Intellectual Property in BITs: Unpacking Uncertainties of the TRIPS

Flexibilities
Sumit Sonkar*
Abstract
Bilateral Investment Treaties (BITs) are powerful tools to protect foreign investment from the
arbitrary actions of the host states. However, the broad and unqualified clauses in BITs have
expanded their scope to challenge the states’ regulations. Therefore, through the investor-state
arbitration mechanism in BITs, a legitimate regulation can be invalidated if it adversely affects the
value of investment or expected future profit. Furthermore, in the absence of any general or
specific exceptions, limiting the broad scope of BITs, threatens the well-established Trade-Related
Aspects of Intellectual Property Rights (TRIPS) flexibilities incorporated to safeguard developing
countries’ development concerns. In the evolving jurisprudence, the use of TRIPS may constitute
an act of indirect expropriation. Therefore, the stringent Intellectual Property (IP) protection in
most modern BITs may undermine TRIPS flexibilities. In such a situation, a delicate balance needs
to be struck between the rights of the states and investors to reduce BITs’ far-reaching implications
on TRIPS flexibilities to safeguard public health imperatives. This article analyzes the legal issues
surrounding IP protection under BITs and its potential effects on TRIPS flexibilities.

Keywords: Bilateral Investment Treaties, Expropriation, Intellectual Property, Investment,

Investor-State Arbitration, TRIPS

I. Introduction
BITs are important tools for protecting private investment from discriminatory treatment by
host states1 through enforceable rights.2 The fear that the host state’s social, political, and economic
uncertainty may backlash private investment necessitated the construction of a regime that protects
the entity’s valuable assets and profits.3 However, the most contentious and controversial aspect
of modern BITs is the investor-state arbitration dispute settlement mechanism,4 through which an
investor can directly challenge the state’s regulatory measures, adversely affecting the value of the
investment.5 The peculiarity of investor-state arbitration is that it allows foreign investors to bypass

* PhD Candidate in Laws, The Chinese University of Hong Kong. The author is grateful to Dilip Kumar Tiwari and
Kanika Goyal for their insightful comments on the earlier drafts.
1
ShayerahIlias Akhtar & Martin A. Weiss, U.S. International Investment Agreements: Issues for Congress
(Congressional Research Service 7-5700, 2013), https://fas.org/sgp/crs/row/R43052.pdf.
2
Kevin P. Gallagher & Elen Shrestha, Investment Treaty Arbitration and Developing Countries: A Re-Appraisal
(Tufts University, Global Development and Environment Institute Working Paper No. 179093, 2011),
http://ageconsearch.umn.edu/record/179093/files/11 ... ationReappraisal.pdf.
3
Wasseem Mina, Political Risk Guarantees and Capital Flows: The Role of Bilateral Investment Treaties, 9
ECONOMICS: THE OPEN-ACCESS, OPEN-ASSESSMENT E-JOURNAL (2015).
4
The arbitration game, THE ECONOMIST (October 11, 2014) https://www.economist.com/finance-and-
economics/2014/10/11/the-arbitration-game.
5
Claire Provost & Matt Kennard, The obscure legal system that lets corporations sue countries, THE GUARDIAN
(June 10, 2015) https://www.theguardian.com/business/2015/jun/10/obscure-legal-system-lets-corportations-sue-
states-ttip-icsid.

1
the host state’s domestic courts and bring claims directly to an international arbitral tribunal,6 even
if the host state’s regulatory measures were pursued to safeguard legitimate public health7 or other
public policy issues.8

In the competition to attract foreign investment, developing countries accept onerous and
strict restrictions on their power to exercise sovereign functions without being fully aware of their
implications.9 The uncritical adoption of the BITs is due to the perception that they are instruments
that can bring a wide array of economic benefits, from technology transfers to the creation of
employment for the host states.10 However, there is no conclusive evidence that BITs alone attract
Foreign Direct Investments (FDIs) to the host countries.11 Instead, empirical studies have shown
that the state’s macroeconomic conditions and other governance factors are responsible for
attracting FDIs.12

For instance, Brazil has signed 14 BITs since the 1990s but never ratified any.13
Nevertheless, it receives generous FDI14 due to its liberal FDI regime and reasonably transparent
and predictable governance.15 Thus, under the impression that BITs will increase economic
activities, many developing countries are shoring up IP protection under BITs, which could have
a negative impact on the TRIPS flexibilities, which are designed to help them provide affordable
innovation to their citizens.16 Ironically, when the TRIPS agreement was being negotiated,
developing countries feared that a strong IP regime would restrict their ability to provide affordable
essential life-saving medicines to cater to public health needs.17 However, they do not seem
apprehensive about the same concern while signing and ratifying BITs. Historically, the US started
incorporating IP into BITs to further its economic interest. It also forced developing countries like
South Korea and Brazil to negotiate the stringent IP standards in their BITs.18 As a result, most
BITs now explicitly recognize IP as a form of investment and accord stringent protection to foreign

6
Michele Potestà, State-to-state dispute settlement pursuant to bilateral investment treaties: Is there potential?, in
INTERNATIONAL COURTS AND THE DEVELOPMENT OF INTERNATIONAL LAW: ESSAYS IN HONOUR
OF TULLIO TREVES (Nerina Boschiero et al. eds., 2013).
7
Trading IP through FTAs & BITs: Implications for access to medicines, ACCESS (October, 2014)
http://www.lawyerscollective.org/wp-content/uploads/2014/12/Access-News-Letter-IV-1-Trading-IP.pdf.
8
The arbitration game, supra note 4.
9
Eric Neumayer & Laura Spess, Do bilateral investment treaties increase foreign direct to developing countries, 33
WORLD DEVELOPMENT (2005) http://eprints.lse.ac.uk/627/1/World_Dev_(BITs).pdf.
10
Deborah L. Swenson, Why Do Developing Countries Sign Bits, 2 U. C. DAVIS J. INT'L L. & POL'Y 1 (2005).
11
Neumayer, supra note 9.
12
Prabhash Ranjan, Medical Patents and Expropriation in International Investment Law – with Special Reference to
India, 5 MANCHESTER J. INT’L ECON. L. (2008).
13
Investment Policy Hub, http://investmentpolicyhub.unctad.org/IIA.
14
See FDI in Figures – Latin America, (OECD, 2019) https://www.oecd.org/investment/FDI-in-Figures-April-2019-
Latin-America-English.pdf.
15
Daniela Campello & Leany Lemos, The non-ratification of bilateral investment treaties in Brazil: a story of conflict
in a land of cooperation, 22 REVIEW OF INTERNATIONAL POLITICAL ECONOMY (2015).
16
Jennifer L. Tobin & Susan Rose-Ackerman, When BITs have some bite: The political-economic environment for
bilateral investment treaties, THE REVIEW OF INTERNATIONAL ORGANIZATIONS (2011).
17
Carlos M. Correa, The Trips Agreement and Developing Countries, in THE WORLD TRADE ORGANIZATION:
LEGAL, ECONOMIC AND POLITICAL ANALYSIS, 1 (Patrick F. J. Macrory et al., eds., 2005).
18
Carlos M. Correa, Investment Protection in Bilateral and Free Trade Agreements: Implications for the Granting of
Compulsory Licenses, 26 MICH. J. INT'L L. 331 (2004).

