Co-authored by Corina Lefter, Trainee Solicitor at Reed Smith LLP
Bridgestone's tire dispute in Panama opens door for milestone interpretation of investment treaty protection for trademarks
The International Centre for Settlement of Investment Disputes (ICSID) has just released a decision on the expedited objections of the respondent state, Panama, in Bridgestone Licensing Services, Inc. and Bridgestone Americas, Inc. v Republic of Panama (ICSID Case No. ARB/16/34). The Tribunal, comprised of Lord Phillips (Chair), Horacio Grigera Naón (the investors' appointee) and J Christopher Thomas QC (the state's appointee), considered in which circumstances registered trademarks and, by extension, the licences for such trademarks can be considered as investments qualifying for treaty protection.
The claim was brought by two U.S.-incorporated companies – Bridgestone Licensing Services, Inc. (BSLS) and Bridgestone Americas, Inc. (BSAM) – under the ICSID Convention pursuant to the U.S.-Panama Trade Promotion Agreement (TPA). Panama made several objections to the jurisdiction of the tribunal. One such objection was that the claimants had no "investment" under the TPA.
The first issue arose in relation to the Firestone trademark. By way of background, BSLS was the owner of the Firestone trademark registered in Panama and BSAM was the licensee to which BSLS had granted a licence to use the Firestone trademark in Panama. While Panama accepted that BSLS's registered trademark qualified as an investment under the TPA, it objected that BSAM had an investment by virtue of the grant of the licence to use the trademark.
The second issue arose in relation to the Bridgestone trademark. The difference here was that the Bridgestone trademark was owned by the Japanese parent of the companies in the Bridgestone Group (BSJ), and was an entity that had no rights under the TPA. Nevertheless, the licence to use the Bridgestone trademark in Panama was granted to BATO, a wholly owned subsidiary of BSAM (a U.S. entity). Panama also objected to BSAM's contention that this latter licence was an investment under the TPA.
The "narrow compass" of the dispute was the difference between the ownership of relevant trademarks and the licences to use these trademarks and then whether either of them satisfied the definition of investment under the TPA.
Registration of a trademark vs the exploitation of a registered trademark
Noting that previous jurisprudence did not discuss whether a trademark can constitute a qualifying investment, the tribunal in this case embarked on its analysis by first looking at the definition of investment under the TPA. A covered investment was defined as "every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment," such as "the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk." As is the case with most modern bilateral investment treaties (BITs) or free trade agreements, such assets included intellectual property rights and "licences ...conferred pursuant to domestic law."
The tribunal went on to explain that a trademark empowers a seller to profit from the goodwill attaching to products bearing its mark. This goodwill could be generated either by designing, manufacturing and selling products containing the mark, or by promoting the brand through advertising. Whichever way goodwill was generated, it would always rest on a commitment of resources over a significant period, an expectation of profit and an assumption of risk. In this context, the tribunal viewed the mere act of registration of a trademark as not amounting to or having the characteristics of an investment under the BIT. However, the "picture [was] transformed if the trademark [was] exploited." Exploitation, either by the owner or by the licensee of the trademark, would involve a devotion of resources such as the production, promotion and sale of trademarked goods, all of which would be beneficial to the host state.
Against this background, the tribunal held that a registered trademark constituted a qualifying investment subject to its exploitation by the owner. The remaining question was therefore whether the exploitation of a trademark by a licensee could separately constitute an investment.
A licence to use a registered trademark also made the cut
The tribunal further examined whether a trademark licence would be capable of constituting a qualifying investment. Following the above analysis, the tribunal determined that, in order to constitute an investment, a licence must be exploited by the licensee in the same way as a trademark must be exploited by the owner.
However, one requirement of the TPA was that in order for a licence to have the characteristics of an investment, the licence needed to confer rights on the licence holder under the law of the host state, in this case, Panama. Evidence of Panamanian law showed that a licensee of a trademark possesses the rights of use of the trademark, and thus the role of the licensee is of paramount importance, not only because a licensee could join the owner in enforcement proceedings associated to the trademark, but also because the use of the trademark by the licensee would maintain the exclusivity of the rights awarded under the trademark registration certificate.
The tribunal thoroughly discerned the different facts in relation to the grants of the Firestone and Bridgestone trademark licences, and concluded that both licences represented investments under the TPA, thereby paving the way for trademark owners and licensees to claim treaty protection if the situation arises.
About Investment Treaty Arbitration at Reed Smith
Reed Smith's investment treaty arbitration team advises investor and state clients on pre- and post-contract investment strategy and on disputes that arise under bilateral and multilateral investment treaties.
This article is presented for informational purposes only and is not intended to constitute legal advice.