South Centre release report on ISDS claims relating to Intellectual Property

September 9, 2019: The South Centre, an intergovernmental organisation of developing countries, has released a new report analysing ISDS cases relating to Intellectual Property rules in international investment agreements and trade agreements with investment provisions.

There is limited public information available about ISDS cases relating to the protection of intellectual property as a protected investment. However, where information is publicly available, cases relating to IPR have been high profile and of significant public interest. These include:

  • Philip Morris v. Australia: The US Philip Morris tobacco company shifted assets to Hong Kong and used ISDS in a Hong Kong investment agreement to claim billions in compensation because it alleged Australia’s plain packaging law had expropriated its intellectual property by preventing it from displaying its trade mark. It took over 4 years and $24 million in legal costs for the tribunal to decide that Philip Morris was not a Hong Kong company, and the case was an abuse of process, but the government only recovered half the  $24 miilion in legal costs. The substantive issue of compensation was not addressed.
  • Philip Morris v. Uruguay: Philip Morris challenged Uruguay’s new regulation mandating that Large graphic health warnings covering 80% of the front and back of cigarette packet and the Single Presentation Requirement that prevented companies from selling different variants of cigarettes and falsely implying some cigarettes are less harmful than others. Uruguay won the case, but spent $10 million on legal fees and Philip Morris was only ordered to pay $7million of these costs.
  • Eli Lilly v. Canada: US Pharmaceutical company Eli Lilly used the ISDS provisions of NAFTA to claim compensation for a Supreme Court decision that found a medicine was not sufficiently different from existing medicines to deserve a patent, which gives monopoly rights for at least 20 years. Canada has a higher standard of patentability than the US and some other countries. The Canadian government won the case after six years and $15 million in costs, but the tribunal decision was ambiguous on some key points about Canada’s right to have distinctive patent laws.

The report highlights the risk of IP-investment cases from a legal and regulatory perspective. It argues that these cases can pose a significant threat to the flexibilities provided to developing countries under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which are essential for their continued access to affordable medicines.

It also demonstrates how ISDS cases can have a chilling effect on policy development. There are examples of governments waiting to hear the outcomes of ISDS cases before implanting new regulation – for example New Zealand waited for the result of the Philip Morris v. Australia case before implementing its own plain packaging legislation. Governments may also decide against regulation due to concern that a case may be brought against it.

The report calls for reform of the ISDS system to ensure governments’ right to regulate in the public interest is protected.

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