2
investment.19 This transition has expanded the protection available to IP beyond the existing
TRIPS standard, which may have a negative impact on TRIPS flexibilities available to developing
countries.20

TRIPS is a multilateral agreement that sets minimum standards for IP protection. However,
it also includes flexibilities that allow developing countries to derogate from its strict
implementation.21 On the other hand, BITs are a mechanism to protect foreign investment.
However, they are curtailing the TRIPS flexibilities by allowing foreign investors to directly sue
host countries for breaching their commitment.22 Therefore, BITs not only restrict the state’s
regulatory power but also conflict with the objectives and norms stipulated in the TRIPS
agreement.23 Despite the potential conflict between BITs and TRIPS, not much adequate research
has been done to find ways to harmonize them.24 Often, the existing research focuses on investor-
state arbitration under BITs and its impact on economic growth, while less attention has been paid
to its potential implications for public health.
This article examines the BITs and their consequences on the TRIPS agreement. It also
explores how the two regulatory frameworks can be balanced. Section II examines the various
unqualified IP definitions in BITs and their repercussions on the TRIPS flexibilities. Section III
focuses on the adverse effects of BITs on compulsory licensing and parallel import. Section IV
analyses the recent developments in the Philips Morris and Eli Lilly cases to contextualize BITs
and their relationship with the TRIPS agreement.

II. Broad Assets-Based Definition of IP

The term ‘investment’ is relatively new. The economic liberalization, particularly factors such
as ‘duration’ and ‘movement,’ compelled states to use the more dynamic phrase ‘investment’
instead of ‘foreign property.’ In the context of BITs, rapid developments in technology and
pharmaceuticals led to the crystallization of IP as a valuable asset, requiring maximum and
effective protection in the form of investment.25 However, its imprudent application resulted in the

19
Deepak Raju & Ayesha Ali Khan, Hurdles in Way of Compulsory Licensing by Developing Nations: Multilateral
Murder or Bilateral Suicide?: An Empirical Analysis of Bilateral Investment Treaties of India, Bangladesh and
Pakistan, 2 NUJS L. Rev. 213 (2009).
20
Carlos M. Correa, Bilateral investment agreements: Agents of new global standards for the protection of intellectual
property rights?, GRAIN (August 3, 2004) https://www.grain.org/article/entries/125-bilateral-investment-
agreements-agents-of-new-global-standards-for-the-protection-of-intellectual-property-rights.
21
Antonietta Di Blasé, Intellectual property protection in investment agreements and public concerns, in GENERAL
INTERESTS OF HOST STATES IN INTERNATIONAL INVESTMENT LAW (Pia Acconci et al., eds., 2014).
22
Ranjan, supra note 12, at 104.
23
Reiko Aoki et. al, Patent policy and public health in developing countries: lessons from Japan,84 BULLETIN OF
THE WORLD HEALTH ORGANIZATION (2006) https://www.who.int/bulletin/volumes/84/5/417.pdf.
24
Bertram Boie, The Protection of Intellectual Property Rights through Bilateral Investment Treaties: Is there a
TRIPS-plus Dimension?, Working Paper No 2010/19, NCCR TRADE,
https://www.wti.org/media/filer_public/c5/47/c5475d4a-f97c-4a8b-a12a
4ae491c6abb3/the_protection_of_iprs_through_bits.pdf; Christine Haight Farley, Trips-Plus Trade and Investment
Agreements: Why More May Be Less for Economic Development, 35 U. Pa. J. Int’l L. 1062 (2014); Jean Paul Roekaert,
Investment Treaty Arbitration and the Trips Patent Waiver: Indirect Expropriation Analysis of Covid-19 Vaccine
Patents Expropriation Analysis of Covid-19 Vaccine Patents, 46 HASTINGS INT'L & COMP. L. Rev. 59 (2023).
25
Intellectual Property Provisions in International Investment Arrangements, UNTCAD (IIA Monitor No. 1, 2007)
https://unctad.org/en/pages/PublicationArchive.aspx?publicationid=2445.

3
adoption of a broad and unqualified definition of BITs.26 Generally, the definition of ‘investment’
in BITs determines the scope of investors’ rights and obligations.27 However, no standard
definition exists as to what constitutes an investment as the object and purpose of investment differ
from one BIT to the other.28 Modern BITs ordinarily refer to the phrase ‘every kind of assets’
followed by the general statement29 and then a non-exhaustive list of categories.30 For example,
the US-Model BITs (2012)31 states that
‘investment means every asset that an investor owns or controls, directly or indirectly, that
has the characteristics of an investment, including such characteristics as the commitment of
capital or other resources, the expectation of gain or profit, or the assumption of risk. Forms
that an investment may take include: (a) an enterprise; (b) shares, stock, and other forms of
equity participation in an enterprise; (c) bonds, debentures, other debt instruments, and
loans;(d) futures, options, and other derivatives; (e) turnkey, construction, management,
production, concession, revenue-sharing, and other similar contracts; (f) intellectual property
rights; (g) licenses, authorizations, permits, and similar rights conferred pursuant to domestic
law and (h) other tangible or intangible, movable or immovable property, and related property
rights, such as leases, mortgages, liens, and pledges.’
A cursory look at the US Model BIT’s asset-based definition reveals that the language adopted
is quite broad and without any exception. The same broad assets-based definition is followed by
many other countries, except for Canada, which combines a broad definition with a specific
exception on the line of the North American Free Trade Agreement (NAFTA).32
In the modern economy, IP is an important source of capital for entities and businesses.
Therefore, the investment definition in BITs is much broader than that generally found in the
domestic laws of host states.33 The broad ‘investment’ definition in BITs acknowledges that IP is
a valuable and critical asset for the economic growth of the states and investors.34 As IP is an
invaluable asset, BITs not only contain phrases such as ‘intellectual property rights’ but also
consist of copyrights and patents.35 For example, the BIT between Australia and Egypt (2001)
states that ‘Investment means every kind of asset, owned or controlled by investors of one Party

26
INTERNATIONAL INVESTMENT LAW: UNDERSTANDING CONCEPTS AND TRACKING
INNOVATIONS 47 (2008).
27
Id.
28
Id. at 46.
29
Id.at 49.
30
Rudolf Dolzer & Christoph Schreuer, PRINCIPLES OF INTERNATIONAL INVESTMENT LAW (2013). See
Rachel Lavery, Coverage of Intellectual Property Rights in International Investment Agreements: An Empirical
Analysis of Definitions in a Sample of Bilateral Investment Treaties and Free Trade Agreements, 2
TRANSNATIONAL DISPUTE MANAGEMENT (2009).
31
U.S. Model Bilateral Investment Treaty, (2012)
https://ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf.
32
INTERNATIONAL INVESTMENT LAW: UNDERSTANDING CONCEPTS AND TRACKING INNOVATIONS,
supra note 26, at 50.
33
Mahnaz Malik, Recent Developments in the Definition of Investment in International Investment Agreements, 2nd
Annual Forum for Developing Country Investment Negotiators, held in Marrakech, Morocco, 2–4 November,
International Institute for Sustainable Development (2008) https://www.iisd.org/pdf/2008/dci_recent_dev.pdf.
34
WIPO, Intellectual Property as a Business Asset,
https://www.wipo.int/sme/en/ip_business/ip_asset/business_assets.htm.
35
Lavery, supra note 30.

