SHIFT IN THE ENFORCEMENT OF INTELLECTUAL

PROPERTY RIGHTS: WTO DSB TO ISDS

With stricter domestic laws, international investments have become harder and
companies that have interests cross border are trying all their efforts to protect their name
across the global market. The TRIPS agreement from the WTO was the first international
effort to provide for a standard of intellectual property rights protection. The ISDS is a
system through which investors can settle disputes with the countries where they’ve invested
and this instrument has been incorporated in several international trade agreements like the
NAFTA, TPP. The ISDS provisions in these investment agreements provides for the investor
the choice to choose between different applicable rules such as the ICSID Convention and
rules and other arbitration rules.

These sought of arrangements has recently come to the spotlight as a tobacco manufacturing
company, Philip Morris sued Argentina and Australia for coming up with domestic laws that
mandate the tobacco manufacturing companies to fill 80% of their packaging with health
hazard warnings. The main contention of Philip Morris was that this mandate has interfered
with their trademark as they are not able to print their trademarks over the packaging and had
gone to the ICSID for the same.

Such companies could do this as under the ISDS provisions investments included intellectual
property too. The normal process in the above case for Philip Morris would be for it to
address the issue in its home country and then through them raise their claim in the WTO
DSB, but since the word investment in the agreement included the term intellectual property,
they could sue the host countries directly in the ICSID. The paper tries to understand the role
of ICSID in the settlement of disputes as opposed to the WTO DSB.

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 CONTENTS

 Introduction

 Intellectual Property as an Investment in ICSID

o History of Intellectual Property & Investment

o Cases that dealt with Investments vis a vis Intellectual Property

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 ICSID & Intellectual Property Disputes

 WTO DSB v ICSID DSB

o Investor’s Perspective v. Host Country’s Perspective

 Conclusion

 References

TABLE OF CASES

 Salini et al. v. Republic of Morocco, ICSID Case No. ARB/00/4, Decision on

Jurisdiction, 152 (Jul. 23, 2001), 42 I.L.M. 609 (2003)
 Philip Morris Asia Ltd. v. Commonwealth of Australia, U.N. Commission on Int’l Trade
L. [UNCITRAL], PCA Case No. 2012-12, Award on Jurisdiction and Admissibility (Dec.
17, 2015)
 Eli Lilly v. Can., UNCITRAL
 Fedax NV. v. Republic of Vene.., ICSID Case No. ARB/96/3, Decision of the Tribunal on
Objections to jurisdiction, 1381 16 (Jul. 11, 1997), 37 I.L.M. 1380 (1998)

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 Quiborax v. Bol., ICSID Case No. ARB/06/2, Decision on Jurisdiction, 1 220 (Sept.27,
2012)
 Malaysian Historical Salvors Sdn, Bhd v. The Government of Malaysia, Award on
Jurisdiction, 17 May 2007, ICSID Case No. ARB/05/10
 Philip Morris Brands Sarl v. Uruguay, ICSID case no. ARB/10/7
 Philip Morris Asia Ltd. v. Australia., Permanent Court of Arbitration No. 2012-12

LIST OF ABBREVATION

1. Anr. Another
2. ICSID International Centre for Settlement of
Investment Disputes
3. ISDS Investor-State Dispute Settlement
4. ASEAN Association of Southeast Asian
Nations
5. TRIPS Trade Related Intellectual Property
Rights
6. BIPA Bilateral Investment Promotion and

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 Protection Agreement
7. BITS Bilateral Investment Treaties
8. WTO World Trade Organisation
9. DSU Dispute Settlement Understanding
10. DSB Dispute Settlement Board
11. NAFTA North American Free Trade
Agreement
12. WTO DSB World Trade Organisation Dispute
Settlement Board

INTRODUCTION

International investments are essential for a country’s growth as a lot of employment is

created as a result of international investments and countries tend to attract international
investments through tax holidays and other freebies. Defining international investment is
complex as no major institution has come up with one single definition as to what it means.
In the year 2001, in the case of Salini et al. v. Kingdom of Morocco 1, the International centre
for settlement of investment disputes came up with a test that defines what an investment is a)
a contribution of money or assets; b) a certain duration; c) an element of risk; d) a
contribution to the development of the host state.

Although such investments are made with promises from either side, sometimes they end up
in disputes due to non-performance of such assurances made by either side. India, for
1
Salini et al. v. Republic of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, 152 (Jul. 23, 2001),
42 I.L.M. 609 (2003).

