You are here: Home / Access to Knowledge / Blogs / 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

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

Posted by Gavin Pereira at Aug 31, 2013 12:00 PM |
In this blog post, the first of a series of three, Gavin Pereira attempts to address the challenges that India's obligations under Bilateral Investment Treaties may pose to the establishment of a patent pool in the country. The author thanks Puneeth Nagaraj for his guidance and inputs on this paper.

"And finally, many states, unfortunately, see investment treaties as a diplomatic photo opportunity without being fully aware of the actual legal implications."
Nathalie Bernasconi-Osterwalder[1]

Introduction
Continuing from the Indian government’s Economic Reform Program, which had started in 1991,[2] are India’s Bilateral Investment Promotion and Protection Agreements. Generally referred to as Bilateral Investment Treaties or "BITs," these agreements seek to provide for conditions that are “favourable for greater investment by investors of one State in the territory of the other State”[3] in hopes that this would lead to "stimulation of business initiatives and increase in prosperity."[4]

Since 1996, India has signed a total of 82 BITs, of which 72 have come into force.[5] At the time of signing them, BITs were generally hailed as a means to increase foreign investor confidence during the liberalisation of India’s economy.[6]

Recently however, several notices of disputes were filed or threatened to be filed under these treaties by companies such as Vodafone B.V.[7], Telenor[8] and Sistema.[9] These filings lead to the review of all the BITs signed by India, a procedure that was called upon by the Indian government’s Department for Industrial Policy and Promotion,[10] as well as the composition of an amended model BIT by the Ministry of Finance to increase the threshold requirements for an investor to initiate arbitration.[11]

Such discord between thestate and investors protected under BITs is not unique to India. There has been a steady rise in the number of investment disputes brought to international arbitration with the highest number of known treaty-based disputes filed in 2012. This has been revealed through a review of the claims filed in the International Center for Settlement of Investment Disputes (ICSID) and an inspection of United Nations Conference on Trade and Development (UNCTAD).[12] In the history of investor-state dispute resolution, the highest reward to the tune of $1.77 billion in Occidental v Ecuador[13] was awarded last year.

In order to better contextualize this background of increasingly assertive investor claims, my essay will first attempt to ascertain the meaning of intellectual property (IP) rights as defined as investments within BITs and explore their effect on the compulsory licensing of information and communication technology patent pools. I will then discuss the relation between covenants that India is a signatory to, Indian copyright law and BITs with an aim to propose measures by which BITs should be suitably amended to allow for India’s burgeoning growth in the budget smartphone market.

BIT Claims Against India
There are a total of 12 known and 17 estimated[14] treaty claims against India, the 11th highest number of claims in the world.[15] Given the strict confidentiality thatcovers these proceedings, this is merely the tip of the iceberg, as there may be several other claims against India that are not available in the public domain.[16]

The tribunal in White Industries v Republic of India [17] — the first investment treaty award against India — held India liable for breaching its obligation to provide “effective means of asserting claims and enforcing rights” pursuant to 4(2) of the India-Australia BIT, read with 4(5) of the India-Kuwait BIT. India was ordered to compensate White Industries a total amount of approximately four million Australian dollars plus interest.[18]

The tribunal attributed the inordinate delay by Indian courts, especially the Indian Supreme Court in enforcing an arbitral award in favour of White Industries as a denial of effective means to enforce their right to their investment.[19]

In 2012, Vodafone B.V. filed a notice of dispute, a prerequisite to commence arbitration under the India-Netherlands BIT, claiming that the Indian government’s decision to enact the Indian Finance Bill 2012 would be a failure to accord ‘fair and equitable treatment;’ the reason being that the amendment sought to retroactively tax the 2007 share-purchase agreement between Hutchinson Telecommunications International Ltd. and Vodafone[20] despite the Supreme Court ruling in favour of Vodafone on that issue.[21]

Telenor and Sistema have filed or threatened to file notices of dispute under BITs Following the cancellation of 122 2G spectrum telecom licenses by the Supreme Court.[22] Within these filings was the alleging that the act of the Supreme Court undermined the license allocation process and was a form of indirect expropriation of their investments.[23]

