of social media applications, for example, appears ripe for mischief. Recent reports of contemplated regulatory bans on such applications seem to confirm as much. In these instances, ISDS may appear viable as a tool for the IP owner to protect its interests. Conversely, sophisticated states may be well advised to avoid, and prepare for, investor disputes concerning IP rights.
1 Michael Nolan and Christopher J Gaspar are partners and Kamel Aitelaj is a senior associate at Milbank LLP.
2 See, e.g., S. Burr, It’s Time to Stand Up to Patent Trolls, WIPO Magazine, February 2016, available at https://www.wipo.int/wipo_magazine/en/2015/01/article_0002.html (noting that ‘[t]he greatest long-term threat to the US patent system does not come from its professional opponents – those large businesses and their political allies who stand to profit from enfeebled patent rights. A deeper harm is caused by unscrupulous patent trolls who use extortionist “demand letters’ to victimise small businesses’).
3 See, e.g., R. Feldman, May Your Drug Price Be Evergreen, Journal of Law and the Biosciences, Volume 5, Issue 3, December 2018, at 590–647, available at https://academic.oup.com/jlb/article/5/3/590/5232981 (defining the practice of ‘evergreening’ as ‘artificially extending the life of a patent or other exclusivity by obtaining additional protections to extend the monopoly period’).
4 This chapter will focus on patents, as the scale and stakes involved lend patent-based disputes more readily to investor–state dispute settlement (ISDS). This is in no way intended to limit the import of ISDS with respect to other intellectual property rights.
5 Paris Convention for the Protection of Industrial Property, March 20, 1883, as revised at Stockholm (1967), 21 UST 1583, 828 UNTS 305
6 See J. H. Reichman with C. Hasenzahl, Non-Voluntary Licensing of Patented Inventions: Historical Perspective, Legal Framework under TRIPS, and an Overview of the Practice in Canada and the U.S.A., U.N. Conference on Trade & Development [UNCTAD] & International Centre for Trade & Sustainable Development [ICTSD], Project on IPRs and Sustainable Development, Issue Paper No. 5, June 2003, available at https://unctad.org/en/PublicationsLibrary/ictsd2003ipd5_en.pdf.
7 See generally, J. H. Reichman, Compulsory Licensing of Patented Pharmaceutical Inventions: Evaluating the Options, J Law Med Ethics. 2009 Summer; 37(2): 247–263, available at https://journals.sagepub.com/doi/10.1111/j.1748-720X.2009.00369.x.
8 id. Note that the mechanism of compulsory licences existed under the Paris Convention but was not as clearly defined and circumscribed.
10 See F. M. Abbott and J. H. Reichman, The Doha Round’s Public Health Legacy: Strategies for the Production and Diffusion of Patented Medicines Under the Amended TRIPS Provisions, Journal of International Economic Law, 10, No. 4 (2007): 921–987, at 929.
11 See Reichman, supra at n.3.
12 See, e.g., D. Halajian, Inadequacy of TRIPS & the Compulsory License: Why Broad Compulsory Licensing is Not a Viable Solution to the Access Medicine Problem, 38 Brook. J. Int’l L. (2013), available at: https://brooklynworks.brooklaw.edu/bjil/vol38/iss3/7 (reporting on Egypt’s use of compulsory licensing for Pfizer’s Viagra to fight erectile dysfunction).
13 Apotex Holdings Inc. and Apotex Inc. v. The Government of the United States of America, ICSID Case No. ARB(AF)/12/1, Award on Jurisdiction and Admissibility (14 June 2013).
14 Eli Lilly and Company v. The Government of Canada, UNCITRAL, ICSID Case No. UNCT/14/2, Final Award (16 March 2017).
15 See AstraZeneca Canada Inc. v. Apotex Inc., 2017 SCC 36.
16 See B. Baker and K. Geddes, The Incredible Shrinking Victory: Eli Lilly v. Canada, Success, Judicial Reversal, and Continuing Threats from Pharmaceutical ISDS, Loyola University Chicago Law Journal (Vol. 49, 2017), p. 487 (reporting on threats proffered by Novartis against Colombia and Gilead against Ukraine).
17 See, e.g., H. Mayer, Political Risk Insurance and Its Effectiveness in Supporting Private Sector Investment in Fragile States, LSE-Oxford Commission on State Fragility (May 2018), available at https://www.theigc.org/wp-content/uploads/2018/05/Political-risk-insurance.pdf (last accessed on 8 October 2020).
18 See, e.g., J. Crawford, Brownlie’s Principles of Public International Law, Oxford University Press, 2019, at 603 (‘the essence of the matter is the deprivation by state organs of a right of property either as such or by a permanent transfer of the power of management and control’); see also A. Reinisch, Expropriation, in The Oxford Handbook of International Investment Law (ed. P. Muchlinski, F. Ortino, C. Schreuer), Oxford University Press, 2008, at 422.
