'Compulsory licences and ISDS in Covid-19 times: relevance of the new Indian investment treaty practice' by Prabhash Ranjan in (2021) 16(7) Journal of Intellectual Property Law & Practice 748–759 comments
As the world grapples with the Coronavirus disease (Covid-19)—the worst pandemic in the last 100 years—war-like efforts are being made to find a vaccine or a cure for the disease. Indeed, a few newly developed Covid-19 vaccines have already been approved for public use. At the same time, given the concerns of vaccine nationalism—countries pushing to get first access to Covid-19 vaccines —many are filled with consternation about the timely and equitable access to medicines and vaccines. This concern has been outlined by countries like India and South Africa who in their recent proposal to the World Trade Organization (WTO) state: ‘As new diagnostics, therapeutics and vaccines for COVID-19 are developed, there are significant concerns, how these will be made available promptly, in sufficient quantities and at an affordable price to meet global demand.’
To ensure timely and equitable access to Covid-19 vaccines, drugs, and diagnostics, India and South Africa have proposed that, following Articles IX.3 and IX.4 of the Marrakesh Agreement establishing the WTO, certain provisions of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement6 be temporarily waived or suspended to allow the prevention, containment, or treatment of Covid-19. Such a temporary suspension of the application of the TRIPS Agreement would give complete regulatory freedom to countries to deal with the production and distribution of Covid-19 vaccines, drugs, diagnostics without being concerned about the enforcement and protection of intellectual property rights. This radical proposal stems from the assumption that intellectual property rights such as patents, in certain circumstances, could act as barriers to accessibility of drugs and medicines. Several least developed and developing countries have endorsed the proposal at the WTO, while developed nations are not in favour.
Nonetheless, there is a consensus that countries need to collaborate to ensure timely and equitable distribution of drugs, vaccines and diagnostics for the treatment of Covid-19. To accomplish this objective various regulatory tools can be used in a manner that is consistent with the existing international law on intellectual property rights. This is especially relevant because several patent applications have already been filed for Covid-19 vaccines.
An important regulatory tool in this regard is a compulsory licence (CL)—the granting of a licence by a government to a third party to use the patent without the consent of the patent holder after paying a government-determined royalty to the patent owner. The possibility of issuing a CL is significant flexibility in the patent regime, especially in the context of pharmaceutical patents, because it allows governments to address public health needs by ensuring the availability of patented medicines at low-cost prices to those who cannot afford them.
Some countries have taken steps in this direction by adopting laws to expedite the issuance of CLs.14 Canada enacted a Covid-19 Emergency Response Act, through which it amended the Patent Act to accelerate the process of issuing CLs for public health purpose. Likewise, Chile adopted a resolution pronouncing that the Covid pandemic is a strong ground to validate the issuance of CL on Covid-19 related technologies. Ecuador has also adopted a resolution requiring the national government to establish compulsory licences and adopt other measures to ensure free and inexpensive access to medicines and other medical technologies to combat the Covid-19 pandemic. Germany, Europe's largest economy, has also passed legislation, the Prevention and Control of Infectious Diseases in Humans Act, which empowers the health ministry to issue government use authorization under the patent law, after the declaration of a national epidemic by Bundestag, German federal legislature’s lower chamber. Israel has already issued a CL for the importation of Kaletra (lopinavir 200 mg/ritonavir 50 mg) for the treatment of Covid-19 patients.
In India too, several commentators have identified the prominence of CL for realizing public health objectives. Already demands have been made for the issuance of CL on drugs like remdesivir to augment its accessibility for Covid-19 patients. The potential use of CL as a regulatory tool in Corona times might go up further as Covid-19 vaccines become available. India, which is often called the pharmacy of the world, might have an important role to play in ensuring supplies of vaccines and drugs to various countries such as in Latin America.
Given this background of the rising importance of CL, from the perspective of states, it is imperative to understand what kind of legal challenges they can face if they make use of this regulatory tool. This question becomes even more important because patent owners, when it comes to drugs and medicines, in a large number of cases, are pharmaceutical companies who zealously protect their intellectual property.