In March 2012, the Children’s Investment Fund (CIF) filed a notice of dispute in a letter addressed to the Minister of Finance, invoking both the India-UK BIT and the India-Cyprus BIT in response to the “seriously impaired business activities and operations of the company” by virtue of their investment in Coal India.[24] They alleged that Coal India’s sale of assets to private companies at below-market price, on the directive of the Government, has caused a huge loss to the Coal India and in effect, to the company’s share value. This claim is unprecedented as CIF is a minority shareholder essentially suing Coal India for greater dividends.[25] CIF has since soldalmost 20% of their shareholding in Coal India.[26]

Intellectual Property and BIT
The Indian model text of BIT’s, and therefore all 82 BITs that have been drafted based on the model text, define "investment" inter alia as "intellectual property rights, in accordance with the laws of the contracting party."[27] This enables investors protected to file BIT claims against India for any action that directly or indirectly adversely affects their IPR, subject to certain other conditions. It was only a matter of time before the full extent of the scope of claims that may be brought forward against India under the numerous BITs had begun to unravel. Two distinct but equally important IP-related court judgments have signaled the possibility of the intervention of investment treaties on India’s IP regime, and in the context of this paper, on affordable smartphones.

The first is the interim injunction passed by the Delhi High Court in Ericsson v Micromax[28] that acknowledged that the plaintiff (Ericsson) has "made out a prima facie case in its favour and balance of convenience…also entirely in its favour." Accordingly, if interim compensation in accordance with a temporary Fair Reasonable and Non-Discriminatory (FRAND) license between Micromax and Ericsson were not granted, "irreparable harm would be caused to the plaintiff."[29]

The resulting interim arrangement included the execution of a FRAND license, based on FRAND terms, with Micromax agreeing to pay Ericsson between 1.25% and 2% of the sale price of their phone models to Ericsson.[30]

The second of the two court judgments to be looked at is comprised of a series of pharmaceutical patent disputes between global pharmaceutical companies and Indian generic drug producers regarding the compulsory licensing of critical drugs related to cancer and HIV. In March 2012, the Controller General of Patents, Designs and Trademarks relied on the patentability clause of the Patents Act, 1970[31] to authorise an Indian generic drug producer, Natco Pharma,to manufacture and sell copies of Nexavar, a patented drug sold globally by Bayer.[32]

In April 2013, the Supreme Court allowed Indian generic drug manufacturers to manufacture a version of the cancer drug, Glivec (also known as “Gleevec”), referring to the same patentability clause of the Patents Act in coming to the conclusion that it did not have a feature that qualified it as a true invention.The court emphasised the importance of referring to the evolution of India’s patent regime, specifically the influence of what they term “important milestones,” such as the Justice Bakshi Tek Chand Committee Report, the Justice Ayyangar Committee Report, the growth of India’s domestic pharmaceutical industry after the enactment of the 1970 Patents Act, and the signing of the TRIPS agreement in determining whether a compulsory license should be granted.[33]

Interestingly enough, an immediate reaction to these regulatory and court decisions in the area of pharmaceutical patents included press releases from large law firms discussing the benefits for multinational pharmaceutical companies in seeking dispute resolution under Bilateral Investment Treaties.[34] While there is a WTO Dispute Resolution Mechanism under TRIPS, where contracting parties may request for consultation under Article XXII or initiate dispute resolution under Article XXIII of the GATT, there are a number of reasons why investors chose to file claims under BITs,[35] an aspect that will be discussed in the next post.

