論説

INTELLECTUAL PROPERTY ANDREGULATORY AUTONOMY
Lessons from Investment Protection Arbitrations
Meng LI
ABSTRACT
Recently, several national decisions or regulations have been challenged
by intellectual property holders through international investment arbitrations.
These challenges are based upon bilateral or multilateral investment protection
treaties and involve expropriation claims with respect to intellectual property
rights. In this way, significant tensions between the foreign investors’ privateinterests in intellectual property protection and the states’ regulatory autonomy
emerge.
This Article examines current expropriation disputes. It analyzes the mostrecent arbitral award in the field of intellectual property protection, and points out
what can be learned from the advantages and disadvantages of its findings forother ongoing disputes.

TABLE OF CONTENTINTRODUCTION
CHAPTER ONE
Tension Between IP Rights and Regulatory Autonomy
1.1. Philip Morris v. Uruguay
1.2. Claims
1.3. Eli Lily and Company v. The Government of Canada
CHAPTER TWO
Expropriation in International Investment Law
2.1. Scope of Protected Property
2.2. Approacheis in Identifying the Existence of Expropriation
2.2.1. The Sole Effect Doctrine
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2.2.2. The Radical Police Power Doctrine
2.2.3. The Moderate Police Power Doctrine
2.3. Typical Expropriation Clauses in Recent Bilateral Investment Treaties
CHAPTER THREE
Lessons from Philip Morris v. Uruguay
3.1. No Substantial Deprivation
3.2. Proportionality
3.2.1. Tribunal’s Finding
3.2.2. Drawbacks of Tribunal’s Approach
3.3. Problem of Forum Shopping
CONLUSION

INTRODUCTION
Recently, several national decisions or regulations have beenchallenged by foreign corporations. These cases involve expropriation
claims with respect to intellectual property (hereinafter “IP”), and are
based upon bilateral or multilateral investment protection treaties that
entitle foreign investors to bring claims against host states before international arbitral tribunals. For instance, in 2010, the tobacco company
Philip Morris brought a claim against Oriental Republic of Uruguay andargued that its trademark had been expropriated by Uruguay.1 In 2011,
Philip Morris Asia Limited brought an arbitration against Australia regarding Australia’s plain packaging legislation and argued that the plain
packaging legislation had restricted the enjoyment of its trademark andtherefore the state’s action constituted an expropriation.2 More recently,
in 2012, the American pharmaceutical giant Eli Lilly and Company challenged Canadian court decisions regarding invalidation of its patents andargued that Canada had directly or indirectly expropriated Eli Lilly’s ex1

Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos
S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Request for
Arbitration, ¶9 (Jul. 8, 2016), http://www.italaw.com/sites/default/files/casedocuments/italaw7417.pdf.
2
Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL,PCA Case No. 2012-12, Written Notification of Claim by Philip Morris Asia
Limited to the Commonwealth of Australia (Jul. 15, 2011), http://www.italaw.
com/sites/default/files/case-documents/ita0664.pdf.
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INTELLECTUAL PROPERTY AND REGULATORY AUTONOMY (Li)clusive patent rights conferred by its patents.3
International investment disputes are not only related to IP law
but also other fields of law. Nowadays, international investment disputes
between states and individuals have attracted extensive concern. The
reason is that in international investment disputes foreign companies canchallenge domestic decisions and regulations.
The number of international investment arbitrations has been increasing over the last few decades. While in 1982 investors only filed
one dispute,4 in 2012 fifty-eight new cases were initiated by investors
against host states5 and in 2015 seventy investor-state cases were filed.6
The outcomes of those arbitrations are diverse. From 444 cases ofdisputes between investors and states decided by 2015, 36% of cases
were concluded in favor of host states and 26% of cases in favor of foreign companies. At the same time, 26% of cases were settled, 10% ofcases were discontinued and 2% of cases were concluded that there was abreach but no damages were awarded.7
On the one hand, it is argued that investor-state arbitrations provide foreign investors with the possibility to bring claims directly against
host states. Foreign investors regard investor-state arbitrations more reliable than national court systems of host states, especially in developing

