Addressing Climate Change: Domestic Innovation, International Aid and Collaboration

Addressing Climate Change: Domestic Innovation, International Aid and Collaboration
By Joy Y. Xiang* Download a PDF version of this article here.


“[T]he question before us is no longer the nature of the challenge — the question is our capacity to meet it.”

– Barack Obama[1]

In December 2009, at the 15th global climate change conference in Copenhagen, leaders from 115 nations gathered to negotiate an international agreement for addressing climate change.[2] The agreement was expected to include provisions to enhance the international transfer of technologies capable of adapting to or mitigating climate change.[3] Unfortunately, the talks stalled. Developed and developing nations disagreed on a host of issues, especially the treatment of intellectual property rights “IPR” protecting clean technologies.[4] Even before the Copenhagen conference, developing nations proposed to exclude clean technologies held by developed nations from patent protection.[5] Developed nations, meanwhile, considered that IPR should not be part of the global climate change negotiations and proposed to remove provisions dealing with IPR from the negotiations.[6] The Copenhagen conference resulted in a non-binding agreement[7] that did not reference IPR issues.[8] Nevertheless, the debate regarding IPR persisted through the subsequent global climate change negotiations. The global climate change conference, held in Lima in December 2014, presented both developed nations’ and developing nations’ positions regarding IPR as equal options to be negotiated at the next global climate change conference in Paris in December 2015.[9] The agreement resulting from the 2015 Paris conference, however, did not mention IPR issues; just as in the Copenhagen conference, the preference of developing nations was not reflected.[10] The debate regarding the treatment of IPR in the climate change context breaks down as follows: developed nations[11] insist on strong IPR for clean technologies, viewing IPR as indispensable for incentivizing the development of such technologies and facilitating their deployment. Conversely, developing nations[12] have sought to weaken or even remove IPR for clean technologies, viewing the existence of IPR as a major barrier to the international transfer of clean technologies. Hence, an ongoing divide exists between developing and developed nations regarding the role of IPR in the international transfer of clean technologies for addressing climate change. International agencies such as the World Trade Organization “WTO”, the World Intellectual Property Organization (‘WIPO”, the United Nations Environmental Programme “UNEP”, the World Meteorological Organization, and the World Bank have all initiated discussions to resolve the divide.[13] The stakeholders in this discussion include governments, public entities, and commercial entities from developed and developing nations, and those with interests in combatting climate change. To date, these shareholders are still searching for effective solutions. This article joins the search by exploring whether the existence of IPR is a major barrier to the international transfer of clean technologies, and the possible reasons behind the currently limited transfer of clean technologies to developing nations. After analyzing evidential data available on clean technologies and reviewing current scholarship on international technology transfer, this article concludes that IPR has been a major barrier to the international transfer of clean technologies, and that successful and sustainable international transfer of clean technologies needs certain conditions, which require efforts from both developing and developed nations. To create such conditions, and continue advancing the effort of leveraging clean technologies to address climate change, this article proposes a solution based on domestic innovation, international aid, and international technology collaboration, instead of the international transfer of clean technologies. This article proceeds as follows. Part I reviews climate change, the role of clean technologies in addressing climate change, the reality of international transfer of clean technologies, and the disagreement between developed and developing nations over how to improve international transfer of clean technologies to developing nations. Part II explores whether the existence of IPR is a major barrier to the international transfer of clean technologies to developing nations and what may be the reasons for the currently limited international transfer of clean technologies to developing nations. Based on Part II’s analysis and findings, Part III proposes the solution summarized above. Part IV discusses the advantages and concerns regarding the solution.

I. Groundwork: Climate Change, Clean Technologies, and International Transfer of Clean Technologies

The development and deployment[14] of clean technologies are a central part of the response to climate change. Because of developing nations’ need for clean technologies, and because developed nations own the majority of the existing clean technologies, transfer of clean technologies from developed nations to developing nations has been the focus of the global effort in leveraging clean technologies to address climate change. However, despite this focus, such transfers have been limited in the past two decades, with the majority going to the emerging economies,[15] and little being transferred to the other developing nations. Meanwhile, developed and developing nations continue to disagree on how to improve the situation.

A. Climate Change

Climate change is occurring, and its impact is global. Human activities using high-carbon technologies have been deemed the main cause of climate change. In the context of this article, the term “climate change” refers to change in global or regional climate patterns, such as increasing global temperature and the rising sea level, which have become particularly apparent from the mid to late 20th century onwards.[16] The Intergovernmental Panel on Climate Change “IPCC”,[17] the leading international scientific organization for assessing climate change, concluded that the period spanning from 1983-2012 was likely the warmest period of the past 1,400 years.[18] The IPCC also concluded that greenhouse gases “GHG” present in the atmosphere are at levels unprecedented in at least the past 800,000 years.[19] The effect of climate change on human and natural environments is global. The IPCC found that changes in climate have impacted natural and human systems on all continents and across the oceans.[20] These impacts include alteration of ecosystems, disruption of water supply, reduction of crop yields that result in increased food price and food insecurity, excess heat-related human mortalities, and infectious disease patterns.[21] According to a 2009 report by the Global Humanitarian Forum, climate change costs 300,000 human lives each year, and leaves 300 million people vulnerable to its effects, a number set to double by 2030.[22] The United Nations Framework Convention for Climate Change “UNFCCC”,[23] the main global agreement designed for addressing climate change, attributes climate change “directly or indirectly to human activity that alters the composition of the global atmosphere.”[24] In its latest assessment report, the IPCC once again confirmed that, using statistical qualification methods on the scientific data collected, “it is extremely likely that human influence has been the dominant cause of the observed warming since the mid-20th century.”[25] The human influence or activities referred to involve the use of fossil fuel,[26] e.g., by developed nations’ coal-fired industries since the Industrial Revolution and today’s hydro-carbon fueled transportation industries. These human activities account for the 70% increase in GHG emissions from 1970 to 2004.[27] Technologies relying heavily on fossil fuel — such as steam-engine locomotives, ships, airplanes, and power grids — were the backbone of these human activities. These high-carbon technologies attributed to the increased GHG emissions, leading to climate change.

B. Clean Technologies

Going forward, clean technologies[28] play a critical role in the solution for climate change. These technologies produce low GHG emissions and enable us to mitigate or adapt to climate change. Rapid development and deployment of clean technologies is needed to address climate change and to make clean technologies viable market alternatives to traditional high-carbon technologies. Stakeholders in climate change have agreed that the ability for humans to survive climate change largely depends on the rapid development and global deployment of a wide variety of clean technologies.[29] The UNFCCC recognized clean technologies as an important route for addressing climate change.[30] The United Nations General Assembly also adopted resolutions recognizing the fundamental role played by innovative clean technologies in addressing climate change.[31] Discussions about addressing climate change have generally focused on mitigation and adaption. The UNFCCC defines mitigation as human intervention to reduce the production or enhance the removal of GHGs, and adaptation as adjustment in natural or human systems in response to actual or expected climatic change, which moderates harm or exploits beneficial opportunities brought by climate change.[32] Mitigating climate change is crucial. Assessments have suggested that to avoid the catastrophic effects of climate change, global average temperature should rise no more than 2°C above pre-industrial level “the 2°C goal”.[33] In order to limit temperature increase, GHG concentrations in the atmosphere need to be stabilized so that they will not continue to cause further atmospheric warming. Nations that are parties to the UNFCCC have committed to limit GHG emissions in a way to achieve the 2°C goal.[34] However, achieving this goal would require the development and deployment of a wide range of clean technologies.[35] For example, the IPCC determined that the necessary mitigation technologies include technologies that utilize renewable energy sources — e.g., solar, wind, biomass, geothermal and hydro energy — to produce electricity, clean coal technologies that reduce GHG emissions from fossil fuel burning, and technologies to improve energy efficiency.[36] While mitigation is crucial, adapting to the impact of climate change is also an important, long-term effort. Many GHGs stay in the atmosphere for a hundred years or more.[37] Even if we were to completely stop GHG emissions now, the existing GHG concentration in the atmosphere would still cause a certain amount of future rise in global average temperature. Like mitigation, adaption will also require the development and deployment of certain technologies, such as seeds that can survive flooding caused by rising sea levels, irrigation technologies for resisting droughts, and early-warning or defense systems for extreme weather.[38] Clean technologies have developed significantly in the past decades. For example, technological advancements have reduced the production cost of wind energy by 80% over the last twenty years and solar power by 90% since the 1970s.[39] However, even with these achievements, there remains a considerable gap between current efforts to develop clean technologies and the level of investment required. First, multiple sectors of clean technologies will require breakthroughs in development. The UNFCCC indicates that further breakthroughs are needed in the areas of carbon capture and storage, hydrogen and fuel cells, biofuels, power storage systems and micro-generation, clean energy technologies, early warning systems for extreme weather events and biotechnology.[40] For example, waves of retiring fossil-fuel-based power plants are ready to adopt clean coal technologies, such as carbon capture and sequestration.[41] However, carbon capture and sequestration technologies have advanced slowly.[42] In order to meet the 2°C goal, carbon capture and sequestration technologies must double their capture and storage rates by 2025.[43] Second, further technical advancements are needed to reduce the price of clean technologies and make them viable alternatives to traditional high-carbon technologies. Currently, clean technologies are often more expensive than existing fossil-fuel-based technologies.[44] For example, renewable energy technologies still need significant innovation to compete with traditional hydrocarbon-based technologies at similar price level.[45] The World Bank indicated that energy storage would need further cost reduction and performance improvement for large-scale deployment of solar and wind power and electric vehicles.[46] In 2012, the global energy demand for fossil fuels was 82% while the demand for renewable energies was a mere 13%.[47] The consumption of modern renewable energies has risen at an annual growth rate of 4%, while an annual growth rate of 7.5% is needed.[48] Third, the deployment of clean technologies needs to accelerate. To meet the 2°C goal, the net volume of global anthropogenic GHG emissions will need to be reduced 60% by 2050, using the 2000 global anthropogenic GHG emissions as a base line.[49] However, the traditional model of technology deployment may be too slow to achieve a 60% reduction in global GHG emissions by 2050. Studies show that inventions in the energy sector generally take 20-30 years to reach mass markets, which normally start first in the nations where the inventions are developed.[50] Under the traditional model of deployment, developed nations develop new technologies, which reach developing nations via commercial roll-outs.[51] To accelerate the development and deployment of clean technologies, one possible approach is for both developing and developed nations to develop and deploy clean technologies independently and collaboratively, instead of relying on the traditional model of deployment. The recent rapid R&D efforts for clean technologies in Brazil, China, India, and a few other developing nations illustrate the independent effort by developing nations, and the Mediterranean Solar Plan illustrates the collaboration between developed and developing nations on a large scale.[52] However, these exemplary practices are yet to become common practice.

C. International Transfer of Clean Technologies to Developing Nations

While rapid development and deployment of clean technologies is important, widespread transfer of clean technologies to developing nations has been deemed as much so, if not more, important. Developing nations are increasingly in need of clean technologies due to rising energy consumption and the corresponding environmental impact. Since developed nations currently own the majority of the existing clean technologies, transfer of clean technologies from developed nations to developing nations has become a focus of the global climate change efforts. However, during the past two decades, actual transfer of clean technologies to developing nations has been limited.
1. Transferring Clean Technologies to Developing Nations Has Been an Important Focus of International Climate Change Efforts
International instruments such as the IPCC and the UNFCCC have emphasized the transfer of clean technologies from developed to developing nations. This emphasis seems appropriate, given developed nations’ ownership of most existing clean technologies under IPR protection and the growing need of developing nations to employ clean technologies to address climate change and to develop their economies.[53] In developing their economies, developing nations have increased their demand for energy resources, and have thus increased their impact on the environment. For example, in 2014, China became the world’s largest overall energy consumer, followed by the U.S., the EU, and India.[54] Historically, developed nations dominated in GHG emissions.[55] However, starting in 2004, developing nations’ GHG emissions from energy use surpassed those of developed nations;[56] by 2010, the GHG emissions from developing nations exceeded those of developed nations by about 40%.[57] Much of this increase may be traced to the rapid growth of China, India and other emerging economies. This figure is expected to increase to 130% by 2040.[58] Therefore, to prevent further aggregation on the climate, it is important that developing nations fully utilize clean technologies in the pursuit of economic development. On the other hand, developed nations currently own most of the existing clean technologies that are protected by IPR.[59] For example, according to a 2008 international survey, developed nations owned 80% of patents covering relevant clean technologies (though the percentage was a significant reduction from ten years ago, where developed nations owned 95% of the patents on clean technologies.)[60] Consequently, global climate change technology efforts have focused on the transfer of clean technologies from developed nations to developing nations. As early as 1992, the IPCC pointed out that “as the GHG emissions in developing nations are increasing with their population and economic growth, rapid transfer, on a preferential basis to developing nations, of technologies which help to monitor, limit or adapt to climate change, without hindering their economic development, is an urgent requirement.”[61] The UNFCCC, signed in 1992, subsequently listed technology transfer as a main method for addressing climate change. The UNFCCC requires developed nations to take “all practicable steps to promote, facilitate and finance, as appropriate, the transfer of or access to environmentally sound technologies and know-how” to other nations, particularly developing nations.[62] The WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights “TRIPS Agreement”, signed in 1994, also asks developed nations to promote and encourage technology transfer to the least developed countries “LDCs” members.[63] Specifically, the TRIPS Agreement asks developed nations to “provide incentives to enterprises and institutions in their territories” so as to promote and encourage technology transfer to the LDCs to “enable them to create a sound and viable technological base.”[64] To facilitate the transfer of clean technologies, the UNFCCC has set up several mechanisms. The first mechanism is a technology transfer framework established in 1992, when the UNFCCC was signed. The framework has several components,[65] including a Technology Needs Assessment component wherein parties of the UNFCCC identify and prioritize the clean technologies needed, as well as determine the major barriers for the inbound transfer of clean technologies.[66] The second is the Clean Development Mechanism (CDM) and Joint Implementation (JI) mechanism established by the UNFCCC Kyoto Protocol[67] in 1997. The CDM and JI mechanisms allow a nation with an emission-reduction or emission-limitation commitment under the Kyoto Protocol to implement an emission-reduction or emission-removal project in developing nations. Such projects can earn scalable emission reduction credits that are counted toward the Kyoto commitment of the providing nation.[68] The third is the Technology Mechanism established by the 2010 Cancun climate change conference, to help nations develop and transfer clean technologies.[69] The Technology Mechanism aims to support and accelerate clean technology diffusion via a nation-driven approach, based on national circumstance and priorities of developing nations.[70]
2. Technology Transfer Defined
The IPCC defines technology transfer as “a broad set of processes covering the flows of know-how, experience and equipment for mitigating and adapting to climate change” among and between all nations.[71] The IPCC considers technology transfer to include the adaptation of the transferred technology, “the process of learning to understand, utilize, and replicate the technology, including the capacity to choose and adapt to local conditions and integrate it with indigenous technologies.”[72] The Kyoto Protocol of the UNFCCC also has a broad definition of technology transfer, which includes providing developing nations the know-how and best practices associated with a transferred technology.[73] Channels for technology transfer can be market-based, such as trade, foreign direct investment and technology licensing.[74] Transfer can also be informal. Organizations or individuals may engage in unsanctioned imitation and technical and managerial personnel may bring “know-how” with them as they change employment.[75] Technology transfer can be initiated by the commercial sector or the public sector. In practice, most technology transfer occurs in the commercial sector.[76] Nevertheless, the role of the public sector is important. Technology transfer normally is neither an automatic nor a costless process, and it can become subject to market failures; in such cases, public interventions such as legal and policy incentives are necessary.[77]
3. International Transfer of Clean Technologies to Developing Nations Has Been Limited
In spite of the support mechanisms provided by the UNFCCC system and TRIPS Agreement, the international transfer of clean technologies to developing nations has been limited. In particular, extensive surveys conducted in the past two decades reveal that foreign clean technologies are not reaching developing nations adequately, especially the LDCs.[78] In 2011, researchers from the London School of Economics and Political Science and the Organization for Economic Cooperation and Development “OECD” published a global survey on the invention and transfer of climate change mitigation technologies “Study A”.[79] Study A analyzed the geographic distribution of thirteen classes of climate mitigation technologies during 1978-2005, and was based on patent data from over eighty national and international patent offices.[80] As the figure below shows, Study A found that international transfer of clean technologies mostly occurred between developed nations (73% of the overall exported inventions).[81] It also noted that exports of clean technology inventions from developed nations to emerging economies — such as China, Brazil, and India — were growing rapidly (22% of the overall exported inventions).[82] The study further found that the flow of clean technology inventions from developing nations to developed nations made up 4%, while the flow between developing nations was much less, a mere 1% of the overall flow.[83] This implies that the transfer of clean technologies from developed nations to developing nations that are not emerging economies was almost nonexistent.
A different global patent survey confirms the findings of Study A. In 2010, the UNEP, the European Patent Office and the International Centre for Trade and Sustainable Development conducted a study[84] of the patenting landscape and licensing practices of key clean energy technologies[85] “Study B”. This study discovered that 58% of its respondents (entities based in developed nations) reported they had not entered into licensing agreements with entities based in a developing nation during the three years before 2010, the time when Study B was conducted.[86] Conversely, Study B found that the owners of clean technologies were willing to transfer the technologies. Of the respondents in Study B, 73% believed it was important to seek opportunities to license out their technologies, and 82% viewed IPR as vital to licensing transactions.[87] This data indicates that clean technology owners do want to transfer the technologies, and the existence of IPR is critical to facilitating such transfers. Study B also found that clean technology owners, especially academic and public organizations, were generally open to providing flexible licensing terms to entities based in developing nations with limited financial resources.[88] Similar to Study A, Study B also found that emerging economies such as China, Brazil, India and Russia were the main beneficiaries of licensing flows from developed nations.[89] Study B indicated that companies from developing nations experienced some difficulties in obtaining clean technologies from entities based in developed nations, [90] resulting from the high cost of licensing the foreign clean technologies and/or having to resort to obtaining less-advanced substitutes.[91] A third survey, a 2009 United Nations report, assessed the effect of the CDM — one of the technology transfer mechanisms mentioned in Part I.C.1 “Study C”. [92] The study noted that only 36% of the 3,296 documented CDM projects involved the transfer of clean technologies.[93] Study C also noted that the CDM projects had been concentrated in only a few developing nations, e.g., Brazil, China, India, Mexico.[94] These, again, are emerging economies. The rest of developing nations had taken up only 25% share of the overall CDM projects.[95] In summary, the available empirical evidence shows that the international transfer of clean technologies occurs mainly between developed nations. The more infrequent, but growing transfer of clean technologies from developed nations to developing nations flows mainly to emerging economies, such as China, Brazil, India, Mexico, Russia and South Africa. Little transfer occurs between developed nations and the rest of the developing nations, or among developing nations themselves.

D. How to Increase Transfer of Clean Technologies to Developing Nations — An Ongoing Debate

Developing and developed nations have been discussing how to increase the international transfer of clean technologies to developing nations. However, they disagree over the means to achieve this goal. Developing nations claim that IPR is a major barrier to the international transfer of clean technologies and ask for the reduction or elimination of IPR protections on clean technologies. Developed nations, on the other hand, insist that IPR facilitates development and deployment of clean technologies and assert that the barrier to the international transfer of clean technologies is developing nations’ lack of capacity to attract foreign clean technologies.
1. Developing Nations
Developing nations regard IPR as an inherent barrier to the international transfer of, and affordable access to, clean technologies in a rapid time frame.[96] According to this view, IPR of clean technologies keeps prices of clean technologies high and limits access. Developing nations have pointed to specific instances to support this view. For example, firms and R&D institutions in developing nations have indicated that commercial firms and public institutions in developed nations refused to license important technologies related to fuel-cells.[97] Local firms in India indicated that they were refused licenses for patented technologies on ozone reduction.[98] Several developing nations have also criticized a small group of multinational companies “MNC”s) owning clean technologies needed by developing nations. These MNCs were criticized for using their ownership of clean technologies as a means to control production, therefore limiting their transfer to the developing nations who needed these clean technologies.[99] During recent UNFCCC climate change conferences, developing nations suggested limiting or eliminating IPR for clean technologies. Specifically, Brazil, South Africa, China, India, and Russia have suggested rethinking the existing IPR regime, excluding clean technologies from patent protections, introducing a compulsory licensing scheme for clean technologies, and pushing for technology transfer, flexible licensing mechanisms, and institutional mechanisms.[100] The president of Bolivia likewise commanded that “innovation and technology related to climate change must be within the public domain, not under any private monopolistic patent regime that obstructs and makes technology transfer more expensive to developing countries.”[101] In 2013, the WTO TRIPS Council[102] organized a discussion on IP, Climate Change, and Development. Ecuador submitted a proposal “Ecuador 2013 proposal”.[103] In the proposal, Ecuador argued that IPR could “create a monopolistic situation characterised by high prices and a restriction of the dissemination of knowledge” for adapting to climate change and use of clean technologies.[104] Ecuador proposed to exclude clean technologies from patentable subject matter, include in the TRIPS Agreement a new provision on the transfer of expertise or know-how, implement compulsory licensing, and reduce the life term of patents on clean technologies.[105] A number of developing nations such as Cuba, Bangladesh, Bolivia, Brazil, India, Indonesia, Nepal, Rwanda and the Dominican Republic supported Ecuador’s proposal.[106] India especially supported the proposal’s stance regarding compulsory licensing and reduction of patent life term.[107] India stated:
On any principle of equity, industrialized countries have to bear a large share of the burden. They are historically responsible for the bulk of the accumulated greenhouse gas emissions and this alone suggests a greater responsibility. They also have high per capita incomes, which give them the highest capacity to bear the burden. They are technically the most advanced, and to that extent best placed to provide environmentally sound technology to developing countries at fair and favourable terms and conditions.[108]
India’s statement captured the essential position of developing nations toward the proposal.
2. Developed Nations
Meanwhile, entities in developed nations have insisted that IPR is not a barrier, but a facilitator for development and deployment (e.g., international transfer) of clean technologies. Their arguments focus on the incentives and legal certainty that IPR provides. For example, General Electric, a large producer of clean technologies, argues that IPR helps incentivize R&D investments in clean technologies, especially by the commercial sectors, which account for 70% of the overall R&D investments.[109] Industry associations, such as Alliance for Clean Technology Innovation, assert that strong IPR protection provides “legal certainty” for technology owners to engage in “voluntary, market-based technology transfer in all its possible forms.”[110] Researchers for the International Centre for Trade and Sustainable Development “ICTSD” stated that IPR provides incentives for clean technology innovations, especially in sectors such as wind, solar, carbon capture and storage, and biofuels that need major R&D investments.[111] Consequently, governments of developed nations — such as the U.S., Australia, Japan, and the EU — have insisted on strong IPR protection for clean technologies.[112] Todd Stern, the U.S. Special Envoy for Climate Change, stated: “we must make the development and dissemination of technology a top priority in order to help bring sustainable, low-carbon energy services to people around the world, AND we must do so in a way that recognizes the importance of protecting and enforcing intellectual property rights.”[113] The EU, Japan, Canada, New Zealand have expressed similar views.[114] Australia denied that IPR could be a significant barrier to technology cooperation or use. Instead, Australia argued, greater incentives should be provided so that the commercial sectors—responsible for 86% of overall global investment and financial flows—can engage in technology transfer.[115] Responding to Ecuador’s 2013 proposal, which gained support from quite a few developing nations, several developed nations countered with the position that IPR encourages the development of clean technologies and allows their transfer at accessible prices.[116] The EU’s response noted that a large quantity of key clean technologies are already in the public domain, the LDCs offer market values insufficient to attract commercial businesses in developed nations, and the LDCs do not provide IPR; therefore the LDCs can use foreign clean technologies for free.[117] Further, the EU argued that without patent protection for products and processes, companies owning the clean technologies in developed nations may be reluctant to engage in technology transfer and associated investments.[118] The EU stated: “IPR, particularly patents, will be a catalyst, not a barrier, to creating and deploying low-carbon technologies….Threat[s] to strong IPR, such as easily-obtained compulsory licensing, are likely to be a strong disincentive to invest.”[119] The EU’s position likely represents the essential view of developed nations on IPR’s role in the international transfer of clean technologies to developing nations.

II. Analysis: Possible Reasons for the Limited International Transfer of Clean Technologies to Developing Nations

One may ask: why has transfer of clean technologies to developing nations been limited? Is the existence of IPR in fact a major barrier to the international transfer of clean technologies? After reviewing and analyzing currently available data on clean technologies and scholarship regarding international technology transfer, this article finds that the existence of IPR has not been a major barrier to the international transfer of clean technologies. This article also finds that for a nation to attract inbound transfer of foreign technologies, it needs to offer: sufficient IPR protection, the capacity to absorb and adopt foreign technologies, sufficient market size, policy certainty, and transparency.[120]

A. Is the Existence of IPR a Major Barrier for Transfer of Clean Technologies to Developing Nations?

Examining IPR’s role in the development and deployment of clean technologies, and assessing IPR’s impact on developing nations in attracting international transfer of clean technologies, this section concludes that the existence of IPR has not been a major barrier to the international transfer of clean technologies.
1. IPR and Its Role
IPR has been viewed as an important tool to incentivize investments in innovation; it has also been viewed as increasing the cost of accessing IPR innovation. Though both climate and public health are public goods, IPR has different impacts in corresponding technology industries. Due to the specific nature of the clean technology industries, IPR plays less of a defining role in clean technology industries than in pharmaceutical industries. Therefore, solutions for IPR issues in pharmaceutical industries may not apply directly to IPR issues in clean technology industries. The term “intellectual property” refers broadly to creations of the human mind.[121] Intellectual property rights “IPR” protect the interests of the creators by giving them property rights over their creations.[122] The major forms of IPR include patents, trade secrets, copyrights and trademarks. Patents generally protect innovative technical improvements, trade secrets generally protect confidential information which can include innovative business or technical know-how, trademarks generally protect the distinctive symbols identifying a product or service, and copyrights generally protect the artistic expressions of ideas. When discussing the development and deployment of technologies, patent rights are the most relevant form of IPR, followed by trade secrets, which come into play when transfer of the know-how associated with a technology or business practice is involved. From this point forward, unless indicated otherwise, the article will use the term “IPR” to refer to patent protection. Trade secret laws may be discussed in relation to the transfer of confidential business or technical know-how. Other intellectual property forms such as trademarks and copyrights will be specifically identified and discussed as needed. Patent rights are territorial, granted by individual national governments and are effective only within the particular geographic regions covered by the national governments.[123] In order to gain patent protection on an innovation in a particular nation, the owner must file for a patent right on the innovation from the government of the particular nation.[124] Therefore, when this article mentions that a technology owner has a patent on a technology, it means the technology owner has applied for patent protection from a specific nation, the nation has granted patent protection on the technology, and the technology owner can enforce the patent within the territory of the nation. As exemplified by the debate discussed in Part I.D, IPR’s role in the development and deployment of technologies has been controversial. Traditionally, IPR has been a policy tool for incentivizing investments — especially commercial investments — in innovation.[125] Once an innovation is granted patent protection by the government of a nation, the owner of the invention can exclude a third party from practicing the innovation in the nation, or grant the permission with a fee, generating license revenue. The prospect of a monopoly or profit-making on a patented invention is presumed to incentivize investments in R&D to create the invention. Meanwhile, IPR has been viewed to increase the cost for accessing the IPR-protected technologies or to increase the cost of learning them via imitation.[126] For example, when technology is protected by a patent or a trade secret in a nation, access to the technology in the nation is barred unless the owner of the technology gives permission, which may come attached with restrictive conditions and/or a higher price due to its IPR. IPR may also have the effect of diminishing the speed of innovation, as IPR is alleged to demotivate owners of -protected technologies for continuous innovation, since it grants the owners a monopoly power (albeit temporary) over the protected technologies.[127] Because both climate and public health are public goods and have global impact, there is a potential parallel between IPR issues regarding clean technologies with IPR issues regarding pharmaceutical technologies.[128] However, this parallelism may not be warranted. First, IPR may be less significant to clean technologies than to pharmaceutical technologies. Patents on many of the technologies that are fundamental to modern clean technologies have long been expired and these fundamental technologies are in the public domain.[129] Existing patents mostly protect only specific features or incremental improvements over the fundamental technologies in the public domain.[130] These specific features and incremental improvements likely would be easy to design around, and therefore would have multiple alternatives and substitutes on the market. The availability of these alternatives and substitutes will likely bring down the price that might be charged under a monopoly afforded by IPR protection.[131] Meanwhile, patents on clean technologies tend to be diffused and owned by a large number of firms.[132] Hence, the power of patent owners in clean technologies tends to be limited. In the pharmaceutical industry, IPR plays a significant role. The general assumption is that the originator pharmaceutical sector is highly dependent on strong patent protection, mainly because of the high cost involved in developing novel medicines and the low cost of reverse engineering these new medicines.[133] The owner of a new medicine needs to rely on the monopoly secured by a patent to recuperate the R&D investments and generate significant economic returns. Also, in the pharmaceutical industry, one firm usually owns the patent of a key pharmaceutical technology, which normally has no alternative or substitute technologies, granting the firm dominant market power.[134] Furthermore, unlike pharmaceutical technologies, clean technologies involve a variety of different industries, and IPR is less important in some industries than others.[135] For example, clean technologies include sophisticated bio-tech engineering, such as genetically modified seeds for drought resistance, and low-tech mechanical innovations, such as farming techniques.[136] Patent rights are likely more relevant to the drought-resistant seeds, which may require more R&D investments than the mechanical farming techniques.
2. Evidential Data
This article will now examine IPR’s influence on the development and deployment of clean technologies for developing and developed nations, through analyzing available evidential data on global investments and patenting of clean technologies. Investments such as commercial investments and R&D expenditures are a measure of the input to innovation, while patenting data is a measure of the output to innovation.[137] Meanwhile, patenting data can be one indication of international transfer of technology, as patenting data identifies the location of an invention — e.g., where the patent was filed originally, and also where the invention is transferred — by where else the patent was filed besides the location of the invention.[138] Patenting of foreign technologies likely occurs in nations that have well-enforced IPR and have a high capacity to absorb and implement the foreign technologies.[139] Going forward, this article will group developing nations into three sets according to their stages of economic development. One group is the emerging economies, such as Brazil, Russia, India, China, and South Africa. Another group is the LDCs, such as Cambodia, Nepal, Haiti, and Uganda.[140] The remaining group encompasses the rest of developing nations, whose economic developments are between those of the emerging economies and the LDCs. This article calls them the mid-tier developing nations “MDCs”; Georgia, Egypt, Cuba, and Argentina may be considered MDCs.
i. Investments for Clean Technologies
The examination of evidential data on global investments in clean technologies provides two revelations. First, commercial investments in developing nations have increased rapidly and even surpassed those in developed nations in 2012. This implies that IPR may become increasingly important to developing nations as they can leverage IPR to harvest and protect innovations that result from the increased commercial investments in clean technologies. IPR can also help sustain momentum in commercial investments in clean technologies. Second, at least in developed nations, commercial investments in clean technologies overshadow government investments. Therefore, governments in developed nations may have a difficult time relaying the developing nations’ requests for the removal or weakening of IPR protection on clean technologies to their domestic commercial sectors. This is due to the significant roles these sectors play in the investments in clean technologies and these sectors’ preference for strong IPR for clean technologies. In recent decades, investments in clean technologies have increased rapidly, especially in developing nations. The 2014 Science and Engineering Indicators[141] published by U.S. National Science Foundation “Study E” illustrates the phenomena well.[142] According to Study E, global commercial investments in clean energy technologies have risen from less than 30 billion USD to 160 billion USD from 2005-2012.[143] The figure below provides further details.
As shown, developing nations’ commercial investments in clean technologies rose rapidly from 2004-2012. The input rose from 8 billion USD in 2004 to nearly 100 billion USD in 2012, making up over 61% of the global total. In 2012, China’s commercial investments in clean technology totaled about 61 billion USD. Other developing nations, led by emerging economies such as Brazil, India, Indonesia, and Mexico, made up about 36 billion USD. The rapid increase in commercial investments in clean technologies by developing nations indicates that IPR may be utilized to harvest the inventions from these commercial investments. Currently, governments of developing nations may prefer no or weak IPR on clean technologies. However, increased domestic holdings in clean technologies and an increased desire on the part of domestic industries to apply IPR protection to their own technologies will likely change the current preference. Meanwhile, during 2004-2012, developed nations’ commercial investments in clean technologies rose from about 19 billion USD in 2004 to about 63 billion USD in 2012, comprising 39% of the global total.[144] In 2012, the U.S. and the EU, with 27 billion USD and 29 billion USD respectively, tied as the second-largest sources of clean technology commercial investments. However, both investments were significantly less than the 61 billion USD from China, which led the commercial investments in clean technologies among developing nations. In 2012, commercial investments of the other developed nations were much lower than those of the U.S. and the EU, only amounting to a collective 7 billion USD.[145] In the meantime, commercial investments in clean technologies in developed nations far exceed investments in clean technologies by governments of these nations. As shown in the figure below, in 2011, the governments of developed nations invested only 13 billion USD in research, development and demonstration “RD&D” for clean technologies, compared to the total 110 billion USD spent by the commercial sectors in developed nations.[146] Specifically, the U.S. government and the Japanese government invested the most, with each spending 4 billion USD for RD&D in clean technologies in 2011; the EU was the next largest, with 2.6 billion USA. The governments of Canada, Australia, and South Korea each spent 1 billion USD, 600 million USD, and 500 million USD respectively.[147]
As shown in the figure, the distance between government RD&D investments and commercial investments in clean technologies in developed nations has increased consistently over the past years; the ratio (as shown under the horizontal axis of the figure) changed from 1:2 in 2004 to 1:9 in 2011. In general, there are two types of government support for the development and deployment of technologies. One is the enforcement of private rights, such as IPR, for incentivizing commercial investments.[148] Another is direct government funding of innovation.[149] The data above reveal the significant role commercial investments play in the development and deployment of clean technologies in developed nations. It thus implies that incentives such as IPR, which motivate commercial investments in clean technologies, probably should not be easily abridged. The governments of developed nations will have a difficult time supporting proposals to remove or weaken IPR on clean technologies, as such a proposals likely would not be accepted by the commercial sectors in developed nations.
ii. Patent Ownership for Clean Technologies
The examination of global patenting data on clean technologies identified three specific findings. First, developed nations own a majority of the patents on existing clean technologies. Second, the emerging economies are catching up rapidly in the number of clean technology patents, though patents on foreign clean technologies have taken up a significant share of these clean technology patents, Third, the rest of the developing nations have had few patents of clean technologies by domestic or foreign entities. The findings imply that IPR may be an issue for emerging economies’ access to some foreign clean technologies due to the existence of local patents, but not an issue for the rest of the developing nations’ access, since there are few local patents on foreign clean technologies. Study A, cited in Part I.C, examined the original filings of patents during 1978-2005 in thirteen climate change mitigation technologies.[150] Original filings of patents typically indicate where the patented inventions were developed. Study A found that 60% of the inventions patented worldwide in 1978-2005 originated from three developed nations: Japan, the U.S., and Germany.[151] Emerging economies represent 15% of the total inventions covered by Study A.[152] A 2009 study on patent ownership of clean technologies by European economic consultancy Copenhagen Economics “Study F”[153] confirms the pattern found by Study A. As shown in the figure below, Study F found that from 1998 to 2008, the ratio between developing and developed nations’ patent holdings on seven key clean technologies[154] grew from 1:20 to 1:5.[155] The improvement is significant, though the gap in patent ownership of clean technologies between developing nations and developed nations remains considerable.
A closer look at the data in Study F reveals a larger contrast of patent ownership between the emerging economies and the other developing nations — i.e., the MDCs and the LDCs. Study F found that in 2008, the emerging economies accounted for 99.4% of all protected patents filed by developing nations in the seven key clean technology areas reviewed, while the MDCs and the LDCs accounted for only the remaining 0.6%.[156] As shown in the figure below, this means that emerging economies owned 19.88% of the patents filed globally in the seven clean technology areas in 2008, while the MDCs and the LDCs owned a mere 0.12%. Furthermore, Study F found that two thirds of these patents owned by the emerging economies were filed by foreigners and one third by local residents.[157]
The above-identified findings of Study F are consistent with findings from Study B, which was discussed in Part I.C. Study B also found that patents on clean energy technologies in low-income nations — e.g., the LDCs and at least some MDCs — are relatively rare.[158] Study B further found that six developed nations — Japan, the U.S., Germany, South Korea, the United Kingdom, and France — accounted for almost 80% of patent filings in clean energy generation technologies.[159] Some of the emerging economies, such as Argentina, Brazil, China, India, Russia, the Philippines, and the Ukraine, have dramatically increased their patenting on clean technologies to such an extent that some of them filed 4,000 patent applications on clean technologies annually.[160] Meanwhile, current scholarship also indicates proprietary clean technologies do not enjoy protection in a number of jurisdictions, particularly in the most vulnerable economies.[161] The fact that the MDCs and the LDCs held few patents in clean technologies indicates that owners of foreign clean technologies were not filing patents in these developing nations. This is consistent with the finding in Part I.C that the MDCs and the LDCs had little inbound transfer of foreign clean technologies. The fact that emerging economies have had the most share of the clean technology patents filed in developing nations and that two thirds of these patents were filed by foreigners has at least two implications. First, emerging economies have developed and owned certain clean technologies, and second, owners of foreign clean technologies value the emerging markets and thus applied for patent protections for clean technologies there.
3. Assessment
This article will now assess IPR’s impact on the international transfer of clean technologies to developing nations, based on the evidence identified above, the author’s professional experience in global IPR practice, and current scholarship on IPR and technology transfer. Multiple factors impact the international transfer of clean technologies. The existence of proper IPR protection in a receiving nation is a positive factor; other factors include the market and policy conditions in the receiving nation. As of now, the existence of IPR in the emerging economies has helped to attract foreign clean technologies to the emerging economies. The lack of IPR or weak IPR may have further deterred foreign clean technologies from dispersing to the remaining developing nations. IPR systems in developed and developing nations possess varying levels of maturity and sophistication. Developed nations have developed their IPR systems over a long time.[162] The emerging economies likely have established the formal structures of an IPR system within the past century, and can improve upon IPR enforcement.[163] The MDCs and especially the LDCs in general tend to have limited or non-existent IPR systems.[164] Patents may, at best, be one of many factors encouraging investment in technology research and development.[165] Studies have found that in most circumstances, the promise of patent protection is not an important ex ante inducement to investments in technologies, though firms do register patents ex post to protect their inventions.[166] Evidence indicates that commercial investment in developing new clean technologies depends on more factors than just IPR, such as anticipated market demand, relative prices of alternative energy sources, regulatory demands, the costs of investment, and public research subsidies and tax inducements.[167] However, patents play a stronger role in international technology transfer. Foreign technology owners want to be sure that the technologies will be protected from unwanted leaks caused by unsanctioned imitation or movements of personnel.[168] Empirical studies have shown that the volume and technology content of licensing contracts from U.S.-based firms to partners with developing nations rises significantly when developing nations strengthen their patent rights.[169] Furthermore, strong patent reforms in developing nations have been demonstrated to bring more imports of capital goods and high-tech goods from developed nations.[170] Meanwhile, studies further suggest that the ability of IPR to support international technology transfer may depend on other factors such as the market and policy conditions in the receiving nations.[171] This explains why positive impacts of IPR on international technology transfer have been found only in emerging economies, but not in the MDCs and especially not in the LDCs. Technology owners tend not to transfer technologies to the LDCs, because the LDCs tend to have small domestic markets along with relative low capacity for local absorption of technologies, skilled labor, weak governance, and infrastructure.[172]
i. The Emerging Economies
Though IPR may have increased the cost for the emerging economies to access foreign clean technologies, that does not justify why IPR has been a major barrier for emerging economies to access foreign clean technologies. In contrast with the MDCs and the LDCs, the emerging economies have established more mature IPR systems. [173] Therefore, owners of clean technologies from developed nations may prefer to apply for patent protection for their clean technologies in the emerging economies than in the MDCs or the LDCs.[174] The cost of transferring such clean technologies from developed nations may include the cost of securing IPR on these technologies in the emerging economies. However, IPR that protects foreign clean technologies in the emerging economies should not pose an overwhelming threat to the emerging economies’ access to clean technologies. As discussed in Part II.A.1, the basic technical solutions of climate change have long expired from patent protection; rather, incremental improvements or individual features are being patented.[175] Second, a clean technology tends to have different alternatives and substitutes in the market; weakening a single patent holder’s control over the market.[176] Both facts imply that a singular IPR-protected clean technology may not have significant dominance in the relevant market. Meanwhile, the emerging economies benefit from IPR for clean technologies. First, given the emerging economies’ increasing commercial investments in clean technologies,[177] they need IPR for clean technologies to capture these investments and build up their own IP portfolios in the clean technologies. In addition, in order for the emerging economies to attract more inbound transfer of foreign clean technologies and to stimulate local innovations, they need to enhance their IPR systems rather than weaken them. International trade flows respond positively to increases in patent protections in the emerging economies, especially in industries that rely heavily on patent protection.[178]
ii. The LDCs
IPR should not be a major barrier for the LDCs to access foreign clean technologies. Few foreign clean technology owners have applied for patents in the LDCs.[179] Conversely, as the above review of data on global patenting of clean technologies shows, the LDCs administer few patents on clean technologies.[180] These consequences are likely multiplied by factors such as limited market sizes and potential profit returns that the LDCs offer to foreign firms, and/or their lack of confidence in the investment environment offered by the LDCs.[181] On the contrary, the LDCs’ lack of or limited IPR protection may be one of the reasons for the almost non-existent rate of inbound transfer of foreign clean technologies. Lack of or limited IPR protection in the LDCs enables users in the LDCs to imitate, reverse engineer, and use foreign clean technologies for free. Hence, foreign firms owning clean technologies may choose not to transfer the technologies to the LDCs voluntarily, fearing the loss of control over the technologies.[182]
iii. The Other Developing Nations — i.e., the Mid-tier Developing Nations
When an MDC is building up its economy to become more like an emerging economy, IPR will likely help the MDC attract owners of foreign clean technologies to apply for IPR protection of their technologies in the MDC. In such a situation, IPR may increase the price of the MDC’s access to the IPR-protected foreign clean technologies. On the other hand, IPR should not be part of the cost for an MDC’s access to foreign clean technologies, especially if the MDC remains at status quo or recedes to become more like an LDC. As data on the global patenting of clean technologies have shown, the MDCs along with the LDCs owned few clean technology patents.[183] Lack of or limited IPR protection in the MDCs may be one reason for this phenomena.

B. What Are the Potential Underlying Reasons for the Limited Transfer of Clean Technologies to Developing Nations?

While the existence of IPR has not been a major barrier to the international transfer of clean technologies to developing nations, this begs the question: what is? To find the answer, this article analyzes available evidential data such as data supplied by developing nations themselves on what constitutes major barriers to the inbound transfer of clean technologies. This article then supplements the analysis with a review of current scholarship regarding international technology transfer.
1. Evidential Data
Data from developing nations collected by the United Nations identify a number of barriers to the inbound transfer of foreign clean technologies. Though IPR was initially listed as a barrier, it has not been considered one since 2009. Data from different surveys on international transfer of clean technologies suggest that IPR helps a developing nation to attract foreign clean technologies. Such data also indicates that IPR is not the sole determinant; other conditions include a developing nation’s market size and its capacity to absorb and implement foreign clean technologies.
i. Developing Nations’ Own Assessments
As introduced earlier in Part I.C, one mechanism that the UNFCCC established via its international technology transfer framework is the Technology Needs Assessment “TNA” reports. These reports are for developing nations that are parties to the UNFCCC, to identify both their needs for specific clean technologies and the barriers these nations perceive to the inbound transfer of clean technologies.[184] Thus far, these nations have submitted three sets of TNA reports: the first in 2006 with 23 participating developing nation parties, the second in 2009 with 70 participating developing nation parties, and the third in 2013 with 31 participating developing nation parties.[185] The TNA reports by developing nations from 2006 to 2013 identify a number of barriers for inbound transfer of foreign clean technologies. Whereas IPR is listed as a barrier in the 2006 TNA reports, it is not in later reports. The TNA reports do not seem to support the claim that the existence of IPR has been a major barrier to the transfer of clean technologies to developing nations. The three sets of TNA reports identified very similar patterns on what constituted major barriers to the inbound transfer of clean technologies to developing nations. In all the three sets of TNA reports, developing nations highlighted economic and market barriers as one of the major barriers to the inbound transfer of clean technologies.[186] Specifically, 83%, 82%, and 90% of the reporting nations in the 2006, 2009, and 2013 TNA reports did so, respectively.[187] The figure below ranks the major barriers reported in 2006, according to the percentage of reporting nations who cited these major barriers in their 2006 TNA reports.[188]
In these three sets of TNA reports, the reporting nations also identified what constituted economic and market barriers. The figure below shows such data from the 2006 TNA reports.[189] As shown, here, IPR issues were identified as one of the barriers, though by the fewest reporting nations.
However, the 2009 and 2013 TNA reports made no mention of IPR issues. The 2009 report, for instance, as shown below, identified “underdeveloped economic infrastructure,” “lack of support from national banks, “low affordability by population,” and “high costs/limited state resources” as economic and market barriers, and did not include IPR on the list.[190]
One possible reason for the disappearance of IPR issues from the TNA reports is that the reporting nations no longer considered IPR issues a barrier to the international transfer of clean technologies. Alternatively, the reporting nations may have merged IPR issues with another barrier, for instance the barriers relating to high costs or incompatible prices. Only high costs consistently appeared in all three sets of TNA reports. Developing nation parties of the UNFCCC have consistently cited high costs and/or lack of financial resources as an economic and market barrier to the inbound transfer of clean technologies and it has consistently ranked the highest in term of the number of reporting nations citing it as a barrier.[191] These reports, however, did not identify what caused the high investment cost or high cost for transfer for clean technologies. They also did not mention IPR an element of these high costs. Could IPR price be a necessary part of the cited high costs or high investment cost for inbound transfer of clean technologies for developing nations? The answer depends on a developing nation’s ability to attract technologies with IPR. If a developing nation is able to attract foreign firms to apply for and obtain IPR locally on the firms’ clean technologies, the high cost of technology transfer may include the price premium added by local IPR on the foreign clean technology. Otherwise, when foreign firms do not apply for IPR protection for their clean technologies in developing nation, the high cost of the transfer of clean technologies likely does not include IPR costs. The high costs facing the MDCs and the LDCs for inbound transfer of foreign clean technologies are not likely the result of IPR protection. The MDCs and the LDCs have few patents on clean technologies.[192] These nations may not have provided sophisticated IPR systems that foreign technology owners can rely on. Furthermore, foreign technology owners may choose not to transfer their technologies to these nations due to their limited market sizes and low potentials for financial profits.[193] On the other hand, IPR might have contributed to the high costs for inbound transfer of foreign clean technologies to emerging economies. As the analysis of the patent data in Part II.A shows, the emerging economies have held most of the clean technology patents in developing nations, and two-thirds of these patents were on foreign clean technologies. Because of the market size and potential profitability emerging economies can offer, foreign technology owners may be attracted to transfer their technologies to the emerging economies. Meanwhile, the emerging economies tend to have established IPR systems which allow the foreign technology owners to secure local IPR protection on their technologies.
ii. Other Evidential Data
Other evidential data[194] supplement the findings from the TNA reports, which suggest that IPR helps attract foreign clean technologies to developing nations. The data also indicates that IPR is not the sole determinant; other conditions that attract these technologies include adequate market size and the capacity to absorb and implement foreign clean technologies. The additional evidence correlates with developing nations’ TNA reports, which identified multiple domestic barriers such as economic and market, public policy, human capital, institutional, infrastructure, etc., for attracting inbound transfer of clean technologies. Surveys have found that IPR is good for the international transfer of clean technologies to developing nations. For example, a 2010 study examining factors driving international transfer of clean technologies “Study G” using patent data from sixty-six nations during 1990-2003 found that strong IPR has a positive impact on in-bound transfer of clean technologies.[195] Further, Study B (cited in Part I.C) found that the patent system can support and enhance technology transfer, because without patents to protect the foreign companies’ products and processes, the foreign companies may be reluctant to engage in technology transfer and associated investments.[196] However, studies also discovered that IPR is not the only factor in attracting foreign clean technologies to developing nations. For example, Study G finds that a nation’s capacity to absorb foreign clean technologies is determinative for local patent filing and thus the inbound transfer of foreign clean technologies.[197] For example, Study G found that patent filings on foreign technologies increase in nations that have active R&D in the same technology field,[198] and restrictions on international trade negatively affect international technology transfer.[199] Furthermore, Study B found that the main factors that impede international transfer of clean technologies include access to trade secrets, developing nations’ ability to provide suitable skilled staff, scientific infrastructure, and favorable market conditions.[200] These are collectively known as access to know-how from the foreign companies. Meanwhile, Study B enlisted necessary complementary factors such as infrastructure, effective government policies and regulations, knowledge institutions, and access to credit and venture capital, skilled human capital, and networks for research collaboration.[201] These factors correlate with the major barriers identified by developing nations in the TNA reports discussed above.
2. Assessment
The analysis below examines what impacts the transfer of clean technologies to developing nations via each of the three market-based venues i.e., international technology licensing, FDI, and international trade. The analysis leverages current scholarship on international technology transfer, finding that IPR protection, capacity to absorb and adopt foreign technologies, market size and policy certainty and transparency are likely conditions for a nation attracting inbound transfer of foreign technologies. Further, although IPR helps attract foreign technologies, strong IPR likely stifle the development of local industries for some developing nations — such as the LDCs — that are at the beginning stages of technology development and rely on learning via duplicative imitation.
i. International Technology Licensing
Technology licensing occurs when an owner of a proprietary technology consents to another party’s use of the technology in exchange for value.[202] International technology licensing is a particularly important source for the transfer of standalone technologies, e.g., technical information or know-how that is not embodied in equipment or hardware.[203]The main criteria for a nation to attract foreign technologies via international technology licensing include market size, policy certainty and transparency, capacity to absorb and implement foreign technologies, and sufficient IPR protection. For example, studies shows that nations with substantial engineering skills and R&D programs for adaptation and learning attract more international technology licensing than other nations.[204] IPR is another important factor for international technology transfer via technology licensing. When developing nations with the capacities to absorb and use foreign technologies strengthen their IPR protections, developed nations are more likely to license their technologies to these developing nations due to their low wage and production cost.[205] Study B, cited in Part I.B, also found that the state of IPR in the nation of the licensee was an important factor in a licensor’s decision to enter into a licensing agreement; and that licensing-intensive respondents viewed IPR as a more important factor than others in the nation of the licensee such as scientific infrastructure, human capital, favorable market conditions, and investment climates.[206]
ii. Foreign Direct Investment
Foreign direct investment “FDI” refers to when one nation’s commercial entity invests cross-border in another nation.[207] Such an investment can be the commercial entity establishing business operations, acquiring assets, or taking up stakes in businesses in the other nation.[208] The investment may involve the transfer of capital, management, technology, and organizational skills.[209] FDI likely contributes positively to international transfer of technologies to developing nations. Factors such as the market size, policy clarity and transparency, human capital, and availability of IPR protection of the recipient nation all would enhance inbound FDI. FDI by commercial entities, such as the MNCs, provides developing nations with more access to foreign technologies. Developing nations may also benefit from FDI’s spillover effects, i.e., the demonstrations of foreign technical and business operations, labor turnover by personnel movements, and interactions among businesses in the chain of moving a product or service to the end users.[210] Multiple factors affect a nation’s ability to receive FDI. Similar to international technology licensing, market size, policy clarity and transparency of the recipient nations affect FDI.[211] A study testing the effects of inbound FDI on growth in 69 developing nations found that inbound FDI contribute more to domestic growth than domestic investments do, but only when the recipient nation has a minimum threshold stock of human capital.[212] Multiple studies show a positive correlation between perceived strength of IPR protection in developing nations and the volume and quality of FDI they attract.[213] When developing nations failed to provide patent protection for foreign inventions, foreign firms resorted to use “less than best-practice technologies” in developing nation.[214]
iii. International Trade
International trade likely increases developing nations’ access to foreign technologies. IPR protection and the capacity to absorb and adapt foreign technologies will attract trade inflows. However, for LDCs or other developing nations that are still at the beginning stages of their domestic technology development, strong IPR will likely be restrictive for the development of local industries. International trade is the cross-border exchange of capital, goods, and services.[215] Similar to the spillover effects caused by FDI, openness in trade facilitates international technology transfer by allowing the recipient nations to access foreign technologies via exposure to new equipment, foreign business and technical operations. Besides being open to international trade, developing nations’ capacity for absorbing and adapting foreign technologies is important for foreign technologies to effect local technical change.[216] When a developing nation lacks such capacity, it may utilize open trade to learn of foreign practices and/or use FDI to acquire technology.[217] Meanwhile, IPR likely attracts the inflow of trade, at least for some developing nations. An empirical study of international trade flows from 1984, when there were still huge gaps in IPR systems among different nations, shows that stronger IPR significantly expands bilateral imports.[218] A more recent study on the impact of IPR on China’s import industries indicated that strong IPR stimulates imports, especially for knowledge-intensive products.[219] However, IPR’s positive effect on technology transfer via trade may not apply to all developing nations. Through open trade, developing nations can rise up the “duplicative imitation, creative imitation and inventing” ladder of technology development by imitating and reverse engineering advanced foreign technical and related business operations.[220] If a developing nation is in the duplicative imitation stage, in the absence of technology licensing, strong IPR would raise developing nation’s imitation costs, restrict technology diffusion, and reduce long-term incentives to innovate. Currently, many developing nations are at the duplicative imitation stage, hoping to absorb foreign technologies into labor-intensive export production and evolve into higher value-added stages such as creative imitation or inventing over time. In particular, the LDCs have barely stepped onto this ladder of technology learning.[221] Therefore, for these developing nations, differentiated IPR systems reflecting these developmental realities likely make more sense than the strong IPR systems used in developed nations. Such developing nations probably would also benefit from having access to mechanisms — e.g., international aid, subsidies or differential pricing schemes — that reduce the cost of importing IPR-protected goods or services.[222]

C. Summary

As discussed in Part I.B, addressing climate change is a pressing issue; in order to meet the 2°C goal, we need to reduce 60% of the anthropogenic GHG emissions by 2050, using 2000 as a base line.[223] Rapid development and deployment of clean technologies to meet this goal requires developed and developing nations to act independently and collaboratively. The stalemate between developing nations and developed nations regarding IPR’s role in improving international transfer of clean technologies must cease. As the analysis in Part II.A shows, the existence of IPR has not been a major roadblock for the transfer of clean technologies to developing nations.[224] Instead, lack of proper IPR protection for clean technologies may impede the international transfer of clean technologies. Commercial sectors in developed nations play a significant role in the development and transfer of clean technologies, and they are concerned about losing their control of the technologies to be transferred if developing nations do not offer proper IPR protections. Therefore, developing nations need to offer IPR in order to attract inbound transfer of clean technologies. However, developing nations should be allowed to customize their IPR protections to address the realities of their countries’ economic development. Strong IPR protections may not benefit all developing nations equally. For developing nations that currently rely on duplicative imitation of foreign practices for technology development, strong IPR protections will likely inhibit such practice and hence the growth of domestic industries. Meanwhile, IPR is just one of the conditions enabling developing nations to attract inbound transfer of clean technologies. According to the analysis in Part II.B, in order to attract inbound transfer of foreign clean technologies, a developing nation also needs to have certain capacity. Such capacity includes a good investment environment (such as market conditions, policy clarity and transparency) openness to trade for attracting international technology transfer, and domestic scientific infrastructure and human capital for absorbing and implementing foreign technologies into the local production process. Likely due to a lack of some of such capacity, most developing nations—especially the MDCs and the LDCs—have had difficulties attracting foreign clean technologies. Meanwhile, as the examination in Part I.C shows, emerging economies have been attracting most of the limited international transfer of clean technologies to developing nations. This is likely due to the fact that emerging economies have most of such capacity, e.g., market sizes and profitability, more established IPR systems and domestic ability to absorb and implement foreign clean technologies. The MDCs and the LDCs have yet to build up such capacity to attract inbound transfer of foreign clean technologies. Developed nations can help developing nations—especially the MDCs and the LDCs–build up such capacity. Because of climate change’s global impact and developed nations’ historical contributions to climate change, developed nations have the self-interest and moral duty to help developing nations address climate change, e.g., via international aid. Furthermore, the governments of developed nations can set up domestic initiatives and mechanisms to encourage their commercial sectors to transfer clean technologies to developing nations.

III. Proposal: Focus on Domestic Innovation, International Aid, and International Technology Collaboration

This article proposes that domestic innovation, international aid and international technology collaboration should be the focus, rather than international transfer of clean technologies, in order to effectively address climate change via clean technologies. The proposal aims to encourage the rapid and sustainable development and deployment of clean technologies, while addressing the factors that likely have induced the limited amount of transfer of clean technologies to developing nations during the past two decades. The proposed solution has three prongs. First, both developed nations and developing nations should stimulate domestic innovations on clean technologies by leveraging diverse tools for encouraging innovations. This includes developed nations optimizing their IPR systems to encourage advancements in clean technologies, along with developing nations building customized IPR systems reflecting their national realities. Second, developed nations and even the emerging economies should provide financial and technical aid to developing nations, especially the MDCs and the LDCs, to help them combat climate change and build the sustainable national capacity to attract, absorb and implement foreign clean technologies. Third, when applicable, developed nations and developing nations should construct collaboration platforms for clean technology developments that would benefit both parties.

A. Domestic Innovation

Both developed nations and developing nations should focus on encouraging domestic innovations in clean technologies by leveraging diverse means for cultivating innovation. Such means include optimizing existing IPR systems (e.g., in developed nations) or building up customized IPR systems that reflect the nation’s developmental realities (e.g., in developing nations). They may also include utilizing, where appropriate, open source movement, open innovation, prizes, patent pools and patent commons.
1. Developed Nations
Developed nations should focus on advancing the development of clean technologies, as discussed in Part I.B, to make the needed technical breakthroughs and provide clean technologies as attractive and affordable alternatives to the traditional high-carbon technologies. Developed nations have the resources and human capital to invest in advancing clean technology innovations, and are thus well suited to take leadership in driving them. To do so may require that developed nations optimize their existing IPR systems for rapid development and deployment of clean technologies. It also may require leveraging other tools for promoting innovations. Ideally, developed nations will optimize their existing IPR systems so as to encourage advanced development of clean technologies and facilitate outbound transfer of clean technologies to developing nations. Different proposals have been put forth regarding how to optimize the existing IPR systems to facilitate development of clean technologies.[225] Accelerated patent examination, reduction, waiver or cancellation of administration fees for patent applications on clean technologies, earlier publication of clean technology patent applications, priority for clean technology patents at the opposition and infringement stage, and better classification of the clean technologies are a few possible approaches for encouraging the patenting of clean technologies. Quite a few nations have implemented special IPR treatments for clean technologies. For example, patent offices in the U.K., the U.S., Japan, Australia, China, Korea, Israel, and Brazil have instituted fast-track examinations for clean technology patents applications.[226] Expediting the examination process for patent applications on clean technologies means less delays in granting protection to a patentable clean technology. Under the U.K. fast track program for patent applications of clean technologies,[227] the examination time is reduced from 2-3 years to 9 months – a 75% reduction of examination time.[228] Such reduced delay brings earlier awareness of and access to the patented technologies by the general public, including developing nations. Optimizing the IPR system is just one approach to advance development of clean technologies. Other means should be explored as well. For example, the open source movement for the software industry may work for fostering development in a specific clean technology field. Prizes for specific clean technology sectors may inspire the breakthrough innovations needed for these sectors. Patent pools and patent commons can also be formed to ease access to proprietary clean technologies.
2. Developing Nations
Developing nations should focus on building environments that foster domestic development of clean technologies while attracting inbound transfers of foreign clean technologies. Most importantly, for their own sustainable development, developing nations need to build up an environment fostering domestic development of clean technologies. This way, developing nations can build their own portfolios in clean technologies, empowering themselves for a low-carbon economy and to have better negotiation positions with entities from developed nations.[229] Similar to developed nations, developing nations need to leverage diverse tools for promoting domestic innovation of clean technologies. In addition, developing nation’s internal knowledge of the geographic regions, traditional technology and indigenous practice may also provide a holistic approach for addressing climate change when integrated with modern clean technologies. In order to increase inbound transfer of foreign clean technologies, developing nations need to build the national capacity identified in Part II.B for attracting, absorbing and implementing foreign technologies. Offering IPR protection is part of such national capacity. IPR may also encourage domestic innovation, when appropriately adapted to a nation’s developmental reality.
i. Building National IPR Systems That Reflect Developmental Realities
The reality of today’s global economy suggests the necessity of a domestic IPR system for a developing nation. Developed nations have had their dominant imprints on the operations of the global economy, including in integrating their IPR standards into the WTO TRIPS Agreement, with which all WTO member nations are required to comply. Further, as data on global investments in clean technologies discussed in Part II.A show, commercial sectors in developed nations far outpace governments insofar as investments in clean technologies. Such disparity means the governments of developed nations will likely have difficulties in requesting the commercial sectors to forego their preferences for strong IPR, as developing nations’ demand of weakened or no IPR on clean technologies would require. Hence, the use of IPR will most likely persist in global trade. Instead of resisting it, developing nations should utilize IPR for their long-term economic development and build domestic IPR systems that address and reflect national developmental realities. The global economy may offer developing nations additional leverage for technology development besides the traditional model of “duplicative imitation, creative imitation, and inventing.” Instead of relying mainly on imitating advanced foreign practices to jumpstart local technology development, integrating a developing nation’s local economy into the global economy and opening it up to global trade may speed up its technology development via the inflow of capital and modern business or technical practices. Such integration likely requires membership in the WTO.[230] The WTO, meanwhile, requires its member nations to comply with the TRIPS Agreement, which sets up minimum IPR requirements.[231] Joining the WTO and complying with the TRIPS Agreement probably would not prevent a developing nation from having a customized IPR system, which could reflect a developing nation’s own needs in technology development.[232] While the TRIPS Agreement establishes minimum requirements for IPR protection in a WTO member nation, it also offers flexibilities that can be leveraged at member nations’ discretions.[233] In particular, it recognizes the LDCs’ need to have “maximum flexibility” in implementing the requirements of the agreement.[234] The TRIPS Agreement provides individual WTO member nations policy space for regulating patentability of clean technologies or denying patent protection for certain technologies. For example, it does not define what constitutes an “invention” nor the criteria for patentability,[235] thus each national government can provide its own criteria regulating what inventions can be granted patent protection. The TRIPS Agreement also leaves room for each member nation to deny patent protection to technologies that are necessary to “protect ordre public or morality, including to protect human, animal or plant life or health or to avoid serious prejudice to the environment.”[236] Thus, when necessary, polluting technologies can be construed as posing serious harm to the environment, the health of human, animal or plant life and be denied patent protection, even when such technologies satisfy the patentability criteria. The TRIPS Agreement also provides a WTO member nation the means to regulate the use of a patented invention. For example, the TRIPS Agreement allows compulsory licensing.[237] However, this article recommends judicious use of compulsory licensing, as it does not bring in the know-how and trade secrets associated with the patented invention and may discourage domestic innovation, FDI, and inbound technology transfer. Further, the TRIPS Agreement provides competition measures wherein a national government can address IPR licensing practices or conditions that “may have adverse effects on trade and may impede the transfer and dissemination of technology.”[238] This means that for technologies locally protected by IPR, a WTO member nation can regulate abusive licensing practices or conditions related to such technologies, including foreign technologies. Therefore, developing nations may leverage domestic competition regulations to address anti-competition practices involving the transfer of foreign clean technologies. Furthermore, the security provision in the TRIPS Agreement enables a WTO member nation to identify threats to essential national security — e.g., famine, mass migration, and war — and to take proper actions.[239] As predicted by the IPCC, climate change has the potential to cause mass human migration, to threaten national security, and even to cause civil wars when access to key living resources such as water and food becomes an issue.[240] Developing nations may frame climate change as a threat to national security or energy security and take necessary actions to address it. Hence, even in light of the minimum IPR requirements of the TRIPS Agreement, a developing nation still has the flexibility to determine whether certain clean technologies have IPR protection, as well as whether to leverage compulsory license, competition and/or security measures to regulate the use of IPR-protected clean technologies. Meanwhile, in building a customized IPR system reflecting a developing nation’s own realities, the developing nation needs to balance stimulating domestic innovations and attracting inbound transfer of clean technologies. As indicated in Part II.B, strong IPR helps to attract foreign technologies, but unduly strong IPR may stifle a developing nation’s domestic technology development.[241]
ii. Building up National Capacity to Attract Inbound Transfer of Clean Technologies
While fostering domestic innovation in clean technologies, developing nations should also incorporate clean technologies already developed by the global community. To do so, as discussed in Part II.B, developing nations need to build up the national capacities necessary for attracting, absorbing and implementing foreign clean technologies. For example, developing nations can remove entry barriers to make technology transfer more attractive to foreign firms.[242] In practice, many nations seek to attract foreign investments through special economic zones, subsidies, tax holidays and other grants.[243] In addition, developing nations can also use subsidies or similar incentives to encourage domestic firms to adopt risky foreign clean technologies, and/or impose stricter environmental regulations to increase domestic demand for clean technologies. [244] Policy interventions, including implicit and explicit subsidies, paved the way for the miraculous economic development in South Korea and Taiwan.[245] Meanwhile, developing nations may further invest in local human capital. Human capital, such as well-trained technical staff and technology managers, are essential for local absorption and implementation of foreign clean technologies.[246]

B. International Aid

Developed nations have both an ethical imperative to and self-interest in finding ways to help developing nations combat climate change.[247] Historically, developed nations contributed largely to the climate change. As suggested by developing nations, developed nations should address such negative externality produced by their pursuit of economic development. At the same time, helping developing nations address climate change is in the interest of developed nations, as they will receive the global impact on environment by developing nations’ increasing energy consumption as a result of their economic developments. Meanwhile, developing nations — especially the LDCs and the MDCs — do need help in combatting climate change. In particular, LDCs that are most vulnerable to climate change require special assistance, since they experience the impact of climate change most acutely while contributing to climate change the least. Further, trade and investment flows to these nations are not as responsive to IPR protection as to the emerging economies.[248] Developing nations request support from developed nations to address climate change via financial aid, technology transfer and capacity building.[249] The proposal considers that developed nations are able to assist developing nations via capacity building, financial aid, and technology transfer. First, developed nations can contribute the most by helping the MDCs and the LDCs build up sustainable national capacities to attract, absorb and implement foreign clean technologies. Such assistance would benefit developed nations as well. It would enable developing nations to build low-carbon economies so as to reduce their future impact on the global climate and enhance their contributions to the global community. It would also expand the international markets that are suitable for the deployment of the clean technologies owned by developed nations’ commercial sectors. Second, developed nations should also pool resources together to help developing nations address climate change. Financial aid can be an important factor in helping developing nations to access, develop, and deploy clean technologies. The UNFCCC stipulates that developed nations must provide financial resources for developing nations to address climate change.[250] As the discussion of the TNA reports in Part II.B shows, the majority of developing nations perceive the high cost of foreign clean technologies as a barrier to accessing such clean technologies. This article therefore suggests that at a minimum, a global fund such as the Green Climate Fund “GCF” should be maintained and expanded to facilitate international transfer of clean technologies. Such a fund can be used to pay for the high costs encountered by developing nations in importing foreign clean technologies.[251] Developed nations can supply the balance of the fund to fulfill their obligations detailed in the UNFCCC and other international treaties. Other venues for funding can come from carbon tax or auction incomes in the carbon-trade systems.[252] On the financial aid front, there has been positive progress recently. The GCF reached its 10 billion USD threshold during the Lima climate change conference held in December 2014.[253] This is an encouraging step toward the ultimate goal of developed nations providing financial aid in the amount of 100 billion USD per year by 2020.[254] Thus far, both developed nations and emerging economies have contributed to the fund.[255] In 2014, the U.S. pledged 2.3 billion USD, Germany and France each pledged 1 billion USD, and China pledged 500 million USD.[256] During the latest climate change conference, which occurred in Paris in December 2015, the commitment of 100 billion USD per year by 2020 is reaffirmed, with an aspiration to go beyond this commitment by 2025.[257] The third approach for developed nations to assist developing nations involves technology transfer. Under the stipulations of international treaties such as the WTO TRIPS Agreement and the UNFCCC, developed nations have committed to facilitate technology transfer to developing nations, especially the LDCs.[258] The governments of developed nations can do so by, e.g., implementing domestic initiatives for encouraging transfer of clean technologies.[259] More specifically, the governments of developed nations can award preferential tax treatment for R&D performed in developing nations by firms from developed nations,[260] or for the firms’ transfer of clean technologies to developing nations, or making these technologies publically available.[261]

C. International Technology Collaboration

The UNFCCC requires all participating parties to “promote and cooperate in the development, application and diffusion, including transfer, of technologies” relevant to GHG emissions.[262] While international aid may focus primarily on the MDCs and the LDCs, international technology collaboration will likely occur between a developed nation and an emerging economy. The reason is that the emerging economies likely have the necessary IPR systems and national capacities to support mutually-benefiting joint development or deployment of clean technologies. As described in Part I.C, the 2010 Cancun global climate change conference established the Technology Mechanism to enhance action on clean technology development and deployment in developing nations.[263] This mechanism is expected to be a good platform for bringing developed nations and developing nations together to accelerate development and deployment of clean technologies.[264] For example, a developing nation may identify its needs for certain clean technology development. Technology Mechanism may help identify a developed nation that is interested in working with the developing nation to co-develop the clean technology needed or adapt and deploy the clean technology if the developed nation has already developed it. Meanwhile, bilateral collaborations on developing clean technologies have started among some nations and should be expanded to a larger scale. For example, the U.S. Department of Energy has established bilateral collaborations with China and India to develop clean energy technologies.[265] It is predicted that such collaboration between developed nations and the emerging economies can be a “win-win solution.”[266] Additional international collaboration for the development and deployment of clean technologies can occur at the global community level. Some examples might include the formation of global patent pools, a global clean technology information repository, or a global patent clearing house.

IV. Appraisal: Advantage and Concerns Regarding the Proposal

As discussed throughout this Article, in spite of the emphasis by international instruments such as the UNFCCC and the TRIPS agreement, international transfer of clean technologies to developing nations has been limited in the past two decades. This article proposes that we focus on domestic innovation, international aid and international technology collaboration instead, so to facilitate the much needed rapid development and global deployment (including international transfer) of clean technologies. The proposal offers several advantages and may raise addressable concerns as well.

A. Advantages

The proposal de-emphasizes the focus on international transfer of clean technologies to developing nations, which has not been effective in the past two decades or more. Instead, the proposal addresses the possible reasons for the failure, and re-focuses attention on the critical need for a global collective effort in sustainable development and deployment of clean technologies. The proposal is based on four major insights gained from empirical analysis of evidential data on clean technologies and international transfer of clean technologies. First, rapid development and wide deployment of clean technologies is critical for addressing climate change. Second, IPR has not been a major barrier, but is a necessary element for attracting foreign clean technologies to developing nations. Third, to increase inbound transfer of clean technologies, developing nations need to have national capacities for attracting, absorbing, and implementing foreign clean technologies. Fourth, developed nations have the obligation and self-interest to aid and/or collaborate with developing nations in addressing climate change. The proposal is constructed to address the more plausible reasons that the current transfer of clean technologies to developing nations is limited. It addresses developing nations’ lack of pulling power on inbound transfer of foreign clean technologies by suggesting that developing nations build up sustainable national capacities for attracting, absorbing, and implementing foreign clean technologies. The proposal also asks that developed nations facilitate better international transfer of clean technologies by helping developing nations build up such national capacities, and by installing domestic initiatives to encourage outbound transfer of clean technologies to developing nations. The approach also explores the potential of expanding international technology collaborations that benefit both a developing nation and a developed nation. Considering the importance of rapid development of clean technologies on a global scale, the proposal further suggests all nations focus on domestic innovation of clean technologies. Realizing the significant weight commercial sectors carry in the development and deployment of clean technologies, the proposal suggests that IPR remain as one of the incentivizing tools to stimulate domestic innovation in clean technologies in each nation and to attract inbound transfer of clean technologies.

B. Concerns

One concern for the proposal is that some developing nations, such as the LDCs, lack resources such as capital and IPR assets, and therefore that they may lack the bargaining powers for meaningful technology collaboration with developed nations. The proposal addresses this concern by suggesting that developed nations provide international aid particularly to such developing nations to assist them in combatting climate change and in building up their sustainable national capacities for attracting foreign clean technologies. Developed nations have the obligation and the self-interest to provide such aid.[267] The more advanced developing nations, i.e., the emerging economies, may join developed nations in providing such aid. As the proposal suggests, international technology collaborations will likely occur between developed nations and developing nations that can offer certain resources such as established IPR systems, or human/financial capital.[268] A second concern is that some developing nations may not want to employ clean technologies, since traditional technologies may have already been in place and are cheaper to use. These nations may prefer to pursue economic development regardless of its environmental costs, since developed nations did not pay attention to environmental issues in the early stages of their own economic development. This article recognizes this concern but doubts that such developing nations will persist in this inclination. Currently, it seems like all nations are engaged in the recent global climate change conferences. For example, all 196 nations attended the Lima and the Paris climate change conferences, which occurred in December 2014 and December 2015 respectively. This attendance rate indicates that all nations are engaged with the climate change issues and are interested in addressing it together as a global community. Such an interest, coupled with persuasion, pressure, and aid from the international community would gradually push a disinclined nation toward pursuing economic development regardless of its environmental costs. A third concern is that international financial aid and government subsidies that aim to encourage the development and deployment of clean technologies may be used as a means to sustain the high costs of accessing clean technologies, therefore distorting the operations of the market economy. This article agrees with this concern. Yet, as of now, under the operation of the free market mechanism, the MDCs and the LDCs essentially are not receiving the needed clean technologies,[269] which is a market failure. When there is a market failure, intervention is necessary. Interventions such as international aid and government subsidies may help the MDCs and the LDCs to develop or gain access to the needed clean technologies. Another possible intervention is to weaken or remove IPR protection for clean technologies in general, as proposed by developing nations, but such an intervention seems unrealistic. First, the commercial sectors, whether in developing or developed nations, won’t respond well to such an intervention. As discussed in Part II.A, IPR is an important tool for incentivizing commercial investments in clean technologies. Second, also shown in Part II.A, in developed nations, commercial investments in clean technologies far overweigh government investments, which means governments in developed nations won’t be able to heavily influence their commercial sectors’ preferences on IPR, i.e., the preference for strong IPR for clean technologies.