4
and admitted by the other Party subject to its law and investment policies applicable from time to
time and includes:(iv) intellectual property rights, including rights with respect to copyright,
patents, trademarks, trade names, industrial designs, trade secrets, know-how and goodwill.’ Such
broad phraseology has enabled foreign investors to bring disputes against host states for the actions
or omissions, either directly or indirectly, adversely affecting their investment.36 Moreover, the
general reference to ‘intellectual property rights’ internalized that IP is a protected investment
under BITs.37
Some BITs, such as Canada-Argentina BIT (1991), refer to the ‘rights’ over IP. It states that
investment includes ‘intellectual property rights, including rights with respect to copyrights,
patents, trademarks as well as trade names, industrial designs, goodwill, trade secrets, and know-
how.’ The incorporation of ‘rights’ over different IP types in the BITs definition has enlarged and
expanded its enforcement, which could become problematic for developing countries as
governments would have less flexibility to regulate IP in the public interest.38 Therefore, this broad
and unqualified investment definition, covering enforcement to application beyond the TRIPS
agreement, may make poor and developing countries vulnerable to expropriation claims.39 The
problem with the broad assets-based definition of ‘investment’ in BITs is that it covers every kind
and phase of IP, from its enforcement to application that goes beyond the TRIPS agreement, which,
in effect, attenuates its flexibilities.40 For instance, the farmers’ and breeders’ rights have not been
contemplated under the TRIPS.41 However, some BITs protect these kinds of IP but, due to the
potential expropriation claims, could limit the ability of developing countries to implement policies
that support farmers and breeders.42
The broad and wide definition of ‘investment’ in BITs enables foreign investors to challenge
almost any measure that dilutes the economic value as expropriation.43 In addition, these broad
assets-based definitions open up endless possibilities for foreign investors to use the general
guarantees afforded to investors in the form of National Treatment (NT) and Most-Favored Nation
(MFN) to challenge states.44 In this context, it is desirable to find ways and devise approaches to
shield the states’ legitimate ‘regulatory power’ by narrowing the scope of IP in the definition of
investment.45

36
Gavin Pereira, India’s Obligations under Bilateral Investment Treaties (Part A): “Bilateral Inhibiting Treaty?” —
Investigating the Challenges that Bilateral Investment Treaties pose to the Compulsory Licensing of Pervasive
Technology Patent Pools, Centre for Internet & Society (Aug. 2013) http://cis-india.org/a2k/blogs/bilateral-inhibiting-
treaty-investigatingchallenges-that-bilateral-investment-treaties-pose-to-compulsory-licensing-of-pervasive-
technology-patent-pools.
37
Henning Grosse Ruse-Khan, Protecting intellectual property rights under BITs, FTAs and TRIPS: Conflicting
regimes or mutual coherence?, in EVOLUTION IN INVESTMENT TREATY LAW AND ARBITRATION, 485
(Chester Brown & Kate Miles eds., 2011).
38
Correa, supra note 20, at 8.
39
Correa, supra note 18.
40
Id.
41
The Agreement on Trade-Related Aspects of Intellectual Property Rights,
https://commerce.gov.in/writereaddata/trade/wtopdfs/TRIPS_matter_amended.pdf.
42
Correa, supra note 18, at 338.
43
Raju, supra note 19, at 224.
44
UNTCAD, supra note 25, at 4.
45
Id.

5
 One way to protect the state’s regulatory power over IP is to limit its protection to the national
laws of the contracting states, as done in the BIT between Benin and Ghana (2001). It provides
that ‘investments mean every kind of asset and in particular, though not exclusively, includes ‘(iv)
intellectual property rights, goodwill, technical processes and know-how and all similar rights
recognized by the national laws of both Contracting Parties…’ Another approach is to protect
specific IP types registered with national authorities, reducing the scope of protection conferred to
it as done in the BIT between Benin and Ghana (2001).46
However, a better proposition is to completely immunize IP definition from MFN, NT, or
indirect expropriation claims.47 The most suitable example is provided in the BIT between the
United States and Uruguay (2004), which articulates that ‘Articles 3 and 4 do not apply to any
measure covered by an exception to or derogation from, the obligations under Article 3 or 4 of the
TRIPS Agreement, as specifically provided in those Articles and in Article 5 of the TRIPS
Agreement.’ These approaches can effectively restrict the ability of foreign investors to sue states
for failing to protect their IP investment. However, they should be implemented at the time of
negotiation of BITs. Once BITs come into force, their amendment is an arduous process that
requires the consent of both states.48
Many BITs incorporate the phrase ‘intangible property’ in their definition of investment,49
which comprises both granted rights and pending applications.50 Some IPs, such as copyright and
trade secrets, do not require any formal process for their registration. They get protection as soon
as they come into existence.51 However, other IPs, such as patents, trademarks, and designs,
undergo a rigorous scrutiny process for registration and must be registered to be enforceable.
However, the inclusion of pending IP rights in the definition of investment implies that even if an
IP has not yet been registered, it can still be protected under a BIT.52 Thus, any action that prevents
a business from obtaining exclusivity over pending IP registration could be considered an
infringement of BITs.53 Similarly, if a patent is revoked or invalidated without conformity with
national law or done through a change to the law, it could also be challenged as expropriation
under a BIT.54 The Eli Lilly55 case is an example of that. Therefore, under BITs, unregistered

46
Id.
47
Simon Lester, Tobacco Etc. Carveout in the New Australia-Hong Kong Investment Agreement, INTERNATIONAL
ECONOMIC LAW AND POLICY BLOG (March 29, 2019)
https://worldtradelaw.typepad.com/ielpblog/2019/03/tobacco-in-the-new-australia-hong-kong-investment-
agreement.html.
48
See Article 39, Vienna Convention on the Law of Treaties.
49
The BIT between Mexico and Austria (1998) states that: (2) investment by an investor of a Contracting Party means
every kind of asset in the territory of one Contracting Party, owned or controlled, directly or indirectly, by an investor
of the other Contracting Party, including:(h) any other tangible or intangible, movable or immovable property, or any
related property rights, such as leases, mortgages, liens, pledges or usufructs. See Lavery, supra note 30.
50
Correa, supra note 18, at 340.
51
WIPO, Understanding Copyright and Related Rights,
http://www.wipo.int/edocs/pubdocs/en/intproperty/909/wipo_pub_909.pdf. See WIPO, How are Trade Secrets
Protected?, http://www.wipo.int/sme/en/ip_business/trade_secrets/protection.htm.
52
Correa, supra note 18, at 340.
53
Id.
54
Marie Louise Seelig, Can Patent Revocation or Invalidation Constitute a Form of Expropriation?, 2
TRANSNATIONAL DISPUTE MANAGEMENT (2009).
55
Eli Lilly and Company v Government of Canada, ICSID Case No. UNCT/14/2.

6
intangible properties have economic value, thus are investments unless the definition of investment
categorically excludes pending IP applications.
In essence, broad and unqualified IP definitions in BITs can give unfettered power to foreign
investors to restrict the host state’s ability to regulate IP.56 It is irrelevant whether the state
exercises that power to give effect to any legitimate public policy or whether such authorization is
permissible under TRIPS.57 Thus, the broad and unqualified IP definitions in BITs can negatively
impact the TRIPS flexibilities, which are critical for protecting public health.58

III. Subtle or Profound Erosion of TRIPS Flexibilities?

The primary objective of the IP is to promote and disseminate technological innovation for
socio-economic benefits59 while incentivizing people for their efforts.60 To achieve these goals,
the TRIPS agreement introduced global minimum standards for protecting and enforcing nearly
all forms of IP, including patents.61 During the TRIPS negotiations, developing countries raised
concerns that the agreement would significantly impact public health. Consequently, to address
these concerns, a compromise was reached in the form of various flexibility or exemptions from
the TRIPS agreement. These flexibilities reflect a conciliatory approach of the member states to
reconcile two conflicting positions, i.e., to maximizing IP protection (developed countries) and
protecting public interests, especially public health (developing countries).62 One such flexibility
vital for public health is a compulsory license, provided under Article 31 of the TRIPS
agreement.63
Nevertheless, Article 31 of TRIPS does not provide any specific grounds for issuing a
compulsory license. Instead, it merely recognizes the inherent rights of the member states to grant
a compulsory license without the consent of the right holder and lays down procedural
safeguards.64 In other words, Article 31 does not confer any right to the member states to grant
compulsory licenses. It only provides that states may authorize the issuance of a compulsory
license in specific situations.65 In light of this, it is important to analyze whether foreign investors

