Corporate Power Unbound: Investorstate Arbitration of Ip Monopolies on Medicines—eli Lilly v. Canada and the Trans-pacific Partnership Agreement

• Publication year: 2015

Corporate Power Unbound: Investorstate Arbitration of IP Monopolies on Medicines—Eli Lilly v. Canada and the Trans-Pacific Partnership Agreement

Brook K. Baker

Northwestern University School of Law

Katrina Geddes

ARTICLES

CORPORATE POWER UNBOUND: INVESTOR-STATE ARBITRATION OF IP MONOPOLIES ON MEDICINES—ELI LILLY V. CANADA AND THE TRANS-PACIFIC PARTNERSHIP AGREEMENT

Brook K. Baker^* and Katrina Geddes^**

TABLE OF CONTENTS

I. Introduction...............................................................................................3

II. The Birth of Globalized IP Protection for Pharmaceuticals and its Proposed Expansion in the TPP IP Chapter.............................................................................................6

III. Brief Historical Background on Investment Treaties and Investor-State Dispute Settlement.......................................12

IV. The TPPA Investment Chapter is a Booby-Trap for Access to Medicines.................................................................................21

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A. THE "MINIMUM STANDARD OF TREATMENT/FAIR AND EQUITABLE TREATMENT" STANDARD AND INDIRECT EXPROPRIATION STANDARD CONTAIN DANGEROUS INTERPRETIVE AMBIGUITIES THAT COULD NEGATIVELY IMPACT GOVERNMENT POLICIES AND DECISIONS AFFECTING ACCESS TO MEDICINES....................................................23
B. FOREIGN INVESTORS' RIGHTS TO NATIONAL TREATMENT AND TO THE BENEFIT OF MOST FAVORED NATION TREATMENT FACILITATE IMAGINATIVE DISCRIMINATION CLAIMS......................................................................................................29
C. THE IMPLICIT AND EXPLICIT INCLUSION OF IP RIGHTS AS PROTECTED INVESTMENTS IS DEEPLY PROBLEMATIC WITH RESPECT TO MEDICINES........................................................................31
D. THE COMPULSORY LICENSING AND BRACKETED PATENTING EXCEPTIONS IN THE INVESTMENT CHAPTER ARE INSUFFICIENT TO PROTECT PARTIES' LEGITIMATE INTERESTS TO ACCESS AFFORDABLE MEDICINES............................35
E. THE LIMITATIONS ON PERFORMANCE REQUIREMENTS MIGHT INTERFERE WITH ENSURING REDUNDANT SOURCES OF MEDICINES AND LEGITIMATE TECHNOLOGY TRANSFER AND INDUSTRIAL DEVELOPMENT.......................................................36

V. The Eli Lilly Case: A Pharmaceutical Investor-State Claim Gone Wild.......................................................................................37

A. ALLEGED VIOLATIONS OF CHAPTER 17..............................................42
B. ALLEGED VIOLATIONS OF ARTICLE 1105............................................44
C. ALLEGED EXPROPRIATION OF ELI LILLY'S INVESTMENTS .............50

VI. Conclusion: Strike The Investment Chapter Or Otherwise Limit Its Application To Iprs ........................................54

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I. INTRODUCTION

So-called free trade agreements and investment treaties are currently more about instantiating corporate power than they are about leveling the field for competitive trade and encouraging direct foreign investment in productive capacity.¹ The historic and now neo-liberal justifications for free trade are that it leverages comparative advantage so that countries produce and export raw materials and industrial goods with which they are naturally endowed or are relatively more efficient in manufacturing while importing cheaper, more efficiently produced goods from abroad.² The goal is to reduce trade barriers, especially tariffs and non-tariff barriers that protect local producers and manufacturers from more efficient foreign competitors while allowing comparatively efficient domestic exporters the same advantages abroad. In a fictional world of full employment and full utilization of domestic resources, of internationally immobile labor and capital, and of perfect competition, comparative advantage purportedly increases economic efficiency, lowers the cost of living, and produces a win-win trading system when trade is balanced. Similarly, the historic justification for the protection of foreign investment is that investors need reassurance to invest in other countries, particularly less developed economies where their fixed investments might be expropriated or their investment returns held hostage. Moreover, foreign investors need to be able to pursue their own self-interest rather than wait on their governments to protect them, and thus investors should be empowered to directly bring claims against confiscatory state action.