The focus on the international transfer of clean technologies to developing nations in order to address climate change has not worked well during the past two decades. This article analyzes evidential data on clean technologies and their transfer and finds that the existence of IPR has not been a major barrier to such transfer, as suggested by developing nations during the debates with developed nations on how to improve the situation. This article also studies possible reasons for the currently limited transfer of clean technologies to developing nations and concludes that developing and developing nations need to work together to improve the situation. Specifically, developing nations need to improve their national capacities in attracting, absorbing, and implementing foreign clean technologies, and developed nations have the moral duty and self-interest to provide concrete and effective assistance to developing nations in building such capacities and in helping developing nations address climate change. By understanding and addressing these possible reasons, this article proposes that we focus on domestic innovation of clean technologies, international aid and collaboration, instead of international transfer of clean technologies. This approach makes possible and sustainable the needed rapid development and deployment — including international transfer — of clean technologies, which is essential for us to successfully address climate change.
* Intellectual Property Fellow, IIT Chicago-Kent College of Law. The author thanks the colleagues who contributed to this article, including participants in various conferences where the work was presented and the anonymous subject experts for Edward Elgar Publishing, which will publish the author?s book on this topic in 2017. In particular, the author thanks Richard Wilder, a former colleague, who started the author on the research, Nives Dolšak and Toshiko Takenaka at University of Washington, Edward Lee, Felice Batlan, Sungjoon Cho, David Schwaltz, Chris Buccafusco, Martin Malin, and the other faculty at IIT Chicago-Kent College of Law, for their input to the work at its different stages, Josiah Harrist for proofreading the article, and the editors at the NYU Journal of Intellectual Property & Entertainment Law for their great editorial input.
[1] Barack Obama, Speech to the Copenhagen Summit, (Dec. 18, 2009), in Guardian, There may still be skeptics of climate change, of its causes, or of the optimal timing for addressing climate change. For the purpose of discussion, this article adopts the international consensus, manifested at the United Nations, which presumes that climate change is unequivocal and that the time to address climate change is now, rather than in the future.
[2] Copenhagen Climate Change Conference – December 2009, U.N. Framework Convention on Climate Change, meeting/6295.php (last visited July 15, 2015).
[3] Tove Iren S. Gerhardsen, Technology Transfer Will Be Part of Copenhagen Climate Deal, Intell. Prop. Watch (Sept. 16, 2009),
[4] See id.
[5] United Nations Framework Convention on Climate Change, Bangkok, Thai. / Barcelona, Spain, Sept. 28-Oct. 9, 2009 / Nov. 2-6, 2009, Report of the Ad Hoc Working Group on Long-Term Cooperative Action Under the Convention on its Seventh Session, at 156, U.N. Doc. FCCC/AWGLCA/2009/14 (Nov. 20, 2009).
[6] Hira Jhamtani, US Proposal to Remove IPRs from the Table Arouses Developing Countries’ Objections, TEBTEBBA (Aug. 11, 2009),
[7] Copenhagen Climate Change Conference – December 2009, supra note 2.
[8] Gerhardsen, supra note 3.
[9] See United Nations Framework on Climate Change, Conference of the Parties, Twentieth Session, Lima, Peru, Dec. 1-14, 2014, Lima Call for Climate Action, U.N. Doc. FCCC/CP/2014/10/Add.1 (Feb. 2, 2015).
[10] United Nations Framework Convention on Climate Change, Twenty-First Session, Paris, Fr., Nov. 30-Dec. 11, 2015, Adoption of the Paris Agreement, U.N. Doc. FCCC/CP/2015/L.9 (Dec. 12, 2015).
[11] Developed nations are nations which rank highly in the United Nations developed indicators such as GDP, industrialization, life expectancy, and education level. The U.S., Canada, Europe, and Japan are typical examples. International groups, like the WTO, do not have an official definition. See, e.g., Who Are Developing Countries in the WTO?, World Trade Org., (last visited July 2, 2015).
[12] Developing nations are countries other than developed nations. Id. This article groups developing nations into three categories: the emerging economies, the least developed countries “LDC”s), and the rest of developing nations, which this article will call mid-tier developing countries “MDC”s). See Emerging Markets, Wikipedia, (last visited Oct. 23, 2015); List of Least Developed Countries, United Nations (Dec. 4, 2013),
[13] E.g., Climate Change and the WTO Intellectual Property (TRIPS) Agreement, World Trade Org., (last visited Aug. 20, 2015); Climate Change and IP, World Intell. Prop. Org., (last visited July 23, 2015).
[14] For the purpose of this Article, deployment of clean technologies includes both the implementation and distribution of clean technologies, as well as cross-border transfer of technologies.
[15] Emerging economies are developing nations that have experienced rapid economic growth. These countries have the potential to continue this growth, but also pose substantial political, financial, or social risk. As of 2015, typical nations that are considered emerging economies include Brazil, Russia, India, China, Mexico, Indonesia, Turkey, Saudi Arabia, Iran. Similar terms used include emerging markets and emerging market economies. See, e.g., Definition of Emerging Markets, Fin. Times, (last visited Oct. 23, 2015); Emerging Economies,, (last visited Oct. 23, 2015); Definition of Emerging Market, Fin. Times, (last visited Oct. 23, 2015); Emerging Markets, Wikipedia, (last visited Oct. 23, 2015).
[16] Climate Change, Oxford Dictionaries, (last visited July 2, 2015).
[17] Organization, Intergovernmental Panel on Climate Change, (last visited July 30, 2015) [hereinafter IPCC Organization].
[18] Lisa V. Alexander et al., IPCC 2013: Summary for Policymakers, in Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change 5 (Stocker et al. eds., 2013), [hereinafter IPCC Fifth Synthesis Report].
[19] Id., at 11.
[20] Christopher B. Field et al., IPCC, 2014: Summary for Policymakers in Climate Change 2014: Impacts, Adaptations, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change 4 (Christopher B. Field et al. eds., 2014),
[21] Id. at 4-7.
[22] Hilary Whiteman, Report: Climate Change Crisis ‘Catastrophic,’ CNN (May 29, 2009, 1:17 PM),
[23] The goal of UNFCCC is to stabilize “greenhouse gas concentration in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.” UNFCCC has become the main framework under which global negotiations on addressing climate change occur. See Background on the UNFCCC: The International Response to Climate Change, U.N. Framework Convention on Climate Change, (last visited July 2, 2015).
[24] United Nations Framework Convention on Climate Change, art 1.2, May 9, 1992, S. Treaty Doc No. 102-38, 1771 U.N.T.S. 107 [hereinafter UNFCCC Treaty].
[25] IPCC Fifth Synthesis Report, supra note 18, at 17.
[26] Intergovernmental Panel on Climate Change, Climate Change 2007: Synthesis Report 5 (2007), [hereinafter IPCC Fourth Synthesis Report].
[27] Id. Others have cited higher numbers. For example, WIPO Director Francis Curry stated that developed countries were responsible for 77% total GHG emissions in the past. See Francis Gurry, Dir. Gen., World Intell. Prop. Org., WIPO’s Role in Green Technology, Presentation at Conference on IP and Public Policy Issues (July 13-14, 2009),
[28] Similar terms include climate friendly technology, environmentally sound technology, green technology, low-carbon technology, etc.
[29] Ahmed Abdel Latif et al., Overcoming the Impasse on Intellectual Property and Climate Change at the UNFCCC: A Way Forward, Int’l Ctr. Trade & Sustainable Dev. Policy Brief No.11, 1 (Nov. 11, 2011), (“the rapid development and diffusion of these technologies is a key component of the global response to climate change”); Catherine Saez, Human Survival Depends on Shared Technology, Says New UN Climate Chief, Intell. Prop. Watch (Mar. 9, 2010), (“survival depends on our improvement of technology”).
[30] See Background on the UNFCCC, supra note 23
[31] E.g., U.N. Secretary-General, Promotion of New and Renewable Sources of Energy, U.N. Doc. A/66/100 (Aug. 15, 2011); Protection of Global Climate for Present and Future Generations of Mankind, G.A. Res. 43/53, U.N. Doc. A/RES/43/53 (Dec. 6, 1988).
[32] Glossary of Climate Change Acronyms, U.N. Framework Convention on Climate Change, (last visited July 24, 2015).
[33] IPCCC Fourth Synthesis Report, supra note 26 ; see also Michael E. Mann, Earth Will Cross the Climate Danger Threshold by 2036, Scientific American (Mar. 18, 2014),; Jeff Tollefson, Global-Warming Limit of 2°C Hangs in the Balance, Nature (Mar. 27, 2015),; William D. Nordhaus, Strategies for the Control of Carbon Dioxide, 39-40 (Cowles Found. for Research in Econ., Discussion Paper No. 443, 1977), Some scientists have argued that the current 1°C rise has had effects similar to the predicted effects of the 2°C rise, and that a 4°C rise is likely by 2050-2070. Kevin Anderson, Climate Change: Going Beyond Dangerous… Brutal Numbers & Tenuous Hope or Cognitive Dissonance? SlideShare (July 5, 2011),
[34] United Nations Framework Convention on Climate Change, Conference of the Parties, Fifteenth Session, Copenhagen, Den., Dec. 7-18, 2009, Copenhagen Accord, U.N. Doc. FCCC/CP/2009/L.7 (Dec. 18, 2009); see also The Cancun Agreements, U.N. Framework Convention on Climate Change, (last visited July 23, 2015).
[35] Hans Joachim Schellnhuber et al., Technological Options, in Avoiding Dangerous Climate Change 333, 335 (Hans Joachim Schellnhuber et al. eds., 2006).
[36] Frank Ackerman, et al., Technological and Economic Potential of Greenhouse Gas Emissions Reduction, in Climate Change 2001: Mitigation: Contribution of Working Group III to the Third Assessment Report of the Intergovernmental Panel on Climate Change (2001),
[37] Overview of Greenhouse Gases, U.S. Envtl. Prot. Agency, (last visited Aug. 1, 2015).
[38] Climate Change Secretariat [U.N. Framework Convention on Climate Change], Technologies for Adaptation to Climate Change 9 (2006),
[39] Diana Propper de Callejon et al., Clean Technology: A Compelling Investment Opportunity, Lifestyles of Health and Sustainability, (last visited Aug. 1, 2015).
[40] U.N. Framework Convention on Climate Change, Fact Sheet: Why Technology Is so Important 2 (2009),
[41] ‘Clean Coal’ Technologies, Carbon Capture & Sequestration, World Nuclear Ass’n (Aug. 2015),–Technologies/.
[42] See Energy Technology Perspectives 2014: Harnessing Electricity’s Potential, Int’l Energy Agency 5 (May 12, 2014),
[43] Id., at 8.
[44] Fact Sheet, supra note 40.
[45] Parsons Brinckerhoff, Power the Nation Update Report 2010 (2010),
[46] World Bank, World Development Report 2010: Development and Climate Change 218 (2010),
[47] Int’l Energy Agency, Tracking Clean Energy Progress 2015 10 (2015),
[48] Sustainable Energy For all, Progress Towards Sustainable Energy – Global Tracking Framework 2015 Key Findings 5 (2015),
[49] IPCC Fourth Assessment Report: Climate Change 2007 – Emission Trajectories for Stabilisation, Intergovernmental Panel on Climate Change, (last visited Aug. 20, 2015).
[50] Bernice Lee et al., Who Owns Our Low Carbon Future? Intellectual Property and Energy Technologies vii (Chatham House 2009),, Environment and Development/r0909_lowcarbonfuture.pdf.
[51] World Bank, World Development Report 2010, supra note 46, at 220.
[52] Mediterranean Solar Plan Links North Africa to Europe, The Africa-EU Partnership, (last visited Dec. 12, 2015).
[53] This emphasis on the transfer of clean technologies from developed nations to developing nations seems to assume that these clean technologies are useful to developing nations, as well as easily transferred and adopted. Such assumptions are yet to be verified.
[54] Total Energy Consumption, EnerData, (last visited July 20, 2015).
[55] Johannes Friedrich & Thomas Damassa, The History of Carbon Dioxide Emissions, World Res. Inst. (May 21, 2014),
[56] Wanna Tanunchaiwatana, Manager, Technology, UNFCCC Secretariat, Role of Patents in Green Technology Transfer in the Context of Climate Change, WIPO Conference on Intellectual Property and Public Policy Issues (July 13, 2009) (on file with the author.)
[57] Developing Countries’ Carbon Emissions Will Vastly Outpace Developed Nations, U.S. EIA Says, Huffington Post (July 25, 2013, 7:25 PM),
[58] Id.
[59] The ownerships of IPR-protected clean technologies are identifiable because of the registration data in national IPR offices. Data on clean technologies not protected by IPR needs to be gathered and made available for the public to access.
[60] Copenhagen Economics & The IPR Company, Is IPR a Barrier to the Transfer of Climate Change Technology? 18 (2009), [hereinafter Study F].
[62] UNFCCC Treaty, supra note 24, at art. 4.5; see also id. at art. 4.1, 4.3, and 4.7.
[63] Agreement on of Aspects of Intellectual Property Rights, art. 66.2, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, 1869 U.N.T.S. 183, 33 I.L.M. 1197 [hereinafter TRIPS Agreement].
[64] Id.
[65] Technology Transfer Framework, U.N. Framework Convention on Climate Change, (last visited Aug. 1, 2015).
[66] Id.
[67] Kyoto Protocol, U.N. Framework Convention on Climate Change, (last visited July 24, 2015).
[68] Kyoto Protocol to the United Nations Framework Convention on Climate Change, art. 5-6, Dec. 10, 1997, U.N. Doc. FCCC/CP/1997/7/Add.1, 37 I.L.M. 22 (1998) [hereinafter Kyoto Protocol].
[69] The Technology Mechanism of the Convention, U.N. Framework Convention on Climate Change, (last visited on July 15, 2015).
[70] United Nations Framework Convention on Climate Change, Copenhagen, Denmark, Dec. 7-15, 2009, Report of the Ad Hoc Working Group on Long-Term Cooperative Action Under the Convention on its Eighth Session, at 24-27, U.N. Doc. FCCC/AWGLCA/2009/17 (Feb. 5, 2010).
[71] Intergovernmental Panel on Climate Change, Methodological and Technological Issues in Technology Transfer 3 (Bert Metz et al. eds, 2000).
[72] Id.
[73] Kyoto Protocol, supra note 70 .
[74] Keith Maskus, Private Rights and Public Problems: The Global Economics of Intellectual Property in the 21st Century 66-69 (2012); see also Bernard M. Hoekman et al., Transfer of Technology to Developing Countries: Unilateral and Multilateral Policy Option, 33(10) World Dev. 1587, 1588-1590 (2005) (channels of technology transfer include trade in goods, FDI and licensing, labor turnover and movement of people); Bronwyn H. Hall & Christian Helmers, The Role of Patent Protection in (Clean/Green) Technology Transfer (Nat’l Bureau Econ. Research, Working Paper No. 16323, 2010),; Matthew Littleton, The TRIPS Agreement and Transfer of Climate-Change-Related Technologies to Developing Countries 2 (United Nations Dep’t Econ. & Soc. Affairs, Working Paper No. 71, 2008), U.N. Doc. ST/ESA/2008/DWP/7, (Technology transfer includes intra-firm, inter-firm, FDI, and unsanctioned technology transfer through imitation).
[75] See generally, Maskus, Private Rights and Public Problems, supra note 74; Hoekman et al., supra note 74.
[76] Commercial investments made up at least 70% of total global investments in clean energy technologies. See General Electric, Innovation, Protection and Transfer of Green Technologies, World Intell. Prop. Org. 3, (July 13, 2011),
[77] Int’l Ctr. for Trade & Sustainable Dev., Climate Change, Technology Transfer and Intellectual Property Rights 2 (2008),
[78] Most of the surveys are based on patent data on clean technologies. Evidential studies on unpatented clean technologies are difficult to accomplish and find.
[79] Antoine Dechezleprêtre et al., Invention and Transfer of Climate Change-Mitigation Technologies: A Global Analysis, 5(1) Rev. Envtl Econ. & Pol’y 109, 109-10 (2011), [hereinafter Study A].
[80] Id. (These technologies include six renewable energy technologies (wind, solar, geothermal, ocean energy, biomass, and hydropower), waste-to-energy, methane destruction, energy conservation in buildings, climate-friendly cement, motor vehicle fuel injection, and energy-efficient lighting. They involve very diverse sectors such as electricity and heat production, the manufacturing industry, and the residential sector.)
[81] Id. at 122.
[82] Id.
[83] Id.
[84] U.N. Envtl. Programme, Eur. Patent Office & Int’l Ctr. for Trade & Sustainable Dev., Patent and Clean Energy: Bridging the Gap Between Policy and Evidence, Final REPORT 9 (2010),$FILE/patents_clean_energy_study_en.pdf [hereinafter Study B].
[85] Clean energy technologies are technologies that reduce energy consumption and/or enable the transition to a renewable-based energy economy. See, Categories, MIT Clean Energy Prize, (last visited Dec. 10, 2015).
[86] Study B, supra note 84, at 58.
[87] Id.
[88] Id. at 60.
[89] Id. at 58.
[90] Id. at 23.
[91] Id.
[92] U.N. Dep’t of Econ & Soc. Affairs, World Economic and Social Survey 2009: Promoting Development, Saving the Planet, at 138, U.N. Doc. ST/ESA/319, U.N. Sales No. E.09.II.C.1 (2009) [hereinafter Study C].
[93] Id.
[94] Id. (citing Antoine Dechezleprêtre et al., The Clean Development Mechanism and the International Diffusion of Technologies: An Empirical Study. 36(4) Energy Policy 1273 (2008)).
[95] Id.
[96] Id.
[97] Methodological and Technological Issues in Technology Transfer, supra note 71.
[98] Keith Maskus, Encouraging International Technology Transfer, Int’l Ctr. Trade & Sustainable Dev. Issue Paper No. 7 (2004),
[99] The Energy & Resources Inst., Emerging Asia Contribution on Issues of Technology for Copenhagen 30 (2009),
[100] Matthew Rimmer, Intellectual Property and Climate Change — Inventing Clean Technologies 48 (2011) (hereinafter Rimmer, Inventing Clean Technologies).
[101] Open Letter, President Evo Morales Ayma, Save the Planet from Capitalism (Nov. 28, 2008),
[102] Work of the TRIPS Council, World Trade Org., (last visited on July 25, 2015) (“the Council for TRIPS is the body, open to all members of the WTO, that is responsible for administering the TRIPS Agreement”).
[103] World Trade Org., Contribution of Intellectual Property to Facilitating the Transfer of Environmentally Rational Technology — Communication from Equator (2013), (hereinafter “Ecuador 2013 Proposal”).
[104] Id.
[105] Id.
[106] World Trade Org., Extract from Minutes of Meeting Held on Oct. 10-11, 2013 of the Council for Trade-related Aspects of Intellectual Property Rights 28 (2013),
[107] World Trade Org., Extract from Minutes of Meeting Held on June 11-12, 2013 of the Council for Trade-related Aspects of Intellectual Property Rights 32 (2013), [hereinafter TRIPS Meeting Minutes June 11-12, 2013]; see also Matthew Rimmer, WTO Debate on IP, Climate Change, and Development in the TRIPS Council, Storify, (last visited July 25, 2015).
[108] TRIPS Meeting Minutes June 11-12, 2013, supra note 107.
[109] General Electric, Innovation, Protection and Transfer of Green Technologies, supra note 76 .
[110] Alliance for Clean Technology Innovation, et al., IPR-Related Demands in UN Climate Change Negotiations, U.S. Council for Int’l Bus. (Nov. 26, 2014),
[111] Latif et al., supra note 29.
[112] Rimmer, Inventing Clean Technologies, supra note 100, at 62.
[113] Todd Stern, Special Envoy for Climate Change, U.S. Dept’t of State, The Current State of Our Negotiations on a New International Climate Agreement, (Sept.10, 2009), (emphasis added).
[114] Rimmer, Inventing Clean Technologies, supra note 100, at 64.
[115] Austl., Technology Cooperation: Submission to the Ad-Hoc Working Group for Long Term Cooperative Action under the United Nations Framework Convention on Climate Change (2008),
[116] TRIPS Meeting Minutes June 11-12, 2013, supra note 107.
[117] Id. at 40 (EU comments on Ecuador’s 2013 proposal).
[118] Id.
[119] Id. (quoting Ian Harvey, Intellectual Property Rights: The Catalyst to Deliver Low Carbon Technologies (The Climate Group 2008),
[120] The evidential data and scholarship cited herein are utilized to answer the above questions; the inherent limitations in the evidential data and scholarship will be identified, compensated by rational analysis, (e.g., using the author’s own experience in global IPR practice,) or left open for further research and/or to be addressed in future articles.
[121] What is Intellectual Property?, World Intell. Prop. Org., (last visited July 25, 2015).
[122] Id.
[123] Patents, World Intell. Prop. Org., (last visited Nov. 2, 2015).
[124] Id.
[125] Latif et al., supra note 29 , at 1.
[126] Hall & Helmers, supra note 74, at 6.
[127] Keith Maskus, Globalizing Information: The Economic of International Technology Trade 5 (2014).
[128] Study F, supra note 60, at 7.
[129] John Barton, Patenting and Access to Clean Energy Technologies in Developing Countries, WIPO Mag., (Mar. 2009),; see also John Barton, Intellectual Property and Access to Clean Energy Technologies in Developing Countries: An Analysis of Solar Photovoltaic, Biofuel, and Wind Technologies, Int’l Ctr. Trade & Sustainable Dev. Issue Paper No. 2 (2007).
[130] Barton, Patenting and Access to Clean Energy Technologies in Developing Countries, supra note 129.
[131] Id.
[132] See generally id.
[133] Frederick M. Abbott, Innovation and Technology Transfer to Address Climate Change: Lessons from the Global Debate on Intellectual Property and Public Health (Int’l Ctr. For Trade note & Sustainable Dev. 2009), 50454.
[134] Study F, supra note 60, at 7.
[135] Hall & Helmers, supra note 74, at 19.
[136] Id.
[137] Study A, supra note 79, at 111.
[138] Id.
[139] Antoine Dechezleprêtre et al., What Drives the International Transfer of Climate Change Mitigation Technologies? Empirical Evidence from Patent Data, 54(2) Eɴᴠᴛʟ. & Rᴇsᴏᴜʀᴄᴇ Eᴄᴏɴ. 161, 165 (2013) [hereinafter Study G].
[140] List of Least Developed Countries, United Nations (Dec. 4, 2013),
[141] Nᴀᴛ’ʟ Sᴄɪ. Foundation, Industry Technology and the Global Marketplace, in Sᴄɪᴇɴᴄᴇ ᴀɴᴅ Eɴɢɪɴᴇᴇʀɪɴɢ Iɴᴅɪᴄᴀᴛᴏʀs 2014 6, 6-21 (2014), [hereinafter Study E].
[142] Id. at 6-49, 6-50.
[143] Id.
[144] Id. at 6-51 (“Investment has been volatile in the aftermath of the global recession. Investment rebounded in 2010 and reached a new high of $110 billion in 2011 before plunging to $63 billion in 2012, its lowest level since 2006. After rising steadily prior to the global recession, U.S. investment fell sharply in 2008 before recovering to $32 billion in 2010, near its pre-recession level.”).
[145] Id.
[146] Id. at 6-51 to 6-52.
[147] Id. at 6-52.
[148] Nicolas Stern, The Economics of Climate Change: The Stern Review 398 (2007).
[149] Id.
[150] Study A, supra note 79.
[151] Id. at 124.
[152] Id. at 116 (demonstrating that inventions from these countries had a lower export rate, indicating lower values in these innovations).
[153] Study F, supra note 60.
[154] Id. at 4 (reviewing patent ownerships in these clean technology areas: waste and biomass energy, solar, fuel cell, ocean, geothermal and wind power.)
[155] Id.
[156] Id. at 4-5.
[157] Id. at 22.
[158] Study B, supra note 84, at 58.
[159] Id. at 4.
[160] Latif et al., supra note 29, at 4.
[161] Id.; see also Abbott, supra note 133.
[162] The first formal patent system came from the Western Hemisphere in 1474 in Venice. Patent laws in England and the U.S. were formally established in the 1620’s and 1790’s, respectively. See Daniel C.K. Chow & Edward Lee, International Intellectual Property 252-3 (2d ed. 2012).
[163] For example, the modern Indian patent law was established in 1970. See Jeffrey Colin, Coming into Compliance with TRIPS: A Discussion of India’s New Patent Laws, 25 Cardozo Arts & Ent. L.J. 877, 880 (2013). Similarly, the modern Chinese patent law was established in 1984. See Joy Y. Xiang, How Wide Should the Gate of Technology Be? Patentability of Business Methods in China, 11 Pac. Rim L. & Pol’y J. 795, 801 (2002).
[164] Understanding the WTO: Developing Countries, World Trade Org., (last visited July 25, 2015).
[165] Keith Maskus, Differentiated Intellectual Property Regimes for Environmental and Climate Technologies 16 (OECD Envir., Working Paper No. 17, 2010), [hereinafter Maskus, Differentiated IP Regimes].
[166] Levin, Richard C. et al., Appropriating the Returns from Industrial Research & Development, Brookings Papers on Econ. Activity, Special Issue, 783, 812-818 (1987),
[167] Maskus, Differentiated IP Regimes, supra note 165.
[168] Keith E. Maskus, Intellectual Property Rights in the Global Economy 136-141 (2000).
[169] Lee G. Branstetter et al., Do Stronger Intellectual Property Rights Increase International Technology Transfer? Empirical Evidence from U.S. Firm-level Panel Data, 121 Q.J. Eᴄᴏɴ. 321, 321 (2006).
[170] Olena Ivus, Do Stronger Patent Rights Raise High-Tech Exports to the Developing World? 81 J. Int’l Econ. 38, 45 (2010).
[171] Maskus, Differentiated Intellectual Property Regimes for Environmental and Climate Technologies, supra note 165.
[172] Id.
[173] See discussion supra notes 163164.
[174] See supra Part II.A.2 (emerging economies have had most of the patent filings in developing nations, and patents on foreign clean technologies have taken about two thirds of the clean technologies patents owned by the emerging economies.)
[175] Barton, Intellectual Property and Access to Clean Energy Technologies in Developing Countries, supra note 129, at 13.
[176] Id.
[177] See discussion supra Part II.A.2.i.
[178] Maskus, Encouraging International Technology Transfer, supra note 98, at 10.
[179] See discussion supra Part II.A.2.ii (on patent ownership for clean technologies).
[180] See discussion supra Part II.A.2.ii.
[181] See TRIPS Meeting Minutes June 11-12, 2013, supra note 107.
[182] Study G, supra note 139, at 167.
[183] See discussion supra Part II.A.2.ii (on patent ownership for clean technologies).
[184] Synthesis of Technology Needs Assessments, U.N. Framework Convention on Climate Change, (last visited July 26, 2015).
[185] Data extracted from the 2006, 2009, and 2013 TNA synthesis reports. United Nations Framework Convention on Climate Change, Subsidiary Body for Scientific and Technological Advice, Twenty-Fourth Session, Bonn, Ger., May 18-26, 2006, Synthesis Report on Technology Needs Identified by Parties not Included in Annex I to the Convention, U.N. Doc. FCCC/SBSTA/2006/INF.1 (Apr. 21, 2006) [hereinafter 2006 TNA Reports]; United Nations Framework Convention on Climate Change, Subsidiary Body for Scientific and Technological Advice, Thirtieth Session, Bonn, Ger., June 1-10, 2009, Second Synthesis Report on Technology Needs Identified by Parties not Included in Annex I to the Convention, U.N. Doc. FCCC/SBSTA/2009/INF.1 (May 29, 2009) [hereinafter 2009 TNA Reports]; United Nations Framework Convention on Climate Change, Subsidiary Body for Scientific and Technological Advice, Thirty-Ninth Session, Warsaw, Pol., Nov. 11-16, 2013, Third Synthesis Report on Technology Needs Identified by Parties not Included in Annex I to the Convention, U.N. Doc. FCCC/SBSTA/2013/INF.7 (Oct. 21, 2013) [hereinafter 2013 TNA Reports].
[186] 2006 TNA Reports, supra note 185. 2009 TNA Reports, supra note 185; 2013 TNA Reports, supra note 185.
[187] 2006 TNA Reports, supra note 185. 2009 TNA Reports, supra note 185; 2013 TNA Reports, supra note 185.
[188] 2006 TNA Reports, supra note 185.
[189] Id.
[190] 2009 TNA Reports, supra note 185, at 29-30.
[191] For example, 30% of the reporting nations in the 2006 TNA reports cite high investment costs as an economic and market barrier, 50% of the reporting nations in the 2009 TNA reports cite high costs and limited state resources as an economic and market barrier; and 85% of the reporting nations in the 2013 TNA reports cite lack of or inadequate access to financial resources as an economic and market barrier to the development and transfer of mitigation technologies within the energy sector. See 2006 TNA Reports, supra note 185; 2009 TNA Reports, supra note 185; 2013 TNA Reports, supra note 185. The 2013 reports have separated reporting regarding developing nations’ needs on mitigation technologies from those of adaptation technologies. The 2006 and 2009 TNA reports did not make such a distinction.
[192] See discussion supra Part II.A.
[193] See TRIPS Meeting Minutes June 11-12, 2013, supra note 107.
[194] See Study G, supra note 139; Study B, supra note 84.
[195] Study G, supra note 139, at 180.
[196] Study B, supra note 84, at 9.
[197] Study G, supra note 139.
[198] Id. at 180.
[199] Id. at 181 (However, Study G finds that restrictions to FDI promote technology transfer. Study G reasons that this may be because the restrictions ask for technology transfer, or force foreign technology owners rely more on patents as an alternative or to secure their FDI.)
[200] Study B, supra note 84, at 50.
[201] Id.
[202] World Intell. Prop. Org., Successful Technology Licensing 5 (2015),
[203] See Hoekman et al., supra note 74, at 1589.
[204] Guifang Yang & Keith E. Maskus, IPR, Licensing and Innovation in an Endogenous Product-Cycle Model (World Bank, Working Paper No. 2973, 2003),
[205] Maskus, Globalizing Information, supra note 127.
[206] Latif et al., supra note 29; Study B, supra note 84, at 50-58.
[207] Foreign Direct Investment Definition, Fin. Times, foreign-direct-investment (last visited July 12, 2015).
[208] Id.
[209] Id.
[210] Hoekman et al., supra note 74, at 1588.
[211] Id.
[212] E. Borensztein et al., How Does Foreign Direct Investment Affect Economic Growth? 45(1) J. Int’l Econ. 115, 117 (1998).
[213] See, e.g., Branstetter et al., supra note 169, at 322; Jeong-Yeon Lee & Edwin Mansfield, Intellectual Property Protection and U.S. Foreign Direct Investment, 78(2) Rev. of Econ. and Stat. 181, 181 (1996); Edwin Mansfield, Intellectual Property Protection, Direct Investment, and Technology Transfer, (Int’l Fin. Corp., Discussion Paper No. 27, 1995).
[214] M. Scott Taylor, TRIPS, Trade, and Technology Transfer, 26(3) Can. J. Econ. 625, 637 (1993).
[215] Reem Heakal, What Is International Trade?, Investopedia, (last visited Aug. 18, 2015)
[216] Hoekman et al., supra note 74, at 1588.
[217] Id.
[218] Maskus, Globalizing Information, supra note 127, at 5.
[219] Titus O. Awokuse & Hong Yin, More Bilateral Trade? Evidence from China’s Imports, 38(8) World Dev. 1094, 1104 (2010).
[220] Hoekman et al., supra note 74, at 1593.
[221] Id.
[222] Id.
[223] See IPCC Fourth Assessment Report, supra note 49.
[224] See analysis supra Part II.A.
[225] Rimmer, Inventing Clean Technologies supra note 100; Joshua D. Sarnoff, The Patent System and Climate Change, 16 Va. J.L. & Tech. 301 (2011).
[226] Antoine Dechezleprêtre, Fast-Tracking Green Patent Applications: An Empirical Analysis, Int’l Ctr. Trade & Sustainable Dev. Issue Paper No. 37 (2013),
[227] Patents: Accelerated Processing, U.K. Intell. Prop. Office (June 13, 2014),
[228] Dechezleprêtre, Fast Tracking Green Patent Applications, supra note 227.
[229] Some developing nations such as the emerging economies are more or less doing so. Different national priorities and barriers such as the ones identified by developing nations in the TNA reports may have deterred other developing nations from making domestic development of clean technologies a priority.
[230] As of July 2015, there are 196 countries in the world, 161 of them are WTO member nations. See Understanding WTO, the Organization, World Trade Org., (last visited July 13, 2015).
[231] Vandana Shiva, Protect or Plunder? Understanding Intellectual Property Rights 51 (2001).
[232] The costs and benefits associated with joining the WTO are not within the scope of this Article. Instead, the discussion here is limited to whether joining the WTO would prevent a nation from having a customized IPR system reflecting the nation’s reality in technology development.
[233] Advice on Flexibilities Under the TRIPS Agreement, World Intell. Prop. Org., (last visited Nov. 3, 2015).
[234] TRIPS Agreement, supra note 63, at Preamble.
[235] Typical patentability criteria include novelty, inventiveness, and industrial utility. For example, the U.S. requires an invention to be novel and non-obvious, besides being patent eligible and useful. Note the difference between patentability and patent eligibility; the latter means patentable subject matter. TRIPS art. 27 allows “all fields of technology” to be patentable subject matter; but TRIPS did not define patentability, i.e., what is novelty, inventiveness, etc. See id. at art. 27.
[236] Id. at art. 27.2.
[237] Id. at art. 31.
[238] Id. at art. 8.2, art. 40.1.
[239] Id. at art. 73.
[240] IPCC Fourth Synthesis Report, supra note 26.
[241] See discussion supra Part II.B.
[242] Maskus, Encouraging International Technology Transfer, supra note 98.
[243] World Bank, World Development Report 2005: A Better Investment Climate for Everyone (2005),
[244] Maskus, Globalizing Information, supra note 127, at 173-176.
[245] Id.
[246] Littleton, supra note 74, at 20.
[247] Id. at 21.
[248] Id. at 15.
[249] Summary of Climate Summit 2014, Intern’l Inst. Sustainable Dev. (September 23, 2014), (for example, statements by leaders from India, Equatorial Guinea, Malaw, Guinea-Bissau, Fiji, Lesotho, Mauritania, Namibia, Sweden, Tanzania).
[250] Id. at art. 4.3.
[251] Climate Change Update: Technology, ICTSD (May 1, 2008), bridges-news/biores/news/climate-change-update-technology-ip-issues-on-the-table (“under the Montreal Protocol, the technology funds included money to pay for the necessary license fees”).
[252] Id.
[253] Green Climate Fund Exceeds $10 Billion, U.N. Framework Convention on Climate Change (Dec. 10, 2014),
[254] United Nations Framework Convention on Climate Change, Conference of the Parties, Copenhagen, Den., Dec. 7-19, 2009, Report of the Conference of the Parties on Its Fifteenth Session – Addendum Part II: Actions Taken by the Parties at Its Fifteenth Session, U.N. Doc. FCCC/CP/2009/11/Add.1 (Mar. 10, 2013) (Green Climate Fund established in COP17, to mobilize USD100 billion per year by 2020 by developed nations to address the needs of developing nations for addressing climate change).
[255] Summary of Climate Summit 2014, supra note 251.
[256] Id.
[257] Historic Paris Agreement on Climate Change: 195 Nations Set Path to Keep Temperature Rise Well Below 2 Degrees Celsius, UNFCCC (Dec. 12, 2015),
[258] TRIPS Agreement, supra note 62, at art. 66.2; UNFCCC Treaty, supra note 24, at art. 4.1, 4.7, 4.3, 4.5.
[259] Cameron Hutchison, Does TRIPS Facilitate or Impede Climate Change Technology Transfer into Developing Nations?, 3 Univ. Ottawa L. & Tech. J. 517-537 (2006).
[260] Maskus, Encouraging International Technology Transfer, supra note 98.
[261] Littleton, supra note 74, at 20.
[262] UNFCCC Treaty, supra note 24, at art. 4.1.
[263] The Cancun Agreement, supra note 34.
[264] Latif et al., supra note 29, at 2.
[265] U.S.-China Clean Energy Research Center, U.S. Dep’t of Energy, (last visited Nov. 13, 2015); U.S.-India Clean Energy Cooperation, U.S. Dep’t of Energy, (last visited Nov. 13, 2015).
[266] Maria van der Hoeven & Didier Houssin, Energy Technology Perspectives 2015: Mobilising Innovation to Accelerate Climate Action, Intn’l Energy Agency (May 4, 2015),
[267] See discussion supra Part III.B.
[268] See discussion supra Part III.C.
[269] See discussion supra Part I.C.3.

Towards a New Dialectics: Pharmaceutical Patents, Public Health and Foreign Direct Investments

Towards a New Dialectics: Pharmaceutical Patents, Public Health and Foreign Direct Investments
By Valentina S. Vadi* Download a PDF version of this article here.  


In nature we never see anything isolated, but everything in connection with something else…

Johann Wolfgang von Goethe[1]

In recent years, international investment agreements (IIAs)[2] have flourished, furthering the protection of intellectual property (IP) as a form of investment.[3] In general terms, most bilateral investment treaties (BITs) only refer to IP rights in their definitions of protected investments.[4] These treaties do not provide a detailed and specific regulation of IP rights. However, they do formally and substantively raise the level of IP protection from the pre-treaty status. In fact, by considering IP rights as protected investments, BITs enable IP holders to enjoy the substantive and procedural protections of foreign investments provided by the applicable treaty. Substantive protections granted by IIAs include fair and equitable treatment, national and most favoured nation treatment and protection against unlawful expropriation, among others.[5] Besides providing substantive protection to investors’ rights, investment treaties also provide IP owners with direct access to investor-state arbitration, which can be a powerful dispute settlement mechanism to resolve claims of alleged IP infringement.[6] This is a novel development in international law because investors are no longer required to exhaust local remedies or depend on diplomatic protection to defend their interests against the host state. The claims are heard by ad hoc arbitral tribunals whose arbitrators are selected by the disputing parties or appointing institutions. Depending on the arbitral rules chosen, the proceedings occur behind closed doors (in camera) and the very existence of the claim and the final award may never become public.[7] These arbitrations have recently been used by patent owners to challenge alleged infringements of their patents by measures of the host state.[8] Arbitral tribunals have scrutinized how domestic legal systems govern the availability, validity and scope of patents.[9] These arbitrations have involved “difficult and often elusive substantive questions” of intellectual property law,[10] and can affect a range of important public policy issues, such as public access to medicines. Despite the important social and political implications, investment treaty arbitration is lacking in transparency, expertise, and arguably, legitimacy.[11] Most arbitral tribunals are neither open to the public nor obliged to publish final decisions, and hence lack the transparency generally afforded by normal judicial proceedings, even in disputes concerning public goods. Arbitrators may not have specific expertise in international intellectual property law, as they are mostly experts in international investment law. There are even disputes over whether or not norms external to investment law, such as IP law, should be relevant in investment treaty arbitration. Finally, according to some authors, investment treaty law and arbitration face a “legitimacy crisis” as arbitral awards seem to affect public policy “in a vacuum.”[12] While arbitral tribunals consider important public policy issues, they are detached from the local polities needs. Have IIAs “become a charter of rights for foreign investors, with no concomitant responsibilities or liabilities, no direct legal links to promoting development objectives, and no protection for public welfare in the face of environmentally or socially destabilizing foreign investment?”[13] Has international investment law become a “corporate bill of rights”[14] or a “system of corporate rights without responsibility”?[15] Recent examples illustrate that investor-state arbitration can affect state autonomy in making important public policy decisions in the pharmaceutical sector, including making cheap generic medicines widely available and ensuring their safety. In 2008, Apotex, a Canadian company, filed an investor-state arbitration against the United States, claiming that the U.S. courts had erred in applying federal law violating several provisions of the North American Free Trade Agreement (NAFTA).[16] [17] According to the claimant, the erroneous application of the law prevented Apotex from commercializing generic versions of medicines, and this amounted, inter alia, to an expropriation of its investments.[18] In a parallel dispute,[19] the company sought over $1 billion in damages from the United States after the U.S. Food and Drug Administration (FDA) imposed an Import Alert on certain generic medicines that were produced in Canada, then exported to the U.S. and sold by a U.S.-based Apotex subsidiary.[20] The FDA issued the alert after its inspections of Apotex facilities in Canada found noncompliance with good pharmaceutical manufacturing practices.[21] In parallel, Eli Lilly, a major U.S. pharmaceutical company, filed an investor-state arbitration against Canada after Canadian Federal Courts invalidated a pharmaceutical patent on the ground of inutility.[22] Eli Lilly requested the Tribunal award economic compensation of at least 100 million Canadian dollars for alleged damages.[23] Not only do these cases show the clash between the national regulatory measures of the states to regulate IP in the public interest on the one hand and international investment law on the other, but they also highlight the emergence of a new form of dialectics between the private and public interests in IP governance at the international level. Have arbitral tribunals taken public health considerations into account when adjudicating pharmaceutical patent cases? If so, have they considered public health as an exception to investment treaty standards or as a part of the interpretation of the same standards? What techniques are available to avoid regime-collisions between international investment law and other fields including international intellectual property law and public health law? Is investment arbitration a suitable forum to adjudicate pharmaceutical patent-related disputes? Can investment treaty arbitration promote good governance in the pharmaceutical field? Is there a convergence or a divergence between international investment law and other branches of international law governing pharmaceuticals? Are there mechanisms to promote coherence? And is such coherence ultimately desirable? This article addresses these questions, providing a comprehensive account of current investment treaty arbitrations, highlighting their significance for global intellectual property governance. It shows that investment arbitration serves as a new avenue for the ongoing dialectics between private and public interests in IP regulation. Conflicts between private and public interests are endemic in IP regulation. These take the form of disputes before various tribunals at the national, regional and even international levels. Investment treaty arbitration constitutes a new avenue for settling IP disputes. Far from being a neutral development of the increasing pervasiveness of international law in different areas of regulation, the attraction of IP disputes by investment treaty tribunals have the potential to revolutionize the current landscape of IP governance. While a dialogue between public and private interests is intrinsic to any form of regulation and dispute resolution of IP rights, what is new in the emerging IP-related investment disputes is the articulation of private economic interests by private transnational actors against public national entities before international tribunals. In fact, while traditionally international law has only enabled states to file claims before international courts and tribunals, international investment law has empowered foreign investors to file claims against states before international tribunals. This development has the potential revolutionize IP governance at the national and international levels.[24] On the one hand, investment arbitration provides a valuable avenue for foreign investors to be heard. Although a private investor could complain through its home state, inter-state disputes concerning IP have been rare, mainly because states are careful not to initiate proceedings and advance arguments that may backfire in the future.[25] Investor-state arbitration enables nongovernmental actors such as multinational corporations to directly file claims against states before international tribunals. On the other hand, eminent scholars warn against potential abuse of this mechanism,[26] as investment arbitration could emphasize private interests at the expense of the public interest. Non-state actors may adopt a different approach to litigation than state actors. They may strategically use investment arbitration to receive monetary compensation for state regulatory action,[27] and simply by filing an arbitration claim, they may have a chilling effect on domestic policy makers. The emerging dialectics between private actors and states in investment arbitration needs to be scrutinized given the public policy implications it can have on crucial areas of IP governance. The tension between patent holders and state authorities in the governance of pharmaceutical patents is one example of a broader recurrent interplay in international law: the tension between the private interests of foreign investors and the regulatory autonomy of the host state. This article argues that arbitrators should not put excessive emphasis on the private interests in pharmaceutical patents, but must pay adequate consideration to the public interest equally embodied in these rights. Excessive protection of pharmaceutical patents can have a negative impact on the public health policy of the host state. This may seem paradoxical, as usually the protection of pharmaceuticals is associated with higher investments in the research and development of new medicines, and a corresponding broader availability of medicines that lead to positive effects on patient welfare. However, in some cases, corporations have used intellectual property to chill public health regulation. The article concludes with the argument that while investor-state arbitration constitutes a major development in international law and facilitates the access of foreign investors to justice, it may endanger the fundamental values of the international community as a whole unless arbitrators duly take into account their role as “cartographers” of international law. The article shall proceed as follows. First, it explores what are pharmaceutical patents and how they are governed at the international law level. Second, it briefly describes the basic structure of investment treaty law and arbitration. Third, it illustrates the rise of investor-state arbitrations concerning pharmaceuticals. Fourth, it highlights the emergence of a new dialectics between intellectual property and public health in international investment law and arbitration, examining recent investment disputes concerning pharmaceuticals. Fifth, it critically assesses the potential impact of such arbitrations on the public health policies of the host state, and proposes some legal mechanisms that can help adjudicators to strike a suitable balance between the protection of pharmaceutical patents and public health in international investment law and arbitration.

I. Pharmaceutical Patents and Public Health in International Law

The patent system is based on a trade-off between promoting knowledge creation and knowledge diffusion.[28] A patent is a type of intellectual property constituting a set of exclusive rights granted by a state for a limited period of time in exchange for detailed public disclosure of an invention.[29] Patents are granted for inventions that are: (1) new, (2) nonobvious (involving an inventive step), and (3) capable of industrial application (useful).[30] In the pharmaceutical sector, the invention of new medicines entails significant research and development costs.[31] The patent protection of a given medicine aims to ensure the remuneration of the inventor’s efforts and provide an incentive for the invention of new medicines.[32] Through this trade-off, pharmaceutical patent protection reflects both private and public interests. The patent system rewards the private interest and fosters the inventive efforts of the patent owner by awarding her exclusive rights for a limited period of time. At the same time, the patent system acknowledges the public interest in a two-fold manner. First, medicines invented under the incentive of patents may save lives and improve the quality of life of patients. Second, competitors may build upon existing knowledge inventing new medicines and contributing to the development of science. In addition, patients may have access to cheaper generic versions of the same medicine after the patent expires. During the patent lifespan, a balance between private and public interests is also embodied in the patent regime. The enjoyment of IP rights by the patent owner are not absolute, they are limited in consideration of the public interest. For example, certain rules provide for exceptions to the patent right;[33] some uses of the patent may be allowed without the patent owner’s consent;[34] and there are limits to patentability.[35] However, in recent years, a common criticism has been that legislatures and judges have expanded the rights of patent owners too far[36] at the expense of the global public interest.[37] An absolute protection of pharmaceutical patents has a negative impact on public well-being. Pharmaceutical patents create welfare-reducing monopoly rights, which often lead to higher prices due to a lack of competition, making medicines less affordable to the poor. Moreover, by engaging in “ever-greening” practices, pharmaceutical companies often use regulatory processes to extend their monopoly over highly profitable “blockbuster” medicines and further jeopardize access to medicines for the poor.[38] Even where a state adopts emergency measures to limit IP rights to facilitate access to medicines, the state’s compliance with international treaty obligations to protect IP rights may be disputed.[39] Pharmaceutical patents produce benefits and costs, the extent of which are country dependent.[40] The role of pharmaceutical patents in promoting research and development of new medicines depends on the amount of resources a country devotes to creating intellectual assets[41] and the country’s ratio between knowledge owned and the knowledge needed to develop the pharmaceutical sector.[42] Historical evidence suggests that strong patent protection can “kick away the ladder” to development for low- and middle-income countries,[43] and that even industrialized countries did not adopt strong pharmaceutical patent policies until recently.[44] Regulation of pharmaceuticals is a sensitive field with important public policy implications. Given that medicines and vaccines are now subject to patent protection worldwide,[45] their price increase has strained public health budgets.[46] Pharmaceutical regulation constitutes a regime complex, which involves sets of multilevel regulatory frameworks that are at times diverging and at times converging, if not overlapping.[47] As a regime complex, pharmaceutical regulation is characterized by institutional density and governed by human rights law, international intellectual property law and international health law.

A. Pharmaceuticals and Human Rights Law

The International Covenant on Economic, Social and Cultural Rights (ICESCR)[48] provides the human rights component of the pharmaceutical regime complex. Article 15 of the ICESCR identifies the need to protect both public and private interests in knowledge creation and diffusion.[49] Namely, it recognizes the right of everyone “[t]o benefit from the protection of the moral and material interests resulting from any scientific … production of which he is the author,”[50] including pharmaceutical patents, on the one hand and the “right of everyone … to enjoy the benefits of scientific progress and its applications” on the other.[51] In parallel, Article 12 of the ICESCR recognizes “the right of everyone to the enjoyment of the highest attainable standard of physical and mental health.” The right to health requires access to medicines, according to General Comment 14.[52] While general comments are not binding instruments, they are deemed to constitute authoritative interpretation of states commitments under the ICESCR and can reflect emerging norms of customary law.[53] Although conceptualized after World War II, the right to health was under-theorized due to political reasons[54] However, since the fall of the Berlin Wall, like other economic, social and cultural rights, it has had a renaissance, being understood in its “unity and complementarity” with civil and political rights.[55] Yet, the lack of a World Human Rights Court (WHRC)[56] and the fragmentation of international human rights institutions have inevitably affected the realization of the right to health.[57] States maintain the prime duty of providing access to remedies at the domestic level.[58] However, effective remedies should be available at both the national and international levels,[59] because international remedies are essential in those cases where domestic remedies are not available or inadequate.[60] Several UN bodies deal with human rights,[61] but they do not fulfill the tasks of a world court for human rights.[62] Moreover, the institutional fragmentation of the human rights system — the existence of different UN bodies and monitoring frameworks with converging and diverging competences,[63] — and its substantive fragmentation — the existence of different treaties and regimes — can create obstacles to the effective realization of the right to health.[64]

B. Pharmaceuticals and International Intellectual Property Law

Several sources of international intellectual property law govern patent regulation. The Paris Convention[65] conceptualizes intellectual property as an incentive to encourage innovation.[66] It harmonizes procedures relating to priority, registration, and licensing and requires national treatment for foreign patent owners.[67] In theory, a member that has failed to comply with its obligations under the Paris Convention could be sued before the International Court of Justice,[68] but no such cases have ever been brought.[69] Nonetheless, the Agreement on Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS Agreement) under the World Trade Organization (WTO),[70] incorporates some provisions of the Paris Convention and can be implemented through the WTO Dispute Settlement Mechanism (DSM).[71] The TRIPS Agreement is the most comprehensive international treaty setting global standards for medical knowledge governance.[72] It requires WTO member states to provide patent protection for pharmaceuticals.[73] The patent owner is given limited monopoly rights over the patented medicine for twenty years,[74] and after this patent term expires, competitors may replicate the compound. The TRIPS Agreement has been controversial since its inception. Developing countries opposed its adoption fearing that the introduction of high standards of intellectual property protection would jeopardize access to pharmaceuticals and other technology, and that the agreement would privilege the private economic interests of patent holders vis-à-vis important public policies furthering public health and developmental objectives.[75] Some scholars also doubted intellectual property’s link to trade, given its effect of restricting the market.[76] Not by chance, the General Agreement on Tariffs and Trade (GATT)[77] listed intellectual property among the general exceptions to the general commitment to free trade and lower tariffs.[78] Nevertheless, through intense negotiation and linkage bargaining – that is, linking negotiations on intellectual property to negotiations in other sectors such as agriculture – the TRIPS Agreement was signed at the Marrakesh Ministerial conference in 1994, as part of a package deal with the other Uruguay Round Agreements, and came into force in January 1995.[79] As the outcome of intense cross-sectorial negotiations, the signing of the TRIPS Agreement does not mean that it provides an optimal equilibrium between the private and public interests. Rather, countries accepted its high standards of IP protection potentially reducing their regulatory autonomy in the pharmaceutical sector in light of the overall perceived benefits of the entire WTO package. By conceptualizing IP as a commodity,[80] the TRIPS Agreement severely constrained the regulatory autonomy of states in the pharmaceutical sector. The TRIPS Agreement provides minimum standards for intellectual property protection, below which the member states cannot fall.[81] WTO Members have the right to provide for more extensive protection that is not required by the TRIPS Agreement, as long as they follow the general principles of the most-favoured-nation clause and national treatment.[82] Therefore, any intellectual property agreement negotiated subsequent to TRIPS by WTO members can only create similar or higher standards for IP protection (commonly known as TRIPS-plus).[83] Members can enforce the provisions of the TRIPS Agreement through the WTO Dispute Settlement Mechanism (DSM), which has compulsory jurisdiction over TRIPS-related disputes.[84] International investment law, the last wave of IP rights protection, considers IP as a form of investment.[85] As investment treaties broadly define the notion of investment, a potential tension exists when a state adopts measures governing pharmaceutical patents that interfere with foreign investments. This is because such regulation may be considered a violation of investment treaty provisions protecting the patent rights of foreign companies. Moreover, because investment treaties provide foreign investors with direct access to investment arbitration, foreign investors can directly challenge national measures and can seek compensation for the impact of such regulation on their business. Indeed, a number of investor-state arbitrations have dealt with pharmaceutical regulation, and the time is ripe for a comprehensive analysis and critical assessment, especially concerning their potential effect of emphasizing private property at the expense of the public interest.[86]

C. Pharmaceuticals and International Health Law

In contrast with IP protection, another component of the regime governing pharmaceuticals, international health law, has developed slowly.[87] The internationalization of public health law is not a new phenomenon. The shift from national to international governance began in the mid-19th century,[88] when states adopted a discrete number of binding international conventions dealing with various aspects of public health.[89] The cholera epidemics through Europe in the first half of the 19th century catalyzed intense international health diplomacy and cooperation.[90] Not only did the cholera epidemics show the failure of national quarantine systems to prevent the spread of the disease, but they also created discontent among merchants, whose trade had been affected by the quarantine measures.[91] The merchants urged their governments to take international action.[92] The first International Sanitary Conference was organized in 1851 “to discuss cooperation on cholera, plague, and yellow fever,”[93] and established the principle that “health protection was a proper subject for international consultations.”[94] Other international conferences followed, “focusing exclusively on the containment of epidemics.”[95] Despite these early adoptions of binding international health law instruments, since the inception of the World Health Organization (WHO) in 1946,[96] international health law has taken a less ambitious path. In fact, the WHO has favored non-legal, medical-technical approaches to health issues.[97] The WHO, mainly composed of health specialists,[98] has principally, if not exclusively, adopted medical guidelines and other nonbinding tools. It has developed “an ethos that looks at global health problems as medical-technical issues to be resolved by the application of the healing arts.”[99] Instruments such as declarations and recommendations adopted by the WHO have been described as “limited in scope and application”[100] as well as “historically, politically and structurally inadequate to do what is needed.”[101] Such instruments “are being developed … in an uncoordinated … manner” and “pale in comparison to that of other international [organizations] ….”[102] International health law has not been an effective system, due to its mainly non-legal approach, lack of enforcement mechanisms and states’ consequent failure to comply with its rules.[103] The WHO adopted its first binding convention only a decade ago.[104] The organization “rarely participate[s] in trade negotiations or the resolution of trade disputes, even when such are linked to public health.”[105] Only in 2015 has it, cautiously, started intervening in investment treaty arbitration as amicus curiae.[106] In the absence of a well-articulated international health law regime, public health protection has remained a fundamental prerogative of the states.[107] States have a right and a duty to protect public health, and the power to adopt measures to protect their population: one of the conditions of their very existence.[108] Each state has a social contract with its citizens, which prompt it to assume these public-health related burdens.[109] Given the interconnectedness of health with other global issues, including trade and foreign investments,[110] and the asymmetrical development of international health law and other fields of international law, many elements of public health governance have been affected by the actions of international bodies whose primary objectives do not concern health.[111] For instance, international investment law and arbitration has increasingly governed or impacted international public health policy. The following sections will examine this interplay, focusing on how international investment law governs pharmaceutical patents and how investment treaty arbitral tribunals have adjudicated the relevant disputes.

II. International Investment Law and Arbitration

International investment law constitutes an important part of international law governing foreign direct investment (FDI).[112] As there is still no single comprehensive global treaty, investor rights are mainly defined by almost 3,000 international investment agreements (IIAs), which encompass both bilateral investment treaties (BITs) and multilateral instruments, that are signed by participating states and are governed by public international law.[113] Under these agreements, state parties concede to provide a certain degree of protection to investors who are nationals of contracting states. These concessions include compensation in the case of expropriation, fair and equitable treatment, most favoured nation treatment, and full protection and security, among others. As IIAs are “the most important instruments for the protection of foreign investment,”[114] there is a general expectation that the conclusion of such agreements will encourage FDI among the contracting nations.[115] Host countries, generally developing and least developed countries but now increasingly developed countries,[116] assume obligations for the protection of foreign investments in order to attract foreign investments. Countries also adhere to these dealings to protect the economic interests of their nationals investing overseas. For both of these reasons, such agreements have come to play a major role in the growing competition to attract and export FDI. At the procedural level, IIAs can grant foreign investors holding patents direct access to investment treaty arbitration.[117] In doing so, they create a set of procedural rights for the direct benefit of investors.[118] This is a novelty in international law, as customary international law does not provide such a diagonal mechanism for settling disputes between foreign investors and host states.[119] The rationale for internationalizing investor-state disputes lies in the assumed independence and impartiality of international arbitral tribunals, while national dispute settlement procedures are often perceived as biased or inadequate to protect foreign investors.[120] Arbitration is also used because of perceived advantages in confidentiality and effectiveness.[121] Investor-state arbitration is procedurally similar to international commercial arbitration between private parties.[122] The parties choose the arbitrators among law scholars and practitioners.[123] Although arbitrators are expected to be both independent of the party appointing them and impartial,[124] they may permissibly share the political, economic, or legal ideals of the party that nominated them. From the offset, such appointees may be presumed sympathetic to the nominating party’s contentions and positions.[125] Confidentiality is one of the main features of arbitral proceedings as generally hearings are held in camera, and documents submitted by the parties remain confidential in principle.[126] Final awards may or may not be published, depending upon the parties’ will. Names of the parties can remain undisclosed, as do the details of the dispute, albeit to a lesser degree. Although confidentiality is well suited to private commercial disputes, the same may be problematic in investor-state arbitration, because arbitral tribunals can require states to compensate investors for regulations that hurt the latter. The lack of transparency may hamper efforts to track investment treaty arbitrations, monitor their frequency, and to assess the policy implications that flow therefrom.[127] Because investment disputes are settled using a variety of arbitral rules,[128] some of which do not even disclose the existence of arbitration claims, there can be no accurate accounting of all such disputes.[129] This should be a matter of concern given the public policy implications of such disputes. In recent years, efforts to make investment arbitration more transparent have been undertaken in various fora. In response to calls from civil society groups, the three parties to the North American Free Trade Agreement (NAFTA), Canada, the United States, and Mexico, have pledged to disclose all NAFTA arbitrations and open future arbitration hearings to the public.[130] Similarly, the International Centre for Settlement of Investment Disputes (ICSID) requires public disclosure of dispute proceedings under its auspices,[131] including the registration of all requests for conciliation or arbitration and an indication of the date and method of the termination of each proceeding. Increasingly, arbitral tribunals have allowed public interest groups to present amicus curiae briefs or to access the arbitral process.[132] However, these important developments in transparency appear in only a limited number of investment disputes. The vast majority of existing IIAs do not mandate such transparency, which means that most of the proceedings are still resolved behind closed doors. The recent adoption of the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (the “Mauritius Convention on Transparency”),[133] by which Parties to IIAs have expressed their consent to apply the United Nations Commission on International Trade Law (UNCITRAL) Rules on Transparency in agreement-based investor-state arbitrations, may increase the transparency of such disputes. Finally, awards rendered against host states are, in theory, readily enforceable against host state property worldwide due to the widespread adoption of the New York,[134] and Washington Conventions.[135] In arbitrations under the ICSID Convention, awards are only subject to an internal annulment process, enforced as a local court judgment, and exempt from the supervision of local courts.[136] In non-ICSID arbitrations, annulment is subject to the supervision of the courts at the seat of arbitration, and enforcement is governed by the New York Convention, which allows for non-recognition and non-enforcement of an award only on limited grounds.[137] Thus, if the arbitration is sited in a country other than the host state, there may be no capacity whatsoever for the host government to challenge the award in its own legal system. Given these characteristics of the arbitral process, significant issues arise in the context of disputes involving pharmaceuticals. Arbitration structurally constitutes a private model of adjudication, but arbitral awards ultimately shape the relationship between the state and private individuals.[138] Arbitrators weigh in on vital policy matters such as the legality of governmental activity, the degree to which individuals should be protected from regulation, and the appropriate role of the state.[139] In cases involving public health, one may wonder whether investment arbitration provides an adequate forum to address important non-economic concerns. Furthermore, the mere possibility of a dispute with a powerful investor can exert a chilling effect on governments’ actions to regulate in the public interest.[140]

III. The Rise of Investor-State Arbitrations Concerning Pharmaceutical Patents

Despite the economic importance of pharmaceutical patents, and the flourishing of arbitrations concerning them among private parties, known patent investment disputes have been rare.[141] Only recently has this situation started to change.[142] The few known pharmaceutical patent arbitrations have been high profile disputes that raise a number of important questions. How much does investment arbitration limit the regulatory autonomy of states? What is the interplay between investment arbitration and the parallel WTO DSM? Does investment arbitration allow adjudicators to strike an optimal equilibrium between private and public interests characterizing pharmaceutical patents? This part examines the reasons for the traditional paucity of cases and the recent rise of investor-state arbitrations concerning pharmaceuticals. Part IV explores the substantive issues raised by such arbitrations, highlighting the emergence of a new dialectics between the public and private interests embedded in intellectual property rights. Several factors may have accounted for the relative paucity of patent-related investor-state arbitrations. Firstly, the available data could represent just the tip of the iceberg, given the investment arbitration’s limited transparency. While ICSID makes the existence of all proceedings public and generally encourages the publication of awards,[143] other arbitral institutions do not necessarily disclose their dockets, and even when they do so, they do not publish the awards unless the parties so agree.[144] Moreover, the existence of ad hoc arbitrations could remain unknown. Secondly, it takes time for parties to switch to this new forum. Although the first BIT providing for investor-state arbitration was signed in 1959,[145] only during the 1990’s did investment arbitration clearly emerge as an international mechanism of adjudicative review.[146] The first investment treaty arbitration was registered in 1987.[147] Since then, the flow of investment treaty claims has increased remarkably,[148] totaling 608 as of the year 2015.[149] Traditionally, parties preferred other fora for claims concerning pharmaceutical patents. National courts are always an option to foreign investors.[150] As pharmaceutical patents are territorial in nature, they are subject to the national laws of each individual country.[151] At the regional level, the Court of Justice of the European Union (CJEU) has adjudicated several cases dealing with IP in general and pharmaceutical patents in particular. Even human rights courts can and have adjudicated IP-related cases. For instance, the European Commission of Human Rights (ECoHR) has deemed that IP is a form of property and thus protected under Article 1 of the first Protocol of the Convention.[152] Finally, at the international level, the WTO has an additional DSM for cases in which a state violates its commitments under the TRIPS Agreement.[153] Thirdly, investment disputes take many years to complete and are extremely expensive—often more expensive than dispute resolutions at national and regional fora.[154] Thus, initiating an investment dispute may prove to be a suitable option only for large corporate actors that have the resources to fund multi-year, multi-million dollar disputes. Finally, investment lawyers may lack sufficient knowledge about intellectual property.[155] For a long time, investment disputes focused mainly on tangible assets,[156] while intellectual property was considered to be a “highly technical subject.”[157] Conversely, IP lawyers may lack sufficient knowledge about international investment law. The lack of knowledge and familiarity on the part of investment and IP lawyers may disincentivize them from advising their clients to pursue investment disputes for their IP rights. However, patent holders have started filing investment treaty arbitrations to protect their rights. There are several reasons for this change. First, investment treaty arbitration allows the investor to file a claim against the host state directly without the home state’s intervention[158] The private party can control the litigation strategy,[159] and obtain compensation for the host state’s past wrongs.[160] In contrast to the mechanism afforded by investor-state arbitration, the ICJ and the WTO dispute settlement systems are inter-state dispute resolution mechanisms.[161] Recourse to these dispute settlement mechanisms is exercised at the discretion of the home state of the private party and requires the exercise of diplomatic protection.[162] However, diplomatic protection constitutes a prerogative and not a duty for states, and they may exercise it at their will.[163] While companies lobby their governments to file disputes before the WTO DSM, it is up to the states to decide whether to bring a claim.[164] The home state may be reluctant to initiate a trade dispute because of political and diplomatic considerations, especially when the alleged IP violation is limited in scope.[165] Even when the home state does bring an ICJ or WTO claim, governments are generally more wary in promoting interpretations of international law that could limit their own regulatory freedom in the future.[166] An investor would exercise limited, if any, control over the dispute settlement strategy. Moreover, under an ICJ or WTO dispute, the state would be under no obligation to pay any reparation to the IP owners who were actually injured.[167] Remedies under the WTO DSM[168] have only a prospective character.[169] Inversely proportional to the decrease of patent disputes at the DSM,[170] the number of patent investor-state arbitrations has arisen.[171] While the effectiveness of the DSM is under dispute,[172] the recent rise of IP-related investment disputes may indicate a shift of forum.[173] Second, investment arbitration may be a suitable choice when the host state’s judiciary does not seem to ensure fair trials or impartiality. In such circumstances, the foreign investor may immediately refer the dispute to arbitration.[174] Alternatively, the investor-state arbitration may constitute the last resort when the case has already been discussed at the national level and the foreign investor is unsatisfied with the result for reasons such as perceived discrimination and denial of justice.[175] Third, the dispute settlement chapters of a number of Free Trade Agreements provide for the option of filing non-violation complaints for IP rights,[176] which is not currently possible under the TRIPS Agreement. Non-violation complaints are geared toward state measures that do not appear to directly violate treaty provisions but are nevertheless sufficiently disadvantageous to the investor’s IP. The aim of the provision is to maintain the balance of benefits struck during negotiations and transfer from the treaty-negotiating parties to arbitral panels the authority to decide when the investor has suffered enough disadvantage. There are indications that non-violation complaints have already been raised before investment tribunals.[177] Non-violation complaints about IP regulation were controversial during the TRIPS negotiations and remain so.[178] While the TRIPS Agreement provides for such remedies,[179] WTO Members have adopted a moratorium and agreed not to use non-violation complaints.[180] This is because non-violation complaints were historically used in GATT to address situations that were not specifically covered by the vague obligations of the agreement.[181] Therefore, they were not needed in the TRIPS context, in which member states’ obligations had been more clearly detailed in international conventions including the TRIPS Agreement and the Paris Convention.[182] Finally, the increasing use of investment arbitration for settling patent-related disputes may reflect the growing importance of “intellectual capital” as a source of wealth generation vis-à-vis other forms of capital investment in industries such as the extractive industries, and manufacturing. Ideas play a vital role in modern economies[183] Science, technology, and creativity generate economic value and increase the significance of intellectual property[184] as useful tools to incentivize creativity and technological development on as well as enhance access to technology.[185]

IV. Towards a New Dialectics: Pharmaceutical Patents, Public Health and Foreign Direct Investments

In recent years, a growing number of investor-state arbitrations have concerned the way host states govern the pharmaceutical sector. Arbitrations have been filed against both industrialized and developing countries in different continents, indicating that the phenomenon has a truly global scale.[186] The rise of patent-related investment arbitrations highlights the emergence of a new battlefield between the public and private interests. Investment arbitrations provide a new place of dialectical interaction between the private interests of the patent holders and the public interest of the host states in preserving access to medicines and ensuring the safety and effectiveness of given pharmaceutical products. Some of these arbitrations are related to states’ regulatory measures in the patent system.[187] For instance, the first known investment arbitration dealing with pharmaceutical patents, Signa S.A. v. Canada,[188] challenged Canada’s patent regulations. Signa, a Mexican generic pharmaceutical company, contended that the regulations governing the authorization process violated the fair and equitable treatment standard under Article 1105 of the NAFTA.[189] Signa established a joint venture with the Canadian company Apotex, Inc. for the production of a generic version of Bayer’s top-selling ciprofloxacin hydrochloride, an antibiotic that treats a number of bacterial infections.[190] In order to sell the pharmaceutical in Canada, an authorization was required by the relevant authorities.[191] According to the claimant, the relevant regulations provided that “by merely purporting to have a relevant patent, a person c[ould] obtain a mandatory prohibition against a generic competitor for a period of about 3 years.”[192] Because Bayer, the patent holder company, prevented Apotex and Signa from making ciprofloxacin hydrochloride for a period of about three years, Signa claimed loss of revenues and market share.[193] As the parties quickly settled this case, there is no publicly available information on the dispute and whether the filing of the Notice of Intent to Arbitrate had any strategic or other impact is not known. Nonetheless, the case is significant because it shows that foreign investors can challenge patent regulation governing the duration of patent protection and even the authorization processes. Other arbitration disputes relate to various issues, ranging from the regulation of competition law to the implementation of harmonization measures in the pharmaceutical sector required by the European Union. For instance, Uruguay is reportedly facing an arbitration claim over a recent decree that limits the concentration of ownership in Uruguay’s pharmacy sector.[194] A U.S. investment fund has filed Notices of Dispute pursuant to the Spain–Uruguay and U.S.–Uruguay BITs respectively, alleging that the decree harms the company’s recent investment in a chain of local pharmacies.[195] In parallel, the Servier v. Poland case arose because of regulatory measures adopted by Poland to implement EU law harmonizing pharmaceutical regulations.[196] By including IP within their ambit, IIAs restrict the regulatory autonomy of states in the pharmaceutical sector, potentially affecting fundamental public interests. These disputes give rise to both jurisdictional and substantive issues. First, some disputes will center on the jurisdictional issue of which economic activities amount to an investment, giving rise to an arbitral tribunal’s jurisdiction over the dispute.[197] Second, some investment disputes are concerned with whether or not a certain state action constitutes an unlawful expropriation of the patent right.[198] Third, if an expropriation has occurred, claims may concern the adequacy of the amount or form of compensation.[199] Fourth, the patent owner may also allege violation of the fair and equitable treatment standard.[200] Finally, some claims may concern alleged discrimination suffered by the foreign investor in violation of national treatment and most favoured nation treatment.[201] This article examines each of these claims. While it is too early to predict how relevant arbitral tribunals will adjudicate these cases, such disputes highlight the emergence of an additional litigation venue, i.e. investment treaty arbitration, for resolving pharmaceutical patent-related disputes. International investment agreements enable private companies to file claims against the host states directly without the intervention of the home state and to recover damages and loss of profits; they internationalize a given dispute, isolating it from the oversight of the domestic courts of the host state. At the same time, these new dialectics require the elaboration of new procedural, substantive and interpretive legal tools for recalibrating the expectations, entitlements and powers of the litigating parties. In fact, at the procedural level, investment treaty arbitration may not be adequate to enable arbitrators to strike an optimal equilibrium between public and private interests. As IP disputes can affect important public values, these arbitrations and the relevant awards should be disclosed to the public. Moreover, at the substantive level, arbitrators may not have in-depth expertise of IP law and the underlying policy considerations. The risk is that an inadequate appreciation of the policies underlying IP rights by adjudicators may lead to an overemphasis of the private interests and an under-emphasis of the public interests. The propertization of patents, i.e. conceiving them as mere assets, may lead interpreters to forget that they are based on a compromise between public and private interests.[202] As the substantive interplay between IP and international investment law remains uncharted,[203] and the functioning of investment treaty obligations with regard to IP, the parties’ expectations, and enforcement aspects of these treaties are largely unexplored.[204] Interpretation is crucial to striking an appropriate balance between private and public interests. The next subsections provide an overview of the existing patent-related investment disputes and are organized by issues that may arise in arbitration.