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example has signed several agreements with other countries like the BIPA (Bilateral
investment promotion and protection agreement), BITS (Bilateral investment treaties) and
ASEAN – India Investment Agreement and in these agreements, they have agreed upon a
way to resolve disputes. In the BIPA agreement signed with the United Kingdom Article 9
states the way disputes are to be settled between the investor and the host nation and it refers
to the ICSID (International centre for the settlement of Investment disputes).

ICSID is a body established in the year 1966 for dispute settlement and it settles disputes
through conciliation, arbitration or fact-finding. ICSID’s aim is to provide confidence to
investors by providing a dispute resolution process, where investors can raise claims against
the host countries. India in all its trade agreements has used the ISDS (Investor state dispute
system) which are governed by ICSID system for its dispute resolution system. The
advantage of using this system is that individual investors can sue the host countries directly
without the need for their own country’s permission, Article 1(2) of the Convention on the
settlement of investment disputes between states and nationals of other states reads “The
purpose of the Centre shall be to provide facilities for conciliation and arbitration of
investment disputes between Contracting States and nationals of other Contracting States in
accordance with the provisions of this Convention.”2

It is clear that any investment that is made in another country can be disputed in the ICSID
and the term investment in the bilateral treaties entered by India with other countries such as
United Kingdom and other countries include the word intellectual property, even disputes
relating to it can be disputed at the ISDS. Earlier the TRIPS (Trade related aspects of
intellectual property rights) agreement was the international agreement that was brought by
the WTO to protect intellectual property rights and set down standards for the same. The
TRIPS agreement let countries to make reservations on certain rights on account of public
welfare and this has led to a lot of disputes like the Philip Morris case3.

The dispute settlement procedure under the TRIPS agreement was to report to the dispute
settlement board which could be accessed by the members of the WTO alone, therefore
countries that are willing to raise claims against the host country should contact their own
country to raise claims at the dispute settlement board and this has been enshrined in Article 1
of the DSU rules. This has been a little different in the case of Philip Morris where it sued

2
ICSID Convention, Regulations and Rules art. 1, April 10, 2006.
3
Philip Morris Asia Ltd. v. Commonwealth of Australia, U.N. Commission on Int’l Trade L. [UNCITRAL],
PCA Case No. 2012-12, Award on Jurisdiction and Admissibility (Dec. 17, 2015)

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Argentina and Australia for coming up with domestic laws that mandate the tobacco
manufacturing companies to fill 80% of their packaging with health hazard warnings. The
main contention of Philip Morris was that this mandate has interfered with their trademark as
they are not able to print their trademarks over the packaging and had gone to the ICSID for
the same. The normal process in the above case for Philip Morris would be for it to address
the issue in its home country and then through them raise their claim in the WTO DSB, but
since the word investment in the agreement included the term intellectual property, they
could sue the host countries directly in the ICSID.

The paper tries to understand the role of ICSID in the settlement of disputes both from the
investor’s perspective as well as the host country’s perspective and the divergence from the
traditional WTO DSB (World trade organisation dispute settlement board).

INTELLECTUAL PROPERTY AS AN INVESTMENT IN ICSID

In Canada, in the year 2013, Eli Lilly which was involved in pharmaceutical drug
manufacturing began a dispute with the Canadian government claiming over $500 million in
damages over not fulfilment of promises that were include in the North American Free Trade
Agreement4 (NAFTA) and had sent a notice for arbitration 5. The dispute was regarding the
invalidation of patents that were held by Elly Lilly as it did not confirm with the standards
that were set in the Canadian statutes relating to utility patents. Elly Lilly raised objections
saying the Canadian government disregarded the company’s legitimate expectation as it was
not consistent with the laws of other signatories of the North American Free Trade
Agreement (NAFTA)6.

The question that arises out of this problem is not whether Elly Lilly should be granted the
patent but whether they can raise an issue against the Canadian government for not meeting
the standards that are laid down in the investment treaty namely, the NAFTA and for this the
company had gone to ICSID (International Centre for Settlement of Investment Disputes).
Elly Lilly could raise such a claim against the Canadian government as intellectual property
falls under the scope of investments under the NAFTA agreement 7, Chapter 11 deals with

4
North American Free Trade Agreement, America-Canada-Mexico, 32 I.L.M. 289 and 605 (1993).
5
Eli Lilly v. Can., ICSID Case No. UNCT/14/2.
6
See Okediji, R.L., Is Intellectual Property Investment-Eli Lilly v. Canada and the International Intellectual
Property System? 35, U. PA. J. INT'L L., 1121 (2013).
7
Ibid 1121.

