New Analysis Shows 'Frivolous' Corporate Sovereignty Suits Increasingly Used To Deter Regulation Rather Than Win Compensation
from the abusing-the-system dept
The rise in public awareness of the dangers of corporate sovereignty provisions in agreements like TPP and TAFTA/TTIP has brought with it a collateral benefit: academics are starting to explore its effects in greater depth. An example is a new paper from Krzysztof J. Pelc, who is an Associate Professor in the Department of Political Science, at McGill University in Canada. Called "Does the Investment Regime Induce Frivolous Litigation?" (pdf), it looks at how the investor-state dispute settlement (ISDS) mechanism has evolved in recent years, and in a very troubling direction.
Along the way, the paper explores one of the central arguments made by those supporting the inclusion of corporate sovereignty chapters in major agreements: investors lose most of the claims that they bring against governments, so ISDS is really nothing to worry about. But Pelc identifies a key question posed by this line of thinking:
Why would investors continue to file these highly costly cases, if the expected success rate is so low?
In fact, things turn out to be even more mysterious:
Current estimates actually overstate investors' success rates, especially when it comes to specific types of legal claims. What is more, this rate of success has been dropping precipitously over time -- the exact opposite trend to the one we observe in inter-state disputes in the trade regime over the same period.
By analyzing 1421 individual claims in 676 investment disputes from 1993 to present day, Pelc discovered that most disputes are over what are claimed to be instances of indirect expropriation by governments. That's in contrast to the traditional direct kind, for example when dictators send their armed thugs to throw foreign investors out of a factory they own -- something that almost never happens these days. Indirect expropriation is claimed by companies to include things like enforcing higher standards for drug patents, or simply trying to protect key water supplies from pollution. Pelc explains why investors are doing this, even though the odds of winning are low:
The cost of investor-state litigation -- far higher than the cost of, e.g., trade litigation -- means that firms may benefit from spillover effects of the challenges they bring forth. When Philip Morris challenged Australia's labeling regulations, New Zealand put its own labeling legislation on hold, and Philip Morris loudly praised the decision. If litigation exerts a sufficient deterrent effect, firms may benefit even when they lose a case. The result is an increased likelihood of frivolous litigation, where the purpose of a challenge is not so much to win the dispute or obtain compensation, as it is to deter further regulation.
Pelc says his analysis shows this kind of "frivolous" corporate sovereignty litigation is becoming more common:
Firms are litigating more and more, and they are winning less and less. To wit, investors win less than 10% of the indirect expropriation claims they bring against democratic countries. The design of the regime, which allows private standing [whereby private firms or individuals can themselves decide to bring a lawsuit against governments], has contributed to such frivolity: compared with analogous regimes like international trade, it features little of the restraint that exists in dispute settlement between sovereign states.
The fact that corporations can sue nations under ISDS without needing to ask permission, or to satisfy any pre-conditions, makes it particularly easy to bring "frivolous" claims against democratic governments purely in the hope that doing so will chill further regulations, rather than with any serious hope of winning substantial damages. Of course, the fact that such awards are also available represents an additional incentive to file lots of corporate sovereignty challenges, however weak. Pelc points out another feature of ISDS that encourages companies to bring even the most frivolous cases: the absence of reciprocity -- the risk that they will be sued back. In fact:
The only cost they face from a legal challenge is the cost of counsel -- which in the case of the investment regime, in particular, remains quite high. Yet they need not worry about possible retaliatory challenges, or the reputational costs of belligerence. Quite the opposite, a reputation as an aggressive claimant may work to a multinational company’s net benefit.
That kind of behavior is evident in the ISDS cases brought by Philip Morris against both Australia and Uruguay. They are clearly designed to establish the multinational company as a determined litigator in order to discourage other countries from bringing in new regulations to reduce tobacco consumption.
Pelc's paper is an important contribution to the field because it reveals the oft-repeated claim that corporate sovereignty is really nothing to worry about because investors rarely win as deeply misleading: investors do not need to win formal victories in ISDS tribunals in order to triumph in the wider world outside. It also shows that the one-sided nature of corporate sovereignty -- where companies can sue nations, but not the other way around -- not only tilts the playing field unfairly towards investors, but encourages them to abuse the system even further. Both are compelling reasons to drop corporate sovereignty chapters in trade agreements completely.
