Since the Eli Lilly v. Canada award of 2017, the relevance of international investment law for patents has been known to a wider public. In response to the revocation of two Canadian patents concerning the compounds olanzapine and atomoxetine by Canadian courts, the US pharmaceutical company Eli Lilly initiated arbitral proceedings against Canada on the basis of the investment chapter of the North American Free Trade Agreement (NAFTA). Even though Eli Lilly lost the dispute, the award made clear that international investment agreements (IIAs) matter for patents because the arbitral tribunal found that, in principle, patent decisions by host state courts can be challenged before an international investment tribunal on the basis of an IIA.

IIAs are treaties under public international law that are not specific intellectual property (IP) agreements, such as TRIPs. Rather, they generally protect property rights against state interference. To date, arbitral tribunals have rendered decisions in four IP-related international investment disputes. Whereas the Eli Lilly v. Canada award pertained to a dispute involving decisions of state courts, arbitral proceedings based on an IIA may also be considered as a special appeal mechanism concerning IP-related decisions of international organizations, e.g. the European Patent Office (EPO) or the future Unified Patent Court (UPC). Thus, they could represent an alternative to other extraordinary remedies which have already been used for challenging EPO decisions, e.g. constitutional complaints before the German Federal Constitutional Court or applications submitted to the European Court of Human Rights (ECHR).

States conclude IIAs with each other in order to create favorable conditions for investments by investors of one contracting state in the territory of the other contracting state. To this end, IIAs provide for a number of standards of treatment according to which the host state must treat the foreign investor, e.g. expropriation only against compensation or fair and equitable treatment. Investments within the meaning of these agreements usually include IP rights. Therefore, the above treatment standards in IIAs also apply to patents. If the host state violates its obligations under an IIA, most modern IIAs provide for an investor state dispute settlement (ISDS) mechanism. This allows the foreign investor to sue the host state on the basis of the respective IIA before an international investment tribunal for compensation, without being dependent on the assistance of its home state.

Since the EPO itself is not a party to an IIA, it cannot be a defendant in such arbitration. However, should a Board of Appeal of the EPO commit for example an unfair and inequitable act, that would constitute a violation of the obligations of an EPC Member State under an IIA, the patent applicant or proprietor concerned by the decision could initiate arbitration proceedings against that EPC Member State on the basis of the IIA in question. The investment tribunal seized with the matter could make the actions of the EPO the subject matter of the arbitral proceedings because – by analogy with ECHR case law – it is arguable that the EPC Member State cannot evade its obligations under the IIA by having delegated the grant of patents to the EPO.

Should proceedings before the future UPC not comply with the standards of treatment under an IIA, which was signed by a Contracting Member State to the Agreement on a Unified Patent Court (UPCA), the investor whose rights under the IIA would be infringed by acts of the UPC could initiate arbitral proceedings on the basis of the IIA against the Contracting Member State. In such proceedings, the arbitral tribunal would also have to take into account that under Article 23 UPCA, actions of the UPC are directly attributable to each Contracting Member State individually and to all Contracting Member States collectively. Even though the provision makes explicit reference to infringement proceedings under Articles 258, 259 and 260 TFEU, one could argue that its scope is not limited to EU law. Therefore, Article 23 UPCA could allow an international investment tribunal to find a Contracting Member State responsible for actions of the UPC with respect to the standards of treatment of an IIA.

Further reading:

Simon Klopschinski, Der Schutz geistigen Eigentums durch völkerrechtliche Investitionsverträge – The Protection of Intellectual Property Rights under International Investment Agreements (1st ed., Carl Heymanns Verlag 2011)

Simon Klopschinski/Christopher Gibson/Henning Grosse Ruse-Khan, The Protection of Intellectual Property under International Investment Agreements (1st ed., Oxford University Press, forthcoming)

Simon Klopschinski, ‘Völkerrechtliche Staatenverantwortlichkeit und Rechte des geistigen Eigentums – State Responsibility under Public International Law and Intellectual Property Rights‘, 59 GRUR Int. 930 (2010)

Simon Klopschinski, ‘The WTO’s DSU Article 23 as Guiding Principle for the Systemic Interpretation of International Investment Agreements in the Light of TRIPs’, 19 Journal of International Economic Law 211-239 (2016)

Simon Klopschinski, ‘Philip Morris loses investment arbitration against Uruguay’s anti-tobacco legislation’ (September 13, 2016)

Simon Klopschinski, ‘Eli Lilly v. Canada – The First Final Award Ever on Patents and International Investment Law’ (April 4, 2017)

Simon Klopschinski, ‘Investment disputes, trademarks and licenses, and ICSID tribunals – Bridgestone v. Panama’ (March 23, 2018)


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10 comments

  1. Whilst I am not sure of the point of this article (providing another “escape route” for the UPC post-Brexit, perhaps?), I do have two comments upon the theory that an IIA could help to ensure that proceedings at the EPO and the UPC are kept in line with all relevant (inter)national and EU laws.