56
Id. at 335.
57
Lorenzo Cotula, Do investment treaties unduly constrain regulatory space?, QUESTIONS OF INTERNATIONAL
LAW (November 24, 2014) http://www.qil-qdi.org/investment-treaties-unduly-constrain-regulatory-space/.
58
Ranjan, supra note 12, at 73.
59
Sisule Musungu, The use of flexibilities in TRIPS by developing countries: can they promote access to medicines,
Commission on Intellectual Property Rights, Innovation and Public Health (CIPIH Studies, 2005)
https://www.who.int/intellectualproperty/studies/TRIPSFLEXI.pdf.
60
Karin Timmermans & Togi Hutadjulu, Report of an ASEAN Workshop on the TRIPs Agreement and its Impact on
Pharmaceuticals Jakarta, 2-4 May 2000, World Health Organization (2000)
http://apps.who.int/medicinedocs/pdf/h1459e/h1459e.pdf.
61
Peter K. Yu, The Objectives and Principles of the TRIPS Agreement, 46 HOUS. L. REV., 979 (2009)
https://houstonlawreview.org/article/4269-the-objectives-and-principles-of-the-trips-agreement.
62
Raju, supra note 19, at 214.
63
See Article 31: Other Use Without Authorization of the Right Holder.
64
Raju, supra note 19, at 214.
65
Raju, supra note 19, at 219.

7
can bring investment-related disputes under BITs against host states if flexibilities, especially
compulsory license, and parallel import, result in an economic loss to the investment.66

i. Compulsory License
The pharmaceutical industry relies heavily on patent protection,67 which gives companies the
exclusive rights to sell their products for a certain period as huge resources were invested in
research and development, and patents are seen to incentivize such investment.68 However, this
exclusivity to pharmaceutical products and processes has raised fears among developing countries
that it can lead to high medicine prices for medicines, making it difficult for people to access
essential medicines.69 For example, product-process protection prevents a generic manufacturer
from developing affordable medicines. In the absence of competition in the market, higher
medicine prices would make essential drugs unaffordable to millions of people worldwide.70
Therefore, in terms of accessibility and affordability, patented pharmaceutical products
significantly affect public health.71
The TRIPS agreement contains flexibilities for member states to derogate from its strict
implementation after fulfilling certain conditions.72 Later on, to allay the fears of the developing
countries over the TRIPS implications on public health, the WTO, in the Doha Declaration on
Public Health,73 reaffirmed various flexibilities institutionalized in the TRIPS agreement.74 The
Doha Declaration states that the TRIPS agreement can and should be interpreted in such a manner
that the member state’s right to protect public health and access to medicine can be maintained.75
To reflect on the public health concerns, one of the flexibilities provided in the TRIPS agreement
is ‘Compulsory Licensing.’76 However, this phrase has not been used in the TRIPS agreement but
is employed in the Doha Declaration.77
As noted earlier, compulsory licensing allows states to authorize third parties to use IP without
the permission of the rights holders.78 However, a compulsory license is only an exception to the
exclusive rights. The IP rights remain with the holder even in the event a compulsory license is
issued to the third party.79 It is widely accepted that certain measures may be tantamount to

66
Correa, supra note 20, 1.
67
Timmermans, supra note 60, 8.
68
Bruce Lehman, The Pharmaceutical Industry and the Patent System,
https://users.wfu.edu/mcfallta/DIR0/pharma_patents.pdf.
69
Carlos Correa, Integrating Public Health Concerns Into Patent Legislation In Developing Countries, WTO (2000)
http://apps.who.int/medicinedocs/pdf/h2963e/h2963e.pdf.
70
Aoki, supra note 23.
71
Correa, supra note 69.
72
Blasé, supra note 21,194.
73
See Declaration on the TRIPS agreement and public health, WTO (2001),
https://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_trips_e.htm.
74
Timmermans, supra note 60, 10.
75
Ranjan, supra note 12, at 78.
76
See Article 31: Other Use Without Authorization of the Right Holder.
77
See Declaration on the TRIPS agreement and public health, WTO (2001),
https://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_trips_e.htm.
78
Christopher Gibson, A Look at the Compulsory License in Investment Arbitration: The Case of Indirect
Expropriation, 25 AMERICAN UNIVERSITY INTERNATIONAL LAW REVIEW 364 (2010).
79
Correa, supra note 18, 347.

8
expropriation, even if the investment’s ownership remains with the investors.80 If investors believe
the remuneration paid does not mitigate the economic loss suffered, they can directly bring
disputes against the host state under a BIT.81 In this context, BITs may severely compromise
compulsory license flexibility guaranteed under the TRIPS agreement.82 Therefore, huge tension
exists between the right of states to protect public health and the right of investors to be protected
from expropriation.
In Middle East Cement Shipping v Egypt,83 a tribunal held that the import prohibition of cement
into Egyptian territory constitutes indirect expropriation. Interpreting the expression ‘the effect of
which is tantamount to expropriation’ in the concerned BIT, the tribunal held that any deprivation
of the use and benefit of an investment would amount to creeping or indirect expropriation,
irrespective of nominal ownership over investment. Similarly, in the Starrett Housing Corporation
v Islamic Republic of Iran,84 a tribunal held that if a state’s interference with property rights
rendered them useless, then such interference is deemed to have expropriated the property, even if
title to the property formally remains with the owner. Therefore, full or total deprivation of the
use, enjoyment or sale of the properties may qualify as indirect expropriation. However, it gets
complicated when the deprivation or interference is less than total.85 In such a scenario, it is unclear
whether partial deprivation of property for a temporary period is tantamount to expropriation. The
approach adopted by some tribunals suggests that even lesser destruction of property can also
constitute deprivation and, hence, expropriation.
In Metalclad v Mexico,86 a tribunal found that the Mexican government’s refusal to grant a
permit for a hazardous waste landfill constituted expropriation under the NAFTA provisions. The
tribunal held that expropriation not only includes the taking of property, such as outright seizure
or formal or obligatory transfer of title in favor of the host state, but also comprises any covert or
incidental interference with the use of property that deprives the owner in whole or in significant
part, of the use or reasonably-to-be-expected economic benefit of property. Therefore, the grant of
a compulsory license to the third party by the host state can instigate an investor to bring a
compensation claim.87 Accordingly, the issuance of a compulsory license can amount to indirect
expropriation if it erodes the economic benefits of the investment,88 even though the ownership or
exclusive rights remain with the investor.
In contrast, some tribunals held that expropriation could occur only in the event of substantial
deprivation of investors’ rights.89 For example, in LG&E Energy Corp v Argentine Republic,90 the
tribunal held that the deprivation must be substantial to qualify for compensation, even if the
expropriation reduces profit. Similarly, in Telenor Mobile Communications A.S. v The Republic of

80
Ranjan, supra note 12, at 102.
81
Id. at 85.
82
Id.
83
Middle East Cement Shipping v. Egypt ICSID Case No. ARB/99/6.
84
Starrett Housing Corporation v. Islamic Republic of Islam (1983) 4 Iran–US Claims Trib Rep 122, 154.
85
Santiago Montt, STATE LIABILITY IN INVESTMENT TREATY ARBITRATION: GLOBAL
CONSTITUTIONAL AND ADMINISTRATIVE LAW IN THE BIT GENERATION (2012).
86
Metalclad v. Mexico ICSID Case No. ARB(AF)/97/1.
87
Correa, supra note 18, 348.
88
Correa, supra note 18, 348.
89
Dolzer, supra note 30, 104.
90
LG & E Energy Corp v. Argentine Republic ICSID Case No.ARB/02/1.

