Patents held by multinational pharmaceutical companies are under
assault in the developing world. Novartis is mired in a years-long
case seeking to patent one of its drugs in India, and it is now
challenging before the Supreme Court of India a provision of the
Indian Patents Act that Novartis says violates international
law.1 Roche recently lost a major patent infringement
case in India's courts, thereby allowing a massive generic
manufacturer headquartered in India to continue marketing a generic
version of Roche's cancer-treatment drug.2 And
Pfizer is reportedly being targeted for a compulsory license by
another Indian generic drug manufacturer, which would allow the
manufacturer to infringe Pfizer's patent with the imprimatur of
the Indian State, and perhaps even export that infringing product
abroad.3
But the most newsworthy case has been Bayer's. Last March, an
Indian court granted an Indian generic drug manufacturer a
compulsory license to manufacture and market one of Bayer's
patented drugs, essentially expropriating Bayer's intellectual
property in exchange for a mere 6 percent royalty.4 The
decision appears plainly discriminatory—the court
specifically justified the outcome on the fact that Bayer's
drug was produced in Germany, and not in India. Bayer appealed this
decision, but only days after argument, the Indian appellate court
denied Bayer's request to stay the lower court's
order—thus allowing the infringement to continue while the
appeal is pending.5
This is not an issue unique to India. China, too, has recently
issued a new regulation setting out detailed procedures for
applying for compulsory licensing.6 This new trend
toward compulsory licensing presents a material risk to
multinational pharmaceutical companies because the essence of a
patent is the right to exclude others from making and marketing
infringing products. By forcing a compulsory license, the state is
appropriating that valuable property right.
Worse still, local courts provide little respite for these
discriminatory and expropriatory actions. India's court system
is notoriously slow, and foreign patent holders have had little
recent success in protecting their patent rights in Indian courts.
While the rule of law is emerging in China and India, both
countries still have a distance to travel in protection of
intellectual property and other rights. The most recent
"Worldwide Governance Indicators" published by the World
Bank put both countries at or below the 50th percentile for
"Rule of Law" and for "Regulatory
Quality."7
Investment Treaty Protection: A New Way
Forward
Bilateral Investment Treaties ("BITs") generally include
a compulsory clause for the settlement of disputes that arise
between a signatory state and a foreign investor of another
signatory state. Thousands of BITs are now in force worldwide.
China and India together have signed and placed into force 168 BITs
with foreign countries, including the United Kingdom, Germany,
France, and Switzerland—homes to many of the world's
leading pharmaceutical companies.8 These treaties enable
protected foreign investors from one signatory state to bring
claims against the other signatory state before an international
arbitral tribunal. In the words of one U.S. court upholding the
compulsory nature of BIT arbitration, "[a]ll that is necessary
to form an agreement to arbitrate is for one party to be a BIT
signatory and the other to consent to arbitration of an investment
dispute in accordance with the Treaty's terms. In effect, [the
Contracting State's] accession to the Treaty constitutes a
standing offer to arbitrate disputes covered by the Treaty; a
foreign investor's written demand for arbitration completes the
'agreement in writing' to submit the dispute to
arbitration."9 The arbitration typically takes
place either before an ad hoc Tribunal pursuant to the
UNCITRAL Rules, or under the auspices of the International Center
for the Settlement of Investment Disputes
("ICSID").
Moreover, multinational pharmaceutical companies are typically
considered protected "investors" in the parlance of
modern BITs, in that they have made an injection of capital and
maintain ongoing business operations in the foreign
country.10 Many modern BITs also specifically list
"intellectual property rights, including patents" granted
by the host state as "investments" deserving of treaty
protection.11
The primary benefit of international investment arbitration is
that it removes the dispute from the host state's domestic
legal system, which may be biased against foreign investors,
especially in cases challenging the conduct of the state itself.
Furthermore, domestic courts often may not have the "legal
expertise and experience to free themselves from the confines of
their own domestic regimes so as to give proper attention and
respect to international law."12 This is precisely
why investment treaty arbitration appeals to foreign investors who
rightly may be concerned with the potential bias, inefficiency, or
unfamiliarity of foreign courts.13
Perhaps the most potent feature of investor–state
arbitration, however, is the enforceability of the ultimate award.
