Over at the International Law Curry blog, Shashank Kumar has raised the pressing question of how the heightened friction (on trade issues at least) between India and the United States might affect negotiation of a bilateral investment treaty (BIT) between the two countries. The question of how an India – US BIT might affect the Indian pharmaceutical industry (and access to medicines) is likely to be one of the most controversial issues in the negotiations. Hence, it is worth examining how the revised US model BIT, which was released last month, governs this issue.
On its face, the US model BIT appears to offer India a high degree of flexibility in terms of how it governs intellectual property rights (IPRs) in the context of pharmaceuticals. Article 6 governs expropriation and compensation. Paragraph 5 states:
This Article does not apply to the issuance of compulsory licenses granted in relation to intellectual property rights in accordance with the TRIPS Agreement, or to the revocation, limitation, or creation of intellectual property rights, to the extent that such issuance, revocation, limitation, or creation is consistent with the TRIPS Agreement.
Article 6 is also to be interpreted in accordance with Annex B. Paragraph 4 of this Annex explains what is meant by indirect expropriation. Specifically, paragraph 4(b) states:
Except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations.
Leaving aside the question of what constitutes a regulatory action under this provision, on its face, the US model BIT would appear to offer India a good deal of flexibility. However, the claims Philip Morris has brought against Uruguay and Australia highlight some issues, particularly with respect to Article 6.5.
In each of its claims, Philip Morris is arguing that tobacco packaging and labeling measures result in expropriation of its property rights. The rights in question include intellectual property rights (trademarks), goodwill and licenses. Hence, the claims are only partially about intellectual property rights. This raises the question of whether Article 6.5 would remove measures affecting licenses, the value of a business, or goodwill from the scope of the BIT. In this respect, the definitions section in Article 1 suggest that intellectual property rights are distinct from other associated property rights. Under Article 1, the term investment “means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk.” The definition goes on to recognize that an investment may be in the form of IPRs. A separate sub-paragraph confirms that an investment may be in the form of a license (to the extent this confers a right under domestic law). The fact that IPRs are in a separate sub-paragraph from licenses could suggest that Article 6.5 does not apply to licenses.
The recent US Special 301 Report also gives some indication of the types of claims that foreign investor might like to bring under a future India – US BIT. A key section states:
The United States will closely monitor developments concerning compulsory licensing of patents in India following the broad interpretation of Indian law in a recent decision by the Controller General of Patents, while also bearing in mind the Doha Declaration on TRIPS and Public Health found in the Intellectual Property and Health Policy section of this Report. The United States urges India to provide an effective system for protecting against unfair commercial use, as well as unauthorized disclosure, of test or other data generated to obtain marketing approval for pharmaceutical and agricultural chemical products.
This language foreshadows expropriation claims relating to compulsory licensing (perhaps with respect to the value of assets other than IPRs) and for the disclosure of test data concerning an investor’s investment in a way that permits generic pharmaceutical manufacturers to rely on that data in regulatory approval processes, such as by showing the bioequivalence of a generic drug and a patented drug. The Special 301 report also raises questions concerning the enforcement of intellectual property rights and delays in Indian courts. Arguably, this could foreshadow claims for denial of justice or with respect to fair and equitable treatment under a future BIT.
None of this analysis is intended to suggest that states with BITs in place cannot maintain Indian style IP laws without paying compensation to foreign investors (that question is beyond the scope of this post). The point is merely that the apparent protections in the revised US model BIT are not sufficient to allow India the flexibility that it has pursued in terms of IP protection.