When tribunals deal with Investor-State Dispute Settlement (ISDS), the process may be split into two portions – determination of jurisdiction, and then a deliberation of merits. The question of subject matter jurisdiction (jurisdiction ratione materiae) is particularly important in settling international disputes relating to intellectual property. Municipal law may have a large role in determining whether there exists a legal investment that would then give rise to the tribunal to exercise its discretion. Therefore, this article aims to examine when an IP would constitute an investment and give rise to jurisdiction. While discussing this issue, it shall also critically review the effects of an overarching IP-investment approach.
The arbitral tribunal’s decision in Gustav Hamster v Ghana dealt with different considerations that need to be taken at these two stages. The arbitral tribunal noted that the legality of the initial investment is distinct and separate from the legality of the conduct of the investor. The former determines whether the tribunal is permitted to adjudicate on the issue, whereas the latter deals with the merits of the claim regarding the investment in question. Additionally, the tribunal in Phoenix v Czech Republic held that States cannot refer disputes to ICSID settlement procedures when investments are made in violation of national laws. In effect, the tribunal held that investments made in violation of national law, irrespective of treaty reference, cannot be termed as investments.
The Bridgestone v Panama decision, unlike many other IP ISDS claims actually dealt with the question of whether IPs (here a trademark) would be an investment for the sake of settlement proceedings. Bridgestone Corporation (BSJ), a Japanese company operating in the tire manufacturing industry, owned the “FIRESTONE” and “BRIDGESTONE” marks – both of which were registered in Panama. Bridgestone Licensing Services (BSLS) and Bridgestone American Inc (BSAM) were subsidiaries of the American Bridgestone Group. The FIRESTONE mark was assigned to BSLS who then licensed it out to BSAM for a nominal fee to be commercially used in South America, including Panama. BSAM then sub-licensed the FIRESTONE mark to another subsidiary Bridgestone Costa-Rica (BSCR) in order to manufacture goods for the Panamanian Market. BSJ also entered into a license arrangement with Bridgestone American Tire Operations LLC (BATO) to use the BRIDGESTONE mark in the US. BATO then sub-licensed the marks for international manufacture of goods with the BRIDGESTONE mark (including Panama).
As per company policy, the Bridgestone group opposed the registration of any marks ending with the suffix ‘stone’. This led to BSJ and BSLS filing an opposition application to the trademark application filed in Panama by Muresa Intertrade LV. The case was ultimately withdrawn, and Muresa consequently sued for damages incurred as a result of having to halt operations in fear of a merit-less suit. The Panamanian Supreme Court held in favour of Muresa and imposed hefty damages on BSJ and BSLS. In response, the American subsidiaries BSAM and BSLS approached the ICSID tribunal claiming that the Panamanian SC order was in violation of the US-Panama Trade Promotion Agreement (TPA) and that Panama, in violation of FET, expropriated BSAM’s and BSLS’s investment.
In order to have jurisdiction, the tribunal had to decide whether the trademark license arrangement amounted to an investment by an American company into Panama. The tribunal split this question into two sub-questions. First, whether registration amounted to an investment, and second, whether exploitation of a trademark in the host state was a prerequisite to treating such IPs as investments. On the first question, the tribunal examined the effect of trademarks and held them to act as a negative right against others from co-opting a mark without authorisation. Registration alone does not result in profit to the company, nor benefit to the country where it is registered. The working requirement is in many ways a recognition that the value of trademarks emerges only when such marks are commercially worked.
However, commercially working a trademark within the host-state can in some cases amount to an investment. Exploitation would require manufacturing, promoting, selling, marketing of goods, after-sale services, and provision of guarantees in the host-state. The Uruguayan Phillip Morris case, for example, recognised marketing cigarettes through the use of their trademarks as an investment. Therefore, actual commercial involvement taken up during exploitation would fulfill the Salini test for what is considered as an investment in international law. This would involve the trademark proprietor making a contribution for the period the mark is valid for by undertaking commercial risks and making a contribution to the economic development of a state through the commerce that their mark enables.
Merits of the Bridgestone award (that was announced in 2020) aside, the adjudication of whether the IP in question (here a trademark) would qualify as an investment was quite interesting – a trademark would only be considered an investment if it was commercially exploited, as opposed to recognising ownership of an asset (here trademark) as an investment in and of itself. Such approaches in the IP specific context could possibly mitigate over-zealous invocation of ISDS as a means of litigating IP disputes. It should be noted that the trademark proprietors could possibly bypass making an actual investment (through the setting up manufacturing infrastructure or any other massive expenses) by arguing that export of goods to the host state would meet the commercially working requirement for their IPs to be treated as investments. This is because exports of IP is recognised as commercial working of it.
Consequences of an Expansive IP-Investment Approach
By allowing IPs within the realm of ISDS, credible concerns emerge around the extent to which ISDS principles comply with exceptions under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and other international IP regimes. IP rights have been highly territorial and intrinsically linked with the disposal of public goods and services. An examination of the Phillip Morris and Eli Lilly cases are prime examples of how ISDS systems interfere with condonable action under international IP law.
The Australian Phillip Morris dispute arose out of Australia’s plain packaging rules on cigarette boxes that would strip them of their proprietor’s logos and replace them with a simple wordmark. Interestingly, if one were to examine a trademark purposively, the value of a mark is its ability to connote its origin and consumer expectations associated with such a mark. A trademark, unlike other assets like land, has no intrinsic value as its value arises only by association. It was only classified as an investment because of its recognition in the territory of Australia. However, claims of expropriation for what was effectively a public-health measure significantly threaten the roll-out of such programs. In a similar vein, Eli Lilly instituted arbitral proceedings after its patent was invalidated by the Canadian Supreme Court, notwithstanding the fact that Canada was well within its rights under TRIPS to set out standards and tests to determine patentability. International investment arbitration proceedings over IP that mirror the Philip Morris case were used to strong-arm lower-economically developed countries in Southern Africa that did not necessarily possess the capital to withstand such legal challenges. The very same anti-colonial critiques to ISDS are especially relevant in the field of IPs, given the exacerbated impact on public health and welfare.
This article has attempted to examine the rationale employed by investor-state tribunals to determine whether IP constitutes an investment in law. The elevation of IPs, which are inherently restricted to a territory, to the realm of international law has occured with disregard to existing international IP law frameworks. This approach raises a number of new considerations that nations, especially developing nations, would have to keep in mind when making public policy decisions and when negotiating investment treaties in the future.
Abhijay Srekanth is a final year law student at Jindal Global Law School.
Image: New York Times