Intellectual Property under NAFTA, Investment Protection Agreements and at the WTO

Allen Z. Hertz was senior advisor in Canada's Privy Council Office serving the Prime Minister and the federal cabinet. Earlier he was in the Foreign Affairs Department where he advised on intellectual property rights. He participated in treaty negotiations, including for the North American Free Trade Agreement (NAFTA), and represented Canada at the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO). He wrote the 1987 federal Green Paper on "Semiconductor Chip Protection in Canada" and was founding editor of "Computer Law: A Report for Business and the Professions." He taught history and law at universities in New York, Montreal, Toronto and Hong Kong. As an undergraduate he was at McGill University, and then did graduate work at Columbia University where he received an M.A. and a Ph.D., in history. Dr. Hertz also has international law degrees from Cambridge University and the University of Toronto.

This posting contains Parts I and VI of "Shaping the Trident: Intellectual Property Rights under NAFTA, Investment Protection Agreements and at the WTO," which first appeared in 1997 in Volume 23 of the Canada-United States Law Journal, 261. The article was part of the Proceedings of the Canada-United States Law Institute Conference on NAFTA Revisited. The views expressed were those of the author in his personal capacity, not those of the Government of Canada. This article is current up to May 1996. Parts II-V appear in separate postings on this website.

Presidents Salinas and Bush and Prime Minister Mulroney witness
 the initialing of the NAFTA Draft Legal Text, San Antonio, Texas, October 7, 1992

Introduction

The North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)[1] together with various investment treaties are contributing to the implementation of a new tripartite strategy for the protection of intellectual property rights (IPRs). The hypothesis is that countries which are net exporters of technology and copyright product now see optimal IPRs protection in the shape of a trident.

The centre prong is effective dispute settlement for the substantive IPRs in NAFTA, TRIPS, the Paris Convention for the Protection of Industrial Property, and the Berne Convention for the Protection of Literary and Artistic Works.[2]

The left prong is made up of the investment disciplines set out in NAFTA, the Energy Charter Treaty,[3] a possible Multilateral Agreement on Investment (MAI) and a growing network of Bilateral Investment Treaties (BITs) and Foreign Investment Protection Agreements (FIPAs), all of which define "investment" as implicitly or explicitly including IPRs.

The right prong is the non-violation complaint alleging nullification or impairment of benefits, first fully elaborated under the 1947 General Agreement on Tariffs and Trade (GATT) and now incorporated in both NAFTA and the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes.

Creating this trident seems to be the goal of the net exporters seeking ever higher levels of protection for their valuable IPRs. For the net exporters, the trident is a cleverly-crafted instrument, the three prongs of which would ideally be available in any fully integrated trade agreement with interlocking provisions on investment, IPRs, and dispute settlement.

All of these aspects are examined here and in the companion postings that appear on this website. See Part 2: IPRs and binding dispute settlement; Part 3: IPRs and the non-violation complaint; Part 4: IPRs and international investment protection; and Part 5: the NAFTA cultural industries exception.

What is Intellectual Property?

For the scope of IPRs, reference can be made to the NAFTA definition which speaks of "copyright and related rights, trademark rights, patent rights, rights in layout designs of semiconductor integrated circuits, trade secret rights, plant breeders' rights, rights in geographical indications and industrial design rights."[4]

IPRs are commonly understood to be intangible property because the relevant rights refer to an asset which is incorporeal. Furthermore, IPRs are always concerned with information in the sense that IPRs focus on rights with respect to the use of information. An IPR is typically articulated negatively as a right to prevent the relevant information's unauthorized use and positively as the right to authorize its use via licensing or assignment. Each IPRs law (e.g., Canada's Copyright Act) can be understood as a special regime of rights with respect to an information category which is authoritatively defined, e.g., by the statutory criteria determining a literary work's eligibility for copyright protection.

Fitting within the usual domestic criteria for the relevant IPRs regime are the following examples of pure information: (a) the unique form of expression embodied in the pattern of ones and zeros of an original computer program; (b) a secret process for blending scotch whiskey; (c) the semiotic of a trademark associated with an individual manufacturer's business; or (d) the particulars of a pharmaceutical invention.

Even the proto-IPR implicit in the 1992 Biodiversity Convention's recognition of a State's sovereign right to its genetic resources is in part a claim to rights in information, i.e. rights in connection with the distinct genetic pattern embodied in a DNA sequence drawn from a plant or animal, said to originate in that State's territory.[5]

IPRs law can, therefore, be seen as a significant category of information law, alongside generally newer subsets including laws relating to official secrets, data protection, credit reporting, privacy, and access to information. Seeing IPRs regimes as a species of information law helps to explain why IPRs are skyrocketing in importance now that we live in the "information age" or the "knowledge society" where manufacturing is being eclipsed by services and factory labourers are becoming fewer than knowledge workers.[6]

Options for Treating Foreign Right Holders

Apart from setting minimum standards for the protection and enforcement of domestic IPRs, international IPRs conventions inter alia focus on the treatment of foreign right holders. Treaties and domestic law generally include one or more of the following possibilities for the treatment of foreign right holders with respect to a given IPR:

(i) National treatment -- We[7] treat a foreign right holder under our law the same way we treat our own nationals. {The foreign national's country may not provide the relevant right or may provide it to a greater or lesser extent than we do.}[8]

(ii) Most-favoured-nation treatment (MFN) -- A foreign right holder receives treatment no less favourable than the treatment we give nationals of any other foreign country. {The foreign national's country may not provide the relevant right or may provide it to a greater or lesser extent than we do.}[9]

(iii) Formal reciprocity -- We treat a foreign right holder the same way we treat our own nationals if the foreign national's country provides national treatment to our nationals. {The foreign national's country may provide our nationals with a right that is greater or lesser than the right we provide.}[10]

(iv) Material reciprocity -- We allow the foreign right holder the benefit of the right in our law only if, and to the extent that, his country's law provides the relevant right to our nationals. {As long as the relevant right is provided, the extent of protection in the foreign country may diverge substantially from what we provide to our own nationals.}[11]

(v) Reciprocal rights -- We allow a foreign rightholder the full benefit of the protection of the right in our law only if his country's law offers our nationals the protection of a right substantially equal to the one that our law provides. {The right provided by our law and by the foreign country's law must be fairly similar.}[12]

NAFTA's Intellectual Property Role

With respect to IPRs, NAFTA closely tracks the language of the 1991 Dunkel draft of the TRIPS negotiating text.[95]  Therefore, TRIPS and NAFTA's Chapter 17: Intellectual Property are, with regard to most subject matter, textually close enough to ensure that, in many cases, interpretations of the meaning of the one would be directly relevant to the elucidation of the other. IPRs-related findings of eventual NAFTA panels may, therefore, powerfully influence TRIPS interpretation and vice versa. But, NAFTA will probably make its own distinctive mark on international IPRs developments, because in some significant respects NAFTA embodies TRIPS-plus features.

For WTO Members, TRIPS applies the key national treatment obligation subject to the many exceptions already provided in the Paris, Berne, and Rome Conventions and the Washington Treaty on Intellectual Property in Respect of Integrated Circuits. Moreover, in respect of performers, phonogram producers, and broadcasters, TRIPS national treatment applies only to the rights which TRIPS specifically provides.[96] These many qualifications contrast sharply with NAFTA which establishes a sweeping national treatment requirement[97] which, subject to a few specific exceptions,[98] applies to all the domestic IPRs a NAFTA Party adopts or maintains.

