Intellectual property in investment agreements: The TRIPS-plus implications for developing countries

South Centre, Geneva, May 2005

Intellectual property in investment agreements: The TRIPS-plus implications for developing countries

South Centre Analytical Note
SC/TADP/AN/IP/5
SC/TADP/AN/INV/2
23 pp.

Executive Summary

In an era characterised by the proliferation of forums for norm-setting in intellectual property (IP) and a growing understanding by developing countries of the implications of IP rules on their socio-economic and cultural development, the North-South investment agreements are increasingly being used as additional and/or alternative route for enhancing and expanding the protection and enforcement of IP. The investment agreements are being used to protect and enforce IP by including IP rights, licenses and intangible property in the definition of ‘investment’ and ‘royalty’ payments related to the use of IP in the definition of ‘return’. In this context, investment agreements are being employed to promote stringent IP protection and enforcement, to sustain the expansion of the scope of coverage of IP and to undermine the flexibilities available to developing countries under the World Trade Organization’s (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and other international IP agreements.

In order for developing countries to take appropriate action, it is imperative to examine the trends of IP protection under the investment agreements to identify the implications for the multilateral processes of norm-setting in IP, dispute settlement and determination of the applicable law, protection of biodiversity, traditional knowledge and folklore, implementation of policies for technology transfer, education, public health, public moral and other policies for sustainable development.

In this analytical note we examine, in particular, the implication of the emerging approaches relating to the fair and equitable treatment and the national and most-favoured nation (MFN) treatment in investment agreements for the overall regimes for the protection and enforcement of IP in developing countries. Based on fairly extensive desktop research, the Analytical Note arrives at the following major findings and recommendations:

Summary of the Major Findings

- The bilateral investment agreements (BITs) and Investment chapters of free trade agreements (FTAs) protect IP by including IP, licenses and intangible property in the definition of ‘investment’ and ‘royalty’ payments related to the use of IP in the definition of ‘return;’
- There is a conscious and increased use of investment agreements by developed countries to undermine the provisions of the TRIPS that provide exceptions and flexibilities for developing countries and to circumvent the resistance by these countries at multilateral forums;
- It is doubtful whether there is a substantial causal relationship between the existence of an investment agreement and the flow of investments to developing countries;
- The extension of the fair and equitable standard treatment to IP of covered investment is a major TRIPS-plus aspect of investment agreements;
- The kind of proprietary interest of investors protected under investment agreements is broader than the proprietary rights of IP holders recognised under TRIPS and hence, expanded national and MFN treatment is provided for IP of investors;
- Even where investment agreements attempt to accommodate the exceptions and flexibilities of the multilateral IP instruments, the legality of measures against IP of investors could be open for challenge under the investment dispute settlement mechanisms. Furthermore, disputes on the grounds of the fair and equitable standard of treatment or the expanded interpretation of international minimum standards as applied to IP of covered investment could be ground for investment disputes.

Policy Recommendations

- Developing countries should not sign BITs, and investment chapters of FTAs except where there is a demonstrable long-term benefit for them. Since there is no clear evidence of a causal relationship between the existence of investment agreements generally or those with strong protection of IP with the levels of investment flows to developing countries, they should reconsider the reasons for signing investment agreements which have significant implications with respect to the protection and enforcement of foreign IP rights.
- Where developing countries decide to enter into BITs, protection and enforcement of IP should be excluded from application of these agreements and the definition of investment should be subject to nationals laws and regulations, thereby limiting the IP of investors to the extent recognised under the domestic laws;
- The investment agreements should clearly stipulate that the protection and enforcement of IP shall not exceed what is required under the TRIPS Agreement and/or other multilateral agreements to which the parties are signatories except where there is clear evidence that the overall economic and social benefit to the developing country of any new rules would exceed the costs;
- An explicit clause is also required to prevent resort to the investor-to-state dispute settlement mechanism on disputes arising from the protection and enforcement of IP of covered investment, and implementation of ‘waivers,’ exceptions and flexibilities under multilateral IP agreements.

source: South Centre