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investments and under this patents, trademarks and other intellectual property is also
included. Thus this was a shift to international investment law where ICSID had jurisdiction
over this particular case.

There has been no fixed definition of what constitutes investments under the ICSID and
individual states are left to figure out what investment means and include them to their
treaties. Since it is the discretion of the countries entering into treaties and as there is a need
for more foreign direct investment for growth and creating employment, countries have long
been giving incentives to companies to make investments. Incentives include tax exemptions,
free land, etc. and to further it, intellectual property is also being added under the term
investments to give them more protection thereby luring them into making investments.

Due to the non-inclusion of the definition clause of the term investment a lot of disputes
have arose as to understand what investment means. The first case that dealt with the
meaning of the term definition is Fedax N.V v. The Republic of Venezuela 8 and it was
regarding promissory notes that were held by the company Fedax and the same were not
honoured by Venezuela and tribunal in the above case held that promissory notes do not fall
under the ambit of investments in ICSID. The rationale behind the tribunal’s order was that it
was not of long term in nature and also it did not contribute to the host state’s development9.

Later, it was the case of Salini et al v. Morocco 10 where a test was laid to understand whether
it would fall under the term investment or not. The above case was a dispute among two
companies from Italy with the Republic of Morocco, the facts were that the two companies
involved bid for a highway building contract in the Republic of Morocco and after their bid
was successful they began to construct working on the 50km highway and completed it in 36
months and exceeded the time limit by 4 months and because of the delay in completion of
construction the Moroccan government refused to pay the two Italian companies and since
the matter was sent to the ICSID, it had to first qualify as an investment for the ICSID to have
jurisdiction over this particular issue. The ICSID came up with a four point test to prove
whether it falls under the ambit of investment or not 1) contribution of assets and money; 2) a
certain duration; 3) risk; 4) contribution to the development of the host state’s economy and
later ruled that construction of highway would not be considered as an investment and the 4 th
8
Fedax NV. v. Republic of Vene.., ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to
jurisdiction, 1381 16 (Jul. 11, 1997), 37 I.L.M. 1380 (1998).
9
See Grabowski, Alex, The Definition of Investment under the ICSID Convention: A Defense of Salini,
CHICAGO JOURNAL OF INTERNATIONAL LAW, Vol. 15: No. 1, Article 13, (2013), Available at:
http://chicagounbound.uchicago.edu/cjil/vol15/iss1/13
10
Supra note 1.

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test has been since controversial. Contribution to the host state’s economy was thought to be
embedded in the ICSID convention’s preamble in the case of saline.

The recent case that dealt with the same is Quiborax v. Bolivia 11, the facts of the case are:
Quiborax was a Chile based mining company and later decided to increase their operation
due to the rise in demand of a particular mineral and chose to start mining operations in
Bolivia. They decided to find a supplier in Bolivia and made certain trade arrangements and it
was those arrangements between the parties that led to the dispute. The ICSID ruled out the
4th test from the Salini test as it was hard to identify whether a particular investment would
have been useful in the economic development of the state or not and upheld the other 3 and
in the above case Quiborax was awarded damages.

Therefore, from the above decision of the ICSID, the salini test is looked into in order to
prove whether a particular investment falls under the ambit of ICSID and therefore in order to
identify whether a particular intellectual property is an investment or not it has to pass
through the 4 tests (the 4th test will be subject to different interpretations).

Since Intellectual property is considered as a negative right 12 as it prevents unauthorised use

of others of such intellectual property also positively where one can license it or assign it, it
has to be looked into from case to case basis in order to identify whether a particular
Intellectual property falls under the ambit of investment or not.

ICSID & INTELLECTUAL PROPERTY DISPUTES

We can see the convergence of intellectual property disputes and ISDS as a result of modern
day trade agreements. Trade agreements in the present days have given more importance to
intellectual property and have wooed investors by giving adequate protection to investors
investing in their country. The first trade agreement that strengthened the protection of
Intellectual property was the NAFTA trade agreement and also the TPP which considered it
an investment therefore making it an object under the ISDS13.