9
Hungary,91 the tribunal held that ‘the interference with the investor’s rights must be such as
substantially deprive the investor of the economic value, use, or enjoyment of its investment.’ In
such a situation, what constitutes substantial deprivation? Some tribunals have adopted a legal
approach, focusing on the rights that have been interfered with.92 Others have adopted an economic
approach, focusing on the economic impact of the interference.93
Although the tribunals may use a legal or economic approach to examine deprivation, it is not
clear what would be the threshold for substantial deprivation. Is it 50%, 70 %, or more? How do
draw lines between mere interference and substantial deprivation?94 Therefore, it is inconclusive
as to what shrinking constitutes substantial deprivation.95 However, the combination of legal and
economic approaches was applied in the Plama Consortium Limited v Republic of Bulgaria case.96
The tribunal held that the decisive elements in the evaluation of expropriation conduct should be
the assessment of (i) substantially complete deprivation of the economic use and enjoyment of the
rights to the investment or of identifiable, distinct parts thereof, i.e. approaching total impairment;
(ii) the irreversibility and permanence of the contested measures, i.e. not ephemeral or temporary);
and (iii) the extent of the loss of economic value experienced by the investor.
From the above discussion, tribunals can analyze whether issuing a compulsory license has
lasting effects and substantially deprives investment when determining expropriation. However,
merely having an adverse economic impact on the investment cannot be qualified as
expropriation.97 In the case of Sporrong and Lönnroth v Sweden,98 the European Court of Human
Rights (ECtHR) held that restricting the party from selling the property and undertaking renovation
did not amount to expropriation. The ECtHR pointed out that although the right has lost some of
its substance, the applicant continues to use and possess the property. Therefore, the effects of the
measures did not deprive the applicant of the possession.
Evidently, the above approaches adopted by tribunals suggest that mere economic loss due to
the issuance of a compulsory license may not amount to expropriation because it only targets the
‘use’ of the IP and does not deprive foreign investors of their ownership.99 However, if the
compulsory license severely impacts on the investor’s ability to enjoy or use the IP-based
investment, it may qualify as expropriation.100 The cumulative effect term, scope, duration, and
remuneration of the compulsory license determines whether an expropriation has taken place.101
There is no straight-jacket formula to determine whether the issuance of a compulsory license is

91
Telenor Mobile Communications A.S. v. The Republic of Hungary ICSlD Case No.ARB/04/15.
92
See Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania ICSID Case No. ARB/05/22; Pope & Talbot Inc.
v The Government of Canada (2000); CMS Gas Transmission Co. v Republic of Argentina ICSID Case No.
ARB/01/8.
93
Telenor Mobile Communications AS v. Republic of Hungary ICSID Case No. ARB/04/15; Técnicas
Medioambientales Tecmed, S.A. v The United Mexican States ICSID Case No. ARB (AF)/00/2.
94
Montt, supra note 85, 261-264.
95
Montt, supra note 85, 261-264.
96
Plama Consortium Limited v. Republic of Bulgaria ICSID Case No. ARB/03/24.
97
Correa, supra note 20, 348.
98
Sporrong and Lönnroth v. Sweden IHRL 36 (ECHR 1982).
99
Gibson, supra note 78, 365.
100
Gibson, supra note 78, 384.
101
Gibson, supra note 78, 384.

10
an expropriation. It must be decided on a case-to-case basis,102 taking into account the specific
facts of the case.103
On the other hand, one may argue that the issuance of a compulsory license, if done in
accordance with the TRIPS framework, is an exercise of sovereign regulatory powers.104 It cannot
be challenged as a discriminatory measure, even if it substantially or significantly deprives the
economic value of the investment. However, this approach is problematic. In the absence of any
explicit exception to a compulsory license, it would be difficult to convince an arbitral tribunal to
give effect to public interests or argue that states are exercising their sovereign power. The treaty
language must support the ‘sovereign authority’ argument. Otherwise, it will fall short of
normative value before a tribunal. Even if compatible with TRIPS obligations, the issuance of a
compulsory license may still be tantamount to expropriation, as BITs and the World Trade
Organization (WTO) are two different, distinct, and independent frameworks within international
law. Additionally, under the guise of receiving FDI, states have ceded their sovereignty by
undertaking BIT obligations. Therefore, states cannot claim unfettered regulatory power over
foreign investors under the BIT framework.105
Nonetheless, the obligation on the host state to pay adequate remuneration in Article 31 of
TRIPS, foreign investors may find it difficult to prove that the issuance of a compulsory license
can amount to ‘creeping’ or ‘indirect’ expropriation unless it substantially reduces the economic
value of their investment. Thus, the TRIPS remuneration mechanism in relation to compulsory
licenses largely excludes the possibility of substantial deprivation.106 Nonetheless, the possibility
of it being challenged in the investor-state arbitration always looms large. In any case, whether a
compulsory license is an indirect expropriation or not can only be determined on a case-to-case
basis.107 If a tribunal finds that the issuance of a compulsory license substantially deprives the
investors of economic value or profit from the investment, in such a situation, the tribunal may
favor foreign investors, and the host state may end up paying significant compensation.108
Most of India’s BIT contains the phrase ‘measures having effect equivalent to expropriation.’
For example, clause 5(1) of the BIT between India and Germany (1995) states that
‘Investments of investors of either Contracting Party shall not be expropriated,
nationalised or subjected to measures having effect equivalent to nationalisation or
expropriation in the territory of the other Contracting Party except in public interest,
authorised by the laws of that Party, on a non-discriminatory basis and against
compensation which shall be equivalent to the value of the expropriated or nationalized
investment immediately before the date on which such expropriation or nationalization
became publicly known. Such compensation shall be effectively realizable without undue

102
Correa, supra note 20, 11.
103
Gibson, supra note 78, 392.
104
Correa, supra note 18, 349.
105
Carlos Correa, Intellectual Property Rights as an Investment: Options for Developing Countries, 2
TRANSNATIONAL DISPUTE MANAGEMENT (2009).
106
Ruse-Khan, supra note 37, 10.
107
Rosa Castro Bernieri, Compulsory Licensing and Public Health: TRIPS-Plus Standards in Investment Agreements,
2 TRANSNATIONAL DISPUTE MANAGEMENT (2009).
108
Julian Davis Mortenson, Intellectual Property as Transnational Investment: Some Preliminary Observations, 2
TRANSNATIONAL DISPUTE MANAGEMENT (2009).

11
 delay and shall be freely convertible and transferable. Interest shall be paid in a fair and
equitable manner for the period between the date of expropriation or nationalization and
the date of actual payment of compensation.’
India’s BIT with Germany has used the phrase ‘the effects of the measure’ as a basis for
expropriation, not the intention. Therefore, the above clause in the BIT between India and
Germany suggest legitimate objectives behind issuing a compulsory license. However, the arbitral
tribunals, irrespective of the intent behind the measure, may favor foreign investors if the economic
loss is substantial. This is corroborated by the opinion in the Siemens v. Argentina case,109 in which
the tribunal held that the BIT refers to measures that have the effect of expropriation, not the intent
of the state to expropriate. Although it is up to the foreign investors to resort to the extreme action
of challenging the compulsory license issuance as expropriation, the broad phrase in the BIT
between India and Germany has opened such possibilities.
In the context of compulsory license, the increasing significance of the IP, combined with
the unqualified definition and in the absence of a general or specific exception, opens possibilities
for expropriation.110 If such a situation occurs, on merits, the tribunal may decide a case in favor
of foreign investors, which can cause a long-term chilling effect on public health. Therefore, the
threat of ‘expropriation’ looms over the issuance of a compulsory license.111 In light of this, states
should review their existing BITs to protect themselves from expropriation claims by foreign
investors.
By providing express and specific exceptions to the compulsory license issuance, the India-
Singapore Comprehensive Economic Cooperation Agreement, to some extent, resolves this
perplexing issue. It states that ‘This Article does not apply to the issuance of compulsory licenses
granted in relation to intellectual property rights, or to the revocation, limitation or creation of
intellectual property rights to the extent that such issuance, revocation, limitation or creation is
consistent with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights.’
Significantly, this exception to the issuance of compulsory licenses in BIT diminishes the
possibility of expropriation claims. Beyond compulsory licenses, it also covers creation and
revocation measures compatible with the TRIPS agreement.112 This exception is an excellent
example of maintaining a regulatory space to issue or exercise flexibility stipulated in the TRIPS
agreement without worrying that states’ actions may amount to expropriation.113 Having said that,
such an exception only applies if it is explicitly included in all state’s BITs. Otherwise, a foreign
investor could invoke a broadly worded MFN clause to borrow a more beneficial provision from
another BIT that does not provide an adequate exception to a compulsory license or other
flexibilities.114 In effect, the MFN clause can neutralize the exception to expropriation in the first

