Can Pharmaceutical Companies Counter Relinquish Their Patents For COVID-19 Vaccines Through Investment Treaty Arbitration?


Since the COVID-19 outbreak, pharmaceutical companies have entered a highly competitive and risky vaccine race. Less than 10 months after the declaration of the global pandemic, the vaccine developed by Pfizer-BioNTech received its first regulatory approval, followed by success stories from other companies. The speed of these results has been hailed as “unprecedented” and “nothing short of miraculous”.

Despite this head start, the global immunization process is lagging behind due to multiple logistical, economic and societal obstacles, as recurring waves of the pandemic continue to rage in many parts of the world. Among the worst affected countries, India and South Africa are currently waging a powerful campaign to waive intellectual property protections to allow wider access to much needed COVID-19 vaccines. is so big. After garnering the support of over 100 states, the campaign prompted the WTO to recommend a waiver of obligations under various sections of the TRIPS Agreement, which would otherwise be applicable to WTO member states. By far the most important is the proposed section 5 waiver, which provides protections for patents, including the right of patent owners to prevent unauthorized use of their patented technologies. More recently, US President Biden gave his backing for the waiver initiative, bringing down the shares of vaccine developers. Pharmaceutical companies as well as many European countries criticized the initiative as counterproductive and discouraging for future research and development.

In this article, I analyze whether pharmaceutical companies that have developed COVID-19 vaccines (“Vaccine Developers”) can take legal action under international investment agreements (“IIAs”) against states renouncing their intellectual property rights over these vaccines. Specifically, I examine whether vaccine developers may face jurisdictional and other obstacles in pursuing their investment claims, and whether they may be entitled to compensation under substantive standards of protection. The aim is to identify and provide a general overview of the main legal issues, with the understanding that the analysis may differ depending on the language of the applicable IIA, the circumstances of a particular case and the final form. what the patent renunciation initiative could take. take in different jurisdictions.

COVID-19 patents as an investment

A threshold jurisdictional issue that vaccine developers will face in investment treaty arbitration is whether they have made an investment in states’ territory while waiving their intellectual property protections. Many IIAs expressly include intellectual property rights as a possible form of investment. However, some developing states that are currently applying for the patent waiver have not yet registered the patents of vaccine developers. In this case, vaccine developers may face a jurisdictional barrier resulting from not having an asset that exists under the law of the respondent state. Typically, IIAs protect existing investments and rarely guarantee the right to create an investment. Therefore, vaccine developers may find it difficult to prove that The IIA applies if the respondent state has not registered the patent in question.

Even when the state has registered the relevant patents, vaccine developers may need to show that these patents meet ordinary characteristics of an investment as established in arbitral case law. For ICSID cases in particular, this may require proof of: (i) a contribution of capital or other resources, (ii) an investment of a certain duration, and (iii) a risk. The requirement for an injection of capital or other resources can be particularly problematic. While vaccine developers have undoubtedly invested substantial resources in the states where they developed the vaccines, they have not done so in the territory of many developing states where they simply market the vaccines. The registration of a patent without more may therefore not be considered an investment, particularly when the requirements of Article 25 of the ICSID Convention apply in addition to the definition of investment contained in the IIA. applicable.

The analysis may differ if, in addition to the registered patent, the vaccine developer has other assets and interests in a particular state. In particular, if the vaccine developer has a manufacturing plant, distribution facility or other presence established in the territory of the Respondent State (such as, for example, Pfizer factories in India or J&J factories in China), the patent can be seen as part of the existing overall investment and may fall under the protection of the applicable IIA. In such a case, even if the respondent State has refused to register the patent concerned, that refusal may itself be challenged as possible unfair treatment of the existing investment.

Intellectual property exceptions

Some international investment agreements, such as those based on the United States model BIT, contain an exception to the obligation of states to provide compensation in the event of expropriation with respect to the compulsory licensing of intellectual property. Some more recent IIAs also include a provision that limitations on intellectual property rights that are consistent with the TRIPS Agreement do not constitute expropriation (see Article 8.12.6 of CETA).

