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Treaty Shopping: How Philip-Morris Cherry-Picked Worst Case BITs

Tobacco giant, Philip-Morris, has recently bought actions under investor-State arbitration mechanisms in investment treaties to challenge laws limiting (in Uruguay) or prohibiting (in Australia) the display of its trademarks in tobacco packaging. This has caused the Australian government to take a strong stance against any investor-State arbitration provisions in free trade agreements (FTAs), including exemptions from the proposed investor-state settlement provisions of the Trans Pacific Partnership Agreement (TPP), currently being negotiated.  However, a closer look reveals a broad collection of older treaties that do not contain exceptions in modern treaties that could have avoided this situation. As a multinational-enterprise, Philip-Morris has attempted to evade these exceptions by going through subsidiaries to bring claims under more favorable treaties. This reveals that Australia’s new stance against investor-State arbitration may do nothing to prevent similar claims being brought in the future.

Investor-State Arbitration Provisions: Not All Treaties are Created Equal

In recent times, a vast proliferation of Bilateral Investment Treaties (BITs) and FTAs has created spaghetti bowls (and noodle bowls in Asia) with ridiculously complex frameworks for countries and investors to navigate. To date, Australia has already entered into a number of treaties that include mechanisms allowing investors to bring action against expropriation of assets, including intellectual property, outside Australia’s domestic courts. These include FTAs with ASEAN and New ZealandChileThailand, and Singapore; and BITs withArgentinaChina, the Czech RepublicEgyptHong KongHungaryIndonesiaLao PDRLithuaniaPakistanPhilippinesPoland,RomaniaUruguay, and Viet Nam. The Australia – US FTA also states that the US and Australia “should consider” allowing investors to bring claims against the parties, but does not mandate it. Uruguay also has entered into treaties with investor-State arbitration mechanisms, includes BITs with the U.S. and Switzerland (in French).

Among these 19 Australian treaties with investor-state arbitration procedures (and the US treaty where it is optional), language varies concerning exceptions for limitations for intellectual property rights. The broadest language of these treaties contains two circumstances where exemptions are giving to expropriation obligations: for compulsory licenses and for “the revocation, limitation, or creation of intellectual property rights.” The language most often uses the following wording:

This Article does not apply to the issuance of compulsory licences 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 revocation, limitation, or creation is consistent with [Chapter on Intellectual Property].

This language is found in the Australian FTAs with Chile, Singapore, and the US. It is also found in the US-Uruguay BIT and in the current US Model BIT (however these treaties direct to TRIPS instead of the IPR Chapter of the FTA).  The ASEAN-Australia-New Zealand FTA and the Australia-Malaysia FTA (which does not have investor-State dispute resolution) include exceptions for compulsory licenses but not for “the revocation, limitation, or creation of intellectual property rights.”

Language within the Intellectual Property Chapters of many of the FTAs and in TRIPS allows for limitations for IP rights. Excerpts concerning limitations for trademarks from these treaties are often worded similar to the following language:

Each Party may provide limited exceptions to the rights conferred by a mark, such as fair use of descriptive terms, provided that such exceptions take account of the legitimate interest of the owner of the mark and of third parties. (US-Australia FTA, Article 11.7(5))

Additionally, TRIPS, expressly grants countries the right to pursue public health measures in relation to IPR obligations

Members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health . . .  provided that such measures are consistent with the provisions of this Agreement. (TRIPS, Article 8.1)

The remaining English treaties, the Thai FTA and every Australian BIT with investor-State Dispute provisions (the Uruguay-Swiss BIT is only in French), provide no exceptions for exercising any limitation on intellectual property rights.  These treaties give multinational enterprises the biggest room to challenge national laws that relate to intellectual property rights and public policy. This is seen directly in each of Philip-Morris’s actions.

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