A. The Notion of Investment

International investment agreements are “agreements concluded between states for the promotion and protection of reciprocal investments.”[205] Addressing the question as to whether certain economic activities relating to pharmaceutical products amount to an investment is crucial to establishing an arbitral tribunal’s subject matter jurisdiction. A patent holder is entitled to the substantive and procedural protections afforded by the treaty only if the treaty classifies her as an “investor” or her economic activity as an “investment”. If a given economic activity—in casu, a pharmaceutical patent —constitutes a protected investment, the patent holder will benefit from the substantive protections of the applicable IIA. In order to ascertain whether pharmaceutical patents constitute a form of protected investment under a given IIA, one has to look at the specific text of the applicable treaty. If the parties have opted for resolving their dispute at the ICSID, the ICSID Convention will be also applicable, which extends jurisdiction “to any legal dispute arising directly out of an investment.”[206] In this situation, the adjudicators will have to determine whether a given economic activity constitutes an investment under both the ICSID Convention and the applicable IIA. Patents are usually considered a form of investment under the ICSID Convention and most IIAs. The ICSID Convention does not provide a definition of investment.[207] Rather, it stipulates that ICSID jurisdiction extends “to any legal dispute arising directly out of an investment.”[208] In practice this has meant that commentators and arbitral tribunals have elaborated a number of criteria for defining the term.[209] Most notably, the leading test was articulated by Salini v. Morocco, which involves a dispute arising out of the construction of a highway. The Salini test includes four elements: 1) a contribution of money or other assets of economic value; 2) a certain duration; 3) an element of risk; and 4) a contribution to the host state’s development.[210] In general terms, tribunals allow the consideration of pharmaceutical patents as a form of investment. First, pharmaceutical patents are assets of economic value, with a duration of twenty years. Second, creating a medicine involves an element of risk, as it may take years of research and development. Finally, the availability of pharmaceutical products—which goes hand in hand with the protection of pharmaceutical patents—can improve the public health of a given country, and albeit indirectly, to its economic development. These requirements embody a balance between the private interests of foreign companies and the public interest of the host state, because they ensure that economic activities are protected as long as they contribute to the economic development of the host state. However, given the vagueness of the ICSID Convention, the definition of investment provided by the applicable IIA will often be decisive for ascertaining whether a given activity constitutes an investment, because the specific languages of the IIAs are frequently given deference.[211] In Servier v. Poland,[212] a dispute concerning the commercialization of pharmaceuticals in Poland, the Tribunal upheld its jurisdiction notwithstanding Poland’s opposition.[213] According to Poland, the presence of Servier subsidiaries in Poland did not entitle Servier to recover,[214] as the claimants did not have any investments in the host state itself under Polish law.[215] Servier counter-argued that “it [wa]s the Treaty, not Polish law, that [wa]s relevant in assessing whether Servier’s assets [we]re protected investments.”[216] The Tribunal held that it possessed jurisdiction, acknowledging that the companies were incorporated in France, thus being foreign investors, and therefore it had jurisdiction ratione personae.[217] It usually requires a case-by-case analysis to determine whether IP constitutes an investment[218] because different IIAs provide different definitions of investment. BITs do not include detailed regulation of pharmaceutical patents. Rather, they briefly mention IP rights as a form of protected investment.[219] Some IIAs incorporate a broad definition of investment that generally covers both tangible and intangible property.[220] Other IIAs either generally refer to IP rights, or explicitly indicate the types of IP covered, such as copyright, patents, industrial designs, trade secrets, trademarks and others.[221] A question that often arises is whether patent applications are covered investments under the relevant investment treaty. Although registered patents are covered in most investment treaties, it remains an open question as to whether patent applications should be deemed a form of protected investment even if they are not entitled to the same protections as a patent itself.[222] Certain IIAs expressly exclude the possibility that patent applications constitute protected investments.[223] Other investment treaty provisions protecting “rights with respect to [IP]”[224] or “patentable inventions” leave much uncertainty.[225] For instance, the U.S.–Jamaica BIT covers patentable inventions and therefore should cover patent applications as investments.[226] Other IIAs protect “intangible property” and arguably this generic notion can include patent applications.[227] As patent applications can be sold and assigned to third parties,[228] the argument goes that they are a form of “intangible property,” even though they do not constitute “intellectual” property.[229] The European Court of Human Rights held that both registered trademarks and applications to register trademarks were “property rights” within the meaning of Article 1 of Protocol No. 1 of the European Convention on Human Rights.[230] The fact, however, that most investment treaties provide protection to both investors and their investments only after the establishment of an investment suggests that a case-by-case analysis is needed. Recently in Apotex Holdings Inc. v. United States (Apotex III), a Tribunal held that patent applications were not investments under NAFTA Chapter 11.[231] The claimants sought over $1 billion in damages from the United States[232] after the U.S. Food and Drug Administration (FDA) imposed an Import Alert on certain generic medicines that were produced in Canada by Apotex Inc., exported to the U.S. and sold in that market by a U.S.-based Apotex subsidiary.[233] According to the respondent, the FDA issued the alert after its inspections of Apotex facilities in Canada found significant violations of U.S. laws and regulations.[234] The United States emphasized that Apotex produced all of its products in Canada,[235] and argued that the cross-border trade of pharmaceuticals did not constitute an investment.[236] The claimants argued that they had the following investments in the U.S.: 1) certain intellectual property rights, that is, abbreviated new drug applications (ANDAs), directly held by Apotex Inc. and indirectly held by Apotex Holdings;[237] and 2) Apotex Corp., a U.S.-based subsidiary of Apotex Holdings, that markets pharmaceuticals produced in Canada.[238] The Tribunal held that ANDAs were not “investments” in the United States.[239] In this regard, the Tribunal followed previous awards (Apotex I and II) which rejected claims that applications for the sale of medicines into a host state could be considered investments.[240] The Tribunal clarified that even if preparing those applications required significant expenses, the true business activity was the production of the medicines in the home state for export in the host state.[241] Therefore, the only investment was the subsidiary Apotex Corp. Commentators criticized the award on this latter point, submitting that it “blurs the line between trade and investment disputes,” and that companies might use their subsidiaries as a kind of “Trojan horse” for obtaining protection under the relevant BIT.[242] The mere sale of pharmaceutical products does not amount to an investment. Mere sales of goods do not have the prerequisites of a certain duration, risk and contribution to the economic development of the host state which characterize investments. Rather, such sales can “preserve export markets for the patent owner, leading to welfare losses for the host country,” potentially “impeding local innovation,” and increasing the costs of medicines.[243] As mentioned, IIAs reflect a bargain where the state restricts some of its sovereign rights to attract foreign investments. When the private party is not holding up her end of the bargain by taking risks and making a real contribution to the host state’s economy, such sales are not investments and are not entitled to the substantive protection of the IIA. An arbitral tribunal recently clarified that the mere sale of medicines does not amount to an investment in Italy v. Cuba.[244] Italy initiated this investment treaty arbitration arguing that the contractual agreement between Menarini, an Italian pharmaceutical company, and Medicuba, an entity affiliated with the Cuban Ministry of Health, was an investment protected under the Italy-Cuba BIT.[245] According to the claimant, the agreement did not relate merely to the supply of medicines, but also included the research and development of new pharmaceutical products.[246] The claimant also stressed the duration of the contract, the collaboration with local agents, and the particular importance of the given medicines to public health in Cuba.[247] The respondent counter-argued that Menarini was not an “investor” as it merely sold its products to Medicuba and had no subsidiary in Cuba.[248] According to the respondent, contacts with local agents should be considered a normal business practice, and the organization of a cardiology conference was merely aimed at marketing related products and should not be conceived as evidence of an investment.[249] Cuba concluded that it had reached an agreement with the company, according to which Cuba would have paid its invoices, while the company would have started its commercial operations with Medicuba again.[250] After reaching the mentioned agreement with Cuba, Menarini ceased to invoke diplomatic protection.[251] In light of this circumstance, Italy withdrew its diplomatic protection.[252] However, it did not withdraw the claim in its own name.[253] The Tribunal found Menarini’s activities not an investment, and dismissed Italy’s claims due to lack of subject matter jurisdiction. In its reasoning, the Tribunal defined investment as any economic activity carried out by an investor characterized by a contribution to the economic development of the host state, for a certain duration and involving commercial risks.[254] After examining the contract between Menarini and Medicuba, tellingly entitled “Contrato de Compra-Venta” which translates to “Contract of Sale,”[255] the Tribunal held that the given commercial activity was not an investment but a sale of pharmaceuticals. As there was neither contribution of resources into Cuba nor assumption of risk beyond the mere risk of nonpayment, the Tribunal held that such sale of medicines did not constitute an investment protected under the Italy–Cuba BIT.[256] The Tribunal added that sponsoring medical congresses does not qualify the subsequent sales of medicines as investments, as such activity is a classic marketing practice.[257] To summarize, the question as to whether intellectual property constitutes an “investment” requires a case-by-case assessment. Mere sales of pharmaceuticals do not amount to investments. IIAs reflect a bargain—where the state gives up some of its sovereign rights in exchange for a better chance of attracting foreign investments. Arbitral tribunals have taken this bright-line rule that when it is mere sale of goods, the state is not gaining enough from the bargain and the investor is not contributing enough by taking risks or contributing to the economic development of the state.[258] Patent applications create a mere expectation of obtaining a patent but do not constitute patents. Although some argue that the application is a form of “intangible property”, the question as to whether a patent application can be considered an investment depends on the precise wording of the relevant IIA.[259] Because the specific language of the treaty reflects the voluntary consent of the state involved, it can be presumed that the states have already taken the public interest into account when accepting to protect patent applications as forms of investments. Any determination of intellectual property as an “investment” in international investment law and arbitration has far-reaching policy implications. Firstly, the IIA language reflects a delicate balance between private and public interests. States can shape this balance when defining investment in their IIAs—a fine balance that is also intrinsic in the protection of pharmaceutical patents. Secondly, when arbitral tribunals determine whether an economic activity constitutes an investment, such determination can affect both foreign and domestic pharmaceutical companies.[260] In fact, the tribunals’ awards could have effects reverberating beyond the parties to the given disputes. Although the rule of stare decisis, or binding precedent, does not apply to international arbitration and awards are binding only between the parties,[261] previous arbitral awards have influenced, if not shaped, much of contemporary investment law.[262] For example, if a patent application is considered to be a protected investment, private interests may receive a higher level of protection than they otherwise would be and the state regulatory autonomy will be restricted according to the relevant investment treaty provisions. By contrast, if a patent application is not considered to be a protected investment, private interests will receive a lower level of protection than they otherwise would, but the host state will preserve its regulatory autonomy. Therefore, it is crucial that when treating intellectual property as an “investment,” arbitrators should consider the precise wording of the applicable investment treaty and the underlying policy implications,[263] taking into account both private and public interests. The determination whether a certain economic activity constitutes an investment can affect the ability of the host state to calibrate national policies to local conditions and needs.

B. Expropriation

International investment treaties provide, inter alia, for protection against unlawful expropriation.[264] This raises two questions: whether a state action constitutes expropriation, and if it does, whether or not the expropriation is lawful. Several arbitrations have been concerned with the issues of what acts of the state amount to an expropriation. Treaty provisions lack a precise definition of expropriation, and their languages encompass a potentially wide variety of state activities that may interfere with pharmaceutical patents.[265] Usually IIAs clarify that expropriatory measures are lawful if adopted: 1) for a public purpose; 2) on a non-discriminatory basis; 3) in accordance with due process of law; and 4) on payment of compensation.[266] Failure to satisfy any of these requirements will imply that the expropriation is unlawful and thus requires compensation. Expropriation includes both direct and indirect expropriation. Direct expropriation of intellectual property is usually done through formal transfer of title or outright seizure of the same.[267] This has happened in the past.[268] For instance, in German Interests in Polish Upper Silesia, the Permanent Court of International Justice found that a Polish statute, which transferred to the Polish Treasury all the properties of the German Reich located in the territory annexed to Poland, expropriated not only the Chorzów factory, but also certain patents.[269] More recently, in Shell Brand International AG v. Nicaragua,[270] two Shell subsidiaries filed a claim against the Government of Nicaragua for breach of the Netherlands–Nicaragua BIT in response to an alleged direct expropriation of their logo and brand name.[271] According to the claimants, Nicaragua seized their trademarks in an effort to enforce a judgment of a Nicaraguan court.[272] Even without direct expropriation, a state action could nonetheless amount to indirect expropriation of a patent. Indirect expropriation indicates measures that do not directly take investment property but interfere with its use, depriving the owner of its economic benefit.[273] For instance, several studies have examined the question as to whether compulsory licenses—when a government allows someone else to exploit the patented product or process without the consent of the patent owner—and parallel imports—importing and selling branded goods into a market without the consent of the patent owner—can amount to an expropriation of pharmaceutical patents.[274] Although the TRIPS Agreement permits compulsory licenses and parallel imports,[275] the issue remains open as to whether they constitute indirect expropriation under investment agreements. So far no claims have been brought concerning these specific issues.[276] In Servier v. Poland, the Tribunal held Poland liable for expropriation of pharmaceutical marketing authorization in breach of the France–Poland BIT.[277] As part of Poland’s accession to the European Union (EU), the country revised its pharmaceutical laws to harmonize them with EU law.[278] Under one of these harmonization measures, medicines to be sold in Poland required a renewal of their marketing authorization.[279] In late 2008, Polish health authorities did not renew the authorization for two medicines produced by the claimants,[280] the precise reasons for which remain confidential.[281] Around the same time, authorization was granted to Polish companies to produce market alternatives of these medicines.[282] Against this background, the claimants, three French pharmaceutical companies, commenced arbitration under the France–Poland BIT, contending that the denial of authorizations amounted to a substantial deprivation of value, and thus a direct or indirect expropriation of their pharmaceutical patents.[283] Poland argued that its decisions not to renew marketing authorizations were adopted in the “normal course of [its] duties as pharmaceutical regulator, and based on the drug’s failure to comply with EU law requirements,”[284] and thus did not amount to an expropriation. In particular, Servier could not have expected that authorization would indefinitely be granted in the context of both a heavily-regulated pharmaceutical industry and Poland’s transition to its EU membership.[285] Moreover, Poland contended that its conduct complied with EU law, which was binding on both Poland and France being the “product of a joint French and Polish policy choice.”[286] According to Poland, EU law constituted a “relevant rule of international law applicable between the parties” under Article 31(3)(c) of the Vienna Convention on the Law of Treaties,[287] and therefore it would be “inappropriate to find that the regulatory requirements to which both parties agreed could give rise to an obligation of compensation.”[288] Poland further contended that in denying marketing authorizations to certain medicines, it exercised its police powers[289] in a way that was proportionate to the public interest to promote public health and adopted in good faith,[290] and hence the arbitrators should show deference to state regulatory choices.[291] Poland concluded that it had an obligation to adopt the regulatory measures because EU law would not have allowed other regulatory choices.[292] Servier contended that the state measures were discriminatory, disproportionate and unreasonable. According to Servier, the state measures were discriminatory because the state granted authorizations to local producers but rejected Servier’s applications,[293] even though no regulations required Poland to reject foreign applications over local.[294] Servier contended that “Poland viewed the harmonization process as a means to promote the local pharmaceutical industry, in particular through the registration of low-cost local generic products.”[295] On proportionality, Servier suggested that, rather than denying authorization, the health authorities could have limited the indications for use of the medicines, or given conditional approval while requiring further information.[296] Finally, the claimant alleged that no reasonable serious public health reason justified the nonrenewal of their syrup product[297] while authorizing the same product in tablet form.[298] The Tribunal found that the denial of marketing authorizations amounted to an indirect expropriation, implicating a State’s substantial interference with the investor’s rights.[299] The Tribunal held that such indirect expropriation was discriminatory and “not a matter of public necessity”[300] and awarded compensation to the foreign investor. As the award is extensively redacted, the legal test that the Tribunal adopted remains opaque; it also remains unclear whether the Tribunal upheld Servier’s argument that the indirect expropriation was unlawful.[301] But the award does show that the Arbitral Tribunal has looked closely to the language of the applicable IIA that provided that “any divestment” (whether lawful or unlawful) would give rise to prompt and adequate compensation at the real value of the investment.[302] In another recent dispute, the U.S.-based pharmaceutical company Eli Lilly filed a Notice of Intent against the Government of Canada under NAFTA Chapter 11,[303] claiming that the invalidation of some of its patents by Canadian courts for “inutility”[304] amounted to unlawful expropriation[305] and sought $500 million in damages.[306] Although this case is still pending, an examination of the parties’ arguments on the central issue of expropriation sheds light on the private and public considerations in the evolving dialectics. Eli Lilly contended that by invalidating its patent, the Canadian court adopted a standard of utility that was contrary to Canada’s international treaty obligations.[307] It required not only that a given invention have some “scintilla” of usefulness, but also that the patent holder prove the invention has lived up to the usefulness “promised” by the patent holder at the time of seeking the patent.[308] If the patented invention is found not to meet this promise, the patent can be invalidated. According to the claimant, this promise doctrine of utility diverged from patent law in other countries, and had had the effect of invalidating a large number of patents in recent years.[309] Eli Lilly argued that not only would the promise doctrine unduly impede research and development,[310] but it would also breach Canada’s obligations under several IP conventions[311] “by imposing onerous and additional utility requirements that have had the effect of denying patent rights for inventions which meet the conditions precedent to patentability.” [312] Thus, Eli Lilly argued, it constituted either a direct expropriation because it deprived Eli Lilly of its exclusive rights to prevent third parties from making, using, or selling its patented products during the patent term,[313] or alternatively, an indirect expropriation because it had the effect of nullifying the value associated with the patent.[314] In its Statement of Defense, Canada countered that a direct expropriation only occurs when rights are taken by the state,[315] but not when a court invalidates a patent, because this “does not amount to a ‘taking’, but rather, constitutes juridical determination of the existence and scope of rights at law.”[316] In other words, according to Canada, the company cannot claim its investments were expropriated because there were no investments; its patents did not even exist under Canadian law.[317] Canada also argued that the protection against expropriation under NAFTA Article 1110 “does not apply to the procedurally fair invalidation of a patent by a domestic court”[318] because this happens each year by courts in all major jurisdictions.[319] Additionally, Canada argued that its actions cannot give rise to expropriation under Article 1110(7) of NAFTA,[320] because they were consistent with NAFTA Chapter Seventeen,[321] which grants the inventor exclusive rights in a new and useful invention for a limited period in exchange for disclosure of the invention so that society can benefit from this knowledge.[322] Turning to the indirect expropriation claim, Canada argued that the patent invalidation did not constitute a substantial deprivation of the economic value of the claimant’s investments.[323] Rather, according to Canada, the invalidated patents were just one component of Eli Lilly’s overall business in Canada.[324] In fact, the company continues to grow and sells a number of products.[325] With regard to the character of the invalidation, Canada emphasized that “it was a legitimate and good faith exercise of the judicial authority of the state.”[326] The defendant also highlighted that the “whole notion of judicial expropriation is entirely unsettled even in domestic legal systems, let alone in customary international law.”[327] As the case is pending, it is not possible to foresee how it will be decided. In Apotex Inc. v. United States, Apotex, a Canadian generic pharmaceutical company, alleged, inter alia, expropriation of its investments as domestic courts refused jurisdiction to its claim seeking a declaratory judgment of noninfringement.[328] The Federal Food, Drug and Cosmetic Act and subsequent amendments provide for an ANDA that enables generic manufacturers to obtain regulatory approval of lower-priced generic versions of previously approved medicines on an expedited basis, thereby benefitting the U.S. healthcare system and American consumers.[329] In 2003, Apotex filed an application with the FDA to obtain the approval of a generic version of an antidepressant before the expiration of the relevant patent.[330] When the patent holder Pfizer declined to file an infringement suit, Apotex filed for a declaratory judgment that it was not infringing on the patent, which Apotex claimed to be a common legal tactic in patent litigation.[331] However, the Southern District of New York dismissed Apotex’s suit as the claimant lacked a “reasonable apprehension” that Pfizer would launch a suit for patent infringement.[332] The Federal Circuit affirmed the district court’s decision, and the petition for certiorari was denied.[333] Against this background, Apotex filed a notice of arbitration, contending that the United States’ conduct amounted to an unlawful expropriation in violation of NAFTA Article 1110.[334] The claimant argued that “under international law, expropriation occurs where government action unreasonably interferes with an alien’s effective use or enjoyment of property.”[335] According to the Apotex, the U.S. interfered with its property rights in the ANDA “by unlawfully preventing [it] from obtaining a federal court decision” assessing the validity of the relevant patent, and “substantially depriving [it] of the benefits of its investment.”[336] The claimant also argued that the defendant “ha[d] no ‘public purpose’ for interfering with Apotex property rights”,[337] and it “failed to provide the company with due process of law.”[338] Finally, Apotex claimed that it did not receive compensation for the damages it alleged to have suffered.[339] A parallel dispute,[340] which was joined to the former and heard by the same Arbitral Tribunal,[341] involved the submission of an ANDA seeking approval for a generic version of a heart medication.[342] In order to obtain approval of its application, Apotex had sued the patent owner, Bristol Myers Squibb (BMS), to make sure that it would not face a patent infringement claim after it launches the Apotex medicines on the market.[343] In response, BMS moved to dismiss the claim for lack of subject matter jurisdiction on the ground that it had no intention of suing Apotex for infringement.[344] The Court granted BMS’ motion to dismiss.[345] Apotex argued in the arbitration that the administrative decision of the FDA and the opinion of the courts each violate both U.S. statutory law[346] and NAFTA.[347] In particular, Apotex alleged that the state action interfered with its property rights in its medicine application, thus amounting to an unlawful expropriation in breach of NAFTA Article 1110.[348] Apotex further claimed that because the United States had no “public purpose” for interfering with its property rights and did not provide compensation,[349] the company was entitled to compensatory damages. The Arbitral Tribunal dismissed both claims on jurisdiction because of the failure to exhaust local remedies,[350] time limits,[351] and lack of investment.[352] It also ordered Apotex to pay the United States’ legal fees and arbitral expenses.[353] Although the holding does not touch upon the claim of expropriation, the case shows that claims of judicial expropriation have been brought by pharmaceutical companies. In conclusion, there is no mechanical formula for determining whether state conduct amounts to a direct or indirect expropriation. Generally, expropriation requires that there be an investment in the first place. Depending on the language of the applicable IIA, patent applications may not constitute investments. Expropriation requires that there be a substantial deprivation to the investor.[354] The invalidation of a patent can affect the economic interests of the patent holder and can constitute an indirect expropriation of its rights.[355] However, the act of governing patents can constitute a form of legitimate regulatory activity.[356] The character and regulatory purpose behind the government regulation can carry weight in the assessment as to whether there was a legitimate exercise of the state’s police power or an indirect expropriation.[357] The burden of proving that the state conduct is inconsistent with a legitimate exercise of its police powers falls upon the claimant.[358]

C. Determining Compensation

Another area where the fine-tuning of private and public interest takes place is the determination of compensation to be paid after an expropriation has taken place. IIAs’ expropriation provisions may be more beneficial to the patent owner than both domestic and international patent law.[359] Customary compensation rules, uniformly enshrined in investment protection treaties, do not differentiate between the various public purposes of expropriations, but instead pose a single standard:[360] in the case of expropriation, investors must be fully compensated.[361] Several investment treaties further require compensation to be prompt, adequate and effective, according to the so-called Hull formula.[362] In Servier v. Poland, the case concerning the alleged expropriation of Servier’s investments, the France–Poland BIT required that any expropriation would give rise to “prompt and adequate compensation” at the real value of the investment.[363] Therefore, the Tribunal held that this compensation standard was to be applied, regardless of whether the expropriation was lawful or unlawful.[364] While the Tribunal had “discretion to impose additional sanctions to punish Treaty violations of particular seriousness,”[365] it found that Poland had “not engaged in bad faith behaviour … that would require damages beyond the Treaty standard.”[366] Instead, the Tribunal awarded the real value of the investment plus interests, calculated “on the basis of the appropriate rate of interest in force at the time of divestment” as required by the France-Poland BIT.[367]

D. Fair and Equitable Treatment

Fair and equitable treatment (FET) has become the most often invoked provision in investment treaty arbitration.[368] Due to its deliberate vagueness, it constitutes a catch-all provision covering the situations where there is no finding of expropriation or any other breach of other investment treaty standards.[369] The FET standard is an absolute standard of treatment, designed to provide a basic safeguard upon which the investor can rely at any time, as opposed to the “relative” standards embodied in both the national treatment and “most favored nation” principles, which, in contrast, define the required treatment by reference to the treatment accorded to other investments.[370] In an attempt to delimit the perimeters of the standard, the NAFTA Free Trade Commission issued an interpretation of the provision,[371] which is binding on all NAFTA tribunals.[372] The Commission clarified that the FET provision under NAFTA Article 1105 prescribes the customary international law’s minimum standard of treatment and does not require any standard of treatment that goes beyond that.[373] Traditionally, the minimum standard of treatment protected investors only in instances of “egregious and shocking” conduct or “manifestly unfair or inequitable conduct.”[374] Therefore, in the NAFTA context, arbitral tribunals still consider the FET standard to be the customary international law minimum standard of treatment.[375] For instance, in Apotex Holdings Inc, Apotex Inc. v. United States (Apotex III),[376] which concerned the import ban on certain pharmaceuticals produced in Canada, the claimant contended that the U.S. breached the minimum standard of treatment due to a perceived lack of due process in providing the issue alert and the delays experienced in re-inspecting the facilities.[377] Although Apotex contended that the FET standard is an evolving standard which has gone beyond the customary minimum standard of treatment, the Tribunal sided with the United States and affirmed that in the NAFTA context, FET means the customary minimum standard of treatment.[378] The Tribunal found that the Claimants had not presented sufficient evidence of state practice or opinio juris indicating an expansion of the customary minimum standard of treatment.[379] After noting that “[w]hen interpreting and applying the ‘minimum standard’, a Chapter 11 tribunal does not have an open-ended mandate to second-guess government decision making,”[380] the Tribunal did not find any breach of the FET provision. In Eli Lilly v. Canada, the pending case relating to the invalidation of patents for failure to meet the utility requirement, the claimant contends that the allegedly unexpected and arbitrary adoption by the Canadian courts of a new, stricter approach to patent invalidation is contrary to the company’s “reasonable investment-backed expectations,”[381] and in breach of NAFTA Article 1105.[382] The company argues that it could not have anticipated at the time of its investment that the requirement for utility would be altered by the adoption of the “promise of the patent” doctrine into Canadian law and practice.[383] In its Statement of Defence,[384] the Government of Canada counter-argued that the claimant received due process before Canadian courts and simply being disappointed with the outcome of two patent trials does not amount to a breach of the relevant obligations.[385] Rather, according to the respondent, “[t]he threshold for a violation by a court of the minimum standard of treatment” is set “extremely high” under customary international law.[386] Canada highlights that the FET standard does not prevent the evolution of a State’s legal framework,[387] as NAFTA Chapter 11 was never meant “as a kind of insurance policy against the risk of any changes in the host States legal and economic framework.”[388] In its Counter Memorial, Canada also points out that NAFTA’s FET provision does not go beyond the minimum standard of treatment required under customary international law.[389] According to Canada, “a violation of Article 1105(1) will not be found unless there is evidence of serious malfeasance, manifestly arbitrary behaviour or denial of justice by the respondent NAFTA Party.”[390] Therefore, Canada argues that a mere frustration of investors’ legitimate expectations does not establish a breach of the minimum standard of treatment, as the theory of legitimate expectations has not become a rule of customary international law.[391] Although the FET standard has not presented much of a viable claim in the NAFTA context, it can have a concrete impact outside the NAFTA milieu, where arbitral tribunals have broadened the notion of fair and equitable treatment significantly. The standard has exceeded the customary minimum standard of treatment and comprises various additional requirements, such as transparency, due process, and others.[392] Under this broader conceptualization, the FET standard has figured prominently in a number of patent-related investment arbitrations. IP-related FET claims, both within and beyond the NAFTA context, have raised a number of questions. Does the grant of the patent by the host state constitute state representations which in turn create legitimate expectations the patent holder may rely upon?[393] Can an investor rely upon international IP norms as a source of legitimate expectations?[394] Does investment treaty arbitration provide a new means to enforce international IP agreements?[395] What is the relationship between denial of justice and indirect expropriation claims? The next subsections address these questions.
1. IP Rights as a Basis for Investor’s Legitimate Expectations
The concept of “legitimate expectations” allows a foreign investor to claim compensation in situations where “the conduct of a host state creates a reasonable expectation … that [the investor] may rely on that conduct, such that a subsequent failure by the host state to honour those expectations causes the investor to suffer damages.”[396] Legitimate expectations are not an independent cause of action. Whether or not the fair and equitable standard protects the legitimate expectations of foreign investors has been answered in various ways.[397] The divergence concerning the content of the FET standard, and the protection of the legitimate expectations of the investor, is really about the level of protection that should be granted to foreign investors and their investments. While investors want stronger investment protections, host states favor weaker restrictions on the exercise of their sovereign powers.[398] The variance also expresses the preference of NAFTA states for striking a balance between public and private interests at the legislative (domestic) level, rather than empowering arbitral tribunals to find that balance between such interests at the adjudicative (international) level. Translating this general discussion in the specific context of IP protection, one wonders what type of expectations, if any, patents can give rise to. Patents are a type of IP, governed by both national statutes and international instruments such as the Paris Convention and the TRIPS Agreement. Can investors legitimately expect that these domestic and international instruments will not be violated by the host state? Can investors legitimately expect an absolute protection of their economic interests? Patent law is characterized by the concept of the “patent bargain” or granting the right of exclusive exploitation of a given invention in exchange for the disclosure of a novel invention.[399] It expresses a fundamental and intrinsic balance of public and private interests. Patents do not confer absolute rights, nor do they create any legitimate expectation that the exclusivity they confer is absolute and will remain without interference from accepted checks and balances inherent in the IP system.[400] Not only does the international IP framework provide for commonly used regulatory controls on the utilization and exploitation of patents,[401] but patents are territorial in nature. Patents exist by virtue of legal recognition from the state. Therefore, it is within a host state’s competence to determine the patentability and scope of protection offered for patents granted pursuant to national law. Moreover, IP rights do not confer positive rights for rights holders to make or use the protected invention; rather they are negative rights, which allow rights holders to exclude competitors from exploiting a given invention for a limited time. They cannot prevent states from regulating the use of such rights in the pursuit of legitimate public policy objectives.[402] Conversely, if a host state grants specific assurances to an investor regarding the exploitation of her investment in the host state, the adoption of new regulatory measures affecting the economic value of her investment might amount to a breach of fair and equitable treatment.[403]
2. International IP Norms as a Source of Legitimate Expectations
In several investment arbitrations, investors have claimed that measures adopted by the host state and affecting their investments are illegal under a number of international IP agreements and therefore violate the FET standard. According to this line of argument, if the host state is party to international intellectual property agreements such as the TRIPS Agreement, the Paris Convention and the Patent Cooperation Treaty, an investor is justified in having a legitimate expectation that the state will not violate such agreements.[404] This argument assumes that if the state has acted in a way that deviates from the investor’s legitimate expectations, it violates the FET. In Eli Lilly v. Canada, the pending case relating to the invalidation of patents on grounds of inutility, the claimant contends that the adoption by the Canadian courts of a new, stricter approach to patent invalidation is contrary to the company’s “reasonable investment-backed expectations,”[405] and in breach of NAFTA Article 1105.[406] The claimant contends that by violating a number of international law instruments governing patentability requirements, the Canadian measures are in breach of the FET standard.[407] The company stresses its legitimate expectations that Canada complies with international IP treaties,[408] including the TRIPS Agreement, the Patent Cooperation Treaty and NAFTA Chapter 17. Canada maintains that the Tribunal lacks jurisdiction over the alleged breaches of Canada’s international treaty obligations[409] under TRIPS, PCT or NAFTA Chapter Seventeen, and that enforcement of obligations under these other international IP agreements may only be brought before their own respective venues.[410] Canada also maintains that it is not breaching the investor’s legitimate expectations because it is complying with the substantive provisions of the TRIPS Agreement, NAFTA Chapter 17 and the PCT. First, according to Canada, the TRIPS Agreement “did not attempt to create a uniform or deeply harmonized patent regime,” rather, it “left ample room for national variations and approaches to substantive patent issues.”[411] In fact during the TRIPS negotiations, “broad terms were used due to the lack of consensus on substantive law and the desire to maintain flexibility.”[412] Second, Canada stresses that NAFTA Article 1709(1), whose language was drawn upon the TRIPS negotiations,[413] includes the criteria “new,” “result[ing] from an inventive step,” and “capable of industrial application” as criteria for patentability of a given medicine, but also notes that “a Party may deem the terms ‘inventive step’ and ‘capable of industrial application’ to be synonymous with the terms ‘non-obvious’ and ‘useful,’ respectively.”[414] This indicates that the parties could not agree on a common terminology for patentability requirements and their substantive content. Third, Canada notes the irrelevance of the PCT to the case. In fact, according to the state, such treaty “does not govern either substantive conditions of patentability or the invalidation of patents. It simply facilitates the international filing of patent applications ….”[415] In fact, Canada stresses that “[f]iling in accordance with the PCT is no guarantee that a patent application will result in a successful patent grant, or that any grant of a patent will withstand judicial scrutiny.”[416] The argument that a state’s adhesion to other treaties gives rise to legitimate expectations that the state will not breach such treaties relies on an expansive and evolving interpretation of the FET standard. Under NAFTA, it seems that such a claim lacks merits, as NAFTA tribunals have adopted a restrictive approach to the interpretation of the standard, analogizing it to the minimum standard of treatment under customary law. Beyond the NAFTA context, some tribunals have considered that the protection of legitimate expectations constitutes part of the FET standard. However, it remains to be seen whether arbitral tribunals will consider that legitimate expectations include an expectation that the host state will not breach its international law commitments. The argument, if adopted, would impose a powerful constraint on states for which the state did not bargain for in the negotiation of IIAs. Even if arbitral tribunals accepted such an expansive interpretation of the FET standard, the fact remains that international IP treaties provide very vague terms, and therefore have traditionally left much room for maneuver to the states. In general terms, international IP treaties “include deliberate gaps, reflecting areas of non-convergence and the residual sovereignty of states to legislate specific rules.”[417] Such treaties do not define the concepts of utility, novelty and nonobviousness because “there is no consensus on how to apply these doctrines.”[418] Rather the content of these “open-ended” standards evolves over time,[419] and states shape patentability standards “to achieve net policy goals in specific sectors.”[420] The national implementation of international IP standards varies across countries.[421] As the current international IP regime is “rooted in the disparate practices … of different nations,” “non-uniformity pervades [its] very fabric.”[422] For instance, the TRIPS Agreement clarifies that “[m]embers shall be free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice.”[423] Moreover, the Rules and Procedures Governing the Settlement of Disputes (DSU) provides that WTO panels and the Appellate Body (AB) “cannot add to or diminish the rights and obligations provided for in the covered agreements.”[424] WTO jurisprudence has confirmed this “space reserved for state sovereignty.”[425] In conclusion, how countries achieve a competitive balance between public and private interests remains a national prerogative, provided that they comply with their international obligations.
3. A New Tool to Enforce International Intellectual Property Agreements
Can investment treaty arbitration constitute a new tool to enforce international IP agreements? Can it provide investors with an alternative venue to challenge the consistency of domestic regulations with the TRIPS Agreement, instead of lobbying their governments to bring a WTO dispute? And if parallel proceedings are brought before the WTO DSM and investment treaty arbitral tribunals respectively, will arbitral tribunals, WTO panels and the AB show any deference to the other venues? In some exceptional cases, foreign investors have attempted to use international investment law to indirectly protect other values by requiring a state to respect its international law obligations that are critical to the success of the investment.[426] For instance, a Canadian investor filed an investment treaty claim against Barbados, arguing that the alleged failure to enforce its own environmental law implementing international obligations violates FET under the Canada-Barbados BIT.[427] The formulation of this claim illustrates a novel form of interplay between international investment law and other branches of international law. When adjudicating IP investment disputes, the question arises as to whether arbitral tribunals can take into account other bodies of law in addition to international investment law. A breach of the TRIPS Agreement cannot provide a basis for an independent claim in investment treaty arbitration. Investment treaty arbitral tribunals cannot adjudicate on a violation of international IP law, unless the relevant investment treaty requires them to do so. If an international investment agreement does not refer to other treaty obligations, it appears difficult to assume that the IIA parties wished to interpret the FET standard in such a wide-ranging manner.[428] In fact, had the IIA parties wished to expand the scope of protection to cover violations of other treaties, they could have included explicit reference to these other treaties. In addition, the DSM has exclusive jurisdiction in settling disputes over breaches of WTO law.[429] This seems to preclude arbitral tribunals to adopt such an expansive interpretation of the FET standard. For instance, in Grand River Enterprises Six Nations v. United States, the Tribunal held that the FET standard in NAFTA Chapter 11 “does not incorporate other legal protections that may be provided investors or classes of investors under other sources of [international] law” otherwise the standard would become “a vehicle for generally litigating claims based on alleged infractions of domestic and international law.”[430] In another case, the Tribunal held that the applicable law “does not incorporate the universe of international law into the BITs or into disputes arising under the BITs.”[431] Yet, when interpreting a treaty, a tribunal can take account of other international obligations of the parties according to customary rules of treaty interpretation as restated by the Vienna Convention on Law of Treaties (VCLT).[432] Article 31.3(c) of the VCLT provides that there shall be taken into account, together with the context, “[a]ny relevant rules of international law applicable in the relations between the parties.” Therefore, the host state’s obligation under other international IP treaties can come into consideration of the disputes before arbitral tribunals. The TRIPS Agreement, for example, can thus provide “interpretive background” to inform investment treaty standards.[433] Arbitral tribunals risk overlooking important aspects of IP policy and being detached from local communities and their concerns. This is all the more likely considering the fact that their appointment usually requires expertise in international investment law, not IP law. They contribute to an investment law culture with its own language and way of speaking, expressing ideas, as well as defining problems and solutions.[434] Furthermore, due to the emergence of a jurisprudence constante in international investment law, there is a risk that arbitral tribunals will conform to these de facto precedents without necessarily considering analogous IP cases adjudicated before other international courts and tribunals. Although consistency in decision-making is desirable because it can enhance the coherence and predictability of the awards and contribute to the legitimacy of arbitral tribunals as a legal institution, arbitrators should be cautious of precedents that place strong emphases on the investors’ economic interests at the detriment of the public interest pursued by the host state. Have arbitral tribunals paid any attention to the specificities of IP? Are they imposing standards of good IP governance, by adopting general administrative law principles, such as proportionality, due process, and reasonableness? These questions present a fertile field of inquiry, which may help in detecting common patterns and lead to a balance between the protection of investors’ economic interests and public welfare. While international investment law should not be used to enforce other IP treaties, arbitral tribunals still have to consider these other treaties in the arbitrations.[435]
4. Denial of Justice Claims
One particular form of FET violations,[436] denial of justice, is one of the oldest principles of customary international law,[437] and “lies at the heart of the development of international law on the treatment of aliens and of foreign investment.”[438] Denial of justice imposes liability on the state for serious failures of its system of justice.[439] Since denial of justice involves a system failure, exhaustion of local remedies is a prerequisite for claiming it.[440] While denials of justice claims were traditionally discussed in inter-state disputes, nowadays, foreign investors can challenge denial of justice directly before arbitral tribunals.[441] A successful invocation of denial of justice is mutually exclusive with a finding of a judicial expropriation,[442] but investors often make both claims as a matter of strategy. This parallel invocation of the denial of justice claim and the indirect expropriation claim enables the foreign investor to fully exploit the scope of the protection afforded under IIAs.[443] This section examines how these claims have been articulated. Denial of justice is very difficult to prove. Rarely has such a claim been successful. It is not a denial of justice if state courts made a mere error of law. Investment treaty tribunals are not an appeal mechanism for the decisions of domestic courts. Rather, denial of justice implies the failure of a national legal system as a whole to satisfy minimum standards of treatment. Moreover, to invoke denial of justice successfully, the claimant must exhaust local remedies first, giving the judicial system of the host state a chance to redress its failure before filing a claim before an international arbitral tribunal.[444] For instance, in Apotex v. United States (Apotex I and II), concerning the approval for generic versions of given antidepressant and anti-cholesterol medicines, the claimant made parallel claims that the courts’ judgments were “unjust” and amounted to an expropriation of its investment, and that they constituted a “substantive ‘denial of justice’” in violation of NAFTA Article 1105.[445] In particular, the claimant contended that it was denied justice when U.S. courts allegedly “rendered manifestly unjust decisions” by misapplying domestic law.[446] Both parties agreed that, in order to eventually establish a denial of justice, “judicial finality must first be reached in the host State’s domestic courts … unless such recourse is ‘obviously futile’.”[447] However, they disagreed on the meaning of “obviously futile.”[448] The United States pointed out that with respect to one of its medicines, Apotex had not pursued all available avenues before the domestic courts. In particular, it had not sought U.S. Supreme Court review of the lower court decisions.[449] Apotex submitted that “it [wa]s wholly unrealistic to suppose that the Supreme Court would not only have granted the petition, but could have scheduled argument and render an opinion in Apotex’s favour … Any efforts to achieve such a result would have been “objectively futile.”[450] The Arbitral Tribunal upheld all preliminary objections raised by the United States, including dismissing the denial of justice claim, on the grounds that the claimant had failed to exhaust local remedies.[451] The Tribunal reasoned that the judicial acts of the lower courts lacked sufficient finality to form the basis of claims under NAFTA Chapter 11.[452] While the Tribunal appreciated that “petitioning the U.S. Supreme Court was unlikely to secure the desired relief,”[453] it held that “under established principles, the question whether the failure to obtain judicial finality may be excused for ‘obvious futility’ turns on the unavailability of relief by a higher judicial authority, not on measuring the likelihood that the higher judicial authority would have granted the desired relief.”[454] The Tribunal explained that the national court system must be given a chance to correct errors before its perceived failings can constitute an international wrong.[455] By contrast, claims of judicial expropriation have not required exhaustion of local remedies.[456] For instance, the Saipem Tribunal found the host state responsible for expropriation resulting from the judicial intervention in arbitral proceedings dismissing the respondent’s objection that the exhaustion of local remedies was a substantive condition for judicial expropriation. Rather, the Tribunal clarified that the local remedies rule would apply in the case of denial of justice, but not in the case involving judicial expropriation. Therefore, the claim of judicial expropriation can be easier to substantiate and can be more investor-friendly in terms of eventual compensation. As a result, denial of justice claims seem to favour the state autonomy over the protection of private economic interests. Conversely, judicial expropriation claims may be more favorable to investors than denial of justice claims and can affect the state judiciary autonomy in the pharmaceutical sector.

E. Non-Discrimination

The non-discrimination principle is a cornerstone of international investment law.[457] It is typically reflected in two investment treaty provisions:[458] the principles of national treatment (NT)[459] and most-favored-nation (MFN) treatment.[460] The basic purpose of the NT and MFN clauses is to avoid discrimination and to guarantee equal competitive opportunities for foreign investors in the host state. These two standards do not guarantee a specific level of protection but are relative standards that require a host country to treat a foreign investor in the same way that a domestic investor or an investor from another country in like circumstances would be treated. In order to ascertain whether companies are in “like circumstances,”[461] one should first consider whether they are in the same sector and whether those competitors have been accorded more favorable treatment than the claimant. Then, in order to ascertain whether there is improper discrimination or a legitimate distinction, one should consider the impact and objective of a given state measure in the particular field.[462] Certain apparently neutral regulations may substantively discriminate against foreign companies and their investments.[463] In Eli Lilly v. Canada, the pending case relating to the invalidation of patents, the claimant alleges that Canada denied the company national treatment.[464] First, the company contends that it faces more arduous patent standards in Canada than a Canadian investor might face in other jurisdictions, such as the United States and Europe.[465] Yet, this form of extraterritorial analogy is highly unusual in national treatment claims before arbitral tribunals, given the regulatory diversity of IP laws across the globe, and is likely not going to be accepted by the Arbitral Tribunal.[466] Second, the company argues that domestic generic pharmaceutical companies received more favourable treatment as they have benefited from the invalidation of Eli Lilly’s patent.[467] Third, the claimant highlights that only pharmaceutical companies bear the burden of the promise doctrine, rather than patent holders in other economic sectors.[468] According to the claimants, the judicial decisions amount to a de facto discrimination against pharmaceutical patents, contrary to the state’s obligation not to discriminate among different fields of technology under NAFTA Article 1709(7).[469] While the case is still pending, it can have a significant impact on access to medicines. In fact, if the Arbitral Tribunal upholds the investor’s claim, it would be more difficult for generic pharmaceutical companies to enter into the relevant market. In Apotex v. United States (Apotex I and II),[470] concerning the approval for generic versions of antidepressant and anti-cholesterol medicines,[471] the claimant contended inter alia that the host state violated the non-discrimination provision by “failing to treat Apotex in the same fashion as U.S. investors.”[472] As the case was dismissed on jurisdiction, the discrimination claim became moot.[473] There is a fine line between discrimination and legitimate distinctions based on public policy reasons. This line is difficult to identify, because “‘discrimination’ and ‘non-discrimination’ are not polar opposites in a static system.”[474] In Apotex III, which concerned an import ban on certain pharmaceuticals produced in Canada, Apotex contended that it had been discriminated against as comparable national and foreign manufacturers had received better treatment. Under the NT claim, Apotex argued that it had been treated less favourably than other comparable domestic investors.[475] The U.S. countered that manufacturers in the U.S. are subject to even more regular inspections and enforcement due to their location.[476] The Tribunal held that there was no violation of NT as the claimant and the domestic competitors were not in “like circumstances.”[477] Under the MFN claim, Apotex contended the FDA inspected a competitor’s facilities in Israel and found many violations,[478] but did not issue an import alert against the Israeli manufacturer.[479] Although the Tribunal held that the U.S. had treated Apotex less favourably than the Israeli manufacturer,[480] and thus had de facto discriminated against Apotex, it still concluded that there was no discrimination because the U.S. had established legitimate reasons for the different treatment.[481] The United States submitted that “the FDA is required necessarily to exercise a difficult regulatory discretion lying at the heart of its important mandate on public health; and that this discretion as to enforcement actions is never a binary choice, but depends on many factors particular to the specific situation.”[482] The Tribunal concluded that, in casu, the FDA actions were “materially influenced by the FDA’s genuine concerns over shortages of essential drugs manufactured” by the Israeli manufacturer,[483] and had established a legitimate reason for the different treatment.[484] Not only can discrimination claims substantiate breaches of NT and MFN treatment, they can also evidence the unlawfulness of a given expropriation or the unfairness of a given state conduct. While in some arbitrations, arbitral tribunals can uphold such claims as a distinct violation of the MFN or NT provisions in the relevant BIT,[485] in other cases discrimination can constitute evidence of the breach of the FET standard,[486] or be one of the relevant factors of unlawful expropriation.[487] For instance, in Servier v. Poland, Servier asserted that “under customary international law, the expropriation of an investment can only take place for a public purpose, in a non-discriminatory manner, and against compensation.”[488] After holding that “notions of unfairness and discrimination may insert themselves into a discussion of what constitutes divestment of property,”[489] the Arbitral Tribunal concluded that “[n]ot only was the refusal of authorisation discriminatory, but the regulatory measures were disproportionate in nature and … not a matter of public necessity,”[490] thus amounting to an indirect expropriation.[491] Discrimination claims play an important role in investment treaty arbitration. A first issue that arbitral tribunals must ascertain is the existence of like circumstances. In the absence of like circumstances, differential treatment does not constitute discrimination but a legitimate distinction between different issues.[492] Certain distinctions may be legitimate and thus do not constitute discrimination in breach of the relevant investment treaty standards.[493] In conclusion, non-discrimination is a key element for striking an appropriate balance between the public and private interests.[494] It helps to ensure that the private interests are not unduly constrained for unspecified illegitimate reasons. A measure allegedly pursuing a public purpose but in fact serving other private domestic interests can constitute a disguised discrimination in breach of relevant investment treaty standards. By reviewing state measures and checking that they are not discriminatory, arbitral tribunals can foster an appropriate balance between genuinely public and private interests.

V. Critical Assessment

States have an inherent right to regulate,[495] particularly with regard to pharmaceuticals, because the regulation of medicines is crucial to public health.[496] Public health is central to the very existence of the state, and the duty to protect it arises from both domestic law and the social contract that underlies most governments.[497] Moreover, from a practical standpoint, national authorities are better placed to appreciate local societies’ needs.[498] Therefore, international conventions protecting various aspects of IP acknowledge the state’s right and duty to protect public health.[499] Regulations governing patent rights are based on a delicate equilibrium between public and private interests.[500] States balance public and private interest in such areas depending on their developmental and public health needs. In fact, the protection of public health necessarily requires constraining a wide range of private activities.[501] For example, states can constrain the rights of pharmaceutical companies so as to prevent nuisance and protect public health.[502] Patent owners have increasingly used investor-state arbitration to challenge regulatory measures adopted by the host states, and these arbitrations have significant impact on the state regulatory autonomy. Arbitral tribunals assess the state’s compliance with investment treaty provisions. This scrutiny may promote good pharmaceutical governance, incentivizing states to pursue the regulation of public health objectives in a transparent, reasonable and non-discriminatory manner, while preserving a state’s legitimate interest to regulate for its domestic public policy. Given the recent rise in the incidence of arbitrations,[503] it is of utmost importance to reflect on this emerging jurisprudence and its possible impact on the public health policies of host states. Pharmaceutical patent investment arbitrations constitute a paradigmatic case study of the interplay between the public and private interests in international investment law and arbitration.[504] They show that private actors are increasingly playing a prominent role in transnational governance of IP, and there are ongoing attempts of shifting enforcement of IP rights from interstate fora to international investment arbitration. Investment arbitration constitutes an avenue for the dialectical interaction between the economic interests of the patent holders and the state interest in public health protection.

VI. Legislative and Interpretive Approaches to the Emerging Dialectics between Private and Public Interests in IP-related Investment Disputes

In the emerging dialectics between patent protection and public health in international investment law and arbitration, treaty making and interpretation can play a crucial role to address the tension between, and eventually reconcile, public and private interests. This section proposes some legislative and interpretive approaches to better accommodate the dialectics between private and public interests in international investment law and arbitration. At the legislative level, treaty negotiators can introduce some carve-outs, clarifications and flexibilities in the text of investment treaties. Negotiators could consider carving out litigation on pharmaceutical patents from the jurisdiction of investment arbitral tribunals. Some international investment agreements expressly clarify that the exercise of state regulatory autonomy in the pharmaceutical sector does not per se amount to a breach of investment treaty provisions,[505] and that compliance with the TRIPS Agreement provisions may preclude any expropriation claim.[506] For instance, Article 6(5) of the U.S. Model BIT of 2012 states that “This Article does not apply to … the revocation, limitation, or creation of intellectual property rights, to the extent that such issuance, revocation, limitation, or creation is consistent with the TRIPS Agreement.” Yet, the creation, limitation, and revocation of IP rights are regulated only in very broad brushes by the TRIPS Agreement. For instance, the TRIPS Agreement only requires that patents should be granted for new, inventive and useful inventions,[508] but it does not define these terms.[509] The question of what deserves to be patented is left for countries to determine in light of their own needs. Countries can exclude some fields, such as plants, animals and surgical methods, from patentability to protect public order.[510] The TRIPS Agreement also allows for member states to provide for limited exceptions and other uses of the patent without the patent owner’s consent, leaving states with the flexibility to implement regulatory measures for the purpose of domestic policy.[511] With regard to revocation, the TRIPS Agreement does not address the grounds for forfeiture; it only requires member states to provide judicial review for every decision to revoke a patent.[512] Therefore, not only can arbitrations pioneer the interpretation and application of relevant IP provisions and pave the way to subsequent arbitral awards, but they can also serve as indirect enforcement tools of WTO law and influence the development of the same. WTO law has its own enforcement tools. The WTO DSM has been defined as the “jewel in the crown” of this organization,[513] and it has exclusive jurisdiction to settle disputes under the covered agreements.[514] However, only a limited number of IP disputes have been brought before the WTO,[515] and TRIPS consistency is tested in proceedings outside the DSM.[516] There is a certain “convergence” between international investment law and international trade law,[517] and the interpretation of the TRIPS Agreement by arbitral tribunals is one of the areas of contact between the two areas of international law.[518] In interpreting the TRIPS Agreement, arbitrators should be aware of the balance between private and public interests intrinsic to the regulation of pharmaceutical patents. The TRIPS Agreement expressly presents clauses taking public health under consideration in construing IP rights. Article 7 of the TRIPS Agreement provides that
“The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.”[519]
In parallel, Article 8 of the TRIPS Agreement states that “Members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutritio, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement.”[520] When interpreting the TRIPS Agreement, arbitrators must take into account Articles 7 and 8, which set forth fundamental principles of IP governance,[521] and provide space for reconciliation between private and public interests in IP regulation. The Doha Declaration on the TRIPS Agreement and Public Health[522] has further reinforced state regulatory space to adopt public health measures,[523] recognizing the WTO members’ right to protect public health[524] and to use the flexibilities provided by the TRIPS Agreement.[525] Where clear reference is made to the TRIPS Agreement, international investment agreements incorporate the TRIPS Agreement, including its objectives and principles as stated in Articles 7 and 8, as well as the relevant interpretative background provided by the Doha Declaration.[526] Such provisions then become applicable and may provide guidance in the context of investment disputes. Arbitrators must be mindful of the need of preserving a suitable balance between the public and private interests intrinsic in patent protection even in those cases in which the investment chapters of FTAs refer to its own IP chapters instead of TRIPS as a safeguard against expropriation claims.[527] For instance, Article 1110(7) of NAFTA exempts “the issuance of compulsory licensing” and “the revocation, limitation or creation of intellectual property rights” from expropriation protection, if such measures are consistent with NAFTA Chapter 17.[528] NAFTA Chapter 17 contains “TRIPS-plus” provisions on IP rights, which strengthen the IP regimes of NAFTA countries beyond the global standards established by the TRIPS Agreement. For instance, NAFTA Chapter 17 does not include provisions analogous to Articles 7 and 8 of the TRIPS Agreement. Still, arbitrators can take into account public interest considerations under a number of flexibilities embodied in NAFTA Chapter 17.[529] For instance, states can exclude certain inventions from patentability,[530] introduce limited exceptions,[531] and compulsory licenses,[532] as well as revoke the patents.[533] Striking an appropriate balance between the private and public interests in investment arbitration should be easier where states have appended declarations to their FTAs clarifying the interplay between the expropriation provision (included in the investment chapter) and IP provisions (included in the relevant chapter). For instance, in the Canada–EU Comprehensive Economic and Trade Agreement (CETA),[534] a declaration appended to the expropriation provision of Chapter X, which governs foreign direct investment,[535] clarifies that “investor state dispute settlement tribunals … are not an appeal mechanism for the decisions of domestic courts,” and that “the domestic courts of each Party are responsible for the determination of the existence and validity of intellectual property rights.”[536] This means that arbitration tribunals should be deferential to the decisions of domestic courts and tribunals regarding the existence and validity of patents. The mere fact that a company is disappointed with the outcome of a patent trial does not amount to a breach of the relevant treaty provisions. CETA reasserts “each Party shall be free to determine the appropriate method of implementing the provisions of this Agreement regarding intellectual property within their own legal system and practice.”[537] The possibility to issue binding interpretations at a later stage is also reserved.[538] Moreover, Article 3 of Chapter 22, which governs intellectual property, refers to the Doha Declaration, thus incorporating its interpretative guidelines on balancing IP rights and public health.[539] In most cases, however, IIAs make no reference to the TRIPS Agreement. In the absence of an express reference, it would be a radical departure from the text of the IIA, as well as the DSU,[540] to provide investors with the possibility of asserting violations of the TRIPS Agreement against host states. Therefore, in the absence of a reference to the TRIPS Agreement, the argument that an investor can assert a claim for a violation of the state’s TRIPS obligation in an investor-state arbitration proves too much. However, this does not mean that the TRIPS Agreement is irrelevant. The TRIPS Agreement can provide interpretive guidance and context.[541] If the applicable law is national law, as is the case for IP, which is territorial by nature, and national law implements the TRIPS Agreement, the interpretation of the relevant TRIPS provisions may help the arbitral tribunal to ascertain the legitimacy of the same state measures, their rationality and reasonableness, and their eventual conformity with international practice. In turn, this could foster a coherent international framework of IP rules. Treaty interpretation can also provide the adjudicators with interpretive tools to reconcile the public and private interests emerging in the new dialectics between patent protection and public health in international investment law and arbitration. When adjudicating investment disputes, arbitrators must identify the applicable rules, clarify their meaning and relate them to the specific facts of the case. When the arbitrators have limited expertise on IP and its policy implications, experts should be consulted to facilitate sound decision-making and ensure the arbitrators take into account the two equilibria that characterize patent regulation. The intrinsic equilibrium between private and public interest concerns the very structure or architecture of patents. It is evident in the conceptual matrix of patent regime. The “patent bargain” indicates the quid pro quo between the private and public interests that are intrinsic to the patent regime. For instance, compulsory licenses, limited exceptions and even the grant and revocation of patents provide means to limit the private interests under certain circumstances and give a margin of deference to policymakers and adjudicators to determine whether a patent should be granted, or revoked, or limited. In parallel, the extrinsic equilibrium between patent rights and other values appears in the interplay between the IP regime and other fields of law. If one adopts an instrumentalist view of IP, the international IP system should function for the good of all. The notion that the IP regime serves such a social function is widely accepted in international law,[542] as expressly indicated by Articles 7 and 8 of the TRIPS Agreement.[543] In scrutinizing the regime complex that governs IP, it appears that IP is never an absolute right.[544] Rather, IP rights must be put into perspective as they are part of a broader legal system,[545] and must always be harmonized with other rights of equally significant value and with the interests of the community.[546] This is particularly the case with regard to pharmaceuticals, which have deep implications in public health. Finally, arbitrators should acknowledge their responsibility for the charting of the contours of international law norms and, more broadly, as cartographers of the international legal order. Pursuant to Article 31(3)(c) of the VCLT, adjudicators should take into account “[a]ny relevant rules of international law applicable in the relations between the parties.”[547] Therefore, “[e]very treaty provision must be read not only in its own context, but in the wider context of general international law, whether conventional or customary.”[548] A number of international organizations play an active role in the governance of pharmaceutical patents, creating a sort of institutional density or regime complex. As all these organizations receive almost worldwide consensus, a broader perspective of the legal environment that surrounds a given dispute should be adopted in investor-state arbitration.


