A Collision Course Between TRIPS Flexibilities and Investor-State Proceedings
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Ho_Final to Printer (Do Not Delete) 5/29/2017 11:04 AM A Collision Course Between TRIPS Flexibilities and Investor-State Proceedings Cynthia M. Ho* This Article discusses an important, yet understudied threat to patent, as well as other intellectual property sovereignty under TRIPS: pending and potential challenges by companies under international agreements protecting investments. Although such agreements have existed for decades, Philip Morris and Eli Lilly are blazing a new path for companies to sue countries they claim interfere with their intellectual property rights through so-called investor-state arbitrations. These suits seek hundreds of millions in compensation and even injunctive relief for alleged violations of internationally agreed intellectual property norms. The suits fundamentally challenge TRIPS flexibilities at the very time the Declaration on Patent Protection and Regulatory Sovereignty under TRIPS, as well as the UN High Level Panel Report seek to encourage countries to utilize them. These disputes may have a chilling effect on countries that would otherwise consider following policy recommendations to better utilize TRIPS flexibilities. Given the importance of this threat to TRIPS and domestic sovereignty, this Article analyzes the pending disputes and offers some proposals for how to promote TRIPS flexibilities and sovereignty. Introduction ..................................................................................................................... 396 I. Background ................................................................................................................... 400 A. Intellectual Property Law and Policy ......................................................... 400 B. Investment Agreements (Permitting Investor-State Arbitration) ... 403 1. Background ........................................................................................... 404 2. Criticism of Investment Claims ....................................................... 408 3. Addressing Criticisms? ....................................................................... 413 C. The Under-Recognized Current Conflict .............................................. 415 1. Limited Recognition of Overlap, Let Alone Conflict ................ 416 * Clifford E. Vickrey Research Professor and Director, Intellectual Property Program, Loyola University Chicago School of Law. The Author thanks Professor Dan Burk and the UC Irvine Symposium for the opportunity to consider this topic. The Author is grateful to comments from participants at the UC Irvine Symposium, as well Sergio Puig and Peter Yu. In addition, the Author thanks Christian Morgan and Hattie Strange for their excellent research assistance. 395 Ho_Final to Printer (Do Not Delete) 5/29/2017 11:04 AM 396 UC IRVINE LAW REVIEW [Vol. 6:395 2. Prominent Defenses of Investor-State Disputes Do Not Recognize Conflict ........................................................................... 421 a. ISDS Promotes Sovereignty Concerns and Regulatory Chill Are Overstated ................................................................ 422 b. Investment Claims Promote Investment and Economic Development .............................................................................. 426 c. Investor-State Disputes as a Fair Process with Procedural Protection .............................................................. 429 II. The Current Collision Course .................................................................................. 431 A. Initial Investment Cases Challenging TRIPS ....................................... 431 1. Philip Morris ......................................................................................... 431 a. Factual Context ............................................................................. 432 b. Investment Claims ....................................................................... 435 i. Vulnerability to Expropriation Claims ............................. 435 ii. FET Claims Can Prevail Against Tobacco Regulation ........................................................................... 437 2. Eli Lilly ................................................................................................... 440 a. Factual Context ............................................................................. 441 b. Investment Claims ....................................................................... 443 i. Expropriation ......................................................................... 444 ii. Fair and Equitable Treatment ........................................... 450 B. Potential Problems ...................................................................................... 453 1. Patentability Standards ......................................................................... 453 2. Denial of Permanent/Preliminary Injunction .............................. 454 3. No Data Exclusivity ........................................................................... 455 III. Addressing Current Conflict .................................................................................. 457 A. Narrow Scope .............................................................................................. 457 1. Limit the Scope of Covered Investments...................................... 458 2. Narrow Investment Claims ............................................................... 459 3. Expropriation ....................................................................................... 460 4. FET ....................................................................................................... 460 B. Modify Dispute Settlement ....................................................................... 461 C. Increase Transparency and Access.......................................................... 465 Conclusion ........................................................................................................................ 467 INTRODUCTION Although the areas of intellectual property rights and protection of foreign investments have coexisted peacefully for decades, they are now on a collision course. Phillip Morris and Eli Lilly have claimed that alleged violations of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) compromise their “investments” of intellectual property, such that they should be Ho_Final to Printer (Do Not Delete) 5/29/2017 11:04 AM 2016] A COLLISION COURSE 397 financially compensated by countries where they obtained these investments.1 These assertions are not made in the World Trade Organization (WTO) forum. Rather, they are made under international agreements that permit foreign investors to bring unique claims against a country before a tribunal of three typically private attorneys, in a so-called “investor-state” arbitration proceeding.2 Investor-state claims can exist without regard to compliance with other international agreements, such as TRIPS, and may exist in agreements that do not have any intellectual property norms.3 These claims are a creative way for companies to directly challenge TRIPS despite the fact that they cannot do so at the WTO.4 Moreover, companies can obtain substantial financial compensation that would not typically be available at the WTO.5 These investment claims may create havoc concerning TRIPS flexibilities. Notably, TRIPS only requires countries to provide minimum, but not uniform standards of protection.6 Because of this, TRIPS is often considered to have built- in flexibilities that permit compliance with TRIPS while also recognizing domestic priorities.7 Indeed, policy makers have repeatedly recommended countries take 1. See Eli Lilly & Co. v. Can., International Centre for Settlement of Investment Disputes [ICSID] Case No. UNCT/14/2, Notice of Arbitration (Sept. 12, 2013) [hereinafter Eli Lilly, Notice of Arbitration], http://www.italaw.com/cases/1625 [https://perma.cc/J9AS-CLQ6]; Philip Morris Asia Ltd. v. Austl., Permanent Court of Arbitration [PCA] Case Repository No. 2012-12, Notice of Arbitration (Nov. 21, 2011) [hereinafter P.M. v. Austl., Notice of Arbitration], http://www.italaw.com/cases/851 [https://perma.cc/5NYB-39BB]; Philip Morris Brands Sàrl v. Uru., ICSID Case No. ARB/10/7, Request for Arbitration, ¶ 1 (Feb. 19, 2010) [hereinafter P.M. v. Uru., Request for Arbitration], http://www.italaw.com/documents/PMI-UruguayNoA.pdf [https://perma.cc/9U7H-4RXM]. 2. This is alternatively called investor-state dispute settlement (ISDS), or less frequently, Foreign Direct Investment Arbitration. 3. For example, the Philip Morris dispute against Australia was initiated under a Bilateral Investment Treaty. See Agreement for the Promotion and Protection of Investments, Austl.-H.K., Sept. 15, 1993, 1770 U.N.T.S. 386. Even when investment claims exist in an agreement with IP rules, they are typically in different parts of a free trade agreement, such as under NAFTA. 4. See Understanding on Rules and Procedures Governing the Settlement of Disputes art. 22, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401 [hereinafter DSU] (referring to contracting parties, i.e. countries, as the only ones that can initiate a dispute). 5. The routine remedy in a WTO case is to come into compliance with WTO requirements. See id. art. 19.1 This may require amending a law. In addition, although a prevailing country could occasionally obtain financial recourse, that is only if a country fails to bring its laws into compliance.