Just Because Eli Lilly's Corporate Sovereignty Claim Over Patents Failed Doesn't Mean The Threat Has Gone Away

from the don't-relax-yet dept

Back in March, Mike wrote about how Eli Lilly's demand for $500 million "compensation" from Canada for rejecting two of its patents was finally thrown out. This was a long-running story, and was widely-regarded as a crucial test. Had Eli Lilly won, people suggested, it would have opened the floodgates for many such corporate sovereignty claims. Some also claimed that Eli Lilly's defeat showed what is officially known as the "investor-state dispute settlement" (ISDS) system was actually working well, and needed neither abolishing nor tweaking. But an interesting analysis by Cynthia Ho, who is a professor at Loyola University Chicago School of Law, suggests that things might not be so clear cut. Here are the key points she makes in a column published by Intellectual Property Watch:

It is true that Eli Lilly ultimately failed to persuade the investment tribunal that Canada's invalidation of two patents, based on its interpretation of "useful," compromised guarantees under NAFTA's investment chapter. But, it should be noted, this failure was principally evidentiary in nature. That is, Eli Lilly failed to provide adequate evidence in support of its claims, all of which were premised on its assumption that there was a dramatic change in the law. The tribunal, however, never questioned whether IP rights that were invalidated consistent with domestic law could constitute a violation of international investment law. Even more importantly, the tribunal never questioned whether patent laws consistent with TRIPS could nonetheless be challenged as compromising investment agreements. In addition, although some have suggested that Eli Lilly could not win, the tribunal explicitly stated that the claim was not frivolous.

As Ho points out, there are a number of troubling aspects to the tribunal's decision, even if it went against Eli Lilly. The main one is that countries still have the threat hanging over them of corporate sovereignty cases being brought and won because of disputes over patents and copyright. That would represent a radical departure from traditional ISDS cases, which are typically over physical assets like mines and oil fields. Moreover, she suggests that even if a new law were fully consistent with the main Trade-Related Aspects of Intellectual Property Rights (TRIPS) treaty, it could still be challenged using a corporate sovereignty claim -- in effect, setting ISDS tribunals above global agreements like TRIPS:

the tribunal stated that a judicial decision could form the basis of an investment claim without any actual denial of justice. In addition, while the Eli Lilly tribunal stated that it is inappropriate for ISDS tribunals to serve as an "appellate tier" over domestic decisions, it would be premature to assume, as some have suggested, that this single decision obviates any such concern. Importantly, there is no precedent in investor-state disputes and, unlike the [World Trade Organization] system where panel decisions tend to be consistent and uniformity is promoted with a standing appellate body, there are often inconsistent investor-state rulings with no current mechanism to promote uniformity.

The rest of Ho's column explores these and other concerns, and is well-worth reading. It may be that her fears are overblown, and that Canada's success in defending its patent system will discourage others from bringing similar cases. But given the unpredictable nature of ISDS cases, and the fact that a new wave of speculative funding is available, it is quite likely that investors will be emboldened to try their luck in this area again, irrespective of the Eli Lilly defeat.

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Filed Under: canada, corporate sovereignty, isds, nafta, patents, trade agreements
Companies: eli lilly