A positive approach to Investor-State Dispute Settlement? IP and Climate Change

This blog post is by Dr. Abbe Brown

Introduction

Intellectual Property (“IP”) and climate change laws operate in different legal spaces.

For the former, the World Trade Organization’s TRIPS agreement imposes obligations on states to have IP laws. States pass IP laws which confer private rights, which are enforceable in national court.

For the latter, the UN’s Framework Convention on Climate Change provides that states should reduce emissions. There have been varying attempts to bring this about, notably the Kyoto Protocol of 1997 which imposed targets on states (which were not met) and the Paris Agreement of 2015, when states agreed to targets but it is left to states as to how this may come about. Technology, and transfer of technology, is mentioned repeatedly in all these documents, and there is now the Technology Mechanism.

Yet all this does not really engage directly with (to the extent to trying to solve) the fact that some of the technologies relevant to reducing emissions may be the subject of IP rights. Thus states have two obligations which are potentially inconsistent. Further, private entities have rights in respect of IP, which can enable them to control technologies, and private entities have no obligation to transfer technologies.

I explored some elements of this issue in a previous post on this blog on 2 May 2016. This post will develop this theme through the lens of national court actions, trade agreements and investor-state dispute settlement (“ISDS”).

National action

What if a US company which owns a UK patent for a wind turbine technology (which has proven very effective and is the best means of harnessing the wind, which is the most reliable means of delivering renewable energy), raises an infringement action when a competitor seeks to use this technology without consent? In other work (namely my book from 2012), I have argued that human rights and competition law could be used (in specific limited cases) such that there is no infringement.  A court in the UK jurisdictions might decide to follow this very novel argument, (subject to the slight caveat that both of these depend a great deal on the UK being a member of the EU and a party to the ECHR working alongside the Human Rights Act 1998).

I also argue in my book that if the court does so, this outcome could also be argued to be consistent with the UK’s obligations under the ECHR and TRIPS. Yet the link between the proposed national approach and another international agreement, the proposed Transatlantic Trade and Investment Partnership (“TTIP”), should also be considered.

TTIP

TTIP is a proposed trade agreement between the USA and the EU. Negotiations started in 2013. At the time of writing, its prospects of coming into effect might seem slim. From a US perspective, whilst Obama has been supportive, Trump is not, and Clinton’s enthusiasm is waning. In the EU, the finer points of EU law mean that support of both the EU and also Member States would likely be required for the agreement to come about. The EU Parliament is supportive at present, however France does not support it and Germany is uncertain. A further complexity comes, of course, from the fact that the UK now seems likely not to be part of TTIP, however the points which will be made below are also of potential relevance to the possible new swathe of international trade agreements which the UK might negotiate in the coming years.

So what is the problem with TTIP? Firstly, the secrecy of its negotiations (although Greenpeace and to an extent the EU have leaked some drafts and position papers: see here (PDF), here, and here). Secondly, and of interest to this post, concerns that trade is treated as more important than climate change and the environment (a view that continues after the July 2016 meeting and leaking of climate change (PDF),  sustainable development (PDF) and energy drafts). Thirdly, and a common theme across more recent trade agreements, if there is state interference with a private investment, the investor could complain and raise an ISDS claim that could lead to the state paying money to it.  This is an opportunity for direct private action, rather than the investor needing, for example, to persuade the USA to raise a WTO action.

TTIP and national action

Draft investment dispute proposals put forward by the EU provide that IP is a covered investment. If a state does not treat an investment fairly and equitably, or indirectly expropriates it, then the IP owner (in this example, a US patent owner) could raise an action. Would this innovative national court decision be fair and equitable treatment or indirect expropriation?

An analogy for the impact of a trade agreement on national IP decisions is being explored in a challenge by Eli Lilly to a decision of Canadian courts, in a dispute under the North American Free Trade Agreement. There, the Canadian court took what is said to be a new approach to the meaning of a term in patent law, which led to patents being revoked. Eli Lilly challenged Canada on the basis of expropriation and the lack of a minimum standard of treatment, including fair and equitable treatment (amongst other things). This dispute is ongoing and the interpretation of minimum standard of treatment under NAFTA is already unclear (as illustrated by the Bilcon dispute).

Two key issues are: the basis on which the national decision could be challenged: and also who would hear the challenge. The EU’s proposals (PDF) regarding investment are of interest here.