This article highlights the emergence of international investment law and arbitration as a new battlefield, where the dialectical interaction between private and public interest is taking place. The clash between the economic interests of the patent owner and the pursuit of public policies is not a new phenomenon; what is new is the use of investment treaty law and arbitration as a place of confrontation between these private and public interests. International investment law is a vital area of international law that has furthered the protection of patents, considering them as a form of investment and providing patent owners access to investor-state arbitration. By including intellectual property within their ambit, investment treaties restrict the regulatory autonomy of states in the pharmaceutical sector, potentially affecting fundamental public interests. Patent owners have increasingly used investment treaty arbitration to challenge alleged infringements of patent rights by governments, giving rise to an increasingly complex and contested interplay between pharmaceutical patent protection and public health. This article examines the growing number of investment treaty arbitrations relating to pharmaceutical patents and critically assesses how the emerging dialectics between public and private interests is taking place in investment treaty arbitration. These arbitrations give rise to both jurisdictional and substantive issues. First, some disputes will center on the question as to which economic activities amount to an investment, giving rise to the arbitral tribunal’s jurisdiction over the dispute.[549] Second, although it may be very difficult to prove, an affected patent owner may claim that an unlawful expropriation has taken place.[550] Third, if an expropriation has occurred, claims may concern the adequacy of the amount, or mode, of compensation.[551] Fourth, the patent owner may also allege a violation of the FET standard.[552] Finally, some claims may concern alleged discrimination suffered by the foreign investor.[553] This article argues that international investment law and arbitration should contribute to the construction of public international law as a unitary whole, which aims at furthering public policy interests internationally. To the extent that investment treaty arbitration has failed to do so, either by de-emphasizing public policies or leaving them out entirely, it would be problematic to move forward with globally important policy issues through the vehicle of public international law. Against the critical examination of the legal norms that are developing in the field, this article proposes some legislative and interpretive approaches to better accommodate the dialectics between private and public interests in pharmaceutical patent-related investment disputes. Treaty-making and interpretation can play a crucial role to address the tension between, and eventually reconcile, public and private interests. At the normative level, treaty negotiators can introduce some clarifications, flexibilities or carve-outs in the text of investment treaties. Treaty drafting can improve the language of international investment agreements to include reference to other international instruments, such as the Doha Declaration on the TRIPS Agreement and Public Health. Although these other instruments are not necessarily promoting a better balance between the public and private interests, reference to such international law instruments can still help international arbitrators to obtain useful information on how other instruments are coping with the interaction between private and public interests, as well as achieve mutual support and harmonization across instruments. Negotiators could consider carving out litigation on pharmaceutical patents from the jurisdiction of investment arbitral tribunals. Interpretation can help arbitrators reach a suitable balance between the protection of patent rights qua foreign investments and other non-economic values in public health-related investment disputes. Arbitrators should focus on the nature and purpose of the right that is being protected. Intellectual property rights should not be considered as absolute rights but should be interpreted in the light of their goals and limits. Regulations adopted to protect public health, depending on the specific circumstances of the case, might be viewed as an intrinsic limit to the patent right. Foreign investments protection, when applied to pharmaceutical patents, should be considered not as an end in itself but as one of the available tools to promote human welfare. Moreover, as required by customary rules of treaty interpretation, arbitrators should embrace their roles as cartographers of international law and adopt a holistic approach to treaty interpretation, which takes into account other international law instruments that are binding upon the parties.
* Professor of International Economic Law, Lancaster University, United Kingdom. Earlier versions of this article were presented at the Society of International Economic Law conference, held at the University of Bern on July 10-12, 2014 and at the City Law School, City University, London, on May 11, 2015. The author wishes to thank Oles Andriychuk, Enrico Bonadio, Emily Den, Maggie Diamond, Caroline B. Epstein, Caroline Foster, Lukasz Gruszczynski, Locknie Hsu, David G. Krone, Michele Potestà, Tania Voon, Wen Xue, Steven Wheatley and the participants at the conferences for useful comments on an earlier draft. The usual disclaimer applies.
[1] Johann Peter Eckerman, Conversations of Goethe with Eckermann and Soret 266, 266–67 (John Oxenford trans., Smith, Elder & Co. 1850).
[2] International investment agreements (IIAs) – a term encompassing both bilateral investment treaties (BITs) and Free Trade Agreements (FTAs) or Regional Trade Agreements (RTAs) with investment chapters – are “agreements concluded between states for the promotion and protection of reciprocal investments.” See Bertram Boie, The Protection of Intellectual Property Rights Through Bilateral Investment Treaties: Is There a TRIPS-Plus Dimension? 4 (NCCR Trade Regulation, Working Paper No. 2010/19, 2010).
[3] See, e.g., State Dep’t, U.S. Model Bilateral Investment Treaty, art. 1 (2012) [hereinafter US Model BIT] (listing “intellectual property rights” among the “forms that an investment may take”); Treaty Concerning the Encouragement and Reciprocal Protection of Investments, Ger.-Burundi, art. 1(d), Sept. 10, 1984, 1517 U.N.T.S. 287 [hereinafter Germany-Burundi BIT] (noting that “[f]or the purposes of the present treaty, the term ‘investments’ shall comprise every kind of asset, in particular . . . [c]opyrights, industrial property rights, technical processes, trademarks, trade names, know-how and goodwill . . . .”); Agreement Concerning the Encouragement and Reciprocal Protection of Investments, Peru-China, art. 1(d), June 9, 1994, 1901 U.N.T.S. 257 (affirming that “[f]or the purpose of this agreement, the term ‘investment’ means every kind of asset invested by investors of one Contracting Party in accordance with the laws and regulations of the other Contracting Party in the territory of the Latter, and in particular, though not exclusively, includes: . . . copyrights, industrial property, know-how and technological process . . . .”).
[4] FTAs, however, can include both investment and IP chapters and provide a detailed regulation of IP, tightening their protection beyond current international standards. See Susan K. Sell, TRIPS-Plus Free Trade Agreements and Access to Medicines, 28 Liverpool L. Rev. 41, 41 (2007) (highlighting that pharmaceutical companies have “succeeded in getting extremely restrictive TRIPS-Plus . . . intellectual property provisions into regional and bilateral free trade agreements.”). On the impact of FTAs on access to medicines, see generally Carlos María Correa, Implications of Bilateral Free Trade Agreements on Access to Medicines, 84 Bull. World Health Org. 399, 399 (2006).
[5] Andreas Kulick, Global Public Interest in International Investment Law (2012); see, e.g., US Model BIT arts. 3–7; see also Germany-Burundi BIT, supra note 3, at arts. 2–3, 4(2).
[6] See, e.g., US Model BIT art. 2.
[7] Kate Miles, Reconceptualising International Investment Law: Bringing the Public Interest Into Private Business, in International Economic Law and National Autonomy 295, 295–96 (Meredith Kolsky Lewis and Susy Frankel eds., 2010) (noting that “[a]lthough [investment disputes] resolve questions that can affect significant matters of public policy, the public generally does not have access to the documents, the proceedings are conducted behind closed doors, and the submission of amicus curiae briefs is restricted, if permitted at all.”).
[8] See infra Parts III and IV below for a comprehensive account of the current investor-state arbitrations of pharmaceutical patents.
[9] Christine Haight Farley, TRIPS–Plus Trade and Investment Agreements: Why More May Be Less for Economic Development, 35 U. Pa. J. of Int’l L. 1061, 1065 (2014) (stating that arbitral tribunals review state regulatory and judicial measures “for how they define the availability, validity and scope of IP rights”).
[10] Id. (noting that “IP law is notoriously full of grey areas due to finely balanced policy objectives . . . .”).
[11] See, e.g., Susan Franck, The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law through Inconsistent Decisions, 73 Fordham L. Rev. 1521, 1537–38 (2005) (discussing the alleged legitimacy crisis of international investment law and arbitration).
[12] See id. at 1571.
[13] United Nations Conference on Trade and Development, Nov. 6–8, 2002, The Development Dimension of FDI: Policy and Rule-Making Perspectives, 212, UNCTAD/ITE/IIA/2003/4 (Aug 31, 2003) [hereinafter UNCTAD].
[14] Todd Weiler, Balancing Human Rights and Investor Protection: A New Approach for a Different Legal Order, 1 Transnat’l Disp. Mgmt. 2 (2004).
[15] UNCTAD, supra note 13, at 215.
[16] North American Free Trade Agreement, U.S.-Can.-Mex., Dec. 17, 1992, 32 I.L.M. 289 (1993) [hereinafter NAFTA].
[17] Apotex Inc. v. U.S., ICSID Case No. ARB(AF)/12/1, Notice of Arbitration, ¶ 22 (Dec. 10, 2008),
[18] Id. ¶ 7.
[19] Apotex Holdings Inc, Apotex Inc. v. United States of America (Apotex III), ICSID Case No. ARB(AF)/12/1, Award (Aug. 25, 2014),
[20] Id. ¶ 2.24.
[21] Id. ¶ 2.40.
[22] Eli Lilly and Company v. The Government of Canada (U.S. v Can.), ICSID Case No. UNCT/14/2, Notice of Intent to Submit a Claim to Arbitration under NAFTA Chapter Eleven, ¶ 35 (Nov. 7, 2012),
[23] Id. ¶ 108.
[24] M. Sornarajah, Evolution or Revolution in International Investment Arbitration? The Descent into Normlessness , in Evolution in Investment Treaty Law and Arbitration (Chester Brown and Kate Miles eds., 2011) [hereinafter Sornarajah, Evolution or Revolution] (arguing that “disparate trends” in international investment law and arbitration “show neither evolution nor revolution but an ongoing conflict [between private and public interests] that either will bring a new system – resulting in a revolution – or will keep the old, simply because one or the other of the camps wins the tussle.”).
[25] See Joost Pauwelyn, The Dog that Barked but did not Bite: 15 Years of Intellectual Property Disputes at the WTO, 1 J. Int’l Disp. Mgmt. 389, 393, 395 (2010) (showing that IP complaints amount to only 3 per cent of all claims under the World Trade Organization agreements, and that such disputes have a higher settlement rate and lower appeal rate than average WTO disputes).
[26] See Sornarajah, Evolution or Revolution, supra note 24, at 631 (arguing that “the law is hurtling into ‘normlessness’ as a result of State reactions to expansive interpretations placed on treaty prescriptions.”).
[27] See Pauwelyn, supra note 25, at 41 (explaining both the low number and the systemic type of IP disputes by the limited prospective remedies that the WTO offers to the winning complainants).
[28] Org. for Econ. Co-operation and Development [OECD], Patents and Innovation: Trends and Policy Challenges, 9 (2004), (noting that patents are “considered to represent a trade-off between incentives to innovate on one hand, and competition in the market and diffusion of technology on the other.”).
[29] Id. at 8 (defining patents as “exclusive right[s] to exploit (make, use, sell, or import) an invention over a limited period of time (20 years from filing) within the country where the application is made.”).
[30] Agreement on Trade-Related Aspects of Intellectual Property Rights art. 27, Apr. 15, 1994, 1 Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, Legal Instruments – Results of the Uruguay Round vol. 31, 1869 U.N.T.S. 299, 33 I.L.M. 81 (1994) [hereinafter TRIPS Agreement].
[31] Matthew Herper, The Cost Of Creating A New Drug Now $5 Billion, Pushing Big Pharma To Change, Forbes (Aug. 11, 2013, 11:10 AM), (“A company hoping to get a single drug to market can expect to have spent $350 million before the medicine is available for sale.”).
[32] Keith E. Maskus & Mohan Penubarti, How Trade Related Are Intellectual Property Rights? 39 J. Int’l Econ. 227 (1995).
[33] TRIPS Agreement art. 30.
[34] Id. at art. 31.
[35] Id. at art. 27.
[36] See Rachel Sachs, The New Model of Interest Group Representation in Patent Law, 16 Yale J.L. & Tech. 344, 345 (2014) (“The various fields of intellectual property (IP) law have been marked by seemingly ever-increasing levels of protection.”).
[37] See, e.g., Kristen Jakobsen Osenga, Get the Balance Right!: Squaring Access With Patent Protection, 25 Pac. McGeorge Global Bus. & Dev. L.J. 309 (2012); Carlos Correa, Integrating Public Health Concerns Into Patent Legislation in Developing Countries 9 (2000) (mentioning the “general concern that such legislative reform can have a major impact on people’s access to drugs and on public health policies in the South.”); Victoria E. Hopkins, Analysis of International Patent Protection and Global Public Health, 17 J. Pub. and Int’l Aff. 83, 83 (2006) (noting that the TRIPS Agreement “has elicited public health concerns in developing countries, worried that they will be unable to access essential medicines as a result of increasing patented drug costs.”).
[38] Symposium, Enabling Patent Law’s Inherent Anticipation Doctrine, 45 Hous. L. Rev. 1101, 1106–07 (2008) (explaining that “evergreening refers to attempts by owners of pharmaceutical product patents to effectively extend the term of those patents on modified forms of the same drug, new delivery systems for the drug, new uses of the drug, and the like.”); Rebecca S. Eisenberg, The Role of the FDA in Innovation Policy, 13 Mich. Telecomm. Tech. L. Rev. 345, 348–49 (2007) (noting that in recent years pharmaceutical companies have become “quite creative about strategies to secure ‘evergreening’ patents in order to defer the date their products go off-patent.”).
[39] An infamous case is that of South African Pharmaceutical Manufacturers Ass’n v. South Africa, Case No. 4183 (1998). In 1998, the South African Pharmaceutical Manufacturers Association (PMA) submitted a legal complaint to the High Court of Pretoria challenging the legality of relevant provisions of the (South African) Medicines Act in light of the TRIPS Agreement. The Medicines Act had been enacted to cope with a public health emergency and enabled the state to issue compulsory licenses and use parallel imports to make medicines affordable. Due to international protests and public outcry, the claim was withdrawn. For a detailed account of the case, see Duncan Matthews, Intellectual Property, Human Rights and Development — The Role of NGOs and Social Movements 97–99 (2011).
[40] See Peter Drahos, Introduction to Global Intellectual Property Rights – Knowledge, Access and Development 1, 4 (Peter Drahos & Ruth Mayne eds., 2002).
[41] See Carlos Primo Braga, Carsten Fink & Claudia Paz Sepulveda, Intellectual Property Rights and Economic Development, in The WTO, Intellectual Property Rights and The Knowledge Economy — Critical Perspectives on the Global Trading System and The WTO 245, 254 (Keith E. Maskus ed., 2004).
[42] See, e.g., David M. Gould & William C. Gruben, The Role of Intellectual Property Rights in Economic Growth, 48 J. Dev. Econ. 323, 324 (1996).
[43] Ha-Joon Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective 1–5 (2003) (providing a historical overview of the economic development of industrialized countries and arguing that through the Washington Consensus such countries prescribe policies for the developing countries which they have not used themselves during their period of economic growth).
[44] Ha-Joon Chang, Intellectual Property Rights and Economic Development: Historical Lessons and Emerging Issues, 2 J. Hum. Dev. 287, 305–06 n.8 (2001) (noting that pharmaceutical products “remained unpatentable until 1967 in West Germany and France, 1979 in Italy, and 1992 in Spain. Pharmaceutical products were also unpatentable in Canada into the 1990s.”).
[45] See TRIPS Agreement art. 27 (The TRIPS Agreement has required the patentability of pharmaceuticals).
[46] Elisabeth Rosenthal, The Price of Prevention: Vaccine Costs Are Soaring, N.Y. Times, July 2, 2014, at A1.
[47] See Robert O. Keohane & David G. Victor, The Regime Complex for Climate Change, 9 Persp. on Pol. 7, 7 (2011) (introducing the notion of “regime complex” and defining it as a “loosely coupled set of specific regimes.”).
[48] International Covenant on Economic, Social and Cultural Rights, art. 15, Dec. 16, 1966, 993 U.N.T.S. 3, 6 ILM 36 [hereinafter ICESCR]. As of 2015, the Covenant has 164 parties. The United States has signed but has not ratified the Covenant. See Philip Alston, The US Ratification of the Covenant on Economic, Social and Cultural Rights: The Need for an Entirely New Strategy, 84 Am. J. Int’l L. 365, 365 (1990).
[49] ICESCR, supra note 48, at art. 15.
[50] Id. art. 15.1.c.
[51] Id. art. 15.1.b.
[52] Committee on Economic, Social and Cultural Rights (“CESCR”), General Comment 14: The Right to the Highest Attainable Standard of Health (Article 12), ¶ 17, UN Doc. HRI/GEN/Rev.9 (Vol. I) (2000), (“The creation of conditions which would assure to all medical service and medical attention in the event of sickness [in] (art. 12.2 (d) [of the ICESCR]), both physical and mental, includes the provision of equal and timely access to basic preventive, curative, rehabilitative health services and health education; regular screening programmes; appropriate treatment of prevalent diseases, illnesses, injuries and disabilities, preferably at community level; the provision of essential drugs; and appropriate mental health treatment and care.”).
[53] Helen Keller & Lena Grover, General Comments of the Human Rights Committee and Their Legitimacy, in UN Human Rights Treaty Bodies: Law and Legitimacy 116, 132 (Helen Keller and Geir Ulfstein eds., 2012).
[54] Valentina Vadi, Public Health in International Investment Law and Arbitration 27 (2012) [hereinafter Vadi] (“Given the political divide between the Eastern and Western blocs determined by the Cold War, the right to health as well as other economic, social and cultural rights were deemed to be politicized as reflecting a socialist perspective. The traditional distinction between civil and political rights and economic, social and cultural rights was also based on the assumption that while the first category of rights was susceptible to immediate realization, the second was deemed to be only of gradual implementation. The dichotomy was formalized by the division of the so-called International Bill of Rights into two Covenants adopted in 1966.”).
[55] Id.
[56] On the desirability of a World Human Rights Court, see generally Stefan Trechsel, A World Court for Human Rights? 1 Nw. J. Int’l Hum. Rts. 3 (2004); Int’l Comm. of Jurists, Towards a World Court of Human Rights: Questions and Answers, 2 (Dec. 2011) [hereinafter Int’l Comm. of Jurists] (highlighting “a glaring gap in th[e] . . . human rights architecture: a World Court of Human Rights, that would make available a judicial mechanism to provide enforceable and effective justice to individual victims of human rights violations.”).
[57] Laurence R. Helfer, Pharmaceutical Patents and the Human Right to Health: The Contested Evolution of the Transnational Legal Order on Access to Medicines, in Transnational Legal Orders 311, 317 (Terence Halliday & Greg Shaffer eds., 2014).
[58] Int’l Comm. of Jurists, supra note 56, at 2 (pinpointing that states have “the primary responsibility for providing access to remedies at the national level.”).
[59] Id. at 2 (arguing that “victims of human rights violations should have access to effective remedies at both the national and international levels.”).
[60] Id. (stressing that “a complementary system of remedies at the international level is necessary to address instances where a State is unable or unwilling to provide remedies for violations or where such remedies are ineffective.”).
[61] Trechsel, supra note 56, at 4 (noting that “[t]here is already quite an impressive list of bodies which deal with human rights within the framework of the United Nations.”).
[62] Id. at 5 (pinpointing that “none can be regarded as a substitute for a world court for human rights” as “[e]ither [such UN bodies] are not judicial bodies—this applies in particular to the various commissions and committees—or they are not directly dealing with human rights issues, which applies to the Criminal Tribunals”).
[63] On the institutional fragmentation of the human rights system, see, e.g., Marjan Ajevski, Fragmentation in International Human Rights Law – Beyond Conflict of Laws, 32 Nordic J. of Human Rights 87, 88 (2014).
[64] Mehrdad Payandeh, Fragmentation within International Human Rights Law, in A Farewell to Fragmentation: Reassertion and Convergence in International Law 297 (Mads Andenas and Eirik Bjorge eds., 2015) (stigmatizing the risks of conflicting jurisprudence among different monitoring bodies due to “structural biases of the different human rights treaty bodies.”).
[65] Paris Convention for the Protection of Industrial Property, Mar. 20 1883, last revised at Stockholm on July 14 1967, and amended on Sep. 28 1979, 828 U.N.T.S. 305 [hereinafter Paris Convention].
[66] Rochelle Dreyfuss & Susy Frankel, From Incentive to Commodity to Asset: How International Law is Reconceptualizing Intellectual Property 3–4 (N.Y. Univ. Public Law & Legal Theory, Working Paper No. 14-53, 2014).
[67] Helfer, supra note 57, at 314.
[68] Paris Convention, supra note 65, at art. 28.
[69] Dreyfuss & Frankel, supra note 66, at 5.
[70] TRIPS Agreement Annex 1C.
[71] The TRIPS Agreement has incorporated some of the fundamental principles of the Paris Convention such as the equal treatment of nationals and foreigners among others. See TRIPS Agreement art. 3; see also id. art. 2.1 (stating that “Members shall comply with Articles 1 through 12, and Article 19 of the Paris Convention.”).
[72] For a detailed commentary, see Carlos Correa, Trade Related Aspects of Intellectual Property Rights — A Commentary on the TRIPS Agreement (2007); Daniel Gervais, The TRIPS Agreement: Drafting History and Analysis (4th ed., 2012).
[73] TRIPS Agreement at art. 27 (introducing pharmaceuticals as a patentable subject matter and requiring that patents be available in WTO member states “for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application.”).
[74] Id. at art. 33 (stating that “[t]he term of protection available shall not end before the expiration of a period of twenty years counted from the filing date.”).
[75] Jerome H. Reichmann, The TRIPS Agreement Comes of Age: Conflict or Cooperation with the Developing Countries, 32 Case W. Res. J. Int.’l L. 441, 441–43 (2000) (pointing out that the TRIPS Agreement imposed “relatively high” standards of intellectual property protection which de facto correspond to those used in industrialized countries).
[76] Michael Spence, Which Intellectual Property Rights are Trade-Related?, in Environment, Human Rights and International Trade 263–85 (Francesco Francioni and Tullio Scovazzi eds., 2001).
[77] General Agreement on Tariffs and Trade, Oct. 30, 1947, 61 Stat. A-11, 55 U.N.T.S. 194 [hereinafter GATT].
[78] Id. at art. 20(d) (“Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: . . . (d) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including those relating to . . . the protection of patents, trade marks and copyrights, and the prevention of deceptive practices . . . .”).
[79] José E. Alvarez, The WTO as Linkage Machine, 96 Am. J. Int’l L. 146, 147 (2002) (noting “[t]he WTO’s success in ‘nesting’ issues within a broader context so that the ‘fabric’ of one became the foundation for another, as well as in making possible package deals between previously unlinked issues.”).
[80] Dreyfuss & Frankel, supra note 66, at 3, 32 (noting that the TRIPS Agreement “moved from framing IP as a barrier to trade into conceptualizing it as a tradable commodity in the name of facilitating trade” and suggesting that the system may be “inclined to interpret proprietary rights broadly while construing user interests narrowly.”). On the different, albeit related, phenomenon of the propertization of intangible assets, see Valentina Vadi, Trademark Protection, Public Health and International Investment Law: Strains and Paradoxes, 20 Eur. J. Int’l. L. 773, 775 (2009) (“The propertization of intangible goods has become a common trend in international standard setting. Propertization can be defined as the process of putting emphasis on proprietary aspects of given intangible rights or the characterization of modern knowledge governance as moving towards a property-based regime.”).
[81] TRIPS Agreement art. 1.1 (“Members shall give effect to the provisions of this Agreement.”)
[82] Id. (“Members may, but shall not be obliged to, implement in their law more extensive protection than is required by this Agreement, provided that such protection does not contravene the provisions of this Agreement.”).
[83] In recent years, states have signed a number of regional and bilateral agreements including TRIPS-plus provisions. On the phenomenon, see, e.g., Ruth L. Okediji, Back to Bilateralism? Pendulum Swings in International Intellectual Property Protection, 1 U. Ottawa L. & Tech J. 125, 141 (2003–2004) (describing the phenomenon of forum shifting as a means of increasing the strength of protection of intellectual property rights).
[84] TRIPS Agreement art. 64. See generally Rochelle Cooper Dreyfuss & Andreas F. Lowenfeld, Two Achievements of the Uruguay Round: Putting TRIPS and Dispute Settlement Together, 37 Vand. J. Int’l L. 275, 282 (1997).
[85] Boie, supra note 2, at 4 (noting that “[international investment agreements] usually protect intellectual property by including it in the definition of investment.”).
[86] Dreyfuss & Frankel, supra note 66, at 3.
[87] Jennifer Prah Ruger, Normative Foundations of Global Health Law, 96 Geo. L. J. 423, 424 (2007–2008) (describing international health law as “a relatively new academic field”); Shawn H.E. Harmon, International Public Health Law: Not so Much WHO as Why, and Not Enough WHO and Why Not? 12 Med. Health Care and Philos. 245, 245 (2009) (noting that “neither the WHO nor international law have yet played their necessary part in promoting ‘health for all.’”); see generally David P. Fidler, International Law and Public Health: Material on and Analysis of Global Health Jurisprudence (2000).
[88] David P. Fidler, International Law and Global Public Health, 48 U. Kan. L. Rev. 1, 2 (1999–2000) [hereinafter Fidler, Int’l Law and Global Public Health] (highlighting “states’ extensive use in the late part of the nineteenth century and first half of the twentieth century of international law in dealing with public health problems.”).
[89] The First International Sanitary Convention focused on cholera. See Bob Reinalda, Routledge History of International Organizations: From 1815 to the Present Day 172 (2009). The Convention was adopted at the seventh International Sanitary Conference held in Venice in 1892. See Aginam Obijiofor, Global Health Governance: International Law and Public Health in a Divided World 51 (2005).
[90] David P. Fidler, The Globalization of Public Health: The First 100 Years of International Health Diplomacy, 79 Bull. World Health Org. 842, 843 (2001).
[91] Id.
[92] Id.
[93] Id.
[94] WHO, The World Health Report 2007: A Safer Future: Global Public Health Security in the 21st Century 7 (2007).
[95] Id.
[96] Constitution of the World Health Organization, July 22, 1946, 62 Stat. 2679, 14 U.N.T.S. 185.
[97] Fidler, Int’l and Global Public Health, supra note 88, at 22 (noting “the historical penchant [of the WHO] for dealing with public health problems within a narrow ‘medical-technical’ approach.”).
[98] Id. at 22 (“WHO has historically been staffed predominantly by physicians, medical scientists, and public health experts.”).
[99] David P. Fidler, The Future of the World Health Organization: What Role for International Law? 31 Vand. J. Transnat’l L. 1079, 1099 (1998).
[100] Harmon, supra note 87, at 251.
[101] Id. (internal citation omitted).
[102] Id.
[103] Jennifer Prah Ruger, Normative Foundations of Global Health Law, 96 Geo. L.J. 423, 438 (2007–2008) (noting that “international health law has been viewed as ‘ineffective’”).
[104] WHO, Framework Convention on Tobacco Control 6 (2003),
[105] Harmon, supra note 87, at 251.
[106] Jarrod Hepburn, Clovis Trevino & Luke Eric Peterson, World Health Organization is Given Green-Light by Arbitrators to Intervene in Philip Morris v. Uruguay Arbitration, 8 Inv. Arb. Rep. 1, 31 (2015) (noting that “[i]n their request to intervene, the WHO and the FCTC Secretariat contended that their submission ‘may assist the tribunal in the determination of factual and legal issues’ as it w[ould] provide evidence of the relation between health warnings and labeling and the protection of public health, on tobacco control globally which, in their view, may assist the tribunal in assessing the claimant’s legitimate expectations and the legal relation between the FCTC and the Switzerland-Uruguay BIT.”). For a commentary of the specific arbitration, see Valentina Vadi, Global Health Governance at a Crossroads: Trademark Protection v. Tobacco Control in International Investment Law, 48 Stan. J. Int’l L. 93–130 (2012).
[107] Lawrence O. Gostin, Public Health Law in a New Century 283 JAMA. 2837, 2837 (2000) (highlighting that “the government has the primary responsibility to advance the public’s health because it acts on behalf of the people” and noting, at 2838, that “theories of democracy” explain “the primacy of government in matters of public health.”).
[108] Vadi, supra note 54, at 30; Montevideo Convention on the Rights and Duties of States art. 1., Dec. 26, 1933, 49 Stat. 3097, 165 L.N.T.S. 19 (stating that a population is one of the three elements required for statehood, together with territory and government).
[109] Harmon, supra note 87, at 247.
[110] Allyn Taylor, Global Governance, International Health Law and WHO: Looking Towards the Future, 80 Bull. World Health Org. 975, 975–76 (2002),
[111] Id. at 251.
[112] José E. Alvarez, The Public International Law Regime Governing International Investment 14–15 (2011). For a historical overview, see Andreas Lowenfeld, International Economic Law 469-494 (2d ed. 2008); Jeswald W. Salacuse, The Law of Investment Treaties (2010); M. Sornarajah, The International Law on Foreign Investment 19–28 (3d ed. 2010); Andrew Newcombe & Luis Paradell, Law and Practice of Investment Treaties 3–57 (2009).
[113] United Nations Conference on Trade and Development [UNCTAD], World Investment Report 2011, 100, U.N. Doc. UNCTAD/WIR/2011 (July 26, 2011).
[114] United Nations Conference on Trade and Development [UNCTAD], Bilateral Investment Treaties: 1959–1999, 1, U.N. Doc. UNCTAD/ITE/IIA2 (Dec. 14, 2000).
[115] Some authors are skeptical about whether BITs actually attract investment. See Jason W. Yackee, Do BITs Really Work? Revisiting the Empirical Link between Investment Treaties and Foreign Direct Investment, in The Effect of Treaties on Foreign Direct Investment: Bilateral Investment Treaties, Double Taxation Treaties, and Investment Flows (Sauvant & Sachs eds. 2009); Jason W. Yackee, Bilateral Investment Treaties, Credible Commitment, and the Rule of (International) Law: Do BITs Promote Foreign Direct Investment, 42 Law & Soc’y Rev. 805, 807 (2008). See generally M. Hallward-Driemeier, Do Bilateral Investment Treaties Attract Foreign Direct Investment? Only a Bit And They Could Bite (Policy Research, Working Paper No. 3121, 2003). However, other authors have identified a positive impact. See generally Jeswald Salacuse & N. P. Sullivan, Do BITs Really Work? An Evaluation of Bilateral Investment Treaties and Their Grand Bargain, 46 Harv. Int’l. L.J. 67 (2005); E. Neumayer & L. Spess, Do Bilateral Investment Treaties Increase Foreign Direct Investment to Developing Countries?, 33 World Dev. 1567 (2005); A. Bénassy-Quéré, M. Coupet & T. Mayer, Institutional Determinants of Foreign Direct Investment, 30 World Economy 764 (2007); P. Egger & V. Merlo, The Impact of Bilateral Investment Treaties on FDI Dynamics, 30 World Economy 1536 (2007); P. Egger & M Pfaffermayr, The Impact of Bilateral Investment Treaties on Foreign Direct Investment, 32 J. of Comparative Econ. 788 (2004); J. Tobin & S. Rose-Ackerman, Foreign Direct Investment and the Business Environment in Developing Countries: The Impact of Bilateral Investment Treaties (Yale Law and Econ. Working Paper No. 293, 2005).
[116] See generally Valentina Vadi, Converging Divergences: The Rise of Chinese Outward Foreign Investment and Its Implications for International (Investment) Law, 2011–2012 Y.B. Int’l Inv. L. 705 (2013) (noting that the traditional distinction between capital importers and capital exporters has become blurred and investment treaties have increasingly been signed not only among industrialized countries on the one side and developing countries on the other side, but also among LDCs and emerging economies).
[117] Lahra Liberti, Intellectual Property Rights in International Investment Agreements: An Overview 1, 3 (OECD Working Papers on Int’l Inv., 2010/01, 2010), (noting the “possibility for an IPR holder to bring a claim against a state under the investor-state dispute settlement mechanism.”).
[118] Jan Paulsson, Arbitration Without Privity 10 ICSID Rev. For Inv. L. J. 232, 239 (1995).
[119] David R. Sedlak, ICSID’s Resurgence in International Investment Arbitration: Can the Momentum Hold?, 23 Penn. St. Int’l L. Rev. 147, 147–49 (2004) (noting that investor-state arbitration has become a standard feature in international investment treaties since the 1980s).
[120] See Andrew Newcombe & Lluis Paradell, Law and Practice of Investment Treaties 24 (2009).
[121] See Ibrahim F.I. Shihata, The Settlement of Disputes Regarding Foreign Investment: The Role of the World Bank, with Particular Reference to ICSID and MIGA, 1 Am. U. J. Int’l L. & Pol’y 97, 103 (1986) (noting that “The main features of th[e ICSID System] include its voluntary character, its flexibility, and its effectiveness.”).
[122] Nigel Blackaby, Investment Arbitration and Commercial Arbitration (or the Tale of the Dolphin and the Shark), in Pervasive Problems in International Arbitration 217, 232 (Julian Lew & Loukas Mistelis eds., 2006).
[123] John Collier & Vaughan Lowe, The Settlement of Disputes in International Law 69 (1999) (“The parties choose an uneven number of arbitrators, three in the absence of agreement, and the persons to act as arbitrators.”); J.A. Fontoura Costa, Comparing WTO Panelists and ICSID Arbitrators: The Creation of International Legal Fields, 1 Onati Socio-Legal Series 1, 14 (2011) (“Virtually all ICSID arbitrators and ad hoc committee members have some legal background, since only 0.4% of the whole population is composed of individuals who had not at least studied law. On the other hand, WTO figures are very different: 45% of panelists and 10% of AB members have no links to any legal background or professional activity.”).
[124] Jeswald W. Salacuse, The Emerging Global Regime for Investment, 51 Harv. Int’l L. J. 427, 466 (2010).
[125] Alan S. Rau, Integrity in Private Judging, 38 S. Tex. L. Rev. 485, 507 (1997).
[126] Some hearings have been broadcast in special viewing rooms at the ICSID headquarters in Washington, but were not webcast. See Lise Johnson, As Hearings Kick Off in Apotex v. USA Arbitration, New Pleadings Show Continued Sparring Over Canadian Drug Companies’s Claim to Own NAFTA-Protected Investments, 6 Inv. Arb. Rep. 1, 5 (2013).
[127] While more awards have been published, some arbitrations and the relevant awards were given minimal publicity. For instance, a redacted version of the Servier award, discussed below, was released by a Polish Government agency following a request under the country’s access to information laws. A May 2013 ruling of the Warsaw District Administrative Court directed Poland’s Ministry of Health to release the Servier award, subject to any redactions of confidential commercial information. A previously released copy of the 2012 award offered only the cover page and signature page. See Jarrod Hepburn, Poland Releases A New – Less Redacted – Version of Award From Dispute With French Pharma Companies; MFN can’t Broaden Investment Treaty’s Arbitration Clause, 6 Inv. Arb. Rep. 1, 3–4 (2013).
[128] States usually offer investors a variety of rules to choose from, which may include the UNCITRAL Arbitration Rules, the Rules of Procedure for Arbitration of the International Centre for Settlement of Investment Disputes (ICSID), the arbitration rules of the International Chamber of Commerce (ICC) or other arbitration rules such as the arbitration rules of the Stockholm Chamber of Commerce (SCC).
[129] Luke Eric Peterson, Int’l Inst. for Sustainable Dev. [IISD], Bilateral Investment Treaties and Development Policy-Making, 15 (2004).
[130] NAFTA Free Trade Commission, Statement of the Free Trade Commission on Non-Disputing Party Participation, at 7 (Oct. 7, 2003),
[131] ICSID, Administrative and Financial Regulations, Reg. 22: Publication, at 66, ICSID Doc. ICSID/15 (April 2006), [hereinafter ICSID, Admin. and Financial Regs.],
[132] ICSID, Rules of Procedure for Arbitration Proceedings, Rule 37: Visits and Inquires; Submissions of Non-Disputing Parties, at 117, ICSID Doc. ICSID/15 (April 2006),
[133] United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (the “Mauritius Convention on Transparency”), Dec. 10, 2014, A/RES/69/116. The Convention will enter into force six months after the deposit of the third instrument of ratification. The list of the parties to the Convention as well as signatories is available at
[134] New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Jun. 10, 1958, 330 U.N.T.S. 38 [hereinafter NY Convention].
[135] Convention on the Settlement of Investment Disputes between States and Nationals of other States, Mar.18, 1965, 17 U.S.T. 1270 [hereinafter ICSID Convention].
[136] Id. at art. 52.
[137] NY Convention, supra note 134, at art. 5.
[138] Gus Van Harten, Investment Treaty Arbitration and Public Law 70 (Vaughan Lowe ed., 2007).
[139] M. Sornarajah, The Clash of Globalizations and the International Law on Foreign Investment 12 Can. For. Pol’y. 2, 2–10 (2003).
[140] See generally Kyla Tienhaara, Regulatory Chill and the Threat of Arbitration: A View from Political Science, in Evolution in Investment Treaty Law and Arbitration 607 (Chester Brown & Kate Miles eds., 2011); Stuart G. Gross, Inordinate Chill: BITS, Non-NAFTA MITS, and Host-state Regulatory Freedom: An Indonesian Case Study, 24 Mich. J. Int’l L. 893, 960 (2003) (examining a case where Indonesia repealed a regulation protecting forests after the threat of an investment treaty arbitration). But see Jeremy Caddel & Nathan M. Jensen, Which Host Country Government Actors are Most Involved in Disputes with Foreign Investors?, in Columbia FDI Perspectives No. 120 at 1, 2 (Karl P. Sauvant & Shawn Lim eds., 2014) (“Given the low rate of disputes involving legislative branch activity, arguments that investor-state arbitration may encroach on the legitimate prerogatives of domestic governments appear to be overstated. Instead, democratic legislatures should embrace investor state arbitration as an additional check on executive branch misbehavior.”).
[141] Lukas Vanhonnaeker, Intellectual Property Rights as Foreign Direct Investments: From Collision to Collaboration vii (2015) (noting “a relative paucity of cases”).
[142] For a comprehensive analysis of the pharmaceutical patent-related arbitrations see infra Part IV.
[143] ICSID Convention, supra note 135, at art. 48(5) (“The Centre shall not publish the award without the consent of the parties.”); ICSID, Admin. and Financial Regs., supra note 131, at 66, (“The Secretary-General shall appropriately publish information about the operation of the Centre, including the registration of all requests for conciliation or arbitration and in due course an indication of the date and method of the termination of each proceeding. If both parties to a proceeding consent to the publication of . . . arbitral awards; or the minutes and other records of proceedings, the Secretary-General shall arrange for the publication thereof, in an appropriate form with a view to furthering the development of international law in relation to investments.”).
[144] See, e.g., The Arbitration Inst. of the Stockholm Chamber of Commerce, Rules of the Arbitration Institute of the Stockholm Chamber of Commerce, art. 46, (Jan. 2010),
[145] Treaty for the Promotion and Protection of Investments, Ger.-Pak., Nov. 25, 1959, 457 U.N.T.S. 24.
[146] Gus Van Harten and Martin Loughlin, Investment Treaty Arbitration as a Species of Global Administrative Law, 17 European Journal of International Law 121, 124 (2006).
[147] Asian Agricultural Products Ltd v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/87/3, Award, at 527 (June 27 1990).
[148] Lucy Reed, Jan Paulsson & Nigel Blackaby, Guide to ICSID Arbitration (2d ed. 2011).
[149] U.N. Conference on Trade & Dev. [UNCTAD], World Investment Report 2007: Transnational Corporations, Extractive Industries and Development, xi, U.N. Doc. UNCTAD/WIR/2007 (July 2007).
[150] Vadi, supra note 54, at 51.
[151] Helfer, supra note 57, at 314 (“National patent laws are exclusively territorial in scope.”).
[152] See, e.g., Anheuser Busch Inc. v. Portugal, 2007-II Eur. Ct. H.R. (holding that intellectual property undeniably attracts the protection of Art. 1 of Protocol No. 1). See generally, Henning Grosse Ruse–Khan, Overlaps and Conflict Norms in Human Rights Law: Approaches of European Courts to Address Intersections with Intellectual Property Rights, in Research Handbook on Human Rights and Intellectual Property (Christopher Geiger ed., 2014).
[153] See generally Pauwelyn, supra note 25.
[154] Although alternative dispute mechanisms such as arbitration and mediation have been traditionally described as cheaper than litigation, this is not always the case, especially with regard to investment disputes, where legal fees and expenses are extremely high. See Matthew Hodgson, Counting the Costs of Investment Treaty Arbitration, 9 Global Arb. Rev. 2 (2014) (“[T]he average party costs were quite similar, at $4,437,000 for claimants and $4,559,000 for respondents.”); Tamara L. Slater, Investor-State Arbitration and Domestic Environmental Protection, 14 Wash. U. Global Stud. L. Rev. 131, 147 (2015) (noting that “[i]n international arbitration, the monetary cost is often millions of dollars.”). The cost variation depends on jurisdiction. See generally International Bar Association, Intellectual Property and Entertainment Law Committee, International Survey of Specialised Intellectual Property Courts and Tribunals (Sep. 2007) (determining, country by country, the level of effectiveness of the judicial system in its ability to settle IP disputes).
[155] Valentina Vadi, Mapping Uncharted Waters: Intellectual Property Disputes with Public Health Elements in Investor-State Arbitration, 2 Transn’l Disp. Mgmt. 1, 6 (2009) [hereinafter Vadi, Mapping Uncharted Waters].
[156] See, e.g., AHS Niger and Menzies Middle East and Africa S.A. v. Republic of Niger, ICSID Case No. ARB/11/11, Award, at 15 (July 2013) (where Niger was found liable for expropriation of airport services concession, but no damages due for subsequent “misuse” of intellectual property).
[157] See Vadi, Mapping Uncharted Waters, supra note 155 (referring to David Vaver, Does the Public Understand Intellectual Property? Do Lawyers? (Univ. of Oxford Faculty of Law & Legal Studies Research Paper Series, Working Paper No. 23/2006, 2006)).
[158] Hege Elisabeth Kjos, Applicable Law in Investor-State Arbitration: The Interplay Between National and International Law 225 (2013) (noting that “the sanctioning of the host state behaviour no longer depends on the discretionary intervention by the investor’s home state.”).
[159] Barton Legum, Investment Treaty Arbitration: An Option Not to Be Overlooked, in International Litigation Strategies and Practice 189, 190 (Barton Legum ed., 2005) (stressing that “in a significant innovation, [investment treaties] allowed the foreign investor to initiate and control prosecution of the arbitration, without having to rely on its state to bring the treaty case for it.”).
[160] Arbitral tribunals have held states liable to compensate investors for breaches of treaty standards that result in injury, relying on a case involving a Chorzów, Poland factory. See, e.g., MTD Equity Sdn. Bhd & MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7, Award, ¶ 238 (May 24, 2004). The Chorzów Factory case involved the German government seeking damages for harm sustained by two German companies caused by acts of the Polish government. Case Concerning the Factory at Chorzoacute;w, 1928 P.C.I.J. (ser. A) No. 17, at 47 (Sep. 13) (judgment on the merits) (holding that “reparation must, as far as possible, wipe out all the consequences of the illegal act and re-establish the situation which would in all probability, have existed if that act had not been committed.”).
[161] Statute of the International Court of Justice art. 34(1), Jun. 26, 1946, 8 U.N.T.S. 993 (“Only state[s] may be parties in cases before the [International] Court [of Justice].”); see also Understanding on Rules and Procedures Governing the Settlement of Disputes art. 1, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401 [hereinafter DSU]; Collier & Lowe, supra note 123, at 132–69 (describing the nature and scope of ICJ jurisdiction); Robert O. Keohane, Andrew Moravcsik & Anne-Marie Slaughter, Legalized Dispute Resolution: Interstate and Transnational, 54 Int’l Org. 457, 463 (2000) (referring to “the GATT and WTO panels” and the ICJ as “interstate tribunals . . . in which only member states may file suit against one another.”).
[162] Barcelona Traction, Light and Power Company, Limited (Belgium v. Spain), 1970 I.C.J. 3 (Feb. 5). In a more recent case, the Court has recognized the residual nature of the exercise of diplomatic protection and recourse to the Court in case of investment disputes. Case Concerning Ahmadou Sadio Diallo (Guinea v. Dem. Rep. Congo), 2007 I.C.J. 582, ¶ 88–91 (May 24) (Preliminary Objections).
[163] Malcolm N. Shaw, International Law 589 (7th ed. 2014) (“There is under international law no obligation for states to provide diplomatic protection for their nationals abroad.”).
[164] See generally Petros C. Mavroidis et al., Panel Discussion, Is the WTO Dispute Settlement Mechanism Responsive to the Needs of the Traders? Would a System of Direct Action by Private Parties Yield Better Results?, 32 J. World Trade 14 (1998) 147–165 (discussing the questions whether the WTO DSM is responsive to the traders’ economic interests and whether a system of direct action would better serve those interests); Joel P. Trachtman & P.M. Moremen, Costs and Benefits of Private Participation in WTO Dispute Settlement: Whose Right is it Anyway?, 44 Harv. Int’l L.J. 221 (2003) (analyzing the role of private actors in the WTO DSM); A. Catbagan, Rights of Action for Private Non-State Actors in the WTO Disputes Settlement System, 37 Denv. J. Int’l L. & Pol’y 279, 302 (2008) (proposing the institutionalization of direct action by private parties).
[165] Christina L Davis, Setting the Negotiation Table 21 (2005) (“Low-profile issues that do not have a strong interest group on either side are unlikely to rise to the level of adjudication. A government will be reluctant to initiate the formal adjudication process if there is not a strong interest group with sufficient political and economic interests to gather the backing for a formal dispute complaint. Government officials rely on interest groups to provide the background information to help select and prepare trade dispute cases.”).
[166] Sean Flynn, How the Leaked TPP ISDS Chapter Threatens Intellectual Property Limitations and Exceptions, IntellectualPropertyWatch.Org, (Mar. 26, 2015),
[167] Martin Dixon, Robert McCorquodale & Sarah Williams, Cases and Materials on International Law 423 (5th ed. 2011) (noting that “[b]ecause a State brings an international claim for its own injury, it is neither under an obligation to exercise diplomatic protection nor to pay any reparation (including compensation) received by it to the national actually injured.”).
[168] See generally DSU.
[169] Geraldo Vidigal, Re-Assessing WTO Remedies: The Prospective and the Retrospective, 16 J. Int’l Econ. L. 505, 505 (2013) (noting the “World Trade Organization (WTO) system of ‘prospective’ or ‘forward-looking’ remedies” and highlighting “their different functions when contrasted to reparation: inducing compliance ex post, rather than discouraging it ex ante.”).
[170] Yoshifumi Fukunaga, Enforcing TRIPS: Challenges of Adjudicating Minimum Standards Agreements, 23 Berkeley Tech. L.J. 868, 879 (2008) (noting that “the use of the WTO DSM to resolve TRIPS disputes has fallen, while its use to resolve general trade disputes continues unabated.”).
[171] But see Panel Report, Canada – Patent Protection of Pharmaceutical Products, WT/DS114/R (Mar. 20, 2000) (holding that the TRIPS permits generic producers to manufacture a given pharmaceutical during the life of the patent; only stockpiling is deemed incompatible with Article 30); Panel Report, India – Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS5O/AB/R (Dec. 19, 1997).
[172] Fukunaga, supra note 170 (noting “there remain questions regarding the effectiveness of the WTO DSM in the TRIPS context.”).
[173] States have increasingly settled potential IP-related disputes. Id. at 888–889 (noting that “more than half of the disputes concerning TRIPS were settled within the consultation process through a mutually agreed solution.”). The TRIPS Council may have helped in reducing the number of IP-related disputes. Id. at 894, 897 (noting that “[t]he Council’s effectiveness as a monitoring body might be working to preempt potential disputes well before they would reach the DSM.”). In fact, discussion of given issues before the Council allows member states to explain, discuss and eventually adjust their regulatory measures.
[174] However, in case of denial of justice claims, the exhaustion of local remedies is needed.
[175] See generally Michael Goldhaber, The Rise of Arbitral Power Over Domestic Courts, 1 Stan. J. of Complex Litig. 373, 375 (2013) (tracing the doctrinal evolution of the denial of justice doctrine and discussing the rise of arbitral power over domestic courts more generally.).
[176] GATT, supra note 77, at art. 23(1)(b), (c) (“If any contracting party should consider that any benefit accruing to it directly or indirectly under this Agreement is being nullified or impaired or that the attainment of any objective of the Agreement is being impeded as the result of . . . (b) the application by another contracting party of any measure, whether or not it conflicts with the provisions of this Agreement, or (c) the existence of any other situation, the contracting party may, with a view to the satisfactory adjustment of the matter, make written representations or proposals to the other contracting party or parties which it considers to be concerned. Any contracting party thus approached shall give sympathetic consideration to the representations or proposals made to it.”). See generally Susy Frankel, Challenging TRIPS-Plus Agreements: The Potential Utility of Non-Violation Disputes, 12 J. Int’l Econ. L. 1023 (2009).
[177] Luke Eric Peterson, Newly Disclosed Document Shows that Pharma Corp Hopes to Construe Alleged Non-Compliance with Patent Treaties as a Breach of Investment Treaty, Inv. Arb. Rep. (Dec. 10, 2012).
[178] Haochen Sun, TRIPS and Non-Violation Complaints From a Public Health Perspective, Ctr. for Int’l Dev. at Harv. Univ. 5 (2002), (“During the TRIPS negotiations in particular, there was significant disagreement regarding the inclusion of a provision on non-violation in the context of intellectual property disputes,” and that “[t]he potential application of the non-violation remedy to the TRIPS Agreement remains controversial.”).
[179] TRIPS Agreement art. 64.2.
[180] The 9th WTO Ministerial Conference held in Bali, Indonesia (3–7 December 2013) reiterated the moratorium until its next session to be held in Nairobi, Kenya, in December 2015. The United States and Switzerland have asked for reconsideration of this issue, and the TRIPS Council is examining the scope and modalities for non-violation complaints. Press Release, WTO, Intellectual Property Meeting Mulls Irish Tobacco Plan, Drug Tariffs, Sport, Non-Violation (Oct. 10, 2013),
[181] Robert E. Hudec, Enforcing International Trade Law: The Evolution of the Modern GATT Legal System, 7 (1993) 7 (noting that the non-violation procedure allows, to a certain extent, “the closing-up of a loophole in substantive law, offering the possibility of maintaining the balance of interests even in cases where the substantive law dose not cover the issues at hand”).
[182] Paris Convention, supra note 65.
[183] Christopher S. Gibson, Latent Grounds in Investor-State Arbitration: Do International Investment Agreements Provide New Means to Enforce Intellectual Property Rights?, Y.B. on Int’l Inv. Law & Pol’y 397, 398 (2010) [hereinafter Gibson, Latent Grounds in Investor-State Arbitration] (noting that modern economies have become “predominantly ‘conceptual,’ reflecting the vital role of ideas in … products and services.”).
[184] Id. at 398.
[185] Id. at 412.
[186] These arbitrations are showcased in the subsections below, which distinguish and categorize them on the basis of the claims articulated by the claimants.
[187] See, e.g., Eli Lilly and Co. v. The Government of Canada, ICSID Case No. UNCT/14/2,
[188] Signa S.A. v. Government of Canada, Notice of Intent to Submit a Claim to Arbitration Under Section B of Chapter 11 of the North American Free Trade Agreement (Mar. 4, 1996),
[189] Id. ¶¶ 4, 12.
[190] Id. ¶¶ 1–3.
[191] Id. ¶ 4.
[192] Id. ¶ 6.
[193] Id. ¶ 9.
[194] Luke Eric Peterson, Uruguay Threatened over Decree Affecting Ownership of Pharmacies, Investment Arbitration Reporter (May 13, 2014),
[195] Id.
[196] Luke Eric Peterson, France’s Second Largest Pharmaceutical Company Quietly Pursues Arbitration Against Republic of Poland, Investment Arbitration Reporter (Aug. 19, 2011),
[197] See infra Section IV.A.
[198] See infra Section IV.B.
[199] See infra Section IV.B.
[200] See infra Section IV.D.
[201] See infra Section IV.E.
[202] See Dreyfuss & Frankel, supra note 66, at 3–4 (pinpointing the reconceptualization of IP by international law).
[203] For a seminal study, see Carlos A. Primo Braga & Carsten Fink, The Relationship Between Intellectual Property Rights and Foreign Direct Investment, 9 Duke J. Comp. & Int.’l L. 163 (1998).
[204] Ruth L. Okediji, Is Intellectual Property “Investment”? Eli Lilly v. Canada and the International Intellectual Property System, 35 U. Pa. J. Int’l L. 1121, 1124 (2014) [hereinafter Okediji, Is Intellectual Property “Investment?”] (noting that “[a]lthough the definition of ‘investment’ contained in most investment treaties mention intellectual property, the obligations, expectations, and enforcement aspects of these treaties are largely undeveloped.”).
[205] Boie, supra note 2, at 4 (defining IIAs – a term encompassing both “bilateral investment treaties (BITs) and FTAs or Regional Trade Agreements (RTAs) with investment chapters” – as “agreements concluded between states for the promotion and protection of reciprocal investments.”).
[206] ICSID Convention, supra note 135, at art. 25(1).
[207] Alex Grabowski, The Definition of Investment Under the ICSID Convention: A Defense of Salini, 15 Chi. J. Int’l L. 287, 293 (2014) (noting that “[t]he signatories to the [ICSID] convention purposefully left the term ‘investment’ undefined when granting the body jurisdiction over matters of international investment.”).
[208] ICSID Convention, supra note 135, at art. 25(1).
[209] Grabowski, supra note 207, at 293 (noting that “[a] variety of tribunals have applied a plethora of different tests ….”).
[210] Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, (July 23, 2001). The need for the last element, the contribution to the economic development of the host state, is sometimes put in doubt. See L.E.S.I.–DIPENTA v. République Algérienne Démocratique et Populaire, Decision on Jurisdiction, (July 12, 2006); Apotex Holdings Inc. v. United States (Apotex III), ICSID Case No. ARB(AF)/12/1, Award, ¶ 7.62 (Aug. 25, 2014) (holding that it did not seem necessary that the investment contribute to the economic development of the country; according to the Tribunal, the contribution to economic development was difficult to establish, and was implicitly covered by the other three elements of an investment); Quiborax v. Bolivia, ICSID Case No. ARB/06/2, Decision on Jurisdiction, ¶ 220 (Sept. 27, 2012) (arguing that while the ICSID Convention attempts to foster economic development via international investment, such development is not a necessary element of investment).
[211] Malaysian Historical Salvors SDN BHD v. The Government of Malaysia, ICSID Case No. ARB/05/10, Decision on the Application for Annulment (Apr. 16, 2009).
[212] Les Laboratoires Servier, S.A.S., Biofarma, S.A.S., Arts et Techniques du Progrès v. Republic of Poland, Award, ¶¶ 515, 532 (Feb. 14, 2012).
[213] Id. ¶ 190 (noting that Servier did not plead that the marketing authorizations were a protected investment).
[214] Id. ¶ 206.
[215] Id. ¶ 222.
[216] Id.
[217] Id. ¶ 510, 518.
[218] Okediji, Is Intellectual Property “Investment”?, supra note 204, at 1126.
[219] Id. (noting that “[s]uch agreements usually protect intellectual property by including it in the definition of investment.”). Conversely, FTAs often include a distinct chapter for governing intellectual property. See id. (highlighting that “[t]he fact in RTAs, that several subject matters, including both investment and IP, are covered in one single agreement may have significant consequences for the interplay of these provisions”). IP chapters providing for higher standards of IP protection than those provided by the TRIPS Agreement are known as ‘TRIPS-plus.’ See Beatrice Lindstrom, Scaling Back TRIPS-Plus: An Analysis of Intellectual Property Provisions in Trade Agreements and Implications for Asia and the Pacific, NYU J. of Int’l L. and Pol. 917, 919 (2010) (noting that “[o]ver the past ten years, a new trend has developed in which bilateral trade agreements mandate changes to domestic intellectual property laws, resulting in laws that exceed the standards agreed to at the WTO. These agreements are referred to as ‘TRIPS-plus.’”) A complete analysis of the interactions between the investment and IP chapters of FTAs is outside the scope of this article.
[220] For instance, Article 1139(g) of the North American Free Trade Agreement (NAFTA) states “investment” includes “real estate or other property, tangible or intangible, acquired in the expectation or used for the purpose of economic benefit or other business purposes.” North American Free Trade Agreement, signed on 17 December 1992, in force on 1 January 1994, 32 ILM 289, 605 (1993).
[221] See, e.g., the Agreement between the Swiss Confederation and the Dominican Republic on the Promotion and Protection of Investments (CH-Cuba BIT), art. 1.2(d) (stating that “[t]he term ‘investments’ shall include every kind of asset, in particular, though not exclusively: … copyrights, industrial property rights (such as patents, utility models, industrial designs or models, trade or service marks, trade names, indications of origin), technical processes, know-how and goodwill”). The first BIT, signed between West Germany and Pakistan in 1959, included “patents and technical knowledge” in the definition of “investment.” Treaty for the Promotion and Protection of Investments, Ger.-Pak., art. 8(1)(a), Nov. 25, 1959, 457 U.N.T.S. 24 (affirming that “[t]he term ‘investment’ shall comprise capital brought into the territory of the other Party for investment in various forms in the shape of assets such as foreign exchange, goods, property rights, patents and technical knowledge.”).
[222] Liberti, supra note 117, at 8 (“A first issue regarding the scope of the definition of investment is whether patent applications, though not an IPR, would qualify as an intangible property.”).
[223] See, e.g., 2009 ASEAN Comprehensive Investment Agreement, art. 4(c) (limiting an “investment” to “intellectual property rights which are conferred pursuant to the laws and regulations of each Member State.”).
[224] Agreement Between the Government of Hong Kong and the Government of Australia for the Promotion and Protection of Investment, Austl.-H.K., art 1(e)(iv), Sep. 15, 1993, 1748 U.N.T.S. 385; Agreement Between the Government of Canada and the Government of the Republic of Argentina for the Promotion and Protection of Investment, Arg.-Can., art. 1(a)(iv), May 11, 1991, 2467 U.N.T.S. 97.
[225] Treaty Between the United States of America and Jamaica Concerning the Reciprocal Encouragement and Protection Investment, Jam.-U.S., art. I.1(a)(iv), Feb. 2, 1994, S. Treaty Doc. No. 103–35.
[226] Id. (stating that “[f]or the purposes of this Treaty, (a) ‘investment’ means every kind of investment in the territory of one Party owned or controlled directly or indirectly by nationals or companies of the other Party, such as equity, debt, and service and investment contracts; and includes without limitation: … (iv) intellectual property which includes, inter alia, rights relating to: literary and artistic works, including sound recordings, patentable inventions, industrial designs, semiconductor mask works, trade secrets and confidential business information, and trademarks, service marks, and trade names.”).
[227] See generally Liberti, supra note 117.
[228] Bryan Mercurio, Awakening the Sleeping Giant: Intellectual Property Rights in International Investment Agreements, 15 J. of Int’l Econ. L. 871, 878 (2012) (“For instance, the value of the expected IPRs (and hence the expected profit to be derived from the IPRs) can be vast and easily quantifiable as, for instance, applications for a patent (and in some jurisdictions, applications for trademark) can be sold and assigned to third parties.”).
[229] Patents can only be acquired through registration.
[230] Anheuser-Busch Inc. v. Portugal, 45 Eur. Ct. H.R. 36 (2007).
[231] Apotex Holdings Inc. v. United States (Apotex III), ICSID Case No. ARB(AF)/12/1, Award, ¶ 7.62 (Aug. 25, 2014).
[232] Id. ¶ 2.34.
[233] Id. ¶ 2.24.
[234] Id. ¶ 2.40.
[235] ¶ 2.51 (“The Respondent submits that Apotex Inc. does not claim to manufacture or even test any drugs in the USA; nor does it assert the existence of any offices or employees in the USA; nor does it assert the existence of any offices or employees in the USA; it pays no taxes in the USA on its supposed investments (including its ANDA-related activities) ….”).
[236] Id. ¶ 2.37 (contending that “the Tribunal has no jurisdiction to decide the Parties’ dispute under NAFTA”; that “the Claimants’ complaint is in fact directed at a trade measure”; and that “the Claimants are seeking improperly in these proceedings to convert a possible trade-related claim between NAFTA Contracting States (under NAFTA Chapter Twenty) into an investment claim by a foreign entity (under NAFTA Chapter Eleven).”).
[237] Id. ¶ 2.28.
[238] Id. ¶ 2.27.
[239] Id. ¶ 7.62.
[240] Apotex Inc. v. United States, UNCITRAL, Award on Jurisdiction and Admissibility (June 14, 2013).
[241] Apotex III, ¶ 7.62. One of the three arbitrators dissented from the Tribunal’s conclusion. He suggested that approved ANDAs can be bought and sold and are in other ways treated as property under U.S. law. Id. ¶ 7.66.
[242] Lise Johnson, New Weaknesses: Despite a Major Win, Arbitration Decisions in 2014 Increase the US’s Future Exposure to Litigation and Liability 4 (2015),
[243] Okediji, Is Intellectual Property “Investment”?, supra note 204, at 1126.
[244] La Republique d’Italie v. La Republique de Cuba, UNCITRAL, Arbitrage ad hoc, Sentence Finale, ¶ 219 (Jan. 15, 2008). Italy espoused the claims of sixteen investors operating in different fields and raised claims in its own name for breach of the Italy-Cuba BIT. Id. at ¶ 46. It sought the payment of €1 from Cuba as symbolic compensation and of several millions of U.S. dollars as compensation for the injury suffered by its investors. Id. ¶ 96(1)(e)(6).
[245] See, e.g., Enrico Milano, The Investment Arbitration between Italy and Cuba: The Application of Customary International Law under Scrutiny, 11 L. & Practice of Int’l Cts and Tribunals 424, 500 (2012) (defining this arbitration as “a landmark case … to the extent that it has constituted the first inter-State proceedings in the history of modern BITs.”) See generally Michele Potestà, Republic of Italy v. Republic of Cuba, 106 Am. J. Int’l L. 341 (2012). See also Anthea Roberts, State-to-State Investment Treaty Arbitration: A Hybrid Theory of Interdependent Rights and Shared Interpretive Authority, 55 Harvard Int’l L. J. 1 (2014).
[246] La Republique d’Italie v. La Republique de Cuba, UNCITRAL, Arbitrage ad hoc, Sentence Finale, ¶ 219 (Jan. 15, 2008).
[247] Id. ¶ 90.
[248] Id. ¶ 134.
[249] Id.
[250] Id. ¶ 136.
[251] Id. ¶ 39.
[252] Id. ¶ 39, n.1.
[253] Id. ¶ 93. In fact, Italy did still have standing to sue in its own name.
[254] La Republique d’Italie v. La Republique de Cuba, UNCITRAL, Arbitrage ad hoc, Sentence Finale, ¶ 81 (Jan. 15, 2008) (“sauf dispositions contraires spécifiques d’un Traité Bilatéral de protection des Investissements, trois éléments sont requis pour que l’on se trouve en présence d’un investissement: un apport, la durée et une prise de risque de la part de l’investisseur…. Ceci permet d’écarter, par exemple, les simples opérations de vente.”).
[255] Id. ¶ 215.
[256] Id.
[257] Id. ¶ 220 (clarifying that “… le fait que Menarini aurait sponsorisé des congres medicaux, ce qui n’est d’ailleurs pas etabli ne permet pas de qualifier d’investissement la vente des medicaments en cause, puisqu’il s’agit d’operations classiques de promotion des produits vendus.”).
[258] For instance, the sale of cattle was deemed not to constitute an investment in the Canadian Cattlemen case. In 2003, when the United States closed the U.S.–Canadian border to beef and cattle after a case of mad cow disease was discovered in Canada, a group of Canadian cattlemen brought a NAFTA Chapter 11 suit alleging that the U.S. discriminated against Canadian operators, because it allowed U.S. cattlemen who owned Canadian cattle to keep it, while stopping Canadian cattle (of Canadian operators) at the border. Thus, Canadian cattlemen requested damages for losses incurred during the border closure. The case was dismissed on jurisdictional grounds. Canadian Cattlemen for Fair Trade v. United States, UNCITRAL, Award on Jurisdiction (28 Jan. 2008).
[259] Gibson, Latent Grounds in Investor-State Arbitration, supra note 183, at 433.
[260] Okediji, Is Intellectual Property “Investment”?, supra note 204, at 1127 (noting that both investor and state “will be affected by any resulting welfare loss.”).
[261] See ICSID Convention, supra note 135, at art. 53 (stating that “The award shall be binding on the parties . . .”); see also NAFTA, supra note 16, at art. 1136(1) (providing that “an award made by a Tribunal shall have no binding force except between the disputing parties and in respect of the particular case.”).
[262] Gabrielle Kaufmann-Kohler, Arbitral Precedent: Dream, Necessity or Excuse?, 23 Arb. Int’l 357 (2007).
[263] Id. at 1136 (illustrating “the dangers of treating intellectual property as ‘investment’ per se, isolated from its appropriate policy domains.”).
[264] See Germany-Burundi BIT, supra note 3, at art. 2(4) (“Investment by nationals or companies of either Contracting Party shall not be expropriated, nationalized or subjected to any other measure the effects of which would be tantamount to expropriation or nationalization in the territory of the other Contracting Party except for the public benefit and against compensation… The legality of any such expropriation, nationalization, or comparable measure and the amount of compensation shall be subject to review by due process of law.”); Fr.-Pol., art. 5(2), Feb. 14, 1989 (“The Contracting Parties shall not take any expropriation or nationalization measures or any other measures which would have the effect of divesting investors of the other Party, either directly or indirectly, of investments belonging to them in its territory or maritime areas, except for reasons of public necessity and on condition that these measures are not discriminatory or contrary to a specific undertaking. Any divestment measures that may be taken shall give rise to the payment of prompt and adequate compensation, the amount of which shall correspond to the real value of the investments in question on the day before the measures are taken or made known to the public ….”).
[265] Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID Case ARB/98/4, Award, at ¶ 98 (Dec. 8, 2000) (noting that “expropriation is not limited to tangible property rights.”).
[266] See NAFTA, supra note 16, at art. 1110.1.
[267] United Nations Conference on Trade and Development, 2012, Expropriation: UNCTAD Series on Issues in International Investment Agreements II, 6, UNCTAD/DIAE/IA/2011/7 (“Direct expropriation means a mandatory legal transfer of the title to the property or its outright physical seizure. Normally, the expropriation benefits the State itself or a State-mandated third party.”).
[268] For instance, during the First World War, the German-owned Bayer trademark for aspirin was assigned to an unrelated US company. See Allen Z. Hertz, Shaping the Trident: Intellectual Property Under NAFTA, Investment Protection Agreements and at the World Trade Organization, 23 Canada–U.S. L.J. 261, 276 (1997).
[269] The Factory at Chorzów (Germany v. Poland), Judgment, PCIJ Rep, Series A No. 7, at 44 (May 25, 1926).
[270] Shell Brands International AG & Shell Nicaragua S.A. v. The Republic of Nicaragua, ICSID Case No. ARB/06/14, Request for Arbitration (May 17, 2006).
[271] Damon Vis-Dunbar, Shell Launches Claim against Nicaragua over Seizure of Intellectual Property, Investment Treaty News (Oct. 13, 2006) (noting that according to Shell, Nicaragua seized its trademarks in an effort to enforce a judgment handed down in 2002 by a Nicaraguan court in Sonia Eduarda Franco Franco, et al. v. Dow Chemical, et al. That judgment was in favour of Nicaraguan citizens who claimed to have been affected by a pesticide, which was manufactured for use on banana plantations in the 1960s and 70s. As the case was withdrawn, very little information is available about the dispute.).
[272] Id.
[273] Brigitte Stern, In Search of the Frontiers of Indirect Expropriation, in Contemporary Issues in International Arbitration and Mediation 35 (Arthur Rovine ed., 2008).
[274] For an examination of the question as to whether compulsory licenses can amount to an indirect expropriation, see Vadi, supra note 54, at 52–53, 76–80, 88–90; Christopher Gibson, A Look at the Compulsory License in Investment Arbitration: The Case of Indirect Expropriation, 25 Am. U. Int’l L. Rev. 25 357 (2010); Carlos M. Correa, Investment Protection in Bilateral and Free Trade Agreements: Implications for the Granting of Compulsory Licenses, 26 Mich. J. Int’l L. 331 (2004).
[275] TRIPS Agreement arts. 6, 31.
[276] For discussion of an investment treaty arbitration concerning compulsory licensing, see Vadi, supra note 54, at 78.
[277] Les Laboratoires Servier, S.A.S. v. Republic of Poland, UNCITRAL, Final Award, ¶¶ 574–76 (Feb. 14, 2012),
[278] Id. ¶ 40.
[279] Id. ¶¶ 57–58.
[280] Id. ¶¶ 80, 89.
[281] Id. ¶ 48 (redacting the reason for denial).
[282] Id. ¶¶ 108–110 and 124.
[283] Id. ¶ 215.
[284] Id. ¶ 190.
[285] Id. ¶¶ 271, 274.
[286] Id. ¶ 264.
[287] Id. ¶ 265.
[288] Id. ¶ 265.
[289] Id. ¶ 276.
[290] Id. ¶ 403.
[291] Id. ¶ 280 (stressing that “in assessing the measures, [the Tribunal] should not embark upon an open-ended enquiry into the scientific correctness of the decisions in question or substitute its own regulatory choices for those made by the competent Polish regulator. Rather, the Tribunal should assess whether the measures were motivated by honest belief, held in good faith and based on reasonable scientific grounds, that is, whether Poland acted as a reasonable regulator.”) and ¶ 282 (arguing that “A deferential standard of review must be employed by the Tribunal when it comes to regulatory decisions based around science and national regulation.”).
[292] Id. ¶ 336.
[293] Id. ¶ 310.
[294] Id. ¶ 264 (noting that “Neither the EU Treaty, nor the EU Pharmaceuticals Directive, require[d] Poland to favour the local pharmaceutical industry and adopt measures to drive foreign competitors from the market.”).
[295] Id. ¶ 267.
[296] Id. ¶ 332.
[297] Id. ¶ 352.
[298] Id.
[299] Id. ¶ 576.
[300] Id. ¶ 575.
[301] Id. ¶ 426 (“Servier advance[d] a theory of ‘full reparation in the event of unlawful expropriation,’ supported by principles of international law”).
[302] Id. ¶ 643.
[303] Eli Lilly and Company v. The Government of Canada, ICSID Case No. UNCT/14/2, Notice of Intent (7 Nov. 2012)
[304] Id. ¶ 90.
[305] Id. ¶¶ 89–97.
[306] See Okediji, Is Intellectual Property “Investment”?, supra note 204, at 1121 (highlighting that “the firm seeks to compel a change in Canadian patent law, an intervention by the Parliament to limit the interpretation of the utility requirement by judges.”).
[307] Id. at 94.
[308] Eli Lilly and Company v. The Government of Canada, ICSID Case No. UNCT/14/2, Notice of Intent, ¶ 37.
[309] Id.
[310] Id. ¶ 16.
[311] Id. ¶ 6 (referring to Article 27 of the TRIPS Agreement, NAFTA Chapter 17 and the Patent Cooperation Treaty.)
[312] Id. ¶ 42.
[313] Eli Lilly and Company v. The Government of Canada, ICSID Case No. UNCT/14/2, Notice of Arbitration, ¶ 75 (Sep. 12, 2012),
[314] Eli Lilly and Company v. The Government of Canada, ICSID Case No. UNCT/14/2, Notice of Intent, ¶ 91 (7 Nov. 2012),
[315] Eli Lilly and Company v. The Government of Canada, ICSID Case No. UNCT/14/2, Government of Canada Statement of Defence, ¶ 117 (June 30, 2014),
[316] Id. ¶ 108.
[317] Eli Lilly and Company v. The Government of Canada, ICSID Case No. UNCT/14/2, Counter Memorial, ¶ 302 (Jan. 27, 2015), (adding that domestic law is the law that determines the existence and nature of property rights and stating that “If there is no valid property right at domestic law, then there is nothing that can be ‘taken’ within the meaning of the international law of expropriation. The only context in which a domestic court ruling on the validity of an asserted property right could amount to an expropriation is if there has been a denial of justice.”).
[318] Id.
[319] Eli Lilly and Company v. The Government of Canada, ICSID Case No. UNCT/14/2, Statement of Defence, ¶ 106 (Jun. 30, 2014),
[320] Eli Lilly and Company v. Government of Canada, ICSID Case No. UNCT/14/2, Counter Memorial, ¶ 344 (Jan. 27, 2015),
[321] Id. (invalidating patents cannot give rise to expropriation claims under Chapter Eleven if those measures are consistent with Chapter Seventeen).
[322] Id. ¶ 7 (according to Canada, the “patent bargain” encompasses a balance between the patent owner and the public: “These rules are intended to ensure that patentees provide the consideration they promised in exchange for the grant of a 20-year monopoly. They seek to ensure that patents are filed on the basis of true invention, rather than of speculation. They verify that disclosure obligations in the patent, which is the basis for the ‘patent bargain’ with the public, are fulfilled. These rules are fundamental to the integrity of the patent system.”).
[323] Id. ¶¶ 409, 411.
[324] Id. ¶ 411.
[325] Id.
[326] Id. ¶ 415.
[327] Id. ¶ 414.
[328] Apotex Inc. v. U.S., ICSID Case No. ARB(AF)/12/1, Notice of Arbitration, ¶ 7 (Dec. 10, 2008),
[329] Id. ¶ 29.
[330] Id. ¶ 14.
[331] Id. ¶ 19.
[332] Id. ¶ 20.
[333] Id.
[334] Id. ¶¶ 65–71.
[335] Id. ¶ 65.
[336] Id. ¶ 64.
[337] Id. ¶ 68.
[338] Id. ¶ 69.
[339] Id. ¶ 70.
[340] Apotex Inc. v. The Government of the United States of America, ICSID Case No. ARB(AF)/12/1, Notice of Arbitration, ¶ 32 (June 4, 2009),
[341] Although there were two different statements of claims and the US Department of State maintained two different web pages for the documents relating to the respective claims, the jurisdiction/admissibility phase in each arbitration was held concurrently, albeit not consolidated. Therefore there was only one award dealing with the two different claims. Apotex Inc. v. the Government of the United States of America, ICSID Case No. ARB(AF)/12/1, Award on Jurisdiction and Admissibility, ¶ 4 (June 14, 2013),
[342] Apotex Inc. v. the Government of the United States of America, ICSID Case No. ARB(AF)/12/1, Award on Jurisdiction and Admissibility, ¶ 105 (June 14, 2013),
[343] Id. ¶ 114.
[344] Id. ¶ 115.
[345] Id. ¶ 116.
[346] Apotex Inc. v. The Government of the United States of America, ICSID Case No. ARB(AF)/12/1, Notice of Arbitration, ¶ 66 (June 4, 2009),
[347] Id. ¶ 32.
[348] Id. ¶ 76.
[349] Id. ¶¶ 78–80.
[350] Apotex Inc. v. the Government of the United States of America, ICSID Case No. ARB(AF)/12/1, Award on Jurisdiction and Admissibility, ¶ 298 (Apotex I and II) (June 14, 2013),
[351] Id. ¶ 335.
[352] Id. ¶ 336.
[353] See generally id.
[354] Les Laboratoires Servier, S.A.S. v. Republic of Poland, UNCITRAL, Final Award, ¶ 576 (Feb. 14, 2012), (finding that the denial of marketing authorizations amounted to an indirect expropriation, implicating a State’s substantial interference with the investor’s rights.)
[355] Id. (noting that “indirect expropriation, at issue in this case, implicates a State’s substantial interference with an investor’s rights. Such interference must be significant, even if not complete, in the sense of depriving the investor of its ability to benefit from the relevant asset”).
[356] Gibson, Latent Grounds in Investor-State Arbitration, supra note 183, at 454.
[357] Les Laboratoires Servier, S.A.S. v. Republic of Poland, UNCITRAL, Final Award, ¶ 568 (Feb. 14, 2012), (holding that, while it “must accord due deference to the decisions of specialized Polish administrators interpreting and applying laws and regulations governing their area of competence”, it “will also consider the manner in which those decisions were taken and their effect on the Claimants’ investments.”).
[358] Id. ¶ 584 (stating that “the burden then falls onto the Claimants to show that Poland’s regulatory actions were inconsistent with a legitimate exercise of Poland’s police powers.”).
[359] Carlos M. Correa, Bilateral Investment Agreements: Agents of New Global Standards for the Protection of Intellectual Property Rights?, 15 (Aug. 3, 2004), (last visited Oct. 15, 2015).
[360] Compañia del Desarrollo de Santa Elena v. Costa Rica, Award, Case No. ARB/96/1, Final Award, ¶ 72 (Feb. 17, 2000) (holding that “[e]xpropriatory environmental measures—no matter how laudable and beneficial to society as a whole—are, in this respect, similar to any other expropriatory measures that a state may take in order to implement its policies: where property is expropriated, even for environmental purposes, whether domestic or international, the state’s obligation to pay compensation remains.”).
[361] See, e.g., CME Czech Republic B.V. v. Czech Republic, UNCITRAL, Final Award, ¶ 497 (Mar. 14, 2003).
[362] The Hull formula is named after the American Secretary of State, Cordell Hull, who described a full compensation standard as “prompt, adequate and effective” in a diplomatic exchange of notes with Mexico in 1930.
[363] Les Laboratoires Servier, S.A.S. v. Republic of Poland, UNCITRAL, Final Award, ¶ 37 (Feb. 14, 2012),
[364] Id. ¶ 644.
[365] Id. ¶ 645.
[366] Id. ¶ 642.
[367] Id. ¶ 663.
[368] See Sergey Ripinsky, Russia, in Commentaries on Selected Model Investment Treaties 605 (Chester Brown ed., 2013) (noting that “this obligation is the one most often invoked by claimants in investment disputes—it is present practically in every case.”); see also Rudolf Dolzer, Fair and Equitable Treatment: Today’s Contours, 12 Santa Clara J. Int’l L. 7, 10 (2014) (pinpointing that “FET may be considered to be at the heart of investment arbitration.”).
[369] Sempra Energy Int’l v. Argentine Republic, ICSID Case No. ARB/02/16, Award, ¶¶ 300–01 (Sept. 28, 2007).
[370] See generally Catherine Yannaca Small, International Investment Law: A Changing Landscape 74 (2005) (highlighting that fair and equitable treatment is “an ‘absolute’, ‘non-contingent’ standard of treatment, i.e. a standard that states the treatment to be accorded in terms whose exact meaning has to be determined, by reference to specific circumstances of application, as opposed to the “relative” standards embodied in “national treatment” and “most-favoured-nation” principles which define the required treatment by reference to the treatment accorded to other investment.”).
[371] See generally NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11 Provisions, (Jul. 31, 2001),
[372] NAFTA, supra note 16, at art. 1131 (providing that “[a]n interpretation by the [FTC] of a provision of this Agreement shall be binding on a Tribunal established under this Section.”).
[373] NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11 Provisions, supra note 371, at B.2 (affirming that “[t]he concepts of ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens.”).
[374] See L. F. H. Neer and Pauline Neer (U.S.A.) v. United Mexican States, 4 Rep. Int’l Arb. Awards, 60, 60–62 (1926). In Neer, the widow and daughter of a murdered US citizen sued the Mexican government for “lack of diligence” or “lack of intelligent investigation” in prosecuting the murderers. Id. at 61. The US-Mexico Claims Commission held that Mexico was not liable although it acknowledged that “better methods might have been used” for the investigations and the prosecution. Id. at 62. The Commission held that “the treatment of an alien, in order to constitute an international delinquency, should amount to an outrage, to bad faith, to wilful [sic] neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency.”).
[375] For instance, the Glamis Gold Tribunal held that “the customary international law minimum standard remains as apparently articulated in the 1926 Neer award: to violate the customary international law minimum standard of treatment codified in Article 1105 of the NAFTA, an act must be sufficiently egregious and shocking – a gross denial of justice, manifest arbitrariness, blatant unfairness, a complete lack of due process, evident discrimination, or a manifest lack of reasons – so as to fall below accepted international standards ….” Glamis Gold, Ltd. v. The United States of America, UNCITRAL, Award, ¶ 22 (June 8 2009)
[376] Apotex Holdings Inc, Apotex Inc. v. United States of America (Apotex III), ICSID Case No. ARB(AF)/12/1, Award (Aug. 25, 2014).
[377] Id. ¶¶ 2.30, 2.64.
[378] Id. ¶ 9.3 (recalling the FTC Note of interpretation), ¶ 9.4 (accepting the binding effect of this Note of Interpretation).
[379] Id. ¶ 9.17.
[380] Id. ¶ 9.39 (quoting S.D. Myers Inc. v. The Government of Canada, UNCITRAL, Partial Award, ¶ 261 (Nov. 13, 2000)). See also id. ¶ 9.37 (recalling “the need for international tribunals to recognise the special roles and responsibilities of regulatory bodies charged with protecting public health and other important public interests. These are of course not binding on this Tribunal, which must make its own determinations regarding the facts and the law relevant to this case …. Nevertheless … other decisions indicate the need for international tribunals to exercise caution in cases involving a state regulator’s exercise of discretion, particularly in sensitive areas involving protection of public health and the well-being of patients.”).
[381] Eli Lilly and Company v. The Government of Canada, ICSID Case No. UNCT/14/2, Notice of Intent, ¶ 95 (Nov. 7, 2012),
[382] Id. ¶¶ 98, 104.
[383] Id. ¶ 101.
[384] Eli Lilly and Company v. The Government of Canada, ICSID Case No. UNCT/14/2, Statement of Defence,  (Jun. 30, 2014),
[385] Id. ¶ 90.
[386] Id. ¶ 99.
[387] Id. ¶ 104.
[388] Id.
[389] Eli Lilly and Company v. The Government of Canada, ICSID Case No. UNCT/14/2, Counter Memorial, ¶ 15 (Jan. 27, 2015),
[390] Id. ¶ 227.
[391] Id. ¶ 266.
[392] Christoph Schreuer, Fair and Equitable Treatment in Arbitral Practice, 6 J. World Inv. & Trade, 357, 360, 364 (2005).
[393] Henning Grosse Ruse-Khan, Litigating Intellectual Property Rights in Investor-State Arbitration: From Plain Packaging to Patent Revocation 13 (University of Cambridge Faculty of Law Legal Studies, Working Paper No. 52/2014, 2014),
[394] Id.
[395] Gibson, Latent Grounds in Investor-State Arbitration, supra note 183, at 397.
[396] Chris Yost, A Case Review and Analysis of the Legitimate Expectations Principle as it Applies Within the Fair and Equitable Treatment Standard 6 (Mar. 8, 2007) (unpublished thesis, Australian National University),
[397] See, e.g., Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/02, Award, ¶ 372 (July 14, 2006) (holding that the fair and equitable treatment standard now protects legitimate investor expectations even in the absence of bad faith or egregious conduct by the host state); see also Vaughan Lowe, The Changing Dimensions of International Investment Law 98 (University of Oxford Faculty of Law Legal Studies Research Paper Series, Working Paper No. 4/2007, 2007) (arguing “there is an emerging consensus that transparency and legitimate expectations are matters that it is proper to consider in the context of fair and equitable treatment.”); cf. Michele Podestà, Legitimate Expectations in Investment Treaty Law: Understanding the Roots and the Limits of a Controversial Concept 1–2 (Soc’y of Int’l Econ. Law, 3rd Biennial Global Conference, Working Paper, 2012), (noting that “Arbitral tribunals … have typically taken for granted the idea that a breach of the investor’s expectations may be relevant in deciding upon a violation of an investment treaty especially of the fair and equitable treatment standard.”) (internal parenthetical omitted).
[398] See Tai-Heng Cheng, Remarks as Chairman for Panel Discussion at 2007 International Law Weekend: Is the Fair and Equitable Treatment Standard Fair and Equitable? (Oct. 27, 2006), at 5 (“[T]he disagreements about the content of the fair and equitable treatment standard are really about investors wanting stronger investment protections, and host states favoring weaker restrictions on the exercise of their sovereign powers.”).
[399] E.g., Katherine J. Strandburg, What Does the Public Get? Experimental Use and the Patent Bargain, 2004 Wis. L. Rev. 81, 90–93 (2004) (describing a patent as a bargain between the inventor and society).
[400] Grosse Ruse-Khan, supra note 393, at 13.
[401] Id. at 13–14 (referring to the WTO panel report in EC–Geographical Indications).
[402] Panel Report, European Communities–Protection of Trademarks and Geographical Indications For Agricultural Products and Foodstuffs, ¶ 7.210 WTO Doc. WT/DS/174R (Mar. 15, 2015) (holding that “the [TRIPS A]greement does not generally provide for the grant of positive rights to exploit or use certain subject matter, but rather provides for the grant of negative rights to prevent certain acts.”).
[403] Grosse Ruse-Khan, supra note 393, at 14.
[404] Eli Lilly and Company v. The Government of Canada, ICSID Case No. UNCT/14/2. Notice of Intent, ¶¶ 95, 96 (7 Nov. 2012),
[405] Id. ¶ 95.
[406] Id. ¶¶ 98–104.
[407] Id. ¶ 5–86.
[408] Id. ¶ 96.
[409] Eli Lilly and Company v. The Government of Canada, ICSID Case No. UNCT/14/2, Government of Canada Statement of Defence, ¶ 83 (June 30, 2014), (pinpointing that “[t]he Tribunal’s jurisdiction in this matter relates only to alleged breaches of NAFTA Chapter Eleven obligations.”).
[410] Id. ¶ 84 (noting that “[d]isputes in respect of an alleged breach of TRIPS obligations may only be brought pursuant to the Dispute Settlement Understanding of the World Trade Organisation. Allegations of a breach of the PCT are, in accordance with that Treaty, to be brought before the International Court of Justice. Allegations of a breach of NAFTA Chapter Seventeen are to be brought on a State-to-State basis before a tribunal constituted pursuant to NAFTA Chapter Twenty.”).
[411] Id. ¶ 91.
[412] Id. ¶ 87.
[413] Id.
[414] Id.
[415] Id. ¶ 94.
[416] Id.
[417] Okediji, Is Intellectual Property Investment?, supra note 204, at 1132.
[418] Jerome Reichman, Panelist Presentation, Investment Chapters in Trade Agreements: IP Rights as Protected Investments (Apr. 11, 2014).
[419] Id.
[420] Okediji, Is Intellectual Property Investment?, supra note 204, at 1134.
[421] Id. at 1132.
[422] Alan M. Anderson et al., The Globalization of Intellectual Property Rights: TRIPS, BITs, and the Search for Uniform Protection, 38 Ga. J. Int’l & Comp. L. 265, 289 (2010).
[423] TRIPS Agreement art. 1.1.
[424] DSU art. 19.2.
[425] Appellate Body Report, India—Patent Protection for Pharmaceutical and Agricultural Chemical Products, ¶¶ 47–48, WTO Doc. WT/DS/50/AB/R (Dec. 19, 1997).
[426] Valentina Vadi, Cultural Heritage in International Investment Law and Arbitration 129–31 (2014).
[427] Peter A. Allard v. Barbados, UNCITRAL, Notice of Dispute, ¶ 16 (Sept. 8, 2009), (asserting as the investor acquired wetlands and subsequently developed them into an ecotourism facility, he claimed that Barbados had failed to prevent the discharge of raw sewage into the wetlands and to investigate or prosecute polluters, thus reducing the profitability of its investment).
[428] Grosse Ruse-Khan, supra note 393, at 295.
[429] DSU art. 23.
[430] Grand River Enterprises Six Nations, Ltd. v. United States, Award, ¶ 219 (Jan. 12, 2011),
[431] Bernhard von Pezold v. Republic of Zimbabwe (ICSID Case No. ARB/10/15) and Border Timbers Ltd. v. Republic of Zimbabwe (ICSID Case No. ARB/10/25), Procedural Ord. No. 2, ¶ 57 (June 26, 2012),
[432] Vienna Convention on the Law of Treaties, May 23, 1969, 1155 U.N.T.S. 331.
[433] Gibson, Latent Grounds in Investor-State Arbitration, supra note 183, at 402.
[434] For an analogous argument with regard to the WTO law, see Fiona Smith, Power, Rules and the WTO, 54 B.C.L. Rev. 1063, 1082 (2013) (“[I]n this ‘world’ … ideas from outsiders, like human rights and environmental scholars, about how WTO law should be regulated are often rejected as ‘wrong’ or misguided by trade lawyers and policymakers. These ideas often place the individual at the heart of the analysis and address her diverse and complex needs in ways that simply do not translate readily into the language of comparative advantage and trade liberalization. We should not really be surprised therefore when trade experts dismiss them as wrong or misguided, or when such ideas are castigated as ‘protectionist’ . . . .”).
[435] For an analogous argument concerning trade law and human rights, see Christopher McCrudden, International Economic Law and the Pursuit of Human Rights: A Framework for Discussion of the Legality of “Selective Purchasing” Laws under the WTO Government Procurement Agreement, 2 J. Int’l Econ. L. 3, 47 (1999).
[436] IIAs require fair and equitable treatment consistent with customary international law, including “the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world.” See, e.g., Treaty Concerning the Encouragement and Reciprocal Protection of Investment, U.S.-Rwanda, art. 6(5), Feb. 19, 2008, S. TREATY DOC. No. 110–23. Therefore, the FET standard is considered to include denial of justice claims. See UNCTAD, Fair and Equitable Treatment, at xvi-xvii (2012).
[437] Francesco Francioni, Access to Justice, Denial of Justice and International Investment Law, 20 Eur. J. Int’l L. 729, 730–31 (2009) (“[T]he principle of the ‘minimum standard of justice’ to be reserved to aliens and their economic interests under customary international law . . . presupposes that the individual who has suffered an injury in a foreign country at the hands of public authorities or of private entities must be afforded the opportunity to obtain redress before a court of law or appropriate administrative agency. Only when ‘justice’ is not delivered, either because judicial remedies are not available or the administration of justice is so inadequate, deficient, or deceptively manipulated as to deprive the injured alien of effective remedial process, can the alien invoke ‘denial of justice’: a wrongful act for which international responsibility may arise.“).
[438] Id. at 729.
[439] Jan Paulsson, Denial of Justice in International Law 4, 36 (2005) (“[A] state incurs responsibility if it administers justice to aliens in a fundamentally unfair manner” and “[I]nternational responsibility arises as a result of the failure of a national legal system to provide due process.”).
[440] Loewen v. United States, ICSID Case No. ARB(AF)/98/3, Award, ¶ 154 (June 26, 2003), (“No instance has been drawn to our attention in which an international tribunal has held a State responsible for a breach of international law constituted by a lower court decision when there was available an effective and adequate appeal within the State’s legal system.”).
l Expropriation or Denial of Justice?: A Note on Saipem v Bangladesh, 13 [441] Roger P. Alford, Ancillary Discovery to Prove Denial of Justice, 53 Va. J. Int’l L. 127, 131–132 (2012) (“Until recent decades, the denial of justice was frequently a wrong without a remedy . . .” that “the diplomatic espousal of claims pursuant to a friendship, commerce, and navigation treaty (FCN) or similar treaties — w[as a] cumbersome and rare event[] . . .” but that the rise of BITs has “altered this course of events . . . .”).
[442] See, e.g., Saipem S.p.A. v. People’s Republic of Bangladesh, ICSID Case No. ARB/05/7, Award (June, 30 2009), (finding the host state responsible for expropriation resulting from the judicial intervention in arbitral proceedings instituted by an investor in pursuit of its contractual right.).
[443] See generally Mavluda Sattorova, Denial of Justice Disguised?: Investment Arbitration and the Protection of Foreign Investors from Judicial Misconduct, 61 Int’l Comp. L. Q. 223–46 (2012); Mavluda Sattorova, JudiciaInt’l Arb. L. Rev. 35 (2010). On denial of justice, see generally Paulsson, supra note 439.
[444] Paulsson, supra note 439, at 130.
[445] Apotex Inc. v. U.S., ICSID Case No. ARB(AF)/12/1, Notice of Arbitration, ¶¶ 61–62 (Dec. 10, 2008),
[446] Id. ¶ 63.
[447] Apotex Inc. v. U.S., ICSID Case No. ARB(AF)/12/1, Award on Jurisdiction and Admissibility, ¶ 257 (June 14, 2013), (footnote omitted).
[448] Id.
[449] Id. ¶ 250.
[450] Id. ¶ 274.
[451] Id. ¶ 135.
[452] Id. ¶ 267.
[453] Id. ¶ 276.
[454] Id.
[455] Id. ¶¶ 281–282.
[456] See generally Sattorova, Judicial Expropriation or Denial of Justice?: A Note on Saipem v Bangladesh, supra note 443; Sattorova, Denial of Justice Disguised?: Investment Arbitration and the Protection of Foreign Investors from Judicial Misconduct, supra note 443.
[457] Grosse Ruse-Khan, supra note 393, at 31.
[458] The principle of non-discrimination also constitutes one of the prongs for establishing the lawfulness of expropriation and the unfairness of a given state’s conduct. See supra Sections IV.B., IV.D. respectively.
[459] See, e.g., US Model BIT (“1. Each Party shall accord to investors of the other Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory. 2. Each Party shall accord to covered investments treatment no less favorable than that it accords, in like circumstances, to investments in its territory of its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.”).
[460] Id.
[461] Id.
[462] Grosse Ruse-Khan, supra note 393, at 34.
[463] See Les Laboratoires Servier, S.A.S. v. Republic of Poland, UNCITRAL, Final Award (Feb. 14, 2012),
[464] Eli Lilly and Company v. The Government of Canada, ICSID Case No. UNCT/14/2, Notice of Intent, ¶¶ 105–07 (Nov. 7, 2012),
[465] Id. ¶ 106.
[466] Luke Eric Peterson, Newly Discovered Document Shows that Pharma Corp Hopes to Construe Alleged Non-Compliance with Patent Treaties as a Breach of Investment Treaty, 5 Inv. Arb. Rep. 15, 17 (Dec. 10, 2012) (“This unusual form of extra-territorial comparison is not commonly seen in National Treatment claims under investment treaties.”).
[467] Eli Lilly and Company v. The Government of Canada, ICSID Case No. UNCT/14/2, Notice of Intent, ¶ 107 (Nov. 7, 2012),
[468] Eli Lilly and Company v. The Government of Canada, ICSID Case No. UNCT/14/2, Notice of Arbitration, ¶ 12 (Sept. 12, 2003).
[469] Id.
[470] Apotex Holdings Inc, Apotex Inc. v. United States of America (Apotex III), ICSID Case No. ARB(AF)/12/1, Award on Jurisdiction and Admissibility, ¶ 257 (June 14, 2013),
[471] Apotex Holdings Inc, Apotex Inc. v. United States of America (Apotex III), ICSID Case No. ARB(AF)/12/1, Notice of Arbitration, ¶¶ 58–60 (Dec. 10, 2008),
[472] Id. ¶ 60(f).
[473] Apotex Holdings Inc, Apotex Inc. v. United States of America (Apotex III), ICSID Case No. ARB(AF)/12/1, Award on Jurisdiction and Admissibility, ¶ 358(a)–(c) (June 14, 2013),
[474] Konrad von Moltke, Discrimination and Non-Discrimination in Foreign Direct Investment: Mining Issues, Conference on Foreign Direct Investment and the Environment, at 7 (Feb. 8, 2002),
[475] Apotex Holdings Inc. v. United States, ICSID Case No. ARB(AF)12/1, Award, (Apotex III), ¶ 2.31 (Aug. 25, 2014),
[476] Id. ¶¶ 8.31, 8.48.
[477] Id. ¶ 8.57.
[478] Id. ¶ 3.120.
[479] Id. ¶ 3.153.
[480] Id. ¶ 8.62.
[481] Id. ¶ 8.65.
[482] Id. ¶ 8.69.
[483] Id. ¶¶ 8.71, 8.73.
[484] Id. ¶ 8.78.
[485] See, e.g., id. ¶ 8.65.
[486] Kenneth Vandevelde, A Unified Theory of Fair and Equitable Treatment, 43 N.Y.U. Int’l L. & Pol. 43, 53 (2010) (“The fair and equitable treatment standard in BITs has been interpreted as requiring that covered investment or investors receive treatment that is reasonable, consistent, non-discriminatory, transparent, and in accordance with due process.”). See also Les Laboratoires Servier, S.A.S. v. Republic of Poland, UNCITRAL, Final Award, ¶ 410 (Feb. 14, 2012),, (“Servier’s position is that Poland has breached its obligation to provide fair and equitable treatment to Servier’s investments and has treated Servier’s investments in an unjustified and discriminatory manner.” (footnote omitted)).
[487] United Nations Conference on Trade and Development, 2012, Expropriation: UNCTAD Series on Issues in International Investment Agreements II, 3, UNCTAD/DIAE/IA/2011/7 (reviewing “the conditions for an expropriation to be lawful, namely public purpose, non-discrimination, due process and payment of compensation.”).
[488] See Les Laboratoires Servier, S.A.S. v. Republic of Poland, UNCITRAL, Final Award, ¶ 217 (Feb. 14, 2012),
[489] Id. ¶ 524.
[490] Id. ¶ 575.
[491] Id. ¶ 570 (“[T]he Respondent’s denial of marketing authorisations would divest the Claimants of their property, giving rise to a requirement of compensation under the BIT, if Poland exercised its administrative and regulatory powers in bad faith, for some non-public purpose, or in a fashion that was either discriminatory or lacking in proportionality between the public purpose and the actions taken.”).
[492] Apotex Inc. v. U.S., ICSID Case No. ARB(AF)/12/1, Award, ¶ 8.57 (Aug. 25, 2014), (stressing that domestic pharmaceutical companies and foreign companies were not in like circumstances).
[493] Id. ¶ 8.78.
[494] Konrad von Moltke, Discrimination and Non-Discrimination in Foreign Direct Investment: Mining Issues, Conference on Foreign Direct Investment and the Environment, at 6 (Feb. 8, 2002), (“[N]on-discrimination in relation to foreign direct investment means that the interests of a foreign investor and the public interest in an investment will be weighed in a manner that is legitimate, transparent, and accountable, and in accordance with same rules, criteria and procedures that apply to domestic [and other foreign] investors.”).
[495] Chang-fa Lo, External Regime Coherence: WTO/BIT and Public Health Tension as an Illustration, 7 Asian J. WTO & Int’l Health L. & Pol’y 263, 276 (2012) (noting that “the host country has an inherent…‘right to regulate’”).
[496] See, e.g., the summary of the Respondents case in Apotex III, ¶ 2.38 (contending that “for more than a century, the Respondent has established laws and regulations to prevent the importation of adulterated drugs in order to protect public health in the USA. The FDA’s policy on import alerts has been in effect since at least the 1970s. The Respondent did not relinquish this authority and responsibility when it concluded NAFTA.”).
[497] Vadi, supra note 54, at 30.
[498] Id.
[499] See, e.g., TRIPS Agreement art. 8.
[500] See Apotex Holdings Inc, Apotex Inc. v. United States of America (Apotex III), ICSID Case No. ARB(AF)/12/1, Award on Jurisdiction and Admissibility, ¶ 210 (June 14, 2013),; Apotex Inc. v. U.S., ICSID Case No. ARB(AF)/12/1, Award, ¶ 7.44 (Aug. 25, 2014), (with regard to grant of patents and the ANDAs); Eli Lilly and Company v. The Government of Canada, ICSID Case No. UNCT/14/2, Notice of Intent to Submit a Claim to Arbitration under NAFTA Chapter Eleven, ¶ 35 (Nov. 7, 2012), (with regard to the revocation of patents).
[501] Vadi, supra note 54, at 31.
[502] Id. (noting that “[w]hile the industry often asserts that economic principles militate against state interference, public health law has historically constrained the rights of individuals and businesses so as to prevent nuisance.”).
[503] See supra Part IV.
[504] Other studies have examined the clash between private and public interests in investment law and arbitration. See Julie A. Maupin, Public and Private in International Investment Law: An Integrated Systems Approach, 54 Va. J. Int’l L. 367 (2013–2014); Alex Mills, Antinomies of Public and Private at the Foundations of International Investment Law and Arbitration, 14 J. Int’l Econ. L. 469 (2011).
[505] See, e.g., US Model BIT art. 6(5) (“This Article does not apply to the issuance of compulsory licenses granted in relation to intellectual property rights in accordance with the TRIPS Agreement, or to the revocation, limitation, or creation of intellectual property rights, to the extent that such issuance, revocation, limitation or creation is consistent with the TRIPS Agreement.”).
[506] Mercurio, supra note 228, at 905.
[507] US Model BIT art. 6(5).
[508] TRIPS Agreement art. 27(1) (“Subject to the provisions of paragraphs 2 and 3, patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application.”).
[509] For instance, deciding whether a new formulation (producing a pill version of a medicine that formerly came as a powder) or a new combination (combining two or more existing molecules into a new pill) or a new use of a medicine deserves a new twenty-year patent is a prerogative of states and is not determined by the TRIPS Agreement.
[510] TRIPS Agreement art. 27(2) (“Members may exclude from patentability inventions, the prevention within their territory of the commercial exploitation of which is necessary to protect ordre public or morality, including to protect human, animal or plant life or health or to avoid serious prejudice to the environment, provided that such exclusion is not made merely because the exploitation is prohibited by their law.”).
[511] Id. at art. 30 (“Exceptions to Rights Conferred”) and art. 31 (“Other Use Without Authorization of the Right Holder”).
[512] Id. at art. 32 (providing that “[a]n opportunity for judicial review of any decision to revoke or forfeit a patent shall be available.”).
[513] Amrita Narlikar, The World Trade Organization: A Very Short Introduction 85 (2005).
[514] DSU art. 23 (providing that “When Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by, the rules and procedures of this Understanding.”).
[515] Id. at 20. See generally Joost Pauwelyn, The Dog That Barked But Didn’t Bite: Fifteen Years of Intellectual Property Disputes at the WTO, 1 J. of Int’l Disp. Settlement 389 (2010).
[516] Grosse Ruse-Khan, supra note 393, at 19, 36 (highlighting the risk that “the interpretative result may well be different from the result achieved in a ‘pure’ WTO setting.”).
[517] Id.
[518] See Valentina Vadi, Analogies in International Investment Law and Arbitration 148 (forthcoming 2016) (on file with author) (pinpointing that although there is no binding precedent in international law, both WTO panels and arbitral tribunals are not bound to follow “precedents” of other jurisdictions, they refer to each other’s jurisprudence.).
[519] TRIPS Agreement art. 7.
[520] TRIPS Agreement art. 8(1).
[521] Articles 7 and 8 of the TRIPS Agreement are entitled “Objectives” and “Principles”, respectively.
[522] World Trade Organization, Ministerial Declaration of 14 November 2001, WTO Doc. WT/MIN(01)/DEC/1, 41 ILM 746 (2002) [hereinafter Doha Declaration].
[523] See Frederick Abbott, The Doha Declaration on the TRIPS Agreement and Public Health: Lighting a Dark Corner at the WTO, 5 J. Int’l Econ. L. 469 (2002).
[524] Doha Declaration ¶ 4 (“We agree that the TRIPS Agreement does not and should not prevent members from taking measures to protect public health. Accordingly, while reiterating our commitment to the TRIPS Agreement, we affirm that the Agreement can and should be interpreted and implemented in a manner supportive of WTO members’ right to protect public health and, in particular, to promote access to medicines for all.”).
[525] Id. (“In this connection, we reaffirm the right of WTO members to use, to the full, the provisions in the TRIPS Agreement, which provide flexibility for this purpose.”).
[526] For instance, the EU has referred to the provisions of the Doha Declaration as an overarching principle in its bilateral trade agreements with Korea, Colombia and Peru, and Central America. See Access to Medicines, European Commission, (last visited Oct. 16, 2015).
[527] Grosse Ruse-Khan, supra note 393, at 36–7.
[528] NAFTA, supra note 16, at art. 1110(7).
[529] Id. at art. 1709.
[530] Id. at art. 1706(2).
[531] Id. at art. 1706(6).
[532] Id. at art. 1706(10).
[533] Id. at art. 1706(8).
[534] Comprehensive Economic and Trade Agreement, Can.-E.U., Sep. 26, 2014, European Comm’n,
[535] Id. at art. X.11, ¶ 6.
[536] Id.
[537] Id.
[538] Id.
[539] Id. at ch. 22, art. 3 (recognizing the “importance of the Doha Declaration on the TRIPS Agreement and Public Health” and providing that “[i]n interpreting and implementing the rights and obligations under this Chapter, the Parties shall ensure consistency with this Declaration” and that “[t]he Parties shall contribute to the implementation and respect the Decision of the WTO General Council of 30 August 2003 on Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health, as well as the Protocol amending the TRIPS Agreement, done at Geneva on 6 December 2005.”).
[540] DSU art. 3.
[541] Gaetan Verhoosel, The Use of Investor-State Arbitration under Bilateral Investment Treaties to Seek Relief for Breaches of WTO Law, 6 J. Int’l Econ. L. 493, 503–6 (2003).
[542] See generally Christophe Geiger, The Social Function of Intellectual Property Rights, or How Ethics can Influence the Shape and Use of IP Law (Max Planck Institute for Intellectual Property and Competition Law, Working Paper No. 13-06, 2013).
[543] TRIPS Agreement arts. 7, 8.
[544] Geiger, supra note 542, at 5 (stressing that “there cannot be an ‘absolute’ right that can be exercised in a totally selfish manner with no consideration for the consequences that this exercise involves, but only rights that are ‘relativized’ by the rights of others and the well-being of the community.”).
[545] Id. at 4.
[546] Id. See also Jakob Cornides, Human Rights and Intellectual Property: Conflict or Convergence?, 7 J. World Intell. Prop. 135, 143 (2004) (pointing out that “property is not an end in itself. Obviously, it must be used in a way that contributes to the realization of the higher objectives of human society.”); Daniel J. Gervais, The Changing Landscape of International Intellectual Property, in Intellectual Property and Free Trade Agreements 49, 60 (Christopher Heath & Anselm Kamperman Sanders eds., 2007) (cautioning that “one should not protect beyond what is necessary to achieve policy objective(s) because the risk of a substantial negative general welfare impact is too high.”).
[547] Vienna Convention art. 31(3)(c).
[548] Ian Sinclair, The Vienna Convention on the Law of Treaties 139 (1984).
[549] See supra Section IV.A.
[550] See supra Section IV.B.
[551] See supra Section IV.C.
[552] See supra Section IV.D.
[553] See supra Section IV.E.