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Filed Under: corporate sovereignty, isds, regulations, studies, trade
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Losing the battle but winning the war
It doesn't matter if you stand no chance at all at winning the case if the other side knows that their win will be a Pyrrhic one at best, where they technically won, but are still out time and money they won't be getting back, and know that you can do it again, and again, and again until they fold.
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Indeed
"Our corporation basically bought you the election and you wouldn't want those 'fact finding' trips to stop either, would you?"
is far more compelling and suggests this kind of thing is unlikely to stop any time soon...
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It's similar to one of the many many problems with copy protection laws and the DMCA. The penalty structure is entirely against the artists who contribute content when they have their content falsely taken down and they are entirely for those that file a bogus frivolous takedown. The result is predictable, rampant abuse. There needs to be sufficient punishment against bogus legal threats to deter such behavior.
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Re: Losing the battle but winning the war
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Re: Re: Losing the battle but winning the war
Everyone's retarded solution to these problems are to ask for a law that will always have a loophole built in instead of kicking their fucking corrupt politicians out of office.
We keep putting the criminal into office and keep asking them to put in laws the prevent them from being criminals.
good luck with that one idiots!
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Companies: Devastating Storms
Those companies no longer compete for customers by traditional means: providing a better product or better service. They sue, for patent infringement, for trademark violation, for copyright infringement, or for industrial espionage. They create unilateral and oppressive contracts--offer products and services--that the customer can take or leave.
Why struggle to have a better product or service when your legal Borg minions will ruin your competitor with $10 million in legal fees--or the individual customer for $150,000?
They punish, cheat, rob, ruin, poison, or kill their customers with impunity; destroy their property. Even if they are prosecuted, the penalties imposed are usually pocket change. But how about a serious fine? BP, responsible for the Gulf oil spill (which did probably $100's of billion in economic and ecologic losses) was fined the largest fine ever: $34 billion. But with their income of $230 billion plus per year, the stockholders didn't get paid for all of eight weeks--boy was that lesson learned (must do a better job of steamrolling government next time).
Should it surprise anyone those companies are using their weight to bully nations? It's only natural they would.
The large corporations are like hurricanes, big devastating storms which neither know nor care what they crush and destroy. Today, all the victims (individuals or nations) of a large company can do is hope or pray the company doesn't crush them.
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Re: Re: Re: Losing the battle but winning the war
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If Newegg takes on copyright/patent trolls...
Government Ministers/Secretaries of Trade should fund the ISDS bodies then issue Dumbledore-style warnings to the CEOs of the type: "None Shall Pass! We have a building full of salaried lawyers who will bleed you dry."
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Re: Re: Re: Losing the battle but winning the war
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how about a study..
"Does ISDS, give consumers a chance?"
"corporate Sovereignty and product quality?"
"Corporate Sovereignty and your rights, State vs Corps, your rights vs theirs."
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Re: If Newegg takes on copyright/patent trolls...
I believe you're thinking of Gandalf. Or possibly the black knight.
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Re: Re: If Newegg takes on copyright/patent trolls...
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Policy laundering
In many cases the politicians are bought and paid for (or, maybe, genuinely believe in the corporation's side) but they know that the electorate will not stand for it. So they need to be able to claim that there is some reason beyond their control why they have to do what the corporation wants. That is "policy laundering".
Here in the UK it is traditional to blame the EU. But that well has run dry -- they have done it so often that there is a real danger the people might vote to leave the EU so that we "get our sovereignty back" (actually, remove the many protections the EU provides for individuals against the state). So, they need another policy washing machine.
ISDS is ideal. They can point to all these cases (won or lost) as reasons why they cannot impose the regulations people want on their corporate buddies: "sorry, we would love to impose a sugar tax but if we did we would be sued -- look at Philip Morris suing Australia".
They know that ISDS doesn't really stop a determined government from regulating. But it provides a wonderful excuse for those who don't even want to try.
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