Investment Treaties on Intellectual Property (IP) are agreements between countries to attract foreign direct investmentsby exploiting IP while providing benefits which are subject to the agreed terms and conditions upon them. In other words, investment treaties are encouraging investment between states and non-government organisations.
There are many types of investment treaties including bilateral, multilateral and regional ones. This article discusses the impact of Bilateral Investment Treaties (BITs) and Regional Investment Treaties (RITs) upon IP. BITs are made between two countries whereas RITs are made among several countries within a region.The Latter may sometimes have been referred as investment chapters of Regional Trade Agreements (RTAs). BITscould sometimes exist in the form of a free trade agreement (FTA) like US-CanadaNorth American Free Trade Agreement (NAFTA) or Canada-European Union Comprehensive Economic and Trade Agreement(CETA).
Although intellectual property rights are territorial, investment treaties could lift them up to create bilateral and regional economic relationships to have competitive advantages by mutual exploitation of innovations. Sri Lanka has become party to number of investment treaties on IP including 2001 India-Sri Lanka Free Trade Agreement (FTA), 1993 USA-Sri Lanka BIT on Encouragement and Reciprocal Protection of Investment, 1991 USA-Sri Lanka BIT on Agreement on the Protection and Enforcement of Intellectual Property Rights (IPR), 1982 Japan-Sri Lanka BIT on Concerning the Promotion and Protection of Investment. In addition, we are party to several Regional Economic Integration Treaties such as 2006 Agreement on South Asian Free Trade Area, 2004 Framework Agreement on the BIMST-EC Free Trade Area, 1989 Global System of Trade Preferences among Developing Countries, 1985 Charter of the South Asian Association for Regional Cooperation and 1976 First Agreement on Trade Negotiations among Developing Member Countries of the Economic and Social Commission for Asia and the Pacific.
The advantages accruable fromsuch treaties
There are many advantages of Investment Treaties on IP for both developed and the developing countries. For instance, if USA and Sri Lanka have a BIT on a patented pharmaceutical drug, the latter couldseek price benefits while the former could insist to prohibit compulsory licences during the agreed period. First, the developed countries could use BITs not only including the provisions based on agreement on Trade-Related aspects of Intellectual Property Rights (TRIPS)but also‘TRIPS-plus’ provisions to maintain a higher standard in which they are interestedand bring significant revenue by exporting IP.Secondly, developing and the Least Developed Countries (LDC) couldachieve significant benefits from investment treaties because they depend on many innovations generated in the developed world to satisfy their basic needs like public health, agriculture and genetic resources.
On the other hand, innovations are created by using inventor’s resourcesby following specific inventive steps. Therefore, it would not be unreasonable for the developing countries to accept any reasonable terms and conditions in BITs in order to gain access to essential IP products and services in the developed countries. Although investment treaties are mainly focused on patents, they could also be created to exploit copyrights because the right holder could outsource the publishing work to a publisher in abroad and generate royalty.
Furthermore, when considering the effect of free movement in European Union (EU), it is apparent that it conflicts with the territorial IP rights. Investment treatiescould provide a solution to this by providing certain restrictions or exemptions among the members. In addition, when considering the health sector such treatiescould support more for developing an effective vaccination on diseases like Ebola which had substantially affected on many LDC s. When considering RITs in African countries, they provide numerous benefits among members by expanding market and resources.Not only developing countries, but also developed countries could use investment treaties to create protection of IP for different areas. For instance, in the case of Anheuser-Busch, IncVsBudvar case,the advantages of a BIT between Austria and Czechoslovakia in terms of protecting a trademark was considered in depth.
The negative impact
There would be no significant issues if all the investment treaties contained only minimum standards laid down by TRIPS. Unfortunately, this does not seemto happen at the moment because most of the developed countries tend to insert ‘TRIPS-plus’ provisions such as providing exclusivity for data, extending patent terms, creating links between patents, prohibiting parallel importation and restricting compulsory licences. For instance, most of the FTAs between EU and the developing countries contain provisions to extend patent terms for medicines.Under these circumstances, number of issues could be found in the area of investment treaties on IP.For instance, the implementing of substantially higher economic standards, has adverse impact on the harmonization of IPand has an adverse effect on the public health among member countries.