Also in terms of substantive obligations, NAFTA adds a number of significant TRIPS-plus features. For trade secrets, both TRIPS and NAFTA require confidentiality for undisclosed test data submitted to governments for approving the marketing of pharmaceutical or agricultural-chemical products that utilize new chemical entities.[99] However, NAFTA goes further by also requiring non-reliance. For normally at least five years, NAFTA Parties are not to rely on the first applicant's confidential test data to approve a second applicant's request for approval to market a generic copy of the first applicant's product.[100]

Unlike WTO Members, NAFTA Parties have to protect encrypted program-carrying satellite signals.[101]  This obligation reflects protection which had already been available under United States and Canadian law.[102]  The NAFTA provision is broad enough to cover the contemporary phenomenon of direct broadcasting by satellite which is specifically excluded from the scope of the 1974 Brussels Convention Relating to the Distribution of Programme-Carrying Signals Transmitted by Satellite.[103]

NAFTA goes a long way toward closing alleged gaps in the Berne Convention for the Protection of Literary and Artistic Works. For example, a technology-specific reference to "broadcasting" has raised serious questions about the adequacy of Berne rights for the protection of text and data bases on the Internet.[104]  In recent negotiations, some have even suggested that Berne "communication" does not extend beyond real time[105] because of the relatively narrow range of technology extant when the Berne language was adopted.[106]  In other words, Berne communication rights are said to apply only where a person directly communicates the work for simultaneous reception by others. This interpretation is troubling because, with respect to communication, it would exclude from Berne Convention rights and obligations the key configuration of a solitary midnight user accessing a work previously placed in a data base.

Whether or not these are really Berne lacunae, the holes are filled by NAFTA which not only requires each Party to give effect to the substantive provisions of the 1971 Paris Act of the Berne Convention[107] but also adds an entirely separate and, therefore, contemporary right to authorize or prohibit the communication to the public of all kinds of literary and artistic works embodying "original expression."[108]  For a NAFTA Party volunteering to apply to all categories of works[109] a domestic understanding of "the public" broad enough to include the network situation of a number of individuals accessing the same work at different times and places, this generous communication right[110]  appears to supply whatever might be missing from the Berne Convention. This aspect is crucial to copyright in the global information infrastructure where works will increasingly be commercialized via the world's expanding information highway.

IPRs as an "investment" is another significant feature present in NAFTA which defines "investment" as including "intangible property."[111]  Therefore, all the IPRs a NAFTA Party adopts or maintains are automatically included within the ambit of the NAFTA investment-protection provisions. By contrast, the WTO Agreement on Trade-Related Investment Measures (TRIMS) only applies to investment measures with respect to trade in goods[112] and does not include a definition of "investment" after the fashion of NAFTA. According to Canada, TRIMS was one of the "disappointments" of the Uruguay Round.[113] This website hosts a companion posting on IPRs and Investment Protection that has much more to say about the important conjunction between investment obligations and IPRs.

NAFTA's TRIPS-plus provisions are likely to have a substantial impact on the development of international IPRs norms. There is a general influence because NAFTA standards are now a significant part of what the United States seeks in bilateral agreements. Furthermore, NAFTA has had a profound influence on the formulation of Canada's Model Foreign Investment Protection Agreement (FIPA) which continues to be the starting point for a number of ongoing negotiations. Current examples are the FIPAs which Canada recently concluded with South Africa and the Philippines.

NAFTA also may exercise a specific influence via the accession of new Parties. April 1995 witnessed the inauguration of quadrilateral talks to explore the possibility of Chile's accession to NAFTA. For the moment, the accession process is stalled due to Congress' failure to give President Clinton the Fast Track authority which Chile deems to be essential for continuing serious and substantive negotiations. Nonetheless, the prospect of NAFTA expansion has greatly stimulated Latin American interest in NAFTA's Intellectual Property Chapter.

This Latin American focus on NAFTA applies in other exercises as well. For example, NAFTA and other IPRs norms will be thoroughly studied in the current efforts to develop a Free Trade Agreement of the Americas (FTAA) by the year 2005.[114]  This process was inaugurated at the December 1994 Miami summit of Western Hemisphere leaders. At a June 1995 Denver meeting, the hemisphere trade ministers approved the principle of establishing an IPRs Working Group which was created in March 1996 at their second meeting in Cartagena.[115]  As in the Chilean accession process, comparison of TRIPS and NAFTA standards with the realities of Latin American regimes will greatly expand mutual understanding and knowledge of comparative IPRs law. For example, IPRs enforcement in Canada and the United States is principally a question of civil remedies.[116]  By contrast, in many parts of Latin America, IPRs are normally enforced via a combination of administrative, criminal, and civil remedies.[117]  One way or another, higher levels of protection and enforcement are bound to result from this ambitious hemispheric initiative.

[Parts II-V appear as separate postings on this website.]

PART VI. CONCLUSION

The Trident of Intellectual Property Protection

Countries which are net exporters of technology and copyright product have come to see optimal protection of IPRs in the shape of a trident. The substantive IPRs provisions in treaties like TRIPS, NAFTA, and the Paris and Berne Conventions make up the centre prong. On the left is the prong of investment disciplines in NAFTA, the Energy Charter Treaty, a possible MAI, and the growing network of BITs and FIPAs, all of which sweep up IPRs as an "investment." The prong on the right is the non-violation complaint as part of dispute settlement, whether under NAFTA or at the WTO.

There are interpretations of NAFTA which are consistent with this trident approach. Some would argue that "use" is the idea that links the substantive IPRs in the NAFTA Intellectual Property Chapter with the disciplines in the Investment Chapter and NAFTA, Annex 2004: Nullification and Impairment. For the United States as a net-exporter of technology and copyright product, the trident's purpose is to ensure that possible governmental barriers to the use of IPRs in the territory of another NAFTA Party can be challenged by investor/State arbitration on the one side[297] and by State-to-State non-violation complaints on the other side. In the middle, the trident would offer the possibility of State-to-State complaints for violations of the Intellectual Property Chapter's requirements with respect to acquisition, maintenance, protection, and enforcement.

The ways of commercially exploiting IPRs are rapidly changing with the introduction of innovative technologies. Countries which are net exporters of technology and copyright product are therefore eager for the international adoption of new mechanisms to ensure that economic rewards flow back to IPRs owners. The net exporter countries see new opportunities in integrated trade agreements with interlocking provisions on investment, IPRs, and dispute settlement. This is an environment in which wide-ranging investment obligations and the possibility of both violation and non-violation complaints can marry the minimum international standards which are the staples of the traditional IPRs convention.

The evolution of such highly sophisticated IPRs protection strategies means that policy makers in other countries have to respond with serious thinking about the dangers of over-protecting IPRs.[298]  In addition to worrying about defending the rights of IPRs owners, governments have responsibilities to guard other interests, e.g., the legitimate needs of social policy, health protection, and consumers. If shaping and sharpening the trident is the goal of some countries, negotiators for other countries must be vigilant and inventive.

Challenging a negotiation's overall architecture is not always possible or desirable. Therefore, substantial energy and creativity must be directed to developing, and winning international acceptance for, appropriate limitations and exceptions for insertion into investment instruments and integrated trade agreements. In preparing positions, negotiators must make very careful assessments of national interests to identify where domestic discretion must be preserved. For some, this might mean exceptions, limitations, or reservations for cultural industries and necessary health-related measures. However, other negotiators may come to the table with different ideas reflecting the special needs of their countries.


NOTES

1. As of March 29, 1996, one hundred and nineteen countries and territories were WTO Members and were, therefore, Party to TRIPS.

2. One hundred and thirty-six and one hundred and seventeen States are now Party respectively to the Paris and Berne Conventions which are both administered by the World Intellectual Property Organization (WIPO). See WIPO Document 423E (Jan. 1, 1996) States Party to the Convention Establishing the World Intellectual Property Organization and/or the Other Treaties Administered by WIPO: Status on January 1, 1996, at 4-9. [hereinafter WIPO Doc.]