The patent exemption initiative may, at least in part, fall within these exceptions, if they are included in the applicable IIA. However, the exceptions generally only apply to the expropriation provision and would therefore leave vaccine developers the opportunity to invoke other standards of protection, such as fair and equitable treatment (“FET”).

Right to regulate

States may argue that, having regard to the exceptional circumstances and the legitimate aim of protecting public health, the waiver of patent protection constitutes a non-compensable exercise of their sovereign right to regulate. Although the objectives pursued by the patent exemption initiative may be criticized from a political point of view, they are likely to meet the criteria of a legitimate public objective under FET and expropriation standards, given that investment treaty tribunals generally do not challenge regulators. “Political judgments.

However, having a legitimate public objective would not necessarily make a measure non-compensable, especially if it deprives the investor of their acquired property rights. The jurisprudence of investment treaty tribunals is not established on the criteria which distinguish the non-compensable exercise of the right to regulate from compensable expropriation. While the right to regulate provisions in recent IIAs clarify certain issues (see Annex 8-A of CETA), they do not offer a clear test to distinguish between non-compensable regulation and non-compensable regulation. regulatory expropriation. That said, a review of the case law shows that measures which eliminate the property rights of the investor may be exempt from the indemnification requirement in circumstances which fall under two broad groups:

  • First, the obligation to compensate does not apply to generally accepted measures of police powers (such as criminal and fiscal penalties, or revocation of licenses and concessions) which enforce existing rules against own misconduct. the investor.
  • Second, no compensation can be demanded for regulatory measures aimed at mitigating threats that the investor’s activities pose to public health, the environment or public order, such as the production or marketing of harmful substances. .

The patent exemption initiative does not appear to fall into either of these two categories. It does not appear to be designed to sanction vaccine developers for their own wrongdoing. It also does not appear to mitigate a public health threat emanating from the behavior of vaccine developers. So, while states may have the sovereign right to forgo patents in order to fight the pandemic, there does not appear to be any obvious justification that would allow them to do so without compensating vaccine developers for their forfeited property rights.

Substantive standards and remuneration

The two main substantive standards of protection that may apply to the patent exemption initiative are expropriation and FET.

Patents are an intellectual property interest. The exemption initiative involves interference with one of the main attributes of this property interest, that is to say the right of patent owners to exclude third parties from unauthorized use of their technology. If the disclaimer, even temporary, results in a substantial decrease in the value of the patent, it will likely qualify as indirect expropriation and, depending on the wording of the applicable IIA, will require compensation in the amount of the fair contract. value of the patent. If waiving states offered compensation that did not meet this standard, vaccine developers could seek to recover full compensation under existing IIAs. In this regard, it should be mentioned that some states have partially funded the development of vaccines with multiple conditions that affect their free marketing. This factor may be relevant at least for quantifying the value of the patents concerned.

If the decrease in the value of the patent is not substantial, for example because it retains a considerable portion of its value after the waiver is lifted, the vaccine developer may seek to recoup its loss under the FET standard. In particular, he may argue that the waiver constitutes an interference with his legitimate expectations, in which case he will probably have to demonstrate that he has received specific assurances of stability of the legal framework from the State. He may also argue that the surrender of the patent is a disproportionate measure, not justified by the objective pursued. In either case, however, the prospect of recovering the loss is less certain than under the expropriation standard.

Overall, the patent waiver initiative may give rise to claims under the expropriation standard and, to a lesser extent, under the FET standard. However, the success of such claims may depend on the ability of the vaccine developer to demonstrate that they have made an investment in the territory of the relinquishing state in addition to the registered patent. In addition, the exceptions to compulsory patent licenses contained in some IIAs may (in part) exonerate states from their liability. In turn, States may find it difficult to demonstrate that the proposed waiver of intellectual property rights, while justified in light of the public health objective it pursues, constitutes a non-compensable measure.

The opinions expressed in this blog are those of the author alone and do not represent the opinions of his employers or other members of his company..

This article first appeared on the Kluwer Arbitration Blog here.

Written by David Khachvani of the Lévy Kaufmann-Kohler firm

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