What Remedies Are Available to Life Sciences Companies if Their IP Rights Are Exploited During the Global Pandemic?

Introduction

In October 2020, India and South Africa asked that the World Trade Organization (“WTO”) waive the protection and enforcement of intellectual property (“IP”) rights to ease access to Covid-19 vaccines.[1] In May 2021, 62 WTO members voiced their support of such a waiver.[2] They clarified that the waiver would apply to treatments, diagnostics, medical devices, protective equipment, and the material and components needed to produce the vaccines (“Waiver Proposal”).[3] Countries including the United States and China supported the waiver, but many opponents considered it deterrent, anti-competitive, and counterproductive.[4] We do not assess the merits of the Waiver Proposal itself, but rather discuss the remedies IP right holders, such as multinational life sciences, healthcare, and biotech companies, may have as their IP rights are exploited by foreign states. Under the Waiver Proposal, foreign states may choose not to protect or enforce an investor’s IP rights for at least three years, even if an errant party deliberately encroaches upon these IP rights. Foreign states may even authorize and oversee these encroachments. Rogue developers and unethical companies may surface, to “legally” infringe on IP rights. Case-sensitive analyses depend, of course, on the applicable investment treaties and whether and, if so, how the Waiver Proposal materializes. We stand ready to monitor the ongoing development.

What Was the Waiver Proposal About?

The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS Agreement”) is a multilateral agreement that came into effect on January 1, 1995.[5] It binds all WTO members including the United States, China, Singapore, the United Kingdom, Hong Kong SAR, and India. Under the TRIPS Agreement, if a member grants any privilege, advantage, favor, or immunity to the nationals of a country, it must grant the same to the nationals of all members.[6] It may yet adopt measures necessary to prevent IP rights abuses or resort to practices that unreasonably restrain trade or adversely affect international technology transfer.[7]

On October 2, 2020, India and South Africa made the Waiver Proposal to waive the members’ obligations under the TRIPS Agreement to protect and enforce copyrights, industrial and textile designs, patents, and undisclosed information, to prevent, contain, and treat COVID-19, subject to two exceptions with which this article does not concern.[8] On May 25, 2021, an amended Waiver Proposal was tabled.[9] In this version, the Waiver Proposal applies with the same goals, but specifically: (a) to health products and technologies, their materials and components, and their methods and means of manufacture; and (b) for three years subject to extension.

What Are IP Rights Holders Left With?

Negotiations are still ongoing at the WTO. If the Waiver Proposal or any IP rights waiver under it is accepted, life sciences, healthcare, and biotech companies will understandably inquire about their deserving remedies, if a foreign state abuses these waivers or otherwise exploits their IP rights. Companies cannot commence legal proceedings under the TRIPS Agreement itself. Hence, we discuss below the viable options for companies to resort to the applicable bilateral investment treaties and free trade agreements, if any,[10] to mount a challenge against the foreign state(s). These options apply to IP rights holders from both WTO and non-WTO countries.

First, as a prerequisite, an IP rights holder has to show that s/he/it made an investment, and thus qualifies as an investor, in the foreign state. In most legal texts,[11] this means an asset that any individual or company owns or controls, directly or indirectly, that has the characteristics of an investment (including the commitment of capital or other resources, a duration to implement the investment, the expectation of gain or profit, and an assumption of investment risks).[12] Equity interests in an enterprise, as well as IP rights (from patents, technical processes, trade secrets, and undisclosed information, to know-how and goodwill),[13] can be an investment. Hence, pharmaceutical, biotech, and life sciences companies that have been: (a) registering trademarks in the foreign state and commercializing them there by manufacturing and advertising products that bear the marks;[14] (b) granting trademark licenses and obliging the licensees to exploit the trademarks in the foreign state;[15] (c) patenting or licensing inventions and engaging in commercial activities in the foreign state;[16] or (d) developing their business and trade secrets in the foreign state, may qualify as investors.