3. Energy Charter Treaty [Lisbon, Dec. 17, 1994] 34 I.L.M. 360 (1995). See Thomas W. Waelde, International Investment Under the 1994 Energy Charter Treaty, 29 J. World Trade 572 (1995).

4. NAFTA, art. 1721(2). Except for the NAFTA definition's explicit reference to plant breeders' rights, the NAFTA definition is the same as the definition of IPRs in TRIPS, Article 1(2). Although the TRIPS definition does not specifically refer to plant breeders' rights, WTO Members are required to protect plant varieties "either by patents or by an effective sui generis system or by any combination thereof." See TRIPS, art. 27(3)(b), which corresponds to the last sentence of NAFTA, art. 1709(3).

5. 1992 Rio Convention on Biological Diversity, Preamble; arts. 2-4; 15(1), (7); 16(3); 19.

6. In developed countries, knowledge workers are said now to make up approximately one third of the total workforce, with another third providing skilled services. In developed countries, the percentage of workers actually "making or moving things" was over 50% in 1950, dropped to 20% by 1990, and is expected to fall to 10% by 2010. See Peter Drucker, Post-Capitalist Society 40, 64 (1993).

7. For ease of presentation, "we" and "our" here refer not specifically to Canada, but rather to the domestic perspective from any country contemplating the treatment of foreign right holders.

8. National treatment's meaning and purpose is explained by Stephen M. Stewart, International Copyright and Neighbouring Rights, 38-43 (2d ed. (1989)). WIPO's Director of Copyright, Mihaly Ficsor explores national treatment in WIPO Document 8352D/COP/0595D (May 27, 1993) Statement on the Questions Concerning National Treatment in Respect of a Possible Protocol to the Berne Convention. The Berne and Paris Conventions require foreign right holders to receive "the same protection" as nationals. By contrast, NAFTA article 1703(1) and TRIPS, article 3(1), require "treatment no less favourable." NAFTA and WTO panels may some day show this distinction to be of some significance.

9. On MFN clauses, see Arnold Duncan, Lord McNair, The Law of Treaties 272-305 (1961). An MFN requirement features in neither the WIPO treaties nor NAFTA's Intellectual Property Chapter. However, there is an MFN requirement in TRIPS, article 4. On MFN in the GATT, see John H. Jackson, The World Trading System: Law and Policy of International Economic Relations 133-48 (1989).

10. Formal reciprocity is a possibility under Canada's Copyright Act, Section 5(2): "Where the Minister certifies by notice, published in the Canada Gazette, that any country that is not a Berne Convention country grants or has undertaken to grant, either by treaty, convention, agreement or law, to citizens of Canada, the benefit of copyright on substantially the same basis as to its own citizens . . . , the country shall, for the purpose of the rights conferred by this Act, be treated as if it were a country to which this Act extends . . . ." With respect to record performers' secondary use rights, NAFTA art. 1703(1), appears to require at least formal reciprocity: "a Party may limit rights of performers of another Party in respect of secondary uses of sound recordings to those rights its nationals are accorded in the territory of such other Party."

11. "Material reciprocity has been described as tit for tat." See Stewart, supra note 8, at 41. The secondary use (broadcasting and any communication to the public) of sound recordings is covered in Rome Convention, art. 12. However, art. 16(1)(a)(iv) permits a Party to opt for material reciprocity by notifying the U.N. Secretary-General that: "as regards phonograms, the producer of which is a national of another Contracting State, it will limit the protection provided for by that Article to the extent to which, and to the term for which the latter State grants protection to phonograms first fixed by a national of the State making the declaration . . . ."

12. Reciprocal rights is a possibility under Canada's Copyright Act, Section 5(2): "where the Minister certifies by notice, published in the Canada Gazette, that any country that is not a Berne Convention country grants or has undertaken to grant, either by treaty, convention, agreement, or law, to citizens of Canada, . . . copyright protection substantially equal to that conferred by this Act, the country shall, for the purpose of the rights conferred by this Act, be treated as if it were a country to which this Act extends . . . ."

[Notes numbers 13-94 appear in Part II which a separate posting on this website.]

95. MTN. TNC/W/FA (Dec. 20, 1991) GATT Secretariat UR-91-0185.

96. TRIPS, art. 3(1).

97. NAFTA, art. 1703: National Treatment.

98. For example, NAFTA, art. 1703(1), says, in respect of secondary use (broadcasting or other public communication) of sound recordings, a Party may limit the rights of another Party's performers to those rights its nationals are accorded in the territory of such other Party. For the cultural industries, there is between Canada and any other NAFTA Party also the exception in NAFTA, Annex 2106, considered in Part 5 below.

99. TRIPS, art. 39(3), and NAFTA, art. 1711(5).

100. NAFTA, art. 1711(6). However, subject to this provision, each Party may implement abbreviated approval procedures on the basis of bioequivalence and bioavailability studies.

101. NAFTA, art. 1707: Protection of Encrypted Program-Carrying Satellite Signals.

102. The 1991 changes to Canada's Broadcasting Act and Radio-communication Act are explained by the Department of Communications, Decoding the Law on Decoding (1991) and Distribution Undertakings and the Broadcast Act (1991).

103. The Brussels Convention does not apply where the originating organization's signals are intended for direct reception by the general public (art. 3).

104. The wide-ranging right of public performance in Berne, article 11, applies only with respect to dramatic, dramatico-musical, and musical works. For the broader category of "literary and artistic works," article 11bis provides rights of broadcasting and communication to the public of the broadcast of the work. However, article 11bis rights seem not to apply to the nonbroadcasting network situation of an electronic data base from which a work may be transmitted entirely by wire, i.e. via modem and telephone lines. See Masouye, supra note 28, at 64-69 (1978).

105. Conventional broadcasting may be considered to be "real time" because reception occurs virtually simultaneously with the origination of the transmission embodying the communication.

106. "Communication" was absent from the Berne Convention until the 1928 Rome Act which introduced art.11bis (1) stipulating that "authors of literary and artistic works shall enjoy the exclusive right of authorizing the communication of their work to the public by broadcasting." With the same language carried forward to the current 1971 Paris Act, the 1948 Brussels Act, article 11(1)(ii), gave authors of dramatic, dramatico-musical and musical works the exclusive right of authorizing any "communication to the public of the performance of their works." Similarly, the text of article 11bis in the current 1971 Paris Act dates from the 1948 Brussels Act.

107. NAFTA, art. 1701(2)(b).

108. NAFTA, art. 1705: Copyright.

109. NAFTA, art. 1721: Definitions, provides an open (i.e. inclusive) definition of "public" applying to dramatic, dramatico-musical, musical and cinematographic works. For other kinds of literary and artistic works (e.g., computer programs, legal and financial data bases, etc.), the author's exclusive right to authorize or prohibit the work's communication to the public does not have to be read in accordance with the article 1721 definition.

110. NAFTA, art. 1705(2)(c).

111. NAFTA, art. 1139: Definitions.

112. WTO Agreement on Trade-Related Investment Measures, art. 1.

113. Canada, Dept. Foreign Aff. Int'l Trade, Agreement Establishing the World Trade Organization: Canadian Statement on Implementation, Canada Gazette, Part 1, Dec. 31, 1994, at 4855: "The TRIMS Agreement fails to capture the importance of foreign direct investment as an agent of international integration and economic development. There is still need for a multilateral investment code that addresses the full range of issues related to discriminatory regulation of the conduct of business. The comparable chapter in NAFTA is much further along in capturing the reality of the global economy." WTO Member trade ministers will soon be examining the possibility of enhanced investment disciplines within the WTO framework.