Brief of Amici Curiae Law, Business and Economic Scholars in Support of Respondents in Alice Corp. Pty. Ltd. V. CLS Bank International, et. al.

Brief of Amici Curiae Law, Business and Economic Scholars in Support of Respondents in Alice Corp. Pty. Ltd. V. CLS Bank International, et. al.
By Jason M. Schultz* and Brian J. Love** A PDF version of this brief is available for download here.  

Summary Of Argument[1]

The Federal Circuit’s expansion of patentable subject matter in the 1990s led to a threefold increase in software patents, many of which contain abstract ideas merely tethered to a general-purpose computer. There is little evidence, however, to suggest this expansion has produced an increase in software innovation. The software industry was highly innovative in the decade immediately prior to this expansion, when the viability of software patentability was unclear and software patents were few. When surveyed, most software developers oppose software patenting, and, in practice, software innovators tend to rely on other tools to capture market share such as first-mover advantage, trade secrecy, copyright, goodwill, and economic network effects. If anything, the increase in software patenting has led to an increase in software litigation, which in turn has incentivized firms to acquire patents for strategic purposes unrelated to innovation, serving as either defensive stockpiles to deter legal threats or offensive leverage for rent-seeking patent assertion entities (PAEs). Moreover, abstract software patents fail to function well within a property rights framework because they fail to define cognizable metes and bounds and fail to provide effective notice to third parties of when a particular practice or product might infringe. Due to their abstractness, these claims can often be construed to cover any of the particularized processes that result in the same outcome, including those never envisioned by the inventor. Accordingly, these metes and bounds are not concrete enough to be useful to those who wish to tread carefully around them. The mere application of the idea using general-purpose technological components, such as a general-purpose computer, does nothing to abate this problem. Similarly, abstract patents defy the attempts of software innovators, or general counsel at technology companies, to stay on notice of what is already protected. This leaves firms vulnerable to investing in software development with little to no assurance that they will be able to avoid infringing upon an abstract patent, even if they conduct diligent searches within patent databases. Again, this will be true even if there are general-purpose technological components tethered to the claims, as those components do nothing to help distinguish one abstract claim from another. Proliferation of such patents also contributes to the problem of patent thickets. A well-defined § 101 ensures that abstract software patent claims and their attendant notice and patent thicket problems do not undermine the patent system and stymie innovation. It serves as a decisive gatekeeper that the Patent Office and trial courts can use early in administrative proceedings and litigation. Further, it avoids many of the systemic challenges prevalent with the use of §§ 102, 103, and 112 in such cases—the speed of software innovation, the difficulty locating software prior art, and lax, broad claiming standards. Accordingly, this Court should affirm the invalidity of patent claims at issue here and hold that abstract ideas in the form of software are unpatentable and that mere computer implementation of those ideas does not create patentability.


The Constitution empowers Congress to create a patent system granting exclusive rights to inventors, but only as a means of encouraging innovation. See U.S. Const. art. I, § 8, cl. 8. This Court’s jurisprudence has consistently recognized that extending patent protection to abstract ideas not only fails to increase innovation overall, but threatens to impede its progress. See Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289, 1293 (2012) (“[M]onopolization of [abstract ideas] through the grant of a patent might tend to impede innovation more than it would tend to promote it.”); Bilski v. Kappos, 130 S. Ct. 3218, 3229 (2010). Nonetheless, the U.S. Court of Appeals for the Federal Circuit has gradually expanded the scope of patentable subject matter for abstract ideas over the last quarter century, culminating with its holdings in In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994) and State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998). As a result of this misguided expansion, the patent system has become increasingly imbalanced and even hostile in some respects to high technology entrepreneurs and inventors. This case presents the Court with an opportunity to expand on its efforts in Bilski and Mayo to restore balance by reaffirming the abstract idea exclusion as a robust gatekeeper that prohibits abstract patent claims, such as those asserted in this case, no matter the form in which their drafters attempt to claim them. Amici present this brief and the empirical evidence within it in support of such an opinion.

I. Abstract Software Patents Discourage Innovation.

In Gottschalk v. Benson, 409 U.S. 63 (1972) as well as Parker v. Flook, 437 U.S. 584 (1978) this Court recognized the risks of allowing patents on the abstract formulas and concepts contained in software even when they were tied tangentially to a physical apparatus. Flook, 437 U.S. at 590 (extending this principle by holding that post-solution activity does not “transform an unpatentable principle into a patentable process,” otherwise any “competent draftsman could attach some form of post-solution activity to almost any mathematical formula.”); Benson, 409 U.S. at 68 (invalidating claims for being “so abstract and sweeping as to cover both known and unknown uses” of a method of numerical conversion on a general-purpose computer). When this Court did find such a patent valid in Diamond v. Diehr, 450 U.S. 175 (1981), its holding was limited to the application of a formula in a specific industrial process. Id. at 192. Unfortunately the Federal Circuit misunderstood this delicate analysis and increasingly expanded the scope of patentable subject matter, culminating with its decisions in Alappat and State Street, allowing otherwise abstract patent claims to qualify under § 101 based on a mechanical “magic words” approach. State St., 149 F.3d at 1375 (requiring that an abstract software claim merely produce a “useful, concrete and tangible result”); Alappat, 33 F.3d at 1545 (holding that a software program based on an abstract idea was patentable as long as the claim included a general-purpose computer). This expansion has contributed to a dramatic increase in the number of patents related to software, both in absolute terms and as a percentage of issued patents. See U.S. Gov’t Accountability Office, GAO-13-465, Intellectual Property: Assessing Factors That Affect Patent Infringement Litigation Could Help Improve Patent Quality 13 (2013), available at (noting that after Alappat and State Street, there was a substantial increase in the number of patents granted with software claims). The chart below demonstrates this increase: SchultzLove Fig. 1 Id. at 12. Take for example the estimated 11,000 patents covering the sale of goods online. James Bessen & Michael J. Meurer, Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk 213 (2008). These patents emerged, at least in part, because otherwise unpatentable abstract ideas—e.g., holding desired products in a shopping cart, checking out upon shopping completion, pressing a button to “buy it now”—became the patentable inventions of the first patent applicant to suggest implementing the idea on a computer. Cf. Alappat, 33 F.3d at 1545.

A. Abstract Software Patents Should Be Limited, as There is Little Evidence That Software Innovators Rely on Patenting for Incentives to Innovate and Compete.

Despite the expanded availability of patent protection, studies of the software industry have failed to show any corresponding increase in innovation as a result. While the number of software patents has increased, there is evidence that software entrepreneurs rely much less on patent incentives when building and maintaining competitive businesses than other factors, such as first mover advantage and trade secret, copyright, or trademark protection. See Stuart J.H. Graham et al., High Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent Survey, 24 Berkeley Tech. L.J. 1255, 1288-1290 (2009). In fact, studies suggest that spending on stronger and broader software patents is negatively correlated with spending on R&D. See Robert Hunt & James Bessen, The Software Patent Experiment, 77(3) Fed. Res. Bank Phila. Bus. Rev. 22, 27-29 (2004) (“[T]he negative correlation between increases in firms’ focus on software patents and their R&D intensity in the 1990s suggests that firms may be substituting for R&D with software patents.”); see also James Bessen & Robert M. Hunt, An Empirical Look at Software Patents 30-33 (Fed. Reserve Bank of Phila. Working Paper No. 03-17, 2004) (reporting the results of a historical study showing that in the 1990s firms increased their patent propensity after subject matter restrictions on software patents were relaxed, and that this increase in spending on patents displaced spending on R&D to such an extent that, assuming perfect substitution, R&D would have been about 10%, or $16 billion, higher if there had been no increase in software patenting). History also suggests that patent incentives have had a negligible impact on software development overall. Despite the denial of software patentability in Benson and Flook, which rejected broad-based abstract claims, or after Diehr, which only allowed patentability involving software in a very narrow concrete context, there was a great flourishing in software innovation in the period between Benson and Alappat. See Martin Campbell-Kelly, From Airline Reservations to Sonic the Hedgehog: A History of the Software Industry 18-19 tbl.1.2 (2003) (noting that the software industry grew eightfold between 1980 and 1990, with revenues increasing from $6.1 billion to $51.3 billion). In addition, surveys of software developers during this period show most were, in fact, opposed to patents. See, e.g., Effy Oz, Acceptable Protection of Software Intellectual Property: A Survey of Software Developers and Lawyers, 34 Info. & Mgmt. 161, 167-170 (1998); Pamela Samuelson et al., Developments on the Intellectual Property Front, 35(6) Comms. of the ACM 33, 35 (1992); Bessen & Meurer, Patent Failure, supra, at 189 (“[S]uch broad opposition from within the affected industry and among the affected inventors seems to be unprecedented in U.S. patent history.”). And, despite the fact that software patents have been growing both in absolute terms and as a percentage of all patents granted in recent decades, most software firms still do not patent their software products. James Bessen, A Generation of Software Patents, 18 B.U. J. Sci. & Tech. L. 241, 255 (2012). This appears to be even more true for startup firms. Id. at 255-56. Indeed, practically speaking, it is unlikely that patent rights can spur innovation in software because:
[I]nnovation in the high-tech industry is exceedingly fast, while government bureaucracy is exceedingly slow. Computing power doubles roughly every two years, but it generally takes three to four years to receive a patent, and even longer to enforce it in court. As a result, patented inventions in the high-tech sector are invariably yesterday’s news.
Brian J. Love, No: Software Patents Don’t Spur Innovation, but Impede It, Wall Street Journal, May 12, 2013, at R2.

B. The Need for Socially Wasteful Defensive Bulwarks Has Primarily Driven Software Patenting Since Alappat and State Street, Rather than the Desire to Protect Investments in R&D or to Promote Competition.

While there is little evidence that expanded software patent eligibility has spurred innovation, it is increasingly apparent that it has spurred patent litigation. See Bessen, A Generation of Software Patents, supra, at 261 (“[T]he number of lawsuits involving software patents has more than tripled since 1999.”); Bessen & Meurer, Patent Failure, supra, at 193 (“Software patents issued in more recent years are much more likely to be litigated, not less.”). This increase is not merely in proportion to the growing number of software patents; the probability that any single software patent will result in litigation has also been rising over time, meaning that both defendants and software patentees face a higher risk of litigation and business uncertainty. The chart below demonstrates this: SchultzLove Fig. 2 Bessen & Meurer, Patent Failure, supra, at 193, fig.9.2. The increase in software patent litigation is such that the GAO reports that the increase in overall patent litigation is largely attributable to the growth of litigation over software patents. U.S. Gov’t Accountability Office, supra, at 14. Ironically the increase in litigation has led many operating software companies to obtain patents to fend off suits, rather than to file them. See Colleen V. Chien, From Arms Race to Marketplace: The Complex Patent Ecosystem and Its Implications for the Patent System, 62 Hastings L.J. 297, 306-10 (2010) (describing the practice of defensive patenting by high-tech firms as growing rapidly after the late 1990s); Jonathan Masur, Costly Screens and Patent Examination, 2 J. Legal Analysis 687, 704-14 (2010) (explaining how patents with high private value—defined as the value of a patent as a tool for initiating or deterring litigation—often fail to generate socially beneficial research); Gideon Parchomovsky & R. Polk Wagner, Patent Portfolios, 154 U. Pa. L. Rev. 1, 26 (2005) (discussing how patents can be more valuable to companies in aggregate as a defensive portfolio than individually as reward mechanisms). In this context, patents no longer function to reward innovation: they are merely an added cost of doing business, an insurance policy against litigation as opposed to a reward for productive R&D. For larger firms this practice of amassing stockpiles of broad patents has amounted to a Cold War-era arms race that produces costly deterrence through an implied threat of mutually assured destruction through litigation. See generally Chien, From Arms Race to Marketplace: The Complex Patent Ecosystem and Its Implications for the Patent System, supra, at 333-34; Colleen V. Chien, Race to the Bottom, 51 Intell. Asset Mgmt. Mag. 10 (2012). These costs of this practice are incurred on multiple levels: first, the cost to firm and their shareholders of acquiring the defensive patent; second, the cost of defending against a software patent lawsuit; and third, the cost to society that occurs when innovation is chilled or firms are deterred from entering a market. Some large technology companies have devoted billions of dollars to building their patent portfolios, spending more on strategic patent acquisitions than on overall R&D. See, e.g., Steven Church, Tim Culpan & Devin Banerjee, Apple Joins Microsoft, RIM in $4.5 Billion Buy of Nortel Patents, Bloomberg (July 1, 2011, 12:18 PM),; James Kendrick, Google Buys Motorola Mobility and Its Patent Portfolio for $12.5 Billion, ZDNet (Aug. 15, 2011 5:27 PM),

C. The Explosion of Patent Assertion Entity Activity Has Aggravated the Costs of Abstract Software Claims.

A significant contributor to the rise in software patent litigation is the rise of patent assertion entities (PAEs).[2] PAEs are firms that obtain patents without intent to support or develop new products; instead, their business model is based on threatening costly litigation against practicing firms to extract settlements and licensing fees. Exec. Office of the President, Patent Assertion and U.S. Innovation 1 (2013), The fact that PAEs do not actually use the patents they own outside of litigation effectively immunizes them from counter-claiming and the defensive patent strategies discussed above. Id. at 4. In 2013 the White House released a report by the President’s Council of Economic Advisers, the National Economic Council, and the Office of Science & Technology Policy that concluded on the basis of an extensive review of empirical studies that PAEs have had an overall negative impact on innovation and economic growth. Id at 2.[3] A recent study further suggests that the burden imposed by PAEs is disproportionately borne by small and medium sized firms who are more likely to be threatened with litigation by PAEs than large firms. James Bessen & Michael J. Meurer, The Direct Costs from NPE Disputes, 99 Cornell L. Rev. 387, 398-99 (2014) (reporting survey results that firms with less than $1 billion in annual revenues made up 90% of the sampled defendants in PAE lawsuits between 2005-2011, and firms with less than $100 million in revenues made up 82% of all defendants, despite the fact that these small and medium sized firms only made up 44% of the overall survey sample). PAEs are particularly relevant to the software industry because the bulk of PAE litigation involves software patent claims, which are particularly susceptible to abstraction problems. See James Bessen, Jennifer Ford & Michael J. Meurer, The Private and Social Costs of Patent Trolls, 34(4) Regulation Mag. 26, 29 (2011-2012) (reporting empirical study findings that 62% of patents litigated by PAEs between 1990 and 2010 were “software patents” and 75% covered “computer and communications technology”); see also Brian J. Love, An Empirical Study of Patent Litigation Timing: Could a Patent Term Reduction Decimate Trolls Without Harming Innovators?, 161 U. Pa. L. Rev. 1309, 1347 (2013) (finding that roughly 80% of PAE lawsuits were brought to enforce claims with high-tech subject matter, 65% of which were software-related claims); U.S. Gov’t Accountability Office, supra, at 22 (“Specifically, about 84 percent of [PAE] lawsuits from 2007 to 2011 involved software-related patents, while about 35 percent of operating company lawsuits did.”). PAE activity has increased so rapidly that in 2012 over half of all patent litigation cases could be attributed to PAEs. Exec. Office of the President, supra, at 5. It is estimated that companies spent approximately $29 billion annually in dealing with these lawsuits. See Bessen & Meurer, The Direct Costs from NPE Disputes, supra, at 389. Apple, Samsung, HP, AT&T, Dell, Google, and were each sued by PAEs thirty or more times in 2013 alone. Most Pursued Companies, PatentFreedom, (last visited Feb. 23, 2014).

D. A Robust Application of § 101’s Abstract Idea Prohibition Restores the Balance That Alappat and State Street Disrupted.

This Court has stated repeatedly that the prohibition on the patenting of abstract ideas is central to maintaining a proper balance in the patent system. Mayo, 132 S. Ct. at 1301 (“The Court has repeatedly emphasized . . . a concern that patent law not inhibit further discovery by improperly tying up the future use of laws of nature.”); Benson, 409 U.S. at 67 (“Phenomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work.”). The Court has an opportunity to return patent law to the course it established in Benson, Flook, and Diehr and further reaffirmed in Bilski and Mayo by ensuring that § 101 provides a robust gatekeeping function to prohibit abstract software claims, including those whose only tether to physical reality is the computer itself or other similar general-purpose technological devices. Bilski, 130 S. Ct. at 3230. Opponents to this Court’s position in Bilski and Mayo often claim that such holdings harm companies who have spent substantial amounts of money relying on the Federal Circuit’s holdings in Alappat and State Street. Such claims, however, are misguided. Given the evidence above, the large amount of money invested in software patents has not led to more innovation and sales growth; instead, they have been a part of the costly practice of building defensive patent portfolios to stave off litigation and have even come back to penalize software firms through greater PAE activity. A robust § 101 gatekeeper would mitigate these costs and free software firms’ capital from defensive patent stockpiling, making it available for productive and innovative R&D. This would further diminish the problem of patent thickets (discussed infra, §II(C)), ultimately increasing competition in the software industry and lowering cost of entry for innovative new startup companies. See Iain M. Cockburn & Megan J. MacGarvie, Entry and Patenting in the Software Industry, 57 Mgmt. Sci. 915, 926-29 (2011).

II. Section 101 Ensures the Patent System Operates as an Efficient Property Rights System.

In addition to skewing incentives and increasing socially wasteful spending, abstract software patents have undermined the patent system’s ability to function as an efficient property rights system because they (1) fail to define clear metes and bounds for claims, (2) fail to provide effective public notice to avoid inadvertent infringement, and (3) contribute to troublesome patent thickets.

A. Abstract Software Patents Fail to Define Clear Metes and Bounds.

Unlike the physical landscape, the “patentscape” lacks unique and recognizable geological features to serve as common points of reference when describing the shape and size of an entitlement. The metes and bounds of a patent must, therefore, be interpreted by mapping the words in a claim to a range of technologies that are sufficiently analogous to the invention actually possessed by the inventor. An abstract claim, however, fails to provide these metes and bounds, though not because it is too broad, but because it “claims technologies unknown to the inventor.” Bessen & Meurer, Patent Failure, supra, at 199. When an activity is described in an abstract manner—e.g. “the art of cutting ice by means of any power other than human power,” Wyeth v. Stone, 30 F. Cas. 723, 727 (C.C.D. Mass. 1840)—the limits of the claim cease to be cognizable as some range of extant technologies. Thus, although the ice-cutter’s patent was granted in the 1840s, there is no sensible mode of interpreting the boundaries of the claim that wouldn’t extend to ice-cutting by laser, robot, or genetically modified polar bear. As Justice Story argued, “No man can have a right to cut ice by all means or methods, or by all or any sort of apparatus, although he is not the inventor of any or all of such means, methods, or apparatus.” Id. Biological or chemical inventions will, at the very least, have a unique formula or compound molecule to serve as a point of reference. Software, on the other hand, may be capable only of functional, result-oriented definitions—e.g. cutting ice—which are amenable to broad interpretations that transcend the actual technologies originally known to the inventor. See generally Mark A. Lemley, Software Patents and the Return of Functional Claiming, 2013 Wis. L. Rev. 905. Three examples, each litigated after Alappat, illustrate this interpretive ease. U.S. patent No. 4,528,643, commonly known as “the Freeny patent,” was granted for a vending machine that produced digital music tapes in stores, but the claim was cunningly drafted to be extremely comprehensive: a “system for reproducing information in material objects at a point of sale location.” Freeny filed his application well before the advent of personal computers, e-commerce, and portable media players. Nonetheless, the company that came to hold the patent, E-DATA, alleged that purchasing, downloading, and transferring music from home computers onto media players or CD-ROMs were all within the patent’s scope. See Interactive Gift Express, Inc. v. Compuserve Inc., 256 F. 3d 1323 (Fed. Cir. 2001). Similarly Wang Labs developed and patented an early operating system whose graphical user interface displayed information in “frames.” Wang sued Netscape and America Online because these services also displayed information inside of “frames,” a feature those programs share with almost all modern user interfaces. Wang Labs., Inc. v. Am. Online, Inc., 197 F.3d 1377 (Fed. Cir. 1999). Finally, in 2003, a Patent Assertion Entity, Pinpoint, sued Amazon alleging that by recommending books to users, Amazon had infringed a patent on “systems recommending TV programs to viewers based on past choices.” Pinpoint, Inc. v., Inc., 369 F. Supp. 2d 995 (N.D. Ill. 2005). Such abstract claims as “displaying data in frames,” “recommending media based on past choices,” “reproducing information in material objects at a point of sale,” or, as in the present case, using “a third party . . . to eliminate ‘counterparty’ or ‘settlement’ risk,” simply cannot be reliably construed to define a reasonable area of covered technology. See Wang, 197 F.3d at 1379; Interactive Gift, 256 F. 3d at 1323; Pinpoint, 369 F. Supp. 2d at 995. Cf. CLS Bank Int’l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1274 (Fed. Cir. 2013). A general counsel at a technology startup would be hard-pressed to describe any concrete bounds or permissible follow-on innovations to her fellow engineers in the face of such claims. Any software that resulted in a similar functional result could be construed as infringing, and any investment in the commercialization of those technologies could inevitably carry liabilities, risks, and costs whose magnitudes are impossible to predict in advance. Thus, the property system that ostensibly exists to assure investors that long-term rents are secure does the very opposite, casting a pall of uncertainty over the viability of any commercial product that happens to be adjacent to a lurking abstract claim.

B. Abstract Software Patents Fail to Provide Effective Public Notice.

Like metes and bounds, notice is also a concept the patent system borrows from traditional property law. Bessen & Meurer, Patent Failure, supra, at 206-207. The concepts are linked in so much as uncertainty surrounding borders often makes it impossible for citizens to be on notice and effectively plan their behavior with regards to navigating those borders or developing the immediately adjacent properties. Under patent law a citizen may fail to have notice of a claim not merely because the borders of the claim were difficult to discern, but because the claim as a whole was never imagined to be the stuff of patents. Such is the plight of a technology firm’s general counsel who belatedly discovers that there are abstract claims that actually apply to longstanding industry conventions, “the basic tools of scientific and technological work.” Gottschalk v. Benson, 409 U.S. 63, 67 (1972). This was surely the rude awakening suffered by counsel at Netscape and America Online when their companies were accused of infringing a decade-old patent on “displaying information in frames,” despite the ubiquitous and unlicensed use of “frames”—windows or boxes—in software design. Wang, 197 F.3d at 1381. When sizable investments in product design, manufacture, and marketing are made well before notice of a relevant abstract patent arrives, the inadvertently infringing manufacturer is in an extremely weak negotiating position. The patent holder can seek exorbitant royalties under credible threat of shutting down the manufacturer and rendering their prior efforts into fruitless sunk costs. See Carl Shapiro, Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting, in 1 Innovation Policy and the Economy 119, 125 (Adam B. Jaffe et al. eds., 2001). Of course, one might argue that the job of a general counsel is to stay on notice, and so we may feel little pity for her failures. Perhaps she should have spent more time searching patent databases or monitoring the Patent & Trademark Office’s (PTO) weekly publications for relevant claims. However these searches have costs, and if these search costs are too onerous, productive activity will quickly cease. The costs of staying on notice in the software patent system are very large because of the staggering number of patents to discover and read. See Bessen & Meurer, Patent Failure, supra, at 213 (“David M. Martin has estimated that ‘if you’re selling online, at the most recent count there are 4,319 patents you could be violating. If you also planned to advertise, receive payments for or plan shipments of your goods, you would need to be concerned with approximately 11,000.’”). Further, the cost in work hours of running the search can be extremely high. See id. (“One software executive estimates that checking clearance costs about $5,000 per patent.”); Christina Mulligan & Timothy B. Lee, Scaling the Patent System, 68 N.Y.U. Ann. Surv. Am. L. 289, 311-12 (2012) (“The more abstract an invention is, the more different parties are likely to use it for different purposes, and the more flexibility parties will have to describe it. All of these factors mean that more abstract patents will produce particularly high discovery costs.”). If 11,000 patents need be searched to engage in e-commerce while remaining on notice, and each patent will require a $5,000 investment in time and resources, then the careful software startup will be spending fifty-five million dollars in capital before they can even begin to operate. Good news for lawyers, perhaps, though certainly not for in-house counsel, engineers, and others who depend on notice to ensure freedom to operate and innovate in new technologies. Strategic PAE behavior also significantly increases the costs of staying on notice. Normally, even if one could not identify patent risks from searching for relevant claim language, one might search the patent holdings of known competitors to steer clear of potential infringement. However, PAEs are by definition non-competing entities and often assign their patents to shell companies and subsidiaries making an essential component of notice—who owns what—difficult to ascertain. For example the PAE Intellectual Ventures distributes its 25,000-50,000-deep patent portfolio among as many as 1,100 shell companies. Avancept, A Study of: The Intellectual Ventures Portfolio in the United States: Patents & Applications 6 (2d ed. 2010); see also Tom Ewing & Robin Feldman, The Giants Among Us, 2012 Stan. Tech. L. Rev. 1, ¶¶ 21, 23, Similar behavior is widely reported across the PAE industry. See generally Colleen V. Chien, The Who Owns What Problem in Patent Law 3 (Santa Clara Univ. Legal Studies Research Paper No. 03-12, 2012). Obscured ownership allows PAEs to maintain an element of surprise, revealing the patent only after substantial investments have been made in the commercialization of an infringing technology. Id. While abstract patent claims are not the sole source of these strategic behaviors, they match obscure ownership with ambiguous claims yielding more effective ammunition for a patent ambush. The strategic filing of continuation claims on pending abstract patents also undermines the patent system’s notice function. Through continuation filings, patents can unfold gradually into an extended “family” of interrelated claims because patent applicants perpetually retain the right to abandon an application and restart the process, as well as the right to seek additional broader claims arising from the same application. Mark A. Lemley & Kimberly A. Moore, Ending Abuse of Patent Continuations, 84 B.U. L. Rev. 63, 64 (2004). This allows patents to linger in the PTO, lying in wait for new companies and technologies to emerge as potential defendants. For example, patents accompanied by continuation filings average 4.16 years before issuance as compared with solitary applications, which average 1.96 years. Id. at 71. This behavior is quite prevalent: 23% of all patent applications contain continuances and 52% of all litigated patents had applications with continuances. Id. at 70. While the overall problem of continuations is beyond the scope of the question presented in this case, it is relevant to consider, given that the most litigated patents tend to be software patents owned by PAEs, see John R. Allison, Mark A. Lemley & Joshua Walker, Extreme Value or Trolls on Top? The Characteristics of the Most-Litigated Patents, 158 U. Pa. L. Rev. 1, 29-31 (2009), and that these highly litigated patents take greatest advantage of continuations, see Michael Risch, Patent Troll Myths, 42 Seton Hall L. Rev. 457, 479 (2012) (finding an average of four continuations per patent in a sample of the most litigated patents). Thus, a robust § 101 gatekeeper would provide a considerable check on such practices and the notice problems they create with respect to abstract software continuation claims.

C. Abstract Software Patents Contribute to Troublesome Patent Thickets.

When qualitative patent problems—boundary and notice—couple with the quantitative flood of abstract software patents, the result is a patent system so extensively partitioned and overlayed with exclusive rights that it stifles the very progress it is designed to promote. As a complicating factor, software innovation regularly relies on assembling smaller complementary innovations into cumulative products. The Internet browsers challenged by the Wang patent exhibited data in “frames” as one of many components in a larger and complex way of displaying web pages. When a single product can potentially infringe thousands of patents, the expense of negotiating a license for each claim can become cost-prohibitive. Being an essential part of a whole, any single rights holder may choose to hold-out for the full value of the cumulative invention. See Mark A. Lemley & Carl Shapiro, Patent Holdup and Royalty Stacking, 85 Tex. L. Rev. 1991, 1994-98 (2007). Add to this the problem of abstraction, and the task of identifying all relevant rights and negotiating all appropriate licenses for each new version of every software product one sells becomes nearly impossible. Scholars refer to the problem of overlapping rights as a patent thicket. See generally Bronwyn H. Hall et al., A Study of Patent Thickets, Report for the UK Intellectual Property Office (Oct. 2012), available at; Shapiro, Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting, supra. Patent thickets occur in other complex technologies and a number of public and private policies can ameliorate their effects. But patents on abstract ideas exacerbate the effects of patent thickets. Even the conscientious inventor determined to push through a software thicket is likely to miss at least some abstract patents, especially if all patentees must do to qualify under § 101 is tether the abstract idea to a general-purpose computer or some other ubiquitous physical device. See Christopher A. Cotropia & Mark A. Lemley, Copying in Patent Law, 87 N.C. L. Rev. 1421, 1424 (2009) (finding that less 3% of patent litigation in the computer and software industries allege copying—i.e. 97% of cases involve allegations of innocent infringement). Unavoidable inadvertent infringement burdens innovators with unnecessary transaction costs, subverting the rule of law and the intent of the patent system. As Thomas Hobbes urged, “the use of laws is . . . as hedges are set, not to stop travellers, but to keep them in the way. . . . Unnecessary laws are not good laws, but traps for money.” Thomas Hobbes, Leviathan 252 (A. R. Waller ed. 1904).[4]

III. Sections 102, 103, and 112 Are Not Replacements for the Role of § 101.

Some commentators, including the Federal Circuit, have made a case for allowing “substantive conditions of patentability”—§ 102 (novelty), § 103 (nonobviousness), and § 112 (written description, enablement, and best mode)—to resolve the issue of systematically overbroad abstract software patents. See, e.g., MySpace, Inc. v. GraphOn Corp., 672 F.3d 1250, 1260 (Fed. Cir. 2012). However, properly construed, § 101 serves a unique and distinct role from §§ 102, 103, and 112 and in many cases, a more appropriate one for addressing the incentive, boundary, notice, and thicket problems discussed above.

A. Sections 102, 103, 112 Are Uniquely Ill-Suited to Correct Notice Problems in Software Patents.

In the context of software patents, §§ 102, 103, and 112 suffer from severe systemic challenges, including being ill-suited to reduce notice uncertainty and resulting in excessive litigation costs. See Brian J. Love, Why Patentable Subject Matter Matters for Software, 81 Geo. Wash. L. Rev. Arguendo 1, 6-10 (2012). For instance, in order to properly evaluate §§ 102 and 103, claims must already have sufficiently clear metes and bounds by which to compare the scope of the claims against the prior art. Thus to function properly, §§ 102 and 103 rely on a robust § 101 to filter out abstract claims as a threshold matter. Even when the scope of the claims is manageable the PTO has historically found it challenging to search for prior art within the software arts under §§102 and 103. See Mark A. Lemley & Bhaven Sampat, Examiner Characteristics and Patent Office Outcomes, 94 Rev. Econ. & Stat. 817, 817-18 (2012). For one thing, PTO searches for prior art are generally limited to U.S. and foreign registered patent databases and commercial databases. Sean Tu, Luck/Unluck of the Draw: An Empirical Study of Examiner Allowance Rates, 2012 Stan. Tech. L. Rev. 10, ¶ 14, There is good reason to believe that much software prior art is never formally published anywhere, let alone in a patent application, meaning software prior art would not reveal itself in any search. Robert P. Merges, As Many as Six Impossible Patents Before Breakfast: Property Rights for Business Concepts and Patent System Reform, 14 Berkeley Tech. L.J. 577, 589 (1999); see also Iain M. Cockburn & Megan J. MacGarvie, Patents, Thickets and the Financing of Early-Stage Firms: Evidence from the Software Industry, 18 J. Econ. & Mgmt. Strategy 729, 731-732 (2009). Lack of publication is also due to the amount of software innovation done outside of established research communities by parties who do not ordinarily make use of the patent system. See Julie E. Cohen & Mark A. Lemley, Patent Scope and Innovation in the Software Industry, 89 Calif. L. Rev. 1, 42 (2001). Innovations in unconventional fields are not necessarily described in published journals, but rather, exist in actual business methods or the source code of products that are available to consumers. See id. at 13; see also Bessen & Meurer, Patent Failure, supra, at 212-213 (“The general purpose nature of software technology—again, because the technology is abstract, similar techniques can be used in a wide range of applications—means that techniques known in one realm might be applied in another, yet the documentary evidence that the Federal Circuit requires for a demonstration of obviousness might not be published.”). Even when software prior art has been published, it is difficult to search for and locate. The PTO itself lacks the resources or expertise to keep up with new prior art. See Note, Estopping the Madness at the PTO: Improving Patent Administration Through Prosecution History Estoppel, 116 Harv. L. Rev. 2164, 2171 (2003). Where software has been patented, the PTO’s classification system has not historically been well-equipped to handle it. Cohen & Lemley, supra, at 13. Software innovations are difficult to describe and there is no standardized language for describing them that is known to all interested parties. As a result, performing a search for the words “software” or “computer” could turn up thousands of existing patents but still be missing thousands more that are relevant. Evidence, thus, shows that the PTO routinely issues software patents that overlook prior art. Merges, supra, at 589. Section 112 also suffers from inadequacies as applied to software because the disclosure requirements for software inventions have proven exceptionally lax and permit extremely broad claiming. This makes it almost impossible to invalidate a software patent claim on disclosure grounds, as general functional descriptions are considered adequate. Bessen & Meurer, Patent Failure, supra, at 210. Software “inventors” can, therefore, obtain claims so broad that they effectively patent the problem, rather than the solution. See Lemley, Software Patents and the Return of Functional Claiming, supra, at 928-36 (discussing how software patents manage to skirt the limits imposed on functional claiming).

B. Sections 102, 103, and 112 Generate Greater Litigation Costs than § 101.

The substantive conditions of patentability in §§ 102, 103, and 112 also have much greater litigation costs than § 101. While §§ 102 and 103 require the court to undertake claim construction as a predicate to conducting an invalidity analysis, § 101 generally does not require time-intensive claim construction to determine abstractness. See, e.g., Ultramercial, Inc. v. Hulu, LLC, 722 F.3d 1335, 1339 (Fed. Cir. 2013) (“[C]laim construction may not always be necessary for a § 101 analysis.”); Bancorp Servs., L.L.C. v. Sun Life Assur. Co. of Can. (U.S.), 687 F.3d 1266, 1273 (Fed. Cir. 2012) (“[W]e perceive no flaw in the notion that claim construction is not an inviolable prerequisite to a validity determination under § 101.”). In fact, this Court has never required claim construction as a predicate for any of its § 101 opinions. See, e.g., Bilski v. Kappos, 130 S. Ct. 3218, 3222 (2010) (holding the patent to be ineligible on subject-matter grounds without claim construction). Moreover, an analysis under § 101 is less likely to involve factual determinations, which would result in less discovery and a shorter timeframe for summary judgment. District courts would also be well served by a strong, clear § 101. District courts have wide latitude in the order in which they decide issues, and providing clear guidance on deciding cases under § 101 would allow lower courts to address this issue and decide cases more quickly. See CLS Bank Int’l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1284 (Fed. Cir. 2013) (“District courts are rightly entrusted with great discretion to control their dockets and the conduct of proceedings before them, including the order of issues presented during litigation”). As it stands, the perception that § 101 lacks clarity hinders the broad use of this mechanism in litigation. See MySpace, 672 F.3d at 1260 (holding that courts may require litigants to address a patent’s validity under §§ 102, 103, and 112 before reaching § 101, because doing so would avoid “the murky morass that is § 101 jurisprudence”); Love, Why Patentable Subject Matter Matters for Software, supra, at 4.


Section 101 serves an essential role in our patent system. It works to ensure the proper administration of property rights by balancing incentives for innovation and providing adequate notice while maintaining public access to the ideas necessary for competition. This Court has long been familiar with the corrosive effects of poorly designed intellectual property systems that “embaras[s] the honest pursuit of business with fears and apprehensions of concealed liens and unknown liabilities to lawsuits and vexatious accountings for profits made in good faith.” Atl. Works v. Brady, 107 U.S. 192, 200 (1883). This case presents an opportunity to reaffirm the innovator’s faith in a patent system that grants appropriate reward without abstract encumbrance. Accordingly, this Court should affirm the invalidity of the patent claims at issue here and further hold that abstract ideas in the form of software are unpatentable and that mere computer implementation of those ideas does not create patentability.

Interest of Amici Curiae

Amici are professors and scholars who teach and write on legal and economic issues and are concerned about the role of patent law in promoting technological innovation. They are Timothy K. Armstrong, James E. Bessen, Michele Boldrin, Irene Calboli, Brian W. Carver, Ralph D. Clifford, Wesley M. Cohen, Eric Goldman, Brad A. Greenberg, Bronwyn H. Hall, Christian Helmers, Karim R. Lakhani, David K. Levine, Brian Love, Eric S. Maskin, Michael J. Meurer, Shawn P. Miller, Connie Davis Nichols, Tyler T. Ochoa, Jorge R. Roig, Matthew Sag, F. M. Scherer, Jason M. Schultz, Katherine J. Strandberg, Alexander Tabarrok, and Eric Von Hippel. Various amici have taught, researched, and published analyses on the role of patent law as an incentive to inventors and entrepreneurs. A summary of the qualifications and affiliations of the individual amici is provided at the end of this brief, though it should be noted that amici file this brief solely as individuals and not on behalf of the institutions with which they are affiliated. Amici represent neither party in this action and offer the following views on this matter.[5]


Amici Curiae Signatories[6] Timothy K. Armstrong Associate Dean of Faculty and Professor of Law, University of Cincinnati College of Law James E. Bessen Lecturer in Law, Boston University School of Law Michele Boldrin Joseph Gibson Hoyt Distinguished Professor in Arts & Sciences, Washington University in St. Louis Irene Calboli Professor of Law, Marquette University Law School Brian W. Carver Assistant Professor, University of California, Berkeley, School of Information Ralph D. Clifford Professor of Law, University of Massachusetts School of Law Wesley M. Cohen Frederick C. Joerg Professor of Business and Professor of Strategy, Economics, and Law, The Fuqua School of Business, Duke University Eric Goldman Professor of Law, Santa Clara University School of Law Director, High Tech Law Institute, Santa Clara University Brad A. Greenberg Intellectual Property Fellow, Kernochan Center, Columbia Law School Bronwyn H. Hall Professor of the Graduate School, University of California, Berkeley Professor of Economics of Technology and Innovation, University of Maastricht Research Associate, National Bureau of Economic Research Christian Helmers Assistant Professor of Economics, Santa Clara University Leavey School of Business Karim R. Lakhani Lumry Family Associate Professor of Business Administration, Harvard Business School David K. Levine John H. Biggs Distinguished Professor, Washington University in St. Louis Brian J. Love Assistant Professor of Law, Santa Clara University School of Law Eric S. Maskin Adams University Professor, Harvard University Nobel Memorial Prize in Economic Sciences, 2007 Michael J. Meurer Abraham and Lillian Benton Scholar and Professor of Law, Boston University School of Law Shawn P. Miller Olin-Searle Fellow in Law, Science and Technology, Stanford Law School Connie Davis Nichols Associate Professor of Law, Baylor University School of Law Tyler T. Ochoa Professor of Law, Santa Clara University School of Law Jorge R. Roig Assistant Professor of Law, Charleston School of Law Matthew Sag Professor of Law, Loyola University Chicago School of Law Associate Director for Intellectual Property of the Institute for Consumer Antitrust Studies F. M. Scherer Aetna Professor Emeritus, John F. Kennedy School of Government, Harvard University Jason M. Schultz Associate Professor of Clinical Law, New York University School of Law Katherine J. Strandberg Alfred B. Engelberg Professor of Law, New York University School of Law Alexander Tabarrok Bartley J. Madden Chair in Economics, George Mason University Professor of Economics, George Mason University Eric Von Hippel Professor of Technical Innovation, MIT Sloan School of Management
* Jason M. Schultz is a Professor of Clinical Law and Director of NYU’s Technology Law & Policy Clinic. Prior to joining NYU, Professor Schultz was an Associate Clinical Professor of Law and Director of the Samuelson Law, Technology & Public Policy Clinic at the UC Berkeley School of Law and prior to that was a Senior Staff Attorney at the Electronic Frontier Foundation. Schultz received his JD from Berkeley and a BA in public policy and women’s studies from Duke University.
** Brian J. Love is an Assistant Professor of Law and the Co-Director of the Santa Clara Law High Tech Law Institute. Prior to joining Santa Clara University School of Law, Professor Love was a Lecturer and Teaching Fellow at Stanford Law School where he ran the LLM program in Law, Science and Technology. Love received his JD from Stanford Law School and a BS in Electrical Engineering from the University of Texas at Austin.
[1] To retain consistency with the filed brief citations have been verified, but not re-formatted to conform with Blue Book standards. Additionally, sections have been moved or deleted to better suit the journal format. For an unedited version of the filed brief see
[2] Patent assertion entities are sometimes called non-practicing entities (NPEs) or patent trolls, though in the cited studies both refer to the same type of firm.
[3] As a general matter PAEs follow three different strategic approaches when extracting rents: 1) a “lottery ticket” model where PAEs acquire broad, abstract patents in the hopes of obtaining outsized jury awards, 2) a “bottom-feeder” model where the PAEs actually avoid litigation, relying instead on the general high cost of patent litigation to obtain many small settlement agreements, or 3) building massive portfolios of patents to extort licensing fees from practicing firms. See Mark A. Lemley & A. Douglas Melamed, Missing the Forest for the Trolls, 113 Colum. L. Rev. 2117, 2126-28 (2013). The latter two strategies are much less likely to result in litigation than the lottery ticket model, so PAEs in such cases have little incentive to care about the quality of the patents they obtain. Id.
[4] Parenthetically, it is worth noting that more than efficiency is at stake when an overabundance of law fails to generate notice. Erratic enforcement and recondite doctrine prevent ordinary citizens from reliably planning their lives over the long term. The rule of law demands that citizens be treated as autonomous agents, capable of understanding rules and modifying their behavior voluntarily. Expediently coercing human behavior without first allowing for self-correction violates underlying principles of human dignity. Rational agents, citizens, are treated as cattle to be herded or horses to be broken. See generally Jeremy Waldron, How Law Protects Dignity, 71 Cambridge L.J. 200 (2012). A patent law that allows abstract claims destroys notice of essential legal commands; it treats society’s brightest as valuable victims for the traps set by overzealous patentees and sophisticated, unscrupulous lawyers.
[5] In accordance with S. Ct. R. 37.3(a), all parties have consented to the filing of this brief. The Petitioner and Respondents have filed consent letters with the Clerk. Pursuant to S. Ct. R. 37.6, counsel for Amici state that no counsel for a party authored this brief in whole or in part, and no person or entity other than Amici or their counsel made a monetary contribution to the preparation or submission of this brief.
[6] Institutions are listed solely for identification purposes.

Restoring Order in European Patent Law: A Proposal for the Reintroduction of the Substantive Patent Provisions of the Unitary Patent Package into EU Law

Restoring Order in European Patent Law: A Proposal for the Reintroduction of the Substantive Patent Provisions of the Unitary Patent Package into EU Law
By Michael J. Crowley* A PDF version of this article is available for download here.  


Europe is on the verge of instituting a uniform patent regime that will change the landscape of patent litigation in twenty-five member countries. The unitary patent package will include a European patent with unitary effect (“unitary patent”) and the creation of a Unified Patent Court (“UPC”). Patentees will no longer have to litigate in each member country; a single litigation will be binding throughout all of the participating countries.[1] The unitary patent will be effective in all participating member states, and the UPC will have jurisdiction throughout the same. The UPC will apply the same laws of infringement and invalidity regardless of where infringement or litigation occurred. The outcome of litigation, whether it is a finding of infringement or invalidity, will be applicable throughout the entire jurisdiction. The new regime is the product of many compromises and is an even more remarkable achievement in light of the controversy surrounding its enactment. In particular, patent practitioners, academics, and judges debated the inclusion of Articles 6 through 9 in the regulation implementing the unitary patent (“UPR”).[2] These articles constituted the substantive patent provisions. They defined the rights that the unitary patent confers, including the laws on direct and indirect infringement, patent exhaustion, and defenses to infringement.[3] Inclusion of these provisions in the UPR would have made them a part of European Union (“EU”) law, and therefore subject to the European Court of Justice (“ECJ”). The groups opposed to the Articles’ inclusion feared that ECJ oversight would eliminate the benefits of the patent system by slowing patent litigation and increasing costs.[4] Proponents of the Articles’ inclusion focused on a legal argument based on the requirements of the Treaty on the Functioning of the European Union (“TFEU”).[5] The EU decided to remove the Articles from the UPR and put them in the international agreement that established the UPC, called the Agreement on a Unified Patent Court (“UPCA”). The Article’s move from the UPR to the UPCA removed the substantive patent provisions from EU law and from the ECJ’s jurisdiction. This note argues that the EU should not have removed the substantive patent provisions from the UPR and that their removal will have an unintended negative effect for the UPC. Part I looks at the relevant history and structure of the European patent system. Part II explores the probable consequences of removing the patent provisions. These probable consequences include: first, the UPC’s judicial isolation diminishing the quality of its jurisprudence; second, the exclusion of patent law from the rest of EU law damaging both patent and non-patent law because it removes the ability to balance the needs of different areas of law; and third, the harm to the European legal system because of the manner in which the removal of the provisions occurred. The Federal Circuit serves as a model for how an isolated specialist court can avoid these problems. Part III shows that the groups opposed to the provisions exaggerated their concerns over the inclusion of the substantive patent provisions in the UPR. The inclusion of the substantive patent provisions in EU law will provide benefits to the European patent community and EU law that outweigh any negative effects.

I. History and Structure of the Unified Patent Court and Unitary Patent

The creation of a European patent law has followed a convoluted route, and its structure reflects this process. It is necessary to understand the history of European patent law, the UPC’s fit within the EU judiciary, and the structure and function of the UPC in order to understand the effects of removing the substantive patent provisions from the UPR.

A. History of European Patent Law

The European Union has tried and failed to create a uniform European patent regime for over fifty years.[6] Beginning in 1973, Europe took the first step toward patent harmonization—the European Patent Convention (“EPC”).[7] The EPC created the European patent and the European Patent Organization (“EPO”).[8] A European patent, which the EPO issues, is not a single patent but a bundle of national patents: one patent for each of the countries that the patentee designates on his application to the EPO.[9] The EPC defined many substantive patent terms for patent prosecution, including patentability, inventive step, and novelty.[10] Though the EPC represented a significant step toward a unified European patent law, many aspects of patent law remain fragmented. A patentee has to enforce her patent in each of the member nations of the EU, and she incurs significant litigation costs for every jurisdiction where she enforces her rights.[11] In addition to EU member-states, eleven non-EU countries have also signed onto the EPC, further compounding the issues associated with geographic fragmentation.[12] The EPC is not a part of EU law, and the EPO is not an EU institution. Therefore, the EPC is outside of the ECJ’s jurisdictional reach.[13] In 1975, the European Economic Community attempted to create a Europe-wide unitary patent as well as a uniform set of rules governing the effect of the unitary patent. Ultimately, not all of the members ratified the agreement, and the attempt to create a unitary patent failed.[14] Europe took the next step in the development of European patent law, the creation of the unitary patent package, in stages during 2012 and 2013, and it will go into effect four months after thirteen countries, including Germany, France, and the UK, ratify the UPCA.[15] The patent package includes the UPC and the unitary patent. The UPC and its related agreements and legislation created a single court with jurisdiction over all contracting member states. The unitary patent is a patent that is valid and enforceable throughout all contracting member states.

B. How the UPC Fits into the EU Judiciary

The UPC is not an EU institution but an international court common to the member states that have acceded to the UPCA.[16] This means that the relationship between the UPC and the ECJ is that of a national court to a European one. It is necessary to explain the structure of the EU judiciary in order to understand the contours of this relationship. The Court of Justice of the European Union (“CJEU”) is the judicial body of the European Union. Three courts comprise the CJEU: the Civil Service Tribunal, the General Court, and the Court of Justice or European Court of Justice.[17] Of these, the ECJ is the only court that the UPC would deal with directly.[18] The ECJ is not an appellate court to the national courts, and individual parties cannot appeal decisions from the national courts to the ECJ.[19] Instead, the national courts may refer questions of interpretation of EU law to the ECJ, which then responds with its interpretation. The ECJ does not resolve factual disputes.[20] If the national court is the court of last resort for the case, then the court must refer the novel question to the ECJ.[21] The ECJ’s opinion is binding on the national court, which helps to ensure uniform application of EU law by the national courts.

C. The Structure and Function of the Unified Patent Court and the Unitary Patent

Three substantive legal documents provide the legal basis for the unitary patent package: the UPR,[22] which establishes the unitary patent, the regulation regarding the applicable translation requirement,[23] and the UPCA, which is an international agreement between the participating member states and deals with the structure, function, and make-up of the UPC as well as the substantive rights conferred by the unitary patent.[24] These documents grant the UPC exclusive jurisdiction over unitary patents.[25] Patentees have the right for the first seven years to opt out of the UPC’s jurisdiction for their European patents.[26] The UPC will have jurisdiction over non-opted out European patents.[27] The UPC’s jurisdiction over European patents is not exclusive, and a litigant can bring the case in a national court, as long as there is not a pending case in the UPC.[28] The UPC will not have jurisdiction over European patents for which holders have exercised their opt-out right, or over national patents.[29] The UPC includes the Court of Appeals and the Court of First Instance (“COFI”).[30] The Court of First Instance has a Central Division in Paris, and two additional branches of the Central Division in London and in Munich.[31] In addition to the Central Division, the Court of First Instance comprises of an as-of-yet undetermined number of local[32] and regional divisions.[33] A member state can have multiple local divisions and be a member of a regional division.[34] The local and regional divisions do not have static judges that consistently sit on a court, and the judges of a local or regional division are not necessarily from the same nation or group of nations as the division.[35] Rather, a COFI will have a panel of three judges—its composition determined by its operational history: If a COFI sees fewer than fifty patent cases over the preceding year, then the panel will include one judge who is a national of the country in which the division is located, and two judges who are nationals of a different country.[36] Litigants will be able to request that the panel include a single technically qualified judge. The president of the COFI will chose the technically qualified judge from a pool of qualified judges.[37] The parties can appeal the decision of the COFI to the Court of Appeals in Luxembourg on matters of law.[38] The Court of Appeals consists of a panel of five judges.[39] Three of the judges are legally qualified and are from differing countries. The other two judges are technically qualified judges in the relevant field.[40] All of the judges of the UPC will participate in a uniform training program to educate them on the substantive and procedural aspects of the new European patent law.[41] Many questions remain about the structure and function of the UPC. The UPC’s case law will likely answer these questions during its formative years. However, the ambiguity surrounding some of the most basic aspects of litigation, such as the average duration and frequency of bifurcation,[42] make any discussion of the UPC challenging. As the UPC progresses, it will provide more answers, and the patent community’s understanding of the UPC will increase.

II. The Benefits of Including the Substantive Patent Provisions in EU Law

The removal of the substantive European patent provisions from the UCR will create problems for the European patent community. These problems will arise from both the court’s judicial isolation, as well as the effect of placing control over substantive patent law in the hands of the individual nations. The reintroduction of the substantive patent provisions into EU law could lessen the impact of these problems for the UPC.

A. Courts Benefit from Interacting with Other Courts’ Interpretations and Choices

The quality of the UPC’s jurisprudence will suffer from the Court’s isolation from the EU judiciary. An isolated court is prone to both ossification and oscillation. The U.S. Court of Appeals for the Federal Circuit demonstrates this effect; its judicial isolation has reduced the quality of patent law in the United States.[43] The Federal Circuit provides a look at the UPC’s future and a model for potential solutions. Congress established the Federal Circuit in 1982 with the enactment of the Federal Courts Improvement Act of 1982.[44] The Federal Circuit was the culmination of years of study and legislative efforts. It solved a number of problems in the judiciary, including increasing caseloads at the regional circuit courts and the prevalence of appellate forum shopping in patent law.[45] Congress created the Federal Circuit to reduce the circuit courts’ caseloads without increasing internal circuit inconsistency or circuit splits. They also aimed to reduce forum shopping by creating more uniformity and consistency in patent law.[46] Efficiency and uniformity are also the two most prominent justifications for the UPC.[47] The Federal Circuit is an appellate court that, unlike the UPC, does not have a specialized trial court component.[48] Therefore, the Federal Circuit hears appeals from non-specialist trial courts, and is appealable to the non-specialist Supreme Court.[49] For its first fifteen years, the Federal Circuit was the de facto source for the final word on patent law. The Supreme Court took very few patent cases and the ones that it did dealt with procedural issues.[50] This has completely reversed in the last decade, and the Supreme Court has taken twenty-seven patent cases from the Federal Circuit in the last thirteen years.[51] The appeals have been on a wide range of issues, including patentable subject matter, non-obviousness, and injunctive relief.[52] Conversely, the UPC will be a national court of each of the contracting member states.[53] This means that the relationship between the UPC and the CJEU will not be the same as between the Federal Circuit and the Supreme Court. The UPC must refer questions of EU law to the ECJ,[54] and the ECJ will answer the referred questions by interpreting EU law. However, the ECJ does not apply law to the factual situation.[55] An individual’s right of direct access to the ECJ is extremely limited, and parties have no say as to when a national court refers a question of EU law to the ECJ.[56]
1. The Effect of Isolation on the Federal Circuit’s Jurisprudence
The Federal Circuit’s structure has created problems that Congress did not foresee. The features that Congress considered the Federal Circuit’s biggest assets, such as its specialized nature and ability to adjudicate patent cases separate from other courts, have dampened the quality of its patent jurisprudence. Three features demonstrate the effect that the Federal Circuit’s isolation has had on the quality of its jurisprudence: its lack of doctrinal consistency, its high rate of reversal at the Supreme Court, and its reduction of patenting standards to harmfully low levels. While a court’s jurisprudence is difficult to quantify, these three factors indicate serious issues.
i. Doctrinal Inconsistency
The Federal Circuit’s jurisprudence exhibits high levels of doctrinal inconsistency. Doctrines such as inequitable conduct have swung from one extreme to another. Originally, inequitable conduct was broader than common law fraud and was relatively easy to prove.[57] However, in a 2011 en banc decision, the Federal Circuit radically reversed this position to combat the “absolute plague” that inequitable conduct had become.[58] The history of the non-obviousness doctrine exhibits the same fluctuation.[59] Claim construction has had an even more dangerous trajectory. Claim construction doctrine has darted about without coherent direction, almost entirely dependent on panel composition.[60] The normal tool for resolving intra-circuit splits, an en banc hearing, has proven completely unsuccessful in the Federal Circuit.[61] This doctrinal oscillation comes from the Federal Circuit’s failure to self-correct and address problematic doctrines.[62] In order to correct, the Court can replace old doctrines with radically new but equally untested doctrines, as with inequitable conduct, or, if the Court cannot agree on an alternative, individual camps within the Court espouse competing doctrines that they apply in their panels, as with claim construction.[63] In contrast, the U.S. circuit court system at large has built a self-correction mechanism. If a court has made a mistake, that opinion does not have precedential effect for a different circuit, and the new court will decide the issue on new facts.[64] In general, this leads to a number of circuits adopting the ‘correct’ interpretation. Ideally, the outlier circuits change their view based on the applied decisions of the other circuit courts.[65] When the Federal Circuit makes a doctrinal shift, it affects the entire nation. If the court later determines that the decision was wrong, they can either follow stare decisis or upturn the entire system and take another blind stab.[66] They do not have the benefit of competing courts testing out doctrinal theories. The Federal Circuit’s isolation, which was supposed to create a uniform and efficient system, is thus lowering both the quality and the predictability of patent law.
ii. Reversals
For the first decade of the Federal Circuit’s existence, the Supreme Court rarely took appeals from it and even more rarely reversed it.[67] This low rate of reversal has not continued, and in the last thirteen years, the Supreme Court has taken twenty-seven appeals from the Federal Circuit, and it has completely reversed the Federal Circuit’s opinion more than 70% of those times.[68] While the change from few reversals to many reversals does not necessarily indicate a decrease in quality over the time as much as a change in Supreme Court policy, the current high rate of reversal does seem to indicate an issue of quality with the Federal Circuit’s jurisprudence. The Supreme Court’s recent reversals tie into the issue discussed above. The Federal Circuit cannot effectively and efficiently self-correct, and therefore the Supreme Court is the only option. This, then, is both a symptom of the Federal Circuit inability to work out patent law problems without the intervention of the Supreme Court, and a demonstration of how the Supreme Court can work as a partial solution to the Federal Circuit’s isolation.
iii. Patent Friendly
The Federal Circuit’s jurisprudence has been criticized for being too patent friendly.[69] Its jurisprudence has decreased the standards of patentability, resulting in patent thickets.[70] This is not true of all areas, but some doctrines have received particular scorn for lowering the bar of patentability, such as the Federal Circuit’s teaching-motivation-suggestion test. That test set the standard for combining two pieces of prior art to invalidate a patent as obvious as whether the prior art included teachings, suggestions, or motivation to combine the art. This resulted in the U.S. Patent and Trademark Office granting patents that were obvious when compared to the common knowledge of the field.[71] Many of the Federal Circuit doctrines that the Supreme Court has overruled in recent years were extremely patent friendly, and the Supreme Court has had a moderating effect on the Federal Circuit’s jurisprudence.[72] For example, the Supreme Court raised the bar of patentability and potentially reduced patent thickets by overturning the teaching-motivation-suggestion test.[73] The Federal Circuit’s narrow patent-friendly jurisprudence shows insufficient regard for the purposes of patent law and is symptomatic of the heart of the problem with specialist courts. In general, the Federal Circuit has escaped capture by either the patent bar or interested parties largely because the parties who would be the ones capturing are often on both sides of cases and therefore do not uniformly benefit from strictly pro-patentee or pro-defendant doctrines.[74] Regardless, the Federal Circuit has been undeniably pro-patent, partially because of the role that it plays within the U.S. patent system.[75] For years, the judges of the Federal Circuit viewed themselves as defenders of patents, not as adjudicators of a balanced patent system.[76] Patent rights took on moral tones, and the focus went from stimulating innovation to supporting patents for patents sake.[77] Specialized patent courts in general are at risk of following a similar pattern.[78] These factors demonstrate an issue with the quality of the Federal Circuit’s jurisprudence. The Supreme Court provides some of the benefits of a generalist peer court, such as increased dialogue, honing of legal arguments, the ability to test doctrines, and the chance to make law based on different factual situations. For example, Supreme Court Justices have made the point that a stronger patent law does not necessarily equate to a better patent law.[79] The relationship between the Supreme Court and the Federal Circuit has been contentious in the last decade, and this has resulted in a less than ideal adjudicatory environment.[80] Nonetheless, the Supreme Court’s practice of issuing guidelines, norms, and policy has served to break up unnecessarily rigid Federal Circuit rules and has served as a shot in the arm to patent jurisprudence.[81] While the Supreme Court’s involvement in patent law has served to increase uncertainty and has created some chaos, it has also alleviated some of the difficulties that an isolated court poses.
2. The Effect of Isolation on the UPC and Potential Solutions
The idea that courts suffer in isolation is not limited to the Federal Circuit. It applies to isolated specialized courts in general and therefore to the UPC. Indeed, the UPC will face challenges that are more significant than the Federal Circuit’s because the UPC has much weaker judicial relationships. The chance for either ossification or oscillation is great. The UPC will be working in a vacuum, completely removed from other legal opinions or policy arguments. Unfortunately, the structure of the EU’s judiciary and the UPC make a circuit system impossible. The COFI cannot provide the necessary simulation and challenge for the UPC to avoid this plight. The same judges will not sit on the same court consistently, eliminating the development of a distinctjurisprudence in a specific COFI court.[82] Additionally, the judges’ knowledge of European patent law will all stem from identical training programs.[83] These measures, which reduce forum shopping and increase uniformity, will also decrease the quality of the UPC’s jurisprudence by removing the COFI courts’ opportunity to become laboratories of independent legal thought. Moving the substantive provisions into EU law would allow the ECJ to provide some benefit to the UPC. The ECJ’s opinions would inject another court’s views into the UCJ’s jurisprudence. It is true that this would create a different dynamic then the relationship that exists between the Federal Circuit and the Supreme Court because the ECJ would not be issuing opinions on questions that the UCP itself has answered officially. Regardless, there would still be many of the same benefits. Additionally, the UCP, in referring questions to the ECJ, could provide its own thoughts and a suggested result to the ECJ.[84] Further, as the line between interpretation and application becomes blurred the relationship between the UCP and the ECJ will become more like the American system. If the UPC could refer questions to the ECJ, then the UCP would try the case, applying previous ECJ opinions to the particular factual situation. If there were a new question of law, the ECJ would answer it with input from the UCP. The UCP would then take the ECJ’s opinion, and apply it as it sees fit. There will be disagreements, and questions might go between the courts multiple times. It is in that process where the benefit of the system lies. More specifically, specialist courts benefit from superior generalist courts. The structure of specialist courts, and the many roles they play, can cause them to become overly narrow in their application of law; a generalist court can help to correct when the specialist court has gone astray. The Supreme Court plays this role for the Federal Circuit by acting as a balance. The Federal Circuit must play two roles that are at times in opposition.[85] It must correctly decide the cases from the district courts, on the facts as they come up. Additionally, it also must take on a quasi-managerial role in patent law and must curate patent law and create doctrines that the trial courts can apply.[86] This role has led the Federal Circuit to adopt standards that are clear and easy to apply, but which result in less than ideal outcomes.[87] While the Supreme Court seldom creates its own standards, the Court has increasingly taken appeals from the Federal Circuit in order to strike down the Federal Circuit’s standards and provide guidance and policy to point the Federal Circuit in a new direction.[88] The ECJ could provide a similar role for the UCP. The Court of Appeals of the UPC will not simply be deciding individual cases, but will be promulgating doctrines for the COFI to follow.[89] The ECJ would be able to provide high-level guidance and policy directions to the UPC, specifically to the Court of Appeals. This is ultimately a question of balance. Specialized courts tend in the direction of bright-line rules and narrow policy goals. A higher generalist court, such as the ECJ, can balance that inclination.

B. Isolating Patent Law from EU Law Will Have Negative Consequences for Patent Law and Other Areas of Law

Patent law and the rest of European law are not easily separable, and the thick dividing line between them is a false one.[90] In contrast, while the Federal Circuit has exclusive jurisdiction of patent law, the line between patent law and non-patent law disappears at the Supreme Court. This allows the Supreme Court to consider the legislative policy goals of fields of law that are in tension with one another. First, patent law suffers from narrow specialization. As we have seen in the United States, a narrow-minded pro-patent policy can ultimately stifle innovation.[91] Specialization produces “tunnel visions, with judges who are overly sympathetic to the policies furthered by the law that they administer or who are susceptible to ‘capture’ by the bar that [regularly] practices before them.”[92] The goal of patent law, increased innovation, is not without its costs. The imposition of a government monopoly is an extreme action—one that the courts must temper with an eye toward moderation.[93] The purpose of patent law is to stimulate innovation, and it cannot accomplish this without a working relation to other areas of law.[94] The various disciplines of intellectual property law work together to promote innovation, and courts must consider disciplines other than patent law areas before they can determine whether a patent policy or law will actually promote innovation.[95] Patent law is at its most effective when working in concert with all government tools to stimulate innovation.[96] For example, many companies and universities make use of both trade secret and patent law, and the relationship between the two fields dictates how companies use them.[97] Courts and legislators must be aware of such nuances in order to make decisions about patent law and policy that encourage innovation.[98] There is no judicial body that can correct the UPC’s mistakes, even if there is wide consensus that the UPC’s doctrine should change. The EU’s legislative bodies do not provide the opportunity for correction either. Changing the UPC would require the amendment of an international treaty as well as a Council Regulation.[99] This makes the need for an appellate body overseeing the UPC even more important. In addition to having a negative effect on patent law, the segregation of patent law away from other areas of law has a negative effect on those other areas. There are many examples of areas that touch on patent law, such as copyright, trademark, commercial, and contract law. One of the most high profile areas in Europe is EU competition law. Competition law and patent law are intrinsically related. European competition law works to eliminate market obstacles, including the eradication of monopolies.[100] Patent law is concerned with the grant of government-backed monopolies. These two goals are inherently at odds, and a careful balancing between the two policies is necessary.[101] In the United States this balancing is accomplished by the legislature and, most directly, by the Supreme Court.[102] In Europe, neither the legislative nor the judicial bodies can perform this role. It will be extremely difficult to make any changes to the European patent system because of European patent law’s complex statutory scheme. Additionally, considering that the European Commission, which has no say on UPC law, controls the implementation of competition policy, any synergistic collusion is unlikely.[103] There is also no court applying both patent and competition law to balance the competing interests. While the ECJ will consider patent law while evaluating competition law claims, the UPC has no jurisdiction, expertise, or inclination to consider competition law while adjudicating patent law. This is not only a general concern; patent law can negatively affect EU competition laws in ways that the EU will be unable to control. For example, the scope of a patent and the patentee’s rights will affect how the national and European courts define the market in competition law, one of the most important steps in a competition case. In a competition case, the relevant market is a combination of the product market, which are the products that are interchangeable with the product at issue and the geographic market.[104] A significant factor in the determination of the relevant market is the geographic extent of patent protection.[105] Competition authorities will often rely on the territorial scope of protection when determining the market, because the existence of the patent rights make the territory covered by the right sufficiently different from neighboring territory.[106] The introduction of the unitary patent could lead to a court defining the market as the entire area covered by the patent for a number of competition cases.[107] This significant broadening of the market definition, from national to continental, would have a serious effect on parties attempting to prove abuse of dominance.[108] Abuse of dominance becomes harder to prove the larger the market is.[109] Based on what rights the UPC assigns to the unitary patent, the definition and ease of proof for abuse of dominance can change throughout Europe. Therefore, a significant factor in determining whether an abuse of dominance has occurred will be in the hands of the UPC, an international court. Patent law will affect other areas of competition law as well, such as vexatious litigation. A national court would hear a claim of vexatious litigation, but the outcome of the case will depend on the interpretation of the patentee’s right as determined by the UPC.[110] It is absurd to put a court in charge of patent issues that have significant effect on other areas of law without empowering it to consider them. The potential for the UPC to negatively affect other areas of law is particularly insidious because its specialist nature blinds it to non-patent needs and arguments. It is necessary to have the ECJ balancing the EU’s ultimate interest and interpreting these areas of patent law for the courts.

