Alyssa D'Antonio. Philip Morris International ( Philip Morris ) has been bringing many actions against

Transcription

1 PLAIN PACKING LAWS: CAN EXPROPRIATION EVER BE FOUND? Alyssa D'Antonio Philip Morris International ( Philip Morris ) has been bringing many actions against countries that have introduced plain packaging laws. 1 Plain packaging laws are defined as a regulation on cigarette packages where the trademark of the brand appears in a mandated area on said cigarette package along with health warnings such as pictures of diseased lungs. 2 Australia was the first country to pass such legislation 3 and is also known for having the strictest regulations. 4 For example in Australia, Section 21 of the Tobacco Plain Packaging Act of 2011 prohibits the use of any brand, business or company name, or any variant name. 5 Following in the footsteps of Australia, many other countries have started passing plain packaging laws. Uruguay is among these countries introducing plain packaging laws, Presidential Decree N o 287/009, Ordinance 466, and Ordinance 514, beginning in Uruguay s plain packaging laws are to be considered as strict or stricter than Australia s law as they require 80% of a J.D. Candidate, St. John s University School of Law, June For e.g., JT Int l S.A. v. Commonwealth (2012) 250 CLR 1 (Austl.) and Philip Morris Brands Sàrl, Philip Morris Products S.A. v. Oriental Republic of Uru., ICSID Case No. ARB/10/7, Decision on Jurisdiction, (July 2, 2013), ocid=dc3592_en&caseid=c Katharine Stephens, Plain Packaging for Cigarettes Australia Leads the Way, But Will Others Follow?, WORLD TRADEMARK REVIEW 78, 79 (2013); See, e.g., Tobacco Plain Packaging Act 2011 ch 2 (Austl.). 3 See, e.g., Tobacco Plain Packaging Act of Javier Garcia Olmedo, The use of tobacco trademarks versus public health: a new trend in investor-state arbitration. 15 INT L ARBITRATION LAW REVIEW 42, 42 (2012). 5 Tobacco Plain Packaging Act of 2011 s 21 (Austl.). 6 Philip Morris Brands Sàrl, Philip Morris Products S.A. v. Oriental Republic of Uru., ICSID Case No. ARB/10/7, Decision on Jurisdiction, para. 4 (July 2, 2013), ocid=dc3592_en&caseid=c

2 cigarette package to contain a health warning. 7 Philip Morris, the world s leading international tobacco company, 8 has either brought suit or threatened to sue against any country that has passed a plain packaging law. Specifically in the suit against Uruguay, Philip Morris has claimed that Uruguay is violating a Bilateral Investment Treaty between Uruguay and Switzerland, claiming that Uruguay has intervened with Philip Morris International s foreign investment. 9 The major issue in this case is whether Uruguay s plain packaging laws can be considered indirect expropriation under the BIT. 10 This note proceeds as follows: Part I focuses on the enforcement of intellectual property rights under international law. More specifically, Part I looks at how suits are brought under both the Agreement on Trade-Related Aspects of Intellectual Property Rights and bilateral investment treaties, specifically, with relation to the plain packaging suits brought against Australia and Uruguay. Part II looks at when expropriation occurs under a bilateral investment treaty, focusing on the important issue of whether intellectual property rights can fall within the scope of expropriation based on the drafting of the agreement. Part III concludes that the major reason Australia was successful in its suit was based on the drafting of the Tobacco Plain Packaging Act, so Uruguay will also be successful in its arbitration against Philip Morris because Uruguay s law constitutes a legal expropriation under the Switzerland-Uruguay Bilateral Investment Treaty. 7 Id. 8 Company Overview, Philip Morris International, (last visited April 9, 2016). 9 Tsai-yu Lin, The Status of FCTC in the Interpretation of Compensable Indirect Expropriation and the Right to Adopt Stricter Tobacco Control Measures under BIT, 9 ASIAN JOURNAL OF WTO & INTERNATIONAL HEALTH LAW & POLICY 123, 126 (2014). 10 Id. 2

3 I. ENFORCING INTELLECTUAL PROPERTY RIGHTS ABROAD Intellectual property rights are based on the principal of territoriality. 11 Territoriality is understood to be the power of a state to regulate actions that occur within its borders. 12 This principle is very significant in the realm of intellectual property as it stresses the importance of only being able to hold someone liable for infringement when the infringement occurs domestically, where an intellectual property right is held. 13 However, problems arise because each country has different rights associated with intellectual property and there is no commonality across the world. 14 To resolve this issue and grant international rights, as opposed to rights from country to country, multilateral conventions have been passed. The two most influential conventions that come up the most in claims of breaching an international intellectual property right, specifically with respect to plain packaging laws, are the Paris Convention for Protection of Industrial Property ( the Paris Convention ) and the Agreement on Trade-Related 11 Microsoft Corp. v. AT & T Corp., 550 U.S. 437, 441 (noting the general rule under United States patent law that no infringement occurs when a patented product is made and sold in another country); Halo Creative & Design Ltd. v. Comptoir Des Indes Inc., 2016 WL , at *4 (Fed. Cir. Mar. 14, 2016) (stating that territoriality is always a concern of intellectual property disputes ). 12 See JOSEPH STORY, COMMENTARIES ON THE CONFLICT OF LAWS 19, 21 (Hillard, Gray and Co. 1st ed., 1834) ("[E]very nation possesses an exclusive sovereignty and jurisdiction within its own territory;" "[Ilt would be wholly incompatible with the equality and exclusiveness of the sovereignty of any nation, that other nations should be at liberty to regulate either persons or things within its territories."). 13 See Microsoft, 550 U.S. at 442 (held not liable because the infringement did not occur within US borders and the patent was only granted in the US). 14 It is understood that Intellectual property rights are limited territorially; they exist and can be exercised only within the jurisdiction of the country or countries under whose laws they are granted, leading to the creation of international agencies and conventions, which are responsible for helping enforce treaties created amongst nations who wish to share innovative ideas with each. WIPO INTELLECTUAL PROPERTY HANDBOOK: POLICY, LAW AND USE 7 (WIPO 2nd ed., 2004). 3