Firstly, how could a decision be challenged? The proposals provide that the court shall not affect the rights of parties to regulate within their territories through measures necessary to achieve legitimate policy objectives such as protection of the environment (art 2(1)), and that the availability of the process does not involve a commitment that the legal framework will not be changed (art 2(2)).  The parties are (again) to accord fair and equitable treatment to covered investments, and a list is provided as to what this means, which seems to be exhaustive. In particular, there shall not be fair and equitable treatment if a measure:

  • denies justice, is a fundamental breach of due process, is manifestly arbitrary or an abuse of power (art 3(2) (a)—(c), (e));
  • is in breach of a specific representation to induce an investment which was relied on and which created legitimate expectation, (art 3(4)); or
  • is in breach of what the services and investment committee might otherwise agree to be covered (art 3(2)(f), 3(3)).

Further a breach of any other international agreement (say TRIPS or the UNFCCC) does not mean that there is a breach of the provision of fair and equitable treatment (art 3(6)). In addition, parties shall not indirectly expropriate by a process whereby investors are substantially deprived of the fundamental attributes of property, including the right to use and enjoy, with this to be assessed on a case by case basis with regard to economic impact, object and content and duration (article 5 and Annex 1). There is no specific reference to human rights or competition here, although, speaking very broadly, many of the themes explored are similar to those which would be involved in the human rights and competition analysis at national level.

Secondly, process. One base for criticism of ISDS is that these disputes are heard before arbitration panels of trade lawyers and that decisions often conflict. The EU proposal includes a new type of court (section 3 art 1). There are detailed rules of procedure for security for costs, unfounded claims, consideration of ethics and arrangements for appeal and third party intervention and interestingly, qualifications of the judges (although there will still only be experts in international trade and public international law – there are no references to IP, climate change, human rights or competition) (section 3, arts 5, 6, 9, 10, 11, 17, 21, 23). The tribunal would apply TTIP and other rules of international law applicable between the parties (here, this may cover TRIPS and the UNFCCC agreements), as interpreted in line with the Vienna Convention on the Law of Treaties, and is to adopt prevailing approaches on national law (art 13 (1)-(4)). There are also proposals for how to arrange a system of precedent if difficulties arise (art 13(5)).

Criticisms continue. The EU proposal has been termed a zombie ISDS (PDF), whilst being critiqued for the noted narrow breadth of expertise of judges and also for basically trying to improve something which should not exist in any event.  Yet this final argument draws from the premise that national courts should determine national issues, whereas the IP and climate change discussion proceeds from the premise that this cannot work, because of the different allocations of power between states and private entities. Indeed, because of this it could be argued that ISDS – or perhaps a new form of ISDS – might provide an exciting model for a more holistic approach to dispute resolution.

Some rose-tinted foresighting

How could TTIP be further improved – both for itself and for other agreements? Substantively, it could provide that states and also investors must take steps to pursue protection of the environment and action against climate change, and that this is to be of equal (or greater?) importance than trade and economic gain –  or at least, that trade and environment policies should be mutually supportive . It could also provide that states should meet obligations imposed under UNFCCC instruments and that investors must assist them in  doing this – rather than refuse to share their IP.  It could be argued that this is highly unlikely to come about, but then again there has been significant innovation in the EU and US negotiations and also elsewhere, with for example tobacco based activity being excluded from ISDS in the Trans-Pacific Partnership (art 29.5).

From a different perspective, the agreement could provide that it would not be in breach of the minimum treatment and fair and equitable treatment obligation, or indirect expropriation provision, if decisions are made which are consistent with constitutions and with all or certain international obligations of a state. This would mean that decisions which national courts might properly make in a dispute could not be challenged by ISDS. This could support national courts in taking innovative but legitimate approaches to combining different sets of obligations which their country has accepted. Importantly it would also enable public and private perspectives to be considered together.  The approach does involve significant power being held by courts. Yet as long as they are permanent courts, with relevant diversity of expertise, this is perhaps preferable to parallel negotiations leading to results which can be ignored, as set out at the start of this blog post. It is also preferable to a trade panel being able to find that compensation should be paid to an investor for a human rights based decision of a national court. In the times of Brexit, the possibility of more trade agreements, and increasing concerns about climate change, this is, at the very least,  a useful thought experiment.

These thoughts were developed for “Warnings (?) from elsewhere: intellectual property, trade, climate change and the Transatlantic Trade and Investment Partnership” presented at the conference “Intellectual Property and Innovation Law Research Program Symposium: The Trans-Pacific Partnership: Intellectual Property and Trade” at the State Library of Queensland, Brisbane, Australia in June 2016. Many thanks to all involved and to all at Queensland University of Technology Intellectual Property and Innovation Law, in particular Matthew Rimmer, Angela Daly, Nic Suzor and Brooke Lee.

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