Biopharmapress | 6 January 2020
China’s new policy on foreign investment and the security of intellectual property
by Shreyas Tanna
For a fact, proper mandatory licenses under a BIT will be exempt from claims for expropriation. It is usually given in a provision that disallows ISDS claims against damages arising from mandatory licenses unless their issuance is “consistent with Parties’ legal obligations under the WTO Agreement”[i.e.]. TRIPS]. “Therefore, in practice and in the sense of investment treaty arbitration for compulsory licenses, the question of a treaty violation will often arise as to whether or not a compulsory license has been issued in compliance with the TRIPS Agreement requirements. In the case of China, under its BIT model, there is no specific provision specified in this paragraph (on compliance with the WTO Agreement). The nearest such provision is Article 13, which provides that the BIT will not influence the pre-existing legislation or international obligations of a contracting party receiving services that are more beneficial than the BIT. In this respect, Article 13 deals with paragraph 3 of Article 6, which states that’ measures introduced for the purposes of the general welfare, such as public health, protection and the environment, are not indirect expropriation.’ Such provisions, while less precise, are likely to have the same effect as the above-mentioned clauses and guarantee that TRIPs-compliant steps, such as compulsory licensing of medical patents in the case of a health emergency, do not expose the Chinese government to an ISDS charge.
However, if a possible compulsory license is found to be non-compliant with TRIPs, it is another question whether China can exclude liability under its BITs. The exclusion clauses mentioned above are typical in Indian IIAs (India is an outlier of TRIPs, having previously provided many mandatory licenses). India’s mandatory licenses have been litigated by domestic courts and may in the near future be litigated under ISDS. In one case, the Swiss pharmaceutical company, Novartis AG, developed an anti-cancer drug named “Glivec.” The Indian patent authorities rejected Novartis ‘ application after filing for registration of their patent in India (in what some characterized as an attempt to “evergreen” their anti-cancer drug patent). Novartis appealed and brought the case before the Supreme Court of India, which dismissed the claim of Novartis. Novartis could bring an IIA argument under the Switzerland-India BIT after exhausting its options. This would set a precedent for ISDS to cannibalize dispute resolution of TRIPs by ICSID, which is currently achieved through the Dispute Settlement Agreement of the World Trade Organization. While less likely, it is possible that if China wants to grant its own compulsory license over the patent of a foreign investor, a similar situation could occur.