Internationally as well, the intertwining of issues of Intellectual Property with BIT claimsis a new development, at the forefront of which is the Australian tobacco plain packaging international arbitration. Australia enacted the Tobacco Plain Packaging Act that increased the Graphic Health Warnings on the front of the packaging from 30% to 75%, and which prescribes every aspect of the appearance, size and shape of tobacco packaging and prohibits the use of trademarks, symbols or graphics other than the brand and variant name in plain font. Philip Morris Asia Limited (PMAL) filed a notice of arbitration under the Hong Kong-Australia BIT arguing that their intellectual property and goodwill were infringed by the Plain Packaging Act.[36]

Pervasive Technology and India’s Growth
The Report of the Special Rapporteur of the Human Rights Council on the Promotion and Protection of the Right to Freedom of Opinion and Expression emphasised the importance of the internet, not only to enable individuals to exercise their right to freedom of expression but to promote the progress of society as a whole.  The report called upon member states to make the internet widely available, accessible and affordable to all segments of society.The cutting off of users from Internet access, including on grounds of violation of IP,was described as disproportionate and in violation of the reasonable limitations to freedom of expression clause of the International Convention on Civil and Political Rights.[38]

It is in light of these international developments and global arbitral awards in the area of IP that the compulsory licensing of budget smartphone patents in India needs to be evaluated.


[1]. Latha Jishnu, India’s many investment treaties make it vulnerable, Down To Earth, Jan 31, 2012.

[2]. For a commentary on the slew of FDI measures taken as part of India’s liberalisation, see M.S. Ahluwalia, Economic Reforms in India since 1991: Has Gradualism worked?,16(3) J. Econ. Perspectives 67, 73 (2002).

[3]. See e.g. Preamble to, Agreement for the Promotion and Reciprocal Protection of Investments, India-Arg., Aug. 20, 1999, Ministry of Finance-Government of India, http://finmin.nic.in/bipa/Argentina.pdf; Preamble to Agreement for the Promotion and Reciprocal Protection of Investments, India-China, Nov. 21, 2006, Ministry of Finance-Government of India, http://finmin.nic.in/bipa/China.pdf.

[4]. Id.

[5]. Ministry of Finance-Government of India, Bilateral Investment Promotion and Protection Agreements, http://finmin.nic.in/bipa/bipa_index.asp?pageid=1 (last visited July 17, 2013); ICSID Database of Bilateral Investment Treaties, International Centre for Settlement of Investment Disputes, https://icsid.worldbank.org/ICSID/FrontServlet (last visited July 18, 2013).

[6]. Id;India-Germany sign bilateral investment pact, INDIAN EXPRESS, July 16, 1998; YashwantSinha, Foreword to Agreement for the Promotion and Reciprocal Protection of Investments, India-Ger., July 10, 1995, Ministry of Finance-Government of India, http://finmin.nic.in/bipa/Germany.pdf.

[7]. Vodafone.com, News Release: Vodafone serves Notice Against Indian Government Under International Bilateral Investment Treaty, http://www.vodafone.com/content/index/media/group_press_releases/2012/bit.html (last visited July 23, 2013).

[8]. Siddharth, Telenor seeks arbitration, claims $14 bn from govt in 2G case, Times of India, Mar. 27, 2012.

[9]. ShauvikGhosh, Sistema asks why India wants to delay arbitration proceedings, Live Mint, Oct. 1, 2012.

[10]. S. Bhushan & Puneeth Nagaraj, Need to align Bilateral Investment Treaty regime with Global Reality, THE HINDU, Jan. 6, 2013; Surabhi, Govt. to review bilateral ties to avoid legal battle with telcos, Indian Express, Apr. 13, 2012.

[11]. Deepshikha Sikarwar, Government to draft model treaty on MNC’s mediation rush, Economic Times, Jul. 9, 2013.

[12]. UNCTAD, INTERNATIONAL INVESTMENT ARBITRATION ISSUE NOTE: RECENT DEVELOPMENTS IN INVESTOR-STATE DISPUTE SETTLEMENT (2013).

[13]. UNCTAD, UNCTAD publishes its review of investor-state dispute settlement, http://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=453&Sitemap_x0020_Taxonomy=Investment%20and%20Enterprise;#607;#International Investment Agreements (IIA);#20;#UNCTAD Home (last visited Aug. 2, 2013).

[14]. Sikarwar, supra note 11.

[15]. Id. at 29.

[16]. Latha Jishnu, A treaty too many, DOWN TO EARTH, May 15, 2013 (few details are available of the Enron-Dabhol Investment Arbitration under the India-Mauritius Bilateral Investment Treaty).

[17]. White Industries Australia Ltd. v Republic of India, UNCITRAL, Final Award, Nov. 30, 2011.