First, these treaties may maintain substantially higher economic standards which consequently adversely influence even the non-signatories ofthosetreaties. Consequently, importance of multilateral negotiations under the umbrella of World Trade Organisation (WTO) could be undermined. In addition, despite the long term economic disadvantages, there is a tendency that many developing countries accepting BITs including ‘TRIPS-plus’ provisions due to short term benefits. For instance, EU and USA have imposed higher patent protection on LDC s in Africa by including ‘TRIPS-plus’ provisions in investment treaties.
According to the ‘Most Favoured Nation (MFN)’ principle for the purpose of IP protection, any benefit granted by a WTO member to another shall be accorded immediately and unconditionally to the others. In other words, this principle equalises the granting of privileges among member nations. For instance, if USA and Sri Lanka signs a BIT on IP protection, the same benefits should be offered to the other WTO members subject to the terms and conditions provided in the agreement. When considering the General Agreement on Tariffs and Trade (GATT)and The General Agreement on Trade in Services (GATS), both contain the MFN principle along with an exemption to it.
However, TRIPS does not expressly provide any exemption to the MFN principle, although it was formulated to achieve the principles of GATT. Therefore, such ‘TRIPS-plus’ investment treaties lead to spread economically higher terms and conditions among the countries which are not signatories of thosetreaties. For instance, a string of investment treatiessigned by developed states like USA and EU could establish new IP standards which consequently prevent the developing countries and LDC srelying on the flexibilities provided by TRIPS. This is not what was truly expected from the TRIPS. For instance, in terms of compulsory licensing in copyrights the licensee has a right to deny the payments on the grounds of unfair terms in the licence.A BIT containing a higher economic standard may sometimes deprive such rights and open a forum for unfair terms. Consequently, entities like ‘Patent Trolls’ may sometimes try to take advantage from the conflicts arising out of BITs.
Furthermore, it could be harmful if a BITwas created in the manner it could prevent the application of domestic competition laws. As a result of that, set of anti-competitive terms and conditions suchas unfair price fixing, limiting production, the avoidance of selling to potential buyers could be included in the BIT. In addition, there could be a substantial adverse impact if such BIT falls within the scope of Technology Transfer Block Exemption (TTBE) which provides exemption for the agreed parties to avoid any effect from the competition law.
Secondly, investment treatiescouldhave an adverse impact upon the harmonization of IP. The TRIPS agreement has taken an effort to globalize the general principles of IP. According to TRIPS, a balance must be struck between the right holders and the beneficiaries when protecting and enforcing IP.For instance, compulsory licencescould be granted if the patentee refuses to issue a licence on reasonable commercial terms and conditions. In addition, although patentee has a right to commercial exploitation of patent, once it expires anyone could exploit it. These general principles were established by the TRIPS to enable flexibility in the process of harmonization of International IP Law.
However, the investment treaties which contain ‘TRIPS-plus’ provisions could significantly damage the fundamental character of the aforesaid general principles of IP laid down by TRIPS. For instance, ‘TRIPS-plus’ agreement might contain a provision to extend the duration of a patent beyond twenty (20) years which would ultimately prevent the public interest to exploit the patent after a reasonable period. The purpose of patent law is not to give an eternal absolute monopoly but to offer a time limited exclusive right to the patentee to commercially exploit the patentand conclude licensing contractsand assignmentssubject to a public disclosure. This limited monopoly is a kind of a reward to encourage him.Therefore, it is expected that the public has a right to commercially exploit the patent without any restriction from the patentee after the patent expires. However, that objective wouldn’t be achievable in case where a BIT had‘TRIPS-plus’ provisions which could give a discretion to a state to extend the patent continuously and dominate the market as long as they expected. Consequently, such imbalance status of IP protection would be extended as a global standard because of MFN principles.
Thirdly, investment treaties could negatively effect to the public health among member countries. Right to access essential medicine is a part of human right of physical and mental health. However, due to ‘TRIPS-plus’investment treaties, a negative impact had been created against this human right. For instance, although there is a scarcity of essential medicine in Sub-Saharan Africa they are not contemplating upon the flexibility provided by TRIPS.This could be attributed to the political pressure and risk of economic sanctions.
In terms of public health, compulsory licensing system has become a vital component of IP especially in the case of LDCs and also in the developing world. Although TRIPS, has not provided specific limitations for issuing the compulsory licenses, BITs have created rigid limitations. For instance, in US-Vietnam BIT, compulsory licensing is limited to the emergency situations, antitrust remedies and public non-commercial use. This is not compatible with the Doha Declaration which has givenan absolute freedom to determine the grounds upon granting compulsory licences. For instance, in the UK, compulsory licences could be granted if the patentee had not exploited the patent within three years from the grant. In NatcoPharma Ltd Vs Bayer Corporation case, a compulsory licence has been granted by the patent controller to NatcoPharma to commercially exploit cancer cure in India. The ground for granting this licence was a refusal made by Bayer Corporation to issue a licence to Natco on their request.
