Book Launch: The BRICS-Lawyers’ Guide to Global Cooperation

Cambridge University Press has just published a new collective volume regarding the BRICS legal arena, suggestively entitled “The BRICS-Lawyers’ Guide to Global Cooperation”. Its editors are: Rostam J. Neuwirth (University of Macau), Alexandr Svetlicinii (University of Macau) and Denis De Castro Halis (University of Macau).

In the international trade and development arena, new and developing economies have created a block that is known as BRICS – Brazil, Russia, India, China and South Africa. Initially conceived to drive global change through economic growth, the financial crisis and reversal of fortunes of the BRICS nations have raised questions about their ability to have an impact on the governance of global affairs.

This book explores the role of law in various areas of BRICS cooperation including: trade, investment, competition, intellectual property, energy, consumer protection, financial services, space exploration and legal education. It not only covers the specifics of each of the BRICS nations in the selected areas, but also offers innovative and forward-looking perspectives on the BRICS cooperation and their contribution to the reform of the global governance networks. This is a unique reference book suitable for academics, government officials, legal practitioners, business executives, researchers and students.

The BRICS-Lawyers' Guide to Global Cooperation_Cover

See more at the publisher’s webpage.

Can Investors Use the Proposed Unified Patent Court for Treaty Shopping?

Pratyush Nath Upreti*, Upreti & Associates

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 Agreementa, 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.


Pratyush Nath Upreti – is a Lawyer at Upreti & Associates a Kathmandu based law firm, where he is leading commercial and research department. He holds Advanced Master (LLM) Intellectual Property Law & Knowledge Management (IPKM) degree from Maastricht University, Netherlands. He is also an executive member of New IP Lawyers Network, a wing of school of Law and its research centre SCule (Science, Culture and the Law) under University of Exeter, United Kingdom. He can be reached by  upretipratyush@gmail.com

Right to Regulation & Investment Court System: Alternative to ISDS? (Part I)

   by Pratyush Nath Upreti, Upreti & Associates*

Intellectual Property is sexy! Its romantic endeavor with other branches of law makes it appealing for IP scholars. This romance can be seen through the lens of the global Intellectual property regime. In today’s industrialized world, the landscape of the intellectual property is changing. Mostly, all forms of ‘intellectual property’ have raised debate in the trade agreements domain, making it an important aspect of trade negotiation. The open market economy encourages the developed countries to opt for Investment/Trade Agreement such as Free trade agreement (FTA), Bilateral Investment Treaties to attract investors by strengthening IP regimes. It is evident that IP as incentive commodity has turned into assets, trading commodity.

Similarly, the expectation of investors is increasing. Recent cases such as Philip Morris v. Uruguay have revealed the complexity and potential overlap between intellectual property, Investment Law, and Trade Law. The nature of claims raised in such cases has raised serious concerns regarding state’s sovereign right to regulate, which is reflected in the ongoing negotiation of Transatlantic Trade and Investment Partnership (TTIP). The recent public consultation report on investment protection and investor-to-state dispute settlement (ISDS) in the TTIP reveals that the Commission received a total of nearly 15,000 replies and an overwhelming majority showed concern to the inclusion of ISDS in TTIP.

One of the aspects is the EU Right to regulate provisions in the Investment Agreement. The concern raised is that the ISDS would be a potential limitation to the rights of government to regulate on public interest. Earlier September, European Commission published a draft text of the Investment Chapter in the proposed Transatlantic Trade and Investment Partnership (TTIP) between the EU and the US, propose the ‘Investment Court’, which has generated discussion.

Right to Regulation

According to the report from the Swedish National Board of Trade, the term ‘right to regulate’ is misleading. The report refers right to regulate as ‘to the extent to which the state can legislate and make decisions without running the risk of being found in violation of the treaty and having to pay damages’. It has been an established principle of state sovereign right to regulate on public, health and environment affairs. But the diverse opinions of tribunals and increasing legitimate expectation of Investor has seriously narrowed the state right to regulate.  The very fundamental question is to what extent can investors expectations rise?

In Eli Lilly vs. Canada under the North American Free Trade Agreement (NAFTA), Eli Lilly a pharmaceutical company invoked investment claims under UNCITRAL rules, on the ground that the patent invalidation by a Canadian Court violated a principle of fair and equitable treatment, including Lilly’s legitimate expectation about the treatment of its investment and Canada’s obligation to refrain from conduct that is arbitrary, unfair, unjust and discriminatory. Further, it was argued that ‘Lily was entitled to reasonably rely on the stability, predictability, and consistency of Canada’s Legal and business framework existing at each stage of the establishment, expansion, and development of Lilly’s Investment.

The above cases raised a fundamental question on the scope of application of ‘fair and equitable treatment or reasonable expectation of investment’ under intellectual property investment claims. The investor expectation should not be subjective and not all investor expectations are legitimate. Moreover, the arguments put forward by the claimant in Lilly directly come in conflict with state sovereign right to regulate the domestic Intellectual Property. The investor completely ignores the difference between the pre-existing rights and post-existing rights. Both the pre and post rights have limitation. The right does not arise if a prerequisite is not fulfilled. Similarly, once rights are acquired, they cannot be absolute; they are subject to changes on several grounds.