4 Aspects of Intellectual Property Rights (TRIPS). 15 The Paris Convention is the oldest international treaty and has been around since Under the Paris Convention, the basic right to national treatment in each of the member countries is guaranteed. 17 National treatment in international law treats imported goods as equals with locally produced goods. 18 TRIPS is a newer agreement, which came into force in TRIPS balances the interests of intellectual property with the interests of public health and economic development, while applying the basic international trade principles regarding intellectual property. 20 Suits brought under these conventions are brought before the World Trade Organization, but they can only be brought between member states of the World Trade Organization. 21 Therefore, many suits are being brought outside the World Trade Organization, through Bilateral Investment Treaties. 22 Using Bilateral Investment Treaties allows companies to bring suit if a Bilateral Investment Treaty exists between the country where an investment is being made and 15 WIPO INTELLECTUAL PROPERTY HANDBOOK: POLICY, LAW AND USE 241, 345 (WIPO 2nd ed., 2004). 16 Id. at Id. 18 Understanding the WTO: Basics. Principles of the trading system, WTO, (last visited Apr. 27, 2016) (Further stating that national treatment only applies once a product, service or item of intellectual property has entered the market.). 19 Paul E. Salmon, A Short Guide to International IPR Treaties, IIP Digital, (Apr. 22, 2008), e-02.html#axzz44gv7qpbb. 20 Id. 21 Dispute Settlement System Training Module: Introduction to the WTO dispute settlement system, WTO, 22 It should also be noted that, for the most part, investment is not directly included in the mandate of the WTO. See e.g., Philippe Gugler and Julien Chaisse, FOREIGN INVESTMENT ISSUES AND WTO LAW - DEALING WITH FRAGMENTATION WHILE WAITING FOR A MULTILATERAL FRAMEWORK in Julien Chaisse and Tiziano Balmelli (Eds) ESSAYS ON THE FUTURE OF THE WORLD TRADE ORGANIZATION: POLICIES AND LEGAL ISSUES (Vol. I) (Edis, 2008). 4

5 the country where the company operates. 23 Having this mechanism as an option is vital to the plain packaging law suits because tobacco companies can bring suits directly against a host State, where these plain packing laws have been enacted. A. Plain Packaging Laws and TRIPS Plain packaging laws have been argued to violate both TRIPS and the Paris Convention. These plain packaging laws are said to have violated trademark regulations that are set forth in both conventions. One of the claims Philip Morris has made is that these plain packaging laws are inconsistent with a World Trade Organization member s obligations to protect valid intellectual property rights. 24 Under the Paris Convention, Article 7 states the nature of goods shall not form an obstacle to the registration of a trademark. 25 Article 6 of the Paris Convention provides an exception, where registration may be denied if contrary to public order or morality or of such a nature to deceive the public. 26 Under TRIPS, Articles 7, 8, 15.1, 15.4, 16.1, 17 and 20 have been used to further Philip Morris argument against plain packaging laws. Article 7 sets forth the basic regulations for registration and enforcement of intellectual property rights among member nations, while Article 8 provides an exception that members may adopt measures necessary to protect public health and to promote the public interests in sectors of vital importance. 27 The remaining Articles focus on 23 Id. 24 Daniel Gervais, ANALYSIS OF THE COMPATIBILITY OF CERTAIN TOBACCO PRODUCT PACKAGING RULES WITH THE TRIPS AGREEMENT AND THE PARIS CONVENTION, (Nov. 30, 2010), para. 17, 25 Id. at para Id. at para TRIPS: Agreement on Trade-Related Aspects of Intellectual Property Rights art. 8,Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, THE LEGAL TEXTS: THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS 320 (1999), 1869 U.N.T.S. 299, 33 I.L.M (1994) [hereinafter TRIPS Agreement]. 5

6 trademark regulations under TRIPS. Article 15.1 provides the core function of a trademark under TRIPS including any sign capable of distinguishing the goods or services of one undertaking from those of another undertaking. 28 Article 15.4 states that the nature of the goods or services cannot prohibit registration of a trademark. 29 Moreover, Article 16.1 sets out the rights of trademark owners, specifically the exclusive right to prevent third parties from using such a mark that would cause likelihood of confusion. 30 Article 17 provides that exceptions to the rule may be in place as long as the exception considers the legitimate interests of the trademark owner and third parties. 31 Lastly, Article 20 is probably the most relevant as it prevents trademarks from being unjustifiably encumbered during trade including use in a special form. 32 A particular issue with both TRIPS and the Paris Convention is that due to global and international presence, a trademark may be granted protection even if it is not registered or used in that country. 33 Thus even if Philip Morris does not have a registered trademark in smaller countries such as Uruguay or Togo, Philip Morris brands can be considered a famous mark and gain trademark rights through the famous mark doctrine because Philip Morris is the world s largest cigarette distributor. The application of TRIPS and the Paris Convention is relevant in international arbitration proceedings including the World Trade Organization (WTO) and the International Centre for Settlement of Investment Disputes (ICSID). Philip Morris case against 28 Id. at art. 15(1). 29 Id. at art. 15(4). 30 Id. at art. 16(1). 31 Id. at art Id. at art See Id. at art. 16(2) s. 2; (this is known as the famous mark doctrine in U.S. law stating that famous marks have some extraterritorial aspect, to the extent it protects in the United States under U.S. law rights in marks that arise in, and under the laws of, foreign jurisdictions.). 6

