United States: "Investment" Narrowly Construed Under NAFTA In "Apotex v. United States"

A recent decision provides a narrow interpretation of "investment" under NAFTA Chapter Eleven.

In a recent NAFTA Investor-State claim brought against the United States by Apotex Inc., Canada's largest producer of generic drugs, the Tribunal upheld the United States' preliminary objections to jurisdiction on the grounds, inter alia, that the company's efforts to win approval for generic drugs in the United States market did not make it an "investor" under Article 1139 of NAFTA Chapter Eleven. In Apotex Inc. v. The Government of the United States of America, Award on Jurisdiction and Admissibility (14 June 2013), the Tribunal held that significant expenses incurred in: (i) seeking Food and Drug Administration ("FDA") approval; (ii) purchasing materials and ingredients in the United States intended for the manufacture of products abroad (in this case in Canada); and (iii) conducting litigation and establishing an agent in the United States for the purpose of corresponding with and making submissions to the FDA, were all insufficient to qualify as an "investment" under the treaty. This award sheds further light on the precise meaning of the term "investment" under NAFTA and confirms that, as with other provisions of NAFTA Chapter Eleven, investors must surmount a high jurisdictional threshold in order to bring claims before a NAFTA tribunal.

Apotex alleged in the arbitration that its rights were violated by the United States in breach of NAFTA Articles 1102 (obligation to accord national treatment to foreign investments), 1105 (obligation to accord fair and equitable treatment to foreign investments) and 1110 (obligation not to expropriate without payment of fair compensation). Apotex claimed that it was subject to mistreatment by the United States, its agencies (in particular the FDA) and its Federal Courts in the course of the company's efforts to bring generic versions of the anti-depressant drug Zoloft (to be marketed as Sertraline by Apotex) and the anti-cholesterol drug Pravachol (to be marketed as Pravastatin by Apotex) to market in that country. In particular, the Sertraline claim arose out of three United States Federal Court decisions pertaining to Apotex's application for FDA approval of its generic drug. The Pravastatin claim arose out of a decision by the FDA and three decisions of the United States Federal Courts, pertaining to Apotex's application for FDA approval of its generic drug.

The United States objected to the jurisdiction of the NAFTA Tribunal on the grounds, inter alia, that Apotex did not qualify as an "investor" which had made an "investment" in the United States for the purposes of NAFTA Article 1139 (which Article contains the definitions of "investment" and "investor of a Party").

Apotex argued in response that: (i) it had invested millions of dollars in developing its products and preparing and filing its submissions to the United States' FDA; (ii) the sole purpose of Apotex's development and submission of the FDA application was to obtain FDA approval to commercialize its products in the United States; (iii) Apotex's FDA application was manifestly a U.S. investment (i.e. property, tangible or intangible, acquired in the expectation or used for the purpose of economic benefit or other business purposes); (iv) Apotex had made substantial commitments of capital and other resources towards economic activity in the United States, including the purchase of raw materials from United States suppliers for its Pravastatin manufacturing process; and (v) Apotex had designated its United States affiliate and distributor as its United States agent for FDA regulatory purposes, as well as designating an agent for service of process in the United States, thus consenting to jurisdiction and suit there.

The Tribunal addressed Apotex's defenses to the United States' main jurisdictional objection and found that, "each of the specific activities and expenses relied upon by Apotex simply supported and facilitated its Canadian-based manufacturing and export operations," meaning that such expenditures could not count as investments in the United States. Further, the Tribunal held that Apotex's activities with respect to the contemplated sales of its Sertraline and Pravastatin products in the United States were "those of an exporter, not an investor" and as such were not protected by NAFTA's provisions on national treatment. Similarly, the Tribunal held that the purchase of materials and ingredients in the United States could not count as an investment as they were intended for the manufacture of products abroad. Finally, the Tribunal found that conducting litigation in the United States and establishing an agent in the country to assist with FDA submissions, constituted an ordinary part of doing business and did not amount to an investment. Consequently the Tribunal held that no "investment" had been made by Apotex in the territory of the United States within the scope of NAFTA Chapter Eleven and that Apotex itself did not therefore qualify as an "investor" under the treaty. This finding was sufficient for the Tribunal to dismiss Apotex's claims in their entirety.