Second, the IP rights holder may then, as an investor, make good of certain treaty protections. Subject to the language of the applicable investment treaties and free trade agreements, an investor may invoke the following grounds:

• Minimum standard: The foreign state failed to accord investments or investors fair and equitable treatment, as it:

• imposed unreasonable, discriminatory, or arbitrary measures that impair the management, maintenance, use, enjoyment, or disposal of the investments.[17] The foreign state generally cannot subdue investors’ reasonable and legitimate expectations that guided their investment decisions.[18] A stable and predictable legal and regulatory environment was among such expectations.[19] Accordingly, measures that authorize an outright disregard of confidentiality and non-disclosure agreements or unqualified entry into private properties may be unlawful; or
• denied investors or investments justice in civil or administrative proceedings in accordance with the principle of due process.[20] Arrangements that void dispute resolution agreements, lift investors’ access to courts, or dispense with giving prior notice to investors before exploiting their investments,[21] likely fall afoul of due process.

• National treatment: The foreign state infringed the right to national and non-discriminatory treatment, as it accorded investors or investments less favorable treatment than the best treatment it accorded to its own investors or investments in like circumstances.[22] A definitive example is where a state imposes restrictions on foreign investors or investments without at least imposing the same on domestic ones.
• Expropriation: The foreign state directly expropriated investments, or indirectly subjected them to measures with effects of expropriation.[23] The former requires seizure of property rights. The latter is established where, although the investors retain control over the investments, the economic benefits the investors reasonably expected from them dropped to an extent tantamount to a deprivation of property by virtue of a foreign state act.[24] Factors from the extent of interference with investors’ expectations, to the nature, purpose, character, and impact of the act are relevant. Although direct expropriation is difficult to establish, the examples in this article, and others, like the unreasonable levy of taxes and the revocation of prior approvals, are prone to challenges on indirect expropriation grounds.
• Transfer: The foreign state failed to permit or guarantee to investors the free and timely transfer of profits, dividends, income, royalties, and payments associated with investments.[25] A temporary suspension of licensors’ right to receive or claim royalties could amount to a deliberate breach in this regard.
• Performance requirements: The foreign state forced the investors to transfer a technology, a production process, or proprietary knowledge to others.[26] This may be done by compelling investors to disclose clinical data, diagnostic kits, therapeutics, and formulas or open up production lines.

Third, the investor may need to dispel certain qualifications. There may be general ones that apply to all investor claims or specific ones that apply to a specific claim. One general exception allows the foreign state to adopt or maintain measures required to protect human life or health.[27] Another does not outlaw them if they are not applied in an arbitrary or unjustified manner, or do not constitute a disguised restriction on trade or investment.[28] Some exceptions specific to expropriation claims are:

• Expropriation by a foreign state is not unlawful if it is for public purposes, in accordance with due process, on a non-discriminatory basis,[29] and against compensation amounting to the market value of the investments.
• Except in rare circumstances, a non-discriminatory state measure designed and applied to protect public health is not an indirect expropriation.[30]

While some exceptions give rise to powerful state defenses, and despite the wide policy discretion enjoyed by foreign states, public health measures still have to satisfy the principles of reasonableness and proportionality.[xxxi] State measures need to connect with their stated objectives.[31] At least one arbitral tribunal found state measures to constitute disguised restrictions on trade.[32] The question is whether the foreign states could have protected the investments and safeguarded public health, and at the same time also formed part of the assessment.[33] Finally, experts and professionals will foreseeably continue to dispute the necessity of the foreign state’s anti-IP measures in improving vaccine affordability and accessibility and in protecting human life or health.[34]

After establishing a claim, investors will understandably pursue effective, prompt, and adequate damages. It is observed that while compensation is relevant to expropriation claims, it generally will not affect an investor’s right to initiate legal actions on minimum standard, national treatment, transfer, or performance requirement grounds. Another remark is, while compensation is a prerequisite to absolving the foreign state of expropriation, it is also the most common remedy available to the investors and their investments. Other remedies include restitution (e.g., returning seized property or restoring a situation), specific performance, and declaratory and injunctive relief.[35]

Conclusion

This article gives IP rights holders an overview of ideas, relevant where a foreign state decides to adopt or maintain measures that are at odds with its international law obligation to effectively defend IP rights. While we refrain from engaging in factual discussions and touching upon how states may challenge one another at the WTO on the validity of the Waiver Proposal, we point to specific treaty provisions and seminal cases and come up with possible formulations of the Waiver Proposal, to entertain the issues IP rights holders may have already faced. With these, we continue to track, as the world now eyes, any recommendation by the Council for TRIPS, any decision by the WTO General Council, and any anti-IP state action.