C. Removing the Substantive Patent Provisions Undermines the EU Legal System

The removal of the substantive patent provisions from the UPR undermines the EU legal system, upsets the balance of power between the EU and the nation states, and further increases the EU’s democratic deficit. The legal authorization for the unitary patent package, including the UPR, comes from Article 118 TFEU, which states that the EU “shall establish measures for the creation of European intellectual property rights to provide uniform protection of intellectual property rights throughout the Union and for the setting up of centralised Union-wide authorisation, coordination and supervision arrangements.”[111] Through the unitary patent package, the EU does not establish European IP rights, but actually divests the power to do so to the member states. The divestment of control over the EU’s Treaty-based competences sets a dangerous precedent for other areas of law. It blurs the line between EU and national powers and gives the member states the power to amend European patent law. Member states could attempt this in other areas of law and potentially weaken gains made by the EU towards increased harmonization and control. It is true that the EU could take back the control of patent by amending the current provision which obliquely refers to the UPCA (by way of reference to national law), but this is a less than ideal situation for two reasons. First, if the EU amends the UPR, which it would have to do in order to amend substantive patent law, the amendment would wipe out the body of law created by the UPCA and UPC by cutting the UPCA out of the picture. The EU should avoid this messy and complicated situation at all costs.[112] Second, regardless of the fact that the EU could potentially amend EU patent law through amendment to UPR, the current situation allows the contracting nations to amend EU patent law with no input from the EU itself, merely by amending the UPCA. The member states can amend substantive European patent law without the EU by amending the UPCA. The removal of the substantive patent provisions also increases the democratic deficit by wrestling power from both the European and national parliaments. Advocate-General Bot’s opinion on the UPR stated that the contracting member states are under an obligation to sign the UPCA. This means that neither the European Parliament nor the national parliaments decided the substantive European patent law. The substantive treaty provisions, embodied in the UPCA, are under the control of the signers of the treaty, since the national parliaments are bound to ratify the treaty once signed. This confusing form of legislation is not in the best interests of the EU. The unitary patent package has come into existence by circumventing the European Parliament, the ECJ, and the national parliaments. While its existence is beneficial for Europe, the way that it has come into being is not. The ECJ has not decided the system’s legality yet, but Advocate-General Bot’s opinion on the case upheld the package.[113] Regardless of the ECJ’s decision, the policy behind the package is harmful because it bypasses the correct procedure and creates a precedent of vesting EU powers in the nations.

III. The Predicted Negative Consequences of the Inclusion of the Substantive Patent Provisions Were Exaggerated

The opposition to the inclusion of the substantive patent provisions in the UPR centered on three concerns: referral to the ECJ would create debilitating delays and costs, the ECJ lacked the expertise and experience to decide patent cases correctly, and ECJ review would create instability and uncertainty in European patent law.[114] Some of these concerns have merit and should be a part of the discussion on the provisions inclusion in EU law. However, the negative consequences of the inclusion of the provisions in EU law would not be as significant as implied, and the apocalyptic tone of the original discussion was misplaced.[115] Referral to the ECJ would not destroy the UPC’s achievements in efficiency and cost-savings. This section will look at the three major points of opposition to show that the concerns, while real, should not be dispositive.

A. The Ability for the UPC to Refer Questions of EU Law to the ECJ Will Not Lead to Debilitating Delays or Costs

One of the foremost purposes of the UPC was to create a patent litigation system in Europe that is efficient, cost-effective, and streamlined.[116] Any claim of inefficiency in the ECJ therefore strikes at the heart of the UPC’s purpose. There has been a recent influx of cases at the ECJ, caused by a vast widening of its jurisdiction after the Treaty of Lisbon[117] and the EU’s expansion in Central and Eastern Europe.[118] These new cases have created a backlog and the ECJ has developed a reputation for delays and slow litigation.[119] However, the most recent data from the ECJ shows that these concerns are misplaced, and that the ECJ has largely overcome the worst of its backlog. When the debate over the substantive patent provisions occurred in 2012, there was substantial worry that the ECJ’s delays would steadily worsen each year.[120] In 2012, the ECJ completed 595 cases, while there were 632 new cases.[121] This increased the case backlog to 886 cases. In 2011, the average duration of a reference for preliminary ruling was 16.4 months, up by 0.3 months from 2010.[122] The growing backlog and case duration led to proposals for judicial reform, only some of which the EU has adopted. There is truth in this fear; referral to the ECJ will inherently cause patent litigation to be, on average, longer than if the ECJ was cut out of the picture altogether. This is not necessarily dispositive, though, and it is only a sufficient reason to remove the provisions if the delays are so substantial as to render the system ineffective. There is significant reason to believe that the delays caused by reference to the ECJ would not be fatally long. The data on the ECJ after the decision to remove the substantive provisions provides an optimistic picture. In 2014, the average duration for a reference for preliminary ruling was 15 months.[123] This is the shortest average duration for preliminary rulings in the Court’s history, and a 1.3 month decrease from the 2013 average.[124] Additionally, the case backlog, which stood at 886 in 2012, has now decreased to 787, with the ECJ completing more cases than were filed in both 2013 and 2014.[125] This decrease in caseload has come at a time where the scope and complexities of the ECJ’s jurisdiction has grown rapidly.[126] Trademark law, for example, is a new area of European law that is creating a high number of cases for the CJEU.[127] The ECJ has shown the ability to handle these caseload increases and still make progress on backlog and case duration. There is hope that, as the EU institutes more of the proposed judicial reforms, the duration and backlog will become even smaller.[128] The duration of a European patent case compares favorably with the American system. The UPC’s current Draft Rules of Procedure estimates a duration of 20.5 months for a case to go through trial and appeal.[129] The average duration for the ECJ preliminary ruling is 15 months.[130] Therefore, if a case has a trial at the COFI, an appeal at the Court of Appeals, and a reference to the ECJ, the average duration would be 2 years and 6.5 months. The average time to trial for patent cases in the United States was 2 years and 3.72 months, though some districts had averages as high as 3 years and 8 months.[131] The average appeal to the Federal Circuit, which is available by right, was 11.8 months in 2013.[132] Therefore, the average patent case at the slowest district court takes approximately 4 years and 7.84 months, and the average case takes approximately 3 years and 3.52 months. Compared to the duration of American trials, the length of European trials, even those including a reference to the ECJ, is not catastrophically long. The duration of a European patent trial will ultimately depend on how effectively the UPC itself is able to litigate cases. The ability to reference questions of patent law would not create such catastrophic delays that the system would become unworkable. The estimated duration of a UPC trial plus ECJ reference would still be shorter than the American system, which is widely considered to be successful. In addition to the positive statistics, there is reason to think that the UPC would not have to refer to the ECJ as often as national courts do. A court of final resort, such as the Court of Appeals, is obligated to refer questions of EU law to the ECJ.[133] In any particular case, the national courts ultimately make the decision whether to refer, though the court can be subject to damages for failure to refer a necessary question.[134] National courts are not obligated to refer all questions of EU law though. Under the acte clair doctrine, the national court is not required to refer the question if “the correct application of Community law may be so obvious as to leave no scope for any reasonable doubt as to the manner in which the question is raised is to be resolved.”[135] The acte clair doctrine was established as a way to increase efficiency, as well as rein in the national courts by creating stringent requirements for the use of the doctrine.[136] The acte clair doctrine allows the courts to function as European courts while the ECJ retains control of EU law. The relationship between the UCP and the ECJ will likely be different from the relationship between national courts and the ECJ, and further it is reasonable to expect that the application of acte clair will be different as well. The national courts are not applying their own national law and are theoretically less familiar with the EU law they are applying. Therefore, there must be strict requirements on when they may apply the law without reference to the ECJ. Though the national courts are acting somewhat as proxies of the EU, they are not European Courts.[137] On the other hand, the UPC—though it is technically a national court of each contracting member state—is a European court, with a European reach and a European mindset. Additionally, it will apply law that it is specifically trained and designed to apply. In the case establishing acte clair, the ECJ stated that “the existence of such a possibility [of acte clair] must be assessed in the light of the specific characteristics of Community Law, the particular difficulties to which its interpretation gives rise and the risk of divergence in judicial decisions within the Community.”[138] The application of all of these factors is different for the UPC than for the national courts. The UPC will be a court trained and specialized in patent law, it will be the expert in the interpretation of European patent law, and there is no risk of divergence because the Court of Appeal’s decisions apply throughout all of the contracting member states. The reasons for limiting the application of acte clair do not apply as forcefully to the UPC, in which the need for efficient decisions is heightened. The early stages of the UPC and European patent law would likely include a significant number of referrals, but once the ECJ and UPC lay down the basic doctrines it is likely that the UPC would make fewer referrals than the average national court.[139] This will allow for efficient patent litigation and for a more independent UPC. Allowing references to the ECJ will increase the time and cost of patent litigation, but the increases will not be as large, nor will the effect be as catastrophic, as was previously predicted. The anticipated case duration is favorable when compared to the American patent litigation system, and there is no reason to think that the delays inherent in ECJ reference will be unduly deleterious to European innovation.

B. The ECJ is Competent to Render Decisions in Patent Cases Despite its Lack of Experience in European Patent Law

The groups opposed to the provisions argued that the ECJ’s opinions would lower the quality of European patent law because of their unfamiliarity with patent law. As discussed extensively above, a generalist court that does not focus solely on patent law is beneficial for the development of patent law. Additionally, the idea that the ECJ is incapable of understanding patent law is ludicrous.[140] Though the patent community often holds up patent law as an especially complex area of law,[141] it is hard to imagine that it is exponentially more difficult to understand then the areas with which the ECJ currently deals, including EU citizenship law, competition law, and immigration law. The judges on the ECJ have not, as of yet, dealt with European patent cases, as there have been none, but it is irrational to assume that it would be beyond their judicial capabilities. This is especially true since the ECJ would be dealing purely with the legal aspect of the case and not the application of the law to the technical facts of the case.[142] The ECJ frequently has had to deal with new areas of law, including subjects like asylum, policing, and justice.[143] The ECJ’s experience of dealing with the flood of trademark cases, an intellectual property regime that is also new to the ECJ’s jurisdiction, is demonstrative of its ability to adapt to and learn new areas of law that come into its jurisdiction. The ECJ’s history shows a near continual expansion of its jurisdiction. The ECJ has significant institutional experience in learning new areas of law, and there is no reason that patent law would be any different.

C. The ECJ Will Not Substantially Decrease the Predictability or Certainty of the Patent System

Predictability is one of the most important attributes of patent law because it is necessary for innovators to be sure that the patent system will protect their efforts before they invest resources and time.[144] Decisions rendered by the ECJ will apply throughout contracting member states with the same uniformity the UPC’s decisions. Therefore, the issue is not geographic uniformity, but rather the potential for the ECJ to disrupt patent law with unpredictable decisions. Though the ECJ might render some individually unpredictable decisions, its overall effect would be to stabilize the specialist court. The ECJ might create some instability in the early stages of the UPC, but no more than the UPC itself will create. The UPCA instituted a seven-year transition period, which the UPC’s administrative Committee can extend seven more years because of this inherent initial instability.[145] The institution of any new court and legal system will be unpredictable until there are a sufficiently large number of opinions, but that is no reason to remove the ECJ. The ECJ’s positive effect on the quality and stability of UPC jurisprudence would outweigh any additional uncertainty that the relationship between the ECJ and the UPC causes. Admittedly, there is some merit to a few of the arguments against the inclusion of the substantive patent provisions in the UPR. The change would make patent litigation on average slightly slower and it could potentially make the outcome of cases less certain, especially in the initial stages. There is ample evidence though, that the effects of the ECJ would ultimately be slight. Once balanced, the benefits of including the substantive patent provisions in the UPR outweigh the negative costs.


The unitary patent package is a colossal achievement for Europe—the culmination of half a century of negotiation and compromise. The creation of the UPC and the unitary patent is itself an accomplishment. The goals of uniformity and efficiency are laudable, but they should not be the only focus of the unitary patent package. The ultimate goal is to encourage innovation in Europe. When Congress created the Federal Circuit, its goals were similar: uniformity and efficiency in patent law. Lawmakers were willing to create a specialist court because they believed that the benefits would outweigh the costs. The Federal Circuit’s patent jurisprudence over the last quarter of a century shows that this bargain has not worked as intended. The Federal Circuit has created a uniform body of patent laws, but at the cost of quality, nuance, and progress. The European patent community should not make the same mistakes as the U.S. patent community twenty-five years ago. The inclusion of the substantive patent provisions in EU law would likely have some negative consequences, but they would not be as severe as predicted and they are smaller than the benefits. An amendment to the UPR to place substantive patent law back into EU law would benefit patent law, other areas of EU law, and the EU legal structure.
* J.D. Candidate, New York University School of Law, 2015; B.S., Aerospace Engineering, cum laude, University of Florida, 2012. The author would like to thank the Editorial Board of the Journal of Intellectual Property & Entertainment Law, Leah Rosenbaum, and most especially his fiancé, David Matulewicz
[1] Unitary patent – frequently asked questions, European Patent Office (Dec. 13, 2012), faq-636.
[2] Proposal for a Regulation of the European Parliament and of the Council Implementing Enhanced Cooperation in the Area of the Creation of Unitary Patent Protection, COM/2011/0215 final 2011/0093 (COD). For leading examples of the sides of this debate, see Rudolf Kraßer, Effects of an inclusion of regulations concerning the contents and limits of the patent holder’s rights to prohibit in an EU regulation for the creation of unitary European patent protection, EP Law Blog (Oct. 18, 2011),; Winfried Tilmann, The Battle About Art. 68 of the Union-Patent-Regulation, UK Parliament (Feb. 28, 2012),
[3] Agreement on a Unified Patent Court, arts. 6–8, Feb. 19, 2013, 2013 O.J. (C175) 1 [hereinafter Agreement].
[4] Kraßer, supra note 2.
[5] Article 118 of the TFEU requires that “the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall establish measures for the creation of European intellectual property rights to provide uniform protection of intellectual property rights throughout the Union and for the setting up of centralised Union-wide authorisation, coordination and supervision arrangements.” The legal argument is that the empty unitary patent found in the Regulation does not provide “uniform protection” and thus Article 118 TFEU does not authorize it. Without that authorization, the EU would be overstepping its bounds in creating the unitary patent. See Tilmann, supra note 2. Advocate General Bot opposed this argument but the ECJ has not decided the case. Opinion of Advocate General Bot, Spain v. Parliament and Council, Case C-146/13, [2014] E.C.R. I___ (delivered Nov. 18, 2014) (judgment not yet issued).
[6] See generally Kevin P. Mahne, A Unitary Patent and Unified Patent Court for the European Union: An Analysis of Europe’s Long Standing Attempt to Create a Supranational Patent System, 94 J. Pat. & Trademark Off. Soc’y 173, 175 (2012) (detailing Europe’s many attempts to harmonize European patent law).
[7] Id. at 174.
[8] Id. at 173–75.
[9] The European patent is now the European patent without unitary effect. This note will continue to refer to them as European patents, as opposed to unitary patents. Christopher J. Harnett & Amanda F. Wieker, The EU Unitary Patent and Unified Patent Court: Simplicity and Standardization, Challenge, and Opportunity, 25 No. 4 Intell. Prop. & Tech. L.J. 15 (2013).
[10] Mahne, supra note 6, at 174.
[11] Id. at 174–75.
[12] In addition to all twenty-seven European Union member-states, the EPO also includes Switzerland, Liechtenstein, Turkey, Monaco, Iceland, Norway, the Republic of Macedonia, San Marino, Albania, and Serbia. Member states of the European Patent Organisation, European Patent Office (Mar. 10, 2015),; Mahne, supra note 6, at 173–74.
[13] The European Patent Convention, European Patent Office (Nov. 01, 2014),; Gérald Sédrati-Dinet, Academics Confirm Flaws in the Unitary Patent, at 1, available at
[14] Mahne, supra note 6, at 175–76.
[15] Agreement, supra note 3, art. 89.
[16] Id. at 1.
[17] The Civil Service Tribunal is a specialized court that hears disputes involving the European Union civil service, and the General Court hears disputes against European Union institutions, such as for denial of a trademark from the Office for Harmonization in the Internal Market. Litigants can make an appeal to the ECJ on points of law. The ECJ is the highest court in the European Union tasked with interpreting European Union Law. Court of Justice Presentation, CURIA, (last visited April 10, 2015); General Court Presentation, CURIA, (last visited April 10, 2015); Civil Service Tribunal, CURIA, – competence (last visited April 10, 2015).
[18] The ECJ’s interaction with the CJEU would consist of references for preliminary rulings. The ECJ is the only court in the CJEU that can answer references from national courts. Vaughne Miller, Taking a complaint to the Court of Justice of the European Union, Standard Note SN05397, 7–8 (2010).
[19] See Lars Hornuf & Stefan Voigt, Preliminary References – Analyzing the Determinants that Made the ECJ the Powerful Court it Is, CESIFO Working paper No. 3769, 4 (2012).
[20] Ricardo Garcua Ant—n, Indirect taxation and the role of the European Court of Justice within the preliminary reference procedure, 5 Perspectives on Federalism 38, 46 (2013); Allan Rosas, The National Judge As EU Judge; Some Constitutional Observations, 67 SMU L. Rev. 717, 720 (2014).
[21] Hornuf & Voigt, supra note 19, at 4.
[22] Regulation 1257/2012, of the European Parliament and of the Council of 17 December 2012 Implementing Enhanced Cooperation in the Area of the Creation of Unitary Patent Protection, 2012 O.J. (L361) 1 (EU) [hereinafter UPR].
[23] Council Regulation 1260/2012, Implementing Enhanced Cooperation in the Area of the Creation of Unitary Patent Protection with Regard to the Applicable Translation Arrangements, 2012 O.J. (L361) 89 (EU).
[24] Christoph Cordes, The Unitary Patent and the Unified Patent Court, 49 Les Nouvelles 184, 185 (2014).
[25] Agreement, supra note 3; UPR, supra note 22, art. 9.
[26] Agreement, supra note 3, art. 83; see Paul England, In? Out? What’s it all About? Patent Opt-out and Withdrawal in the UPC, 9 J. Intell. Prop. L. & Prac. 915, 915–16 (2014).
[27] The opted-out European patents will continue to function as a European patent without unitary effect. Agreement, supra note 25, art. 83; See England, supra note 26, at 915–16.
[28] Agreement, supra note 3, art. 83; see England, supra note 26, at 915–16.
[29] It is unknown what law national courts will apply to European patents. If a litigant brings an action involving a European patent before the UPC, it will apply UPC law. If a litigant brings a European patent before a national court or opted out the patent, it is unclear what law the national courts will be apply. The argument in favor of the national court applying UPC law is that it would be absurd to be able to forum shop which law a court will apply to the patent, when the choice of law is so wide. On the other hand, applying UPC law would potentially lead to divergent interpretations that are not under the control of the UPC and thus cannot be uniform.
[30] Agreement, supra note 3, art. 6.
[31] The three parts to the Central Division have different substantive specialties. London’s specialty is pharmaceuticals, chemistry, and human necessities, Paris’ is textiles, electricity, and physics, and Munich’s is mechanical engineering. Id. at annex II.
[32] A local division is a branch of the COFI serving a particular member state. Id. art. 7.
[33] A regional division is a branch of the COFI serving multiple member states that have agreed to function as a region. Id.
[34] Id.
[35] Id. art. 8.
[36] Agreement, supra note 3, at art 8.
[37] Id.
[38] Id. art. 73.
[39] Id. art. 9.
[40] Id.
[41] Id. art. 11.
[42] A local or regional court will have the option to bifurcate cases into separate invalidity and infringement proceedings by sending the invalidity proceeding to the Central Division while it retains the infringement proceeding. It is unclear what the division will use to decide whether it should bifurcate or how often they will bifurcate. Agreement, supra note 3, art. 33; How Will the UPC Decide on Whether or Not to Hear Infringement and Validity Together?, Unified Patent Court, (last visited Mar. 30, 2015) (“It is expected that the division concerned will take these decisions taking into account all relevant circumstances of the case, including grounds of fairness to the parties.”).
[43] The Federal Circuit provides a useful comparison because of its relative length of existence and the similarity between the United States and the European Union in terms of economic, legal, and technological sophistication.
[44] Federal Courts Improvement Act of 1982, Pub. L. No. 97-164, 96 Stat. 25 (codified as amended in scattered sections of 28 U.S.C.); Dunstan H. Barnes, Technically Speaking, Does It Matter? An Empirical Study Linking the Federal Circuit Judges’ Technical Backgrounds to How They Analyze the Section 112 Enablement and Written Description Requirements, 88 Chi.-Kent L. Rev. 971, 980 (2013).
[45] Rochelle C. Dreyfuss, Percolation, Uniformity, and Coherent Adjudication: The Federal Circuit Experience, 66 SMU L. Rev. 505–06 (2013) [hereinafter Dreyfuss, Percolation]; Rochelle Cooper Dreyfuss, What the Federal Circuit Can Learn from the Supreme Court-and Vice Versa, 59 Am. U. L. Rev. 787, 795 (2010) [hereinafter Dreyfuss, Supreme Court].
[46] Dreyfuss, Supreme Court, supra note 45, at 788.
[47] Agreement, supra note 3, art. 1; Harnett & Wieker, supra note 9, at 15 (“The establishment of a specialized European patent court resembles the decision of the United States Congress in 1982 to create the Court of Appeals for the Federal Circuit (Federal Circuit)—an appellate body with exclusive jurisdiction over all US patent appeals.”).
[48] Court Jurisdiction, United States Court of Appeals for the Federal Circuit, (last visited April 10, 2015).
[49] Daniel J. Meador, Origin of the Federal Circuit: A Personal Account, 41 Am U. L. Rev. 581, 587 (1992).
[50] Dreyfuss, Percolation, supra note 45, at 509–10.
[51] Gregory Castanias, Developments in Patent Law: A View from an Appellate Perspective, in The Impact of Recent Patent Law Cases and Developments 1, 4 ( 2015).
[52] Dreyfuss, Percolation, supra note 45, at 512–13.
[53] Agreement, supra note 3, art. 1 (“The Unified Patent Court shall be a court common to the Contracting Member States and thus subject to the same obligations under EU law as any national court of the Contracting Member States.”).
[54] The Reference for a Preliminary Ruling, Europa (Feb. 20, 2013),
[55] The ECJ has arguably thinned the line between interpretation and application. The combination of the ECJ’s willingness to take extremely narrow questions, as well as the guidance it issues which instruct the national court how to apply the interpretation, has effectively turned the national court-ECJ relationship into an inferior-superior appellate relationship. Paul Craig & Gráinne de Búrca, EU Law: Text, Cases and Materials 493–94 (Oxford University Press, 5th ed. 2011).
[56] Miller, supra note 18, at 7–8 (“It must be emphasized that the individual cannot make a direct reference for a preliminary ruling; it must come from a national court or tribunal . . .”).
[57] Critikon, Inc. v. Becton Dickinson Vascular Access, Inc., 120 F.3d 1253, 1257–59 (Fed. Cir. 1997); Dreyfuss, Percolation, supra note 45, at 518–19.
[58] Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1297 (Fed. Cir. 2011) (en banc); Dreyfuss, Percolation, supra note 45, at 518–19.
[59] Dreyfuss, Percolation, supra note 45, at 512–13.
[60] At one time, there was a website run by a law professor that would predict the outcome of the case based on the panel of judges. The Federal Circuit Predictor,, (last visited Mar. 22, 2015). Additionally, the Federal Circuit reverses an estimated 34.5-40% of claim construction appeals from district courts. Paul M. Schoenhard, Reversing the Reversal Rate: Using Real Property Principles to Guide Federal Circuit Patent Jurisprudence, 17 Fordham Intell. Prop. Media & Ent. L.J. 299, 303 (2007).
[61] Claim construction en banc decisions have resulted in fractious and open-ended opinions. R. Polk Wagner & Lee Petherbridge, Did Phillips Change Anything? Empirical Analysis of The Federal Circuit’s Claim Construction Jurisprudence, The Claim Construction Project (July 14, 2007),
[62] Jeremy W. Bock, Restructuring the Federal Circuit, 3 NYU J. Intell. Prop. & Ent. L. 197, 201 (2014).
[63] Dreyfuss, Percolation, supra note 45, at 519.
[64] Cecil D. Quillen, Jr., Response Essay: Rethinking Federal Circuit Jurisdiction – A Short Comment, Geo L.J. Online 23, 24 (2012) [hereinafter Quillen, Response Essay].
[65] Of course this sometimes does not occur, leading to circuit splits and, often, a Supreme Court opinion. Wagner & Petherbridge, supra note 61.
[66] Moba, B.V. v. Diamond Automation, Inc., 325 F.3d 1306, 1322 (Fed. Cir. 2003) (Rader, J., concurring) (“Whenever a Federal Circuit panel makes an error interpreting the patent code, every district court in the nation, and even every later Federal Circuit panel, is obliged to follow and perpetuate the error. Even the Supreme Court has difficulty identifying errors for correction because this court’s national jurisdiction requires universal application of a mistake.”); Quillen, Response Essay, supra note 64, at 24; Cecil D. Quillen, Jr., Innovation and the U.S. Patent System, 1 Va. L. & Bus. Rev. 207, 232 (2006) (“However, in our current patent system, once the Federal Circuit has decided a case, there is no opportunity for alternative views to develop free from the constraints of stare decisis. . . .”).
[67] These appeals were on technical issues. They dealt with the functioning of the Federal Circuit more than the nuances of patent law. They were not significant forays into patent law, but affirmation’s of the functioning of the Federal Circuit from above the Federal Circuit itself. Dreyfuss, Percolation, supra note 46, at 509–10.; John F. Duffy, The Festo Decision and the Return of the Supreme Court to the Bar of Patents, 2002 Sup. Ct. Rev. 273, 275–76 (2002).
[68] Castanias, supra note 51, at 4.
[69] Arti K. Rai, Competing with the “Patent Court”: A Newly Robust Ecosystem, 13 Chi.-Kent J. Intell. Prop. 386, 388 (2014) (noting that the Federal Circuit’s purpose is to create “a regime that, within the limits of the statutory language, promotes innovation. . . .”); Paul R. Gugliuzza, Saving the Federal Circuit, 13 Chi.-Kent J. Intell. Prop. 350, 373–74 (2014).
[70] Rochelle Cooper Dreyfuss, The Federal Circuit As an Institution: What Ought We to Expect?, 43 Loy. L.A. L. Rev. 827, 835–36 (2010).
[71] Dreyfuss, Percolation, supra note 45, at 512–13.
[72] Dreyfuss, Supreme Court, supra note 45, at 795; 9, 1131–133.
[73] Dreyfuss, Percolation, supra note 45, at 512–13.
[74] Rochelle Cooper Dreyfuss, The Federal Circuit: A Case Study in Specialized Courts, 64 N.Y.U. L. Rev. 1, 27–28 (1989) [hereinafter Dreyfuss, Case Study].
[75] 28.
[76] Glynn S. Lunney, Jr., Patent Law, the Federal Circuit, and the Supreme Court: A Quiet Revolution, 11 Sup. Ct. Econ. Rev. 1, 2 (2004) (“Intended, at least by some of its supporters, to rescue patents from a judiciary often suspicious, if not overtly hostile, towards patents, the Federal Circuit has taken its role as defender of the patent system seriously. Using its exclusive jurisdiction over patent appeals, and relying on the sporadic and inherently limited nature of Supreme Court review, the Federal Circuit has rewritten the nonobviousness requirement and the doctrine of equivalents, sharply limiting their reach.”).
[77] Lorna M. Vélez Gómez, Minds at Work: Employed Inventors’ Ideas for A Therapeutic Patent System, 5 U. P.R. Bus. L.J. 46, 55–56 (2014); Eric Schmitt, Business and the Law: Judicial Shift in Patent Cases, N.Y. Times, Jan. 21, 1986, at D2 (“The Kodak-Polaroid patent dispute is the most prominent example of an increasingly pro-patent sentiment in American courts[.]”).
[78] Dreyfuss, Case Study, supra note 74, at 26.
[79] Lab. Corp. of America Holdings v. Metabolite Labs. Inc., 548 U.S. 124, 126 (2006) (Breyer, J., dissenting) (per curiam).
[80] See generally The Honorable Paul R. Michel, The Supreme Court Saps Patent Certainty, 82 Geo. Wash. L. Rev. 1751 (2014) (detailing the tension between the Supreme Court and Federal Circuit).
[81] John M. Golden, The Supreme Court as “Prime Percolator”: A Prescription for Appellate Review of Questions in Patent Law, 56 UCLA L. Rev. 657, 686 (2009).
[82] The President of the COFI will assign judges for each court on a case-by-case basis. Agreement, supra note 3, art. 8.
[83] Id. art. 11.
[84] Miller, supra note 18, at 8 (“Finally, the referring court may, if it considers itself able, briefly state its view on the answer to be given to the questions referred for a preliminary ruling.”).
[85] R. Polk Wagner, The Two Federal Circuits, 43 Loy. L.A. L. Rev. 785, 789–90 (2010).
[86] Id.
[87] See Sapna Kumar, The Accidental Agency?, 65 Fla. L. Rev. 229, 231 (2013) (“The Federal Circuit engages in two agency-like functions: promulgating substantive rules and adjudicating disputes. The court has historically engaged in a form of rulemaking by issuing mandatory bright-line rules.”).
[88] Dreyfuss, Supreme Court, supra note 45, at 801 (“In certain respects, then, the Supreme Court ought to conceptualize its relationship with the Federal Circuit as more of a dialogue than the product of hierarchy—as I said earlier—as the substitute for percolation.”).
[89] The COFI is different from the trial courts in the United States in that the COFI is also a specialized patent court. This eases the burden of the Court of Appeals somewhat, because there is less need to create simple doctrines that need to be clear enough for non-specialists. Regardless, there is still a need to create workable rules, especially for a new court with judges inexperienced in the law. Additionally, the fact that the trial courts are also specialist could have a negative effect, by destroying any push back on doctrines that negatively affect non-patent areas of law.
[90] Where the line is drawn is often a difficult question. In the United States, the Federal Circuit’s jurisdiction is broader than the UPC’s will be. First, the Federal Circuit deals with patent cases, not just issues, which means it has to on occasion deal with non-patent issues in patent cases. Second, the Federal Circuit deals with invalidity and infringement issues, but it also deals with patents as property, including licensing and assignment issues. The UPC will not deal with the latter category. Mahne, supra note 6, at 187.
[91] Michael A. Heller & Rebecca S. Eisenberg, Can Patents Deter Innovation? The Anticommons in Biomedical Research, 280 Science 698, 698 (1998).
[92] Dreyfuss, Percolation, supra note 45, at 506 (“To paraphrase a well-known proverb, if all the judges have is the hammer of patent law, every social problem they encounter could easily come to look like a nail.”).
[93] Dreyfuss, Supreme Court, supra note 45, at 795; Kelly Casey Mullally, Legal (Un)certainty, Legal Process, and Patent Law, 43 Loy. L.A. L. Rev. 1109, 1131–33 (2010).
[94] U.S. Const. art. VIII, §8, cl. 8; see generally Agreement, supra note 3, art. 83.
[95] Robert C. Denicola, The New Law of Ideas, 28 Harv. J.L. & Tech. 195, 220–21 (2014).
[96] Id.
[97] Patent law and trade secret are interrelated; using a trade secret can preclude patenting, and a patent destroys trade secrecy. David E. Korn, Patent and Trade Secret Protection in University-Industry Research Relationships in Biotechnology, 24 Harv. J. on Legis. 191, 191–92 (1987).
[98] Id.
[99] The process of implementing the UPC, during which four countries have no signed on to all of the agreements, and two of the countries sued the Council and Parliament claiming the unitary patent was illegally based, makes it extremely unlikely that there will be any sort of timely response.
[100] Lionel J. Frank, Antitrust and Trade Regulation in the European Union: Information Sharing in the Global Economy, 195 N.J. Law. 31, 31 (1999).
[101] Milosz Malaga, The European Patent with Unitary Effect: Incentive to Dominate?, 6 Int’l Rev. Intell. Prop. & Comp. L. 621, 631–42 (2014).
[102] U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition (2007), available at
[103] Christopher Allen, FTC v. Actavis, Inc.: Antitrust Scrutiny of Reverse Payment Settlements in Pharmaceutical Patent Litigation, 53 U. Louisville L. Rev. 115, 115 (2014) (detailing an area where there is particular tension between antitrust and patent law).
[104] Malaga, supra note 101, at 639–41.
[105] Id.
[106] Id.
[107] Id.
[108] Id.
[109] Id.
[110] Malaga, supranote 101, at 641–43.
[111] Consolidated Version of the Treaty on the Functioning of the European Union art. 118, Oct. 26, 2012, 2012 O.J. (C 326).
[112] The EU could amend the UPR to include all of the UPCA, theoretically retaining all case law built on the UPCA, but that is an unnecessarily messy solution.
[113] Opinion of Advocate General Bot, Spain v. Parliament and Council, Case C-146/13, [2014] E.C.R. I___ (delivered Nov. 18, 2014) (judgment not yet issued).
[114] Kraßer, supra note 2; Jochen Pagenberg, President’s Report 2011, European Patent Lawyers Association (Dec. 2, 2011),
[115] The European Patent Lawyers Association stated that “[i]f one wants a really unattractive, inefficient, unpredictable and probably extremely expensive patent court system, then we will get it; one must only give the ECJ a chance to receive as many referrals in patent law as possible. If one wants to see substantive patent law in Europe to be decided by judges without any solid knowledge and experience in this field, then one must involve the ECJ whenever possible.” Pagenberg, supra note 114.
[116] Harnett & Wieker, supra note 9, at 16.
[117] The ECJ’s new jurisdictions cover areas of particular sensitivity and complexity, such as issues of asylum, policing, and justice. Hugo Brady, Twelve Things Everyone Should Know About the European Court of Justice, Centre for European Reform 42 (2014).
[118] Id. at 13.
[119] See European Union Committee Workload of the Court of Justice of the European Union: Follow-Up Report, 2012-3, H.L. 163, at 20 [hereinafter Workload] (“However, ‘between 2000 and 2010 as a trend, the number of new cases has more than doubled.’ The Law Society called attention to ‘the current backlog and the very long duration of proceedings (both in terms of the ‘average’ duration and in relation to the cases that last longer, sometimes much longer, than the average).’”) (internal citation omitted).
[120] Id.
[121] Press Release, Court of Justice of the European Union, No. 23/13, Statistics Concerning Judicial Activity in 2012: Consolidation of the Results Achieved in Recent Years (Mar. 6, 2013), available at
[122] Annual Report of the Court of Justice of the European Union, CURIA (2011), (last visited April 20, 2015).
[123] Press Release, Court of Justice of the European Union, No. 27/15, Statistics Concerning Judicial Activity in 2014 (Mar. 3, 2015) [hereinafter Press Release No. 27/15], available at
[124] Id.
[125] Id.
[126] Annual Report of the Court of Justice of the European Union, CURIA (2013), (last visited April 20, 2015).
[127] Trademark cases account for 40% of the General Court’s cases, and many of those cases make it to the ECJ as appeals. See id.
[128] The CJEU has recommended various proposals to increase efficiency, including increasing the size of the Grand Chamber and amending the ECJ’s Rules of Procedures. Workload, supra note 119, at 11.
[129] Nine months for the written procedure, three months for the interim procedure, six weeks for oral procedure, four months to file the Statement of grounds of appeal, three months to file the Statement of Response. See Klaus Grabinski, An Overview of the Draft Rules of Procedure for the Unified Patent Court, 48 Les Nouvelles 154, 159–68 (2013).
[130] Press Release No. 27/15, supra note 123.
[132] Median Time to Disposition in Cases Terminated After Hearing or Submission, United States Court of Appeals for the Federal Circuit, (last visited April 20, 2015). This calculation only uses the data for appeals from district courts because appeals from other bodies, such as the International Trade Commission, are not comparable to a patent trial court such as the COFI.
[133] Hornuf & Voigt, supra note 19, at 4.
[134] Morten Broberg & Niels Fenger, Preliminary References to the European Court of Justice 269–70 (Oxford University Press 2d ed. 2014).
[135] Case C-283/81, CILFIT v. Ministero della Sanità, 1982 E.C.R. 03415, ¶ 16 (1982); see also Case C-231/96, Edis v. Ministero delle Finanze, 1998 E.C.R. I-4979, ¶ 15–16 (1998). The acte clair doctrine holds that if the ECJ has already answered the question of EU law, then the national courts also do not have to refer.
[136] Vladimir Shifrin, Article 177 References to the European Court, 27 Denv. J. Int’l L. & Pol’y 657, 667 (1999) (“The strict requirement developed in CILFIT would seem not a relaxation of the duty to refer under Article 177(3), but an attempt to deter national courts from the use of acte clair by setting forth conditions that no national court could realistically satisfy. However, examples abound of Member States’ supreme courts not making a reference under Article 177(3) on the grounds of acte clair.”) (citations omitted).
[137] Mark A. Pollack, The New EU Legal History: What’s New, What’s Missing?, 28 Am. U. Int’l L. Rev. 1257, 1270–75 (2013).
[138] CILFIT, supra note 135, at 13.
[139] House of Commons European Scrutiny Committee, The Unified Patent Court: Help or Hindrance?, 2010–12, H.C. 1799-I, ¶ 64–65 (U.K.).
[140] Critiques often make the same claim about the Supreme Court. While reasonable minds might disagree over the correct statutory interpretation or policy choice that the Supreme Court makes in patent law, it is absurd to accuse them of making their decisions because they do not understand it. Michel, supra note 80, at 1753.
[141] Jennifer F. Miller, Should Juries Hear Complex Patent Cases?, 2004 Duke L. & Tech. Rev. 4, at 1 (“Some commentators argue that a ‘complexity exception’ to the Seventh Amendment right to a jury trial should be invoked”).
[142] If the technical aspects are relevant to the legal interpretation, they can use a technical advisor as well though. Craig & de Bœrca, supra note 55, at 493–94.
[143] Brady, supra note 117, at 42.
[144] Mullally, supra note 93, at 1112.
[145] Agreement, supra note 3, art. 83; see England, supra note 26, at 917.

Application of a Mechanism of Proportional Rewards towards Global Innovation

Application of a Mechanism of Proportional Rewards towards Global Innovation
By Esteban Donoso* Download a PDF version of this article here. An application of the formula and data described in Part II.B. of the paper may be found here.  


The intent of this paper is to offer a mechanism for the application of a very simple and novel idea: the insertion of the principle of proportionality in the current international scheme of invention protection.[1] Those who have more should contribute more. This paper proposes a very simple formula to extrapolate this general principle of law (proportionality) to the international patent scheme as implemented by the Agreement on Trade-Related Aspects of Intellectual Property Rights (hereafter “TRIPS Agreement”). In relation to the global protection of inventions, John Sulston, winner of the Nobel Prize in physiology, asserted: “harmonization is obviously desirable in the long term, provided that at the same time the world becomes more egalitarian.”[2] I agree. As discussed in my previous work, this hypothetical scheme could provide more space for harmonization.[3] First, proportionality could make the system more equalitarian with one single change.[4] Then, as a second step, it could induce the proper application of the TRIPS Agreement’s regulations in each country by punishing inadequate protection, and could even weigh disparities among countries’ laws compensating those countries which reward fields that other countries exclude. This second step still needs further analysis. This paper only addresses the implementation of the first step of this new concept. This paper first provides a general overview of the current patent system. It then addresses the proposal from a quantitative prospective, presenting a very simple mathematical mechanism for the implementation of a proportional reward system. It concludes with a practical proposal, while recognizing that there could be many methods to this end. The mechanism presented tackles the first of the proposal’s objectives, which is to establish a global proportional reward system based on the economic status of the countries in question. As can be seen in the chart at the end of this paper, this proposal renders a realistic result, making it politically feasible. The next step will be to include in the equation incentives to effectuate protection.[5] This paper seeks to establish a starting point for discussion, not to provide all the answers that such a scheme will need.

I. Background of the Current Global Scheme

The subjectivity inherent to the protection of inventions is a consequence of its very nature. The object of protection and duration are subject to the discretion of human conceptions. Thus, conceptually at least, we all can dream of different patent schemes, or even the inexistence of one. Nonetheless, there is a 20-year-long international status quo that has proven difficult to change.[6] Over time, intellectual property evolution has determined that the current patent protection system is global, definitively linked to commerce, decentralized, and a one-size-fits-all system.[7] Many would like to see this structure change, by eliminating or amending one or many of these characteristics.[8] Many others would like to see one or more of these characteristics strengthened. The system of proportionality proposed in this paper is not intended to change the overall nature of the current system, but to improve it by addressing some of the issues raised by those concerned with the current systems characteristics. In that sense it has a marked status quo bias, which provides it with political pragmatism.[9] Addressing the discussion of the international patent system with a status quo bias implies that intellectual property rights are here to stay.[10] Thus, this paper does not tackle the “eternal” and unanswered causality question: does protection produce innovation, or, put it in a more general way, does the patent system “confer a net benefit or a net loss on society.”[11] There is no concluding empirical evidence available to properly answer these questions.[12] The ideas herein proposed refrain from engaging in this unsolved debate. This paper provides a solution for the status quo, which will be on its own quite an achievement. In practical political terms, to improve the status quo a global consensus should be accomplished. In order to achieve this seemingly impossible goal, the proportionality proposal gives attention to some of the concerns expressed by both sides of the controversy, by means of symmetry.[13] What if those who say that the current patent system is key for innovation are absolutely right? What if those who say that the patent system does not work at all are absolutely right?[14] The answer for both questions, from an international commercial point of view, is that we should carry the burden of our mistakes or the cost of our mastery evenly, and thus proportionally to a countries’ economic capacity. In this hypothetical system the interest in finding the right balance of protection will be higher, as the effects that a disproportionate protection potentially carries will be felt equally in all countries regardless of their state of economic development. This is the conceptual advantage of a proportional system. The query does not stop here. It could be posed in regard to the amount or level of protection as well: are 20 years of exclusivity too much or not enough? What if the lack of enough protection is, for example, what has kept us from cold fusion?[15] This is a threshold public good in the sense that, theoretically at least, with enough research and development it could be produced.[16] To this end, the International Thermonuclear Experimental Reactor, a global project financed by international cooperation, seeks to generate unlimited virtually clean energy at a marginal cost of zero.[17] This, arguably, could be humanity’s greatest achievement (this could be the case of many other technologies not even conceivable at this point in time). The present study does not examine this question, though. It takes the current contribution, the status quo of twenty years, as a starting point. It argues for proportionality among the contributors, not for the perfect amount of contribution. Such a goal could only be attempted, if ever, after this first step is accomplished.[18] This proposal’s possibility of success rests in a commercial approach. The current regulations were established and are managed within the World Trade Organization framework.[19] Stiglitz, referring to the WTO, thinks that “[t]rade negotiators have little incentive to think about the environment, health matters, or even the overall progress of science.”[20] Their mandate is to care for their own, for their national trade. It is evident why developing countries will like the proportionality proposal, which would grant shortened periods of protection in their circumscriptions. Why would countries that would have a longer period of protection under this proposal, typically inventive countries, agree with it? The answer is simple. There are potential gains from trade. As the late Garry Becker put it (with regard to pharmaceuticals): “The burden of paying for the development of the world’s new drugs, however, falls overwhelmingly on Americans: Most other nations impose controls over drug prices or undermine patents through allowing cheaper generic copies. As a result, the U.S. is by far the most important market for recouping investments in new drugs….”[21] This situation was not the intention of the rules that set the status quo (the TRIPS Agreement), but rather is the reality. Developing countries have furiously proclaimed that the TRIPS Agreement was imposed on them, causing much harm and little good.[22] Many important academics have legitimized this discontent, creating a “letter of marque” for individuals and even countries to disrespect the global regulations on intellectual property.[23] As a consequence, the coercion of the WTO in this issue has been undermined, since it is impossible (in light of the moratorium), and even politically inconvenient, for inventive countries to tackle every violation. The political feasibility of the proposal rests under the assumption that, with proportionality, patent enforcement would improve in those countries in which it is deficient. Proper enforcement would not burst spontaneously from the application of proportionality, although a psychological effect towards this result could come from it.[24] Channels to achieve a proper application of the regulations by the different countries should be part of the compromise. Furthermore, as stated in the conclusion of this paper, a weighing mechanism that takes into account proper application of the rules, could be embedded in the formula presented.

II. The Mechanism and Its Results

A. Basic Economic Considerations

From the previous segment we can draw the following broad and general conclusion: there is a disagreement regarding the utility of creating rights over inventions, yet humanity is entrenched in the current global system. To introduce proportionality in the current system is, assuming the system’s main characteristics are impossible to change, compatible with both sides of the divergence. From a global theoretical perspective, stripped from nationalisms (the analysis of the advantages for a particular country), there conceptually will be motives to introduce proportionality for those in both poles of the divergence (and those in between), if the change does not increase the size of the “mistake” (in this context the “mistake” will be defined differently by those in either pole of the divergence), and if at the same time offers any additional advantage.[25] If there is not an additional advantage, an academic will at least remain indifferent. The good news for the proposal is that proportionality does offers additional advantages. According to the proportionality proposal, innovators will receive at least the same reward as currently allotted, with a potential for increased revenue from the proper application of patent’s rules.[26] Also, the main source of economic inefficiency of the system (deadweight loss) will globally decrease, which will be advantageous to the overall global economy, particularly for innovators. Finally, access to new technologies will increase worldwide, which from a social point of view is of enormous importance. Nonetheless, not everyone will be a winner.[27] The negative effects created by the patent system will be reduced overall in a global scale, but will increase among the richest countries, proportionally to their wealth.[28] Even though the patent as an incentive system is far from receiving unanimous support, there is an agreement on its main problem: deadweight loss.[29] “Deadweight loss occurs when people are excluded from using the good even though their willingnesses to pay is higher than the marginal cost.”[30] From an economic point of view there is a net social loss because the sale is not produced. There is also an access problem. Stiglitz puts this in a necessarily crude social context with regard to medicine: “To an economist, this disparity between price and production cost is simply an economic inefficiency; to an individual with AIDS or some other life-threatening disease, it is a matter of life and death.”[31] Another comparatively less serious problem from the patent system is the reduction of consumer surplus (antitrust laws are mainly devoted to avoid it; patented products’ sales are generally exempted from this regulations, though). Some consumers do not get excluded from using the patented good by paying more for it than the marginal cost. While this raises a distributional concern, it is not a social net loss. “A dollar is a dollar, no matter whose pocket it is in.”[32] Weighing the length of the patent so that consumers with higher income on average have longer periods of protection is the proper solution for dealing with deadweight loss, without affecting the current global reward. This could be done only if the reward that innovators lose in one country through shorter periods is compensated by a longer period in another country.[33] Under this proposal, limiting the time of the patent in poor countries reduces deadweight loss in those countries, evidently, but also increases that loss in the richest countries that will have to give longer periods of protection. The first and obvious justification for this is simply to create a global patent system that includes the proportionality principal found in law in general (taxes, for instance, are a classic example, but not the only one[34]), but it may be that the world has not gotten to the stage in which such a thing is possible.[35] I will show, through an abstract model, that a year of protection in a richer country is more benevolent for the overall global economy than a year of protection in a poorer country. Economic efficiency is, thus, another powerful argument in favor of this proposal. (Equality among contributors in relation to their economic capacity, and the increased probability of a renewed agreement around it, is probably still the most powerful argument.) This is a novel proposal, so there is no previous economic analysis to rely on. Nonetheless, the model seams to accurately describe the reality, given the assumption in which it rests. This model addresses the issue abstractly, from an aggregate point of view. The “x” axis indicates quantity, in an abstract way. The “y” axis indicates the average prices paid for technology relative to income, i.e., relative to each country’s average purchasing power. In the model I am assuming the possibility of price differentiation is not presented.. Prices relative to income paid for technology in a richer country will be on average lower than in a poorer country. The elasticity represented below could be any since no specific values are given in the “x” and “y” axis, and, more importantly, the result is always the same with whichever elasticity the demand curve could have. If two countries have the same number of habitants, and one is richer than the other, all other things equal, the exclusivity in a poorer country will produce more deadweight loss than in the richer country.[36] In the case of a higher average price paid in relation with income, less quantity would be sold. At a price “y’” (for the poorer country), the quantity will be “x’.” For a lower price “y” (for the richer country), the quantity will increase at “x”. Deadweight loss for the richer country is represented by area f. Deadweight loss for the poorer country is represented by areas d, e, and f (it is always less for the richer country). Consumer’s surplus that remains is represented by area a in the case of the poorer country and areas a, b, and d in the case of the richer country. The conclusion of this model hold water for all cases in which the demand of the richer country is more inelastic than the demand of the poorer country, since the price is lower for the rich country (thus one side of the triangle that represents deadweight loss will always be shorter) and the hypotenuse (the side opposite to the right angle) will also always be shorter for the rich country (inelastic demand curve is steeper).[37] Although it is a simple and static model (it compares two countries at the same moment in time), the model determines a clear and logical tendency. If the proportionality mechanism is weighed properly, deadweight loss effect could be diminished overall in the global economy. That is why the mechanism I present in this paper uses Gross Domestic Product (GDP) per capita as a weighing instrument. Gross Domestic Product per capita, which reflects an average income of the citizens of each country, is a good indicator of willingness to pay. There are other indicators, like purchasing power parity indicators, but more data is available for GDP per capita. Moreover, for the case of essential innovations protected by patents (life saving drugs, for example), the countries with higher GDP per capita will be better equipped to provide these goods and services for their citizens that otherwise could not access them (depending in each country’s policies, of course, but more GDP per capita at the very least gives margin for such a policy). From a social perspective this is huge, plus the sale will take place, limiting even more deadweight loss. Furthermore, price discrimination and the interaction of this practice with the regime of exhaustion of rights, and the appearance of close substitutes for patented products in the market should be taken into account in order for a complete economic analysis. Up next these issues are revised in light of the proportionality proposal.
1. Close Substitutes
Both deadweight loss and reduction of consumer surplus could be more or less acute, depending on whether the patented good has a close substitute in the market.[38] “Moreover, the magnitude of the rents to inventors under a patent system is reasonably correlated with the value of an invention [] monopoly rents will be greater, as indicated, the lesser the extent to which close substitutes for the patented good exist, and the greater the degree to which consumers value it in excess of its cost. Those are precisely the factors that determine the value of an invention to society in general.”[39] The exclusivity over inventions must be established by a general rule. It is not adjustable for each specific invention (at least as the status quo is constructed). The market will determine the economic significance of the patented product or service. The proportionality mechanism determines, in a decentralized manner, how many years of exclusivity each country should offer, taking into account its GDP per capita or other similar indicator. My proposal does not want to change this characteristic (decentralized nature), nor its worldwide, commercially linked, and its one-size-fits-all nature. That is why, under the proposed scheme, cases where the patented invention’s economic transcendence is lost or reduced due to the appearance of a close substitute on the market before the end of its term in all countries, there will not be an exact proportional reward.[40] This could be an advantage for developed countries in regard to reduction of deadweight loss (the same way that price discrimination could be an advantage in regard to reduction of deadweight loss for developing countries, as we will see up next). As times passes, the probability of a close substitute or a better technology increases. Depending on the technology field, this probability can be higher (e.g. software) or lower (e.g. pharmaceuticals), but this changes from case to case (or can even change as a trend within a given technology, i.e., a breakthrough in a given field could prompt a cascade of innovation). It is impossible to know a priori. The innovator assesses the investment, the rule makes no differentiation, and the market determines the outcome.
2. Price Discrimination
A different solution offered to the deadweight loss problem is price discrimination. For the system to be overall efficient price discrimination should globally work together with proportionality as it is commented in the next paragraphs. “The deadweight loss imposed by a monopolist can be mitigated, and possible eliminated, if monopolist can discriminate prices. […] Price discrimination can go a long distance toward redressing the inefficiency of deadweight loss, but is hard to implement.”[41] If rules to enhance international price discrimination are adopted, the tendency of more deadweight loss in poorer countries in comparison with richer countries commented in previous paragraphs will be diluted. Proportionality will still be needed, though, not to correct this focus of inefficiency, but to make the system more just (an objective on its own, which could per se lead to all the positive things that are mentioned in this paper, as enabling agreements on better enforcement, opening more room for further harmonization, etc.).[42] If such a change is not possible and international price discrimination continues to be limited, proportionality is even more necessary for the overall efficiency of the system. Price discrimination consists simply in charging a different price for the same product to different consumers. This can be done in a local/national market, as well as in the international market. Its application in the local market is very complicated due to arbitrage practices (purchasing and selling the same good to take advantage of a price difference), but it certainly can be implemented for some products. This practice in the local/national markets, when applicable (which will depend on the nature of the product), contributes to increase the efficiency of the system by reducing deadweight loss (at the same time it reduces consumer surplus).[43] Moreover, if price discrimination could be done in the international markets, deadweight loss could be reduced enormously.[44] Taking on account the model presented a few paragraphs back, if the patent holder choose to apply price discrimination among different countries taking on account their different purchasing power (charging more in one country than in another), there would not be a difference in price relative to income between the two countries. If international arbitrage is prohibited (the exhaustion regime will determine this), the patent holder could take into account the reality of each country, and set a price that is nominally different but the same in consideration to the purchasing power of each country. Because the “y” axis indicates the average prices paid for technology relative to income (i.e., relative to each country’s average purchasing power), if the patent holder chooses to set prices in relation to the economic capacity of each country, the deadweight loss will be the same for both countries. The tendency of more deadweight loss (and restricted access to innovation) that I argue exist in developing countries in relationship to developed countries will cease to hold water. There are three aspects that must be taken on account in order to properly assess price discrimination in international trade. The first one comes from the essence of intellectual property rights. It is the right of the patent holder to set prices as she wishes with out facing competition (constrained only by market forces, for example, the appearance of a close substitute in the market). The other two are exogenous factors that must be taken on account by the patent holder to make its free decision: smuggling, and the scheme of exhaustion of intellectual property rights chosen by each country. The former is an issue of enforcement. The latter is the regulation choice that each country has to make.[45] The freedom that the patent holder has to set prices means that price differentiation is a possibility, but not necessarily the unequivocal practice. Patents confer its owner exclusivity in the market. In that sense the holder could set whatever price she likes without taking on account competition. If acting rationally, she will set the price that will yield the higher profit. A higher price not necessarily results in profit maximization, if by it the patent holder excludes too many consumers. Conversely, more sales due to low prices not necessarily result in profit maximization either, if the price is to low. The optimal price, with profit maximization in mind, will depend on each product and each market. A patent holder will settle with a combination of price and quantity which yields the bigger profit, taking on account its distribution capacity, the type of consumer (e.g. a firm could have a commercial strategy that comprises establishing a “high end” status for its products), the elasticity of the demand for that product, among many other factors. Moreover the patent holder faces his own product’s competition in a given market, sort to speak, if parallel imports are permitted in that country (if the country has established a international exhaustion of rights regime, as permitted by the TRIPS Agreement).[46] In this case, the application of price discrimination by the patent holder is limited.[47] Lets assume, as economist tent to do to allow analysis, that there is proper customs enforcement, no tariffs, zero transportation cost, no transactional costs, and that the patent holder decided to set an international price discrimination strategy that takes on account countries’ purchasing power. The market of the richest country among those that have chosen international exhaustion (country x) will set the price for patented products for all countries that are poorer that this one (countries y, z), regardless if they chose international exhaustion or not. Since anyone could purchase the product anywhere in the world and legitimately introduce it to that market of country x, if the price is lower in countries y or z many could take advantage of importing the good into country x. With profit maximization in mind, the patent holder would not set different prices. She would have to set an international strategy that, as a tendency, will generate more deadweight loss and less access to the products in poorer countries. The obvious solution is to set national exhaustion or regional exhaustion (like the European market) as the international global standard.[48] This has been suggested in many occasions, but such an agreement has not been possible, because negotiations are currently blocked.[49] Developing countries, which could benefit from such a change, are probably suspicious of the system. In one hand they worry that if they set national exhaustion, their markets will be undersupplied, which could be address with proper regulation. In the other hand, they repudiate the idea (almost as a dogmatic believe) of any more power advantages for the patent holder (poor countries are reluctant to trust in the market and it effect on individual decisions; that the patent holder could practice price discrimination under national or regional exhaustion does not necessarily means she will do it). Price discrimination could certainly be an advantage for the patent holder (more sales could occur and, if well applied, it could lead to profit maximization, that will entail more incentive for innovation), but also and more importantly the overall system will be more efficient. Less deadweight loss and more access could be secured for populations in developing countries. Maybe the only way to change the attitude of the developing world towards patent protection is to renew the justice of the global scheme. Proportionality could lead the way. In the case of territorial or regional exhaustion, the patent holder will have more control over the international market of her product, while in the international exhaustion case this control will be diluted. A greater control implies more economic rights for the holder of the patent, but it should also imply more responsibility toward consumers.[50] The proportionality proposal goes together with making territorial or regional exhaustion the global standard to achieve a more efficient system, but it could go even further. Until the patent expires in the very last country (the richest, in GDP per capita), the patent holder should be entitled to know who is using, producing and selling his product elsewhere (where the patent is part now of the public domain).[51] This is not an unequivocally necessary change for the proportional system to work, but it could enhance it. Lastly, currently patent holders face competition of counterfeited products. If someone infringing the patent produces in a given market a product protected by a patent, there is an unlawful dilution of the monopolistic power. It will also be unlawful if the product is smuggled into the market, even though the product could be legitimately produced elsewhere (where the product is not patented or the patent has expired). Parallel imports generate competition for the patent holder with the patent holder’s own product, thus eliminating the possibility of price discrimination. Smuggling and counterfeiting is a problem of a different nature. It is an enforcement problem, and not a regulatory problem. In strict sense, this problem is not going to be worsened or alleviated by the proportionality proposal.[52] Both a counterfeited and a smuggled product (even though produced legitimately elsewhere) will be unlawful in the jurisdiction where the patent is still enforceable. The solution in both cases is to have better custom control.

B. The Proportionality Mechanism

Some have proposed making the system less than universal as a potential solution.[53] This proposal results in a line drawing problem: which countries will be part of the reward?[54] Both politically and economically (and logically), it makes much more sense to have a proportional reward system.[55] It is a contradiction that people in Canada- as an example of a developed country with an annual income of US$51,000 per capita- abide the existence of a legal monopoly of twenty years the same way as the people of Ecuador, a country with an income of less than US$6,000 per capita (2013 data).[56] Just by stating the above, the inadequate treatment of the regulation is revealed. By applying the proportionality mechanism to this situation, other aspects for the protection of inventions may be analyzed. If reward means technological development or even if it does not, it will be correct for humankind to assume the cost proportionally to each country’s capacity. The reward to innovators is set in years of exclusivity. This proposal entails maintaining the innovators’ current reward unaffected. This could be done only if the reward that innovators lose in one country due to a shorter period is compensated by a longer period in another country. To accomplish this, the way to establish proportionality should be creative.[57] First, it is important to establish a measure of the potential revenue that the world as a whole is currently offering innovators (no measure could be uncontested). I have chosen GDP to reflect potential revenue in the mechanism.[58] Once I settled on a measure of reward (GDP), I have applied it to assess the status quo, which is 20 years of reward for every country (WTO countries that are not in the Least Developed Country list). This is the World’s GDP multiplied by the world’s reward (20 years). This is the World’s Current Reward. This amount will have to render the same result under the proposed mechanism, in order for it to be neutral in regard to the status quo. Then, I calculated the current percentage each country gives under the TRIPS’s 20 years reward with regard to the World’s Current Reward. I then used a very basic formula to establish the proportional reward that countries should give toward innovation, measured in years of exclusivity. First, for the developing countries (as categorized in accordance with this proposal), the reward will be as so: X= (GDP per capita of each country x 20) / World’s GDP per capita Next, I assigned the result to all countries that, according to the calculation, will have to give less than 20 years of exclusivity, until the result reaches as low as 7 years.[59] Thus, 7 will be the least any country will give (this is a arbitrary determination; a new minimum should be agreed in the international arena).[60] I then multiplied the GDP of these countries (all that will give less than 20 years) by the number of years of their new reward according to this formula. This, of course, renders a lower amount in comparison to what they gave applying 20 years. This number is the Developing World’s Proposed Reward. The difference is distributed among the richest countries. Thus, the Developed World’s Proposed Reward is determined by distributing the percentage in which the reward should increase in order to cover the damages produced by the application of the proposal to developing countries. These countries carry the same “burden” regardless of their economic condition, because the additional length is directly proportional to their wealth. The damages to innovators from the application of the proposal in developing countries, is the exact amount they recoup by longer periods among the developed countries. Thus, the World’s Proposed Reward is exactly the same as the World’s Current Reward. It is important to recount some basic information of the statistical work I have done in order to obtain the results presented in this paper.[61] The figures calculated use data made available from 1960 to 2013.[62] I have established which countries are members of the WTO, which are members of the European Union, and which have the LDC category, and the dates of entrance, from the WTO, EU and UN web pages.[63] The results presented in this paper range from 2004 to 2013.[64] The formula was applied to all the countries in the world (no samples used).[65] [Editor’s Note: The application of the formula and data referenced above may be found here.] Truthfully, many issues could arise regarding this mechanism, making it unwise to present it as unequivocal. This is a modest approach by which I have attempted to prove that proportionality could render a feasible result. It clearly does (see the chart and graphic at the end of this paper). A feasible result could also be achieved with the application of different indicators, as well as with different rules.[66]

C. Expected Consequences of the Proportional System and Technical Details of the Mechanism[67]

In the hypothetical system proposed, any holder of a patent shall have the same term of protection worldwide as any other holder of a patent in a subscribing country, regardless of their nationality or the field of technology of the invention. Thus, this proposal is in strict compliance with the theories of National-Treatment and Most-Favored-Nation principles of the WTO. However, “the duration of their rights will vary from country to country, according to the economic capacity of each country.”[68] Given that the determination of the term of protection a patent is granted would be in relation to a variable factor (GDP per capita), this grant may vary over time. As a result, the frequency of revisions is a matter to be determined under consensus. In the proposed scheme the term each country offers varies automatically every year.[69] Such flexibility would be a great contribution to the system. The nations of the world could undergo economic crises for various reasons. As such, any country could benefit over the course of history with this hypothetical system (coherent with an axiological perspective), given that in a crisis scenario their inhabitants would see decreases in the period of exclusivity granted to patented inventions in their territory. This kind of solidarity undoubtedly could have a positive impact on the cohesion of humanity. If a country benefits from short-term protection, it will be because it is passing through a bad economic situation. If the struggles are resolved and the country improves its economic condition, it would then be in a position to contribute more to the technological progress of humanity. “Consequently the exclusivity period that this country grants to patent holders in its territory [would] be extended.”[70] This flexibility may also bring some practical complications that must be overcome with specific regulations.[71] There may be situations in which a patent that had expired under a previous exclusivity period would be in a position to recover its availability (or vice versa), which could in turn affect third parties. For example, the ones using or preparing to use an innovation that just became part of the public domain, or those who pay for a license in advance over a patent that is no longer available. In the first case, it seems prudent that if a patent became part of the public domain, it will not recover its availability (this could create some distortions that will run against inventors). The proposal contemplates fractions of a year for the periods of protections, so distortion could be reduced. In the second case, if the fact justifying a license disappears, the contractual obligations of this license will likewise disappear. The proportional system’s implementation will certainly bring these kinds of difficulties.[72] An additional positive consequence of the proportionality system could be to achieve technological transfers to the poorest countries.[73] A real and effective transfer of technology to those who need it the most could be achieved, under the principle of proportionality in conjunction with the global principle of free movement of the goods protected by intellectual property rights and recognized by the TRIPS Agreement. With the introduction of proportionality into the current system, the transfer of technology could stop being subject to the charity of the technological owner alone. This has not solved the technology gap. With the proposed system, the period of protection in the poorest countries will be shorter, so free competition could encourage local as well as multinational enterprises to set up technological business in these countries. Moreover, in the place where an intellectual activity occurs, it is effectively transferred, thus ensuring that the disclosure meets its real goal—positive impact on the body of knowledge for mankind. Under this hypothetical scenario, the global free market could attract industries to these countries in which new inventions could be exploited freely.[74] The discontent with the system of protection of inventions has even gone to the point that Thurow has asserted that the path to development is in disrespecting intellectual property rights: “copying to catch up is the only way to catch up. Every country that has caught up has done it by copying. Third World countries know that unless they can acquire the necessary knowledge, they will never make it into the First World. They cannot afford to buy what they need–even if those who have the knowledge were willing to sell, and they are not. So they have to copy.”[75] In the light of proportionality, the discontent will not have to be resolved by cheating. In accordance with the principle of the TRIPS Agreement under which the importation of a product is considered an exploitation of the same, competitors in a given industry could be interested in establishing their presence in the poorest countries to advance efforts to produce technology released earlier under this system. Eventually they could export to the rest of the world, waiting for the gradual release of the patent worldwide. Everyone could produce freely (in that particular market) the new advancements of humankind, thus supplying that market first and then exporting from it to other countries when the patent term has expired. The proposal contained in this study could help to establish a real technological transfer system, fulfilling a basic objective of the patent system. If this proposal comes to be implemented, in order for it to work optimally, a territorial (as opposed to international) exhaustion system should be established as the global standard.