114. Ongoing FTAA developments regarding IP and other topics are weekly reported in detail from Washington in an authoritative newsletter entitled Inside NAFTA. This key publication covers NAFTA implementation and dispute settlement as well as trade policy in the Americas. From the same publisher comes Inside U.S. Trade which is invaluable with respect to the WTO and global aspects of the United States' participation in the world trading system.

115. Joint Declaration, Summit of the Americas, Second Ministerial Trade Meeting, Cartagena, Colombia, March 21, 1996. The IPRs Working Group will create an inventory of the hemisphere's IP agreements, treaties and arrangements, including all international conventions to which countries are Parties; compile an inventory of the hemisphere's IP protection laws, regulations and enforcement measures and, on the basis of this information, identify areas of commonality and divergence; recommend methods to promote the understanding and effective implementation of TRIPS; identify possible areas for technical assistance involving both IPRs administration and enforcement; analyze the implications of emerging technologies for FTAA IPRs protection; and make specific recommendations on how to proceed in building the FTAA in this area.

116. For Canadian enforcement, see Gordon F. Henderson, Intellectual Property Litigation, Legislation and Education: A Study of the Canadian Intellectual Property and Litigation System, Report for Department of Consumer and Corporate Affairs (1991).

117. For example, see the central role played by administrative sanctions and criminal offences in Title 7, Chapters II-III of Mexico's industrial property law (Ley de fomento y proteccion de la propiedad industrial). In Chile, the possibility of civil compensation for the IPR owner depends on a prior administrative or criminal finding of a violation of the copyright law (Derecho de autor) or the industrial property law (Normas aplicables a los privilegios industriales y proteccion de los derechos de propiedad industrial).

[Notes numbers 118-206 are in Parts III-V as separate postings on this website.]

297. Without prejudice to the possibility of a NAFTA Party using State to State dispute settlement under Chapter 20 to enforce rights under the Investment Chapter. See NAFTA, art. 1115.

298. Over-protection may also be a significant danger in the domestic context. For a relevant warning, see Paula Samuelson, "The Copyright Grab," Wired, Jan. 1996, at 135-38, 188-91.

Intellectual Property Rights and Investment Protection

Allen Z. Hertz was senior advisor in Canada's Privy Council Office serving the Prime Minister and the federal cabinet. Earlier he was in the Foreign Affairs Department where he advised on intellectual property rights. He participated in treaty negotiations, including for the North American Free Trade Agreement  (NAFTA), and represented Canada at the World Trade Organization (WTO)  and the World Intellectual Property Organization (WIPO). He wrote the 1987 federal Green Paper on "Semiconductor Chip Protection in Canada" and was founding editor of "Computer Law: A Report for Business and the Professions." He taught history and law at universities in New York, Montreal, Toronto and Hong Kong. As an undergraduate he was at McGill University and then did graduate work at Columbia University where he received an M.A. and a Ph.D., in history. Dr. Hertz also has international law degrees from Cambridge University and the University of Toronto.

This posting contains Part IV of "Shaping the Trident: Intellectual Property Rights under NAFTA, Investment Protection Agreements and at the WTO," which first appeared in 1997 in Volume 23 of the Canada-United States Law Journal, 261. The article was part of the Proceedings of the Canada-United States Law Institute Conference on NAFTA Revisited. The views expressed were those of the author in his personal capacity, not those of the Government of Canada. This article is current up to May 1996. Parts II-III and V appear in separate postings on this website. Part VI:Conclusion is posted together with Part I.

Introduction

Now that international IPRs obligations are subject to effective dispute-settlement procedures, increasing attention is directed to the crucial intersection between IPRs and investment obligations. This arises by design because investment-protection treaties commonly include IPRs within the definition of "investment."[154]  This feature is certainly true of the Bilateral Investment Treaties (BITs) of the United States.[155]  And, Canadian treaty practice also includes bilateral Foreign Investment Protection Agreements (FIPAs) which specify IPRs within the definition of "investment."[156]

Why does NAFTA Treat Intellectual Property as an Investment?

None of NAFTA's multiple personalities is more important than its character as a powerful investment-protection instrument.[157]  Therefore, it is natural that NAFTA's Investment Chapter treats IPRs as "intangible property" explicitly within the definition of "investment."[158]  During the NAFTA negotiations, this definition raised significant questions with regard to the potential interaction between the draft Intellectual Property Chapter and the draft Investment Chapter.

According to the United States delegation, the Investment Chapter's purpose would be inter alia to protect the commercial benefits flowing from IPRs ownership. The United States negotiators were also seeking additional international disciplines for "trade-distorting practices" in the form of domestic restrictions on the commercial exploitation of IPRs, e.g., performance requirements.[159]  According to the United States, the Intellectual Property Chapter would also need the Investment Chapter for the principle of the free transferability of royalty payments.[160]  By way of further example, the United States added that the NAFTA Intellectual Property Chapter would establish the disciplines for the availability of compulsory licensing, but the Investment Chapter would allow the patent holder arbitration with respect to the level of compensation arising from any "taking" under the Intellectual Property Chapter.

Inconsistency Test is Strict

During the NAFTA negotiations, serious consideration was given to the potential interaction between the draft Investment Chapter and the other draft chapters. Accordingly, in the event of any inconsistency between another NAFTA chapter and the Investment Chapter, the other NAFTA chapter is to prevail to the extent of the inconsistency.[161]  Despite first appearances, this provision does not go very far to establish an override favouring NAFTA's other chapters. This assessment rests on the consideration that in public international law an inconsistency test is normally applied very narrowly, i.e. inconsistency exists only where two texts are genuinely contradictory.[162]

Customary international law has treaty interpretation rules which include a general presumption against finding conflict between two provisions intended to apply between the same Parties with respect to the same subject matter. Therefore, the preferred interpretation is the one compatible with the requirements of both provisions.[163]  This means that there would be no legal inconsistency between the first chapter's "shall not" (i.e. a clear "no") and the second chapter's "may" (i.e. embracing the possibility of either a "yes" or a "no"). By conforming with the first chapter's "shall not,"  a Party's conduct would be entirely consistent with both chapters. Accordingly, mandatory terms in one treaty chapter can operate to override permissive provisions in another treaty chapter.[164]   This is illustrated by the following discussion of how the negotiations for the NAFTA Intellectual Property and Investment Chapters interacted with respect to requirements of national treatment and most-favoured-nation treatment (MFN).

MFN and National Treatment Requirements

During the NAFTA negotiations, concerns subsisted that the draft Investment Chapter might interfere with the legitimate scope of IPRs in the draft Intellectual Property Chapter. For example, the draft Investment Chapter demanded MFN and national treatment for investments including "intangible property" and hence for IPRs. However, the draft Intellectual Property Chapter gave each Party the possibility of derogating from the national treatment requirement. For example, the draft Intellectual Property Chapter offered the option of relying on exceptions for performers in respect of secondary uses of sound recordings[165] and for judicial and administrative procedures in respect of the protection and enforcement of IPRs.[166]  In addition, Parties were specifically accorded the opportunity of requiring foreign right holders to designate a local address for service of process and to appoint an agent within the jurisdiction.[167]  There was also the possibility of deviating from the Intellectual Property Chapter's national treatment obligation for certain domestic procedures (provided for in various WIPO treaties) relating to the acquisition or maintenance of IPRs.[168]