109
Siemens v. Argentina ICSID CASE No.ARB/02/8.
110
Gibson, supra note 78, 360.
111
Bayer Corporation v. Union of India Special Leave to Appeal (C) NO(S). 30145/2014: The Supreme Court of India
upholds the grant of compulsory license to NATCO for the anti-cancer drug – sorafenibtosylate which neither fulfills
reasonable requirement nor sufficiently work in India.
112
Ranjan, supra note 12, at 97.
113
Ranjan, supra note 12, at 97.
114
Foreign investors are often using the MFN clause to borrow beneficial provisions from other BITs. See White
Industries Australia Limited v. The Republic of India (2010)

12
BIT.115 Therefore, states should ensure that an explicit exception should be present in all BITs.
Otherwise, they are susceptible to investment-related claims for breaching BIT as their mandate
goes beyond the IP standard outlined in the WTO. The above-discussed vulnerability of possible
breach of the BIT standard in the case of issuance of a compulsory license has brought the
competing legal regimes of international investment law and intellectual property law into stark
focus.116

ii. Parallel Import

Parallel import is a principle based on the ‘doctrine of exhaustion,’ which states that once the
authorized sale of the IP occurs, the owner or holder loses their exclusive rights.117 It implies that
when an authorized sale occurs, the IP holder cannot control its exploitation, use, resale, and re-
distribution.118 In other words, as soon as the rights holder licenses IP in the market, the right
holder can no longer control its exploitation, use, resale, and re-distribution due to exhaustion of
rights over it.119 However, it must be lawfully acquired and permitted for sale. Otherwise, it will
be considered an IP infringement.120
The natural corollary of exhaustion of IP rights is parallel import,121 which allows the import
of IP products from one market to another without the authorization of the rights holder.122 In other
words, parallel import refers to a form of trade where authorized IP products are produced, sold,
and exported123 subject to the laws preventing parallel import.124 For instance, India follows
international exhaustion, which means that if an authorized sale takes place in any part of the
world, rights over that product are exhausted, and it can be legally imported without
authorization.125 However, other countries, such as the United States and China, do not recognize
international exhaustion.126 The European Union recognizes regional exhaustion in virtually all
products but not international exhaustion.127
Article 6 of the TRIPS agreement recognizes that states are free to authorize parallel imports.
It states that ‘for the purposes of dispute settlement under this Agreement, subject to the provisions
of Articles 3 and 4, nothing in this Agreement shall be used to address the issue of the exhaustion
of intellectual property rights.’ Apart from that, the TRIPS agreement gives deference to the

115
Correa, supra note 20, 11.
116
Gibson, supra note 78.
117
Shamnad Basheer & Mrinalini Kochupillai, ‘Exhausting’ Patent Rights in India: Parallel Imports and TRIPS
Compliance, 13 JOURNAL OF INTELLECTUAL PROPERTY RIGHTS (2008).
118
Id.at 486.
119
Correa, supra note 20, 13.
120
Correa, supra note 20, 13.
121
Basheer, supra note 117, at 487.
122
Keith E. Maskus, Parallel Imports in Pharmaceuticals: Implications for Competition and Prices in Developing
Countries, World Intellectual Property Organization (2001) https://www.wipo.int/export/sites/www/about-
ip/en/studies/pdf/ssa_maskus_pi.pdf.
123
Christopher Heath, Parallel Imports and International Trade, International Association for the Advancement of
Teaching and Research in Intellectual Property (ATRIP) Annual Meeting, World Intellectual Property Organization
(1999) https://www.wipo.int/meetings/en/details.jsp?meeting_id=3794.
124
Maskus, supra note 122, at 2.
125
Basheer, supra note 117, at 488.
126
Basheer, supra note 117, at 488.
127
Maskus, supra note 122, at 2.

13
member states to establish the exhaustion of rights.128 It means that the states can choose to allow
or forbid parallel imports.129 To protect and safeguard research-intensive industries such as
pharmaceuticals, developed countries advocate for strong IP protection and do not generally
support international exhaustion or parallel imports. In contrast, developing countries, importers
of IP, generally support international exhaustion and parallel importation because they help lower
consumer prices and increase market competition.130
The above incompatible perspectives on parallel import have created disharmony in the global
trading order. Therefore, foreign investors may challenge parallel imports on the grounds of loss
of revenue and market share due to exhaustion of rights. In such a case, whether erosion in the
economic value of IP due to parallel import can be challenged as expropriation.131 To a great
extent, this depends on what constitutes an investment. As discussed in reference to a compulsory
license, if parallel import substantially diminishes foreign investors’ investment’s economic value
or profits, the possibility of an expropriation claim cannot be ruled out. In such circumstances,
whether the parallel import complies with the TRIPS Agreement is irrelevant.
To shield from expropriation claims arising from parallel imports, the states should carve out
parallel import provisions from BITs on the lines of Japan-Vietnam BIT. Concerning IP protection,
the Japan-Vietnam BIT explicitly states that its provisions should not be construed to derogate
from the rights and obligations under multilateral agreements.132 Alternatively, providing
regulatory space for preventing parallel importation as contained in the US FTAs with Australia,
Morocco, and Singapore could be explored. Otherwise, any substantial loss in the value of IP
attributable to parallel import could be construed as expropriation.133
During TRIPS negotiations, developing countries protested against the rigid procedural
formalities and obligations in the implementation of TRIPS flexibilities.134 For example, they
made reservations about the fulfillment of stringent procedural safeguards for the issuance of a
compulsory license, which can unduly restrict their ability to give effect to public health goals.135
However, taking into account the sheer number of BITs signed and ratified,136 the developing
countries that supported the broad TRIPS agreement willingly conceded sovereign regulatory
128
Part B of the TRIPS Article 6 states that Interpretation and Application of Article 6With respect to the exhaustion
of intellectual property rights, paragraph 5(d) of the Declaration on the TRIPS Agreement and Public Health, adopted
on 14 November 2001, reads as follows “The effect of the provisions in the TRIPS Agreement that are relevant to the
exhaustion of intellectual property rights is to leave each Member free to establish its own regime for such exhaustion
without challenge, subject to the MFN and national treatment provisions of Article 3 and 4”.
129
Lahra Liberti, Intellectual Property Rights in International Investment Agreements: An Overview, OECD Working
Papers on International Investment 11 (2010).
130
Christopher J. Clugston, International Exhaustion, Parallel Imports, and the Conflict between the Patent and
Copyright Laws of the United States, 4 BEIJING LAW REVIEW (2013).
131
Correa, supra note 20, 13.
132
Liberti, supra note 129, at 8.
133
Liberti, supra note 129, at 10.
134
Thomas Cottier, Working together towards TRIPS, in THE MAKING OF THE TRIPS AGREEMENT:
PERSONAL INSIGHTS FROM THE URUGUAY ROUND NEGOTIATIONS (Jayashree Watal & Antony Taubman
eds., 2015).
135
Sara M. Ford, Compulsory Licensing Provisions Under the TRIPs Agreement: Balancing Pills and Patents, 15
AMERICAN UNIVERSITY INTERNATIONAL LAW REVIEW (2000).
136
Jeswald W. Salacuse, BIT by BIT: The Growth of Bilateral Investment Treaties and Their Impact on Foreign
Investment in Developing Countries, in GLOBALIZATION AND INTERNATIONAL INVESTMENT (Fiona
Beveridge ed., 2005).

