Pratyush Nath Upreti
From The European Federation for Investment Law and Arbitration (EFILA)
In recent years, there have been several discussions on Investor-State Dispute Settlement (ISDS) and its impact on states’ sovereign right to regulate. The latest cases of Philip Morris and Eli Lilly are evident where intellectual property claims were brought under the scrutiny of investment tribunals. These cases have received greater attention, bringing serious debate upon ISDS provisions in the ongoing Investment Agreements, such as Transatlantic Trade and Investment Partnership (TTIP) between the European Union and the United States. On the other hand, the European Commission has proposed the Unified Patent Court (UPC) as a common patent court for all member states of the European Union. In other words, a step towards achieving further harmonization of the patent system in the European Union. On this note, let’s examine whether the proposed Unified Patent Court Agreement can be used to challenge IP claims under the ISDS.
Under International Investment Law, investment treaties offer an investor a choice of either ICSID or UNCITRAL arbitration. At the national level, an investor may choose European Court of Human Rights for additional claims of property rights or pursue a host country’s local court before the tribunal. The recent IIAs restrict investor to seek local remedies in the form of monetary compensation after consenting arbitration under the agreement. Although, forum shopping under investment law is not a new phenomenon. It rests on parties to choose the forum. But the important question is: can an investor have the liberty to do treaty shopping to enforce their intellectual property rights?
Treaty shopping refers to the strategy used by multinational corporations to ‘steal’ not only a higher level of protection, advantages or benefit, but also the jurisdiction of arbitral tribunals. For example, an Indian investor wants to protect its investment in South Africa, in spite of India does not have investment treaty with South Africa. This would be achieved by establishing a subsidiary Indian company in the country (China) in which South Africa has an investment treaty with. For example, in China, the investor will be able to enjoy protection through treaty. In effect, investors tried to seek protection through China-South Africa treaty as corporate nationalities of China. The treaty shopping is mainly done (i) to seek to ensure treaty protection where none would otherwise be available (ii) to seek to benefit from specific substantive protections in particular treaties or (iii) to seek to benefit from certain procedural or other aspects of the dispute settlement provisions of a particular treaty.
In general, investors use treaty shopping through specific clauses of the investment agreement. But it may not always be so. Under the proposed Unified Patent Court, an investor may get the advantage of treaty shopping with respect to patent cases. The preamble of the proposed Unified Patent Court states;
“Considering that the Unified Patent Court should be a court common to the Contracting Member States and thus part of their judicial system, with exclusive competence in respect of European patents with unitary effect and European patents granted under the provisions of the EPC.”
Similarly, Article 1 of UPC states “The Unified Patent Court shall be the court common to the Contracting Member States and thus subject to the same obligations under Union Law as any national court of the Contracting Member States”. In addition, Article 2 defines court as the Unified Patent Court created by the Agreement. The combined reading of the preamble and Article 1 of the UPC makes clear that for European Patent, Unified Patent Court is the National Court of Contracting Member States.
Now let’s turn into ongoing Eli Lilly vs. Canada under the North American Free Trade Agreement (NAFTA). The case involves investment claims in tribunal on the ground that the patent invalidation by the Canadian Supreme Court violated the principle of fair and equitable treatment, as well as the expropriation of property. Although, it is very difficult to assume that arguments of Eli Lilly will succeed. But in light of Eli Lilly case, an investor may challenge the decision of invalidity or any decision on patent given by UPC.
Article 32(1) describes UPC as having exclusive competence in respect of actions for revocation of Patents. Also, Article 65 empowers the court to decide on the validity of a patent on the basis of an action for revocation or a counterclaim for revocation. Thus, the Court may revoke a patent, either entirely or partly on the grounds referred in the EPC. So, revocation/invalidation of the patent under UPC may give rise to the expropriation of property and violate the legitimate expectation of an investor along with full protection and security to the investor. It is important to note that these terminologies are the golden rules of investment agreements. However, lack of clear and reliable interpretation has given investors an opportunity to litigate intellectual property under investor-state dispute settlement.
When UPC is considered to be the national court of a contracting member state, an investor has an option of treaty shopping to bring the case to the tribunal under a particular BIT. Therefore, an unhappy investor may bring a claim against the decision of UPC (being the national court of all member states) on the basis of any IIAs agreed by any participating member state, as well as new EU IIAs. The objective of the investor is to bring claims under investor-friendly investment agreement. Therefore, the investor may eye on most favorable IIAs, to succeed in their favor.
For example, the Netherlands are considered as one of the liberal proponents of BITs in the world. The recent model BIT adopted by Netherlands has a very wide definition[1] of an investment. Unlike other BITs, it does not require the investor’s presence in a host state to qualify for an investment. Similar to the most liberal approach under BITs, the Dutch model protects investments irrespective of whether they are significant, lasting or any contribution to host country economic development are made in accordance with host country law. Moreover, any investor not satisfied by UPC decision has the option of bringing claims under the provision of Netherlands BITs. Thus, a Patent holder may treaty shop for the most convenient IIAs available in Europe. This may result in more frivolous IP litigation in investor-state dispute settlement.
[1] Under 2004 Dutch Model BIT, definition of investment also includes goodwill, know-how, even right granted under public law, including rights to prospect, explore, extract and win natural resources.