Accordingly, the mandatory MFN and national treatment obligations applying with respect to IPRs as "intangible property" under the draft Investment Chapter had to be specifically limited to preserve the freedom of action provided by the exceptions in the draft Intellectual Property Chapter. For this reason, the Investment Chapter was equipped with an exception which stipulates that the Investment Chapter's MFN and national treatment requirements do not apply to any measure that qualifies for an exception to national treatment under the Intellectual Property Chapter.[169]

NAFTA Expropriation and Intellectual Property Rights

Even more serious was the potential IPRs problem perceived in relation to the draft Investment Chapter's requirement of compensation for expropriation.[170]  Like many investment-protection agreements, NAFTA casts the net widely to include not only expropriation but also a measure tantamount to expropriation.[171]  Where there is expropriation, NAFTA appears to require compensation, even though the domestic measure satisfies all the other NAFTA requirements of being: (i) for a public purpose; (ii) non-discriminatory; (iii) in accordance with due process of law; and (iv) in accordance with international law, including fair and equitable treatment and full protection and security.[172]

This demanding formulation suggests that what constitutes a compensable expropriation may, in some circumstances, be broader under NAFTA than under customary international law, where there may be no duty to compensate an alien for losses arising from a "reasonable exercise of the state's power to regulate matters related to public order, safety or health, its currency, foreign exchange resources, balance of payments, or emergency situations."[173]

The precise scope of the promise to compensate under NAFTA's Investment Chapter is crucial because expropriation contrary to treaty is per se unlawful under public international law and gives rise to State responsibility, including the obligation to make restitution.[174]

Domestic Requirement to Compensate May Be Narrower

Consistent with TRIPS and WIPO obligations, domestic IPRs legislation in most countries has features (e.g., compulsory licensing, revocations, limitations) which arguably would have been inconsistent with an unqualified NAFTA obligation to compensate a foreign investor for expropriation. For example, a patent holder has no domestic right to compensation when a patent is revoked for abuse of rights under Canada's Patent Act[175] or Competition Act.[176]  Compensation is required by Canada's Expropriation Act, but the statute applies only to the taking of land.[177]

The potentially narrow scope of the domestic meaning of expropriation can be further explored via the example of the U.K. system of land-use regulation which Sir William Wade has described as a "comprehensive and drastic licensing system."[178]

The planning legislation as a whole is in effect an extensive system of expropriation without compensation, since no compensation is payable in the great majority of cases where permission to develop land is refused, even though the land is then greatly reduced in value.[179]

Such losses have been judged by U.K. courts to result from the exercise of regulatory power and not from the taking of property.[180]   As in the U.K., Canada's domestic understanding of expropriation is bound to be relatively narrow, because the Constitution Acts fail to provide fundamental guarantees to protect rights with respect to private property:

The rule requiring compensation for a taking of property is in Canada (as in the United Kingdom) only a rule of statutory interpretation. If a statute expressly provides that no compensation is payable, then there is no room for interpretation and the express words of the statute must be applied . . . . Neither the federal government nor a provincial government is under any constitutional (as opposed to statutory) obligation to pay fair compensation, or any compensation, for property expropriated.[181]

By contrast, the United States domestic understanding of expropriation is broader. United States courts interpret the fifth amendment to the United States Constitution to require payment of just compensation for expropriation, including "regulatory takings."[182]  For example, the United States Supreme Court in 1992 held that the owner of two unimproved beachfront lots was entitled to compensation because he was prevented from building by the enactment of new construction setback lines to prevent coastal erosion.[183]  Compensation was required because an unanticipated regulation deprived the property owner of "all economically viable use."[184]

During the NAFTA negotiations, Canadian negotiators were mindful of the possibility of a discrepancy between the understanding of "expropriation" under NAFTA and domestic law. To Canada's Intellectual Property negotiators, the draft Investment Chapter appeared to interact with IPRs in a way that might require an unrealistically high level of obligation with respect to expropriation. This broad requirement to compensate provoked examination of some hypothetical scenarios.

For example, it was imagined that under the draft Investment Chapter expropriation could be alleged with respect to: (i) the revocation of a patent for abuse of rights; (ii) limiting the copyright owner's exclusive reproduction and translation rights via the enactment of a new exception allowing unauthorized decompilation of a computer program for research to develop interoperability with another program; and (iii) software rental outlets being effectively put out of business by the exercise of a new exclusive rental right by owners of copyright in computer programs.

Thinking of these and similar situations, Canadian negotiators believed that it was necessary to preserve a Party's discretion to control IPRs consistent with the disciplines established in the Intellectual Property Chapter. Accordingly, included in the Investment Chapter was the following exception: "This article [on expropriation and compensation] does not apply to the issuance of compulsory licenses granted in relation to IPRs, or to the revocation, limitation or creation of IPRs, to the extent that such issuance, revocation, limitation or creation is consistent with Chapter Seventeen (Intellectual Property)."[185]

Cigarette Plain Packaging and Expropriation

The intersection between IPRs and investment obligations can be explored via the hypothetical cigarette plain-packaging proposal that is also discussed in this website's companion posting on State-to-State complaints alleging non-violation nullification or impairment of benefit.

A thoroughgoing plain-packaging requirement would effectively prevent tobacco companies from using most of their very valuable trademarks on cigarette packages. Canada's Trade-marks Act protects not only ordinary trademarks, e.g., symbols, but also distinctive packaging as a trade dress or "distinguishing guise."[186]

The NAFTA Investment Chapter could pose problems for a hypothetical cigarette plain-packaging measure because domestic trademark rights would fall within the scope of "intangible property" referenced in the definition of investment.[187]  Furthermore, the Investment Chapter has no link with the NAFTA general exception for health-related measures with respect to international trade in goods.[188]  Instead, the Investment Chapter has its own provision in the form of NAFTA, Article 1101(4), which permits a Party to adopt and maintain health measures not inconsistent with the Investment Chapter. But, it is very important to consider that NAFTA, Article 1101(4), may be read as conceivably not excluding liability to compensate the investor for a bonafide health measure that is tantamount to expropriation.[189]

On May 10, 1994, representatives of some United States tobacco companies came to Ottawa to tell the House of Commons Standing Committee on Health that they would respond with an investor/State complaint should Parliament enact a plain-packaging requirement preventing them from using their existing Canadian trademarks on their cigarette packs in Canada. In other words, the United States companies were warning that, under NAFTA's Investment Chapter, any cigarette plain-packaging requirement would be a measure tantamount to a compensable expropriation of their Canadian trademark rights.[190]

However, a number of significant counter-arguments would be available[191] if adoption of a cigarette plain-packaging measure sparked compensation claims leading to investor/State arbitration under the Investment Chapter and/or a State-to-State panel procedure under Chapter 20.[192]  A plain-packaging requirement for cigarettes has not been adopted by any government. Nonetheless, the lively public discussion of the relevant policy and legal considerations has taught many useful lessons about how carefully investment obligations must be structured so as to leave sufficient space for domestic policy with regard to health, IPRs, and other areas.

Intellectual Property Rights in Foreign Investment Protection Agreements (FIPAs)

Possible conflict between the legitimate operation of IPRs regimes and investment obligations is a general problem which must be considered in other fora as well, e.g., the recently concluded negotiations for the Energy Charter Treaty[193] and the current OECD work towards a Multilateral Agreement on Investment (MAI).[194] The need for skilful handling of IPRs in investment-protection agreements is reinforced by two relevant considerations. First, IPRs are private rights[195] frequently held by corporations accustomed to aggressive litigation. Second, NAFTA, the Energy Charter Treaty, and other investment-protection agreements commonly provide for the possibility of the international arbitration of investor/State disputes in addition to the usual possibility of dispute settlement between States. This means that, under appropriate circumstances, a foreign owner of domestic IPRs may use investment obligations to press a claim against a host State. The proliferation of arbitral awards arising from such investor/State dispute settlement could generate significant new precedents, partly because of procedures which typically allow the investor to appoint one of the arbitrators.[196]

Because IPRs are almost invariably included within the definition of "investment," countries which are net exporters of technology and copyright product welcome the chance to use FIPAs to expand international protection for their foreign IPRs. However, countries which are net importers of technology and copyright product[197] must be vigilant lest over-protection occur via a bilateral FIPA. Experience in NAFTA showed the way to a more finely articulated treatment of IPRs as an investment.