19 Discussion of the concept of legitimate expectation in ISDS exceeds the intended scope of this chapter; it should be noted, however, that the concept has been heavily discussed in scholarship and has been central to a foreign investor’s right to protection, particularly with respect to breach of fair and equitable treatment. See M. Potestà, Legitimate Expectations in Investment Treaty Law: Understanding the Roots and the Limits of a Controversial Concept, 28 ICSID Review (2013), 88-122 (noting that ‘[a]lthough legitimate expectations are invoked also in the context of indirect expropriation, it is under the fair and equitable treatment standard that legitimate expectations have enjoyed more prominence and a safer chance of success’).
20 See Eli Lilly and Company v. The Government of Canada, UNCITRAL, ICSID Case No. UNCT/14/2, Final Award (16 March 2017), Paras. 181–182.
21 Art. 6(1), 2012 U.S. Model Bilateral Investment Treaty, available at https://ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf.
22 L.F.H. Neer and Pauline Neer v. United Mexican States, United Nations, Reports of International Arbitral Awards, 1926, IV, p. 60 ff.
23 A number of investment treaties refer only to a minimum standard of treatment of aliens under customary international law (i.e., per the Neer doctrine), such as NAFTA or the US Model BIT.
24 See C. McLachlan, L. Shore and M. Weiniger, International Investment Arbitration, Substantive Principles, Oxford University Press, 2007, at 1.24 et seq., and 7.22 et seq.
25 Art. 9(1) of the 2019 Netherlands Model BIT, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5832/download.
26 See, e.g., Potestà, op. cit., at 30 et seq.
27 See, e.g., McLachlan et al., op. cit., at 7.80 et seq.
28 See, e.g., K. Yannaca-Small, Fair and Equitable Treatment Standard, in Arbitration under International Investment Agreements 385, 399 (K. Yannaca-Small ed.), Oxford University Press, 2010 (noting that ‘obligations entailed in the expropriation clause and those of fair and equitable treatment do not necessarily differ in quality but just in intensity’).
29 Art. 2(2), 2008 UK Model BIT, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/2847/download.
30 See C. McLachlan et al., op. cit.
31 See, e.g., Art. 1, 2012 US Model BIT; Art. 1(a), 2019 Netherlands Model BIT.
32 id.; see also, Art. 1(a) 2008 UK Model BIT (‘“investment” means every kind of asset, owned or controlled directly or indirectly, and in particular, though not exclusively, includes [. . .] intellectual property rights, goodwill, technical processes and know-how’).
33 For example, although NAFTA does not include IP rights expressly, it covers ‘property, tangible or intangible, acquired in the expectation or used for the purpose of economic benefit or other business purposes’. See Art. 1139, NAFTA, at (g).
34 Apotex, op. cit., at Para. 235.
35 Apotex, op. cit., at Para. 244.
36 Art. 7, 2008 UK Model BIT.
37 Art.18, 2012 US Model BIT.
38 See generally, A. Bjorklund, Emergency Exceptions: State of Necessity and Force Majeure, in The Oxford Handbook of International Investment Law (ed. P. Muchlinski, F. Ortino, C. Schreuer), Oxford University Press, 2008, at 459-523.
39 See generally, J. Paulsson, Arbitration Without Privity, 10 ICSID Review 232 (1995).
40 We note that the practice of ‘treaty shopping’ is generally well accepted in arbitral jurisprudence to the extent done ahead of events giving rise to a dispute. See, e.g., CME Czech Republic B.V. (The Netherlands) v. The Czech Republic (UNCITRAL), Partial Award, 13 September 2001, at Para. 419; Mobil Corporation, Venezuela Holdings, B.V. et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010, at Para. 204.
41 The 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States, available at https://icsid.worldbank.org/resources/rules-and-regulations/convention/overview.
42 See, e.g., J. M. Exelbert, Consistently Inconsistent: What Is a Qualifying Investment Under Article 25 of the ICSID Convention and Why the Debate Must End, 85 Fordham L. Rev. 1243 (2016); M. Hwang, J. Fong and L. Cheng, Definition of “Investment”—A Voice from the Eye of the Storm, Asian Journal of International Law, Volume 1, Issue 1, 25 January 2011 , pp. 99–129.
43 See, Exelbert, op. cit.
44 It has become common practice for companies operating transnationally to structure their corporate organisation in such a way as to gain eligibility for protection under investment (and often also tax-related) treaties.
45 See, e.g., W. Ross, Commerce Department Prohibits WeChat and TikTok Transactions to Protect the National Security of the United States, 18 September 2020, available at https://www.commerce.gov/news/press-releases/2020/09/commerce-department-prohibits-wechat-and-tiktok-transactions-protect.