Awards rendered by international investment tribunals are
enforceable in the host state by virtue of the BIT itself, and
virtually anywhere else in the world by virtue of the New York
Convention (which India, China, and nearly 150 other states have
signed), or, in the case of ICSID, the Washington Convention (which
China, but not India, and nearly 150 other states have
signed).14
Global Patent Protection Contained Within the
BITs
The bulk of investment treaty cases concern the expropriation of
tangible assets or mistreatment of rights related to
them—oilfields and heavy equipment, businesses, and
concessions. But intellectual property is just as valuable (often
more so), and just as protected by international law. It is thus no
surprise that intellectual property cases in these fora are on the
rise. One tobacco manufacturer has recently brought an investment
claim against Australia challenging the country's
plain-packaging laws.15 The claim alleges that the
forcible removal of the tobacco manufacturer's protected
trademarks from product packaging is an expropriation under
international law.16This case is but one example of
claims that, while previously relegated to national courts or the
state-to-state mechanisms provided by the WTO, may now be brought
directly against recalcitrant states by private companies.
International investment arbitration provides a powerful mechanism
to enforce patent rights around the globe.
Here are some of the grounds on which a patent holder may seek to
enforce and protect its rights:
Fair and Equitable Treatment. Nearly every modern
BIT guarantees "fair and equitable treatment" to foreign
investors and their investments, which generally means that each
state has assumed an obligation to treat investors in a manner that
is not grossly unfair, discriminatory, or arbitrary and, in some
cases, to protect the investor's legitimate expectations
regarding its investment in the country.17 To be sure,
exclusivity is a central expectation flowing from ownership of a
patent, and the revocation of that right of exclusivity may
constitute a violation of the obligation to accord fair and
equitable treatment. This conclusion is buttressed by articles
contained in many modern BITs that incorporate "other
international obligations" (like the Paris Convention and the
WTO's Trade-Related Aspects of Intellectual Property Rights
("TRIPs") agreement) as binding obligations with respect
to intellectual property.18 These obligations arguably
define a foreign pharmaceutical company's legitimate
expectations and rights,19 and to the extent that a host
state acts in violation of these agreements, such a violation may
also be independently actionable under the relevant
BIT.20 For example, the basic patentability standards of
the TRIPs agreement have been guaranteed to Novartis'
investments in India ever since India agreed to become
TRIPs-compliant in 2005; denying a patent in violation of those
standards therefore may constitute a violation of the fair and
equitable treatment standard. In Bayer's case, the sheer length
of time for which the compulsory license was granted to the Indian
company—i.e., the "balance term of the
patent"—and the fact that no national health
"emergency" exists to justify such a license over a
"non-life saving drug," are just two reasons to suggest
that India has run afoul of Article 31 of TRIPs.
National Treatment. Foreign investors and their
investments are also protected from discriminatory treatment at the
hands of host governments and government officials,21
which includes patent officials and courts. Elements of the recent
decision against Bayer in India, however, seem patently
discriminatory. For instance, when determining whether Bayer has
sufficiently "worked" the patent in India, the Controller
placed significant weight on the fact that Bayer did not
manufacture the Nexavar drug in India, while the generic Applicant
would. And because the grant of this compulsory license benefits a
domestic Indian firm by granting it cheap access to patented
technology (rather than, for instance, allowing the government to
take a temporary license to address a public health emergency), its
justification appears less tenable as a proper exercise of
governmental authority.
Indirect Expropriation. Nearly all modern BITs
forbid the expropriation of a foreign investment—which
includes intellectual property—without due
compensation.22 Because exclusivity is a central feature
to an intellectual property asset like a patent, the grant of a
compulsory license significantly devalues that asset, and thus
arguably "ha[s] an effect equivalent to ... [an]
expropriation" under international law.23 In that
situation, "compensation ... shall be equivalent to the value
of the expropriated ... investment immediately before the date on
which such expropriation ... became publicly
known"24 A nominal 6 percent royalty—which
Bayer received as compensation for the Nexavar compulsory
license—may arguably fall below this threshold and give rise
to an actionable claim for indirect expropriation.