The important question that has to be answered is the jurisdiction of ICSID over such
international investment claims. Article 25(1) of ICSID convention 14 deals with investment

11
Quiborax v. Bol., ICSID Case No. ARB/06/2, Decision on Jurisdiction, 1 220 (Sept.27, 2012).
12
See Allen Z. Hertz, Shaping the Trident: Intellectual Property under NAFTA, Investment Protection
Agreements and at the World Trade Organization, 23 CAN.-U.S. L.J. 261 (1997)
http://scholarlycommons.law.case.edu/cuslj/vol23/iss/33.
13
Ibid.
14
Supra note 2.

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and the convention does not provide any definition for the same. With international
investment agreements using their own definition for the term ‘investment’ and not referring
to the corresponding Article of the ICSID convention, this creates a problem when
international disputes relating to intellectual property are brought before the ISDS. If the
definition of ‘investments’ are taken from the international investment agreements then it will
make it a wide approach which may or may not be the intent of formulators of the ICSID
convention. Therefore a comprehensive examination must be done in order to understand the
term ‘investment’ as the rule of stare decisis is absent in the jurisprudence of ICSID. Also in
the case of Malaysian Historical Salvors Sdn, Bhd v. The Government of Malaysia 15, the term
investment had been given a restrictive meaning. The ‘Salini test’ as discussed in the
previous chapter may be of use her to understand the jurisdiction of ICSID over investment
disputes but since times have changed it is the discretion of the ISDS to either take up a claim
or to dismiss it.

There are certain advantages that are presented to the investor in case of ICSID arbitration
and one such advantage is the binding nature of the arbitral decisions of ICSID, all decisions
from ICSID arbitrations will have to consider as having the same force as decisions of their
own Courts and this is applicable to all signatories to the Convention 16. The Philip Morris
case is one of the major cases before the ICSID and was brought against two countries,
Uruguay17 and Australia18. Both Australia and Uruguay brought in guidelines that were set
out by the World Health Organisation (WHO) on limiting the trademarks on tobacco
packaging also known as plain packaging to discourage smoking habits among the citizens 19.
As a result of this Convention and as a public policy both these countries decided to regulate
tobacco packaging and this impacted the trademarks of such companies in the field of
tobacco manufacturing. The case against Australia was ruled in favour of Australia due to the
corporate restructuring done by Philip Morris and is thus not relevant, but in the case of
Uruguay, the award was in favour of Uruguay and the ICSID panel stated that Philip Morris’
claims fail as it was against the police power of Uruguay and police power is a concept of
international customary law. As Uruguay’s actions were in the direction of public welfare and

15
See Malaysian Historical Salvors Sdn, Bhd v. The Government of Malaysia, Award on Jurisdiction, 17 May
2007, ICSID Case No. ARB/05/10.
16
See Convention on the settlement of Investment Dispute between States and Nationals of Other States,
Washington DC, 18 March 1965, Articles 53 and 54.
17
Philip Morris Brands Sarl v. Uruguay, ICSID case no. ARB/10/7.
18
Philip Morris Asia Ltd. v. Australia., Permanent Court of Arbitration No. 2012-12.
19
WHO Framework Convention on Tobacco Control, May 21, 2003.

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safety it satisfies the conditions where the state can exercise its regulatory power and the
panel also stated that protecting such public interests is an essential element of police power.

The above case can be used as an example where the state has powers to override the
provisions of the international investment treaties although it is only in the cases of public
welfare, and it does not clearly answer the dispute between ISDS and sovereignty of states.

WTO DSB V. ICSID ISDS

Traditionally international disputes relating to intellectual property were before the WTO
DSB as prescribed under the TRIPS. Later, as more and more international investment
agreements were signed as a result of globalisation and the need for FDI, host countries
began to woo investors by providing them attractive concessions and favourable laws and this
includes giving intellectual property a status of investment. As a result of this international
investors are able to sue the government via the ISDS, therefore the option is at the hands of
the investor in such cases and they may choose to enforce their right whichever way they
prefer. The ISDS proceeding is an exception to the general rule of state to state enforcement
which is present in the WTO DSB.

The WTO DSB can be approached only in the case of breach of TRIPS provision or non-
enactment of such provisions, therefore as in the case of Philip Morris, where the question
was regarding the violation of the trademark due to health hazard warnings mandate on the
packaging, the case couldn’t have been brought before the WTO DSB as one of the essential
features of the TRIPS agreement is that it allowed states to relax the provisions of TRIPS in
case it was for the benefit of the public, therefore it could only be effectively brought before
the ISDS.