Thus, if a developing country or a LDC become a party to a BIT with a developed country, then that country has to follow the conditions set by the BIT which would sometimes ultimately restrict the IP rights of the latter to keep the former ina dominant position. This has become a noteworthy issue especially when importing patented pharmaceutical products because BITs could sometimes unfairly prevent or control the access to essential medicine.In addition, certain long-term BITs could define highly restrictive conditions with respect to the compulsory licensing of drugs. Consequently, this would create an unfair monopoly and always keep the developed country in an unapprovable dominant position.
Generally, LDCstend to seek benefits by adopting at least the minimum standards of TRIPS while developing countries preferred to adopt it with slight modifications. For instance, in India, an innovation is patentable only if it is remarkably different in terms of properties with regard to efficacy. The rationale behind such provision is to increase the availability and accessibility of medicine to the large number of population. In the case of Novartis Vs Union of India case, court held that when designing the patent law, a special reference must be given to the economic condition of the country, scientific and technological advancement and its future needs. This approach is consistent with basic patentability standards laid down in TRIPS.
However, such flexibility could be diminished by the investment treaties if they seek to force implementation of higher economic standards preferred by developed countries to keep them in a dominant position. This situation could have been different only in case where the patent owned by a developing country which holds the upper hand. However, it could be rare because most of the developing countries in general need to adhere to the terms and conditions impose by the developed countries in order to have access to preferential market.
A desirable practice
Both less control and too much control over IP could cause problems. Therefore, a balance must be struck between the agreed parties in investment treaties. According to David Vaver, ‘although balance is not a universal solvent it emphasizes the need for equal treatment and respect’. This point must be considered when preparing investment treaties on IP. When considering the pharmaceutical industry, investment treaties should not impose high restrictions on compulsory licensing especially on Anti-Retroviral Drugs because such licences are an effective method which could open up the doors to those drugs without any hindrance. Investment Treaties should not restrict the ‘Principle of Exhaustion’, because this principle could assist developing countries to enjoy the benefits of parallel importing of IP especially in the realm of essential medicine. A sound example is the African RTAwhich has significantly improved parallel importing of drugs within the designated free trade zone.
To achieve a successful balance between intellectual property rights and public interest, investment treatiesshouldbe streamlined. For instance, desirable practices like MPI principles introduced by Max Planck Institute for Innovation and Competition (MPI) may be of assistance in this regard.According to these principles, parties to investment treaties should develop ‘own proactive agenda’ and ‘evaluate the impact’ of it against the public interest. This would be a significant strategy for the developing country like Sri Lanka to do an impact assessment about the long-term implications to the status of our national economy and the public health sector especially in terms of pharmaceutical industry. MPI principles insist that that the terms and conditions of an investment treaty should go through a ‘public negotiation process’ and the agreement should be subjected to previous ‘international obligations’.
One of the main issues with respect to investment treaties was the effect to the public health because of higher limitations on compulsory licensing and restrictions on parallel imports. Such issues could be avoided by applying MPI principles because it guides to be consistent with the general principles laid down by TRIPS on Public Health. In addition, if a MFN exemption could be introduced in TRIPS, then itcould avoid the adverse effects of BITS over non-signatories of those treaties. Also, it would avoid spreading higher economic ‘TRIPS-plus’ standards throughout the world. The TRIPS flexibilities such as parallel trade and compulsory licensing could be put forward by the RTAs between Sri Lanka and other developing countries to achieve a balance between public interest and the pharmaceutical patent holders.
The bottom-line
Despite the prospects of many advantages for both developed and developing world by being party to investment treaties on IP, one cannot overlook the disadvantages as well. The negative impact has reduced the value of flexibilities provided by TRIPS, and therefore has an adverse effect upon the developing countries and LDC s rather than developed countries. It is necessary to strike a balance between the right holder and the public interest as a solution to utilize investment treaties in a more effective manner. In this regard providing compulsory licences, parallel importing of IP and the principle of exhaustion are significant. Finally, MPI principles may be used as a sound set of guidelines which are likely to assist in striking a balance between intellectual property rights and the public interest.
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