One obvious option for these companies will be to challenge the issuance of such CLs under the domestic laws of the country concerned. Another choice that many foreign pharmaceutical companies might like to employ, under international law, is to challenge the issuance of such CLs before investor-State dispute settlement (ISDS) tribunals. These ISDS tribunals derive their authority from bilateral investment treaties (BITs) or investment chapters of free trade agreements (FTAs). These BITs or investment chapters in FTAs allow foreign investors to directly bring claims against host States for alleged treaty breaches before ISDS tribunals—a three-member ad hoc arbitration tribunal—often without exhausting local remedies. Intellectual property rights (IPRs) in these treaties are listed as investments. Consequently, ISDS tribunals have jurisdiction over regulatory measures that impair the investor’s IPRs. This allows pharmaceutical companies to enforce their IPRs through the ISDS mechanism.
Indeed, in the last few years, foreign investors have employed the ISDS regime to challenge the host State’s regulatory measures relating to IPRs. For example, Eli Lily, an American pharmaceutical company challenged the invalidation of its patent by a Canadian federal court on the ground of ‘inutility’. Philip Morris, a tobacco company, challenged Australia’s legislation mandating plain packaging of tobacco products under the Hong Kong–Australia BIT. Philip Morris also brought a similar claim against Uruguay under the Switzerland–Uruguay BIT. Accordingly, the possibility of pharmaceutical companies challenging the issuance of CL before ISDS tribunals is real, not conjectural.
International investment lawyers have pointed out that foreign investors can challenge the issuance of CL before an ISDS tribunal on the ground that it amounts to an indirect expropriation of their investments. In other words, foreign investors can argue that the issuance of a CL has led to substantial deprivation of their investment, thus constituting indirect expropriation under international investment law. As Bryan Mercurio argues, the prospect of challenging the issuance of CLs as expropriation before an ISDS tribunal is an attractive proposition for a patent holder for several reasons. First, it allows the patent holder to directly bring about a claim before an international tribunal bypassing the domestic courts of the host country. Secondly, if the claim were successful, it would provide higher compensation to the patent holder than what the host State would pay to her as remuneration for issuing the CL (see also Section II.2).
Whether the foreign investor will succeed in such a claim will depend on various factors, such as the duration for which the CL has been issued, whether the royalty paid to the patent owner is satisfactory, what impact the issuance of the CL had on the patent owner’s overall investment in the host State, what is the language of the treaty provision on expropriation in the BIT, whether the treaty permits deviation from the substantive treaty provisions like expropriation for public health purposes etc.36 Nonetheless, since IPRs are recognized as investments in BITs, the critical point is that foreign investors can bring such claims before ISDS tribunals. Thus, ISDS tribunals will enjoy jurisdiction to decide whether the issuance of a CL amounts to indirect expropriation or not. Foreign investors can also contest the issuance of a CL as a violation of the fair and equitable (FET) provision—a ubiquitous clause present in all BITs or other substantive provisions like national treatment.
The purpose of this article is to closely examine India’s investment treaty practice to see whether it provides a safe haven for the issuance of CLs from foreign investor's claims for treaty breaches before an ISDS tribunal. In case a BIT or an investment chapter of an FTA exempts the issuance of CLs from the ambit of the substantive treaty standards, it would imply that the host State has greater regulatory autonomy to make use of CLs in the current times without worrying about ISDS claims. A survey of Indian BITs and FTA investment chapters shows that in the bulk of these treaties there is no specific mention of excusing the issuance of CLs from the application of the treaty's substantive standards. In other words, if a foreign investor contests the issuance of a CL as a breach of any of the substantive provisions of the BIT, the outcome of such a challenge will depend on the numerous factors mentioned before.
However, there are some Indian BITs and FTA investment chapters that exempt the issuance of CLs from the application of the substantive treaty standards. In this article, we study such investment treaties by dividing the discussion into two parts. First, the article, in Section II, discusses those Indian BITs and FTA investment chapters where issuance of CL is outside the ambit of the expropriation provision. Next, the article, in Section III, focuses on the new Indian investment treaty practice, starting from the 2016 Indian model BIT, which provides that issuance of CL is outside the scope of the entire BIT. Section IV concludes by arguing that India's recent treaty practice provides greater regulatory bandwidth to States in Covid-19 times to pursue public health objectives should countries wish to use CLs as the regulatory tool to increase accessibility of Covid vaccines and drugs. Thus, India’s new investment treaty practice holds some lessons for other countries to deal with ISDS claims challenging the issuance of CLs. However, before discussing the treaty practice, Section I provides an overview of the Indian patent law on the issuance of CLs.