Link to the article: The European Federation for Investment Law and Arbitration (EFILA) blog
From The European Federation for Investment Law and Arbitration (EFILA)
In recent years, there have been several discussions on Investor-State Dispute Settlement (ISDS) and its impact on states’ sovereign right to regulate. The latest cases of Philip Morris and Eli Lilly are evident where intellectual property claims were brought under the scrutiny of investment tribunals. These cases have received greater attention, bringing serious debate upon ISDS provisions in the ongoing Investment Agreements, such as Transatlantic Trade and Investment Partnership (TTIP) between the European Union and the United States. On the other hand, the European Commission has proposed the Unified Patent Court (UPC) as a common patent court for all member states of the European Union. In other words, a step towards achieving further harmonization of the patent system in the European Union. On this note, let’s examine whether the proposed Unified Patent Court Agreement can be used to challenge IP claims under the ISDS.
Under International Investment Law, investment treaties offer an investor a choice of either ICSID or UNCITRAL arbitration. At the national level, an investor may choose European Court of Human Rights for additional claims of property rights or pursue a host country’s local court before the tribunal. The recent IIAs restrict investor to seek local remedies in the form of monetary compensation after consenting arbitration under the agreement. Although, forum shopping under investment law is not a new phenomenon. It rests on parties to choose the forum. But the important question is: can an investor have the liberty to do treaty shopping to enforce their intellectual property rights?
Treaty shopping refers to the strategy used by multinational corporations to ‘steal’ not only a higher level of protection, advantages or benefit, but also the jurisdiction of arbitral tribunals. For example, an Indian investor wants to protect its investment in South Africa, in spite of India does not have investment treaty with South Africa. This would be achieved by establishing a subsidiary Indian company in the country (China) in which South Africa has an investment treaty with. For example, in China, the investor will be able to enjoy protection through treaty. In effect, investors tried to seek protection through China-South Africa treaty as corporate nationalities of China. The treaty shopping is mainly done (i) to seek to ensure treaty protection where none would otherwise be available (ii) to seek to benefit from specific substantive protections in particular treaties or (iii) to seek to benefit from certain procedural or other aspects of the dispute settlement provisions of a particular treaty.
In general, investors use treaty shopping through specific clauses of the investment agreement. But it may not always be so. Under the proposed Unified Patent Court, an investor may get the advantage of treaty shopping with respect to patent cases. The preamble of the proposed Unified Patent Court states;
“Considering that the Unified Patent Court should be a court common to the Contracting Member States and thus part of their judicial system, with exclusive competence in respect of European patents with unitary effect and European patents granted under the provisions of the EPC.”
Similarly, Article 1 of UPC states “The Unified Patent Court shall be the court common to the Contracting Member States and thus subject to the same obligations under Union Law as any national court of the Contracting Member States”. In addition, Article 2 defines court as the Unified Patent Court created by the Agreement. The combined reading of the preamble and Article 1 of the UPC makes clear that for European Patent, Unified Patent Court is the National Court of Contracting Member States.
Now let’s turn into ongoing Eli Lilly vs. Canada under the North American Free Trade Agreement (NAFTA). The case involves investment claims in tribunal on the ground that the patent invalidation by the Canadian Supreme Court violated the principle of fair and equitable treatment, as well as the expropriation of property. Although, it is very difficult to assume that arguments of Eli Lilly will succeed. But in light of Eli Lilly case, an investor may challenge the decision of invalidity or any decision on patent given by UPC.
Article 32(1) describes UPC as having exclusive competence in respect of actions for revocation of Patents. Also, Article 65 empowers the court to decide on the validity of a patent on the basis of an action for revocation or a counterclaim for revocation. Thus, the Court may revoke a patent, either entirely or partly on the grounds referred in the EPC. So, revocation/invalidation of the patent under UPC may give rise to the expropriation of property and violate the legitimate expectation of an investor along with full protection and security to the investor. It is important to note that these terminologies are the golden rules of investment agreements. However, lack of clear and reliable interpretation has given investors an opportunity to litigate intellectual property under investor-state dispute settlement.
When UPC is considered to be the national court of a contracting member state, an investor has an option of treaty shopping to bring the case to the tribunal under a particular BIT. Therefore, an unhappy investor may bring a claim against the decision of UPC (being the national court of all member states) on the basis of any IIAs agreed by any participating member state, as well as new EU IIAs. The objective of the investor is to bring claims under investor-friendly investment agreement. Therefore, the investor may eye on most favorable IIAs, to succeed in their favor.
For example, the Netherlands are considered as one of the liberal proponents of BITs in the world. The recent model BIT adopted by Netherlands has a very wide definition[1] of an investment. Unlike other BITs, it does not require the investor’s presence in a host state to qualify for an investment. Similar to the most liberal approach under BITs, the Dutch model protects investments irrespective of whether they are significant, lasting or any contribution to host country economic development are made in accordance with host country law. Moreover, any investor not satisfied by UPC decision has the option of bringing claims under the provision of Netherlands BITs. Thus, a Patent holder may treaty shop for the most convenient IIAs available in Europe. This may result in more frivolous IP litigation in investor-state dispute settlement.
[1] Under 2004 Dutch Model BIT, definition of investment also includes goodwill, know-how, even right granted under public law, including rights to prospect, explore, extract and win natural resources.
Link to the article: The European Federation for Investment Law and Arbitration (EFILA) blog
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