    Firstly, I would agree with the view that “it is arguable that the EPC Member State cannot evade its obligations … by having delegated the grant of patents to the EPO”. However, this ought to apply in respect of EU and human rights laws – where there are actual courts (the CJEU and the ECtHR) that can enforce those laws against “errant” EPC Member States. The trouble is, we now have ample proof (eg via the views expressed by the head of the ECtHR on human rights cases relating to the EPO) that this mechanism does not work in practice. I cannot see why an arbitral tribunal would be any more effective in delivering justice.

    Secondly, the principle of autonomy of EU law prevented the EU from acceding to the ECHR, for reasons including those spelled out in paragraph 201 of CJEU Opinion 2/13: “The Court has consistently held that an international agreement cannot affect the allocation of powers fixed by the Treaties or, consequently, the autonomy of the EU legal system, observance of which is ensured by the Court”.

    EU law affects both pre-grant patent law (eg by way of the biotech directive) AND post-grant patent law (by way of numerous provisions, including the Unitary Patent Regulations, the Bolar exemption, etc.). In the light of Opinion 2/13, I cannot see how the CJEU could accept a situation where an arbitral tribunal was fee interpret, and reach binding decisions based upon, those EU laws. I also cannot see how an arbitral tribunal could operate effectively without doing so.

    If the suggestion of creating an IIA is serious, then perhaps some attention should be given to working out how to ensure that it is consistent with EU law. Whilst I am open to ideas, I frankly don’t see how it can be done.

  2. Since the stakes of EU-wide patent infringement litigation are higher compared to national patent infringement litigation, the interest in having an extraordinary remedy against UPC decisions could be significant. It remains to be seen what happens to the EU Member State Initiative to replace Intra EU BITs with an EU ISDS mechinsm. That could also be of relevance to the UPC.

    1. Thank you for clarifying.

      I would add that, regardless of political will, it also remains to be seen whether the CJEU will agree to any of this. Absent any fundamental changes to the TEU and TFEU, I suspect that the answer will be “no”.

  3. What a nice bomb put in the ring by Mr Klopschinski! My reply will be as provocative!

    Mr Klopschinski article will reinforce the fears uttered when dealing with TTIP, CETA and the same kind of trade agreements. Private arbitration might be a way of dealing with problems when faced with regimes being anything but democratic in order to safeguard investments. I however fail to see the necessity of this type of agreements for dealings between states which have long standing democratic regimes.

    As has been stated by a former President of the EPO, a patent is an insurance in case of success. When a patent is granted, it does not mean that the corresponding product/method will be a hit on the market. A lot of factors play a role in this. How many granted patents are simply gathering dust as the market has not found them interesting? Even if an application is refused, there are no means to decide whether this application could have been a hit on the market. When a patent is revoked, it is in general due to the fact that it infringes some legal requirements. Trying to institutionalize such arbitration mechanisms in IP matters shows to me a profound disdain for any legal or judicial system in our modern states.

    If such decisions are arrived at by a national court or a regional institution like the EPO, it has become a matter of fact, and I cannot see what role an arbitration chamber has to play then. This is the more so, that in such an arbitration, the panel will be composed of anybody but patent specialists. Balancing patenting requirements against economic values is something which should not occur.

    If, for instance, a democratic government decides to limit the price for medicines or to grant a compulsory licence, this is in the interest of public health. That the interest of public health should prevail over the interests of a private company which only has to take care of its shareholders goes without saying.

    If find it a fallacy to call such an “arbitration chamber” an “arbitration tribunal”. It has nothing of a tribunal in the common meaning of the words, as it composed in an entirely obscure manner.

    As far as the UPC is concerned, it might well be that “the stakes of EU-wide patent infringement litigation are higher compared to national patent infringement litigation”, but I still fail to see what good an arbitration chamber will bring in such matters. For this, the UPC has to start, which is anything but certain. The UPC itself foresees arbitration, and what should then be the role of a further arbitration forum?

    TRIPS has defined some minimum protection of IP matters, and if a national or regional decision has been taken by the competent legal authorities, the requirements have been fulfilled, and do not need an extra review level.

    Fair and equitable treatment for a foreign applicant/proprietor in IP matters is nothing new. This notion has been enshrined in the Paris Convention of 1883. This aspect is often forgotten, but it was next to the creation of the Unionist Priority, the second leg of the PUC.