3

Eli Lilly and Company v. The Government of Canada, UNCITRAL, ICSID
Case No. UNCT/14/2, Notice of Arbitration (Sep. 12, 2013), http://www.italaw.
com/cases/1625 (last visited Jan. 9, 2017).
4
See, e.g., Cynthia M. Ho, Sovereignty Under Siege: Corporate Challenges toDomestic Intellectual Property Decisions, 30 BERKELEY TECH. L.J. 213, 219(2015).
5
See, e.g., U.N. Conference on Trade and Development (UNCTAD), Recent
Developments in Investor-State Dispute Settlement (ISDS): Updated for the Multilateral Dialogue on Investment, IIA ISSUES NOTE, No. 1, at 1 (May 2013),
http://unctad.org/en/PublicationsLibrary/webdiaepcb2013d3_en.pdf (last visited
Jan. 9, 2017).
6
See, e.g., UNCTAD, Investor-State Dispute Settlement: Review of Developments in 2015, IIA ISSUES NOTE, No. 2, at 1 (June 2016), http://unctad.org/en/
PublicationsLibrary/webdiaepcb2016d4_en.pdf (last visited Jan. 9, 2017).
7
See id.
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countries.8
On the other hand, some critics put forward that permitting foreign investors to challenge host states’ decisions and regulations throughinvestor-state disputes has a chilling effect on states’ regulatory autonomy. 9 As James Billingsley observed, “[s]ome countries question the
purported utility of resolving foreign investment disputes through investor-state arbitrations”.10
As the international treaties, upon which those investor-state arbitrations are based, are designed to provide foreign investors with theprotection of their investments against arbitral and discriminatory interferences by host states, the main issue in investment arbitrations tends tobe whether states’ action constitutes an act of expropriation. Expropriation covers a straight-out taking of investor’s property as well as
measures “tantamount” to such an act of taking.11 A straight-out taking
of investor’s property is always regarded as “direct expropriation”, which
involves the transfer of title from the investor to the state.12 Measuresequal to expropriation are regarded as “indirect expropriation”.13 As
nowadays there appear only a few cases of direct expropriation, mostcases involve issues dealing with indirect expropriation.14
In the investment disputes, investors usually complain that astate’s action in question constitutes an act of indirect expropriation andtherefore the state should pay compensation for it. Conversely, states tend
to argue that their actions are merely legitimate regulatory measures andthus no expropriation occurs at all. However, it is really hard to establish
a clear borderline between measures considered as indirect expropriation
8
See, e.g., James Billingsley, Eli Lilly and Company v. the Government of Canada and the Perils of Investor-State Arbitration, 20 APPEAL 27, 29 (2015).
9
See, e.g., Ho, supra note 4, at 219-25.
10
See Billingsley, supra note 8, at 29.
11
See, e.g., August Reinisch, Expropriation, in THE OXFORD HANDBOOK OF INTERNATIONAL INVESTMENT LAW 420-21 (Peter Muchlinski et al. eds., 2008).
12
See, e.g., CAROLINE HENCKELS, PROPORTIONALITY AND DEFERENCE IN INVESTOR-STATE ARBITRATION: BALANCING INVESTMENT PROTECTION AND REGULATORYAUTONOMY 75 (2015).
13
See Reinisch, supra note 11, at 420-21.
14
See HENCKELS, supra note 12, at 75.