I started this paper with a statement: to completely change the system is an unrealistic dream. Although the malleable nature of intellectual property conceptually permits it, the strong status quo precludes it. Thus, I focused the analysis only in the introduction of proportionality into the current system.[76] Nonetheless, if the world could agree to apply a mechanism like the one proposed in this paper (or any other that render a proportional reward), maybe we can dream again. I believe that a major reform could be constructed around proportionality. Scholars have addressed many issues of the system of invention protection, and clever solutions have been proposed that should be taken into consideration if a proportional reward opens the way to further consensus.[77] I will indulge myself by stating only two ideas in this conclusion, of the many possible additional reforms that could be envisioned after proportionality. The first relates to a concrete alarming deficiency of the current system: orphan or neglected diseases. The second is a very brief statement of an ulterior and broader dream: a global patent.[78] The only way for new drugs to be developed for orphan or tropical diseases is for investments on these drugs to be rewarded. Only developing countries’ markets could do so. A deep study of the relevant market for these kinds of diseases should be provided to reach necessary conclusions, but these potential markets could be attractive enough if the conditions for reward are improved. Developing countries have been advised to award compulsory licenses, establish exemptions to the patentability, and be very strict with patent examinations. As the system is now conceived, this was probably the wise way to act, although it did not create an incentive for investment in needed areas.[79] This consideration could be extended to innovation other than drugs, but the need is not felt so strongly elsewhere. If the previous is acknowledged by developing countries and the system ceases to be perceived as harmful (or at least to be perceived as unequally harmful), the path to further consensus could be opened. To achieve the dream of a single global patent, only one administrative procedure and one global administrative authority to grant a patent and make it available in a global scale should be available.[80] To walk toward a single global patent, consensus over the definition of prior art, novelty, inventive step, and utility should be present worldwide. In the proposed hypothetical system, the negative effect from a legal monopoly will be felt proportionally in relation to the economic capacity of each country and its people. All the countries in the world will shoulder the burden of protection equally in proportion to the economic capacity of each country, so the weight of the burden could be collectively decided. The same will be true for the exceptions and limitations to patentability, which in the current system may be established.[81] From the economic point of view, as the system is now conceived, developing countries find a restricted scope of protection convenient. Ethical implications have been used as a strong argument to dismiss the patentability of biotechnology, for example. It has become the main bargaining tool for developing countries to maintain this exception. Ethical opposition to this kind of innovation has profound goals. On the other hand, the potential benefits that could come from research and development in biotechnology are huge. A serious debate on this issue will be possible if the economic consequences of its conceptualization were to be assumed proportionally by the different countries in application of the proposed proportional system. In a proportional system, it is in the best interest of all countries that the scheme works well. As innovation will be a truly cooperative effort, it will be important to ensure that all cooperate accordingly and to avoid the typical free-rider problem. In that spirit, the system could compensate inventors for improper applications of the regulation. Thus, penalties could be established in the form of longer periods of protection for those countries that do not protect patents in a suitable way. Moreover, such a model, could also weigh the exceptions and limitations adopted by each country under the TRIPS Agreement. A deep economic and legal analysis will be needed. This analysis should address the following issues: the determination in each country of the novelty, inventive step and industrial application concepts; exceptions on the patentability that have been used in some countries under the TRIPS provisions (ordre public, health, environment, biological material, plant varieties, discoveries, “second-use patents” and, diagnostic, therapeutic, and surgical methods);[82] exceptions and limits to the rights conferred by a patent (ipso iure limits, compulsory licenses, exhaustion of rights and parallel imports); and clinical trial and data exclusivity in pharmaceuticals.
* Professor Católica del of International Agreements of Industrial Property, Pontificia Universidad Ecuador (PUCE), Law School, Quito, Ecuador. LL.M. Candidate, class of 2015, NEW YORK UNIVERSITY (NYU) SCHOOL OF LAW, New York, NY. Magister, 2009, Universidad Andina Simón Bolívar (UASB), Quito, Ecuador. Abogado (Esq.), 2006, Pontificia Universidad Católica del Ecuador (PUCE), Quito, Ecuador. I want to thank my friend Jorge Baez for his help with this article. He is not responsible for any error that it may have.
[1] For further discussion of the principal of proportional protection of inventions see Esteban Donoso, A Global Solution for the Protection of Inventions (2014); Esteban Donoso, Justicia, Vigencia y Eficacia del Régimen Internacional de Patentes de Invención (Univ. Andina Simón Bolívar – Ecuador & Corporación Editora Nacional, Serie Magíster No. 98, 2011), available at
[2] John Sulston, International Patent Law Harmonization 3 (Mar. 1, 2006), Presented at the WIPO Open Forum on the Draft Substantive Patent Law Treaty, available at For a statistical analysis of the implication of patents on follow-on research, see generally Bhaven Sampat & Heidi L. Williams, How Do Patents Affect Follow-On Innovation? Evidence from the Human Genome (Oct. 26, 2014) (Preliminary Draft), available at
[3] See Donoso supra note 1.
[4] Proportionality may be introduced without upending the entire system, but through modification of article 33 of the TRIPS Agreement. This proposal does not seek to overrule the current global agreement. The political issue should be recognized with pragmatism, as it is further developed.
[5] Eventually, according to the TRIPS Agreement, countries will be able to activate the disputed settlement mechanisms in cases of deficient application of TRIPS’ regulation. The decision at the Bali Ministerial Conference of 2013, however, extended once again the “moratorium” on non-violation disputes regarding intellectual property. TRIPS: ‘Non-Violation’ Complaints–Background and the Current Situation, WTO, (last updated Dec.3, 2009). Proportionality could finally unlock the door of the “moratorium.” See Conclusion, infra.
[6] According to the TRIPS Agreement, a review was to take place four years after the entry into force of the WTO Agreements . Although the TRIPS Agreement was signed 20 years ago, no revisions have yet occurred. Overview: The Trips Agreement, WTO (last visited Nov. 19, 2014).
[7] “The TRIPS Agreement, which came into effect on January 1, 1995, is to date the most comprehensive multilateral agreement on intellectual property.” Overview: The Trips Agreement, supra note 6. Its worldwide, linked-to-commerce characteristics come as a consequence of the WTO. Its decentralized nature is commented in the next footnote and its one size-fits-all nature is commented in footnote 49.
[8] As per the decentralized nature of the current global system, it goes without saying there are ways to give incentives other than by patents, which have advantages and disadvantages. “Whereas wealthy benefactors and governments can indulge in basic science and curiosity-driven research, a research agenda driven by patents is hostage to the market and to consumer sovereignty. The consumers who are sovereign are those with resources.” Suzanne Scotchmer, Innovation and Incentives 2 (2006). Many could dream of a global prize system. In the case of pharmaceutical research, for example, Joseph Stiglitz has proposed a “guarantee fund” (developing countries extending a purchase guarantee) and an “innovation fund” (a global prize rewarding research for widespread, costly diseases of particular concern to developing countries). Joseph E. Stiglitz, Making Globalization Work 124 (2006). Different countries could and would still use prizes and incentives other than patents to spur innovation. This is not precluded by the current system, and of course would still happen under a proportionality scheme, which is without any doubt commendable.
[9] See William Samuelson & Richard Zeckhauser, Status Quo Bias in Decision Making, 1 J. Risk & Uncertainty 7, 45-46 (1988).
[10] “To the extent that property rights become established in the status quo, any attempt to move away will be blocked. … The status quo persists, and those who propose a change merely incur the wrath of others.” Id. at 46.
[11] Subcomm. on Patents, Trademarks, & Copyrights of the S. Comm. on the Judiciary, 85th Cong., 2d Sess, An Economic Review of the Patent System (Comm. Print 1958) (prepared by Fritz Machlup), available at (hereinafter, An Economic Review).
[12] On October 24-25, 2014, NYU Law’s Engelberg Center launched the Innovation Law & Policy Empirical Research Initiative. See Program, NYU Law Engelberg Ctr. on Innovation Law & Policy, Empirical IP Research Conference (Oct. 24-25, 2014), The event started by quoting Fritz Machlup’s An Economic Review, supra note 11, and then asking: “In 1958, economist Fritz Machlup famously concluded that ‘none of the empirical evidence at our disposal’ either confirms or confutes the belief that the patent system has promoted the progress of the technical arts and the productivity of the economy.’ Can we say more than that today about the causal relationship between patenting and innovation? What can modern econometric and experimental approaches tell us about the effects that patenting has on the amount and direction of innovation?” Id. at 2. The consensus of the participants (academics, economist, lawyers, and statisticians from around the world) was that, as in 1958, there is no irrefutable empirical evidence to reach to a conclusion. To quote Machlup, “Scholars must not lack the courage to admit freely that there are many questions to which definite answers are not possible, or not yet possible. They need not be ashamed of coming forth with a frank declaration of ignorance. And they may make a contribution to knowledge if they state the reasons why they do not know the answers, and what kind of objective information they would have to have for an approach toward the answers.” Id. at 79. This is exactly what the initiative comprises. The conference was the kick-off event of this ongoing initiative. The empirical initiative is commendable.
[13] Two poles of opinion have been generated. The current scheme rests on the assumption that exclusive rights over an invention spurs innovation. As Richard Epstein puts it, “[s]ocial progress in our technological age is intimately bound up with the creation and protection of intellectual property,” implying that technical progress is a product of the protection of intellectual property. Richard A. Epstein, Mfg. Inst., Intellectual Property for The Technological Age 7 (2006). Many others think that intellectual property appears as a consequence of the interest of those who first created new technologies and who wanted to exclude others form using it. Thus, they think that intellectual property comes as a consequence of technological progress, and not that technological progress came as a consequence of intellectual property. Some call for the “abolition of all forms of private property in ideas.” Eben Moglen, The dotCommunist Manifesto 6 (Jan. 2003), available at Many adhered to the patent paradox theory and think that the patent monopoly leads to the destruction of competition and ensures protection only for powerful companies. Many others think that without reward there is no chance of technical progress. There is no unequivocal answer. Proportionality could probably help answer this question in the future, in the sense that it could sincere the positions of the different countries (and those who, in the academic sphere, are influenced by nationalism).
[14] These rhetorical questions are posed as if one of the two extreme positions is right. Probably the correct view sits in the middle.
[15] The answers could probably come from, among many other angles, a contributor’s game perspective. It appears that public goods with lower thresholds and higher rewards are more likely to be provided. Current models apply for threshold public goods, which, due to the lack of certainty of a patentable result, most individually considered potential innovations are not. For an example of a threshold case study, see Scott Barrett, The Smallpox Eradication Game, 130 Pub. Choice 179 (2006). Regarding public good provision, see generally, Charles Cadsby & Elizabeth Maynes, Voluntary Provision of Threshold Public Goods with Continuous Contributions: Experimental Evidence, 71 J. Pub. Econ. 53 (1999); Ramzi Suleiman & Amnon Rapoport, Provision of Step-Level Public Goods with Continuous Contribution, 5 J. Behavioral Decision Making 133 (1992); Hans-Theo Normann & Holger A. Rau, Simultaneous & Sequential Contributions to Step-Level Public Goods: One vs. Two Provision Levels, J. Conflict Resolution (forthcoming, published online before print May 6, 2014), available at
[16] In that sense, cold fusion is different that most research for innovation. A priori it is impossible to know if a specific research will render a patentable result. This is another fact that those in favor of the patent system invoke. “After the fact, patents are inconvenient because they restrict the use of valuable inventions. But before the fact they are necessary to create those same inventions. No one can assume that valuable inventions will pop up magically in the public domain if their inventors received no reward for their labor and capital. Most inventions are costly to design and fabricate.” Epstein, supra note 13, at 10.
[17] “ITER was first proposed in 1985, during a tense summit in Geneva between Ronald Reagan and Mikhail Gorbachev, who agreed to collaborate ‘in obtaining this source of energy, which is essentially inexhaustible, for the benefit for all mankind.’ Since then, the cooperation has expanded to include the European Union, China, Japan, South Korea, and India…. No one knows ITER’s true cost, which may be incalculable, but estimates have been rising steadily, and a conservative figure rests at twenty billion dollars—a sum that makes ITER the most expensive scientific instrument on Earth.” Raffi Khatchadourian, A Star in a Bottle, New Yorker, Mar. 3, 2014, available at
[18] This paper does not seek to establish the equilibrium or the optimal period of extension for a patent, just for an equitable reward. Proportionality could make it easier to obtain objective economic conclusions and consensus, if the patent monopoly is shouldered proportionally by the different countries or trade regions of the world.
[19] There is a lot of criticism regarding the linkage of intellectual property and international trade regulations. “Discussions over global standards for intellectual property should be taken out of the WTO and put back into a reformed WIPO, a World Intellectual Property Organization in which the voices of academia as well as corporations, consumers as well as producers, the developing as well as the developed countries, are all heard.” Stiglitz, supra note 8, at 128.
[20] Id. at 131. “The environment is the problem of the environmental minister, access to lifesaving medicines is the problem of the health minister, and the overall pace of innovation is a problem of the education, research, and technology ministers. So while trade agreements affect all of these areas, those who worry about them are not at the table.” Id.
[21] Gary S. Becker, “Get the FDA Out of the Way, and Drug Prices Will Drop,” BusinessWeek, Sep 16, 2002, at 16, available at
[22] For a historical recount of developing countries’ perspective view, see Donoso, A Global Solution, supra note 1, at 8-44.
[23] A certain general tone of condemnation to patent holders, especially against pharmaceutical companies, has been present in the international arena since the late 1990s. “Pharmaceutical companies filed a lawsuit against the government of South Africa to contest the government’s ability to use WTO access provisions—in this case, compulsory licensing—to make HIV/AIDS drugs available there. The case was dropped in April 2001.” Stiglitz, supra note 8, at 316 n.40. From then on the trend has been the same. For instance, Stiglitz describes developing countries that do not act like Brazil, which used its bargaining power and compulsory licenses threats to get a deal from Abbott for an antiretroviral medicine, as “less astute.” Id. at 121. This letter of marque is even given to developed countries. “Myriad [Genetics] eventually developed a [cancer] screening technology, and asks $3,000 for a complete screen; it refuses to let other firms perform the screen. The province of Ontario is ignoring this, allowing its citizens to be screened for free.” Id. at 314 n.26.
[24] See Donoso, A Global Solution, supra note 1, at 117-119.
[25] For a complete review of the axiological justification of this proposal, taking in account the positions of developed and developing countries, see Donoso, A Global Solution, supra note 1. The analysis in that study was developed based upon a triple validation criterion of the examined regulation, intending to unravel the justice, validity (its applicability) and effectiveness (understood as the ability of the rule to achieve the intended result) of the global patent system. If all of these potential properties of the rule are present in a given regulation, the rule achieves an optimal impact on society. Italian philosopher and historian, Norberto Bobbio, championed this way of analyzing regulations in some of his academic production (his main works have not yet been translated to English). In a very basic explanation, he states that when facing any regulation we can establish a triple order of problems: 1) if it is fair or unfair; 2) if it is valid or invalid; 3) if it is effective or ineffective. Put differently, regulations pose three different problems: one of justice, one of validity, and one of effectiveness. Norberto Bobbio, Teoría de la Norma Juridíca at 45-55 (Jair L. Vieria ed., EDIPRO 2001) (1993), available at
[26] From stage one of the application of this hypothetical system, firms that produce new technology will be better off due to the overall decrease in deadweight loss (an intrinsic advantage of the proportionality system, that entails more sales), plus a smother “collection” of that reward since it will be increased, as a compensation for shorter periods in poorer countries, in countries in which enforcement is typically done properly (an exogenous advantage of the system). More should be done to generate a proper application of the regulation in a worldwide scale (stage two). The agreement not to use TRIPS non-violation cases in dispute or settlement cases should probably (gradually) end in the face of proportionality (Article 64.2 moratorium, see supra note 3). For example, an initiative by the World Customs Organization (WCO) and the World Intellectual Property Organization (WIPO) to permit customs authorities to resolve intellectual property issues in situ has been discussed in the past years (7th and 8th WCO Counterfeiting and Piracy (CAP) Group Meetings, Brussels, Belgium, October 23 and 24, 2012 and May 6 and 7, 2013. WIPO, Recent Activities of WIPO in the Field Of Building Respect For Intellectual Property, WIPO/ACE/9/2 (Jan. 22, 2014), at 9,
[27] A very interesting analysis comparing elasticity of public and private goods gives this paper a very applicable, almost ad-hoc, frame to argue for its feasibility. “I find that increases in price greatly diminish the proportion of people willing to pay for consumers goods, such as housing and hardback books; whereas the proportion willing to pay more in taxes to support a public good, such as environmental protection or shelter for homeless, is much less responsive to changes in price.” Donald P. Green, The Price Elasticity of Mass Preferences, 86 Am. Pol. Sci. Rev. 128, 128 (1992). “Thus, not only are economic and political decisions different in character, but the fact that these decisions take place in different environments helps to sustain the schism between the consumer and the consumer’s less price-conscious alter ego, the citizen.” Id. at 140.
[28] Countries with a higher GDP per capita will have longer periods of protection, thus increasing two problems that the patent system generates (deadweight loss and reduction of the consumer surplus).
[29] See Epstein, supra note 13, at 10. “The hard social question is whether the law should grant the exclusive right that raises the price above [the] marginal cost. The question would receive an easy affirmative answer if creating this monopoly carried no social price. But unfortunately the price paid comes in the form of dead-weight social losses.”Id.
[30] Scotchmer, supra note 8, at 36.
[31] Stiglitz, supra note 8, at 124.
[32] Epstein, supra note 13, at 10. “That … payment is not a social loss because any losses to purchasers are exactly offset by gains to the patent holder.” Id.
[33] “Because the invention goes into the public domain at the expiration of the patent, the deadweight losses are incurred only for a limited period of time.” Epstein, supra note 13, at 11.
[34] Another scholar has proposed a classification according to the economic capacity of the various countries in the patent system in terms of maintenance fees and annuities. See Lester C. Thurow, Needed: A New System of Intellectual Property Rights, 75 Harv. Bus. Rev. 94 (Sept. 1997), available at This proportionality Thurow proposes is being applied to the international filing of patents under the Patent Cooperation Treaty (PCT). Under it, for example, citizens from certain developing countries are eligible for a 90% decrease of the PCT patent application fee (a few years prior, it was a 75% decrease). See also PCT FAQs – Question 9, World Intellectual Prop. Org., (last visited Nov. 19, 2014). (showing a link between the principle of proportionality and the patent system).
[35] “If the proposed corrective is introduced in the current regime of protection for inventions, the countries with better economic situation should extend the period of protection for inventions in their territorial constituencies while the poorest countries will see the periods of protection reduced. The insertion of the proportionality principle in the current regime of protection for inventions is a useful tool to correct the system taking into account the claims of both developed and developing countries, although the populations of developed countries will suffer more years of exclusivity than what they do nowadays and certainly more years of exclusivity than populations of developing countries. [If] more reward means more development … the key is to have that reward come in a way so that it can be afforded. That being reflected, not only would a proportional justice be achieved, but also an event of global generosity without precedent in the history of mankind would be witnessed. Hobbes’s [sic] theory would be proven wrong, and cohesion of humanity would be envisioned as global. The Achilles heel of the idea presented in this book is that it maybe utopian; it would not be surprising that once again it is proven that homo homini lupus.” Donoso, Global Solution, supra note 1, at 129-30.
[36] The area under the demand curve is the consumers’ surplus that would exist at a competitive price of 0. Marginal cost is represented by line xo, assuming 0 cost for reproducing all patented inventions, which is obviously not true (there is always a cost, which is typically much lower that the monopolistic price). This assumption in the chart certainly serves the analysis (if not we should establish a proportion–or percentage—of the marginal cost in relation to the per capita income of each country, that will complicate the graphic unnecessarily).
[37] From an aggregated point of view (demand for all technologies) the case in which the demand curve of the poorer country is more inelastic will be rarer since prices have bigger impact in persons with lower income.
[38] “The initial model stipulated falsely that every patent holder enjoys both a legal and economic monopoly in the relevant market. Functionally, that statement means that buyers have no close substitute for the patented goods. But new entry of rival technologies, patented and unpatented, frequently undermines that assumption.” Epstein, supra note 13, at 11. Nonetheless, the cases of “me-too drugs,” “follow-on drugs,” or “inventing around,” for instance, have been looked as an economic efficiency problem, since investment is directed where it is not needed. However, there have been examples of real technical improvements derived from these investments. “Drug companies expend huge amounts of money coming up with drugs that are similar to existing drugs but are not covered by existing patents; even though these drugs may be no better than the existing ones, the profits can be enormous.” Stiglitz, supra note 8, at 110. “In some cases, through better marketing, follow-on drugs have sometimes done as well or better than the original drug. For instance, Zantac was a ‘me-too’ anti-ulcer drug that followed on from the pathbreaking drug Tagamet (based on research that received the Nobel Prize). While some research suggests that Zantac did not, in general, outperform Tagamet, because of better marketing it out- sold it. (Its success may also be related to its having fewer side effects.)” Id. at 313 n.18. Consumers value functionality differences even within close substitutes. Moreover, if the market is worth it and the investment is done, this could generate technological competition, creating substitutes, that could tackle the consumer surplus issue.
[39] See Alan O. Sykes, TRIPs, Pharmaceuticals, Developing Countries, and the Doha ‘Solution, 13 (John M. Olin Program in Law & Economics, Working Paper No. 140 2002), available at
[40] A close substitute for the patented product could appear and change the patent economic significance, any time before it expires in the country with a higher GDP per capita, which will give the longer period of exclusivity in the world within its circumscription.
[41] Scotchmer, supra note 8, at 36.
[42] The proportionality system presented in this paper aims to correct the fact that the scheme is currently imposing charges in an inequitable way to all contributors, thus creating resistance to the structure itself and ultimately hindering innovation. Even if price discrimination could be enabled, proportionality is needed. The overall purchasing power differences (the economic differences among countries) will still remain in the presence of price discrimination.
[43] The implementation of price discrimination is hard to instrument in local markets. “Our simplified model assumes that the patent holder charges all users an identical price, even if each has a different reservation price. But sometimes a patent holder knows enough about his customers to charge different prices to different classes of users. If the patentee knew the reservation price for each potential buyer, it could sell each buyer just the quantity it needed for a price just below that reservation price. That strategy, if it could be implemented, would eliminate all the deadweight loss (and, of course, any consumer surplus). […] Apart from any distributional concerns, the total output would equal that under pure competition. In practice, any metering device is likely to be imperfect, as when the sale of toner is used to monitor price differences for printing devices [he cites an example on this regard]. But the overall tendency is still clear”. Epstein, supra note 13, at 11.
[44] Parallel imports means foreign trade could be done outside the official network. This could be very problematic in the pharmaceutical field. Many countries subsidize pharmaceutical products or bargain special prices with drug manufacturers through their public social care provider. Nonetheless, regulated markets, like medicines, seem to be less vulnerable to circumvention. “There are already huge price differences around the world, and only limited circumvention, largely because this is a highly regulated industry [the pharmaceutical industry], with imports tightly controlled, and with most purchases paid by third parties.” Stiglitz, supra note 8, at 315.
[45] The developing countries are identified with the theory of international exhaustion, while developed countries have usually established in their legislation regional (European Union) or national exhaustion (with the exception of Japan that generally uses international exhaustion, with a caveat regarding grey market products in which contractual restrictions on importation may apply). “In Japan Tokyo High Court (in 1995) applyed the international exhaustion rule (BBS Kraftfahrzeug Technik AG v. Kabushiki Kaisha Racimex Japan and Kabushiki Kaisha JapAuto Prods). The sentence turned over the leading case Brunswick (1969, Osaka District Court). According to the Brunswick case parallel importation was unlawful if goods were already patented in Japan. Finally, in 1997, the Japanese Supreme Court didn’t use the international exhaustion principle, and decided that holder of a patent in Japan and in another country can’t oppose to importation in Japan of the same product, except demonstrating that the grey market was contractually prohibited (and there was evidence on the product). […] In the E.U. is in force the European Union exhaustion principle. Goods patented (or marked) traded for the first time in the European Union or in the European Economic Area can be freely traded inside European Union […] U.S. Government, instead, has been always adverse international exhaustion. During the negotiations of TRIPS agreement U.S. Government expressed his contrary view (with reference to patents and specially drugs). The U.S. Government opinion is founded on the need to defend the research’ possibility of enterprises that want to patent their inventions. Prof. V. Di Cataldo, Parallel importations, New perspectives, available here.
[46] The theory of exhaustion of rights is universally accepted. In regard with the scope of its application (the limit of its impact), whether territorial, regional, or international, different conceptions have been established. According to the conception chosen by each country, foreign trade acts that are allowed will be determined. If the limit of the exhaustion is territorial, any export/import of a patented product or a product produced by a patented process can be made only with the consent of the patent owner, as part of an official network. On the other hand, if applying the principle of international exhaustion, acts of foreign trade of the product of a patent may be made by anyone who has lawfully acquired a patented product. Hence, the application of the international exhaustion of rights paradigm is known with the term parallel imports.
[47] Moreover, territorial or regional exhaustion prevents competition that could arise between the patent owner and licensee, thus keeping intact the exclusive exploitation rights of the first. Otherwise licensees (or even those who legitimately purchased the product) could export the licensed product to the country of origin of the patent holder. This could mean that the patent holder has to compete freely in the market for a product on which he supposed to have exclusivity. For these reasons, it seems wise to establish a system of territorial or regional exhaustion. As all the conclusions in this publication, this recommendation is in order provided that the corrective this paper urges comes to be established. Proportionality is the answer for a global, effective, and just system.
[48] Article 6 of the TRIPS Agreement, despite its confusing wording, leaves the definition of the exhaustion system to the discretion of the different countries. In the absence of a consensus in 1994, the TRIPS Agreement gave countries freedom in regard to this determination in strict respect of the principles of National-Treatment and Most-Favoured-Nation. It is noteworthy that the exhaustion of intellectual property rights is an issue that applies to all intellectual property rights in general and not only for patents, which makes its impact even greater. The suggestions here stated are meant for the case of patents. The subject under discussion is not the right of the holder of a patent to import his product (importation is considered exploitation) or the theory of exhaustion of rights (universally accepted). What has been discussed is the limit of the application of the exhaustion paradigm.
[49] “If trading nations as a whole ban parallel imports, pharmaceutical patentholders should be willing to sell their products at a low price to nations where customers cannot afford to pay much for them as long as that price covers the marginal cost of making the drug and delivering it. They will be willing to do so because each sale yields some profit, and they need not fear that their low-priced sales in one market will be re- exported to undercut their prices elsewhere. When parallel imports are possible, by contrast, they will likely become unwilling to sell at low prices in markets where demand is weak. Poorer countries may then find themselves largely priced out of the market for particular medications.” Sykes, supra note 43, at 20.
[50] If there is an official network with the capacity to control the acts of foreign trade, the global distribution of the patented product will be done through licensing or self-representation. A product that is introduced as a result of a license or direct sale will better ensure consumer rights. It will mean there will be a local agent or representative of the patent holder, who could respond for the quality of the products.
[51] Paired with this information privilege, as a two ways road, the patent holder should inform the markets she is not attending. It is essential not to have any markets underserved by lack of interest of the patent holder. The information right or responsibility should be bestowed in all international producers alike, not only patent holders. If a given product is found at a market is not supposed to be found, corrections could then be prompted, or eventually sanctions against the producer could be established. It will be easier to control piracy and borders. This will be an important step toward a decentralized control system, which could aid governmental efforts at customs; a necessary step to enforce the varied patent periods between nations.
[52] One may argue that under the proportionality proposal there will be more cases of smuggling since there will be more products to smuggle available. It all is reduced to custom control, though. This is a key aspect of international trade, which not only pertains patents or intellectual property (efforts of a better customs system will be beneficial in many aspects, and they sure should continue).
[53] See Stiglitz, supra note 8, at 120, “One of the simplest ways for the developed countries to help developing countries is to ‘waive’ the tax, allowing them to use the intellectual property for their own citizens, so that their citizens can obtain the drug at cost. Critics might say: But then the developing countries are simply freeriding on the advanced industrial countries. To which the answer is: Yes, and they should. There is no additional cost imposed on the developed countries.” In the same line of thought, one interesting economic analysis has concluded that “under specified circumstances it is not optimal to extend patent protection to all countries of the world.” Alan V. Deardorff, Welfare Effects of Global Patent Protection, 59 Economica 35, 48 (1992). Based on his analysis, Deardorff argues that “extending this protection to other countries is very likely to be harmful to them, in spite of the fact that they will benefit from increased inventive activity…. a case can be made, in terms of world welfare, for limiting the coverage of a patent protection to less than the entire world.” Id. at 36. Ultimately, his research demonstrates that “the case for universal patent protection is not a clear one … and the concerns of some developing countries that they will be exploited by patent protection are not without foundation.” Id. This happens with the LDCs, which are exempted from the application of the TRIPS agreement provision (which does not give 20 years patents).
[54] There are currently 48 least-developed countries (LDCs) on the UN list (see, 34 of which to date have become WTO members, that do not apply the 20 year TRIPS’ provisions. “WTO recognizes as least-developed countries … those countries which have been designated as such by the United Nations…. There are no WTO definitions of “developed” or “developing” countries. Developing countries in the WTO are designated on the basis of self-selection although this is not necessarily automatically accepted in all WTO bodies.” Understanding the WTO – Least Developed Countries, WTO, (last visited Oct. 10, 2014).
[55] A recent empirical analysis on China’s patent applications at the U.S. Patent Office shows a trend that is common to those countries that have walked the path to development. Jay P. Kesan, Alan C. Marco & Richard Miller, Patenting — With Chinese Characteristics (Univ. Ill. Coll. Law, Working Paper Series July 22, 2014), available at This study shows that Japan and South Korea’s increase in technological innovation is correlated with their development status (as well as benefits to their population). China is now following their footsteps. Brazil, India and others are, in a lesser way, following that path, but in a slower manner. From this kind of empirical analysis it seems that the world should continue to reward innovation, helping others to develop. India is an interesting case. There is a lot of innovative activity, but the mass of its population is extremely poor (in some years it has a per capita income smaller than many countries in the LDC list). It will enhance their chances of development if their inventions could get proper reward from the world, while their population rewards according to their capacity to do so (for instance, one of Hinduism’s main celebrations, Diwali, praises light and knowledge). Countries must contribute according to their capacity, but they should not stop contributing to the overall global retribution. This is not only because they have the aspiration to develop, but also because it will be correct for them to legitimately benefit from technological progress by contributing according to their capacity.
[56] Data: GDP Per Capita, World Bank, (last visited Sept. 27, 2014) (data is in current U.S. dollars).
[57] In taxes to establish the measure of contribution of each citizen, there are many alternatives, (e.g., a distributive agenda, to promote investment, etc.). This paper does not seek to provide unequivocal answers. I will just try to provide a mechanism in order for this proposal to be feasible. Of course there will be many alternatives.
[58] The economic significance of each invention, as we have seen, depends on many factors. No invention will have the same reward as any other. Nonetheless, they all have a market from which they can extract their reward. A measure of the potential revenue must be established accordingly. I have used GDP per capita to establish the proportional reward, in order to take into account a variable that influences willingness to pay (as discussed in the previous segment). Many other variables could have been used, and no measure will be uncontested.
[59] This could be too little, especially for pharmaceutical products. According to the Pharmaceutical Research & Manufacturers of America (“PhRMA”), an organization representing biopharmaceutical researchers and biotechnology companies, the “the clinical trials process occurs in several phases and takes on average six to seven years.” What Are Clinical Trials?, PhRMA, (last visited Nov. 5, 2014). It is an arbitrary determination. To start to compute the patent time from the moment of the first sale could be a proper solution. This is not part of the status quo, so it is presented as a simple annotation. As suggested in the conclusion, the solution to the problem of neglected diseases (those that are of primary concern to developing countries) could be to generate enough reward and legal certainty to attract investment toward researching new treatment options.
[60] I have chosen this mark, because around it LDCs start to appear when applying the formula to the database. And not only Equatorial Guinea and Vanuato, who are graduating (see note 64, infra), but other LDCs that are doing a little bit better than some that are not in that category (of course, at the end of the list most of the LDCs are piled up with what will be, according to the formula’s result, no more than 3 or 4 years of reward, which could go down to less than one year of reward). It is, in any case, an arbitrary determination. Although there are reasons to have such a minimum from the perspective of the producers, the real reason I have chosen to establish this minimum is to tackle the tropical disease and orphan diseases problem, as is discussed at the conclusion of this paper (this is based on the contested assumption that reward spurs innovation). From the producer’s perspective, it seem prudent to establish a minimum, since administrative procedures can create long delays before a patent is granted, and because to put a product in the market can also take considerable time (especially for drugs). Something that would be desirable from the producers’ point of view is that periods begin to count from the patent grant and not from the filing (as it is now), or even from the first sale (in this eventual system, such a provision could be analyzed, weighing the economic benefits and the patent term). If the duration of the exclusive rights is computed from the administrative decision granting the protection or even with the first sale, certain problems would be avoided (the reward could be really assessed, the data exclusivity issue over clinical trials could be properly evaluated, and unjustified delays in granting a patent would be avoided). Provided the application of a scheme as the one proposed in this paper, this could be considered (it could be weighed when analyzing the optimal patent duration).
[61] See Daniel L. Rubinfeld, Reference Guide on Multiple Regression, in Reference Manual on Sci. Evid. 303, 332 (3d ed., Fed. Judicial Ctr. 2011), available at$file/SciMan3D01.pdf.
[62] Data: GDP Per Capita, supra note 56. There is no GDP data for Myanmar, Somalia (from 1991 thereon), or San Marino (none of which are WTO members), no GDP data for Nauru and the Holy See, and no GDP per capita data for Democratic Republic of Korea (which is also not a WTO member). There are some other countries which are missing data from 2007, 2008, and thereon (e.g., Andorra and Syria, which are also not WTO members). China is considered separately from Macao and Hong Kong.
[63] For a list of countries belonging to the European Union, see EU Member Countries, European Comm’n, (last visited Dec. 15, 2014).
[64] The data used for the calculations takes in account the date of entrance to the WTO of each country, and if countries are in the LDCs list (the date of entrance to this list is also considered). For European Union countries, when considered together for the calculations, the year of entrance to the union is also taken in account. This made it possible to obtain a result for different years and to make that result reliable. NOTE: The general transition periods explained next were not taken into account, since the figures and charts I present in this paper are based in the 2002-2012 time frame (not all countries used the transitional period to the fullest, so to do so would have required an arduous country-by-country analysis). For the 2002-2012 time frame, the following general transition periods have already expired (for developed and developing countries), while the exceptions for the LDCs are still in place. The implementation of the TRIPS Agreement in the different countries was not immediate in all cases, being gradual for developing countries and LDCs. These are categories included by the TRIPS Agreement, according to the developed condition of the member country based on articles 65 and 66 of the TRIPS Agreement. For all developed countries it was applied since January 1, 1996, but many applied it since 1995. Meanwhile, under the transitional provisions of the agreement, the developing countries were required to comply with the TRIPS Agreement from January 1, 2000, and even LDCs had an additional period of six years. Efforts have provided greater flexibility for LDCs with some concrete results. The decision of the Council for TRIPS of June 2002 established the extension of the transition period under article 66.1 of the TRIPS Agreement for least-developed country members until January 1, 2016, for certain obligations with respect to pharmaceutical products. Decision of the Council for TRIPS of November 2005, which established the extension of the transition period under article 66.1, by which LDC members shall not be required to apply the provisions of the agreement other than articles 3, 4, and 5 until July 1 2013. Just a few months ago came the decision of the Council for TRIPS of June 2013, which extended the transition period previously mentioned, until July 1, 2021. In both of the previously mentioned decisions, the extension period will only apply until the member cease to be an LDC. I have also chosen not to take into account those countries that joined the WTO after 1995, which have their particular transition periods, because their impact is negligible (as discussed in the following footnote).
[65] Particular transition periods and LDC list inclusions: Up next I present particular transition periods scenarios (sometimes related to the LDC status, thus already considered), which are meant as an annotation to this work. The Russian Federation, which recently joined the WTO (2012), would fully apply the provisions of TRIPs, including provisions for enforcement, without recourse to any transitional period. See Working Party Seals the Deal on Russia’s Membership Negotiations, WTO (Nov. 10, 2011), A similar situation is presented by the Ukraine, which joined in 2008. See Trade Related Intellectual Property Regime, WTO, (last visited Oct. 20, 2014) [hereinafter, “TRIPs Regime”], at 9-10. Additionally, Cambodia (2004), Nepal (2004), Lao (2013), and Yemen (2014), which recently joined the WTO (their years of entrance where annotated in parenthesis), are on the list LDCs; of course are given the exception to the application of the TRIPS described in this footnote. Another example is Cape Verde, which graduated as an LDC in 2007 and became part of the WTO in 2008. See UN Advocate Salutes Cape Verde’s Graduation, UN News Centre (Jun. 14, 2007), A special transition period was agreed upon for Cape Verde: “The representative of Cape Verde confirmed that Cape Verde would apply the Agreement on Trade­ Related Intellectual Property Rights by no later than January 1, 2013 according to the action plan in Table 12 with the understanding that for the obligations covered by Sections 5 and 7 of Part II of the TRIPS Agreement or to enforce rights provided for under these Sections, Cape Verde would apply the TRIPS Agreement in respect of these obligations no later than January 1, 2016, in light of paragraph 7 of the Doha Declaration on the TRIPS Agreement and Public Health.” TRIPs Regime, supra, at 8. Such provisions have been agreed upon for other countries as well, such as Tajikistan, Montenegro and the Maldives (which entered the WTO 1995 and graduated from the LDC list on 2011). The Maldives became the third and last country to graduate and be promoted to developing country status (January 1, 2011). Samoa was suppose to graduate on December 31, 2010, but due to the tsunami catastrophe of 2009, its graduations was deferred until January 2014 (General Assembly resolutions A/RES/59/209, A/RES/62/97 and A/RES/64/295. LDC Factsheet, Samoa, UN DESA, (last visited Oct. 20, 2014). These cases are simple not considered in the calculations, as their impact is negligible.
[66] For instance, the LDCs are not considered (the status quo excludes them). If you do include them (part of the proposal is that these countries should give a reward to tackle the orphan diseases issue, as commented in the conclusion of this paper), the difference is negligible in terms of the big picture (the total contribution from LDCs will be less than 0.4% of the total reward). The case of Equatorial Guinea is a peculiar one. Even though it is still an LDC, Equatorial Guinea now has a GDP per capita that puts it in the developed group (it is a special case). Equatorial Guinea recently discovered oil and gas reserves, and thus their per capita GDP rose enormously, to levels that situate it as a developed country. See Data: Equitorial Guinea, World Bank, (last visited Dec. 15, 2014). However, they are still on the LDC list. General Assembly resolution 68/L.20, adopted on December 4, 2013, decided that Equatorial Guinea will graduate three and a half years after the adoption of the resolution, and that Vanuatu will graduate four years after the adoption of the resolution. Vanuatu, in contrast, is an example of a country who has seen a far more gradual improvement of their economy. Vanuatu is also an interesting case, though, for other reasons. It recently joined the WTO and is scheduled for graduation. Some think it got a better treatment that some previous members. “Vanuatu was allowed two years to adopt [TRIPS], while Cambodia and Nepal were allowed three years or more.” Daniel Gay, Vanuatu’s Suspended Accession Bid: Second Thoughts?, Managing the Challenges of WTO Participation: Case Study 43, WTO (2005), at n.40, (last visited Oct. 20, 2014).
[67] For a more detailed overview, see Donoso, Global Solution, supra note 1, at 81-107.
[68] Id. at 83.
[69] Id. at 91. The availability of data probably will entail that the term of protection for a given year is determined by data of previous years. In the case of my analysis, 2012 has most of the data for every country. From then on the World Bank page does not provide complete information in its webpage.
[70] Id. at 92.
[71] “In any case, it can be said that once the term of protection that a country is required to provide is known (which may vary according to the frequency in which the reviews are determined by the rule), the status of a particular patent will be known (if the patent is enforceable or if it has become of public use in that particular country).” Id.
[72] Id.
[73] “[T]echnology transfer is an objective that the current regime has failed to achieve. Even though technology transfer is a value referred to in the statement of principles and objectives of the TRIPS Agreement, this goal is not met in a complete way by the current regime. It has even been argued [by some of the most forceful critics] that the currently conceived system perpetuates the differences or the technology gap between the developed and developing countries, ensuring access to the system only by the powerful… The tools that the agreement foresees to ensure the goal of technology transfer have proven to be ineffective. For example, article 66 of the TRIPS Agreement determines that developed members shall provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer to least-developed countries (this is a category established by the TRIPS Agreement), to enable them to create a solid and viable technology base.… As a result of this, so far the principle of technology transfer has been merely declaratory, except for certain programs conducted by some industrialized countries to support other less fortunate ones. From the perspective of developed countries—if this hypothetical system came to be implemented—the resources destined to these programs (those of article 66 of TRIPS) could be better used to increase their own poor populations’ access to new technologies, especially regarding health. Technology transfer, as it is established, is a rule that aims to capture an important goal, but because of its poor axiological content (justice), it has become a mere romantic statement.” Id. at 95-98 (internal citations omitted). “If the proposed scheme came to be implemented, in which the exclusive exploitation of new technologies will last longer in the circumscriptions of developed counties, it is probable that the governments of those countries would chose to destine resources to aloud [sic] their less privileged population to have access to new technologies, especially when it comes to medicines. Resources could be those of article 66 of TRIPS.” Id. at 98 n.70.
[74] This is true only for that market, and those where the patent has expired; the key for this system to work properly is tight international trade control of protected products. Id. at 97-99.
[75] Thurow, supra note 36.
[76] In that sense, the last few paragraphs of segment III a addressing the exhaustion of rights, as well as a couple of footnotes throughout the article, tackled issues that were set outside the scope of this paper.
[77] For instance, to address the issue of patent thickets (an issue classically addressed by patent pools), some have called for a scheme where, for the case of technologies in which patents have proliferated (and thus created the thicket), preliminary injunctions are not used to prevent infringements (only to preserve evidence). This will create a system in which infringements are compensated after the fact, but the use of the technology is not hindered. For example, a proposal by Ecuador was presented in 2013 to the Council for the TRIPS, seeking technological transfer of “eco-technologies” by establishing exceptions and limits to the protection of such inventions. Although well intentioned, the proposed solution is incorrect. Less retribution for this kind of technology means less investment in research and development (and unequal share of the mistake among countries, in the case assumption of exclusivity does not spur innovation). More green or eco-technologies could only be further encouraged if the retribution is bigger. If proportionality came to be introduced, a different retribution (longer term of protection) could even be analyzed and established for this kind of technology. Many other issues have been addressed by the literature, such as efforts at evergreening, me-too drugs and patent races (see supra note 42), and lack of recognition of ancestral knowledge of indigenous peoples (the Brazilian position on the issue, which implies a requirement of disclosure in the patent application, is probably the way to address it), among others.
[78] This could bring a dramatic reduction on filing cost and fees (even litigations cost if the international authority could ventilate some patent disputes in a administrative sphere). The benefits would be enormous. Small innovators could in a better way access a global protection. Where could the dream take us? The World Health Organization doing the work that the Food and Drug Administration does in the United States, in regard to drug commercialization approvals, for the whole world? It is advisable to stop not to get carried away by an overdose of enthusiasm.
[79] “But there is another possibility, one which in my view better accords with what we know about the importance of patents to pharmaceutical research, and with the extraordinary value to consumers of medicines that successfully treat serious conditions. Developing nations have long had little intellectual property protection for pharmaceuticals, and we have concurrently witnessed an apparent dearth of research into the diseases of particular importance to them such as malaria and drug-resistant tuberculosis. The lack of patent protection may have resulted at least in part from an acute collective action problem—developing nations reap the full benefits from lower prices when they do not create pharmaceutical patents, yet the costs in terms of diminished research incentives are largely externalized to the rest of the developing world.” Sykes, supra note 43, at 3.
[80] The Patent Cooperation Treaty (PCT) of 1970, which was amended in 2001, and the Patent Law Treaty (PLT) of 2000 are examples of significant progress on harmonizing the procedures for the filing and granting of patents, but these are far from establishing a global registration procedure and do not further determine the definition of novelty, inventive step, and utility/applicability. Also, these agreements do not have the universal acceptance that the TRIPS Agreement has. Future efforts should aim to build a stronger international system for granting patents, which, unlike the PCT and PLT, is universal and definitely linked to the TRIPS Agreement. (This is not the case of the aforementioned international instruments.) “On June 2, 2000, the Patent Law Treaty (PLT) was signed by 43 countries, with the support of the United States and the European Patent Office. The PLT does not contain substantive provisions. It rather harmonizes procedural requirements and steps: what may be required to obtain a filing date (Article 5), what may be required relating to the form and content of an application (Article 6), representation before a patent office (Article 7), various issues regarding communications (Article 8), what constitutes sufficient notification (Article 9), validity of patents if not in compliance with certain formal requirements (Article 10), relief in respect of time limits (Article 11), reinstatement of rights (Article 12), correction or addition of priority rights (Article 13). The PLT provisions should help to reduce the risk of errors by patent offices, and the time and costs of procedures for patent applicants, thereby facilitating the acquisition of patent rights internationally. The PLT also provides a clear linkage to the PCT for current and any future patent law harmonization (Article 16).” Carlos M. Correa, An Agenda for Patent Amendment and Harmonization for Developing Countries (Sept. 24, 2005) (unpublished, prepared for the Int’l Ctr. for Trade & Sustainable Development’s Bellagio Dialogue), available at
[81] This could be illustrated by a hypothetical case. Imagine a new kind of technology at the moment unknown for human kind discovered in one of the traditionally inventive countries (where typically innovation take place), which opens the door for exponential technical development that will enormously benefit humanity. Suppose that this new kind of technology has certain characteristic that does not unambiguously determine its patentability under the TRIPS’ rules (almost always the developing countries bring up issues regarding the patentability of new kinds of technologies). Without proportionality, developing countries prefer to declare that this kind of technology is not patentable (they see that the benefits are not worth what they pay for it), and benefit from the innovation anyways, since the developed world is rewarding it (typically the developed do not apply exceptions and limitations). If proportionality is present in the international scheme as this paper argues, the interest of rewarding innovation in this new field (which arguably will entail benefits for the human kind), would not be constrained, as it is now, by economic considerations. The inverse will happen if the patentability of a technology field is not bringing much benefit to humanity. It would not be as easy for the developed world to urge for its protection, since the period of protection in their circumscription will be longer. With proportionality reward, all countries know that exclusivity over this technology will “hurt” all countries equally, in relation to their wealth. If the “burden” is shared, it is more likely it will be agreed upon. The TRIPS Agreement pertaining all the fields of intellectual property (not only patents) regulates “rights enumerated explicitly, which gives it a certain rigidity, that has been criticized by some who would have preferred it to cover not only all rights included under the term intellectual property, but to those not specifically mentioned.” Donoso, Global Solution, supra note 1, at 74 n.56 (citing Baldo Kresalja, El Sistema de Patentes Después del ADPIC: Comentarios y Reflexiones Sobre Su Futura Eficacia, 4 Temas de Derecho Industrial y De La Competencia 180, Propiedad Intelectual en Iberoamérica, Buenos Aires: Ediciones Ciudad Argentina (2001); Emery Simon, GATT & NAFTA Provisions on Intellectual Property, 4 Fordham Intell. Prop., Media & Ent. L.J., 267, 276-77 (1993)). Regarding patents, for instance, proportionality could be paired with such a provision, so to strengthen the principle by which patents should be granted in any field of technology (article 27.1 of the TRIPS Agreement), and to limit exceptions and limitations. An alternative that will be coherent with the proportionality proposal is to keep the system as it is in regard to exceptions and limitations, but to weigh them embedding in the proportionality formula an indicator for the exclusions and exceptions to the patentability. This, as explained in the introduction, will be a further step towards the implementation of the proportionality proposal, which is not engaged in this paper.
[82] A distinction is made by some countries between discoveries and innovations, prohibiting the patentability of the latter.

Association for Molecular Pathology v. Myriad Genetics, Inc. and Its Impact on the Patentability of “Designer” Genes

<em>Association for Molecular Pathology v. Myriad Genetics, Inc.</em> and Its Impact on the Patentability of  “Designer” Genes
By Amanda H. Russo* Download a PDF version of this article here.  


Would you like blue eyes with that? In the near future, prospective parents might be able to select their children’s genetic features from a drop-down menu.[1] With a heightened societal focus on perfection, it is not absurd to think parents would want to create the ideal child, nor to think it would be impossible. Advances in the biotechnology industry have increased scientists’ understanding of the human genome and enhanced their ability to genetically modify eggs, sperm, and human embryos. These developments have the potential to make “designer” babies a very stark reality. The Supreme Court’s decision in Association for Molecular Pathology v. Myriad Genetics, Inc.[2] could be interpreted as paving the way for patenting genetically altered genome or gamete cells. Every gene in the human body is encoded as deoxyribonucleic acid (“DNA”), and Myriad Genetics confronted the issue of whether a naturally occurring segment of DNA was eligible for patent.[3] The Court held that, while isolated, naturally occurring DNA was outside the realm of patent, complimentary DNA (“cDNA”), or a synthesized DNA copy, was patent-eligible.[4] However, the Court specifically concluded its opinion by noting that the “scientific alteration of the genetic code presents a different inquiry, and we express no opinion about the application of [patent eligibility] to such endeavors.”[5] If biotech scientists have the ability to manipulate the genes of an embryo or gamete cell for non-therapeutic purposes, it could be argued that these genetically modified cells are in fact patentable “inventions,” given that the material was not, in that particular sequence, naturally occurring. The country has already seen movement in this area. In September 2013, the United States Patent and Trademark Office awarded a patent to 23andMe for its gamete donor selection techniques, including genetic and computer technologies.[6] These technologies allow prospective parents to select a gamete donor who would increase the likelihood that a child would be born with or without certain hereditary characteristics. With the technology, parents can choose from a variety of traits which go beyond medical conditions, enabling them to specify certain physical and psychological characteristics. It is true that the company was not attempting to patent actual sperm or egg cells, but merely facilitate a “preview” of unborn children. Most of the current technologies that closely resemble actual genetic selection focus on testing the embryo or fetus to screen for several undesirable physiological genetic characteristics. For example, pre-implantation genetic diagnosis (“PGD”) has grown to be a common service at fertility clinics, allowing couples undergoing in vitro fertilization to test multiple embryos for genetic disorders before deciding which one to implant.[7] Recognizing this trend, Congress passed section 33 of the America Invents Act (“AIA”)[8] in 2011, resulting in, among other things, a prohibition on patents for inventions “directed to or encompassing a human organisms.”[9] Unfortunately, the AIA never expressly defines any of the terms in this provision, so it is not entirely clear what specific subject matter would fall under the prohibition. Moreover, in Myriad Genetics, the Supreme Court found that an identical provision was inapplicable in a discussion on real and synthetic human genes, noting that the “Act does not even mention genes, much less isolated DNA.”[10] While one can consequently interpret Myriad in a way that limits the scope of the Act, it leaves open the question of the patentability of modified human gametes and embryos and the altered or synthetic gene sequencing which could potentially be encompassed within those gametes and embryos. Patentability of inventions is governed by 35 U.S.C. § 101, which has several requirements. First, it must be of patentable subject matter — “process, machine, manufacture, or composition of matter . . . or improvement thereof.”[11] Second, it must be “new” or “novel.”[12] And, third, it must be “useful.”[13] While no express clause excludes inventions that contravene morality from patent-eligibility, courts historically imposed a “socially beneficial” standard under the third prong of utility; in effect, this standard served as a morality condition rendering inventions with a use deemed “injurious to the well-being, good policy, or good morals of society”[14] ineligible for patent protection. Now, though, the PTO and federal courts rarely enforce this morality standard.[15] In fact, in the context of genetic material, the PTO expressly rejected the morality-based argument that “patents should not issue for [human] genes [simply] because the sequence of the human genome is at the core of what it means to be human.”[16] In Myriad Genetics, the Supreme Court did not even consider morality-based arguments.[17] But despite the move away from a requirement of socially beneficial utility, courts have generally been reluctant to step on the toes of legislatures when they have specifically excluded a subject matter from the realm of patentability for ethical or moral concerns.[18] With the diminished strength of the morality safeguard and huge advance in the biotech industry, Myriad Genetics could arguably be read in support of patents on manipulated or synthetic genes or genome sequences for use in human embryos and gametes. This Note will argue that Myriad Genetics should not be interpreted in such a way. Instead, Myriad Genetics should be read narrowly, limiting patent-eligibility of cDNA to only its uses in medical research and testing and gene therapy. Part I will explore the history of genetically altered human genes and feasibility of manipulating human embryos within the biotech industry. Part II will analyze the Myriad Genetics decision and its current impact on the patent-eligibility of biotech “inventions.” Part III will examine court precedent within the area of gene patenting and will argue for narrow application of Myriad Genetics to genetically altered human gametes and embryos, specifically in light of Section 33(a) of the AIA.

I. The History of Assisted Reproductive Technologies

A. Understanding Genetics & the Future of Biotechnology

1. Basic Genetic Concepts
“We’re on the cusp of having much more information, and the appearance of having much greater discretion, in choosing the traits of our children,” said Thomas H. Murray, Senior Research Scholar and President Emeritus at The Hastings Center, a nonpartisan bioethics research institution.[19] Murray asked, “What use will they make of it, and should there be limits?”[20] Before one can understand the implications of patenting genetically altered or synthetic gametes or embryos, it is useful to understand basic genetic concepts. The cells contained within an early embryo are of two types: germ cells and somatic cells.[21] The germ cells contain hereditary information and become the gametes (i.e. eggs and sperm) of a developing organism, which transmit such information.[22] Every other cell in the body is a somatic cell.[23] All of these cells contain genes, but only those in the germ cells are passed on to offspring.[24] Chromosomes are contained in the nucleus of all cells.[25] Each chromosome is made up of DNA molecules that are held together by chemically-joined nucleotides, creating a system of cross-bars[26] that support the DNA’s double-helix structure.[27] The sequencing of these nucleotides within the DNA molecule creates the human genome[28], and determines the information available for building and maintaining an organism, serving a similar function to letters that are strung together to create words and sentences.[29] These sequences of nucleotides enable the creation of amino acids, which form the proteins in the body.[30] The nucleotides that code for amino acids are called “exons,” and those that do not are called “introns.”[31] For purposes of this article, it is also important to note that scientists can extract and isolate DNA molecules from cells in order to study specific sequences.[32] In addition, they can create composite DNA (“cDNA”) from these molecules, which are exon-only strands of nucleotides.[33]
2. Current Reproductive Biotechnologies
A number of current reproductive technologies seem to be bringing the reality of designer children closer and closer. The successes and failures of these technologies undoubtedly provide biologists with a deeper understanding of human genetic makeup and the human body’s interaction and response to scientifically manipulated genes. What follows is an introduction to some current biotechnologies that are undoubtedly accelerating scientists’ ability to genetically enhance the children of tomorrow.
a. In Vitro Fertilization and Pre-Implantation Genetic Diagnosis
The increasing availability of in vitro fertilization unquestionably increases the potential for the specific selection of genetic characteristics to be passed on to offspring. In vitro fertilization (“IVF”) is a method of producing an embryo ex utero — outside of the uterus — and the subsequent implantation of that embryo inside a woman’s uterus.[34] At the beginning of this process, sperm and ovum are cultured and researchers calculate the optimal time for fertilization.[35] After an embryo is successfully created, the embryo is transferred into the uterus of the mother in hopes of implantation. Prior to this transfer, clinicians typically wait two to five days[36], during which time they evaluate the shape and appearance of the embryo.[37] Another currently available technology, which complements IVF, is known as pre-implantation genetic diagnosis (“PGD”).[38] This method allows scientists to test an embryo prior to implantation, in order to determine whether it carries a particular genetic disease[39], similar to a process known as gene therapy[40]. The embryos that are determined to be disease-free are those that are then implanted in the mother.[41] According to the Wall Street Journal, some United States clinics have even been using PGD to allow customers to choose the gender of their child.[42] The same method could be used with relative ease to select particular physical traits of unborn children like eye or hair color.[43] Other characteristics like intelligence or athleticism would be harder to select for using PGD, given that they are made up of several genetic factors, but seemingly not impossible[44] Advocates claim that the use of PGD to screen embryos has the potential to eliminate complete lines of hereditary diseases, even those that have run in families for generations.[45] While proponents reject the idea that PGD will lead to the possibility of designer children[46], the ability to select for or against certain genetic conditions raises the question of why that same procedure could not also be used to select for physical or psychological characteristics.
b. Cloning
The ability of scientists to genetically clone animals and humans is another technique that significantly adds to the possibility for designer babies. Cloning is a term that refers to a number of techniques that enable the production of genetically identical organisms, and comes in three types, gene cloning, reproductive cloning, and therapeutic cloning — all of which remain controversial.[47] Gene cloning involves the isolation and copying of genes from within an organism’s cells, while therapeutic and reproductive cloning entails the creation of a cloned embryo, containing genes identical to the original organism, albeit for different purposes[48]. Scientists can now use such processes to successfully clone a variety of genes and organisms, including mammal embryos.[49] In one method of cloning, scientists can take and isolate a single gene and then create a complimentary sequence of DNA, or cDNA.[50] The cDNA can then be used for study or use in a pharmaceutical setting, or, alternatively, the cloned genes could be inserted into other organisms.[51] In utilizing each of these techniques, the existing genetic code of the clone cell or organism is effectively altered to contain a genetic sequence that was not naturally occurring. Thus, such methods could theoretically be used in the genetic enhancement of human embryos. Several examples serve to demonstrate the success of advances in cloning technologies in recent years. For instance, through the use of cDNA, genes from foreign organisms can be inserted into the cells of other organisms, regardless of whether it is of the same or different species.[52] In fact, it has become quite common for biologists to genetically engineer non-human organisms, including mammals, by inserting and removing genes from their genomes to create an entirely novel organism.[53] Moreover, even as far back as a decade ago, scientists had cloned hybrid human-animal embryos through the fusion of human cells with enucleated eggs from rabbits and enucleated oocytes from cows, resulting in nonhuman organisms.[54] Most significantly, South Korean researchers claimed to be the first to verify the successful cloning of human embryos in 2004.[55] They claimed to have produced 30 cloned human embryos and continued to cultivate them to the blastocyst stage.[56] The experiment allegedly resulted in the growth of the embryos to an age in which researchers could derive a pluripotent[57] embryonic human stem cell line.[58] However, in January of 2006, Science Magazine retracted the study papers produced by the South Korean researchers, after an independent investigating committee found misconduct and data fabrication.[59] Nonetheless, these obvious scientific progress in the ability to genetically alter human embryos through cloning techniques make genetic enhancement of humans all the more likely.
c. Somatic and Germ-line Gene Modification
In addition to the abovementioned, biotechnological advances have made it possible to modify the chromosomes of both human and animal cells through the insertion of new DNA segments into the existing chromosome.[60] Such techniques are referred to as somatic or germ-line genetic modifications. If changes are performed on specialized or differentiated body tissue — cells like liver, muscle, or blood cells — it is referred to as somatic cell gene modification, which affects only the individual whose DNA is modified.[61] On the other hand, if the insertion is performed on eggs or sperm cells prior to fertilization or in an embryo in its early stages where its cells are undifferentiated, it is called germ-line genetic modification.[62] With germ-line modification, the effects of the altered genes go beyond the individual organism on which the insertion was originally performed.[63] Given that DNA is incorporated into the embryo’s germ cells, those genes will be passed on to future generations.[64] Scientists have performed genetic modification of both somatic and germ-line cells in animals in order to examine the resulting impact of this alteration. Somatic gene modifications have in fact been performed on humans dating back to 1990, which have targeted cells in attempts to correct an existing disease or condition in that individual.[65] But experiments with genetic modification on laboratory animals like mice indicate that germ-line modification might be technically easier than somatic.[66] This might be because early embryonic cells are more accepting of foreign DNA and more readily synthesize corresponding proteins than most somatic cells.[67] In one experiment successfully utilizing the germ-line technique, researchers inserted into fertilized mouse eggs a gene that promoted the synthesis of growth hormone.[68] As a result, the developing mice produced unusually high levels of the growth hormone and, ultimately, grew to two times their normal size.[69] Given the results of animal studies and the increasing access and availability of IVF, “there appear to be no technical obstacles to initiating germ-line modification experiments in humans”[70] in order to achieve genetic enhancements. There are a number of well-established, existing methods for germ-line gene modification that have been used in animal studies for several years.[71] Three such methods include (1) the introduction of a gene by direct pronuclear microinjection of DNA segments (“PMI”), the most frequently used method, (2) the use of a virus to carry the gene of interest to infect a target cell by delivering that gene, and (3), in recent years, a process where sperm is used as a vector to deliver the genes.[72] The first method, PMI, has actually been used to inject entire artificial chromosomes.[73] So, theoretically at least, the existing germ-line modification techniques could be used for genetic enhancement purposes in humans.[74] However, the current methods for germ-line genetic modification have not yet been established “sufficiently reliable or safe to countenance their immediate use with humans”[75] and are not without issue. Both the viral and non-viral mechanisms for genetic modification pose issues with precise placement and expression of the modified genes.[76] The insertion of foreign genes into imprecise locations within a chromosome, either via direct injection or virus, may have unpredictable consequences. This is demonstrated by one experiment in which the offspring of a mouse injected with an extra copy of a gene were 40 times more likely to develop cancer than the control group of mice.[77] In another experiment, insertion of a gene substantially interfered with naturally occurring genes in mouse embryos, which resulted in mice with several physical deformities.[78] These results indicate that the techniques currently used for germ-line modifications can lead to developmental disruptions in the modified embryo itself.[79] Unsuccessful attempts at germ-line genetic modification in animals indicate that such a technique on humans “can profoundly perturb ordinary biological function and introduce new, harmful genetic variants into the gene pool[.]”[80] The aforementioned problems are primarily associated with gene addition[81]. But various techniques to introduce genetically modified DNA into gametes are continuously developing. For example, researchers are now able to insert a gene into a particular location on a chromosome, while simultaneously removing the unwanted gene — i.e. gene replacement.[82] While the Council for Responsible Genetics suggested that such a technique would increase accuracy of genetic modification, it also noted that this would not entirely eliminate the risk of the procedure.[83] One of these risks includes the lack of ability on the part of biologists to fully understand or predict the potential interactions of genes with one another within the environment of a specific individual.[84] Certain genetic combinations could prove harmful to the individual and, subsequently, to future offspring.[85] The risks associated with such harmful combinations would apply equally to germ-line genetic modification in the contexts of alleviating disorders and enhancing certain characteristics.[86] In 2009, Japanese researchers successfully performed germ-line genetic modification in mammals when they produced the first genetically modified primates with the ability to pass the modified gene down to their offspring.[87] Researchers modified a virus to carry a gene known as green fluorescent protein (“GFP”) found in jellyfish.[88] This virus was used to infect and transfer this gene to the cells of several marmosets.[89] The jellyfish gene, which causes the cells to glow green when exposed to ultraviolet light, was present in four out of five offspring resulting from the implantation of marmoset embryos in female marmosets.[90] Researchers could identify the success of this genetic modification due to the fact that the marmosets actually glowed green when exposed to ultraviolet light.[91] Then, the researchers took gamete cells from two of the marmosets that carried the gene and, from them, were ultimately able to produce four offspring — three of which contained the jellyfish gene and glowed under ultraviolet light.[92] The success of this germ-line genetic modification of primates suggests the high likelihood that the same technique would be similarly effective on humans. Ultimately, biologists and medical researchers may be able to draw on the scientific successes of somatic genetic modification in humans and the somatic and germ-line modification in animal cells to achieve successful germ-line modification in humans.[93] This would allow for genetic enhancement of humans, in addition to gene therapy — a distinction highly relevant to the following discussion. Gene therapy primarily focuses on curing or reducing human diseases and conditions, while genetic enhancement focuses instead on enhancing human characteristics.[94] Given the potential development and use of biotechnologies like human germ-line genetic modification (“HGGM”), it is necessary to address the legal implications posed by such technologies to the United States patent system.

II. The Supreme Courts Decision in Association for Molecular Pathology v. Myriad Genetics, Inc.

A. Procedural Posture of Myriad Genetics

After several years of research, Myriad Genetics, Inc. (“Myriad”), a molecular diagnostic testing and assessment company, obtained a number of patents based on the discovery of two human genes, mutations of which correlate with an increased risk of breast and ovarian cancer.[95] Specifically, the Patent and Trademark Office specifically granted patents for the isolated BRCA1 and BRCA2 genes.[96] The patents essentially gave Myriad the exclusive right to isolate these genes from an individual’s genome and also to synthetically create BRCA cDNA.[97] Given that isolation is necessary to conduct genetic testing, the patents effectively gave Myriad exclusive control of BRCA testing.[98] The patents, however, did not stop others like the University of Pennsylvania’s Genetic Diagnostic Laboratory (“GDL”) from providing genetic testing services to women.[99] In fact, Dr. Harry Ostrer, former researcher at New York University School of Medicine, frequently sent DNA samples to GDL to be tested.[100] When Myriad learned that others were offering these services, it began to assert its rights over the isolated genes, claiming all genetic testing infringed upon its patents.[101] Myriad filed suit against various entities providing the BRCA testing and the litigation and threats thereof prevented several other medical practitioners and entities from providing BRCA testing.[102] Consequently, Myriad Genetics was left as the sole entity that could provide or license the service.[103] Several years later, Dr. Ostrer, along with health care professionals, advocacy groups, and patients filed suit against Myriad Genetics seeking invalidation of their patents under § 101 in the United States District Court for the Southern District of New York.[104] The plaintiffs asserted that Myriad’s claims cover patent-ineligible subject matter.[105] They alleged that the patenting of the BRCA genes impeded research on breast cancer, and restricts the “ease of access to genomic discoveries” and the dissemination of knowledge to patients.[106] Approximately ten months after plaintiffs had filed their complaint, the District Court granted summary judgment in their favor, invalidating all of Myriad’s claims to the isolated BRCA genes and testing methods.[107] Policy considerations, namely, what plaintiffs alleged to be the diminished availability of the testing for breast cancer, played into the court’s consideration of the motion for summary judgment, but, ultimately, it decided that the issues were too complicated to address at that stage.[108] On appeal to the Federal Circuit, the court affirmed the judgment of the lower court invalidating Myriad’s method patents for comparison and analysis of DNA sequences, given that they covered abstract steps and were, thus, a subject matter ineligible for patent.[109] The court went on to reverse the district court’s invalidation of the isolated DNA molecules on the grounds that the “the molecules as claimed do not exist in nature.”[110] As a result, the patents on the isolated BRCA1 and BRCA2 genes were upheld.[111] The Federal Circuit judges in this case each wrote separate opinions, in which each judge addressed their own perspective and concerns. Judge Alan D. Lourie wrote the opinion for the court, finding that the composition claims were in fact patentable and noting that the “isolated DNAs, not just cDNAs, have a markedly different chemical structure compared to native DNAs.”[112] In her concurrence, Judge Kimberly A. Moore discussed the moral implications that the patents raised.[113] However, she declined to address the moral and ethical issues, noting that the job of the court is to interpret the words of the legislature, an inquiry, she suggests, which “[has no] moral, ethical, or theological components.”[114] In a separate opinion, Judge William C. Bryson concurred and dissented in part from the court’s decision.[115] He disagreed with the court’s holding that the isolated genes were a patent-eligible subject matter.[116] Judge Bryson explained that, given the established product of nature exception, the isolated genes were merely naturally occurring material and ineligible for patent.[117] He also suggested that a decision to the contrary “would likely have broad consequences, such as preempting methods for whole-genome sequencing . . . .”[118] In 2012, the case was granted certiorari by the Supreme Court. However, the Court vacated the judgment and remanded to the Federal Circuit in light of the Court’s holding in Mayo Collaborative Services v. Prometheus Labs.[119] In Mayo, the Court was confronted with patent claims for methods of determining effective dosages of autoimmune disease medications in treating patients.[120] Ultimately, the court invalidated the patent. In its opinion, the Court significantly relied on the public policy rationale that innovations restricting the ability to research and develop natural laws should not be eligible for patent.[121] The Court seemed to be expanding the “naturally occurring” exception through its application of the law of nature doctrine to a non-natural process. Justice Breyer discussed the Court’s refusal to “uphold[] patents that claim processes that too broadly preempt the use of a natural law.”[122] Allowing these patents would “disproportionately t[ie] up the use of the underlying natural laws, inhibiting their use in the making of further discoveries.”[123] On remand, the Federal Circuit again upheld patents. The same three-judge panel reached the same legal conclusions, again allowing the isolated DNA patents given their nonexistence in nature.[124] Judge Lourie, again, delivered the opinion of the court. While indicating the concern that these patents “raise substantial moral and ethical issues related to awarding a property right to isolated portions of human DNA,” Judge Moore indicated that these are issues that are more properly within the realm of Congress.[125] In a dissenting opinion, Judge Bryson reiterated his belief that the isolated DNA genes were not a patentable subject matter and allowing such patents would “likely have broad consequences.”[126]

B. The Supreme Court’s Decision

The Supreme Court once again granted certiorari in order to determine the validity of Myriad’s patents on the isolated BRCA genes and cDNA. The primary issue before the Court was whether naturally occurring, but isolated DNA sequences were eligible for a patent under 35 U.S.C. § 101.[127] The Court also addressed the issue of whether synthetically created DNA, or cDNA was patent eligible.[128] Ultimately, the Court affirmed and reversed in part the Federal Circuit’s opinion, holding that “a naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated, but that cDNA is patent eligible because it is not naturally occurring.”[129] Given that Myriad neither created or altered the genetic structure of DNA nucleotides, the Court did not decide whether creation or alteration would lead to unpatentability.[130] Instead, it was first confronted with the question of whether the discovery of the precise location and the isolation of the DNA genes renders them patentable.[131] In reaching its conclusion, the Court relied on Diamond v. Chakrabarty, in which a patent for a modified bacterium was in dispute.[132] In that case, scientists had added four plasmids to the bacterium allowing it to break down crude oil.[133] The Court explained that, prior to this patent claim, this was not a naturally occurring composition of matter, but rather a “product of human ingenuity having a distinctive name, character [and] use.”[134] In Myriad Genetics, the Court noted that the bacterium at issue in Chakrabarty had “markedly different characteristics from any found in nature,” given its distinct chemical composition and its newfound ability to break down oil.[135] This was in stark contrast to Myriad’s mere isolation of genes from its surrounding material.[136] Justice Thomas went on to discuss Funk Brothers Seed Co. v. Kalo Inoculant Co.[137], where the Court considered a patent for a resultant mixture of naturally occurring bacteria.[138] The mixture of bacteria was created as a way of improving the nitrogen intake of leguminous plants and was ultimately a more effective inoculant[139], given that other inoculants often mutually inhibited each other.[140] The Court nonetheless held that the mixture was not proper subject matter under § 101, finding that there had been no alteration to the bacteria.[141] In Myriad Genetics, there was no alteration to the chemical composition of the genetic material, nor was there any change in the material as a result of isolation.[142] The Court stated that it was not enough that Myriad’s isolation of DNA entailed the severance of the covalent bonds — holding the nucleotides of the DNA molecule in place — and effectively created a non-naturally occurring molecule.[143] The claims themselves simply focused on the genetic information contained in the isolated genetic sequence. The Court then moved on to a discussion of cDNA, recognizing that the synthetic DNA did not pose the same legal challenges as the isolated DNA segments.[144] The cDNA that Myriad claimed was a sequence resulting in only the inclusion of exons, as opposed to naturally occurring sequences which include both exons and introns. While acknowledging that nature dictated the structure of the nucleotide sequence, the Court found that resulting cDNA was an “unquestionabl[e] creat[ion] of something new,” since it was “distinct from the DNA from which it was derived.”[145] Myriad Genetics, in conjunction with Chakrabarty, could be read to suggest that the act of creating or altering of naturally occurring material are significant in determining patentability.[146] However, it seems that the Court is only willing to uphold a patent when claims deal with the creation or alteration of the essential nature of the original material, effectively crewating a “markedly different” material.

III. The Application of Myriad Genetics to Genetically Modified or Synthetic Gametes and Embryos

As has been discussed, in the last three decades, biotechnology has been advancing at such a rate to make human genetic enhancement an actual reality.[147] For years, scientists have had the ability to screen developing human embryos for chromosomal abnormalities and genetic disorders.[148] It is not in the unforeseen future that parents will be able to hand-select the genes that their children will encompass. Developments in assisted reproduction technologies have led to the creation of new markets for things like gametes and embryos.[149] These new markets raise significant questions in patent law, regarding ownership and rights surrounding human genes, embryos, gametes, and the like.[150] The Supreme Court made clear the unavailability of patents on isolated human genes in Myriad Genetics, but a question remains as to patentability of the creation of synthetic DNA or the alteration of naturally occurring DNA in the context of genetic enhancement of human gametes and embryos. This section will address how this subject matter should be addressed in light of the Court’s holding in Myriad Genetics.

A. The Emergence of Human Genes as a Topic in Patent Law

Over the past several decades, the growing industry of biotechnology has left us with many questions about what can and cannot be afforded patent protection. While 35 U.S.C. § 101 defines patentable subject matter as “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof,” one of the provisions of the America Invents Act, passed by Congress in 2011, specifically prohibits the issuance of patents for inventions “direct to or encompassing human organisms.”[151] This provision consequently puts a spotlight on many reproductive biotechnologies, including genetic modification techniques. Until Myriad Genetics, courts had not addressed the issue of whether genetic material was a patent-eligible subject matter under § 101. Despite this fact, the first patents on human genes were issued by the PTO in the early 1980s.[152] By the time of the Supreme Court’s decision, there were an estimated 2,645 issued patents claiming “isolated DNA.”[153] By 2005, the PTO had issued close to 40,000 DNA-related patents that, in total, covered about twenty percent of the genes in the human genome.[154] In the past, patents have been issued on modified human tissue, cell lines, and even DNA molecules of human origin.[155] It was not until recently, however, that patents for genetically modified gametes or embryos appeared to be on the horizon. In 2013, a personal-genomics company called 23andMe was issued a patent on a system of reproductive technology[156] for a process in which fertility clinic patients could identify certain characteristics that they would like their child to have.[157] Based on donors’ and patients’ genetic profiles, the program then runs an inheritance calculation, which can identify the preferred donors for the recipient. The patient can select for a child with a low risk of certain genetic conditions, or even request that the child have a high probability of a certain eye color.[158] Significantly, the issuance of this patent indicates a move in patent law towards the protection of genetic enhancement techniques and processes. According to Jacob Sherkow, formerly a biotechnology patent expert at Stanford University’s law school and now an Associate Professor of Law at New York Law School, said that 23andMe’s patent “is a shot across the bow — a signal to the world that this is what the future is going to look like.”[159]

B. Judicial Precedent on the Patentability of Living Organisms

Existing case law in this area does not seem to produce a coherent rule of law with respect to patent eligibility of living organisms. It first began when the Supreme Court in Diamond v. Chakrabarty upheld a patent on a living bacterium organism.[160] In Chakrabarty, the Court determined that the scientific alteration of a bacterium sufficiently transformed it into a new chemical composition with new capabilities of breaking down crude oil.[161] Since Chakrabarty was decided, patents have been issued on several human-made organisms, including multicellular organisms[162] and genetically altered mammals.[163] Nonetheless, the Supreme Court has continued to reiterate the limitations on the subject matter that is eligible for patent. Prior to Myriad Genetics, the Court in Mayo had previously concluded that “simply appending conventional steps, specified at a high level of generality, to laws of nature, natural phenomena, and abstract ideas cannot make those laws, phenomena, and ideas patentable.”[164] In Myriad Genetics, the Court explained that it has “long held that [§ 101 of the Patent Act] contains an important “implicit exception” that “[l]aws of nature, natural phenomena, and abstract ideas are not patentable.”[165] But in discussing this “rule against the patents on naturally occurring things,” it noted that a balancing test limits the extent of this prohibition; that is, “a delicate balance between creating ‘incentives that lead to creation, invention, and discovery’ and ‘imped[ing] the flow of information that might permit, indeed spur, invention.’”[166] This was the standard governing the court’s decision on the whether what Myriad had claimed was a proper subject matter for patent.[167] To be clear, there are two separate holdings in Myriad Genetics. First, the Court held that an isolated, naturally occurring DNA segment is a product of nature and, as such, not eligible for patent.[168] Second, the Court fond that cDNA, or the lab created DNA, is eligible for patent, given that “it is not naturally occurring.”[169] When looking closely at the holding in Myriad Genetics, the Court specifically identifying an exception to certain uses of natural phenomenon.[170] Consequently, “only an innovative or inventive use of a natural phenomenon” may be patentable.[171] The Court’s opinion implicitly suggests that the alteration or creation of the information in the human genes or other material would a significant factor in determining whether the subject matter is “naturally occurring.”[172] Given that Myriad neither altered or created the BRCA genes, and that its primary contribution was discovering the location and identifying the sequencing of the genes within particular chromosomes, the court found it patent-ineligible.[173] Simply “separating that gene from its surrounding genetic material is not an act of invention.”[174] Depending on the future technology involved in creating desirable genetic sequences with hand selected characteristics, there could be one of two legal possibilities for an application for patent protection. Should the biotechnology industry produce a technique for isolating particular genetic human traits, perhaps taken from embryonic stem cells, then it would seem to necessarily follow that the these isolated genes would nonetheless be naturally occurring and constitute a non-patentable subject matter. However, a new question arises should these isolated genes be used to create a synthetic genetic sequence that alters or replaces an existing sequence and is not naturally occurring.

C. The Demise of the “Beneficial Utility” Requirement and the Introduction of the America Invents Act

For patent eligibility, the innovation or invention must be (i) novel, (ii) nonobvious, (iii) useful.[175] Under the utility requirement, “beneficial utility” used to play a significant role.[176] Dating back to 1817, Justice Story recognized this doctrine in Lowell v. Lewis, where he stated the view that “the law requires . . . the invention should not be frivolous or injurious to the well-being, good policy, or sound morals of society.”[177] While previously a consideration under the utility prong, the Court by the mid-1990’s no longer seemed interested in assessing the morality of inventions in patent law.[178] Since Lowell, federal courts have relaxed, if not dismissed, this additional requirement of beneficial utility. For example, the Federal Circuit in Juicy Whip, Inc., v. Orange Bang, Inc., evaluated a case in which a patented product was misleading to customers as to the source of the product it was producing.[179] Nonetheless, the court stated that a doctrine invalidating patents serving immoral or illegal purposes “has not been applied broadly in recent years.”[180] It also suggested that the legislature is free to prohibit patents on such deceptive devices but has not yet done so.[181] The Supreme Court conveyed a similar idea in Chakrabarty, when it noted that the Court was “without competence to entertain [arguments regarding the balancing of risks and benefits of inventions] . . . the contentions [before the Court] should be addressed to the political branches of Government . . . .”[182] Despite the current broad interpretation of the bounds of patentable subject matter rejecting a beneficial utility doctrine, morality cannot be entirely dismissed from a discussion of patents on human gametes and embryos. As implied by the first Federal Circuit opinion in Myriad Genetics, one of the primary functions of the judiciary is to interpret federal statutory law and regulations governing the realm of patent.[183] The Federal Circuit went on to suggest the inappropriateness of courts to intervene in policy decisions that are more adequately addressed by the legislature.[184] This indicates a key distinction between Myriad Genetics and any future case involving the patent – eligibility of human gametes or embryos. The distinction is one based on Congress’s express recognition of the ethical and moral concerns regarding patent claims “directed to or encompassing human organisms” through the adoption of a federal statute excluding such subject matter from the realm of patentability.[185] The fact that Congress has spoken with regard to the patentability of this sort of subject matter should portend courts’ adherence to this preference.[186]
1. The America Invents Act’s Prohibition on Patents for Inventions “Directed to or Encompassing Human Organisms.”
While the issuance of patents can potentially serve the significant purpose of encouraging innovation and the research and development of beneficial advances in the industry of biotechnology, patents on human gametes and embryos clearly raise a number of ethical concerns, which are expressly recognized by federal statute.[187] Prior to Myriad Genetics, Congress directly addressed the issue of patenting human organisms through the America Invents Act. Section 33(a) of the Act states, in relevant part, that “[n]otwithstanding any other provision of law, no patent may issue on a claim directed to or encompassing a human organism.”[188] It is significant that Myriad Genetics was not a case in which the court was confronted with the §33(a) of the America Invents Act discussed supra. To this extent, the holding should be properly narrowed to synthetic DNA which does not implicate this federal statute — e.g. medical uses and gene therapy, and not those materials that are so intimately related to human organisms and their creation and development. The statue itself makes no distinction between naturally occurring or synthetic materials in its prohibition on patents “directed to or encompassing human organisms.”[189] Significantly, § 33(a) may serve to limit the extent of the impact that Myriad Genetics will have on the analysis on the patentability of modified gametes and embryos. The Court will be confronted with a case necessarily involving statutory construction, something that was not involved in Myriad Genetics. When this issue arises, undoubtedly much of the debate will surround the precise meaning of the phrases “directed to” and “human organism.”[190] Unfortunately, the Act itself does nothing to precisely define either of these phrases, and its legislative history seems “riddled with internal contradictions, ad hoc exceptions, and, generally, a lack of any coherent guiding principle.”[191] It is important to note that the phrase “human organism” seems to have been intended to have the same meaning as it did under the Weldon Amendment — off of which § 33 was modeled.[192] The Weldon Amendment was originally put forward by U.S. Representative Dave Weldon and passed as a part of the Consolidated Appropriations Act of 2004, which barred appropriated federal funds from their use in issuing patents “directed to or encompassing a human organism”[193] The legislative history of this amendment offers some guidance to the meaning of this prohibition in both the Appropriations Act and § 33:
[T]he U.S. Patent Office has already issued patents on genes, stems cells, animals with human genes, and a host of non-biologic products used by humans, but it has not issued patents on claims directed to human organisms, including human embryos and fetuses. My amendment would not affect the former, but would simply affirm the latter.[194]
The history of the Weldon Amendment helps delineate Congress’s intended meaning of the statute. The congressional record further reveals that “the amendment applies to patents on claims directed to or encompassing a human organism at any stage of development, including a human embryo . . . regardless of whether the organism was produced by technological methods (including, but not limited to, in vitro fertilization, somatic cell nuclear transfer, or parthenogenesis).”[195] It, admittedly, goes on to note that the amendment should not preclude “methods for creating, modifying, or treating human organisms, including . . . through in vitro fertilization, methods of somatic cell nuclear transfer, medical or genetic therapies, methods for enhancing fertility, and methods for implanting embryos.”[196] Nevertheless, given the text of the act and what legislative history is clear, it seems obvious that human embryos would not constitute a patentable subject matter under 35 U.C.S. § 101. Pursuant to the America Invents Act, no patents shall issue to inventions “directed to or encompassing a human organism.”[197] Genetically engineered or altered human embryos are the epitome of what the America Invents Act sought to keep beyond the realm of patent. While no definition is provided for this phrase, a human embryo, including those genetically altered or synthetically created, contains all of the elements necessary for human life to form and develop and would undoubtedly “encompass a human organism.” It is less obvious, given the lack of clear guidance in interpreting this phrase, that gametes would fall into this category. But, within the Manual of Patenting Examining Procedures, the PTO has indicated that a rejection will be made on the basis of non-statutory subject matter “[i]f the broadest reasonable interpretation of the claimed invention as a whole encompasses a human organism[.]”[198] Given that gametes contain at least half of the genetic material that goes into the formation of a human embryo, it seems consistent that genetically altered or synthetic gametes, like embryos would “encompass[] a human organism” — thus, considered a non-patentable subject matter. At the very least, genetically altered gametes would be “directed to” a human organism. These cells are the building blocks of human life. Sperm and egg combine together to form an embryo, which has the potential to develop into a living, functioning human being. Consequently, even if they are genetically modified through germ-line modification or another technique, they do not lose their inherent capability of producing human life. Moreover, to the extent that scientists may create synthetic genetic material in order to alter gamete cells,[199] the gamete itself would still be ineligible for patent, and, arguably, so to would the synthetic genetic material itself. Researchers and scientists may attempt to skirt this prohibition by receiving a patent on the process of modifying human gametes or embryos given the Weldon amendment’s “methods” exception.[200] However, a patent application of this sort would nevertheless include claims directed to a human organism for the reasons described above. Furthermore, the excepted methods that are enumerated only encompass assisted reproductive technologies, somatic cell nuclear transfers, and genetic therapies.[201] While the legislative history does not provide an exhaustive list of exceptions, methods for genetic enhancement — distinct from genetic therapy — are not included and do not appear to have been contemplated.[202] The techniques and processes involved in altering gametes or embryos to achieve desired characteristics would be directly aimed at creating genetically enhanced human organisms; methods that are not explicitly protected in the legislative history. Admittedly, it is questionable whether legislative history will or should bear any weight in statutory construction. However, under the above formulations it would suggest that gametes and embryos would both be considered within the realm of human organisms, since it arguably encompasses organisms at any stage of development. Moreover, the methods for genetic enhancement techniques are distinct from medical or genetic therapy processes involving the creation of embryos, and is not expressly excluded from the realm of patentability. It is significant to reiterate the distinction between genetic modification characterized as gene therapy and genetic enhancement. [203] What has been termed gene therapy is primarily focused on curing or reducing human diseases and conditions, where as genetic enhancement focuses in stead on enhancing human characteristics.[204] In analyzing the legislative history of the Weldon Amendment, it does not expressly exclude genetic enhancement from patent law’s prohibition on claims “directed to or encompassing human organisms” but does address genetic therapy.[205] Accordingly, to properly adhere to legislative intentions, federal courts should view the impact of Myriad Genetics as limited in determining whether human gametes or embryos are patentable, either synthetic or natural. That is, when the patents at issue implicate § 33(a), Myriad Genetics should apply only in the limited context of the patentability of medical processes or genetic therapies,[206] and not in contexts of genetic enhancement. For example, patents on synthetic DNA similar to that in Myriad Genetics, but used in germ-line genetic modifications or reproductive cloning might implicate the federal statute. As gametes have the ability to pass along hereditary genetic information from one organism to its offspring[207], any synthetic gene or DNA that is inserted into a gamete is essential to the ultimate function of that gamete or embryo. In other words, without the incorporated synthetic DNA, a modified gamete would not be able to ensure perpetuation of its genetic information. In this way, it would seem a claim for such synthetic genes or DNA sequences, like those that could be utilized in germ-line genetic modification, might well be an invention “directed to or encompassing a human organism,” and, accordingly, prohibited by statute.[208] It is important to note that Myriad Genetics was considering a sort of gene therapy, where the location and isolation of the BRCA genes enabled testing for and treatment of certain health conditions within the human body; the Court was not considering genetic enhancement. But, in upholding the patents on Myriad’s claims for cDNA, the Court’s holding only specifically applied to cDNA, which did not encompass a human organism. These are synthetic materials that are entirely created and inserted by the scientists.[209] The synthetic DNA involved in Myriad Genetics was designed to to diagnose and target conditions within a human organism, but, admittedly, does not itself encompass one. However, gametes and embryos for all of the aforementioned reasons are fundamentally distinct from the type of material that Myriad was creating and should be treated as such in subsequent federal court cases involving such genetic material.