7 Uruguay is currently in the process of being heard in front of the ICSID, while Australia is facing arbitration in front of the WTO. Both of these international arbitrations come after suits were brought against each country in the domestic courts of Uruguay and Australia, respectively. B. Investment Treaties as Violations of International IP Rights Even with the many treaties and conventions that have been established over the years with respect to intellectual property rights, another instrument, bilateral investment treaty (BIT), 34 has been used to make a claim against those countries that have passed plain packaging laws. A BIT is an international agreement establishing terms and conditions for private investment by nationals and companies of one state in another state. 35 The main provisions in a BIT set forth the conduct that applies to a government s treatment of investors from other states. 36 These provisions normally are (1) fair and equitable treatment (national treatment), (2) protection from expropriation, and (3) free transfer of means and full protection and security. 37 The most distinctive feature of a BIT is having a provision for an alternative dispute resolution mechanism in international arbitration rather than suing the host state in its own court if the investor believes rights under the BIT have been violated Philip Morris and Australia BIT With respect to Australia s plain packaging law, the Tobacco Plain Packaging Act 2011, Philip Morris has challenged the legislation under the 1993 Agreement Between the Government 34 See e.g., Philip Morris Brands Sàrl, Philip Morris Products S.A. v. Oriental Republic of Uru., ICSID Case No. ARB/10/7, Decision on Jurisdiction, para. 1 (July 2, 2013), ocid=dc3592_en&caseid=c Bilateral Investment Treaty, Legal Information Institute, (last visited April 27, 2016). 36 Id. 37 Id. 38 Id. 7

8 of Australia and the Government of Hong Kong for the Promotion and Protection of Investments (Australia-Hong Kong BIT). 39 Philip Morris Asia brought suit in the Permanent Court of Arbitration and as of December 2015 has been denied jurisdiction to be heard based on the provisions of the Australia-Hong Kong BIT. The original challenge brought by Philip Morris Asia claimed three violations of the Australia-Hong Kong BIT. First: that the Tobacco Plain Packaging Act constituted an expropriation under Article 6 of the Australia-Hong Kong BIT. Second: that the Tobacco Plain Packaging Act breached the Article 2(2) requirement of fair and equitable treatment of Philip Morris Asia s investment. Third: that the Tobacco Plain Packaging Act constitutes an unreasonable and discriminatory measure such that Philip Morris Asia has been deprived of the full protection of Article 2(2) of the Australia-Hong Kong BIT. Article 6 of the Australia-Hong Kong BIT states [i]nvestors of either Contracting Party shall not be deprived of their investments nor subjected to measures having effect equivalent to such deprivation in the area of the other Contracting Party except under due process of law, for a public purpose related to the internal needs of that Party, on a non-discriminatory basis, and against compensation. 40 Under this article, if an investor is deprived of their investment in the state then the investor should be justly compensated. Philip Morris Asia claimed that by limiting the use of their trademarks to only brand names and no logos, Australia is depriving Philip Morris Asia of its investment in its trademark in Australia and should be compensated. 41 Article 2(2) of the Australia-Hong Kong BIT reads 39 Agreement for the Promotion and Protection of Investments, H.K.-Austl., Sept. 15, 1993, 1993 ATS 30 [hereinafter Hong-Kong-Australia BIT]. 40 Id. 41 Philip Morris Asia Ltd. v. Commonwealth of Austl., Procedural Order No. 3, paras 3-4 (Perm. Ct. Arb. 2012). 8

9 Investments and returns of investors of each Contracting Party shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security in the area of the other Contracting Party. Neither Contracting Party shall, without prejudice to its laws, in any way impair by unreasonable or discriminatory measures the management, maintenance, use, enjoyment or disposal of investments in its area of investors of the other Contracting Party. 42 Under this Article, Philip Morris Asia is arguing that the Tobacco Plain Packaging Act does not provide for fair and equitable treatment because of the strict limitations of how Philip Morris Asia can use its trademark. Further, Philip Morris Asia argues that the Tobacco Plain Packaging Act is discriminatory because of the nature of goods Philip Morris provides. 43 The Permanent Court of Arbitration has not ruled on the merits in this case but rather has dismissed the case for lack of jurisdiction under the Australia-Hong Kong BIT. 44 The Award has not been made available to the public yet, leaving the reasoning for dismissal unclear. 2. Philip Morris and Australia Domestic Case Philip Morris has also pursued litigation against Australia in Australia s domestic court, where a ruling was found in favor of Australia. Philip Morris sought a declaration that the Tobacco Plain Packaging Act was invalid in its application to trademark rights. 45 The theory behind this argument was that trademarks and the logos associated with the trademark are property under the Australian Constitution, and the Tobacco Plain Packaging Act constituted an acquisition of property. 46 The courts disagreed with the tobacco company s arguments and found the Tobacco Plain Packaging Act to be valid. 42 Hong Kong-Australia BIT, supra note 39, art. 2(2). 43 Tobacco plain packaging investor-state arbitration, Australian Government, (last visited Apr. 27, 2016). 44 Philip Morris Limited (Hong Kong) v. The Commonwealth of Austl. Case View, Permanent Court of Arbitration Case Repository, (last visited Apr. 27, 2016). 45 JT Int l S.A. v. Commonwealth (2012) 250 CLR 1, para 19 (Austl.). 46 Id. at para 20. 9