Intellectual Property Rights in Canada's Model Foreign Investment Protection Agreement

Relying on NAFTA experience, Canada prepared a Model FIPA which, with respect to IPRs, tries to strike an appropriate balance between the private investor's needs and the host country's legitimate interests. Without impairing FIPA protection for IPRs, the IPRs-related exceptions in Canada's Model FIPA seek to prevent over-protection and to ensure that FIPA obligations with respect to IPRs are coordinate with TRIPS obligations. Accordingly, Canada's Model FIPA includes IPRs-related exceptions from obligations touching MFN, national treatment, and expropriation. The Model FIPA also has an exception carving out the cultural industries from the agreement's investment disciplines. (This website also has a separate posting on the NAFTA cultural industries exception.)

Ensuring that a FIPA does not inadvertently expand IPRs protection is important, because a bilateral FIPA may indirectly have a wider impact by triggering MFN obligations under other agreements. For example, with respect to the NAFTA Investment Chapter's MFN obligation,[198] Canada took a specific exception for treatment under all bilateral and multilateral treaties antedating January 1, 1994.[199]  Understandably, there is no corresponding general carve out for treatment under subsequent treaties. Subject to certain exceptions, Canada could therefore end up owing to United States and Mexican investors and investments (including IPRs) treatment no less favourable than that which Canada accords, in like circumstances, under any subsequent FIPA with a third country.

With respect to MFN and national treatment, TRIPS offers WTO Members the possibility of using the various exceptions which were carefully negotiated during the years of the Uruguay Round. For IPRs, Canada's Model FIPA incorporates those exceptions to MFN and national treatment that are consistent with TRIPS.[200]  In other words, to avoid expanding the scope of IPRs protection, IPRs must be subject to the same MFN and national treatment exceptions in both FIPAs and IPRs treaties. Otherwise, a FIPA might interfere with a Party's ability to use the MFN and national treatment exceptions multilaterally agreed in IPRs treaties, e.g., TRIPS, the Paris Convention for the Protection of Industrial Property and the Berne Convention for the Protection of Literary and Artistic Works.[201]

The FIPA reference to TRIPS ensures that there is no investment violation to the extent that domestic measures derogating from MFN and national treatment conform with the exceptions in TRIPS. However, without the FIPA reference to TRIPS, the balance could be upset by unqualified MFN and national treatment requirements in a subsequent FIPA. Customary international law and the Vienna Convention on the Law of Treaties[202] both rely on the lex posterior principle. In practical terms, this means that, as between countries Party to both the later FIPA and the earlier TRIPS, the provisions of TRIPS might only apply to the extent of their compatibility with the subsequent FIPA.[203]  This could be seen as a question of the application of successive treaties relating to the same subject matter[204] because the FIPA specifically includes IPRs within the definition of "investment." For this reason, any inconsistency between TRIPS and a later FIPA might not be solvable via the principle of interpretation which stipulates that the general does not derogate from the specific (generalia specialibus non derogant).[205]

Significantly excluded from the Canadian Model FIPA's understanding of a compensable expropriation is a claim arising from the issuance of compulsory licences for IPRs or from the revocation, limitation, or creation of IPRs consistent with TRIPS.[206]  This qualification is meant to allow some room for features that constitute normal operations within most domestic IPRs systems. Without such an exception, a FIPA obligation to compensate on expropriation might arise when a new Copyright Act exception is enacted, a domestic court orders compulsory licensing to remedy an anti-competitive practice or a patent is revoked. The FIPA's specific reference to the standard of TRIPS consistency is the foreign investor's guarantee that the exception from the duty to compensate for "expropriation" would be measured with an agreed yardstick.

Conclusion

Caution on the part of the host State is fully justified in the contemporary context where FIPAs commonly offer foreign IPRs owners the possibility of investor/State dispute settlement. Because investment treaties can conceivably lead to the overprotection of IPRs, panelists and arbitrators should, wherever possible, get clear FIPA rules to distinguish bonafide regulatory measures from compensable expropriations. In other words, the FIPA needs to include specific exceptions favouring particular regulatory measures with respect to IPRs. And, here the rationale is the circumstance that an unqualified FIPA requirement to compensate the IPRs owner as an investor would be logically consistent with a TRIPS exception allowing the possibility of a derogation from an IPRs discipline.

Technically speaking, there is a conflict between treaties when two (or more) treaty instruments contain obligations which cannot be complied with simultaneously.[207]

The danger is that the TRIPS exception could suffice to excuse the non-conforming domestic IPRs measure, but would not remove any separate FIPA obligation to compensate the foreign holder of domestic IPRs as an investor.

NOTES

154. F.A. Mann, British Treaties for the Promotion and Protection of Investments, in Further Studies in International Law 236, 243, 247 (1990). See, e.g., Article 1(b)(iv), Agreement between Australia and China on the Reciprocal Encouragement and Protection of Investments [Beijing, July 11, 1989] Australia Treaty Series 1988; Article 1(a)(iv), USSR-UK: Treaty on Promotion and Protection of Investments [London, Apr. 6, 1989] 29 I. L. M. 366 (1990); Article 1(1), Germany-USSR: Treaty on Promotion and Protection of Investments [Bonn, June 13, 1989] 29 I. L. M. 351 (1990); Article 1(a)(iv), Australia-Vietnam: Agreement on the Reciprocal Promotion and Protection of Investments [Canberra, Mar. 5, 1991] 30 I.L.M. 1064 (1991).

155. See, e.g., Article 1(1)(a)(i), Argentina-USA [Washington, Nov. 14, 1991] 31 I. L. M. 124 (1992); Article 1(1)(c), Russia-USA [Washington, June 17, 1992] 31 I. L. M. 794 (1992).

156. See Article 1 of the following FIPAs: Canada-Poland [Warsaw, Apr. 6, 1990] Canada Treaty Series 1990 43; Canada-USSR [Moscow, Nov. 20, 1989] Canada Treaty Series 1991 31; Canada-Czech and Slovak Republic [Prague, Nov. 15, 1990] Canada Treaty Series 1992 10; Canada-Argentina [Toronto, Nov. 5, 1991] Canada Treaty Series 1993 11; Canada-Hungary [Ottawa, Oct. 3, 1991] Canada Treaty Series 1993 14.

157. Jon R. Johnson, The North American Free Trade Agreement: A Comprehensive Guide 278 (1994): "The U.S. negotiators used the Model BIT as the basis for negotiating the FTA and achieved partial success in having its provisions incorporated. In negotiating NAFTA, with the addition of a developing country to the Canada-U.S. free trade area, the process of incorporating the provisions of the Model BIT was completed." NAFTA's Investment Chapter is the culmination of approximately seventy years' insistence by capital-exporting States on effective international protection for investments. To locate NAFTA on the capital-exporting side of this century's vigorous debate about investment protection, see Antonio Cassese, International Law in a Divided World 319-23, 345-49 (1986). For a snapshot of customary international law at the high point for capital-importing States, see D. W. Greig, supra note 34, at 575-79.