In sum, the advances of biotechnology and reproductive technologies invite the question of the patentability of human gametes and embryos. The challenges this question poses to patent law seems even more imminent given the Supreme Court’s holding in Myriad Genetics. However, pursuant to the MPEP and the America Invents Act, no innovation or invention “directed to or encompassing a human organism”[210] will be considered for a U.S. patent, and the holding in Myriad Genetics does nothing to disturb this prohibition. While the phrase directed to is never precisely defined or used in any other section of the Act, the plain meaning of the phrases and legislative history may help to inform the analysis in federal courts. Ultimately, the Supreme Court’s holding upholding patents on cDNA should be limited in its reach and should not apply in circumstances that are in direct contradiction to federal law — namely, section 33’s express prohibition on patents “directed to or encompassing human organisms.”[211]
* J.D. Candidate, New York University School of Law, 2015; B.A. and B.S., cum laude, University of Florida, 2012. The author wishes to express her sincerest appreciation to the editorial board and members of the NYU Journal of Intellectual Property & Entertainment Law for their dedication and hard work throughout the editorial process.
[1] See, e.g., Dov Fox, 23andme’s Designer Baby Patent, Huffington Post (Oct. 4, 2013),
[2] Ass’n for Molecular Pathology v. Myriad Genetics, Inc., — U.S. —, 133 S. Ct. 2107, 2118–19 (2013) [hereinafter Myriad Genetics].
[3] Id. at 2111.
[4] Id.
[5] Id. at 2119–20.
[6] Fox, supra note 1; Terry Baynes, Genetic-Testing Patent Raises Concerns About ‘Designer Babies’, Council For Responsible Genetics (Oct. 9, 2013),
[7] Id.
[8] Leahy-Smith America Invents Act, Pub. L. No. 112–29, 125 Stat. 284 (2011) (codified as amended in scattered sections of Title 35 of the U.S. Code).
[9] Id. § 33(a), 125 Stat. at 340.
[10] Myriad Genetics, 133 S. Ct. at 2118–19. Prior to the America Invents Act, Congress had banned the patenting of human embryos and organisms through annual budget appropriation acts since 2004. The Court was addressing the language found in Consolidated Appropriations Act of 2004, which is nearly identical to that in the America Invents Act. See Consolidated Appropriations Act of 2004, Pub. L. No. 108–199, § 634, 118 Stat. 101 (codified as amended in scattered sections of Title 35 of the U.S. Code) (“None of the funds appropriated or otherwise made available under this Act may be used to issue patents on claims directed to or encompassing a human organism.”)
[11] 35 U.S.C. § 101 (2012).
[12] Id.
[13] Id.
[14] Lowell v. Lewis, 15 F. Cas. 1018, 1019 (C.C.D. Mass. 1817) (No. 8568).
[15] Laura A. Keay, Morality’s Move Within U.S. Patent Law: From Moral Utility to Subject Matter, 40 AIPLA Q.J. 409, 429 (2012).
[16] Dep’t of Comm., U.S. Pat. & Trademark Office, Utility Examination Guidelines, 66 Fed. Reg. 1092, 1093–94 (Jan. 5, 2001), available at og/2001/week05/patutil.htm.
[17] Fox, supra note 1.
[18] See, e.g., Diamond v. Chakrabarty, 447 U.S. 303, 317 (1980) (“[B]alancing of competing values and interests, which in our democratic system is the business of elected representatives … should be addressed to the political branches of the Government, the Congress and the Executive, and not to the courts.”); Juicy Whip, Inc., v. Orange Bang, Inc., 185 F.3d 1364,1366-68 (Fed. Cir. 1999) (upholding patent on deceptive product, but noting that it would defer to Congress if it were to make the patenting of such devices illegal).
[19] Tia Ghose, Children to Order: The Ethics of “Designer Babies”, Live Science (Mar. 13, 2014, 2:00 PM),
[20] Id.
[21] See Council for Responsible Genetics, Position Paper on Human Germline Manipulation (updated Fall 2000), Viewpage.aspx?pageid=101 [hereinafter Position Paper].
[22] Susannah Baruch et al., Genetics & Pub. Pol’y Ctr, Human Germline Genetic Modification: Issues and Options for Policymakers 11 (2005), available at pdf.
[23] Id.
[24] Position Paper, supra note 21.
[25] National Institutes of Health, What is a Chromosome?, Genetics Home Reference (Nov. 24, 2013),
[26] Myriad Genetics, 133 S. Ct. at 2111.
[27] National Institutes of Health, What is DNA?, Genetics Home Reference (Nov. 24, 2013),
[28] The human genome consists of a complete collection of DNA. For more information, see Human Genome Project, Human Genome: Introduction, (2014), [hereinafter NIH, What is DNA?].
[29] Id.
[30] National Institutes of Health, Intron Definition, Genetics Home Reference (Nov. 24, 2013), [hereinafter NIH, Intron Definition]; National Institutes of Health, Exon Definition, Genetics Home Reference (Nov. 24, 2013), [hereinafter NIH, Exon Definition].
[31] NIH, Intron Definition, supra note 30; NIH, Exon Definition, supra note 30.
[32] Myriad Genetics, 133 S. Ct. at 2112.
[33] For more information on cDNA, see Human Genome Project, cDNA (Complementary DNA), (2014), (last visited Dec. 1, 2014).
[34] President’s Council on Bioethics, Reproduction and Responsibility: The Regulation of New Biotechnologies 26, 30 (Mar. 2004), available at [hereinafter Reproduction and Responsibility].
[35] Id. at 26.
[36] Some clinicians wait until five days after fertilization (also known as the blastocyst stage) in order to maximize the probability of implantation. Id. at 30.
[37] Id.
[38] Gautam Naik, ‘Designer Babies:’ Patented Process Could Lead to Selection of Genes for Specific Traits, Wall Street J. (Oct. 3, 2013),
[39] Id.
[40] Gene therapy is a process discussed infra that is primarily focused on curing or reducing human diseases and conditions. See Kathi E. Hanna, Genetic Enhancement, National Human Genome Research Institute (last reviewed April 2006),
[41] Naik, supra note 38.
[42] Id.
[43] Id.
[44] Id.
[45] Designer Babies: Controversy Over Embryo Selection, Telegraph (Jan. 9, 2009, 9:59 AM),
[46] Id.
[47] Natonal Institutes of Health, Cloning, National Human Genome Research Institute (last reviewed April 28, 2014), (hereinafter NIH, Cloning).
[48] Id.
[49] Neil A. Campbell & Jane B. Reece, Biology 375 (6th ed. 2002). See, e.g., I. Wilmut et al., Viable Offspring Derived from Fetal and Adult Mammalian Cells, 385 Nature 810 (1997) (discussing the cloning of genes in sheep); Reproduction and Responsibility, supra note 34, at 126 (discussing the successful cloning of human embryos for embryonic stem cell lines).
[50] Campbell & Reece, supra note 49, at 380–81.
[51] Id. at 377. cDNA is distinct from isolated DNA segments, in that the introns, as discussed above, are completely removed from the cDNA sequence and are not naturally occurring. Id. at 380–81.
[52] Id. at 376.
[53] James D. Watson et al., Molecular Biology of the Gene 262 (5th ed. 2004).
[54] Reproduction and Responsibility, supra note 34, at 125 (citations omitted).
[55] Woo S. Hwang et al., Evidence of a Pluripotent Human Embryonic Stem Cell Line Derived from a Cloned Human Blastocyst, Sciencexpress (Feb. 12, 2004), available at
[56] Reproduction and Responsibility, supra note 34, at 126.
[57] “Pluripotent” stem cells are those cells that have the ability to develop into nearly all cells in the body, and, so, when isolated from the embryo, these cells have the potential to produce almost all human cells. See Ian Murnaghan, Pluripotent Stem Cells, Explore Stem Cells (updated June 18, 2014),
[58] Reproduction and Responsibility, supra note 34, at 126 (citing Woo S. Hwang et al., Evidence of a Pluripotent Human Embryonic Stem Cell Line Derived from a Cloned Human Blastocyst, Sciencexpress (Feb. 12, 2004), available at /newsandlibrary/files/HuESSCNT.pdf).
[59] Donald Kennedy, Editorial Retraction, Science Mag. (Jan. 20, 2006),
[60] Position Paper, supra note 21.
[61] See Francis Fukuyama, Our Posthuman Future: Consequences of the Biotechnology Revolution 76 (2002).
[62] Id. at 77.
[63] Position Paper, supra note 21.
[64] Baruch, supra note 22, at 11–20.
[65] Position Paper, supra note 21.
[66] Id.
[67] Id.
[68] Id.
[69] Id.
[70] Id.
[71] Id.
[72] Id.
[73] For a more comprehensive reading of these processes, see Kevin R. Smith, Sarah Chan, & John Harris, Human Germline Genetic Modification: Scientific and Bioethical Perspectives, 43 Archives of Medical Research 491, 493–96 (2012), available at
[74] Id.
[75] Id.
[76] Baruch, supra note 22, at 14–15.
[77] Aya Leder et al., Consequences of Widespread Deregulation of the c-myc Gene in Transgenic Mice: Multiple Neoplasms & Normal Development, 45 Cell 485 (1986).
[78] A.J. Griffith et al.,. Optic, Olfactory, and Vestibular Dysmorphogenesis in the Homozygous Mouse Insertional Mutant Tg9257, 19 J. Craniofac. Genet. Dev. Biol. 157–63 (1999).
[79] Position Paper, supra note 21.
[80] Id.
[81] To be clear, gene addition is the insertion of an extra copy of a malfunctioning or nonfunctioning gene. See Gene Addition, Biochemistry, /classes/bioc461/Biochem499/RaymondCostantini/Pages/GeneAddition.htm (last visited Dec. 1, 2014).
[82] Position Paper, supra note 21.
[83] Id.
[84] Id.
[85] Id.
[86] Id.
[87] Rob Stein, Test Monkeys’ Offspring Pick Up Genetic Modification, Wash. Post, May 28, 2009, at A1 (detailing the first successful germ-line modification of a primate and hypothesizing that “[t]he approach could tempt some to use the technique to try to engineer desirable traits in people”).
[88] Id.
[89] Id.
[90] Id.
[91] Id.
[92] Id.
[93] Baruch, supra note 22, at 13.
[94] Hanna, supra note 40.
[95] Ass’n for Molecular Pathology v. USPTO, 653 F.3d 1329, 1339 (Fed. Cir. 2011); Myriad Genetics, 133 S. Ct. at 2111. It is significant to note that there are several citations to this case in its various procedural postures.
[96] See Ass’n for Molecular Pathology, 653 F.3d at 1339.
[97] Myriad Genetics, 133 S. Ct. at 2113–14.
[98] Id. at 2113.
[99] Id. at 2114.
[100] Id.
[101] Id.
[102] Ass’n for Molecular Pathology, 653 F.3d at 1340.
[103] Myriad Genetics, 133 S. Ct. at 2114.
[104] Id.
[105] Complaint at 3, Ass’n for Molecular Pathology v. USPTO, 669 F. Supp. 2d 365 (S.D.N.Y. 2009) (No. 09 Civ. 4515).
[106] Id. at 2 –4.
[107] Ass’n for Molecular Pathology v. USPTO, 702 F. Supp. 2d 181, 238 (S.D.N.Y. 2010).
[108] Id. at 211.
[109] Ass’n for Molecular Pathology, 653 F.3d at 1334.
[110] Id. at 1334.
[111] Id. at 1365 (“[T]he mere fact that the larger chromosomal polymer includes the same sequence of nucleotides as the smaller isolated DNA is not enough to make it per se a law of nature and remove it from the scope of patentable subject matter.”).
[112] Id. at 1353.
[113] Id. at 1371–73 (Moore, J., concurring in part).
[114] Id. at 1373 (discussing the notion Chakrabarty that these types of policy considerations are within the province of the legislature).
[115] Id. (Fed. Cir. 2011) (Bryson, J., concurring in part and dissenting in part).
[116] Id.
[117] Id. at 1377–78 (citing Diamond v. Chakrabarty, 447 U.S. 303 (1980)).
[118] Id. at 1373 (Bryson, J., concurring in part and dissenting in part).
[119] Ass’n for Molecular Pathology v. Myriad Genetics, 132 S. Ct. 1794 (2012).
[120] Mayo Collaborative Servs. v. Prometheus Labs., 132 S. Ct. 1289 (2012). Prometheus was the exclusive licensee of a patent that’s claims were directed to a method of determining dosages of drug to give to patients with particular autoimmune diseases. Effectiveness of dosages inherently varies with each patient given their unique metabolization rates. Having identified a threshold dosage for effectiveness, which was part of the claimed method, the plaintiffs argued that they could more efficiently determine whether to increase or decrease the dosage of the drug for individual patients. Id.
[121] Id.
[122] Id. at 1294 (citing O’Reilly v. Morse, 56 U.S. (15 How.) 62, 112–20 (1854)); see also Gottschalk v. Benson, 409 U.S. 63, 71–72 (1972).
[123] Mayo, 132 S. Ct. at 1294.
[124] Ass’n for Molecular Pathology v. USPTO, 689 F.3d 1303, 1337 (Fed. Cir. 2012).
[125] Id. at 1346 (Moore, J., concurring in part).
[126] Id. at 1348 (Bryson, J., concurring in part and dissenting in part).
[127] Id.
[128] Id. Note that the cDNA created by Myriad “contain[ed] the same protein-coding information found in a segment of natural DNA but omit[ted] portions within the DNA segment that do not code for proteins.” Id.
[129] Id.
[130] Id. at 2116, 2120 (“Scientific alteration of the genetic code presents a different inquiry, and we express no opinion about the application of § 101 to such endeavors.”).
[131] Id. at 2116.
[132] Chakrabarty, 447 U.S. at 305.
[133] Id.
[134] Id. at 309–10 (internal quotation marks omitted).
[135] Myriad Genetics, 133 S. Ct. at 2217 (citing and quoting Chakrabarty, 447 U.S. at 310).
[136] Id. at 2117.
[137] Funk Bros. Seed Co. v. Kalo Inoculant Co., 333 U.S. 127 (1948).
[138] Id.
[139] Inoculants are soil additives that serve to promote plant health when included in the surrounding soil or on the roots of the plant itself. See generally id.
[140] Id. at 129–30.
[141] Id. at 132 (“There is no way in which we could call [the bacteria mixture a product of invention] unless we borrowed invention from the discovery of the natural principle itself.”).
[142] Myriad Genetics, 133 S. Ct. at 2118.
[143] Id. To be clear, the genes are only non-naturally occurring in the sense that this particular genetic sequence is not found isolated in nature.
[144] Id. at 2119
[145] Id.
[146] See, e.g., Myriad Genetics, 133 S. Ct. at 2117 (contrasting the patent claims at issue in Myriad to those in Chakrabarty and finding that, unlike in Chakrabarty, “Myriad did not create anything” (emphasis added)); Chakrabarty, 447 U.S. at 310 (upholding patent on modified bacteria given the resulting bacterium’s “markedly different” properties and abilities).
[147] Position Paper, supra note 21. Genetic engineering procedures are conducted on animals, and these procedures have resulted in mice growing to twice their size and cows producing milk enhanced with pharmaceuticals. This testing may ultimately result in athletically gifted children, the physically attractive, or a math genius. See id.
[148] See generally Reproduction and Responsibility, supra note 34, 89–104.
[149] Id. at 147.
[150] Id.
[151] Leahy-Smith America Invents Act, § 33(a).
[152] See Eric J. Rogers, Can You Patent Genes? Yes and No, 93 J. Pat. & Trademark Off. Soc’y 19, 28 (2011).
[153] Ass’n for Molecular Pathology, 689 F.3d at 1333.
[154] Rogers, supra note 152, at 19.
[155] Reproduction and Responsibility, supra note 34.
[156] Naik, supra note 38.
[157] Id.
[158] Id.
[159] Id.
[160] Chakrabarty, 447 U.S. 303; see also Keay, supra note 15, at 421–30.
[161] Chakrabarty, 447 U.S. at 309–10.
[162] See In re Allen, No. 87-1393, 1988 WL 23321 (Fed. Cir. Mar. 14, 1988) (upholding a patent on a new type of oyster).
[163] See U.S. Patent No. 4,736,866 (filed June 22, 1984) (issued Apr. 12, 1988).
[164] Mayo, 132 S. Ct. at 1300.
[165] Myriad Genetics, 133 S. Ct. at 2116 (citing Mayo Collaborative Servs. v. Prometheus Labs., — U.S. —, 132 S. Ct. 1289, 1293 (2012)). In stating the rule against patents on naturally occurring things, the Court in Mayo noted “[s]uch discoveries are ‘manifestations of . . . nature, free to all men and reserved exclusively to none.’” Mayo, 132 S. Ct. at 1293 (quoting Chakrabarty, 447 U.S. at 309).
[166] Myriad Genetics, 133 S. Ct. at 2116 (quoting Mayo, 132 S. Ct. at 1305).
[167] Id.
[168] Id. at 2111.
[169] Id.
[170] Myriad Genetics, 133 S. Ct. at 2119 (“Had Myriad created an innovative method of manipulating genes while searching for the BRCA1 and BRCA2 genes, it could possibly have sought a method patent.”).
[171] Ariosa Diagnostics, Inc. v. Sequenom, Inc., No. C 11-06391 SI, 2013 WL 5863022, at *9 (N.D. Cal. Oct. 30, 2013) (quoting Myriad Genetics, 133 S. Ct. at 2119).
[172] Id. at 2115–16.
[173] Id. at 2116.
[174] Id. at 2117.
[175] 35 U.S.C. § 101.
[176] See generally Robert P. Merges & John F. Duffy, Patent Law and Policy: Cases and Materials 216–28 (3d ed. 2002) (describing the history behind the doctrine of beneficial utility of the doctrine).
[177] Lowell, 15 F. Cas. at 1019.
[178] Keay, supra note 15, at 429.
[179] Juicy Whip, 185 F.3d at 1366–67.
[180] Id.
[181] Id. at 1368.
[182] Chakrabarty, 447 U.S. at 317.
[183] Ass’n for Molecular Pathology, 653 F.3d at 1353.
[184] Id. (“[T]he Supreme Court has ‘more than once cautioned that courts should not read into the patent laws limitations and conditions which the legislature has not expressed’” (quoting Bilski v. Kappos, 561 U.S. 593, 602 (2010)).
[185] Leahy-Smith America Invents Act, § 33(a).
[186] See Chakrabarty, 447 U.S. at 317 (“[T]he balancing of competing values and interests, which in our democratic system is the business of elected representatives . . . should be addressed to the political branches of the Government, the Congress and the Executive, and not to the courts.”); Juicy Whip, 185 F.3d at 1366–68 (upholding patent on deceptive product, but noting that it would defer to Congress if it were to make the patenting of such devices illegal).
[187] Leahy-Smith America Invents Act, § 33(a).
[188] Id.
[189] Id.
[190] See Dennis Crouch, Patents Directed to Human Organisms, Patentlyo (Sept. 9, 2011), (“The phrase ‘directed to’ is not defined in the Patent Act or the USPTO Implementation Rules found at 37 C.F.R. § 1, et seq. However, the phrase [is] often used by patent attorneys to describe the coverage of a particular claim and the statutory category. Even amongst patent attorneys, the usage is not uniform.”).
[191] Yaniv Heled, On Patenting Human Organisms or How the Abortion Wars Feed into the Ownership Fallacy, 36 Cardozo L. Rev. 241, 243–44 (2014).
[192] Id. at 261, n.86 (“The sponsors of Section 33 viewed the Section as mere codification of the Weldon Amendment and, as such, as a direct extension of the Weldon Amendment’s jurisprudence, including the meaning of the term ‘human organism.’”); see 157 Cong. Rec. E1177, E1177-78 (“Chairman Lamar Smith [included] in the manager’s amendment to . . . the America Invents Act, a provision that will codify an existing pro-life policy rider included in the CJS Appropriations bill since FY2004. This amendment, commonly known as the Weldon amendment, ensures the U.S. Patent and Trade Office, USPTO, does not issue patents that are directed to or encompassing a human organism . . . . I also submit into the Record items from previous debate on the Weldon amendment that will add further clarification to the intent of this important provision.”).
[193] Consolidated Appropriations Act of 2004, Pub. L. No. 108-199, § 634, 118 Stat. 3 (2004).
[194] 157 Cong. Rec. E1177-04 (testimony of Representative Dave Weldon previously presented in connection with the Consolidated Appropriations Act of 2004, Pub. L. 108-199, § 634, 118 Stat. 3, 101 (2004), and later resubmitted with regard to the America Invents Act; see 149 Cong. Rec. E2417-01).
[195] 157 Cong. Rec. E1177-04, E1180 (daily ed. June 23, 2011) (emphasis added) (statement of Rep. Dave Weldon).
[196] 157 Cong. Rec. E1182, E1183 (daily ed. June 23, 2011) (emphasis added) (statement of Rep. Lamar Smith).
[197] Leahy-Smith America Invents Act § 33(a); see also MPEP § 2105 (8th ed. Rev. 8, July 2010).
[198] MPEP § 2105 (8th ed. Rev. 8, July 2010).
[199] It does not seem scientifically impossible to synthetically create the desirable DNA characteristics and use those to modify existing human gametes and genes. See Myriad Genetics, 133 S. Ct. at 2112–13 (discussing the discussed the possibility of creating synthetic DNA through well-known scientific processes).
[200] 157 Cong. Rec. E1182, E1183 (daily ed. June 23, 2011).
[201] Id. (excepting methods including “in vitro fertilization, methods of somatic cell nuclear transfer, medical or genetic therapies, methods for enhancing fertility, and methods for implanting embryos”).
[202] Id.
[203] See Hanna, supra note 40.
[204] Id.
[205] 157 Cong. Rec. E1182, E1183 (daily ed. June 23, 2011) (emphasis added).
[206] Id.
[207] Baruch, supra note 22, at 11.
[208] Leahy-Smith America Invents Act § 33(a).
[209] The Supreme Court discussed the possibility of creating synthetic DNA through well-known scientific processes. “It is also possible to create DNA synthetically through processes similarly well known in the field of genetics. One such method begins with an mRNA molecule and uses the natural bonding properties of nucleotides to create a new, synthetic DNA molecule. The result is the inverse of the mRNA’s inverse image of the original DNA, with one important distinction: Because the natural creation of mRNA involves splicing that removes introns, the synthetic DNA created from mRNA also contains only the exon sequences. This synthetic DNA created in the laboratory from mRNA is known as complementary DNA (cDNA).” Myriad Genetics, 133 S. Ct. at 2112.
[210] Leahy-Smith America Invents Act, § 33(a).
[211] Id.

Restructuring the Federal Circuit

Restructuring the Federal Circuit
By Jeremy W. Bock* A pdf version of this article may be downloaded here.  


Patent-related issues are becoming ever more salient in the national economy, as reflected in the intense interest in patent policy exhibited by all three branches of government in recent years.[1] No wonder, then, that the Chief Judge of the United States Court of Appeals for the Federal Circuit—which has exclusive jurisdiction over patent appeals[2]—recently declared “We are the most important court in the United States.”[3] While not everyone may agree with that sentiment,[4] the Federal Circuit has, nevertheless, been one of the more closely-scrutinized appellate courts by virtue of its specialized jurisdiction[5] and its mandate to create national uniformity in the adjudication of patent disputes.[6] Of particular concern to interested observers of the Federal Circuit are certain persistent problems identified in the academic literature, such as: that its outcomes are strongly panel-dependent on certain issues;[7] that it has formalist tendencies;[8] that its case law leads to indeterminate results;[9] and that it enforces certain doctrines too strictly,[10] while being too lax on others.[11] Criticisms of the Federal Circuit are contained in a vast body of literature, and are also aired at numerous patent law-related conferences, often in the presence of one or more Federal Circuit judges in attendance. And yet, many of the complaints seemingly endure (e.g., the Federal Circuit’s conflicting claim construction methodologies lead to panel-dependent outcomes[12]), and change is often substantially delayed (e.g., certain problematic rules associated with willfulness determinations were overruled after twenty years[13]), if not denied (e.g., the Federal Circuit decided to reconsider the de novo standard of review for claim construction[14]—after fifteen years of complaints from not only commentators,[15] but also district judges,[16] and its own members[17]—only to reaffirm it[18]). In light of these criticisms, one question that arises is whether the Federal Circuit has difficulty reconsidering and correcting the suboptimalities in its case law in a timely manner, whether by clarifying, limiting, reconciling, or overruling precedents that have become problematic.[19] Because it is effectively the court of last resort in patent cases, given the rarity of Supreme Court review,[20] self-correction by the Federal Circuit is critical. This, coupled with the extreme improbability of timely Congressional action,[21] creates a situation where the primary responsibility “for assuring that gaps are filled, uncertainties resolved, and stupidities corrected”[22] in patent law falls squarely on the Federal Circuit. Otherwise, without periodic self-correction, Federal Circuit precedents may ossify in a suboptimal state, which, as John Golden has observed, may be the real danger posed by a centralized appellate scheme for patent cases.[23] Compared to the regional circuits, the Federal Circuit likely requires a faster, more robust mechanism for making corrections to a body of precedent, for two reasons. First, patent law must be able to keep up with advances in technology.[24] Second, as the exclusive appellate venue for patent cases, the Federal Circuit does not experience the type of corrective case law “percolation” that occurs among the regional circuits.[25] It is possible then, that suboptimal case law might endure more readily at the Federal Circuit, when, at the same time, the need to make timely adjustments to precedent may be more pressing in light of the issues raised by new technologies. While a variety of solutions have been proposed in the literature that seek to compensate for or otherwise mitigate the Federal Circuit’s shortcomings,[26] scant attention has been paid to the cognitive and situational elements that define the internal adjudicatory environment within that court. As such, this Article undertakes an exploration of the behavioral factors that may underlie the various complaints about the Federal Circuit, with a specific focus on the cognitive and situational elements that allow suboptimal precedents to be generated and maintained. In doing so, this Article draws lessons not only from the literature on judicial behavior, but also from cognitive psychology and management science—in particular, organizational behavior[27]—in evaluating the difficulty of self-correction. As described in greater detail infra,[28] this analytical path suggests that a potential solution may lie in changing the organizational structure of the Federal Circuit to mitigate the behavioral elements that may negatively affect the court’s ability to take timely actions to refine or otherwise repair suboptimal case law.[29] When the complaints about the Federal Circuit are viewed through a cognitive and situational lens, two possibilities emerge. First, with certain precedents, some judges may simply fail to recognize the need to take corrective action. As discussed in greater detail infra,[30] a Federal Circuit judge’s inability to recognize the existence of a problem could be an artifact of his or her expertise. Specifically, a phenomenon known in the cognitive psychology literature as the “curse of expertise”[31] may prevent experts (i.e., Federal Circuit judges)[32] from properly weighing criticism from others, and may also impair their ability to accurately assess the difficulties encountered by non-experts (e.g., district judges).[33] Second, with other precedents, some Federal Circuit judges may be fully aware that problems do exist for which correction is necessary, but the court, as an institution, is unable to undertake timely remedial action. This second problem, as explored infra,[34] is known in the management science literature as the “knowing-doing gap,”[35] which may arise from the situational dynamics among the Federal Circuit judges. Taken together, the curse of expertise and the knowing-doing gap may impair the Federal Circuit’s ability to address the suboptimalities in its case law in a timely manner because the former may prevent the court from realizing that a problem exists, while the latter may hinder the court from taking action on the problems that it is aware of. This Article contributes to the literature on the institutional analysis of the Federal Circuit in two ways: First, it combines lessons from the literature on judicial behavior, cognitive psychology, and management science to evaluate possible behavioral explanations for how and why the Federal Circuit generates or maintains suboptimal precedent. Second, based on this behavioral analysis, a proposal is introduced that may improve the Federal Circuit’s ability to identify and self-correct suboptimal precedents: staffing the court with district judges who serve staggered terms of limited duration. In essence, by changing the organizational structure of the Federal Circuit, it may be possible to compensate for, or at least mitigate, some of the cognitive biases and situational influences[36] within the court’s deliberative environment that may inhibit timely self-correction. This proposal focuses on a beneficial effect of regular changes in personnel that has not been fully appreciated in the literature relating to judicial term limits and rotations, which tends to concentrate on the Supreme Court[37] and issues relating to democratic accountability, the politicization of nominations, and mental decrepitude,[38] rather than the ability of an intermediate appellate tribunal to self-correct. This Article proceeds in four parts. Part I describes the Federal Circuit’s internal mechanisms for self-correction, and also summarizes several existing proposals in the literature that endeavor to remedy or compensate for the Federal Circuit’s deficiencies. Part II identifies potential cognitive and situational barriers to timely self-correction at the Federal Circuit—namely, the curse of expertise and the knowing-doing gap. Part III analyzes how the cognitive and situational barriers identified in Part II may be overcome by staffing the Federal Circuit with district judges who serve staggered terms of limited duration. Part IV addresses various objections and concerns about the proposal, and is followed by a brief conclusion.

I. The Current State

A. Internal Mechanisms for Quality Control

As an institution, the Federal Circuit has several internal “quality control” mechanisms for precedential opinions. They generally fall into two categories: before issuance and after issuance.
1. Before Issuance: Review of Precedential Opinions
Shortly after the Federal Circuit was formed, its first Chief Judge, Howard Markey,[39] and Judge Giles Rich, one of the drafters of the 1952 Patent Act,[40] touted the adoption of two procedures designed to help the newly-formed appeals court fulfill its mandate of bringing uniformity to patent law. First, every draft precedential opinion would be circulated to the entire court for several working days in order to allow the non-panel judges to weigh in and provide comments prior to issuance.[41] (Presently, the review period is ten working days.[42]) Second, the Federal Circuit’s internal administrative departments would include an office of the “Senior Technical Assistant” (STA),[43] whose staff members are charged with analyzing draft precedential opinions during the review period and circulating memos to the entire court that highlight potential conflicts with existing case law.[44] While these two mechanisms for pre-issuance correction of precedential opinions have endured throughout the Federal Circuit’s existence, the persistent complaints about the court suggest that Judges Markey and Rich might have overestimated their effectiveness. The utility of circulating draft precedential opinions to the entire court is dependent on the willingness of the non-panel judges to closely monitor them, provide substantive comments, and, if necessary, issue “hold sheets” that prevent their issuance until substantive concerns are addressed.[45] At the same time, the receptiveness of the authoring judge and the other panel members to suggestions from the rest of the court may also be a significant factor. However, persistent concerns about panel-dependent outcomes[46] and the existence of divergent lines of precedent[47] suggest that the internal circulation of draft opinions may be a weak mechanism for self-correction. As for the STA’s memos analyzing draft opinions for conflicting precedent, they are merely advisory, and, for that reason, it is possible that some Federal Circuit judges disregard them.[48] Notably, the STA’s conflicts check procedure has actually been scaled back in recent years: when the STA’s office was first established at the Federal Circuit, it reviewed every draft precedential opinion for potential conflicts prior to issuance;[49] however, on July 7, 2010, the Federal Circuit’s Internal Operating Procedures (IOPs) were changed so that the STA reviews a draft precedential opinion for conflicts only if requested.[50] The Federal Circuit’s decision to scale back the original role of the STA’s office is puzzling, if not troubling, especially when divergent lines of precedent still persist—and, in some instances, have emerged after July 7, 2010, on issues such as patentable subject matter[51]—and decisional disagreement at the court is becoming more severe.[52]
2. After Issuance: The En Banc Process
Once issued, precedential panel decisions may be overruled only by an en banc court.[53] However, the en banc process is seldom invoked: according to an empirical study by Christopher Cotropia, the Federal Circuit’s en banc rate is relatively low.[54] This is unsurprising as the en banc process is viewed by judges as a time-consuming, labor-intensive endeavor[55] whose uncertain outcomes might not be worth the cost of disturbing the collegial atmosphere that courts strive to maintain.[56] As a result, an extended period of time may elapse before the “right” case appears for which a majority of judges would agree is worth the hassle of en banc consideration. In some instances, a change in the composition of the court may be necessary in order for an issue to be ever considered en banc.[57] And when en banc review finally does occur, there is no guarantee that the outcome will necessarily improve the situation: the en banc court might simply reaffirm the status quo,[58] take the precedent in a more problematic direction,[59] or create further uncertainty by issuing a highly fractured decision with no majority opinion.[60]

B. Existing Proposals in the Literature

The literature offers a variety of proposals for remedying or compensating for the deficiencies in the Federal Circuit’s case law and its decision-making process. One popular proposal is to develop patent law expertise at the trial level[61] such as by establishing specialized trial courts[62] or by changing the venue rules so as to concentrate the filing of patent cases to certain districts.[63] This proposal has largely come to fruition in the form of the “Patent Pilot Program,”[64] which helps district judges cultivate patent law expertise through the reassignment of patent cases from judges who seek to avoid them to judges who are interested in hearing more of them.[65] However, empirical support for the expected benefits[66] of enhancing trial judge expertise is, at best, mixed.[67] Furthermore, specialization at both the trial and appellate levels could exacerbate the Federal Circuit’s “exceptionalist” approach to patent law.[68] Rather than focusing on the trial courts, some commentators have questioned the unitary appellate regime for patent cases. Craig Nard and John Duffy propose expanding the number of circuit courts that hear patent appeals, on the theory that “a polycentric, competitive appellate structure” may facilitate doctrinal development through incremental innovation and experimentation, as well as provide clearer signals to the Supreme Court to intervene.[69] Judge Diane Wood of the U.S. Court of Appeals for the Seventh Circuit has expressed support for a similar proposal.[70] As some commentators have observed, however, it is unclear whether inter-circuit percolation is likely to provide benefits adequate to offset the loss of uniformity,[71] especially in the event the other circuit courts find it expedient to defer to the expertise of the Federal Circuit by adopting its case law.[72] In addition, with the enactment of the Leahy-Smith America Invents Act,[73] Congress has reaffirmed its commitment to a unitary appellate regime in patent cases by abrogating Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc.[74] and channeling all patent-related appeals to the Federal Circuit, including those appeals raising a patent issue that was introduced only through a counterclaim.[75] Others have considered whether the scope of the Federal Circuit’s jurisdiction might be a source of its dysfunction. Paul Gugliuzza, for example, proposes modifying the Federal Circuit’s jurisdiction so that it has a mix of cases that is closer to that of the regional circuits,[76] under the theory that Federal Circuit judges who are exposed to a more generalized docket would be “more policy conscious, less formalist, and, ideally, more responsive to the different innovation dynamics present in different industries.”[77] This proposal presupposes that the adjudicatory style of individual Federal Circuit judges may change if their knowledge of generalist legal principles is enhanced. As will be discussed later, a substantial part of the problem with the Federal Circuit may not only be a lack of certain knowledge, but also the lack of the will to act on that knowledge.[78] A common limitation in the aforementioned proposals is that they may not be adequate to counteract the primary pathology underlying the complaints about the Federal Circuit, which, as identified by John Golden, is the ossification of precedent[79] resulting in “suboptimal legal equilibria.”[80] Golden’s solution to the ossification problem requires the Supreme Court to assume the role of “prime percolator,” which periodically grants review to disturb those suboptimal Federal Circuit precedents that have “frozen legal doctrine either too quickly or for too long.”[81] In addition, Golden suggests that the Federal Circuit itself can further promote percolation by not writing or reading panel opinions unnecessarily broadly, and granting en banc review when precedent has reached a “suboptimal doctrinal equilibrium.”[82] There are several limitations to Golden’s proposals. First, given the overall rarity of certiorari grants,[83] and the limitations of Federal Circuit dissents as signaling devices,[84] the Supreme Court’s execution of its percolation function may not be timely and frequent enough to materially improve the performance of the Federal Circuit beyond its current state—especially where the Federal Circuit views itself as the “expert,” and, as a result, may be unreceptive to suggestions from non-experts, even those located in a superior position in the judicial hierarchy.[85] Second, it is unclear how the tendency of some Federal Circuit judges to write (or interpret) broadly may be effectively restrained. A “maximalist”-style[86] of opinion-writing that makes broad, sweeping pronouncements could be viewed by some Federal Circuit judges as wholly appropriate, if not obligatory, for a court whose primary mission is to provide uniform guidance on patent law.[87] Furthermore, by invoking judicial efficiency concerns, the Federal Circuit has, on occasion, decided issues beyond those needed to dispose of the specific case at hand, such as construing claim terms that are not necessary to the judgment.[88] Finally, as discussed previously, going en banc is a labor-intensive and unpredictable process,[89] such that case law may be stuck in a suboptimal legal equilibrium until the “right” case comes along or if the composition of the court changes.[90] At a high level, the above-mentioned proposals highlight different approaches to improving the operation of the Federal Circuit. What is missing, however, is an approach that focuses on the behavioral elements that may inhibit timely reconsideration of suboptimal precedents. To this end, the next section explores some of the behavioral elements that may influence how Federal Circuit case law is produced.

II. The Cognitive and Situational Barriers to Self-Correction

This section introduces two theories directed to the behavioral elements that may hinder self-correction at the Federal Circuit: (1) the “curse of expertise,” which may impair the ability of Federal Circuit judges to recognize potential problems in existing case law; and (2) the “knowing-doing gap,” which may contribute to the court’s failure to take corrective action despite some judges recognizing the existence of a problem.

A. The Curse of Expertise

In general, the patent law expertise of Federal Circuit judges is viewed as a positive trait.[91] Although expertise may enhance one’s ability to analyze problems involving complex subject matter—such as patent law—experts are susceptible to certain systematic errors and biases.[92] As described in the cognitive psychology literature, the “curse of expertise” is a term that captures the cognitive pitfalls to which experts are particularly susceptible,[93] such as underestimating the difficulties of non-experts[94] and resisting correction.[95] For the purpose of analyzing the curse of expertise in the context of the Federal Circuit, the “experts” are the Federal Circuit judges, and the “non-experts” are the generalist district judges. The practitioners, who are also active consumers of the Federal Circuit’s decisional output, include a wide range of individuals, from experts (e.g., specialists who have practiced patent law exclusively for decades) to non-experts (e.g., general litigators who have recently become involved in a patent case). However, the discussion of the curse of expertise in this Article will focus primarily on the expert/non-expert comparison between Federal Circuit judges and district judges because both are engaged in the same function—namely, the adjudication of patent disputes.
1. Underestimation of Difficulties of Non-Experts
According to experiments conducted by Pamela Hinds, experts may be prone to underestimating the difficulties encountered by non-experts who attempt to perform tasks within the expert’s field.[96] At the Federal Circuit, the curse of expertise is at work when it skews the Federal Circuit judges’ perceptions regarding the clarity or the soundness of the court’s precedents, such that they may fail to recognize when existing case law may warrant reconsideration. That is, the expertise of the Federal Circuit judges could potentially interfere with their ability to recognize when an error in the judgment below may be primarily attributable to vague, conflicting, or unworkable case law, as opposed to the district judge’s failure to apply otherwise sound precedent. By way of illustration, consider the following pair of claim construction canons: the claims must be read in light of the specification;[97] however, limitations may not be imported therefrom.[98] District judges have struggled with these canons, which govern the use of the specification in claim construction.[99] Although the Federal Circuit has acknowledged that a fine line separates these canons,[100] it nevertheless believes that they may be reliably applied[101]—even though a schism exists in the court’s claim construction methodology, which places different emphases on the specification vis-‡-vis the claims.[102] This schism, which has endured despite the en banc restatement of claim construction principles in Phillips,[103] has made it difficult for district courts to correctly apply these complementary canons because the “correct” methodology is panel-dependent. Either the canons need to be updated or the schism needs to be resolved, but with the exception of Judge Kimberly Moore (and possibly Chief Judge Randall Rader),[104] the Federal Circuit does not appear to view the current state of the law on claim construction methodology to be problematic enough to warrant en banc consideration.
2. Resistance to Correction
Hinds’s experiments also suggest that experts, when compared to non-experts, may be unusually resistant to correcting or changing their positions even when presented with “debiasing” information that could help increase the accuracy of their analysis.[105] This comports with the general understanding that experts are “often wrong but rarely in doubt.”[106] It is possible then, that Federal Circuit judges, by virtue of their expertise in patent law, may be prone to approaching their work with a level of overconfidence that may render them relatively unreceptive to reconsidering their analysis in the face of debiasing information.[107] One potential indication of the Federal Circuit’s resistance to debiasing may be its decision to scale back the generation of the STA’s reports of potential conflicts in draft precedential opinions.[108] Another indication may be the court’s perceived reluctance to give substantive consideration to relevant scholarship.[109] But perhaps the most profound indication that the Federal Circuit may be unreceptive to debiasing is the seemingly weak corrective influence of the Supreme Court.[110] For example, some Federal Circuit judges appear to be resisting the Supreme Court’s directive to apply the patentable subject matter requirement more rigorously.[111] Indeed, the rapid succession of patentable subject matter cases heard by the Supreme Court in recent years[112] suggests that it might be engaged in a “battle of wills” with the Federal Circuit. It is possible that some Federal Circuit judges may be reluctant to accord much weight to the guidance provided on issues within their realm of expertise by a non-expert, yet hierarchically-superior, tribunal.[113] This, along with the sparse and episodic nature of Supreme Court review, likely creates a situation where the Federal Circuit is potentially operating without any meaningful moderating influence.
3. Aggravating Factors
Research on cognitive heuristics suggests that the key factors contributing to the curse of expertise include anchoring effects[114]—i.e., the heavy reliance on initial information or impressions[115]—as well as the “availability heuristic”[116]—i.e., the tendency to rely on information that readily comes to mind.[117] This suggests that the adverse effects of the curse of expertise may be aggravated by the selection effects introduced by the appeals process: the mix of patent cases and issues that reach the Federal Circuit may not be representative of what the district judges encounter. If the Federal Circuit judges over- or under-estimate the severity of the problems associated with certain doctrines, they may consequently over- or under-correct them. This skew in perception may be the most severe for those issues that come before the Federal Circuit infrequently but arise often at the district court level (and vice versa), such as discovery issues and evidentiary rulings, for which seasonable appellate review might be available only through discretionary means.[118] Deficient or suboptimal Federal Circuit precedents affecting issues that arise frequently at the district court level, but which rarely make it to the appellate level, not only will have a major adverse impact, but also will endure because the opportunities to develop and refine those precedents will be rare. For example, it took over twenty years for the “adverse inference” and “affirmative duty” rules in Underwater Devices, Inc. v. Morrison-Knudsen Co.,[119] which presented thorny privilege and waiver issues for accused infringers, to be overruled in Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp.[120] and In re Seagate Tech., LLC,[121] respectively. * * * In weighing the relative benefits of expertise against the drawbacks discussed above, it is worth noting that the Federal Circuit, by virtue of its expertise, may be quite comfortable with making broad pronouncements on a variety of issues—which, as mentioned earlier, is something that the court should refrain from doing to avoid lock-in of suboptimal precedents.[122] At the same time, if a given pronouncement proves to be overly broad or otherwise problematic, the cognitive pitfalls associated with expertise could make it difficult for the court to realize that there is a problem. The tradeoff then, is whether an expert court that might be difficult to correct is preferable to a non-expert court that might be easier to correct. As will be discussed in later sections, there are benefits associated with staffing the Federal Circuit with non-experts that could potentially tip the balance toward the latter option.

B. The Knowing-Doing Gap

The cognitive elements discussed in the previous section are not the only considerations relevant to evaluating the ability of a group of individuals to self-correct. The situational dynamics of the organization, as a whole, may be just as salient. Organizational inaction despite recognition of the existence of a problem is known in the management science literature as the “knowing-doing gap.”[123] A canonical example is the disturbingly low rate of hand-washing by healthcare professionals who are fully aware that hand hygiene is essential for minimizing hospital-acquired infections.[124] Another common example is a corporation hiring expensive management consultants (sometimes on multiple occasions) to provide recommendations on improving operations or solving a problem, but failing to implement their recommendations.[125] The concept of the “knowing-doing gap” may be useful in the judicial decision-making context as well, as a means for evaluating how suboptimal precedents may be generated and ultimately persist. Although persistence can arise naturally out of stare decisis and by operation of the Federal Circuit’s IOPs, this Article focuses on the behavioral elements beyond those mechanisms. That is, why does the Federal Circuit have difficulty using the tools available to it to prevent the issuance of, or to timely repair, case law that has been identified as problematic not only by observers outside the court, but also by its own judges?[126] Such institutional inertia is the “knowing-doing gap.” Jeffrey Pfeffer and Robert Sutton suggest that the existence of a “knowing-doing gap” is dependent primarily on organizational considerations, rather than the personal characteristics of individual actors.[127] As such, a solution for overcoming the “knowing-doing gap” could potentially lie in modifying the institutional structure of the Federal Circuit so that it becomes less susceptible to inertia—regardless of who is serving on the court at any given time. It may be helpful, then, to evaluate the internal dynamics of the appellate decision-making environment to determine how the Federal Circuit’s structure could be modified to inhibit institutional inertia from setting in when it becomes advisable to take remedial action. In this regard, there are several situational considerations within the appellate decision-making environment that may be worth exploring. For example, a judge may decide to stand firm on an issue because he wants to act consistently with his prior positions. Another reason for standing firm is that the judge has a deep-seated conviction regarding how the case should be decided. At the same time, a judge may desire to maintain a collegial working environment (or détente). And finally, a judge may endeavor to defer laborious or otherwise costly tasks if there is no urgency. At first blush, some of these considerations might appear mutually exclusive, in particular, consistency and conviction versus collegiality. However, they may exist as complementary considerations among different judges on different issues as enabled by the third consideration—the lack of urgency.[128] As explained in greater detail below, these situational considerations may be classified as having a structural origin because they appear to be byproducts of the particular manner in which the Federal Circuit is staffed—namely, lifetime appointments.
1. Consistency and Conviction
Suboptimal precedents could emerge or be maintained when judges refuse to reconsider their prior positions. This refusal may arise from a desire to maintain consistency, a deep-seated conviction on an issue, or a combination of both. In the environment of an appellate court, the desire to maintain personal consistency[129] could contribute to the perpetuation of problematic case law, particularly when correcting it may require one or more judges to take positions inconsistent with their prior votes or opinions, which could expose them to the risk of losing face.[130] If the membership of a court has split into opposing camps, the resolve of individual judges to seek vindication and to stay consistent may be heightened. At the same time, it may take less work for a judge to default to his or her prior position, because crafting an opinion that justifies a change of position on principled grounds may be labor-intensive.[131] As such, for judges who wish to maximize the “leisure” aspect of the judicial utility function,[132] staying consistent may be an attractive option. So long as there is no urgency,[133] a judge may decide to defer the investment of the necessary mental and emotional energy required to properly reconsider a prior ruling. For other judges, the refusal to reconsider may not be driven by the need to appear consistent or to avoid extra work, but rather by a deep-seated conviction on a specific issue. In these instances, the judge is highly unlikely to yield or be convinced to deviate from his or her position, and he or she may be more than willing to undertake the additional work required to write a dissent, if necessary. It is possible that such principled persistence could be more problematic, and at the same time more severe, at the Federal Circuit than in the regional circuits. This is because some Federal Circuit judges might view the court as having an implicit policy-oriented “mission,” i.e., to protect and encourage innovation in the United States,[134] as opposed to simply deciding cases. As such, some judges may develop strong beliefs as to what the law ought to be on certain issues in order to further the court’s “mission.” In addition, as Cotropia suggests, the fact that Federal Circuit judges are repeatedly exposed to the same issues might render them prone to sharp disagreement over nuances.[135] When viewed together, the desire for consistency and/or to vote one’s conviction likely contribute to the formation of camps within the Federal Circuit, which could drive panel-dependent outcomes. (At a high level, panel-dependence could also be indicative of a more fundamental problem with the case law: The precedents associated with a given doctrine may be so indeterminate[136] that they comfortably accommodate inconsistent approaches favored by different camps of judges.) Although the desire to be consistent and to remain steadfast on an issue can, under certain circumstances, have beneficial effects in contributing to the stability of case law, they may become problematic when they impede the timely reconsideration of defective or otherwise suboptimal precedents.
2. The Need to Maintain Collegiality or Détente
Initially, the desire for consistency and conviction-voting might provide the most intuitive explanations for the Federal Circuit’s difficulty with self-correction. However, they provide only part of the story. The collective need of a group of judges to maintain collegiality or détente[137] on a daily basis,[138] and to avoid fruitless battles with colleagues who might serve with them for decades,[139] may, at times, take priority over correcting suboptimal case law, which might involve resurrecting disputes over which the judges have “agreed to disagree.” Although a certain degree of collegiality is indispensable to effective decision-making,[140] the risk of “settling” behavior nevertheless exists[141]: when a group of judges serves together long enough, its members will become intimately familiar with each others’ views to an extent that would allow them to reach a state of equilibrium where the judges fall into a predictable pattern in their voting and opinion-writing.[142] This predictability, in turn, could lead to the ossification of suboptimal precedent.[143] And because the en banc process is fraught with drama, high cost, and uncertainty,[144] individual panels are left with essentially two options for handling precedents they find troublesome: distinguish them or ignore them.[145] As a result, over time, divergent lines of precedent could emerge that may prove increasingly difficult to reconcile. The willingness of appellate judges to not only live with, but also allow the creation and maintenance of, suboptimal precedents and divergent case law[146] may be explained by certain behaviors characterized by Judge Richard Posner as “going along” voting and “live and let live” opinion-joining.[147] “Going along” voting in a panel occurs when the judges who are relatively indifferent about the outcome cast their votes with the member having the strongest views.[148] Otherwise, if one or both of the indifferent judges were to vote differently from the opinionated judge, they will need to respond to the spirited arguments of the opinionated judge in either a majority opinion or a dissent.[149] To an indifferent judge, “going along” is less costly than devoting resources to an issue he may not feel strongly about.[150] Relatedly, “live and let live” opinion-joining occurs when a judge joins an opinion that contains remarks he disagrees with, but which are perceived by the joining judge to be dictum.[151] A judge may rationally view the effort to eliminate dictum with which he disagrees as not worth the hassle and potential clashes with the authoring judge.[152] The “going-along” voting and “live and let live” opinion-joining described by Judge Posner constitute a set of behaviors that may be characterized more generally as “collegial concurrence,” which Cass Sunstein and others define as a form of deference to one’s colleagues[153] that arises out of a sense of realism,[154] where an individual judge rationally views any attempt to “correct” the other members of the panel as costly and futile. Collegial concurrence may also be at work when a draft precedential opinion setting forth a problematic rule is circulated to the entire court,[155] and the non-panel judges acquiesce in its issuance without substantive revisions.[156] The risk of perpetuating and creating problematic case law also exists if there is a split panel, particularly when the judges belong to opposing camps. In such cases, suboptimal precedents may result when panel members unduly focus on vindicating their respective positions or when lingering resentments or jealousies surface,[157] such that the collective will may not exist to undertake a labor-intensive analysis to reconcile competing considerations and craft a workable rule. Furthermore, when the dissenting judge has been “written off” by the majority, which may often happen to chronic dissenters,[158] it is possible that the majority may take more extreme positions than if it were endeavoring to convert the dissenter into a joiner. * * * It may appear counterintuitive that the concerns relating to consistency/conviction and the need for collegiality may not only co-exist within a single court, but also could jointly contribute to the generation and maintenance of suboptimal precedent. Indeed, consistency/conviction and collegiality can be influences that may be present concurrently on the same panel because they may arise for different issues for different judges. Listed below are the possible configurations for a three-judge panel (for en banc panels, additional configurations may exist):
(a) All three judges are relatively indifferent regarding the issues on appeal: Collegial concurrence will likely be the dominant influence on the manner in which the opinion is crafted. (b) One judge has strong opinions on an issue (because of consistency/conviction), and the other two judges are relatively indifferent: The indifferent judges are likely to “go along” with the opinionated judge. (c) Two judges have strong opinions that are incompatible with each other (because of consistency/conviction), and the remaining judge is indifferent: The indifferent judge will likely “go along” with one of the two opinionated judges, and the opinionated judge who is in the minority is likely to dissent. (d) All three judges have strong opinions that are incompatible with each other (because of consistency/conviction): Separate opinions are likely, and there may or may not be a majority opinion.
3. Lack of Urgency
It is not often that a critical mass of appellate judges will perceive an urgent need to correct some defective precedent and willingly “rock the boat”[159] in undertaking the laborious en banc process.[160] A sense of urgency arises infrequently because the consequences of inaction are unlikely to be concrete and immediate for a permanent appellate judge. Rather, the impact of suboptimal decisions from the Federal Circuit is most immediate on the practitioners, who may need to update their case strategies, and on the district judges, who must apply the newly-minted precedents in the first instance, under the threat of reversal. For Federal Circuit judges, the impact of problematic case law on their day-to-day work is considerably attenuated, as they can distinguish it in subsequent cases or effectively disregard it[161] largely without fear of reversal, as review by the en banc court[162] or the Supreme Court is rare.[163] Accordingly, the more immediate concerns, such as appearing consistent, saving face, conviction-voting, maintaining collegiality or détente, and avoiding fruitless battles with colleagues who may serve with them for an indefinite period of time, may take precedence over engaging in a potentially costly analysis. Overcoming the “knowing-doing gap,” then, may require changing the adjudicatory environment in a way that decreases the salience of these concerns.

III. Surmounting the Barriers to Self-Correction

To overcome both the curse of expertise and the knowing-doing gap, this Article proposes staffing the Federal Circuit with a rotating group of district judges who serve staggered terms of limited duration. A suitable term served by each district judge could be two[164] to four years, which could help guard against the development of the blind spots and inertia associated with the accumulation of expertise and prolonged tenure, respectively,[165] as well as reduce the likelihood of capture by special interests.[166] This proposal resembles a common arrangement within the federal judiciary for staffing tribunals that exercise jurisdiction over specialized subject matter. For example, the Foreign Intelligence Surveillance Court, which reviews applications for orders authorizing electronic surveillance within the United States to obtain foreign intelligence information,[167] is staffed by district judges[168] who serve non-renewable, staggered terms of up to seven years.[169] The Judicial Panel on Multidistrict Litigation (JPML), which is empowered to transfer to a single district multiple civil cases whose pretrial proceedings may benefit from consolidation and coordination,[170] is staffed by a mix of district judges and circuit judges.[171] The Bankruptcy Appellate Panels (BAPs) that exist in some circuits[172] are staffed by bankruptcy trial judges who are appointed for limited terms[173] to hear bankruptcy appeals in three-judge panels.[174] As such, the federal judiciary has a variety of existing models as well as the requisite logistical experience for successfully implementing this proposal. In a similar vein, judicial rotation has been suggested as a way of staffing a potential specialized Article III appeals court for immigration, in which district judges and circuit judges serve two-year terms.[175] Moreover, given that the Federal Circuit, in some respects, behaves not unlike an administrative agency that promulgates substantive rules,[176] it may be appropriate to change its composition regularly, just like the other government agencies involved in the development of patent policy. For example, the U.S. Patent & Trademark Office and the Department of Justice are each headed by political appointees who typically change along with the presidential administration,[177] and the Federal Trade Commission and the International Trade Commission are each led by commissioners who serve staggered terms of limited duration.[178]

A. Combating the Curse of Expertise with District Judges

As previously discussed, the curse of expertise creates a blind spot for the Federal Circuit regarding its perception of the soundness of its precedents: it may render the court prone to misjudging the difficulties encountered by non-expert district judges in applying Federal Circuit case law. In addition, it may render the “expert” Federal Circuit judges resistant to considering debiasing information that may help them recognize potential problems.[179] One way of combating the curse of expertise at the Federal Circuit may be to replace the experts, i.e., the permanent Federal Circuit judges, with non-experts, i.e., district judges. More specifically, the Federal Circuit could be staffed with district judges who have handled a sufficient number of patent cases so as to have developed a sense of which precedents might be suboptimal, and how new or modified precedents might affect the quality of adjudication. In selecting the district judges to serve on the Federal Circuit, the experience threshold may be based on a variety of metrics such as the number of claim construction orders issued or the average number of patent cases handled per year. That district judges with patent experience may be particularly suitable for the Federal Circuit is suggested by Hinds’s experimental studies demonstrating that those with an intermediate level of knowledge may outperform both experts and novices in anticipating difficulties faced by novices in completing a task.[180] An expert whose learning experience is a distant memory may not be able to recall his initial difficulty with the task as readily as someone who has learned it more recently,[181] while a novice may not have an adequate understanding of the task to make accurate predictions about the behavior of other novices.[182] Applying these lessons to patent case adjudication, it is possible that district judges who have handled multiple patent cases (i.e., the intermediate users of patent case law) may be better than either permanent Federal Circuit judges (i.e., the experts) or district judges who have little or no experience with patent cases (i.e., the novices) at identifying suboptimal precedents, particularly those that have proven difficult for district judges to apply reliably. Hinds’s experiments also suggest that those with an intermediate level of knowledge may be more receptive than experts to debiasing information that could help improve the quality of their decision-making.[183] It is likely then, that compared to the current version of the Federal Circuit that is staffed with “expert” judges, a version of the court that is staffed with non-expert, yet experienced, district judges might give greater consideration to the conflicts memos prepared by the STA,[184] the relevant academic literature,[185] the views of expert agencies such as the Federal Trade Commission,[186] analogous case law from the regional circuits, and feedback from other district judges and practitioners. In addition, experienced district judges may be less influenced by the appellate selection effects that would otherwise provide an inaccurate picture of the relative frequency and severity of certain problems at the district court level.[187] Furthermore, those with an intermediate level of knowledge, i.e., the patent-experienced district judges, may have a greater ability to craft workable precedents than either experts or novices. In another experimental study, Pamela Hinds, along with Michael Patterson and Jeffrey Pfeffer, found that experts tend to use more abstract concepts when imparting specialized, technical information to novices, while beginners tend to use more concrete statements.[188] And while novices instructed by experts demonstrated a greater ability to transfer their knowledge to different, analogous tasks,[189] the novices instructed by beginners learned to complete a specific task more effectively.[190] The results of this experimental study suggest that the pedagogically-optimal mix might be achieved by an individual whose skill level falls in between that of an expert and a beginner, and who, as a result, is more likely to provide an appropriate mix of abstract and concrete guidance. It is possible, then, that opinions authored by patent-experienced district judges—who are neither experts nor beginners—may be more amenable to reliable application at the trial level than those authored by permanent “expert” appellate judges or by district judges who have little substantive experience with patent cases. This is particularly important for patent appeals involving issues (e.g., discovery) that are frequently in contention at the district court level, but are infrequently reviewed on the merits at the appellate level, such that it is critical to get such cases “right” whenever they reach the Federal Circuit because there may be limited opportunities for correcting such precedents in the future.[191] The proposed arrangement whereby district judges craft appellate precedents—that they will later follow under the threat of reversal—could be viewed as a quality-control measure that bears a conceptual resemblance to a software development process known as “eating one’s own dog food” or “dogfooding,” where software developers use internally the products they are developing in order to improve their ability to test and debug them.[192] Examples include Google’s employees internally using AndroidTM products before making them available to the public,[193] and Microsoft internally using the WindowsÆ operating system.[194] This practice tightens and strengthens the software development feedback loop between the developers and the end users because they include the same people. Likewise, the substitution of permanent Federal Circuit judges with district judges could similarly strengthen the “feedback loop” between the appellate and trial levels by having one of the primary consumers of Federal Circuit case law (i.e., district judges) contribute directly to its creation and revision. More generally, district judges who have struggled to apply Federal Circuit precedents may have a better sense than the current group of permanent Federal Circuit judges (most of whom do not have any experience as trial judges)[195] of how existing precedents should be clarified, modified, limited or overruled so that generalist district judges, as well as litigants, may reliably apply them in a manner that improves the overall quality of patent case adjudication.

B. Combating the Knowing-Doing Gap with Rotations

Although district judges may help mitigate the problems arising from the curse of expertise, permanently elevating individual district judges to the Federal Circuit is an incomplete solution. Rather, the district judges should serve staggered terms of limited duration in order to decrease the influence of the three elements that contribute to the knowing-doing gap.[196] First, to overcome the consistency/conviction element that promotes over-commitment to prior decisions, changes in personnel may be necessary.[197] As discussed previously, a judge’s reputational investment in his prior positions, the convenience of relying on previous analyses, and/or his deep-seated convictions, may make it difficult for him to change course.[198] Rather than waiting for one or more Federal Circuit judges to perform the unusually self-disciplined act of making a public about-face on an issue and engaging in a labor-intensive analysis to limit or overrule precedents they had authored or voted for in the past,[199] the task of precedent correction should be entrusted to a new set of judges who were not involved in creating or perpetuating the precedents at issue, and, as a result, may be less hesitant to make changes when necessary.[200] To be clear, the consistency/conviction element will not be completely eliminated in a Federal Circuit staffed with rotating district judges. However, its ability to hinder self-correction may be substantially attenuated because the judges will be serving for limited terms. Second, regularly rotating the membership of the Federal Circuit may help prevent the court from reaching an unproductive equilibrium, in which judges fall into predictable patterns of voting that may allow suboptimal precedents to issue and remain uncorrected.[201] Compared to a group of permanent judges with a long history of service together, a group of temporary judges who serve staggered, limited terms might be more amenable to rethinking existing doctrines. Each rotation of temporary judges will introduce new members who may bring fresh perspectives and whose views may not be firm on certain issues. Because a temporary judge may not be fully aware of the ideological or doctrinal alignments of the other temporary judges—and the extent to which their views are set—he may perceive more opportunities (than a permanent Federal Circuit judge) for persuading his colleagues to critically re-evaluate existing case law. The regular rotation of judges may also inhibit the formation of opposing camps that give rise to panel-dependent outcomes and divergent lines of precedent. In addition, judges who serve limited terms may feel freer to “rock the boat” by invoking the labor-intensive en banc procedure because the term-limited nature of their appointments may heighten their sense of purpose—i.e., to improve the adjudication of patent disputes—while decreasing the relative importance of maintaining a predictable adjudicatory equilibrium that allows judges to serve comfortably for an indefinite period of time with the same colleagues.[202] Some, however, may point to the high level of dissent at the Federal Circuit[203] as indicative of a court with diverse views that is frequently engaged in a critical analysis of its precedents. However, the frequency of dissent and separate opinion-writing may be largely a reflection of circuit culture and norms.[204] Moreover, a high dissent rate may indicate a high degree of entrenchment[205] with established camps of judges that have settled into an equilibrium of “agreeing to disagree,” where, on a given panel, neither the majority nor the dissenter perceives a compelling need to temper its views to reach a unanimous result.[206] Perhaps because of the high concentration of patent cases on its docket, the Federal Circuit, by design, might be particularly susceptible to camps developing among its permanent judges, whose views may have become progressively nuanced and divergent as a consequence of the repeated exposure to the same issues over a prolonged period of time.[207] Rather than the rate of dissent, the en banc rate may provide a better sense of whether precedential ossification has set in.[208] The Federal Circuit’s en banc rate is relatively low,[209] which may indicate that, despite the frequency of dissents, the majority of Federal Circuit judges are choosing to avoid a costly, time-consuming endeavor whose outcome may be uncertain.[210] Ultimately then, the high rate of dissents, when coupled with the relatively low rate of taking cases en banc, may be indicative of a court where its members have settled into camps that give rise to multimodal, panel-dependent outcomes, and where the collective will to resolve conflicting precedents may be weak. Third, having district judges serve limited terms may help create a sense of urgency at the Federal Circuit for fixing suboptimal precedents. As previously discussed,[211] permanent judges may view the process of correcting precedents as a labor-intensive endeavor that may be conveniently deferred by defaulting to their prior positions,[212] engaging in forms of collegial concurrence such as “going-along voting” and “live and let live opinion-joining,”[213] and studiously avoiding the en banc process.[214] Unlike a judge with a permanent appointment at the Federal Circuit, a district judge who serves for a limited time knows that after returning to the district court level, she will be required to follow the precedents she created—under the threat of reversal. Accordingly, district judges serving temporarily at the Federal Circuit may feel a heightened need to “get it right” compared to permanent judges,[215] such that they might be more willing to undertake the effort to correct, or prevent the issuance of, suboptimal precedents. At a more general level, the rotation of judges at the Federal Circuit may create a form of de facto percolation through regular changes in personnel, which may be a faster form of percolation involving more judges than increasing the number of circuit courts that hear patent appeals (i.e., percolation through space)[216] or waiting for Supreme Court intervention (i.e., percolation through time).[217] That is, with regular changes in personnel, the process of case law development at the Federal Circuit is likely to be more responsive than it is currently. If a rule is sound, subsequent instantiations of the Federal Circuit with a new slate of district judges will likely maintain it.[218] And if a rule is unsound, subsequent instantiations may be less hesitant to reconsider it and make adjustments. Ultimately, by allowing percolation to occur through regular changes in personnel, Federal Circuit precedents can be developed by individuals from a much wider variety of backgrounds and perspectives than is currently possible, while at the same time preserving a single appellate venue for patent cases.[219]

IV. Concerns and Objections

A. Stability of Case Law

Some might object to staffing the Federal Circuit with a rotating group of district judges on the ground that it could potentially destabilize patent case law. This proposal is certainly not without costs, and the potential for doctrinal fluctuations is one of them. However, because Federal Circuit case law has limited opportunities for the type of corrective percolation that occurs among the regional circuits,[220] and, at the same time, must adapt to changes in technology,[221] the benefits associated with a more responsive system for reconsidering and updating precedent, as provided by the judicial rotation proposal, are expected to outweigh the costs associated with any temporary doctrinal fluctuations. Moreover, the current status of the Federal Circuit as “the de facto administrator of the Patent Act”[222] may tilt the cost-benefit analysis in favor of implementing some mechanism for regularly rotating its membership. Whether judicial rotations may be cost-justified for any of the regional circuits is an issue left to future research.[223] The entrenchment of suboptimal precedents may be a more serious problem for the Federal Circuit than the transient doctrinal swings that may result from the court’s attempts to further refine its case law based on fresh insights that new members may bring with each rotation. The development of sound precedent is necessarily an iterative process, and the use of term-limited, rotating judges could cause fluctuations in precedent to occur more frequently within a shorter time period. At the same time, the case law associated with a particular doctrine may be less prone to getting stuck in a suboptimal state. In contrast, with permanent judges, the process of self-correction by the court may be much slower such that suboptimal case law might have the appearance of stability or doctrinal “consistency” because it is not being actively reconsidered, as opposed to enduring on its merits. The potential for doctrinal instability under the rotation proposal could be mitigated, in part, by amending the Federal Circuit’s IOPs. For example, to avoid the potential loss of institutional or historical knowledge regarding Federal Circuit case law when a group of temporary judges rotates off the court, the IOPs could be amended so that the STA would once again provide the judges with reports analyzing every draft precedential opinion for potential conflicts prior to issuance. And, as compared to the permanent Federal Circuit judges, the rotating district judges, as non-experts, might pay closer attention to the STA’s reports.[224] If the proliferation of too many precedential opinions in the course of self-correction is a concern,[225] the IOPs could be changed so that the rate of issuance of precedential opinions decreases, while allowing more non-precedential dispositions and Rule 36 judgments to issue, so as to dampen any precedential whipsawing that might occur from the accelerated percolation resulting from the rotations. Currently, an election to issue a Rule 36 judgment requires panel unanimity, while a majority is required to issue an opinion as nonprecedential.[226] To decrease the proportion of dispositions classified as precedential, the IOPs could be amended so that an opinion may be issued as precedential only if all panel members agree on that designation.[227] Alternatively, the election to make an opinion precedential could be taken away from the panel that decided the case, and instead given to a different panel of judges. Finally, the opposite concern might also arise: whether the district judge rotation proposal could actually make doctrinal change less likely. That is, when in doubt, might the district judges be inclined to defer to an existing body of law created by “the experts”? It is possible that this inclination could exist at the very beginning of the tenure of a district judge who has rotated onto the Federal Circuit. However, this inclination may be tempered as the district judge settles into his appellate role and delves into the body of Federal Circuit case law on a regular basis. Overall, the potential for undue deference to prior case law is likely to be weak because the district judges who are selected for the rotations, while not experts, are not novices either.[228] Moreover, based on their experiences with adjudicating patent cases at the trial level, the district judges may relish the opportunity to revisit those doctrines have been troublesome for them, especially because they will have to live with the precedents they create when their rotations end.

B. Quality of Adjudication

Some may argue that the participation of district judges in Federal Circuit appeals could compromise the quality of adjudication, because their level of patent law expertise is lower than that of permanent Federal Circuit judges, and that the selection criteria applied to individuals who become district judges may be somehow less rigorous than that of Federal Circuit judges.[229] However, as suggested by Nard & Duffy’s proposal to expand the number of circuit courts to hear patent appeals to allow inter-circuit percolation,[230] and Judge Wood’s endorsement thereof,[231] patent law expertise at the appellate level may not be nearly as important as ensuring that robust mechanisms exist to facilitate reconsideration and correction of case law. The Federal Circuit’s susceptibility to expertise-induced blind spots[232] and lack of receptivity to debiasing information[233]—combined with the institutional inertia arising from lifetime appointments[234]—may well result in suboptimal case law that is likely to endure. The tradeoff then, is whether an expert court that might be difficult to correct is preferable to a non-expert court that might be easier to correct. In view of the unique requirements of patent case law—namely, uniformity and the ability to adapt to changing technologies—the latter option might be preferable. In addition, staffing a “specialized court” with a group of generalist district judges may check the tendency of that court to develop case law that unnecessarily deviates from the mainstream practice of the regional circuits.[235] Permanent Federal Circuit judges may see themselves as “boosters” of patent law,[236] such that the appropriate patentee-public balance in patent case law might be better maintained by a Federal Circuit that is staffed by temporary judges whose reputations are not solely dependent on their work at that court, and, as a result, would be less inclined to develop precedents in a direction that would enhance the court’s influence at the expense of other governmental institutions and the public.[237] Furthermore, because the generalized nature of their dockets regularly exposes district judges to issues that lie at the federal-state court interface, they may be more sensitive to the need to strike an appropriate jurisdictional balance between federal and state courts in cases involving state law claims that raise issues related to patent law.[238] Finally, whether someone is appointed to a circuit court versus a district court is less a function of qualifications and more a function of politics and chance.[239] Another concern with staffing the Federal Circuit with only district judges is that they might be reluctant to reverse a fellow district judge on appeal based on sympathy or other reasons unrelated to the merits.[240] However, this may not be a substantial risk: according to one study of appeals terminated in the federal appellate courts from 1987 to 1992, the reversal rate for appeals from district courts where the panel included a district judge sitting by designation (18.54%) was indistinguishable from that of all panels in appeals originating from the district courts (18.57%).[241] It is possible, however, that the similarity in reversal rates might be partially attributable to the designated district judges deferring to the appellate judges on their panels,[242] such that a panel comprised of only district judges might feel freer to affirm more often. To decrease the likelihood of undeserved affirmances under the judicial rotation proposal, the cases assigned to a panel should not include any appeal from the home district of any panel member. Also, if the identity of the author is masked through the issuance of a “per curiam” opinion, a district judge might feel more comfortable authoring an opinion reversing a fellow district judge. To the extent that the affirmance rate might increase by a nontrivial margin in a district-judge-only Federal Circuit, it could reflect a salutary development that counterbalances the previous expansion of the number of issues subject to de novo review.[243] In addition to the standard for reviewing claim construction,[244] the Federal Circuit recently extended de novo review to the objective prong of the willfulness standard,[245] and the objective reasonableness determination for an exceptional case under 35 U.S.C. § 285.[246] If the Federal Circuit were staffed by only district judges, the court may be less amenable to expanding the number of issues that are reviewed de novo and may even reverse this trend, which could ultimately bring greater stability—not less—in the adjudication of certain issues on appeal.[247] Another potential objection to staffing an appellate court with only district judges is that they are allegedly less comfortable than circuit judges with the type of group decision-making that takes place at the appellate level, as opposed to the solitary decision-making process at the trial level.[248] This claim appears weak in light of the frequency with which district judges sit by designation on, or are elevated to, appellate courts. As for including appellate judges from the regional circuits in the Federal Circuit rotation, it would likely make the proposal less effective, as very few regional circuit judges have any experience with patent cases (let alone an intermediate level of experience that is recommended for the rotations).[249] At the same time, regional circuit judges may be less accountable because they are unlikely to be in a position to apply the precedents they create at the Federal Circuit as binding authority when they return to their home courts. In addition, the hierarchical difference between the regional circuit judges and the district judges might adversely affect the district judges’ independence of judgment required to critically re-evaluate precedents.[250] While the analysis of the district judge rotation proposal has focused primarily on its potential impact on the Federal Circuit’s patent case law, the effect of the rotations on the non-patent portions of the Federal Circuit’s docket is expected to be approximately neutral. Much of the Federal Circuit’s non-patent docket originates from agency tribunals, the Court of Federal Claims, and the Court of International Trade.[251] The variety of cases that a generalist district judge typically handles is far greater than the Federal Circuit docket—in terms of the types of government agencies, tribunals, parties, and issues,[252]—such that it is unlikely that the rotating judges will have difficulty with, or materially affect the quality of, the adjudication of the Federal Circuit’s non-patent docket, particularly when the scope of appellate review is often restricted in such cases.[253]

C. Are There Less Radical Alternatives?

Some may question the need for regular rotations at the Federal Circuit, given that turnover does occur, albeit at a slower pace. Since 2010, six new judges have been appointed to the court: Kathleen O’Malley,[254] Jimmie Reyna,[255] Evan Wallach,[256] Richard Taranto,[257] Raymond Chen,[258] and Todd Hughes.[259] The new judges constitute half of the twelve authorized active judgeships.[260] Based on this turnover, might the culture of the Federal Circuit change so that it is more amenable to timely self-correction? In drawing an analogy to the assimilation of immigrants, Rochelle Dreyfuss suggests that it might take three generations of Federal Circuit judges to shed the defensive culture of the Markey-era and internalize the general norms of the rest of the federal judiciary.[261] But the behavioral elements[262] that impair timely self-correction will likely remain, as they are grounded not in the culture of the court, but rather in the organizational structure based on the types of individuals involved (i.e., experts) and their operating environment (i.e., working with colleagues having lifetime appointments). Others may wonder if changes to the Federal Circuit’s IOPs may be sufficient to improve the court’s ability to timely address suboptimal case law, so as to obviate the need for structural changes. For example, the impact of the consistency/conviction element on the ability of a court to reconsider precedent may be weakened by revising the IOPs so that the panel judges are excluded from participating in the en banc consideration of an opinion issued by their panel. In addition, if all opinions were issued “per curiam,” it may better focus the panel judges’ attention on reaching the right result by decreasing the influence of considerations related to the authoring judge’s need to publicly save face or seek vindication of prior positions.[263] Furthermore, the IOPs could be amended to make it more difficult to designate opinions as precedential (e.g., requiring a majority vote of non-panel judges) in order to prevent the proliferation of divergent or suboptimal precedents. To further enhance intra-circuit percolation, the IOPs could be changed so that the presiding judge on the merits panel would be assigned randomly, without regard to seniority, to ensure that the authorship of significant opinions is as varied as possible.[264] And finally, the STA’s review of all precedential opinions could be reinstated. While the current version of the Federal Circuit could, in theory, implement these suggested changes to its internal procedures, they are highly unlikely to be adopted. This is because such changes might be perceived as impairing the ability of individual judges to fully participate in the development of precedents (especially if their ability to participate on an en banc panel is restricted) and to establish a legacy (especially if they cann