09 December 2007

Claims against States: Czech Republic v European Media Ventures SA

Governments undertake international obligations to protect the intellectual assets of their own and other countries' nationals but what happens if they don't? What if, for example, a state does not enforce its brand new copyright statute or even enact copyright legislation with the result that pirate copies of first run films or the latest application software flood world markets?

If the delinquent state belongs to the WTO (World Trade Organization) victims of that state's failure to suppress piracy can ask their government to call upon that state to comply with its obligations under TRIPs (Trade-Related Aspects of Intellectual Property Rights). If that state fails to do mend its ways, the complaining state can call for consultations under Annexe 2 to the WTO Agreement. Should those consultations fail a dispute settlement panel can be set up which will report to the Dispute Settlement Body of the WTO. If a breach is found and the member in breach still does not live up to its obligations the complaining party may ask the Dispute Settlement Body to authorize trade sanctions on the defaulting party. The index of disputes by subject matter on the WTO website shows that there have been a few disputes relating to TRIPs.

The problem with TRIPs from the point of view of an IP owner is that the complaint is made by governments not the owner. Governments may not want to take up the complaint because they have other interests to protect. Even if a national government does launch a complaint the IP owner will not usually benefit directly.

A much better solution from the point of view of IP owners are bilateral investment treaties. These are agreements between two governments that protect the investments of each country's nationals in the territories of the other. As good an example as any is the one that subsists between HM government and the Republic of Sierra Leone for the Promotion and Protection of Investments made in Freetown on 13 Jan 2000. Art 1 (a) of the treaty defines "investment" as "every kind of asset" and in particular, though not exclusively, includes "intellectual property rights, goodwill, technical processes and know how." The same provision makes clear that the term "investment" includes all investments, whether made before or after the date of entry into force of the agreement. Bilateral investment treaties contain a prohibition of expropriation in the following form:

"Investments of nationals or companies of either Contracting Party shall not be nationalised, expropriated or subjected to measures having effect equivalent to nationalisation or expropriation (hereinafter referred to as "expropriation") in the territory of the other Contracting Party except for a public purpose related to the internal needs of that Party on a non-discriminatory basis and against prompt, adequate and effective compensation. Such compensation shall amount to the genuine value of the investment expropriated immediately before the expropriation or before the impending expropriation became public knowledge, whichever is the earlier, shall include interest at a normal commercial rate until the date of payment, shall be made without delay, be effectively realizable and be freely transferable. The national or company affected shall have a right, under the law of the Contracting Party making the expropriation, to prompt review, by a judicial or other independent authority of that Party, of his or its case and of the valuation of his or its investment in accordance with the principles set out in this paragraph."

Art 8 (1) of the treaty entitles nationals of either country to refer disputes with the government of the other contracting party to arbitration before ICSID (the International Centre for the Settlement of Investment Disputes). "Expropriation" is given a very broad interpretation in these agreements. In Metalclad v United Mexican States (CASE No. ARB(AF)/97/1, 30 Aug 2000) the arbitral panel (Professor Sir Elihu Lauterpacht, QC, CBE of the UK (president), Mr Benjamin R. Civiletti of the USA and Mr José Luis Siqueiros of Mexico) held that refusal of planning permission by a local authority for a landfill site could amount to "expropriation" in some circumstances. Although the decision was partly set aside by the British Columbia courts the very broad definition of "expropriation" was unaffected. Although there has been only one case on intellectual property (Shell Brands International AG and Another v Republic of Nicaragua (ICSID Case No. ARB/06/14 which appears to have been settled) there is no reason why a government that fails to protect a complainant's investment in brands, design, technology or creative works should not be held to account before ICSID.

The jurisdiction of tribunals such as ICSID to hear complaints against sovereigns by private companies under bilateral investment treaties came before Mr Justice Simon of the English Commercial Court in Czech Republic v European Media Ventures SA [2007] EWHC 2851 (Comm) (5 Dec 2007). The dispute arose between the Czech government and a Luxembourg TV company under the terms of a bilateral investment treaty between the Belgo-Luxembourg economic union and the Czech Republic. The treaty provided as follows:
"1. Disputes between one of the Contracting Parties and an investor of the other Contracting Party concerning compensation due by virtue of Article 3 Paragraphs (1) and (3), shall be the subject of a written notification, accompanied by a detailed memorandum, addressed by the investor to the concerned Contracting Party. To the extent possible, such disputes shall be settled amicably.
2. If the dispute is not resolved within six months from the date of the written notification specified in Paragraph (1), and in the absence of any other form of settlement agreed between the parties to the dispute, it shall be submitted to arbitration before an ad hoc
tribunal."

The Luxembourg company complained of indirect expropriation of its investment in a Czech television station 'TV3' and referred the dispute to the ad hoc tribunal in accordance with para (2) of the above article. The tribunal (Lord Mustill (Chairman), Dr Julian Lew QC, and Professor Christopher Greenwood QC, CMG) found that it had jurisdiction to hear the Luxembourg company's complaint and made an award to that effect. The Czech government challenged that award on the grounds that art 8 (2) conferred jurisdiction on the tribunal only to determine the amount of compensation where a claim had been admitted but not to decide liability. After a very interesting discussion on the approach to interpreting a treaty, Mr Justice Simon held that the article did confer jurisdiction on the tribunal to determine liability as well as quantum.

Metalclad was a fairly small California company and it was represented before ICSID by Clyde C Pearce a sole practitioner practising in Salinas (a town in California about the size of Huddersfield). It was nevertheless able to bring a government to book. If a small or medium enterprise in say the UK finds that its rights in Utopia are not protected by the Utopian courts for one reason or another it has a directly enforceable right to compensation without recourse to expensive big city law firms.

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