Rashmi RangnathEmpowered by investment provisions in free trade agreements, corporations have challenged national laws, policies, and practices that protect the environment and public health. Phillip Morris’ challenges to cigarette plain packaging rules in Uruguay and Australia are the latest examples of such corporate actions. The Transpacific Partnership Agreement (TPP) also contains an investment chapter similar to the investment chapter in many FTAs. Would that chapter give corporations the same powers as other FTAs? Could it be used to challenge national measures designed to increase access to knowledge? Could it be used to challenge limits to copyright meant to protect consumers?

Consumer representatives and public interest advocates believe that the answer is yes and that it is only a matter of time before these challenges will be brought. The consequences of such challenges are likely to be adverse, imposing a strain on limited national budgets and discouraging countries from enacting public interest measures.

I recently wrote a paper exploring these questions. A copy of the paper, commissioned by Consumer’s International, is available here. Analyses and conclusions in the paper are based on a leaked draft of TPP’s investment chapter and a leaked U.S. proposal for TPP’s intellectual property chapter. Below is a brief summary.

How is copyright related to the investment chapter?

TPP’s investment chapter defines “investor” and “investment” broadly, conferring the status of investor even on an entity that does not locate its business in a TPP country. These broad definitions mean that almost any entity that regularly sells products in a country can claim to be an investor. This would include copyright owners selling books, movies, music, and software in the TPP countries. Once qualified as an investor, a copyright owner will be able to claim the powerful rights granted by the investment chapter, particularly the right to challenge government actions that seek to impose limits on copyright.

Copyright owners are likely to challenge national measures that would promote consumer protection or access to knowledge.

Copyright owners have generally opposed attempts to introduce limits to their exclusive rights, particularly limits that operate in the digital environment. For example, groups like the International Intellectual Property Association (IPA) have opposed introduction of new fair use provisions, library exceptions, or limits to rights holder use of Technological Protection Measures (TPMs) (also known as DRM) in countries around the world. Even more controversial than these are measures such as compulsory licenses intended to contain the cost of copyrighted material or remove burdensome conditions on access, even where these measures apply in socially beneficial circumstances, such as promoting access to education.

Many of these copyright owner complaints can be rebutted based on the principle that copyright policy permits certain limits on excusive rights in order to promote social benefit. However, key international copyright agreements referred to in TPP’s investment chapter – TPP’s IP chapter and the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) – create room for uncertainty about many specific limits to copyright, thereby exposing national measures to challenge before arbitration tribunals.

The technical mechanism likely to be used for such challenge is the investment chapter’s provision on expropriation. That provision regulates not only expropriation of physical property located within a TPP country but also indirect expropriations, defined as actions that “have an effect equivalent to direct expropriation without formal transfer of title or outright seizure.” The provision exempts limits to copyright that are compliant either with TPP’s IP chapter or the TRIPS agreements provisions on compulsory licenses from application of the expropriation provisions.

However, those provisions do not provide clear and direct support for many limits to copyright. For instance, while the TRIPS agreement supports limits to copyright that enhance competition, it does not directly support limits to copyright that would contain the cost of educational materials. Similarly, while TPP’s IP chapter is likely to permit many of the exceptions, particularly narrow, well-defined exceptions, the case for laws that allow circumvention of DRM for a broad array of lawful and socially beneficial uses of copyrighted works is far less clear. These uncertainties will expose countries to challenge by copyright owners.

TPP’s investment chapter provides a powerful forum to bring such challenges – the investor-state dispute settlement panel. This panel would be constituted of three lawyers appointed specifically to hear particular investment disputes. Investor-state dispute settlement panels generally are known to have many procedural flaws. These flaws and the costs associated with defending an action there are likely to either dissuade a country from adopting a socially beneficial limit to copyright or expose the country to huge monetary penalties.

First, the investment chapter contemplates that investor state dispute settlement panels will mainly award monetary damages against states whose actions are found to hurt investors. This is in contrast to most national judicial decisions, which are concerned about imposing burdens on public revenue and therefore do not award money damages against government agencies for their administrative actions. Furthermore, arbitral tribunals are likely to award high damages, hurting the fiscal health of countries, particularly low-income countries. Second, the design of the investor-state arbitration system incents rulings in favor of corporations. Under this system, corporations are empowered to bring actions, not states. Furthermore, the parties pay the arbitrators. Therefore, if corporations view arbitration as a good option, arbitrators are likely to stay in business and receive greater compensation. Third, the same pool of attorneys can act as arbitrators and counsel in different cases, leading to many conflicts of interest. Forth, defending arbitration claims is very expensive. The OECD estimates that the average cost of defending against an arbitration claim is USD 8 million. Finally, arbitration proceedings are generally not transparent, leading to lower accountability. While, the TPP proposes to address this shortcoming, the proposal to do so is in brackets indicating that it is controversial and might not stay in the final text.

Given these flaws, TPP countries should consider whether they want to subject their actions to scrutiny by arbitration tribunals. Doing so is likely to undermine TPP countries’ prerogative to make public policy decisions in the national interest.