    Being an entrepreneur entails certain risks, and an arbitration court cannot be taken as a kind of insurance against all odds, especially the loss of an application or a patent.

    That big lawyers firms would profit from this new way of challenging national or regional decisions goes without saying. But what is good for lawyer firms is not necessarily, and by far, good for our modern societies.

    I am also not sure that politicians in Europe would go as far as accepting such challenges, the more so since the EU treaties do not provide for such possibilities as has been shown by Concerned Observer.

    Techrights: FINGERS OFF!!!

  4. Dear Attentive Observer,

    Thank you for your reply.

    Your initial remark that international investment arbitration is something only for “regimes being anything but democratic” underestimates that one task of agreements like TTIP or CETA is to serve as a template for agreements between industrialized nations and developing countries, where investment arbitration can be a necessary complement to local judiciary. Why should developing countries accept standards of treatments, when industrialized economies are not able to agree on these standards among themselves? This is even more true against developing countries’ history of colonialism and capitualtions granting privileges to European traders in the 19th century. Therefore, one indirect effect of opposing agreements like TTIP and CETA is to deny investors investment protection in countries where it is actually needed.

    Another point is that international investment law does not ask if states are allowed to grant compulsory licenses or whether they can cut prices. In fact international investment law only asks if a state should pay compensation in case it interferes with private investments, i.e. to what extent can the state shift the costs of its public policies to private entities.

    Finally, I would like to remind you of G 1/97 where – before the introduction of Article 112a EPC – the Enlarged Board of Appeal characterized the EPO system at the time as follows:

    “Although the Enlarged Board of Appeal has concluded that, within the context of the EPC, requests based on the alleged violation of a fundamental procedural principle cannot be validly filed, and in particular that a special remedy cannot be created by judicial means on the basis of Article 125 EPC, it nevertheless wishes to emphasise that while, on the one hand, legal certainty and the principle that all litigation must end within a reasonable interval are essential elements in any jurisdictional system, a flagrant violation of a fundamental procedural principle is inimical, on the other hand, to the very idea of justice and does serious harm to the image of the judicial bodies concerned. This would be the case, for example, if it transpired that a decision had been crucially influenced by an illicit or even criminal act such as forging documents or giving false oral evidence.”

    Therefore, I would not exclude at the outset that in the future there can be – enven though only in exceptional cases – a need for investment arbitration concerning EPO or UPC decisions.

    Kind regards,
    Simon Klopschinski

  5. Dear Mr Klopschinski,

    I thank you for taking time to reply to my comment, which I concede was certainly provocative.

    It will not be a surprise that your efforts have not changed my position. We may however at the end agree that we disagree.

    You certainly have a point when you state that “Why should developing countries accept standards of treatments, when industrialized economies are not able to agree on these standards among themselves?” This will however not bring about a change of position on my side.

    Mutual respect is not something which can be obtained by the arbitration chambers you are suggesting. Any disputes of this kind should be brought before transnational courts composed by judges, not lawyers, of both countries involved in an open and transparent way, and not to obscure arbitration chambers. I refuse to use the term tribunal for such bodies.

    It might be regrettable that in some situations states are obliged to “shift the costs of its public policies to private entities”, but the general interest should in my opinion prevail against private interests. That a state should not expropriate a private owner without compensation goes without saying. The example of price binding and availability of medicines is a very important issue. If the decision is reasonable and has been decided by regular courts, in the country in which the shift has taken place, or even in a court in the country of origin of the private entity, arbitration chambers are not a necessity. A transnational court as suggested above is however a possibility.

    That decisions in IP matters, and especially in patent matters are decisions on technical issues clad in a legal framework make those decisions a matter of fact, and it is difficult to see why a private arbitration chamber should interfere with them.

    When one sees how the tobacco industries have been cheating for years with health authorities, and have suppressed any information on the danger of tobacco consumption, it is good that their deadly work has been brought to a hold, by restricting advertisement of tobacco products, going up to requesting bland packaging. It is symptomatic that Philip Morris did not attack for instance a European country, but Uruguay! In that respect it was brave for Eli Lilly to attack Canada in patent matters, with however the known result.

    That in this case “the award made clear that international investment agreements (IIAs) matter for patents because the arbitral [not] tribunal [but chamber] found that, in principle, patent decisions by host state courts can be challenged before an international investment tribunal on the basis of an IIA” is nothing more than a tautology. It is hardly surprising that this body made such a comment. After all, it does not want to bring itself out of work….

    Private companies are free to decide on arbitration when it goes about interpreting the terms of a contract between them, outside the legal system in which they operate, but I do not see the necessity for such procedures when states are at stake. Arbitration between a state and a private entity is something which is not correct. The interests of a state and its citizen cannot be put on a par with the interest of a private company.