"Effective Means." Many BITs also
guarantee foreign investors and their investments an
"effective means" to protect their rights within the
domestic legal system.25 As noted above, local courts in
India have thus far given little respite to the aggrieved patent
holder—even while appeals are pending. For instance, as Bayer
appeals the compulsory license decision, two local Indian companies
continue to manufacture and sell a generic equivalent of
Bayer's patented drug.26 The Indian courts have
refused to stay the effect of the license as Bayer's appeal
winds its way through the notoriously slow Indian court system at a
glacial pace.27 In BIT parlance, India may have
presented Bayer with "[in]effective means" to defend its
rights, thereby violating BIT guarantees independent of the
expropriation of intellectual property. Indeed, in a recent
international investment arbitration between an Australian investor
and India, the tribunal held that the Indian judicial system had
breached its obligation to provide an "effective means"
for investors to defend their rights.28
Ensuring BIT Protection for Your Foreign
Investment
When it comes to access to rights under treaties, nationality is
of the utmost importance. However, multinationals without treaty
protection in their home jurisdiction can proactively seek it out
before a dispute arises. A prudent investor will structure—or
even restructure—the ownership of its investments in
developing states to secure maximum protection under existing
treaties. This sort of proactive planning for treaty protections
is, according to one recent UNCITRAL Tribunal, "not unusual
nor is there anything in the least reprehensible about
it."29 "[S]uch national routing of investments
is entirely in keeping with the purpose of the instruments and
motivations of the state parties."30
Conclusion
Global patent holders have a variety of means to protect their
patents as they enter developing markets. With the rule of law
still emerging in those markets, international mechanisms that
exist below the state-to-state level ought to be considered
alongside domestic court remedies. These mechanisms can provide
efficient, depoliticized, and real relief for aggrieved companies
that wish to protect their global patent portfolio.
Footnotes
1 Helen Pidd, "Indian Court to Hear Crucial Novartis
Patent Case on Cut-Price Generic Drugs," The
Guardian (Aug. 21, 2012).
2 Rumman Ahmed, "Indian Court Rules Against
Roche," The Wall Street Journal
(Sept. 7, 2012).
3 Eric Palmer, "Natco May Next Attack Pfizer, Roche
Drugs With Compulsory License,"
FiercePharma (July 20, 2012).
4 Vikas Bajaj & Andrew Pollack, "India Orders
Bayer to License a Patented Drug," The New York
Times (Mar. 12, 2012).
5 "Bayer's Plea For Stay On Nexavar Generic in
India Dismissed," Reuters (Sept. 17, 2012).
6 Tan Ee Lyn, "China Changes Patent Law in Fight
for Cheaper Drugs," Reuters (June 8, 2012).
7 World Bank Institute, Worldwide
Governance Indicators, 2011 Rule of Law Index for China and
India, available
athttp://info.worldbank.org/governance/wgi/mc_countries.asp
8 See United Nations
Conference on Trade and Development (UNCTAD),
Investment Instruments Online, Bilateral Investment
Treaties, available
athttp://www.unctadxi.org/templates/DocSearch.aspx?id=779
9 Republic of Ecuador v. Chevron
Corp., 638 F.3d 384, 392-93 (2d Cir. 2011).
10 See, e.g.,
UK–China Bilateral Investment Treaty, art. 1(a);
UK–India Bilateral Investment Treaty, art. 1(b)-(c);
Germany–China Bilateral Investment Treaty, art. 1(1)-(2);
Germany–India Bilateral Investment Treaty, art. 1(b)-(c);
France–China Bilateral Investment Treaty, art. 1(1);
France–India Bilateral Investment Treaty, art. 1(1);
Switzerland–China Bilateral Investment Treaty, art. 1(1)-(2);
Switzerland–India Bilateral Investment Treaty, art.
1(1)-(2).
11 See, e.g.,
UK–China Bilateral Investment Treaty, art. 1(a)(iv);
UK–India Bilateral Investment Treaty, art. 1(b)(iv);
Germany–China Bilateral Investment Treaty, art. 1(1)(d);
Germany–India Bilateral Investment Treaty, art. 1(b)(iv);
France–China Bilateral Investment Treaty, art. 1(1)(d);
Switzerland–China Bilateral Investment Treaty, art. 1(1)(d);
Switzerland–India Bilateral Investment Treaty,
art. 1(2)(d).
12 Charles N. Brower & Lee A. Steven, "Who Then Should
Judge?: Developing the International Rule of Law under NAFTA
Chapter 11," 2 Chi. J. Int'l L. 193, 196 (2001).