The United States had, in addition to the above jurisdictional objection, argued that: (i) Apotex had failed to pursue available remedies within the United States Court system with respect to its Pravastatin claim, such that the judicial acts complained of lacked sufficient finality to form the basis of claims under NAFTA Chapter Eleven; and (ii) the time bar in NAFTA Article 1116(2) precluded Apotex's allegation in its Pravastatin claim that the FDA's letter decision of 11 April 2006 (determining that a 180-day exclusivity period had not been triggered) itself constituted a violation of Articles 1102, 1105 and 1110 of NAFTA. Despite having already dismissed Apotex's claims in their entirety, the Tribunal went on to address these additional jurisdictional objections, finding in favor of the United States in both instances. Particularly noteworthy is the Tribunal's rejection of Apotex's argument that it had satisfied the requirement to exhaust local legal remedies because appealing to the United States Supreme Court would have been "obviously futile," based primarily on the small number of cases that this Court entertains each year. The Tribunal held that to accept such an argument would be, "to write the US Supreme Court out of the exhaustion of remedies rule in almost all cases." The tribunal, having rejected Apotex's jurisdictional defenses, ordered the company to pay the United States' legal costs as well as the costs of the arbitration.

It is noteworthy that Apotex chose, for unknown reasons, not to advance three arguments that could conceivably have resulted in it overcoming the jurisdictional objections of the United States. First, the award focused on investments the company claimed it had made in the U.S., as opposed to investments that it intended to make in the country. Apotex's apparent failure to focus on the investments it intended to make is surprising given that the company's attempts to bring new drugs to market in the United States could arguably be interpreted as Apotex "establishing, acquiring" and "expanding" its investments in the country. A "pre-establishment" argument with respect to Apotex's national treatment claim under NAFTA Article 1102(2) (which states that, "Each Party shall accord to investments of investors of another Party treatment no less favorable than that it accords, in like circumstances, to investments of its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments") might arguably have stood a greater chance of success than the more straight-forward investment argument advanced by Apotex. Second, the Claimant could also have argued that its activities in the U.S. were covered by NAFTA Article 1139 (which states that, "investor of a Party means a Party or state enterprise thereof, or a national or an enterprise of such Party, that seeks to make, is making or has made an investment.") As both NAFTA Articles 1102(1) and 1103(1) explicitly extend treaty protection to "investors" as well as "investments", Apotex could well successfully have argued that its attempts to sell generic drugs in the U.S. were those of an investor "seeking to make" an investment in the United States. A final, albeit controversial, argument that could have been advanced was that the U.S. is obliged to extend NAFTA protection to the wider category of "investments" defined in that country's bilateral investment treaties with non-NAFTA states, as a consequence of the "most favored nation" clause contained in NAFTA Article 1103 (which states that, "each Party shall accord to investors of another Party treatment no less favorable than it accords, in like circumstances, to investors of any other Party or of a non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.") This wider category of investments would, based on the definitions of "investment" contained in a number of older U.S. BITs that remain in force (such as, for example, the U.S.-Congo BIT), likely be deemed to have included the "investment" made by Apotex in the United States.

Conclusions

In light of the Apotex award, U.S., Mexico and Canada-based companies with investments in other NAFTA signatory countries should be aware that the barriers to jurisdiction in NAFTA Investor-State proceedings are continuing to grow higher— particularly when compared to those in other treaty-based Investor-State arbitrations—though they are by no means insurmountable. Whilst host countries continue aggressively to fight NAFTA claims brought against them, successful outcomes for investors remain possible if the system is navigated wisely, for instance by ensuring that claims are brought under the most appropriate provisions of the treaty. The tribunal's finding that Apotex's failure to exhaust local legal remedies in the U.S. would, in any event, have been fatal to its claim should also not be overlooked. It is a cautionary tale which demonstrates that investors in the U.S., if a NAFTA claim is on the horizon, should be sure to file a pro forma certiorari appeal to the Supreme Court to ensure that all local U.S. legal remedies have been exhausted. Jones Day has significant experience representing claimants in NAFTA proceedings and will continue closely to monitor developments in NAFTA jurisprudence. We would be happy to discuss any questions or concerns you may have regarding the protection of investments in the United States, Canada or Mexico, including through the arbitration of investment disputes under NAFTA's Chapter Eleven.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions