Trademark And Investment Disputes: A Critical Analysis of Philip Morris Vs Commonwealth of Australia
ABSTRACT
This piece examines the interaction between intellectual property rights, specifically trademarks, and international disputes. The first part explores the role of intellectual rights in investment disputes, followed by a detailed analysis of a landmark investment case, the tobacco plain packaging BIT dispute, “Philip Morris Asia Limited v. The Commonwealth of Australia.”
Key words – trademarks, investment treaty, Australia, tobacco, arbitration, international, investment, BIT, plain packaging.
INTRODUCTION
There is a complex relationship between investment disputes and intellectual property rights. Specifically regarding trademark rights, a complex intersection exists between trademark issues and investment matters. When there is a question of investment related to intellectual property rights or any property regarded as an investment, various reasons and differences can create disagreements that lead to consequential investment disputes. These disputes may arise from claims of expropriation or breaches of fair and equitable treatment (FET Principles), among other issues.
The interplay between trademark and investment disputes is intricate; both states and investors must navigate this landscape carefully to protect their intellectual rights while balancing their liabilities and obligations.
RELATION BETWEEN IP LAWS AND INVESTOR-STATE DISPUTES
What connection exists between investor-state dispute settlement (ISDS), an ad hoc dispute resolution mechanism overseen by the International Centre for Settlement of Investment Disputes (ICSID) Convention, and intellectual property rights (IPRs)? A few high-profile cases where IPRs have been claimed to be protected under investment law and treaties have drawn attention to this issue. Although arbitral tribunals ruled in favor of the states in both cases, the investors’ claims sparked heated discussions. This essay examines how intellectual property (IP) is evaluated as a protected investment using both domestic and international IP law.
Intellectual property rights (IPRs) are expressly included in the definition of investment under international investment agreements (IIAs). IPRs encompass various types of information, including copyright and related rights, trademark rights, geographical indications, industrial designs, patents, layout designs of integrated circuits, trade secrets, plant breeders’ rights, and utility model rights. This inclusion is significant because establishing jurisdiction is the primary means of gaining access to the ICSID tribunal. For a dispute to fall within the jurisdiction of ICSID, the parties must demonstrate that the issue directly results from an investment. Additionally, arbitral tribunals have developed standards for evaluating investments, known as the “Salini test,” which considers contribution, duration, risk, and the host state’s economic progress.
INVESTMENT AND IP RIGHTS
When enforcement mechanisms for intellectual property (IP) are just, lawful, and capable of appreciating the “balance” struck in the system, IP systems function remarkably well. Enforcing intellectual property rights (IPRs) within an appropriate institutional framework optimizes social and economic well-being. Most would agree that intellectual property is a type of market intervention used by the government to promote innovation, production, and other socially beneficial ends. With this in mind, intellectual property owners and users resort to national courts and IP offices for dispute resolution or legal clarity.
Conversely, nations utilize the World Trade Organization’s (WTO) dispute settlement process for clarity on the terms and obligations of the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) at the international level. It is rare for IP owners to use any other adjudicating forum outside national systems and WTO dispute settlement.
There are several landmark judgments related to this topic. This article will analyze the relationship between investment law and intellectual property laws concerning trademarks through a case study of Philip Morris Asia Limited v. The Commonwealth of Australia.
Tobacco Packaging Regulations
This ruling is the latest in a series of legal actions by tobacco companies and other nations in response to government actions regulating the appearance of tobacco product packaging, both in domestic courts and before international tribunals. These regulations limit the ability of tobacco businesses to distinguish their brands through package design. Australia was the first country to standardize all cigarette packaging through the introduction of plain packaging regulations, which prohibit tobacco companies from placing their logos or marketing content (aside from the brand name and variant names in standard font) on their products. All cigarettes sold in the country must now be packaged in standard-sized boxes with an unappealing color and design.
Question of Balance
It is evident that finding a “balance” between a foreign investor’s rights and expectations and a state’s ability to exercise its legislative and regulatory powers without compensation for negative effects is a challenging question that these arbitral proceedings do not adequately address.
PHILIP MORRIS VS COMMONWEALTH OF AUSTRALIA
Philip Morris Asia’s claim against Australia regarding plain packaging laws has concluded. The tribunal ruled in December 2015 that it had no jurisdiction to decide the claim, which was filed in 2011, under the 1993 HK-Australia BIT.
