[Ip-health] Patently-O updates from Dennis Crouch

Claire Cassedy claire.cassedy at keionline.org
Mon Mar 30 09:31:58 PDT 2015


> Million Dollar Mistake? The Cost of Limiting or Canceling IP Rights
> Guest post by  Cynthia M. Ho, Clifford E. Vickrey Research Professor,
Loyola University of Chicago School of Law.
> Philip Morris and Eli Lilly think that they are entitled to millions in
compensation from countries that limit or deny desired intellectual
property rights.  These companies are the first to challenge IP issues
pursuant to international agreements protecting investments of foreign
companies. However, they join a trend of companies increasingly suing
states before a panel of private arbitrators pursuant to investor-dispute
settlement (ISDS).  The substantial financial stakes may have a chilling
effect on traditional domestic laws and policies.
> Although there are only two IP related ISDS disputes so far, IP policy
makers should be concerned and oppose pending fast-track legislation that
would permit President Obama to easily conclude more agreements with these
problematic provisions.  Indeed, pending agreements have been criticized by
a diverse group of individuals and countries including Nobel Prize winner
Joseph Stiglitz, Elizabeth Warren, the Cato Institute and countries such as
France and Germany.  The USTR recently issued a fact sheet, which was
promptly debunked.
> What is ISDS?
> ISDS is a mechanism in over 3000 international agreements that permit
foreign investors to seek compensation against countries.  The agreements
guarantee freedom from discriminatory measures, a guarantee of being
treated no less favorably than domestic companies, compensation for
expropriation of investments, and “fair and equitable treatment.”  If these
rights are allegedly violated, investors can bring a dispute before a
tribunal of private (usually commercial) lawyers chosen by the parties to
the dispute. There is not only no independent judiciary, but also no
binding precedent and no appellate review, such that there can be
inconsistent and unpredictable results.
> Historically, these provisions were first added to international
agreements promoting investments after World War II when newly independent
nations wanted to encourage foreign investment.  ISDS was intended to
provide protection to companies that lacked any legal recourse against
unlawful state action.  ISDS was conceived as an improvement over “gunboat
diplomacy” that nations used to protect their companies.
> Why is ISDS relevant to IP?
> Although ISDS was not originally designed to protect IP, companies are
trying to use it for this purpose.
> Most agreements providing ISDS do so only for investments of foreign
companies.  These investments can include not only tangible, but also
intangible property, which would seem to include IP.
> Is a Canceled IP Right an “Investment” Subject to ISDS?
> Even if IP is within the scope of covered investments, a critical
question is whether this should include canceled IP.  IP lawyers and even
students know that IP is at most presumptively valid, such that it can and
often is canceled when found to not meet basic requirements.  Although
canceled IP has never been considered to provide rights, Eli Lilly assumes
it has rights.  In particular, it is seeking $500 million from Canada after
failing to convince both a trial and appellate court that two of its
patents were valid.
> Highlights of Existing ISDS Claims Regarding IP
> Eli Lilly’s case involves a challenge to Canada’s “promise doctrine” for
assessing utility of patents and applications that make certain promises.
The promise doctrine is unusual as a utility requirement, but similar to
disclosure and other patentability  requirements of other countries.  Eli
Lilly claims that because this doctrine developed after its patents were
granted (a point that is contested, even by some lawyers), it is improper
to retroactively apply it to invalidate its patents, such that its patents
have been improperly “expropriated,” which is roughly similar, but broader
than US takings.  However, patents are routinely invalidated after common
law modifications to laws, such as the scope of patentable subject matter
with no claims of takings.
> Eli Lilly seems to assume both that an issued patent is a state
representation that it will remain forever valid and also that a nation can
not modify its laws without violating legitimate expectations.  The
supposed violation of its legitimate expectations figures prominently in a
claim for denial of the amorphous condition of “fair and equitable
> Problematically, although a patent lawyer would readily reject the idea
that patents are always valid and untouchable by subsequent law, they will
not be deciding Eli Lilly’s case. Notably, when I presented a forthcoming
article about this case to an international law colloquium, I was surprised
that the audience resisted the basic principle that patent rights can and
should be invalidated when found not to satisfy fundamental requirements.
> Philip Morris also claims its legitimate expectations were violated, but
in a different way.  Philip Morris asserts that it had a legitimate
expectation that Australia would uphold its obligation to comply with TRIPS
requirements for trademarks.   This suit fundamentally challenges the
process for resolving alleged TRIPS violations.  Only countries, not
companies, have standing to adjudicate alleged violations under TRIPS.
Thus far, countries have been cautious in doing so since there are often
political implications for their actions. Moreover, permitting violations
of TRIPS to be litigated outside of the WTO forum would seem wholly
inconsistent with the WTO dispute settlement process that is intended to be
the only forum for litigating such disputes.  In addition, there could be
conflicting results; indeed, there is a pending WTO case.
> ISDS for IP Threatens Flexibilities Under TRIPS
> Eli Lilly’s case poses a serious threat to the minimum standard approach
of TRIPS (and NAFTA).  Although these agreements have been widely
understood to permit nations flexibility to define key terms, such as what
is “new” or what counts as “useful,” Eli Lilly falsely claims that Canada’s
definition is impermissible.
> Ironically, these cases are arising at a time when many academics and
policy makers (Eastern Europe, South Africa) have been encouraging
countries to take greater advantage of their already limited flexibilities
under TRIPS.  The present disputes may have chilling effects at a time when
countries such as South Africa and Brazil have been considering modifying
patent laws.
> Future Problems
> In the near future, companies may use ISDS to challenge patent
provisions, such as compulsory licensing and India’s patent law designed to
prevent “evergreening” of drugs that have attracted criticism, but no WTO
dispute.  Moreover, regulatory provisions are also ripe for challenge.  For
example, countries that fail to provide data exclusivity desired by the
pharmaceutical industry could be subject to challenge.  In addition, a
pending EU law hailed by public health advocates for increasing
transparency concerning data of approved drugs is also at risk.
> Given the wide range of issues at the intersection of intellectual
property and public health that are potentially threatened by ISDS, this
should be an issue of major concern.  Those who want to preserve policy
space for countries should oppose pending agreements that permit ISDS, such
as the pending Trans Pacific Partnership Act, especially because there is
no public access to draft text of pending agreements except through sources
such as Wikileaks, which just released the secret investment chapter of the
TPP, that permits ISDS.   Public opposition is important; the EU has now
delayed consideration of ISDS in its pending Transatlantic Trade and
Investment Partnership (TTIP) agreement with the US.  In addition, although
“fast-track” legislation is presently stalled, it should be opposed if
re-introduced mid-April.  In the meantime, you can join  a petition to
Congress, or directly contact your Congressman to oppose fast track bills.
> Cynthia is a Law Professor at Loyola University of Chicago School of Law.

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