    If one would follow your logic, then the refusal of European states to accept GMOs could be challenged before an arbitration chamber as it certainly influences investment. I hope I will never witness this.

    My fundamental worries about such arbitration chambers have not been taken away by your statement. I still consider that such arbitration chambers have no raison d’être in our modern societies, especially in patent matters, be it only for the not transparent way in which they are set up.

    Your reference to G 1/97 is interesting but beside the point in that we now have Art 112a EPC to take care of the points mentioned in your quote. If I follow your reasoning could this mean that a negative decision on a request for review under Art 112a could be challenged in an arbitration chamber, in which the member states of the EPO are taken for responsible for acts of the EPO under the UPC? Heavens forbid.

    To sum it up, I think that the Pandora box you want to open with your contribution should be left as sealed as possible.

    I can only repeat that being an entrepreneur entails certain risks, and an arbitration court cannot be taken as a kind of insurance against all odds, especially the loss of an application, a patent or even a trademark.

    Unless some very new points emerge, I do not intend to continue the discussion. I made my point clear and I have no need to repeat my position.

    Kind regards

    Attentive Observer

    Techrights: FINGERS OFF!!!!!

    1. The problem is when a state starts targeting individuals or small groups. For example consider the case if a state has no local pharma R&D and decides to set the prices of pharmaceuticals to low values that are not a fair compensation of the efforts and risks of external pharmaceutical companies and also revokes the patents held by the external pharma companies to enable copying by local “free riders”.

  6. Dear Attentive Observer,

    Concerning the alleged obscurity of arbitral tribunals I would like to remark that they are institutions created by states, e.g. ICSID, and the Eli Lilly v Canada arbitration was more transparent than many lawsuits before state courts. My reference to G 1/97 aims at saying that in general no institution is immune against denial of justice.

    Kind regards,
    Simon Klopschinski

  7. Dear Mr Klopschinski,

    I feel the necessity to briefly reply.

    Arbitration chambers, I refuse to call them tribunals, might have been created by states, but under the lobbying of vested interests, first in place being large legal firms. Arbitration chambers are not composed by ordinary judges. Arbitration chambers of the kind you welcome are exclusively composed of private individuals, foremost lawyers, and there lies the problem.

    In a normal judicial system, there is a priori no possibility to choose one’s judge. The designation process is fully transparent. In arbitration chambers each party choose its own arbiter, and both then choose a third one.

    Just an example: nowadays everybody knows that atomic energy production is bad for future generations, as the problem of nuclear waste has not be solved anywhere in the world, and it is a burden even for our generation. If a state decides, that it is in the interest of its citizens to put a halt on nuclear power generation, it is its right, and no private forum should interfere. I find it disgraceful that some nuclear energy providers want then to bring states for arbitration chambers. This is the more so, that nuclear power generation companies have been receiving for many years investment help from states.

    If I am right, a special tax on nuclear fuel has been levied by the German government in recent years. A normal German court found that this was not correct, and ordered the state to reimburse the taxes paid. I repeat a normal German court. No need for an arbitration chamber.

    Another example where I think a state should be entitled to act regardless of the private interests at stake is the banning of some pesticides, or any other danger for the life of its citizens. Should the improper use of pesticides bring about enormous public health problems, pesticides producers will be the first to call for state intervention in order to help footing the bill.

    Faced with liability claims, such firms will do everything to wriggle out of their liability, even by willingly going bankrupt. In the case of asbestos, one of the biggest asbestos producer, Johns-Manville, voluntarily filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in 1982.

    For me arbitration chambers represent private justice, which is not acceptable, and I am very far of being left. Only state justice, exercised by judges, is worth my respect. I find those arbitration chambers in which a state can be made to pay a lot of money an aberration in our modern world.

    I can agree “that in general no institution is immune against denial of justice”, but why are large companies, with deep pockets and an army of lawyers, the only beneficiary of such an extra possibility to claim damages caused by state actions, and not every citizen if he might considered having been badly treated by a state.

    For me it is a problem of society, and I cannot accept that such arbitration courts might put the interests of a private company over the interests of a state and its citizens. I repeat it for the third time that being an entrepreneur entails certain risks, and an arbitration court cannot be taken as a kind of insurance against all odds!

    I will never be able to convince you that your arbitration chambers are not an appropriate answer to investment problems when states exercise their control. Conversely, you will never be able to convince me of the righteousness of such a private justice. As said before, we should agree that we do not agree.

    Kind regards

    Attentive Observer

    PS: Should you want to continue the discussion and since you know at least one e-mail address of mine, I suggest to use this channel. No need to continue bothering readers of this blog with a discussion which does not move one iota.

    Techrights: FINGERS OFF!!!!

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