158. NAFTA, art. 1139: Definitions.

159. NAFTA, art. 1106: Performance Requirements.

160. NAFTA, art. 1109(1)(a).

161. NAFTA, art. 1112(1).

162. 743rd meeting (June 11, 1964) 1 Y.B. Int'l L. Comm., § 8, at 127 (1964): Paul Reuter said the rules of interpretation governing inconsistent provisions in successive treaties are "of the same nature as those for the settlement of alleged conflicts between different provisions of the same treaty." Accordingly, the meaning of inconsistency within one treaty can be illuminated with reference to authoritative views relating to inconsistency between two or more treaties. Re applying "conflicting" or "incompatible" provisions of successive treaties relating to the same subject matter, Sir Humphrey Waldock, Special Rapporteur, talked of a "comparison between two treaties which revealed that their clauses, or some of them, could not be reconciled with one another". See 742nd meeting (June 10, 1964) 1 Y.B. Int'l L. Comm. § 68, at 125 (1964). Subsequent discussion referred to situations "when the provisions of two treaties could not be applied in their entirety at the same time." See 857th meeting (May 24, 1966) 1 Y.B. Int'l L. Comm., pt. 2, § 54-55, at 99 (1966).

163. J. G. Starke, Introduction to International Law 470 (10th ed. 1989): "Where the point turns on the construction of ambiguous treaty provisions, there is a presumption of nonconflict. Much may depend on whether there is or is not real incompatibility . . . ." See also C. Wilfred Jenks, "The Conflict of Law-Making Treaties," 30 Brit. Y. B. Int'l L. 427-29 (1953).

164. Customary international law rules are generally the same for interpreting provisions of the same treaty and of two different treaties. The distinction between conflict and divergence of treaties is therefore directly relevant to understanding conflict and divergence between different NAFTA chapters. Id., at 425-26. According to Jenks: "A conflict in the strict sense of direct incompatibility arises only where a Party to the two treaties cannot simultaneously comply with its obligations under both treaties." However, Jenks recognizes the possibility that "a divergence which does not constitute a conflict may nevertheless defeat the object of one or both of the divergent instruments. Such a divergence may, for instance, prevent a Party to both of the divergent instruments from taking advantage of certain provisions of one of them recourse to which would involve a violation of . . . certain requirements of the other. A divergence of this kind may in some cases . . . render inapplicable provisions designed to give one of the divergent instruments a measure of flexibility . . . necessary to its practicability. Thus, while a conflict in the strict sense of direct incompatibility is not necessarily involved when one instrument eliminates exceptions provided for in another instrument . . , the practical effect of the coexistence of the two instruments may be that one of them loses much or most of its practical importance."

165. NAFTA, art. 1703(1).

166. NAFTA, art. 1703(3).

167. Id.

168. NAFTA, art. 1703(4).

169. NAFTA, art. 1108(5).

170. NAFTA, art. 1110: Expropriation and Compensation. "Expropriation" is neither defined by NAFTA nor does the word have a precise agreed meaning under international law. See Brownlie, supra note 42, at 531-32: "The terminology of the subject is by no means settled, and in any case form should not take precedence over substance. The essence of the matter is the deprivation by state organs of a right of property either as such, or by permanent transfer of the power of management and control. The deprivation may be followed by transfer to the territorial state or to third parties, as in systems of land distribution as a means of agrarian reform. The process is commonly described as expropriation. If compensation is not provided, or the taking is regarded as unlawful, then the taking is sometimes described as confiscation."

171. NAFTA, art. 1110(1).

172. NAFTA, art. 1105(1) and 1110(1).

173. Louis Henkin, et al., International Law: Cases and Materials 734-35 (3d ed. 1993). Subject to certain qualifications, the 1961 Harvard Draft Convention on the International Responsibility of States for Injuries to Aliens, Article 10(5), allows for the possibility of "an uncompensated taking of property" resulting from "the execution of the tax laws; from a general change in the value of currency; from the action of the competent authorities of the State in the maintenance of public order, health, or morality; or from the valid exercise of belligerent rights; or is otherwise incidental to the normal operation of the laws of the State . . . ." See Louis B. Sohn & R. R. Baxter, "Responsibility of States for Injuries to the Economic Interests of Aliens," 55 Am. J. Int'l L. 554, 561 (1961). For regulatory measures as a defence to liability, see Allahyar Mouri, The International Law of Expropriation as Reflected in the Work of the Iran-U.S. Claims Tribunal 248-57 (1994); American Law Institute, Restatement of the Law (Second): Foreign Relations Law of the United States, ch. 4: Justification, § 197, at 592-93 (1965). A correspondingly broad statement on "justification" is absent from 2 Restatement of the Law (Third): Foreign Relations Law of the United States, §§ 71112, at 184-216 (1987). See id., § 712, at 201: "A state is not responsible for loss of property or other economic disadvantage resulting from bona fide general taxation, regulation, forfeiture for crime, or other action of the kind that is commonly accepted as within the police power of states, if it is not discriminatory . . . and is not designed to cause the alien to abandon the property to the state or sell it at a distress price. As under United States constitutional law, the line between 'taking' and regulation is sometimes uncertain."

174. F.A. Mann, supra note 154, at 176, 241; Brownlie, supra note 42, at 543. The stringent NAFTA requirement to provide compensation for expropriation must be weighed against the uncertainties of customary international law. See, e.g., Gray, supra note 41, at 40 (discussing arbitral precedents); J.G. Starke, supra note 163, at 300: "It is believed also that an expropriation of foreign property is contrary to international law if it does not provide for the prompt payment by the expropriating State of just, adequate and effective compensation. On the other hand, some writers maintain and some courts have held that the absence of any such proper provision for compensation does not render the expropriation illegal under international law, but that at most there is a duty to pay such compensation, the expropriation remaining lawful for all purposes, including transfer of title. There is even a difference of opinion concerning the measure of the compensation payable; some writers are of the opinion that it need only be reasonable in the circumstances, having regard to the state of the economy of the expropriating State. It is said, however, that compensation which is of a nominal value only, or which is indefinitely postponed, or which is the subject of a vague or non-committal promise, or which is below the rate of compensation awarded to nationals of the expropriating State, is contrary to international law."

175. To remedy abuse of rights, Patent Act, Section 66(1)(d), gives the Commissioner of Patents the power to revoke a patent in circumstances where the grant of a compulsory licence would not suffice. However, the revocation order cannot be "at variance" with any treaty to which Canada is Party.

176. Competition Act, Section 32(g), permits the Federal Court of Canada to order revocation if compulsory licensing and other remedies are deemed to be insufficient to remedy restraint of trade caused by the use of the exclusive rights and privileges under the patent. However, the revocation order must not be "at variance" with any treaty to which Canada is Party.

177. Expropriation Act, Section 4(1): "Any interest in land, including any of the interests mentioned in section 7, that, in the opinion of the Minister, is required by the Crown for a public work or other public purpose may be expropriated by the Crown in accordance with the provisions of this Part." Under Ontario's Expropriations Act, Section 1(1)(c), "expropriate means the taking of land without the consent of the owner by an expropriating authority in the exercise of statutory powers . . . ."

178. Sir William Wade, Administrative Law 178 (6th ed. 1988): "The legislative scheme contains a large measure of expropriation without compensation, a sacrifice which is imposed upon landowners for the general good, but which naturally provokes litigation."

179. Id., at 797.

180. Id., at 797, n. 99: "But this is regulation rather than the 'taking' of property: Belfast Corporation v. O.D. Cars Ltd. [1960] AC 490 (a decision that planning restrictions did not conflict with section 5 of the Government of Ireland Act, 1920, prohibiting legislation for the taking of property without compensation)."