ISDS entertains only investment related claims and it does not require states to bring in
disputes, any individual who has invested in another country may approach it, therefore it
does not require companies to pressurise the government to pursue their case as they do in the
case of WTO DSB, this can be seen as a boon to the investors as it would be easier for them
to pursue their own case instead of asking the government as such moves by the government
will also lead to diplomatic fallout between the two states.

The Tribunal establishment in the case of ISDS will be as per the international investment
agreement therefore it makes beneficial to both or all the states signing the international
investment agreement. In the case of the WTO DSB the panel is set up on ad-hoc basis for

11
each disputes and it usually comprises of three to five members pursuant to Article 8 of the
DSU20 and similarly the appellate body comprises of eight members setup by the DSB.

Therefore in the case of panel composition it is more flexible to both the states and the
individuals seeking remedy in case of the ISDS whereas it is more neutral in the case of the
WTO DSB. The presence of an appellate body is also useful in the case of the WTO DSB
which is non-existent in the ICSID ISDS. In case of procedures, it is quite time consuming in
the case of WTO DSB. In the case of ICSID ISDS, the procedures for the dispute will also be
laid down in the international investment agreement, which is again beneficial to both the
parties, whereas in the case of WTO DSB, there several procedures, first there is consultation
between the parties then mediation has to be offered by the WTO and the time limit for both
these steps is sixty days21 and then the panel has to be established within 45 days and hearings
shall be given a time period of six months. Therefore it is more time consuming and
cumbersome. The main question is with regards to the non-enforcement of such arbitral
awards, in case of WTO DSB, there is no solutions available whereas ICSID ISDS is legally
binding and the state must strictly follow it.

Although intellectual property disputes at the ISDS has not been much prevalent and is an
upcoming subject, the question is whether ISDS must have jurisdiction over such intellectual
property disputes. From the investor’s perspective, the answer could be that they have entered
into separate bilateral agreements through their counties with the host country and it has to be
given more importance.

Secondly, the fact that individuals can raise claims before the ISDS is another exciting
feature as it has to be the via the right holder’s country in case of WTO DSB. From the state’s
perspective, the countries can pressurise the right holder’s countries to not take up their issue
before the WTO DSB, although such political moves are beneficial for the states, it can be
detrimental to the right holder.

CONCLUSION

Foreign investments are key for developing countries and they need foreign investments for
developing themselves. As long as countries are in need of investments, foreign corporations
that bring such investments will be wooed by such countries. With growth in trade, new types
20
See WTO, The Process – Stages in a typical WTO dispute settlement case, THE WORLD TRADE
ORGANISATION, (March 28, 2018 7:00 PM),
https://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c6s3p2_e.htm.
21
Supra note 20.

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of allowances are given to such companies and one such rebate given to them is considering
intellectual property as investment under the trade agreements. The NAFTA agreement
between the countries in the North America were the pioneers of this and included
intellectual property as investment under it. Although this was seen as a benefit for foreign
investors initially, the flaws and benefits of this were seen only after disputes emerged.

As seen above, the first disputes were regarding what type of intellectual property constitutes
an investment and the adjudication bodies have also come up with a comprehensive test for
the same in the case of salini. Although the principle of state decisis is not followed in
international adjudication bodies, the above test can be useful when it comes to define an
investment. Considering intellectual property as investment will have several effects over
other issues relating to enforcement of rights to decisions of such adjudicating bodies.

To sum it up, it can be viewed as a benefit to international investors as under the existing
WTO DSB, there has been issues with respect to enforcement of rights as right holders will
have to sue the other state through their state support and this might include political and
diplomatic relations between the two states, whereas in the case of ISDS, the party can
individually sue the other state without the requirement of going to their own state’s support.
The other benefit that they receive is the binding nature of decisions from ISDS, where the
states against whom infringement has been proved will have to consider such decisions as
equivalent to judgements made by their own Courts. With regards to states that are seeking
investments, their sovereignty has been affected as a result of this, with reference to this, the
case of Philip Morris can be seen, where the TRIPS agreement had an explicit clause that let
countries to make amends to such intellectual property provisions if they are in furtherance of
public good and this was challenged by Philip Morris. Therefore, ISDS provides better
protection to international investors and also, such bilateral trade agreements made between
states provide more autonomy between them and can redress issues in their own way rather
than going to WTO DSB. Since this also gives states equal advantage during negotiations, the
ISDS phase will be an essential feature while dealing international intellectual property
disputes.

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