Compulsory Licenses and International Investment Treaties

Clinic: National University of Singapore, Spring 2022

Beneficiary: Department of International Economic Affairs, Ministry of Foreign Affairs, Kingdom of Thailand

Executive Summary

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This report examines the implications of substantive investor protections set out in international investment agreements (“IIAs”) on compulsory licensing regimes against the background of the possible accession of the Kingdom of Thailand (“Thailand”) to the Comprehensive and Progressive Trans-Pacific Partnership (“CPTPP”).

Compulsory licenses allow governments to override the exclusive monopoly rights granted to a patentee by permitting third parties to use the patented product or process without the patentee’s consent. On the international level, compulsory licenses are addressed in Article 31 WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”), which sets out general safeguards and procedures for issuing compulsory licenses and notes exceptions to these procedures in the case of a “national emergency”.

Compulsory licenses are most often issued for patents covering pharmaceuticals. In 2001, in the “Doha Declaration on Public Health and the TRIPS Agreement”, WTO members clarified that (a) public health crises can represent a national emergency; (b) each member has the right to determine what constitutes a public health crisis (such as those relating to HIV/AIDS, tuberculosis, malaria, and other epidemics); and (c) each WTO member has the freedom to determine the grounds upon which compulsory licenses are granted.

Thai law provides a process for issuing compulsory licenses, and Thailand has issued compulsory licenses with respect to pharmaceutical patents in seven instances. Notably, in none of these instances has there been an allegation by the patentee’s home state that Thailand has violated Article 31 TRIPS, and no complaint has ever been lodged with the WTO.

Compulsory licenses do not only implicate commitments under the TRIPS Agreement. They also implicate the protections provided to investors and their investments under IIAs, which allow investors to bring claims against the states in which they invest. These protections include the protection against unlawful indirect expropriation, the guarantees of fair and equitable treatment (“FET”) and non-discrimination (encompassing “national treatment” and “most-favored-nation treatment”), and the prohibition of the imposition of performance requirements.

Although the protections granted to investors under IIAs are often very broad, thus far, there has been no case in which an investor has claimed that the issuance of a compulsory license infringed the substantive protections set out in IIAs. Nevertheless, because compulsory licenses are an important policy tool for States and because of concerns that investor claims might arise in the future, modern IIAs, like the CPTPP and like the Regional Comprehensive Economic Partnership (“RCEP”), increasingly contain specific provisions curtailing how the treaties’ substantive provisions apply to compulsory licenses.

The CPTPP, for example, contains provisions whereby claims of alleged unlawful expropriation and prohibited performance requirements based upon the issuance of a compulsory license are excluded so long as the compulsory license has been issued in compliance with Article 31 TRIPS Agreement and the CPTPP’s intellectual property chapter 5 (such provisions are called “TRIPS-plus obligations”). In light of the terms of Article 31 and the WTO’s Doha Declaration, the CPTPP provides a strong degree of protection for the State against expropriation and performance requirements claims.

While the CPTPP contains an express exclusion of expropriation and performance requirements claims if the State has adhered to its TRIPS-plus obligations, the CPTPP does not include similarly express exclusions for claims based upon other substantive protections such as violations of the FET standard or the non-discrimination standards. This should not be seen, however, as creating a gap in the State’s ability to defend itself in the event of an investor claim based upon a compulsory license. Given the due process requirements already contained in TRIPS Article 31, and the due process requirements found in CPTPP Chapter 18, it seems unlikely that the State’s issuance of a TRIPS-plus compulsory license could give rise to a successful FET or discrimination claim. Moreover, it bears noting that beyond the inclusions of specific provisions addressed to compulsory licenses, modern treaties like CPTPP (and RCEP) have generally narrowed the scope of the protection afforded to investors under the FET standard and the non-discrimination standards as well. As a result, the scope of these protections, especially for matters related to public health, is already very narrow. Finally, it bears noting as well that beyond these narrowed limitations in the formulation of the substantive protections themselves, modern treaties also increasingly contain “General Exceptions” provisions which exempt the application of the treaty in situations in which the government is pursuing certain interests and further limits the ability of investors to bring claims.

As a result, this report concludes that the provisions of CPTPP, which are similar to the provisions of RCEP – a treaty to which Thailand is already a party – reflect the state-of-art in treaty drafting with respect to compulsory licensing. Taken together, the provisions of CPTPP provide strong protection from investor claims for States that issue compulsory licenses in accordance with the TRIPS Agreement and its intellectual property chapter.

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