Hedging Bets with BITS: The Impact of Investment Obligations on Intellectual Property

The Constitutional Transformation of Global IP Protection (Jonathan Griffiths and Tuomas Mylly eds.), Forthcoming

NYU School of Law, Public Law Research Paper No. 19-40

NYU Law and Economics Research Paper No. 19-34

20 Pages Posted: 24 Aug 2019 Last revised: 7 Oct 2019

Date Written: August 22, 2019

Abstract

In a 2015 article, my coauthor, Susy Frankel, and I warned that shifts in international lawmaking — from the World Intellectual Property Organization, to the World Trade Organization (WT)O), and then to bilateral investment treaties and free trade agreements — have erected, in the terms used in the Conference at which this paper was presented, a high hedge around intellectual property rights, one that may protect these rights from state action designed to protect constitutive values and further legitimate sovereign needs. Since that article was published, two investor-state dispute settlements (ISDS) involving intellectual property have been resolved by final award. In both cases, the state prevailed, suggesting to many that the hedge may not be as impenetrable as we suggested.

In this piece, I argue that this view is wrong. A comparison of an ISDS case challenging tobacco legislation to a similar challenge in the WTO demonstrates that ISDS is a highly pernicious constraint. It creates opportunities for forum shopping and raises the cost of defending regulatory activity. The framing of investment disputes means that even actions that comply with international law can be challenged as undermining investments or denying fair and equitable treatment. To complicate matters, investors may be more eager to bring disputes than state entities. At the same time, the professional arbitrators who hear ISDS disputes may be less likely to take account of the state’s obligations to serve the needs all its citizens. Furthermore, they may be more likely to decide disputes in ways that encourage further challenges. As a result, ISDS hedges cast a heavy shadow on state action and may chill important state activity. Clipping the hedge requires the drafters of investment obligations and the tribunals that hear ISDS disputes to take account of the intangibility of IP rights in determining when IP is sufficiently localized in the host state that it should be considered protectable by that state’s investment obligations. Further, I explore institutional changes, such as the standing tribunal proposed by CETA and other ways to discourage ISDS challenges. At the end of the day, however, one must question whether ISDS, which allows foreigners to challenge a government’s choices, is an appropriate vehicle for maintaining hedges — for striking the right domestic balance between the interests of IP holders and those of the public.

Keywords: investor-state dispute settlement, WTO adjudication, intellectual property, regulatory authority, trade, international intellectual property law, WTO

JEL Classification: F13, F51, F53, F55

Suggested Citation

Dreyfuss, Rochelle Cooper, Hedging Bets with BITS: The Impact of Investment Obligations on Intellectual Property (August 22, 2019). The Constitutional Transformation of Global IP Protection (Jonathan Griffiths and Tuomas Mylly eds.), Forthcoming; NYU School of Law, Public Law Research Paper No. 19-40; NYU Law and Economics Research Paper No. 19-34. Available at SSRN: https://ssrn.com/abstract=3441210 or http://dx.doi.org/10.2139/ssrn.3441210

Rochelle Cooper Dreyfuss (Contact Author)

New York University - School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States
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212-995-4760 (Fax)

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