Sunday, 28 July 2013

The UAE's Bilateral Investment Treaties

A bilateral investment treaty ("BIT") is an agreement between two governments on the terms by which the nationals of each contracting party may invest in the territory of the other.   A typical BIT will oblige each government to accept investments from the nationals of the other, to treat such investments no less favourably than those of its own nationals or those of the investors of any other country, not to expropriate such investments without adequate compensation and to submit any dispute with an investor to arbitration through the International Centre for the Settlement of Investment Disputes ("ICSID").

BITs have existed for over 40 years but their potency first emerged in a claim by the US waste disposal company Metalclad Insulation Corporation ("Metalclad") against the Mexican government for compensation for the the refusal by the local and state authorities of permission to use a landfill site that Metalclad had acquired near the small town of Guadalcázar, San Luis Potosi for the disposal of toxic waste. Metalclad claimed that the refusal of planning permission amounted to "expropriation" of the landfill site and in their award of 30 Aug 2013 the arbitrators held that the company was right. They ordered the Mexican government to pay Metalclad US$16,685,000. Mexico challenged the award in the courts of British Columbia which was the province in which the arbitrators had sat and won a modest reduction of the damages but the result was seen as a victory for a medium size company against a sovereign government.

Since Metalclad there has been a spate of claims by private companies against states under BITs and some of these relate to intellectual property.   Legislation by the governments of Uruguay and Australia to discourage smoking by requiring cigarette companies to package cigarettes with graphic warnings in the case of Uruguay and plain packaging in the case of Australia have been challenged by the tobacco giant Philip Morris under Uruguay's BIT with Switzerland and Australia's with Hong Kong for expropriation of the multinational's trade marks in those countries. In the claim against Uruguay the arbitrators have recently decided that they have jurisdiction to entertain the claim (see their decision of 2 July 2013 to that effect).   In the claim against Australia the case is proceeding in the Permanent Court of Arbitration in the Hague. Both sides have instructed counsel, the claimants members of the English Bar and the Australians barristers from Australia (see the notice on the PCA's website and Philip Morris's press release of 21 Nov 2011.

The latest claim for compensation in respect of intellectual property is Eli Lilly & Co's for C$500 million against the Canadian government for the invalidation by the Canadian courts of two of its Canadian pharmaceutical patents.   Eli Lilly complains that the Canadian courts have developed a doctrine on utility called the "promise doctrine" which exists nowhere else in the world and results in the invalidation of patents that would be allowed elsewhere.  In Eli Lilly's submission such invalidation amounts to expropriation of its patents without adequate compensation and it has served a notice of intent to claim dated 13 June 2013.  I have written a short article on the claim in "Biting Back: Claiming Compensation from Foreign Governments under Bilateral Investment Treaties for Failing to provide Adequate IP Protection" 27 July 2013 as well as a more detailed article that has been accepted for publication in the EIPR.

In my article for the EIPR I have argued that if the invalidation of Eli Lilly's patents and indeed the refusal of planning permission for the use of Metlclad's landfill site amounts to "expropriation" then so too would the failure by a government to provide adequate intellectual property protection.   In this regard, it is worth remembering that the United Arab Emirates has 24 BITs including agreements with the following brand owing and design and technology exporting states:

It is of course worth remembering that BITs can work both ways.   The UAE has BITs with newly industrializing countries such as Bangladesh, Malaysia, Turkey and Vietnam where the Emirati interest is likely to be similar to those of investors from developed states. Similarly, Emiratis have substantial investments in stocks and real estate in London and other European capitals to which these BITs apply.

Should anyone wish to discuss this article, BITs in general or a particular issue call me on +44 (0)20 7404 5252 during office hours London time or fill out my contact form.   You can also follow me on FacebookLinkedin, twitter or Xing.