14
powers to the BITs.137 This concession of regulatory power to BITs endangered public health
objectives. Thus, BIT commitments have diluted flexibilities under the TRIPS, and it would be
difficult to implement TRIPS flexibilities without facing legal challenges from foreign
investors.138
Nonetheless, the recent arbitration experience with BITs has prompted countries such as
Bolivia, Brazil, Ecuador, India, South Africa, Pakistan, Venezuela, and Indonesia to review,
terminate, or allow them to lapse without renewal.139 Parallelly, other OECD countries initiated
re-drafting model BITs in a manner that included more safeguards for their regulatory autonomy.
This suggests that countries are beginning to understand potential negative impact of BITs on the
economy and other public policies.140 Overall, the recent experience with unqualified BITs has
shown that countries need to be careful about signing and ratifying BITs because the threat of
arbitration is not artificial but real.141

IV. Philips Morris and Eli Lilly Cases: Is Regulatory Chill Dwindling?
IP is a driving engine of the modern economy that enables a knowledge-sharing system.142 To
‘enforce IP efficiently’ and to mitigate ‘differential treatment’, foreign investors often protect their
IP investment through BIT, which provides a legal framework that is independent of the national
system of the host state.143 However, the presence of IP as an investment in BITs has generated a
‘regulatory chill’ for public health because they can erode the flexibilities built into the TRIPS
agreement.
As discussed earlier, BIT frameworks can prevent countries from taking necessary steps to
protect public health. For instance, the legal battle over graphic warnings on cigarette packets in
Philip Morris v Uruguay144 raised concerns for public health. In this case, Philip Morris invoked
the BIT between Uruguay and Switzerland to challenge the ‘Framework Convention on Tobacco
Control (FCTC)145 complied plain packaging measure on the ground that such requirements
diminish its trademark, thus in breach of the BIT obligation. The tribunal ruled in favor of Uruguay
and stated that ‘the trademark holder does not enjoy an absolute right of use, free of regulation,
but only an exclusive right to exclude third parties from the market so that only the trademark
holder can use the trademark in commerce, subject to the state’s regulatory power.’146 On the
positive side, by giving policy deference, the arbitral tribunal has recognized the host states’

137
Raju, supra note 19, at 214.
138
Ford, supra note 135.
139
Philip Nel, The Rise and Fall of BITs, https://www.otago.ac.nz/politics/otago061036.pdf.
140
Prabhash Ranjan, India and Bilateral Investment Treaties: A Changing Landscape, 29 ICSID REVIEW: FOREIGN
INVESTMENT LAW JOURNAL (2014).
141
Id.
142
Tobias Boyd, Innovation and economic growth: the bottom line, 6 WIPO MAGAZINE (2015),
https://www.wipo.int/wipo_magazine/en/2015/06/article_0004.html.
143
James M. Hosking & Markus Perkams, The Protection of Intellectual Property Rights Through International
Investment Agreements: Only a Romance or True Love?2 TRANSNATIONAL DISPUTE MANAGEMENT 17
(2009).
144
Philip Morris v. Oriental Republic of Uruguay ICSID Case No.ARB/10/7.
145
World Health Organisation Framework Convention on Tobacco Control (adopted 21 May 2003 and entered into
force 27 February 2005)
146
Philip Morris, supra note 145, at 76.

15
regulatory authority in relation to public health.147 However, Philip Morris’s strategy was to delay,
preempt, and weaken anti-smoking regulations,148 the only binding multilateral convention on an
aspect of public health.149
In the case of Eli Lilly and Company v The Government of Canada,150 Eli Lilly – a
pharmaceutical company, filed a claim against Canada under NAFTA, claiming compensation for
the invalidation of patents by the Canadian court, showing that BITs can be used to challenge
multilateral agreements. In this case, Eli Lilly argued that the invalidation of patents amounted to
an expropriation of its investment by Canada in violation of NAFTA guarantees.151 Owing to the
lack of adequate evidence, although Eli Lilly lost the case, it has opened the possibility of foreign
investors challenging IP under BITs, even if those are consistent with TRIPS, NAFTA, or other
multilateral treaties or agreements.152
The impact of the Eli Lilly case would be that the BITs could be used to significantly impact
the ability of developing countries to use TRIPS flexibilities.153 The chilling effect generated by
the case could be extended beyond the use of well-established TRIPS flexibilities to undermine
legitimate regulatory law or policy that promotes access to medicines or public health.154 In other
words, the Eli Lilly case demonstrates that foreign investors can use BITs to claim compensation
for regulatory changes, including its court’s interpretation that affects the economic value of IP.155
Although the Eli Lilly case was brought under NAFTA rather than a BIT, it has made states,
especially developing countries, vulnerable to the potential claims of expropriation if they use,
exploit, or implement TRIPS flexibilities or regulate IP law or policy in a manner that diminishes
the value of IP investment. The foreign investors only have to produce cogent and credible
evidence before the arbitral tribunal to win the case.
The Philip Morris and Eli Lilly cases have raised concerns in developing countries about the
far-reaching impact of BITs on public policies. However, states should avoid the knee-jerk reaction
against BITs, which would be detrimental to their reputation as favorable investment destinations.
Though it might be debatable whether BITs bring FDI,156 they give confidence to foreign investors

147
Caroline E. Foster, Respecting regulatory measures: Arbitral method and reasoning in the Philip Morris v Uruguay
tobacco plain packaging case, 26 RECIEL (2017).
148
Sergio Puig, The Internationalization of Tobacco Tactics, 28 DUKE JOURNAL OF COMPARATIVE &
INTERNATIONAL LAW (2018).
149
Cecilia Olivet and Alberto Villareal, Who really won the legal battle between Philip Morris and Uruguay?, The
Guardian (July 28, 2016) https://www.theguardian.com/global-development/2016/jul/28/who-really-won-legal-
battle-philip-morris-uruguay-cigarette-adverts.
150
Eli Lilly, supra note 55.
151
Veronica Clamens, Eli Lilly and Company v. The Government of Canada, Case No. UNCT/14/2, Symposium on
State-Owned Enterprises in China, 16 WORLD TRADE REVIEW (2017).
152
Cynthia M. Ho, TRIPS Flexibilities Under Threat From Investment Disputes: A Closer Look At Canada’s “Win”
Against Eli Lilly, IP Watch (April 27, 2017) https://www.ip-watch.org/2017/04/27/trips-flexibilities-threat-
investment-disputes-closer-look-canadas-win-eli-lilly/.
153
Cynthia M. Ho, Investor-State Arbitration: A New Threat to Global Access to Affordable Medicine, (2018)
https://ssrn.com/abstract=3143243.
154
Id.
155
Daniel J. Gervais & Jared Doster, Investment Treaties and Intellectual Property: Eli Lilly v. Canada and Phillip
Morris v Uruguay, Vanderbilt Law Research Paper No. 18-38 (2018)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3188745.
156
See Niti Bhasin & Rinku Manocha, Do Bilateral Investment Treaties Promote FDI Inflows? Evidence from India,
41 VIKALPA: THE JOURNAL FOR DECISION MAKERS (2016); Rashmi Banga, Impact of government policies