10 Under s 51(xxxi) of the Australian Constitution, the Commonwealth Parliament has the power to make laws with respect to the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws. 47 The term property has been construed broadly in Australia and extends to property rights created by statute although the terms of such statutes and the nature of the property rights require examination. 48 The courts found Australian intellectual property laws do create property rights. 49 To determine if these property rights fall within the constitutional definition of acquisition, the court looks to the source and nature and the consequences of the restrictions imposed by the Tobacco Plain Packaging Act upon their use or enjoyment. 50 At common law in Australia, the property interest associated with a trademark was derived from the goodwill of the business that used the trademark. 51 However, the rights conferred by Australian statutes on the holders of registered trademarks have always been a species of property of the person whom the statute describes as its registered proprietor. 52 Therefore, the Australian High Court found trademarks to have a property right that is subject to s 51(xxxi) of the Australian Constitution Id. at paras Id. at para Id. at para 30. (noting public policy interests in the creation of intellectual property laws in Australia and that trademark legislation accommodate both commercial and public interests). The statutory purpose, reflected in the character of such rights and in the conditions informing their creation, may be relevant to the question whether and in what circumstances restriction or regulation of their enjoyment by a law of the Commonwealth amounts to acquisition of property under the Australian Constitution s 51(xxxi). 50 Id. 51 Id. at para Id. (stating that the property rights given to a trademark owner are the exclusive rights to use that trademark and to license the trademark to other people in relation to the goods or services. Therefore, the rights created are property rights that can be transferred through assignment or taken away by being unregistered). 53 Id. at para

11 Australia argued that the property rights created are negative rights because the right to a trademark gives the trademark owner the right to exclude others. 54 This characteristic of the rights is an important factor in determining if Australia s law constituted an acquisition of property. 55 The court also pointed out that rights associated with trademarks include the protective action against the invasion of good will. 56 The court agreed with Australian s argument that trademark rights are negative in nature. 57 The Australian court also noted that there is a difference between a taking of property and an acquisition of property under s 51 of the Australian Constitution, which would be the issue on which the case turned upon. Taking involves deprivation of property seen from the perspective of its owner. 58 Acquisition, however, involves receipt of something seen from the perspective of the acquirer. 59 In The Commonwealth v. Tasmania, the court found that [t]o bring the constitutional provision into play it is not enough that legislation adversely affects or terminates a pre-existing right that an owner enjoys in relation to his property; there must be an acquisition whereby the Commonwealth or another acquires an interest in property, however slight or insubstantial it may be. 60 The interest or benefit that the Commonwealth receives must be proprietary in character to be considered an acquisition. 61 The Australian High Court thus concluded that Australia did not receive a proprietary interest or benefit from the Tobacco Plain Packaging Act on the tobacco 54 Id. at para Id. 56 Id. 57 Id. 58 Id. at para Id; See Georgiadis v Australian Overseas Telecommunications Corp. (1994) 179 CLR 297 at (Austl.). 60 Commonwealth v Tasmania (1983) 158 CLR 1 at 145 (Austl.) (noting that an acquisition is not just a mere extinguishment of rights). 61 JT Int l S.A., 250 CLR 1, para

12 companies rights. 62 The Australian High Court further concluded that there is no expansion in rights, interests, or benefits accruing to Australia that corresponds to or bears any relationship to the restrictions imposed on the use of the plaintiffs' intellectual property rights because of the nature of the right being a negative right. 63 The court further concluded that the Tobacco Plain Packaging Act is a legislative scheme to place controls on the ways tobacco products can be marketed, and the controls in place do not involve the accrual of a benefit of a proprietary nature to Australia necessary to constitute an acquisition. 64 Therefore, the Tobacco Plain Packaging Act was found to be a valid law in the Australia court system because of the construction of the statute and the interpretation of the Australian Constitution. 3. Philip Morris and Uruguay BIT Arbitration Besides Australia, Philip Morris is also suing Uruguay because of plain packaging laws enacted there. Philip Morris has brought this suit in the ICSID under a Switzerland-Uruguay BIT. Philip Morris specifically challenges three provisions of Uruguay s plain packaging laws: (1) a single presentation requirement that prohibits marketing more than one tobacco product under each brand; (2) the requirement that tobacco packages contain pictograms featuring graphic images of the health consequences of smoking; and (3) the mandate that 80% of cigarette packages be covered in such health warnings. 65 Similar to the BIT that was used in the arbitration between Australia and Philip Morris, Philip Morris is claiming that Uruguay violated 62 Id. 63 Id. at para Id. at para Philip Morris Brands Sàrl, Philip Morris Products S.A. v. Oriental Republic of Uru., ICSID Case No. ARB/10/7, Decision on Jurisdiction, para. 3 (July 2, 2013), ocid=dc3592_en&caseid=c