FACTS OF THE DISPUTE
The present dispute between Philip Morris Asia Limited (claimant) and the Commonwealth of Australia (respondent) concerns the enactment and enforcement of the Tobacco Plain Packaging Act 2011 and its implementing regulations. Essentially, Philip Morris Asia challenged Australia’s Tobacco Plain Legislation under a 1993 bilateral investment agreement between Australia and Hong Kong.
The claimant initiated arbitration regarding this dispute in accordance with the treaty between the governments of Hong Kong and Australia for the Promotion and Protection of Investment, signed in September 1993. The claimant, as the regional headquarters of Philip Morris International Group of Companies, claims to own 100% of the shares of Philip Morris (Australia) Limited (PM Australia), which, in turn, holds 100% of the shares of Philip Morris Limited (PML). The claimant asserts that PML holds rights over certain intellectual property in Australia, including copyrights, registered and unregistered designs, and overall product packaging. The claimant seeks relief by requesting the suspension of enforcement of the Plain Packaging Legislation and compensation for its financial losses.
The respondent rejected the claim and raised three preliminary objections regarding the tribunal’s jurisdiction and the admissibility of the claimant’s claims. The tribunal bifurcated the proceedings, addressing only two objections in the first phase:
- The respondent’s first objection was that the claimant’s investment was not properly admitted in the host state.
- The second objection asserted that the tribunal was barred from considering the claimant’s claim because the dispute arose before the claimant obtained treaty protection due to the restructuring of its investment in PML.
- The third objection, dealt with subsequently, claimed that neither the shares in PML nor PML’s assets constituted an investment under the treaty.
In response to the respondent’s objections, the claimant contended that it fulfilled all jurisdictional requirements and that its claim against Australia was valid. The claimant argued:
- It qualifies as an investor under the treaty because it is incorporated under Hong Kong law.
- All “investment” requirements are met since it holds assets in the form of direct shareholding in PM Australia and indirect shareholding in PML.
- Its investments are legal under the host state’s law, as acknowledged by Australia.
- The claimant satisfied the dispute resolution provision of the treaty since the dispute relates to Plain Packaging Measures that substantially diminished the value of its investment in Australia.
ANALYSIS OF THE TRIBUNAL
The tribunal found that the adoption of Plain Packaging Measures was foreseeable well before the claimant’s decision to restructure. The introduction of plain packaging legislation was certain from the government’s perspective.
Thus, the tribunal concluded that an abuse of rights or process had occurred, as the investor changed its corporate structure to gain protection under an investment treaty at a time when a dispute was foreseeable. The claimant’s restructuring to acquire the Australian subsidiaries occurred when there was a reasonable prospect that a dispute would arise. Consequently, the claims raised by the claimant were deemed inadmissible, and the tribunal was precluded from exercising its jurisdiction over the dispute.
ARBITRATION AWARD
The tribunal concluded the proceedings as it could not exercise jurisdiction over the dispute. However, it provided the parties an opportunity to submit their views regarding the costs of the proceedings, which would be finalized in a final award on costs.
CONCLUSION
In this instance, the tribunal determined that the Plain Packaging Measures were anticipated long before the claimant’s decision to reorganize. Australia’s health minister and prime minister made clear their intention to implement plain packaging measures on April 29, 2010. From that moment, the tribunal believed there was no doubt about the government’s plan to enact plain packaging legislation. Therefore, the tribunal concluded that the commencement of this arbitration amounted to an abuse of rights, as the corporate restructuring was undertaken when a dispute was likely to arise, with the primary goal of obtaining treaty protection. Consequently, the tribunal could not exercise jurisdiction over the dispute, and the claims made in this arbitration were deemed inadmissible.
Authored by Yash Bhardwaj
REFERENCES
- Baetens, Freya. “Protecting Foreign Investment and Public Health through Arbitral Balancing and Treaty Design.” International and Comparative Law Quarterly, vol. 71, no. 1, Jan. 2022, pp. 139–182. https://doi.org/10.1017/s0020589321000488.
- Davison, Mark. “The Bilateral Investment Treaty Dispute between Australia and Philip Morris Asia: What Rights Are Relevant and How Have They Been Affected?” SSRN.
- “Intellectual Property Rights in Investor-State Dispute Settlement: Connecting the Dots through the Philip Morris, Eli Lilly and Bridgestone Awards.” American Review of International Arbitration – Columbia Law School.
- Mundi, Jus. “Intellectual Property Rights in Investor-State Dispute Settlement: Connecting the Dots through the Philip Morris, Eli Lilly and Bridgestone Awards.” Jusmundi, 2020.
- “Philip Morris Asia v Australia | International Arbitration Report.” Norton Rose Fulbright. 6