Introduction

The biosciences industry has considerably expanded in the post-COVID world. The race to develop and test vaccines, coupled with the heightened global competition for access to supplies of personal protective equipment, has highlighted the interconnected nature of this industry and the significance of government policy and regulation. Against this backdrop, there is a strong likelihood of a significant increase in the filing of investor claims against the host state in this industry.

There have been only 13 reported arbitration cases pertaining to the pharmaceutical business, among which only two were concluded in favor of investors (Servier v. Poland, Merck v. Ecuador). The most interesting and distinct aspect of investor-state dispute settlement (ISDS) in biosciences is that a product can be produced and subsequently banned by host countries for the same reasons: public health and public interest. While investing in a particular host country, there is a legitimate and reasonable expectation by Multinational Enterprises (MNE) about the legality of manufacturing their drugs. However, there is no guarantee that manufacturing a particular drug will be legal. This reflects the vulnerability of MNEs at the hands of host countries.  Thus, the possibility of host countries making arbitrary decisions and causing damage to MNEs becomes patently clear. This article advocates for reforms in the ISDS system within the biosciences sector by emphasizing on the need for reasonable expectations and clear regulatory commitments to protect both investors and public health.

Infusing Reasonable Expectations into ISDS

The first is infusing reasonable expectations into ISDS. In biosciences, the final stages of clinical trials and regulatory approvals have much stronger success expectations than the initial stages of trials and approvals. However, the expectations of MNEs are not taken into consideration. The standard of legitimate expectations might be acceptable for other industries, but it fails to protect the interests of MNEs in the biosciences industry. To address this, an approach from insurance law can be followed: the reasonable expectations doctrine. It is a method of policy interpretation in a manner that aligns with the reasonable expectations of insured parties even if the policy itself is silent on the scope of its coverage.

The doctrine gives paramount importance to public health while preventing chilling effects and excessive compensation claims by investors. Biosciences-specific reasonable expectation doctrine language can be inserted in ISDS provisions that clearly outline the multi-phased regulatory scrutiny and the gradual intensification of such reasonable expectations. The current regulatory framework lacks such provisions and thus may give rise to investor-state disputes.

For instance, a biosciences-specific ISDS provision may provide that, where regulatory scrutiny involves multiple phases and evolving standards, investors shall be entitled to reasonable expectations at each phase of regulatory scrutiny commensurate with the level of certainty of approval reached. This provision can take into consideration the multiple phases of pre-clinical trials, clinical trials and post-market surveillance. Furthermore, a proviso can obligate host country governments to provide transparency on the expectations at each phase of regulatory scrutiny. This may include defining the types of risks, uncertainties and standards relevant to each phase. Such incorporation would promote clarity, balanced investor protection and fair resolution of biosciences disputes.

Enforcing Commitment with Actual Authority

The second is enforcing a commitment by adding the weight of actual authority. US Courts, while adjudicating investment disputes in any industry, have taken a narrow approach by providing a strict construction-cum-application of the doctrine of unmistakability. This doctrine incorporates specific commitments and requires that officials having actual authority must intend to bind themselves to commitments regarding future regulatory treatment for it to be enforced. Notably, the current doctrine does not define when actual authority must be assessed.

Investor-state contracts must contain a specific commitment-cum-identification clause (the unmistakability clause) authorizing specific state officials to make commitments on behalf of the state in biosciences regulations. Considering the unknown legality of manufacturing a particular drug, this can be helpful in explicitly outlining the commitment of the host state to future regulatory treatment and ensuring that only authorized state officials are involved in investor-state contracts.

In scenarios where concerns regarding political corruption arise, the validity of an investor-state contract negotiated by a state official facing charges may be subject to scrutiny. Concurrently, if regulatory approvals for manufacturing an essential drug or vaccine have advanced to a final stage when questions regarding validity emerge, public health also becomes a crucial consideration, especially during health emergencies like the COVID-19 pandemic. Therefore, tribunals must examine the presence of actual authority at the time of entering into the contract. This will not only protect the reasonable expectations of certainty of regulatory approval of investors but also give due consideration to public health.

Conclusion

Investment-treaty arbitration in the biosciences industry are in a nascent stage. Moreover, that industry is characterized by rapid scientific advancements and evolving standards. It is imperative that, before new issues arise in the current ISDS regime, changes are made to reflect the new biosciences FDI market. This industry’s global impact and effects on public health are unlike any in other industries. The protection of public health and investment in biosciences are mutually interdependent. While health has strengthened its focal position in the post-pandemic world, innovation in biosciences [e.g. vaccines to protect against an unprecedented pandemic like COVID-19] to ensure public health can be pushed only through an investor-friendly regime in the biosciences sector. Conclusively, it is of immense necessity that nations realize the synergy between health and investment and consequently, transform themselves into an investor-friendly regime focussed on health.

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Intisar Aslam is a third-year law student from National University of Study and Research in Law.

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Image Credits: The image is AI generated (edited by JFIEL)