13 Article 3(1), prohibiting unreasonable measures that affect investments. 66 The other argument is whether the single presentation requirement is considered expropriation of Philip Morris trademark. 67 This arbitration has not yet been decided but Philip Morris has been more successful against Uruguay than Australia as the ICSID has found that the ICSID has jurisdiction to hear this arbitration. 68 Contrary to the Australia and Philip Morris case, the ICSID has issued a ruling on why jurisdiction was granted to the arbitration involving Uruguay. The tribunal has jurisdiction over legal disputes arising directly out of an investment between a Contracting State and a national of another Contracting State. 69 Under the agreement to establish the ICSID, a national can be either a natural person who had the nationality of the Contracting State when the arbitration was filed or any juridical person, corporation, which had the nationality of the Contracting State. 70 Like many Bilateral Investment treaties, 71 the Switzerland-Uruguay BIT has a specific provision of how to handle disputes that arise under the agreement including when arbitration may be brought to the ICSID. This BIT first instructs the parties to solve the dispute amicably between the parties, 72 but if this cannot be done within six months then the dispute may be 66 Agreement on the Reciprocal Promotion and Protection of Investments, Switz.-Uru., Oct. 7, 1988 [hereinafter Swiss-Uruguay BIT]. 67 Philip Morris Brands Sàrl, Philip Morris Products S.A. v. Oriental Republic of Uru., ICSID Case No. ARB/10/7, Decision on Jurisdiction, para. 3 (July 2, 2013), ocid=dc3592_en&caseid=c Id. 69 International Centre for Settlement of Investment Disputes Convention, Rules and Regulations, art. 25 (1), Apr [hereinafter ICSID Rules and Regulations]. 70 Id. at art. 25 (2). 71 For e.g., Agreement for the Promotion and Protection of Investments, U.K.-Sri Lanka, art. (8), Feb. 13, 1980, [1981] U.K.T.S Swiss-Uruguay BIT, supra note 66, art. 10(1). 13

14 brought to a court within the territory where the investment is made. 73 If no judgment has been passed after eighteen months of bringing the dispute to a court within the territory, the investor may appeal to an arbitral tribunal. 74 Here, the tribunal found that Philip Morris followed the provisions set forth in Article 10 of the Switzerland-Uruguay BIT before bringing the dispute before the ICSID. 75 Thus, the ICSID concluded that it has the proper jurisdiction to hear the dispute between Philip Morris and Uruguay. Based on the rulings in Australia, whether Uruguay will prevail in this suit may depend on the wording in both the Switzerland-Uruguay BIT and Uruguay s plain packaging laws. Article 5 (1) of the Switzerland-Uruguay BIT reads Neither of the Contracting Parties shall take, either directly or indirectly, measures of expropriation, nationalization or any other measure having the same nature or the same effect against investments belonging to investors of the other Contracting Party, unless the measures are taken for the public benefit as established by law, on a non-discriminatory basis, and under due process of law, and provided that provisions be made for effective and adequate compensation. 76 Similar to the Australia-Hong Kong BIT, the wording of the Switzerland-Uruguay BIT does not allow for expropriation of property without compensation. The applicability of the Switzerland- Uruguay BIT is not in dispute because Article 1 defines investments as copyrights, industrial 73 Id. at art. 10(2). 74 Id. 75 The tribunal found that Philip Morris complied with the six-month requirement by submitting the dispute to Uruguay, who did not respond in the allotted time. Philip Morris also complied with eighteen-month domestic litigation requirement by filing with the Tribunal de lo Contencioso Administrativo, which gave the Uruguayan courts the opportunity to hear and rule on the case but did not act within the eighteen months leading to Philip Morris bringing the dispute to the ICSID. Philip Morris Brands Sàrl, Philip Morris Products S.A. v. Oriental Republic of Uru., ICSID Case No. ARB/10/7, Decision on Jurisdiction, paras. 71 and 113 (July 2, 2013), ocid=dc3592_en&caseid=c Id. 76 Swiss-Uruguay BIT, supra note 66, art. 5(1). 14

15 property rights (such as patents of inventions, industrial designs or models, trade or service marks, trade names, indications of source or application of origin), know-how and good will. 77 Therefore, the suit brought by Philip Morris will turn on whether the limitations on Uruguay s plain packaging laws can be considered expropriation under international law. II. WHEN DOES EXPROPRIATION OCCUR Expropriation is when a government takes or modifies the property rights of an individual in the exercise of its sovereignty. 78 Expropriation generally is a legal act emanating from a normally constituted government, performing acts within its jurisdiction, in conformity with its own laws. 79 Further, expropriation must exhibit the same characteristics as acts habitually falling within the exercise of governmental power. 80 The acts must be the normal result of a smooth and regular functioning government. 81 It is generally understood that when expropriation occurs compensation is required to the party deprived of their property. 82 Further, expropriation can either be legal or illegal. Generally for expropriation to be legal, four elements need to be satisfied: (1) the act must not be discriminatory toward the investor, (2) the act is for a public purpose, (3) the act is in accordance with due process of the law, and (4) the act is accompanied by compensation. 83 These factors may look familiar as they are set out in the Articles for expropriation in both the Australia-Hong Kong BIT and Switzerland-Uruguay BIT. 77 Swiss-Uruguay BIT, supra note 66, at art UNCTAD, EXPROPRIATION UNCTAD SERIES ON INTERNATIONAL INVESTMENT AGREEMENTS, II, 1 (2012). 79 S. FRIEDMAN, EXPROPRIATION IN INTERNATIONAL LAW (1953). 80 Id. 81 Id. 82 CAMPBELL MCLACHALAN ET AL., INTERNATIONAL INVESTMENT ARBITRATION: SUBSTANTIVE PRINCIPLES 266 (2007). 83 Suzy H. Nikièma, Indirect Expropriation Best Practices Series for IISD, Mar. 2012, 15