13 Andrea Kupfer Schneider, "Getting Along: The Evolution
of Dispute Resolution Regimes in International Trade
Organizations," 20 Mich. J. Int'l L. 697, 717
(1998-1999).
14 Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, done at New York, June 10, 1958; Convention On The
Settlement Of Investment Disputes Between States And Nationals Of
Other States, done at Washington D.C., Mar. 18, 1965. For status of
current signatories, see United
Nations Commission on International Trade Law web site, UNCITRAL
Texts and Status, International Commercial Arbitration &
Conciliation, available at
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html
, and ICSID, List of Contracting States and Other Signatories
of the Convention, available at
https://icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDDocRH&actionVal=ContractingStates&ReqFrom=Main
15 See Alan Beattie,
"Intellectual Property: A New World of Royalties,"
Financial Times (Sept. 23, 2012).
16 Id.
17 See, e.g., UK–China
Bilateral Investment Treaty, art. 2(2); UK–India Bilateral
Investment Treaty, art. 3(2); Germany–China Bilateral
Investment Treaty, art. 3(1); Germany–India Bilateral
Investment Treaty, art. 3(2); France–China Bilateral
Investment Treaty, art. 3(1); France–India Bilateral
Investment Treaty, art. 4(2); Switzerland–China Bilateral
Investment Treaty, art. 4(1); Switzerland–India
Bilateral Investment Treaty, art. 3(2).
18 See, e.g., UK–India
Bilateral Investment Treaty, art. 12; Germany–China Bilateral
Investment Treaty, art. 10(1); Germany–India Bilateral
Investment Treaty, art. 13(1); France–India Bilateral
Investment Treaty, art. 11; Switzerland–India
Bilateral Investment Treaty, art. 12.
19 See suprafn. 15, and
accompanying text.
20 See generally Charles T. Kotuby
Jr., "'Other International Obligations' as the
Applicable Law in Investment Arbitration," 2011 Int'l Arb.
L. Rev. 162 (2011).
21 See, e.g., UK–China
Bilateral Investment Treaty, arts. 2(2) & 3; UK–India
Bilateral Investment Treaty, art. 4; Germany–China Bilateral
Investment Treaty, arts. 2(3) & 3(2); Germany–India
Bilateral Investment Treaty, art. 4(1); France–China
Bilateral Investment Treaty, art. 4(2); France–India
Bilateral Investment Treaty, art. 5; Switzerland–China
Bilateral Investment Treaty, art. 4(3); Switzerland–India
Bilateral Investment Treaty, art. 4(1).
22 See, e.g., UK–China
Bilateral Investment Treaty, art. 5; UK–India Bilateral
Investment Treaty, art. 5; Germany–China Bilateral Investment
Treaty, art. 4; Germany–India Bilateral Investment Treaty,
art. 5; France–China Bilateral Investment Treaty, art. 4;
France–India Bilateral Investment Treaty, art. 6;
Switzerland–China Bilateral Investment Treaty, art. 7;
Switzerland–India Bilateral Investment Treaty,
art. 5.
23 See, e.g., UK–China
Bilateral Investment Treaty, art. 5(1); UK–India
Bilateral Investment Treaty, art. 5(1).
24 See, e.g., Germany–China
Bilateral Investment Treaty, art. 5(1); Germany–India
Bilateral Investment Treaty, art. 5(1) (similar provision).
25 See, e.g.,
India–Kuwait Bilateral Investment Treaty, art. 4(5). Note
that UK, French, German, and Swiss investors can claim this same
protection in India because of the "most favored nation"
provisions in their own BITs. See
UK–India Bilateral Investment Treaty, art. 4(1);
Germany–India Bilateral Investment Treaty, art. 4(1);
France–India Bilateral Investment Treaty, art. 5(2);
Switzerland–India Bilateral Investment Treaty, art.
4(1).
26 Supra fn. 5.
27 Supra fn. 5.
28 White Indus. Australia Ltd. v.
Republic of India, UNCITRAL, Award, Nov. 30,
2011.
29 HICEE v Slovak
Republic, UNCITRAL, PCA Case No. 2009-11, Partial
Award (23 May 2011), ¶ 103.
30 Aguas del Tunari, S.A. v. Republic of
Bolivia, ICSID Case No. ARB/02/3, Decision on
Jurisdiction (21 Oct. 2005), ¶332.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.