In practice, fair and equitable treatment and full protection and security are not absolute, there being limitations. Parkerings-Compagniet AS v. Lithuania tribunal analyzed the state sovereign power to regulate lies on higher foot then claims of free and equitable treatment. The Tribunal stated:

 

“It is each state’s undeniable right and privilege to exercise its sovereign legislative power. A state has the tight to enact, modify or cancel a law at its own discretion. Save for the existence of an agreement, in the form of a stabilization clause or otherwise, there is nothing objectionable about the amendment brought to the regulatory framework existing at the time an investor made its investment. As a matter of fact, any businessman or investor knows that law will evolve over time. What is prohibited however is for a State to act unfairly, unreasonably or inequitably in the exercise of its legislative power.”

Similarly, in Chemtura v. Canada, the tribunal upheld the Canadian government’s right to legislate laws based on scientific reviews and dismissed the investor’s claims. However, critics of ISDS have raised that such limitation of state right to regulate may bring regulatory snare. Therefore, Europe is trying to narrow down the scope of provision under the agreement to avoid vague interpretation by a tribunal. The previous agreements such as CETA and EU Singapore FTA, were drafted in a way to have a higher benchmark on the right to regulate.

For example under CETA, Article X.9 clears list down the contents of fair and equitable treatment such as (i) denial of justice in criminal, civil or administrative proceedings (ii) fundamental breach of due process (ii) arbitrary conduct and among others. The closed list avoids unwarranted interpretation by the tribunal, which may affect state right to regulate. Similarly, Article X.11 excludes expropriation claims on compulsory license and exclusively explains that indirect expropriation occurs when measure substantially deprives the investor property right such as (i) right to use (ii) enjoy and dispose of its investment (ii) transfer of title or seizure. In spite of such approach, public outcry on ISDS provisions seems to be a major hurdle for the European Union.  Therefore, to negate such a scenario and create a positive public opinion on TTIP, the Commission has proposed ‘Investment Court’ to address Investor claims.

Investment Court: Coffin for ISDS?

The concept of ‘Investment Court’ has been floating through Commission Draft Text of TTIP, which opens with a disclaimer that the document is solely for internal purpose and the commission will consult with the EU’s Member States and discuss the proposal with the European Parliament before presenting it formally to the United States.  The said EU proposal for an Investment Court is described as ‘over ambitious’ and deprives investors of the traditional possibility to choose their arbitrator. The proposal establishes a two tier court system; Tribunal of First Instance (tribunal) and Appeal Tribunal. The tribunal will follow the existing international arbitration rules of ICSID and UNCITRAL. Similarly, Article 13 allows the tribunal to apply only international law and interpret agreements in accordance with customary rules of interpretation. The provision expressly argues that the tribunal is not obliged by domestic interpretations of the law and the tribunal shall not have jurisdiction to determine the legality of a measure under the domestic law of the disputing party.

One of the criticisms of ISDS was the lack of transparency and maverick arbitrators. The proposed Investment Court has overcome such criticism. According to Article 11 of the proposal, judges of the Tribunal and members of the Appeal Tribunal must be persons whose independence is beyond doubt. Similarly, judges shall not be affiliated with government or organizations and also upon appointment, they shall refrain from acting as counsel in any pending or new investment protection disputes under this or any other agreement or domestic law.  In addition, the party to the dispute may challenge the appointment of the judge if it considers that the judge or member has a conflict of interests.

The very fundamental principle of investment arbitration is the investor’s active role in the appointment of an arbitrator. The proposed draft takes away this privilege of investors. However, the proposed draft gives an opportunity to the United States and the European Union to appoint permanent judges to the Appeal Tribunal and also to the Tribunal of First Instance.

This makes me suspicious regarding the possible political appointment of judges. This is very much possible, considering the worries of EU. Moreover, such pro-state judges will keep in mind to avoid unnecessary interpretation which limits the state’s right to regulation.  I believe that the investors cannot accept such an appointment process as the very fundamental reason for the involvement of investors in the appointment process was to avoid political interference. Therefore, I think the Commission should reconsider the appointment of judges and – if needed – some share should also be given to investor to balance the appointment process.

The proposed draft clearly fills the demand for more transparency in the arbitration process by abiding with the ‘UNCITRAL Transparency Rules’ and lists down documents to be publicly made available upon request. Additionally, it goes beyond and allows disclosure of third party funding to the parties.  This is indeed a very important aspect of the proposed draft.

In the end, I conclude that the proposed Investment Court seems a way to avoid ISDS. Moreover, it looks that proposal aims to gather positive public opinion on TTIP. The major question is even if the proposal of Investment Court System is accepted, then will it be applied retrospectively to all previous several Investment Agreement to which EU is member? If not, then there is always a scope of diverse opinion, which may narrow the state right to regulate. Time will tell whether ‘Investment Court’ is coffin to ISDS or muffin to the EU trade policy.

Let time be the protagonist.


Pratyush Nath Upreti recently completed Advanced Master (LLM) Intellectual Property Law & Knowledge Management (IPKM) from Maastricht University, Netherlands.  He is also an active member of New IP Lawyer’s, a wing of school of Law and its research centre SCule (Science, Culture and the Law) under University of Exeter, United Kingdom. He can be reached by p.upreti@student.maastrichtuniversity.nl