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PIJIP Research Paper no. 2013-1

Author:  Brook Baker

Abstract:  Free trade agreements (FTAs) and bilateral investment treaties (BITs) typically contain investment clauses designed to attract direct foreign investment and protect the interests of foreign investors. In addition to defining foreign investment that are entitled to protection, investment clauses typically allow for investor-state dispute resolution, which allows a foreign investor to launch arbitral proceeding directly against the offending government before a private panel of trade lawyers. This paper focuses first on a pro-investor draft investment chapter in an ongoing regional trade negotiation – the Trans-Pacific Partnership Agreement (TPP) – and second on the first investor-state arbitral claim ever by a patent-holding pharmaceutical company under a U.S. free trade agreement, the Eli Lilly v. Canada case.

The analysis of the draft TPP chapter shows that it expands protection for drug companies’ “expectations of profit” beyond those contained in the TPP’s proposed Intellectual Property Chapter and risks opening up many patent-affecting decisions and polices of Member States to pharmaceutical investors’ claims. As an example of that danger, Eli Lilly is currently challenging a well-established patent rule in Canada, the “promise” doctrine, whereby a medicine or any other product’s “utility,” and thus patentability, must be demonstrated or soundly predicted at the time of filing a patent. Eli Lilly, frustrated by the invalidation of its patent on an attention-deficit-disorder drug, makes a number of specific investment chapter claims under NAFTA, including that the Canadian ruling involved a violation of a minimum standard of treatment, indirect expropriation, and discrimination in violation of national treatment norms. A recurrent, indeed dominant feature of Eli Lilly’s investor claim, is that its reasonable expectations of profits may be drawn not just from preexisting Canadian laws and practices, but rather from higher external standards such as utility rules and disclosure norms codified in U.S. and E.U. law. Under the logic of Eli Lilly’s investor-state claim, foreign investors’ expectations have now become unbound. Even the doctrine of legitimate expectations, which is itself a huge stretch of operative minimum standard of treatment principles, is no longer tethered to operative due process (minimum standard of treatment) or to promises of regulatory coherence (indirect expropriation) or to equal treatment compared to domestic firms (national treatment). Instead Eli Lilly hitches its investment expectation to the best deal on IP it has achieved anywhere else. Moreover, it suggests that its expectations tolerate movement on IP policy in only one direction – upward. Any reversal of IP maximalization would dilute the gleam in its eye – unlimited profits on the horizon.

Citation: Brook Baker. 2013. Corporate Power Unbound: Investor-State Arbitration of IP Monopolies on Medicines – Eli Lilly and the TPP. PIJIP Research Paper no. 2013-01.

Full Text: http://digitalcommons.wcl.american.edu/research/36/