16 Expropriation is also either direct or indirect depending on both the act and the property in dispute. A. Direct Expropriation Direct expropriation occurs when the State interferes with private property directly. 84 Generally, direct expropriation is a legal act emanating from a normally constituted government, performing acts within its jurisdiction, in conformity with its own laws. 85 Further, direct expropriation must exhibit the same characteristics as acts habitually falling within the exercise of governmental power. 86 functioning government. 87 The acts must be the normal result of a smooth and regular Direct expropriation is relatively easy to determine; for example, direct expropriation occurs when governmental authorities take over a mine or factory, depriving the investor of all meaningful benefits of ownership and control. 88 With respect to direct expropriation, the general accepted standard of international law is the requirement of compensation for direct taking of property. 89 Direct expropriation is most easily seen these days in disputes over natural resources FREIDMAN, supra note Id. at Id. 87 Id. 88 Feldman v. Mex., ICSID Case No. ARB(AF)/99/1, Award, para. 100 (Dec. 16, 2002), 89 Markus Krajewski, Remarks at ITAP UNCTAD Annual Capacity Building Program International Investment Agreements: Negotiating for Sustainable Development: THE EU S NEW INVESTMENT POLICY AGENDA (Jan ). 90 See Windsor v. Paciorka Leaseholds Ltd ONCA 431 (the court notes that expropriation occurred when the government took the land to preserve the natural habitat and protect endangered species; Trillium Power Wind Corp. v. Ontario 2013 ONCA 683 (the land at issue was for the development of wind mills to be used as an energy source). 16

17 B. Indirect Expropriation Indirect expropriation is a state measure has the effect of substantially depriving investors of the value of their investment. 91 As opposed to direct expropriation, indirect expropriation has no clear definition making it difficult to show when indirect expropriation occurred. To determine if indirect expropriation occurred some factors considered are (1) the purpose and effect of the measure, (2) the degree and duration of the interference and (3) the expectations of the investor. 92 Indirect expropriation that results from the normal functioning of public services would not appear to give rise to any illegal expropriation from the point of view of international law. 93 Therefore, a State will not be liable for loss of property or other economic disadvantages that result from a bona fide regulation or other action that is within the State s police power. 94 International law requires the measures to be looked at in light of all circumstances to determine if the measures are a taking that requires compensation or within the police power of the State. 95 Indirect expropriation is more complicated than direct expropriation as it is unclear when governmental action that interferes with an investment or property crosses from valid regulation to a compensable taking. 96 The issue also arises where, as in Australia, the language of the statute is only applicable for an acquisition of property as opposed to a taking of property. Most investment treaties have a provision that touches upon expropriation, but none specifically define indirect expropriation. Some bilateral investment treaties use the language expropriation or nationalisation, or any other equivalent measure having an effect similar to 91 Feldman. para Id. at paras 100, 101, and Id. at para Id. at para Id. at para Id. at para

18 dispossession 97 or expropriation, nationalisation, or other measure having a similar effect. 98 This language can be used to help aid tribunals when trying to interpret a treaty when an issue of direct or indirect expropriation arises. As no exact definition of indirect expropriation exists, this leads to a problem of determining when indirect expropriation occurs, and if indirect expropriation occurs, then determining whether it was legal. 99 One common factor among all expropriation provisions is the State s right to regulate to protect certain public interests. 100 Even with this in mind, a tribunal needs to balance the rights of the State with that of the investor or any act by a State could be considered a regulation to protect public interests. The United Nations Conference on Trade and Development (UNCTAD) reports that the lack of clarity concerning the degree of interference with rights of ownership that is required for an act or series of acts to constitute an indirect expropriation has been one of the most controversial issues during the last decade. 101 Notably, in determining whether a measure is a legitimate regulatory measure or an expropriation, the level of governmental interference is a significant factor. The line is crossed 97 E.g., Agreement for the Protection of Investments, Fr.-Arg., art. 5(2), July 3, 1991, 1993 F.T.S E.g., Agreement on the Mutual Promotion and Protection of Investments, Nor.-Indon.,Nov. 26, 1991, art.6.1, though this BIT has since been terminated. 99 See e.g., Parkerings-Company AS v. Lith. (ARB/05/8), Award, para 442 (Sept. 11, 2007) (the tribunal first assessed whether the measure could be in fact be indirect expropriation before looking to if the measure was done lawfully). 100 E.g., Hong Kong-Australia BIT, supra note 39 and Swiss-Uruguay BIT, supra note See UNCTAD, INVESTOR STATE DISPUTE SETTLEMENT AND IMPACT ON INVESTMENT RULEMAKING 7-8, UNCTAD/ITE/IIA/2007/3 (2007) at (commenting that recent international investment agreements contain provisions to clarify what constitutes indirect expropriation to prevent ambiguity). 18

