Determining Illegal Expropriation of IP-related Investment in ISDS

• Author: Ruisi Peng
• Position: Ph.D. candidate in KoGuan School of Law at Shanghai Jiao Tong University
• Pages: 51-73

Determining Illegal Expropriation of IP-related

Investment in ISDS

Ruisi Peng1

Abstract: Most countries have concluded bilateral investment treaties and free

trade agreements containing investment chapters. In these bilateral investment treaties

and free trade agreements, intellectual property is regarded as a type of investment.

Many bilateral investment treaties and free trade agreements explicitly contains the

item of “intellectual property”. While some others only define “intangible property”

as one type of investment with tacitly approving intellectual property laid in the scope

of “intangible property”. Thus IP-related rules are playing an important role in

bilateral investment treaties and free trade agreements, which make host countries

protecting IP-related investment from being expropriated. In cases of Philip Morris v.

Uruguay and Eli Lily v. Canada, intellectual property investors had recourse to

Investor-State Dispute Settlement arbitration on the basis of investment-related rules

in bilateral investment treaties and free trade agreements. The controversial issues in

such two cases are whether host countries taking IP-related regulatory measures

concerning tobacco control legislation (in Philip Morris v. Uruguay) and patent

granted standards (in Eli Lily v. Canada) violated expropriation clauses that

prohibiting illegal expropriation in bilateral investment treaties and free trade

agreements. Investment arbitration tribunals dismissed investors’ allegations and

rendered awards to the effect that host countries’ these measures were not illegal

expropriation. However, investment arbitration tribunals did not clearly weigh

economic benefits in IP-related investment against public health interests in enforcing

IP-related measures. For the balance that giving considerations to economic benefits

in IP-related investment and public health interests, more balanced legal approaches

can be taken. For instance, the Agreement for the Regional Comprehensive Economic

Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific

Partnership tried to strike a balance between host countries and foreign investors.

Such rules should be consciously strengthened in further conclusion of treaties.

Key Words: Investor-State Dispute Settlement; IP-related Investment; Illegal

Expropriation; the Regional Comprehensive Economic Partnership; the

Comprehensive and Progressive Agreement for Trans-Pacific Partnership

1. Introduction

In the bilateral investment treaty (hereinafter referred to as BIT) between the

Federal Republic of Germany and Pakistan, which was signed in 1959, there defined

patents including techniques and inventions as one type of investment.2It is the era of

knowledge-based economy, which has resulted in a more and more important role of

knowledge-based investment on international economic cooperation, and

competitions on the development of proprietary intellectual property (hereinafter

referred to as IP) rights are increasingly fierce among countries as well as

transnational corporations.3

1Ruisi Peng, Ph.D. candidate in KoGuan School of Law at Shanghai Jiao Tong University.

2See Article 1 of Germany-Pakistan BIT, https://investmentpolicy.uncta d.org/international-invest me

nt-agreements/treaties/bit/1732/germany---pakistan-bit-19 59- (accessed on December 25, 2021).

3See Amir Ullah Khan &Aarti Bharadwaj, Protecting I ntellectual Property Rights and Promo ting

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In this context, many international investment agreements have stipulated those

intangible properties are an investment under the definition clauses, which explicitly

contains the item of “IP”. While some other agreements just only define “intangible

property” as one type of investment, but they tacitly approve IP laying in the scope of

“intangible property”. In this sense, it has reached the consensus that IP belongs to the

“investment” mentioned in international investment agreements, where IP has been an

object of investment protection articles.

Carlos M. Correa and Jorge E. Viñuales have indicated that the “IP”,4which is

usually defined as an “investment” in international investment agreements, was

required to embody the inner characteristics of investment liberalization and

investment promotion. In other words, the definition of “IP” as an investment is not

just to follow the existing requirements in TRIPS and IP chapters of free trade

agreements (hereinafter referred to as FTAs) without change. In this regard, “IP” as an

investment must be qualified for the existing IP rights in accordance with domestic

laws of host countries,5and be equipped with attributes of “investment” conforming

to the relevant rules in international investment agreements,6as well as the business

circumstances of IP-related investment in host countries.7Susy Frankel discussed the

investor-state dispute settlement (hereinafter referred to as ISDS) investment

arbitration tribunals’ position on determinations of IP-related investment disputes,8in

the light of teleological interpretation of Vienna Convention on the Law of Treaties

1969 as well as the trend where a broader interpretation towards “investment” of BITs

and FTAs led by ISDS arbitration tribunals. Thus, such articles above have showed

out the actual eligibility of IP being an investment both in international investment

agreements and ISDS practice.

According to the paper of case study issued by International Centre for Trade and

Sustainable Development,9one growing trend in IP-related investment protection of

1990s was illustrated and expected to continue, in which international investment

agreements (mainly in forms of BITs and FTAs) are tending to introduce host

countries’ TRIPS/TRIPS-plus obligations into investment protection obligations

through adding the TRIPS/TRIPS-plus rules into the expropriation clauses of BITs

and FTAs. Furthermore, the Organization for Economic Co-operation and

Development has made the summary of IP-related investment articles in the BITs and

Economic Growth: Is it Really a Chicken and Egg Story, 3(1) Review of Market Integration 69, 69-70

(2011).

4See Carlos M. Correa & Jorge E. Viñuales, Intelle ctual Property Rights as Protected Investmen ts:

How Open are the Gates?, 19(1) Jo urnal of International Economic Law 91, 91-120 (2016).

5See Dany Khayat &William Ahern, Reliance on Investmen t Treaty Standards to Claim for Failures

to Recognize or Protect Intellectual Property Rights, 3(2) BCDR International Arbitr ation Review 399,

406-9 (2016).

6See Siegfried Fina & Gabriel M. Lentner, The European Un ion’s New Generation of International

Investment Agreements and Its Implicatio ns for the Protection of Intellectual P roperty Rights, 18(1)

Journal of World Investment &Trade 271, 284-5 (2017).

7See Ruth L. Okediji, Is Intellectual Property “Inve stment”? Eli Lily v. Canada an d the International

Intellectual Property System, 35(4) University of P ennsylvania Journal of International Law 1121,

1126-7 (2014).

8See Susy Frankel, Interpreting the Overlap of International Investment and Intellectu al Property

Law, 19(1) Journal of International Economic Law 121, 121-43 (2016).

9See Pedro Roffe & David Vivas et al. , Maintaining Policy Space for Developmen t: A Case Study on

IP Technical Assistance in FTAs, International Centre for Trade and Sustainable Development

Programme on IPRs and Sustainable Developme nt Series Issue Paper No.19, pp.1-15 (2007).

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