16
that the host state is committed to protecting their investments and is a favorable place to conduct
business. A better approach to restrict foreign investors from challenging the IP regulatory measure
is to carve out critical policy areas from the purview of BITs157 or introduce TRIPS or other treaty-
based specific exceptions as found in the BIT between the US and Uruguay (2004).158 Such
exceptions not only safeguard public health-related flexibilities but also emphasize that IP is
protected and governed by TRIPS standards, not by BITs.159 However, if the state’s measure is not
consistent with TRIPS, foreign investors may still challenge it on the grounds of non-compliance.
One of the dangers of the BITs is that they can create a two-parallel system for protecting IP.160
The emergence of BITs has added a layer of protection to IP. However, this additional protection
comes at a cost, as it can make it more difficult for states to implement public policies that may
affect the value of IP investments.161 As a result, foreign investors can challenge IP measures under
the WTO dispute settlement system and investor arbitration in BIT. This raises the possibility that
investor-state arbitration tribunals could act as supranational courts of appeal162 that can review IP
measures for TRIPS compatibility, which exclusively comes within the domain of the WTO
dispute settlement system.163 It is still ambiguous which system will prevail, but it would be
challenging to harmonize such conflicting positions.
In terms of remedies available for expropriation, the WTO dispute settlement system requires
an erring state to bring its measure, regulation, or policy in compliance with the WTO standards.164
In contrast, BITs seek compensation for erosion in investment value or profit.165 The fallout of
these two systems is that the states may face a double whammy. If it violates its TRIPS obligation,
the member states can initiate dispute resolution proceedings at the WTO’s dispute settlement
body. If the same breach also results in substantial economic loss to a foreign investor, it can
launch investor-state arbitration for higher compensation. Since BIT falls outside of the WTO
rules, it does not require expropriation claims to be settled by its dispute settlement mechanism.166
Thus, foreign investors have multiple channels to pursue their claims and seek remedies against
host states. For instance, if a state issues a compulsory license that substantially reduces

and investment agreements on FDI inflows, WORKING PAPER NO. 116, Indian Council For Research On
International Economic Relations (2003) http://www.icrier.org/pdf/WP116.PDF.
157
Puig, supra note 148.
158
Article 6(5) states that: This Article does not apply to the issuance of compulsory licenses 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 issuance, revocation, limitation, or creation is consistent with the
TRIPS Agreement.
159
Ruse-Khan, supra note 37, 25.
160
One is BITs and other is TRIPS agreement.
161
Raju, supra note 19, at 215.
162
Asaf Niemoj, Investment Arbitrations: Do Tribunals Take the Role of a Supra-National Appellate Court above
National Courts? Kluwer Arbitration Blog (July 27, 2018)
http://arbitrationblog.kluwerarbitration.com/2018/07/27/investment-arbitrations-tribunals-take-role-supra-national-
appellate-court-national-courts/; See Michael D. Goldhaber, The Rise of Arbitral Power Over Domestic Courts, 1
STANFORD JOURNAL OF COMPLEX LITIGATION (2013) https://law.stanford.edu/wp-
content/uploads/2018/05/goldhaber.pdf.
163
Ruse-Khan, supra note 37, 25.
164
Article 19.1 of the DSU provides in relevant part that: Where a panel or the Appellate Body concludes that a
measure is inconsistent with a covered agreement, it shall recommend that the Member concerned bring the measure
into conformity with that agreement.
165
Gibson, supra note 78, 417.
166
Liberti, supra note 129.

17
investment, the foreign investor could concurrently initiate investor-state arbitration under the BIT
and petition its own government to file a trade violation complaint against the host country in the
WTO dispute settlement system.167
Having said that, foreign investors may prefer investor-state arbitration in BIT against the
WTO dispute settlement primarily for two reasons: Firstly, the WTO system is designed to
promote compliance with its rules instead of awarding compensation.168 Therefore, in the WTO
system, the possibility of getting monetary compensation is less in comparison to investor-state
arbitration, which a foreign investor may not prefer. Secondly, states may be hesitant to initiate a
trade violation complaint against host states in the WTO, especially if they are important allies or
trading partners. Such actions can damage diplomatic and political relations. In such a situation,
investors cannot solely rely on the home states to file a case against the erring host state in the
WTO.169 Instead, they may prefer to initiate investor-state arbitration proceedings directly in BIT.
Additionally, one of the key differences between the WTO dispute settlement system and investor-
state arbitration is that foreign investors have more control over the claims in investor-state
arbitration. 170 As in the WTO system, individual investors cannot bring claims directly, foreign
investors do not have control over claims, and may not receive compensation if the WTO awards
a favorable ruling to their home state.171
To safeguard TRIPS flexibilities, states should carefully undertake the cost and benefit analysis
of BITs before ratifying them to ensure protection from expropriation claims.172 However, it
should be done cautiously, as the primary objective of BITs is to promote and protect foreign
investment. Accordingly, host states should not be rigid, excessively favoring their interest over
foreign investors’ profit-seeking goals, as such a scheme could discourage foreign investment.173
Therefore, the challenge lies in constructing a BIT framework that is not too broad, restricting
states from taking measures to affect public health and, at the same time does not give foreign
investors too much leeway to bring expropriation claims against them.174

V. Conclusion
The present forms of BITs used by most states not only restrict their public policy space but
also endanger carefully negotiated TRIPS and other multilateral flexibilities vital for public health.
The broad and unqualified definition of IP as an investment in BITs gives foreign investors a
platform to challenge the use of TRIPS flexibilities. Any dilution in IP investment that significantly
deprives the foreign investors of its economic value or profits, irrespective of whether it is non-
discriminatory or applied to achieve public health objectives, would be considered as
expropriation.

167
Gibson, supra note 78, 402.
168
Cynthia, supra note 153, at 22.
169
Gibson, supra note 78, 407.
170
Gibson, supra note 78, 408.
171
Hosking, supra note 143.
172
Alan M. Anderson & Bobak Razavi, International Standards for Protection of Intellectual Property Rights Post-
TRIPS: The Search for Consistency, 2 TRANSNATIONAL DISPUTE MANAGEMENT (2009).
173
Peter B. Rutledge, TRIPS and BITs: An Essay on Compulsory Licenses, Expropriation, and International
Arbitration, 13 N.C. J. L. & TECH. ONLINE 149 (2012).
174
Id. at 152.

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 Often, BITs contain provisions that expand the scope and obligations of IP. Therefore, even a
legitimate exercise of TRIPS flexibilities adversely affecting an investment can be construed as
expropriation and challenged in investor-state arbitration. The states cannot take the defense of the
exercise of sovereign power to avoid paying compensation. To escape, they should limit the broad
and unqualified investment definition as they give foreign investors ample scope to bring an action
against states, even when the measures applied by them are TRIPS compliant or intended to give
effect to public health.
To avoid unintended consequences impacting TRIPS flexibilities, states should carefully
negotiate and draft BIT obligations by incorporating specific and explicit exceptions. Moreover,
states should carve out separate exception clauses similar to the WTO system to maintain policy
space. For instance, states could consider the Canada - US Model BIT approach, which provided
that non-discriminatory measures taken to protect public welfare should not be considered as
indirect expropriation. This approach helps maintain states’ regulatory authority to pursue public
policy objectives.
States have a fundamental duty to maintain the well-being of their people, and protecting public
health is an intrinsic part of their sovereignty.175 Therefore, in the cases of indirect expropriation,
tribunals should carefully assess the nature of the interference, its negative impact on public health
or public policy, and the limitations prescribed within TRIPS or other multilateral treaty
obligations before annulling measures taken by states to ensure that both frameworks BIT and
TRIPS remain the instruments of welfare.

175
Valentina Sara Vadi, Mapping Uncharted Waters: Intellectual Property Disputes With Public Health Elements in
Investor-State Arbitration, 2 TRANSNATIONAL DISPUTE MANAGEMENT (2009).

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