19 and the measure becomes an indirect expropriation when the interference results in a substantial or radical deprivation of rights. 102 The tribunal in Tecmed v. Mexico states determin[ing] if the Claimant, due to the Resolution, was radically deprived of the economical use and enjoyment of its investments is important because it is one of the main elements to distinguish, from the point of view of an international tribunal, between a regulatory measure, which is an ordinary expression of the exercise of the state s police power that entails a decrease in assets or rights, and a de facto expropriation that deprives those assets and rights of any real substance. 103 Therefore, each case that comes before a tribunal is very fact sensitive, but the focus is on the government s interference with an investor s expectations from its investment. 104 Indirect expropriation also has a wide and effects-based notion, or regulatory taking, which focuses on depriving the owner, in whole or in part, of the use or reasonably-to-be-expected economic benefits of property. 105 C. Expropriation of Intellectual Property As discussed earlier, intellectual property falls within most bilateral investment treaties through the definition provisions for investment in a BIT. 106 Further, as intellectual property is an intangible property, the expropriation claimed would take the form of indirect expropriation because the government cannot physically take intellectual property to fit within the category of 102 It should also be noted that some regulatory measures can be deemed expropriations. See e.g., Feldman v Mex., ICSID Case No., ARB(AF)/99/1, Award, 16 December 2002, para 110: No one can seriously doubt that in some circumstances governmental activity can be a violation of Article 1110 [expropriation], Tecnicas Medioambientales Tecmed S.A. v. Mex., ICSID Case No. (AF)/00/2, Award, para 115 (May 29, 2003). ocid=dc602_en&caseid=c This standard has been codified in a number of newer agreements. See, e.g., Australia Chile Free Trade Agreement, Annex 10- B(3)(a), July 30, Metalclad Corp. v. Mex., ICSID Case No. ARB(AF)/97/1, Award, para 103 (Aug. 30, 2000), 10 ICSID Rep. 130 (2004). 106 See e.g., Swiss-Uruguay BIT, supra note

20 direct expropriation. Therefore, the argument made for indirect expropriation of an intellectual property right is that an investor is being deprived of its investment in the patent, copyright or trademark. To avoid being considered illegal indirect expropriation, exceptions are written into investment agreements so that a government may pass a regulation without having to compensate an investor. The most common exceptions are (1) restrictions necessary to protect public morals or maintain public order, (2) restrictions necessary to protect human, animal, or plant life or health, and (3) restrictions necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of the agreement. 107 When an investor is arguing indirect expropriation of an intellectual property right, the action of the government centers around a limitation or revocation of said intellectual property right. These regulations that limit or revoke an international property right are normally in relation to protect or promote public policy, 108 one of the exceptions that may appear in an investment agreement. In assessing a claim of expropriation with respect to an intellectual property right, the critical question is whether the measure has substantially interfered with the investment such that the investor has been deprived of the use and enjoyment of the investment. 109 Also, it has been generally accepted that the host country will not have to compensate an investor for indirect expropriation where the measure is generally applied, non- 107 See Swiss-Uruguay BIT, supra note 66, Hong Kong-Australia BIT, supra note 39 and TRIPS Agreement, supra note For example, trademark laws are passed to protect the consuming public from confusion and for giving the consumer someone to blame if there is something wrong with a good or service. Therefore, reasons for denying a trademark may be to protect the public and consumers. 109 See, e.g., MCI Power Group LC and New Turbine Inc. v Ecuador, ICSID Case No ARB/03/6, Award, para H10 (July 26, 2007) ( Expropriation require[s] a substantial interference on the part of the state that affected the use and enjoyment of the protected investment. ). 20

21 discriminatory and applied in good faith and for the protection of legitimate public welfare objectives, such as environment, health and safety. 110 An investor will have difficulty in succeeding in making a claim for indirect expropriation in the area of intellectual property because of the exceptions for regulations that limit or revoke a right and the high burden of proof that an investor must satisfy by showing entire or substantial deprivation of economic benefit. 111 Further, concerns about the public being informed and protected are a major policy behind intellectual property rights. Under the idea that indirect expropriation deprives an owner, in whole or in part, of the use or reasonably-to-be-expected economic benefits of property, 112 foreign intellectual property right holders can challenge various host state measures constraining the commercial exploitation of the intellectual property right in a good or service. A precise analysis of expropriation in relation to intellectual property law is beyond the scope of this paper, 113 but for a better understanding of indirect expropriation analysis done in an international arbitration there is some 110 See e.g., Methanex Corp. v U.S., Final Award on Jurisdiction and Merits, Ad hoc UNCITRAL Arbitration Rules; IIC 167 (2005); contrast Metalclad Co. v. Mex., ICSID Case No. ARB(AF)/97/1, Award, (Aug. 30, 2000) (in finding for indirect expropriation, the tribunal noted that Mexico denied the permit to Metaclad for no particular basis and that if Mexico had concerns over building a hazardous waste landfill then those concerns should have been expressed so that the denial would fall within the public health exception.). 111 See Siemens v. Arg., ICSID CASE No. ARB/02/8, Award, (Feb. 6, 2007), Arbitration where Siemens was one of the companies bidding on the services related to immigration control, personal identification and electronic technology systems and Argentina contracted with them but was found to illegal expropriate Siemens property for not acted in a fair and equitable manner and the actions were arbitrary and discriminatory. 112 Metalclad Corp. v. Mex., ICSID Case No. ARB(AF)/97/1, Award, para 103 (Aug. 30, 2000), 10 ICSID Rep. 130 (2004). 113 For an overview on expropriation in international (investment) law see Andrew Newcombe, The Boundaries of Regulatory Expropriation in International Law, (April 2005), 21