181. Peter W. Hogg, Constitutional Law of Canada 577 (2d ed. 1985).

182. Dennis J. Coyle, Property Rights and the Constitution: Shaping Society Through Land Use Regulation 249-51 (1993); James W. Sanderson & Anne Mesmer, "A Review of Regulatory Takings After Lucas," 70 Denv. U. L. Rev., 498 (1993).

183. Lucas v. South Carolina Coastal Council 112 S. Ct. 2886 (1992).

184. Lucas v. South Carolina Coastal Council, at 2895, 2899-2900. The U.S. House of Representatives has passed a "takings bill" that would require the U.S. government to compensate landowners whose holdings lose value due to environmental regulation. The bill has also cleared the Senate Judiciary Committee. See Timothy Noah, "GOP's Rollback of the Green Agenda Is Stalled By a Public Seeing Red Over Proposed Changes," Wall St. J., Dec. 26, 1995, at A8.

185. NAFTA, art. 1110(7).

186. Trade-marks Act, Section 2, defines "trade-mark" as including a "distinguishing guise" which in turn is defined as including "a mode of wrapping or packaging wares the appearance of which is used by a person for the purpose of distinguishing or so as to distinguish wares . . . manufactured, sold, . . by him from those manufactured, sold . . . by others."

187. NAFTA, art. 1139(g), stipulates that "investment means real estate or other property, tangible or intangible, acquired in the expectation or used for the purpose of economic benefit or other business purposes."

188. NAFTA, art. 2101: General Exceptions.

189. NAFTA, art. 1101(4): "Nothing in this Chapter shall be construed to prevent a Party from providing a service or performing a function such as . . . health . . . in a manner that is not inconsistent with this Chapter." Similarly, the mandatory requirement to compensate investors of another NAFTA Party on expropriation may be understood as fully consistent with a Party's discretion to take under Article 712(1) any sanitary measure necessary for, or under Article 904(1) any standards-related measure relating to, the protection of human life or health. According to this interpretation, there would be no question of having to withdraw any bonafide health measure under Article 712(1) or Article 904(1), but investors of another NAFTA Party would nonetheless have to be given prompt, adequate and effective compensation for expropriation or a measure tantamount thereto.

190. The expropriation argument is fully set out in a 24-page (May 3, 1994) legal opinion which former USTR Carla A. Hills prepared for the R.J. Reynolds Tobacco Company. The opinion was delivered to the House of Commons Standing Committee on Health by Hills and Jules Katz, formerly Chief United States negotiator for NAFTA. See Minutes of Proceedings and Evidence of the Standing Committee on Health, Iss. No. 9, May 10, 1994, at 48.

191. First, it might be argued that there is no affirmative "right to use" under Canada's Trademarks Act and consequently no investment with respect to a right to use under the Investment Chapter. Second, the plain-packaging measure might be characterized as a bonafide regulatory measure and therefore not falling within the ambit of "expropriation" under the Investment Chapter. Third is the possibility of invoking the specific IPRs exception from the Investment Chapter's provisions on compensable expropriation. See NAFTA, Article 1110(7), discussed above. To rely on the Article 1110(7) exception, the State would have to show that the plain-packaging measure is a limitation consistent with the IP Chapter. In this regard, the argument might include the following: (i) there is no affirmative right to use under the IP Chapter; (ii) the IP Chapter's ban on "encumbering" the trademark's use in commerce does not prevent a Party from "prohibiting" the trademark's use; (iii) in the alternative, the plain-packaging measure is justified under Article 1708(12) as a "limited exception to the rights conferred by a trademark."

192. NAFTA, art. 1115, stipulates that the NAFTA Investment Chapter's procedures for investor/State dispute settlement are without prejudice to the rights and obligations of Mexico, Canada, and the United States under Chapter 20: Institutional Arrangements and Dispute Settlement Procedures.

193. Energy Charter Treaty [Lisbon, Dec. 17, 1994] 34 I. L. M. 360 (1995). The treaty aims to liberalize sectoral trade and investment. It establishes a legal framework for long-term cooperation in the energy field. As an investment-protection instrument, the Energy Charter Treaty offers the possibility of both State-to-State and investor/State dispute settlement. Article 1(6), specifically includes both "intangible property" and "intellectual property" within the definition of "investment". For IPRs, Article 10(10) says MFN and national-treatment obligations shall be "as specified in the corresponding provisions of the applicable international agreements for the protection of IPRs to which the respective Contracting Parties are parties". However, Article 13: Expropriation, lacks a carve out from the scope of expropriation for TRIPS-consistent issuance of compulsory licences granted in relation to IPRs and the revocation, limitation or creation of IPRs. During the negotiations, unsuccessful was the attempt to include in the Energy Charter Treaty such an exception to the expropriation obligation. The failed proposal was modelled on NAFTA, Article 1110(7), which is discussed supra.

194. Eduardo Lachica, "OECD At Work on Treaty to Protect Foreign Investment: Developing Countries Asked to Join in Crafting Global Accord," Globe & Mail, (Toronto), Nov. 9, 1995, at B12.

195. The TRIPS Preamble explicitly recognizes that "intellectual property rights are private rights."

196. For example, NAFTA, Article 1123, provides for three-member tribunals. The investor and the State each appoint one arbitrator. A presiding arbitrator is then appointed by agreement of the investor and the State. If they cannot agree, the Secretary-General of the International Centre for the Settlement of Investment Disputes (ICSID) appoints the presiding arbitrator from a NAFTA roster of 45 presiding arbitrators. See NAFTA, art. 1124.

197. Canada is clearly a net importer of technology and copyright product. For example, Canadians made only 7% of the patent registrations in Canada in 1988-1989, when nationals of the United States took out 51% and of Japan 12%. See Consumer and Corporate Affairs Canada, Intellectual Property and Canada's Commercial Interests: A Summary Report for the Intellectual Property Advisory Committee 5-6 (1990). In 1993, patent applications in Canada were 11.7% by Canadian residents, and the remainder by nationals of Japan (10.8%), the European Union (24.9%), the United States (45.9%), and others (6.7%). See Canadian Intellectual Property Office, Perspectives on Canadian Intellectual Property Activity 5 (1995). Id., at 4: "Historically, patent applications filed annually by residents accounted for less than 10% of filings in Canada. The relative number of resident filings is gradually increasing from 8.3% in the 1980s to 10.8% in the 1990s." For copyright, see the striking statistics on cultural-product imports at the beginning of this website's separate posting on the NAFTA Cultural Industries Exception.

198. NAFTA, art. 1103: Most-Favoured-Nation Treatment.

199. NAFTA, Annex IV: Schedule of Canada.

200. Modelled on NAFTA, art. 1108(5), discussed supra.

201. Mandatory provisions in one treaty can eliminate a Party's discretion to use exceptions in another treaty. See C. Wilfred Jenks, supra note 163, at 426-27.

202. Vienna Convention on the Law of Treaties, art. 30(3)-(4).

203. For application of successive treaties relating to the same subject matter, see Sinclair, supra note 68, at 93-98.

204. Id., at 98: "Finally, it would seem that the expression 'relating to the same subject matter' must be construed strictly. It will not cover cases where a general treaty impinges indirectly on the content of a particular provision of an earlier treaty."

205. How the ICJ applies this interpretative principle is described by Sir Gerald Fitzmaurice, "The Law and Procedure of the International Court of Justice 1951-4: Treaty Interpretation and Other Points," 33 Brit. Y.B. Int'l L. 236-38 (1957). For a discussion of the lex specialis principle, see C. Wilfred Jenks, supra note 163, at 436, 446-47.

206. Modelled on NAFTA, art. 1110(7), discussed supra.

207. Wolfram Karl, "Treaties, Conflicts Between," in 7 Encyclopedia of Public International Law 468 (1984).