The high-theory appeal and canonical incantation of free-trade and investor-protection orthodoxies hides the brutal realities of ascendant corporate power, most especially for the purposes of this Article, the power of the innovator pharmaceutical industry that relies on the golden-goose of globalized intellectual property (IP) protections to extract monopoly profits from the sale of what are essentially global public goods. This industry has relentlessly pursued global minimum standards of patent and data protections within what became the World Trade Organization and now seeks longer, stronger, and broader forms of protection via bilateral, regional, and multilateral trade and economic partnership agreements. At the same time, there has been a proliferation of bilateral and regional investment treaties, the vast majority of which give foreign investors strengthened rights to bring private arbitration claims against government for policies and decisions that thwart their investment-based

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expectations of profit, including those stemming from their asserted intellectual property rights.

Despite the deep irony of free trade agreements being subverted to codify and extend anti-competitive monopoly rights and despite the equally deep irony of foreign investors having greater enforcement rights than local investors, the combination of enhanced intellectual property rights (IPRs) and protections and strengthened investor rights is creating a wild-west opportunity for unbounded corporate power. Two current contestations show the dangers of this expanded power in sharp relief. First, in the Trans-Pacific Partnership Agreement (TPPA), at the behest of its powerful pharmaceutical lobby, the United States sought the most extreme forms of pharmaceutical patent, data, and enforcement rights that had ever been proposed at the same time that it sought enhanced IP-related investor rights.³ Although U.S. early demands were not all fully met, the formal TPPA negotiations have been concluded and a legally scrubbed version of the final agreed text was released on January 26, 2016.⁴

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The TPPA was signed on February 4, 2016, but formal ratification awaits.⁵ Second, in Eli Lily v. Canada, an American pharmaceutical company is claiming $500 million in damages under the North America Free Trade Agreement (NAFTA) investment clause because Canada invalidated two medical patents that failed to meet well-established Canadian standards of patentability.⁶

This Article is not written as an abstract juxtaposition of these two current events. It is written to expose the dangers that countries face, especially low-and middle-income countries, in trade negotiations with the U.S., Europe, and Japan. These nations seek to impose stronger patent, data, and market entry protections while simultaneously expanding the armamentarium of enforcement powers available to pharmaceutical behemoths. Part II of this Article contains a brief introduction to the international IP regime, namely the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)⁷ and the TRIPS-plus pharmaceutical protections contained in the TPPA Intellectual Property Chapter⁸ and Transparency Annex⁹ recently signed by twelve Pacific rim countries. Part III gives a brief historical background on investment treaties and investor-state dispute settlement (ISDS). Part IV analyzes the TPPA Investment Chapter¹⁰ in more depth, particularly its provisions dealing with protection for, and enforcement of, IP-related investments. Part V discusses the pending Eli Lilly v. Canada ISDS arbitration, including the claims and defenses of the parties. Part VI concludes with a recommendation that investment chapters be struck from the TPPA and other trade agreements or alternatively, that such chapters should not apply whatsoever to the protection

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or enforcement of IPRs given the many other enforcement powers available to patent holders. This Article claims that extending boundless corporate power to Big Pharma through adoption of ISDS for IPRs presents a grave danger to the communal right to health and the right of access to affordable medicines for all.¹¹

II. The Birth of Globalized IP Protection for Pharmaceuticals and its Proposed Expansion in the TPP IP Chapter

Although scholars trace the history of IPRs back several centuries, the first efforts to set any global standards with respect to patents occurred with the adoption of the 1883 Paris Convention for the Protection of Industrial Property (Paris Convention),¹² the 1986 Berne Convention for the Protection of Literary and Artistic Works (Berne Convention),¹³ and with the imposition of colonial IP regimes.¹⁴ The strictures of the Paris Convention were quite limited; in terms of patents, it principally required non-discrimination against patent applicants from other countries; provided for rights of priority, division of patents, and identification of the inventor; restricted the grounds for revocation; and expanded permissible uses of compulsory licenses. In Africa, Asia, and the Pacific, the parallel introduction of colonial IP laws began in the late nineteenth century after the 1884 Congress of Berlin.¹⁵ Nonetheless, despite these partial successes, rich countries and IP-based industries were interested in extending the scope of IP protections beyond the Paris and Berne Conventions because both Conventions lacked effective enforcement measures and because their reach was not yet truly global.

In 1967, during a period of development-oriented...