22 case law to look to. None of these decisions look to intangible property, however, they still provide persuasive arguments for the tribunal to consider. 114 Tecmed v. Mexico was a dispute where the indirect expropriation analysis was done in light of the public purpose of the measure. 115 The tribunal had to decide whether the Mexican government's non-renewal of an operating license, and the permanent and irrevocable closure of the landfill owned by Técnicas Medioambientales Tecmed, S.A. (Tecmed) constituted an expropriation in breach of the Spain-Mexico BIT. 116 The tribunal found that regulatory actions and measures will not be initially excluded from the definition of expropriatory acts, even if they are beneficial to society as a whole--such as environmental protection. 117 The tribunal first looked at what affects Mexico s refusal to renew the permit would have on Tecmed s investment. This analysis included asking whether the Claimant, due to the Resolution, was radically deprived of the economical use and enjoyment of its investments. 118 The tribunal found the refusal of the permit had negative effects on Tecmed s investment such that the decision could be treated as an expropriation under the Spain-Mexico BIT. 119 The tribunal further analyzed whether the measures taken by Mexico were proportional to the public interest presumably protected thereby and to the protection legally granted to 114 Arbitration awards are not considered binding precedent. However, cautious reliance on certain principles developed in a number of those cases, as persuasive authority, to the extent that they cover the same matters as the NAFTA, may advance the body of law, which in turn may serve predictability in the interest of both investors and host States; see Fireman s Fund Ins. Co. v. Mex., ICSID Case No. ARB(AF)/02/01, Award, para 172 (July 17, 2006), Tecnicas Medioambientales Tecmed S.A, v. The United Mexican States, ICSID Case No. ARB (AF)/00/2, Award, (May 29, 2003), 10 ICSID Rep. 130 (2004). 116 Id. at para Id. at para Id. at para Id. at para 117 (The tribunal noted that the refusal to renew neutralized Tecmed s investment as no other activity could be undertaken on that property). 22

23 investments, taking into account that the significance of such impact has a key role upon deciding the proportionality. 120 The tribunal also considered whether Mexico s measures were reasonable with respect to their goals, the deprivation of economic rights and the legitimate expectations of who suffered such deprivation. 121 The tribunal held that Mexico s measures were not proportional to its purpose as the refusal to renew was not necessary to achieve the intended goal. 122 Therefore, Tecmed v. Mexico sets out that a regulatory measure taken by the government in the public interest does not necessarily escape from indirect expropriation suggesting that if an alternative measure exists to reach the government s goal then the measure will likely be considered indirect expropriation. In Total v. Argentina, the tribunal established that for state regulatory measures to amount to indirect expropriation, it must take into account their features and object so as to assess their proportionality and reasonableness in respect of the purpose which is legitimately pursued by the host State. 123 Furthermore, the tribunal discussed that the regulatory measures, if being viewed as legitimate, proportionate, reasonable and non-discriminatory, should not provide a basis for compensation in favor of foreign investors. 124 Thus, Total v. Argentina suggests that if a regulatory measure is legitimate, proportionate, reasonable and nondiscriminatory then indirect expropriation has not occurred under the applicable BIT. In Fireman s Fund, the tribunal analyzed indirect expropriation under the North American Free Trade Agreement (NAFTA) provision for expropriation. 125 The tribunal noted 120 Id. para Id. 122 Id. para See Total S.A. v. The Argentine Republic, ICSID Case No. ARB/04/01, Decision on Liability, note 232 (Dec. 27, 2010), italaw.com/cases/documents/ Id. 125 Fireman s Fund, ICSID Case No. ARB(AF)/02/01, Award, para

24 many elements for determining when indirect expropriation occurred, specifically noting elements of what constitutes a taking: (1) the taking must be a substantially complete deprivation of the economic use and enjoyment of the rights to the property, or of identifiable distinct parts thereof, 126 (2) the taking must be permanent, 127 and (3) the taking usually involves a transfer of ownership to another person (frequently the government authority concerned), but that need not be so in certain cases (e.g., total destruction of an investment due to measures by a government authority without transfer of rights). 128 The tribunal also noted that the investor s reasonable investment-backed expectations can be a relevant factor in the indirect expropriation analysis. 129 Some tribunals have taken a different approach not balancing the detrimental effect on the investments because the measures are considered non-discriminatory, for public purposes and in accordance with due process of the law. Methanex v. United States was the first award of this type, where the tribunal found that because the regulation was made for a public purpose, was non-discriminatory and was accomplished with due process there was non-compensable expropriation. 130 Further, the tribunal left open the possibility that such regulations can still be compensable if specific commitments had been given by the regulating government to the then alleged foreign investor contemplating investment that the government would refrain from such regulation. 131 If other tribunals adopt this approach, as long as the government regulation is found to be, non-discriminatory, for public purposes and in accordance with due process of the 126 Id. at para 176 (c). 127 Id. at para 176 (d). 128 Id. at para 176 (e). 129 Id. para 176 (k) 130 Methanex Corp. v. U.S., UNCITRAL Case, Final Award of the Tribunal on Jurisdiction and Merit, Part IV, Chap. D, para 15, (Aug. 9, 2005), Id. at Part IV, Chap. D, para 7. 24