[18]. Id. at ¶ 16.

[19]. Id. at ¶ 14.3.5. For an understanding of the implications that the White Industries case has for India’s Investment Treaty program, see Prabhash Ranjan, The White Industries Arbitration: Implications for     India’s Investment Treaty Program, INVESTMENT TREATY  NEWS, Apr. 13, 2012 available at http://www.iisd.org/itn/2012/04/13/the-white-industries-arbitration-implications-for-indias-investment-treaty-program/.

[20]. Vodafone.com, supra note 7. For an analysis of Vodafone and India’s investment arbitration claims, see RAAG YADAVA ET. AL., VODAFONE AND INDIA: A REVIEW OF CLAIMS IN INVESTMENT ARBITRATION (2012).

[21]. Vodafone International Holdings B.V. v. Union of India & Anr., Civil Appeal No. 733 of 2012, arising out of S.L.P. (C) No. 26529 of 2010, Supreme Court of India.

[22]. Dr. Subramaniam Swamy v. Union of India & Ors., W.P. (Civil) No: 423 of 2010 with W.P. (Civil) No: 10 of 2011. Supreme Court verdict on 2G spectrum allocation, The Hindu, Feb. 2, 2012.

[23]. Siddarth, supra note 8; Ghosh, supra note 9.

[24]. Sam Jones, TCI initiates legal action against India, Financial Times, Mar. 27, 2013.

[25]. Debjoy Sengupta, UK-based The Children's Fund demands higher dividend from Coal India, The Economic Times, Feb 19,2013.

[26]. See, http://www.vccircle.com/news/commodities/2013/06/25/childrens-investment-fund-sells-fifth-its-holding-coal-india.

[27]. Department of Economic Affairs – Ministry of Finance, Indian Model Text of Bilateral Investment Promotion and Protection Agreements (BIPA), available at http://finmin.nic.in/the_ministry/dept_eco_affairs/icsection/ Indian%20Model%20Text%20BIPA.asp?pageid=1.

[28]. Telefonaktiebolaget LM Ericsson v. Mercury Electronics & Anr, I.A. No. 3825/2013 in CS(OS) 442/2013, Delhi High Court.

[29]. Id.

[30]. Telefonaktiebolaget LM Ericsson v. Mercury Electronics & Anr, I.A. No. 4694/2013 in CS(OS) 442/2013, Delhi High Court.

[31]. Section 3(d) - the mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant.

[32]. Vikas Bajaj & Andrew Pollack, India orders Bayer to license a Patented Drug, NYT, March 12, 2012.

[33]. Novartis AG v Union of India &Ors., CIVIL APPEAL Nos. 2706-2716 OF 2013 with Natco Pharma Ltd. v. Union of India & Ors. CIVIL APPEAL No. 2728 OF 2013 with M/s. Cancer Patients Aid Association v. Union of India & Ors. CIVIL APPEAL Nos. 2717-2727 OF 2013, Supreme Court of India (2013).

[34]. See e.g. TREATY PROTECTION FOR GLOBAL PATENTS: A RESPONSE TO A GROWING PROBLEM FOR MULTINATIONAL PHARMACEUTICAL COMPANIES, JONES DAY (October 2012).

[35]. GENERAL AGREEMENT ON TRADE AND TARIFFS , XXII and XIII (1994).

[36]. NOTICE OF ARBITRATION, BETWEEN PHILIP MORRIS ASIA LIMITED AND THE COMMONWEALTH OF AUSTRALIA (2011).

[37]. U.N.G.A. - Report of the Special Rapporteur of the Human Rights Council on the Promotion and Protection of the Right to Freedom of Opinion and Expression, U.N. Doc A/HRC/17/27.

[38].  Id. at 21-22. Article 19 (3) of the ICCPR - The exercise of the rights provided for in paragraph 2 of this article carries with it special duties and responsibilities. It may therefore be subject to certain restrictions, but these shall only be such as are provided by law and are necessary:(a) For respect of the rights or reputations of others; (b) For the protection of national security or of public order (ordre public), or of public health or morals.

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