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INTELLECTUAL PROPERTY AND REGULATORY AUTONOMY (Li)and those presenting legitimate regulatory measures.15
Some arbitral tribunals held that “legitimate regulatory measures
are outside the scope of indirect expropriation.”16 Others do not denypossibility that legitimate regulatory measures can be regarded as indirect
expropriation. 17 One commentator thus observed that “[i]nternational
courts and tribunals have repeatedly stressed that property rights andinvestment protection may not serve as insurance against ordinary commercial risks”.18 Moreover, the United Nations Commission on International Trade Law (UNCITRAL) arbitral tribunal in CME Czech Republic
BV v. The Czech Republic19 and the North American Free Trade Agreement (hereinafter “NAFTA”) arbitral tribunal in Marvin Feldman v.
Mexico20 endorsed the same opinion.21
In this Article, I will analyze the most recent arbitral award in thefield of IP protection, where the tobacco company Philip Morris broughta claim against Oriental Republic of Uruguay by arguing that its trademarks have been expropriated by Uruguay.22 Although I agree with thetribunal’s conclusions on expropriation claims, I will inquire into theadvantages and disadvantages of findings on expropriation claim in that
arbitral award in order to identify drawbacks which should be avoided in
15

See Reinisch, supra note 11, at 433.
See id. at 433.
17
See id.
18
See, e.g., Reinisch, supra note 11, at 434; See also, Sedco Inc. v National Iranian Oil Co., Iran-US Claims Tribunal (1985), the Tribunal suggested that, “investors in Iran, like investors in all other countries, have to assume a risk that thecountry might experience strikes, lockouts, disturbances, changes of the economic and political system and even revolution. That any of these risks materialized
does not necessarily mean that property rights affected by such events can bedeemed to have been taken. A revolution as such does not entitle investors tocompensation under international law”.
19
CME Czech Republic B.V. v. The Czech Republic, UNCITRAL, Partial Awards,¶591 (Sep. 13, 2001), http://www.italaw.com/sites/default/files/case-documents/
ita0178.pdf.
20
Marvin Feldman v. Mexico, ICSID Case No. ARB (AF)/99/1. Award, ¶112
(Dec. 16, 2002), https://www.gob.mx/cms/uploads/attachment/file/1588/laudo_
ingles_Karpa.pdf.
21
See Reinisch, supra note 11, at 433.
22
Philip Morris v. Uruguay, award.
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future arbitral awards. This Article will mainly focus on expropriation
claim and will not deal with other claims usually raised together withexpropriation claim, such as claims on violating non-discrimination andfair and equitable treatment provisions.23
The Article is divided into three sections. Section One outlines
the IP-related challenges raised against tobacco plain packaging legislations and other national regulatory measures. Section Two examines thecurrent state of interpreting the concept of expropriation in international
investment law. Section Three then proceeds with scrutinizing the recent
arbitral award delivered in Philip Morris v. Uruguay24 on July 8, 2016.
The analysis also focuses on possible implications of the International
Centre for Settlement of Investment Disputes (ICSID) Tribunal’s findings regarding expropriation claim for future IP-related disputes.

1. Tension Between IP Rights and Regulatory Autonomy
The early attempts to control the global tobacco epidemic followed after the introduction of tobacco to European Market.25 In the late
17th century, the first European smoking restrictions were adopted in Bavaria, Kursachsen, and some parts of Austria.26 In the 20th century, Richard Doll, a British physiologist, identified the link between the smoking
and the lung cancer, which brought “tobacco control” back to attention
after the World War II and marked the origins of modern tobacco control.27
In 2003, the World Health Organization Framework Convention
on Tobacco Control (hereinafter “Framework Convention”), the firstglobal public health treaty,28 was proclaimed in Geneva in response to23

For more details on these types of claims, see Philip Morris v. Uruguay, award,¶¶308 et seqq.
24
Philip Morris v. Uruguay, award.
25
See, e.g., Tobacco Control, https://en.wikipedia.org/wiki/Tobacco_control (lastvisited Jan. 9, 2017).
26
See Tobacco Control, supra note 25.
27See, e.g., Richard Doll, https://en.wikipedia.org/wiki/Richard_Doll (last visited Jan. 9, 2017).
28
See WHO Framework Convention on Tobacco Control, http://www.who.int/344

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INTELLECTUAL PROPERTY AND REGULATORY AUTONOMY (Li)the world-wide use of tobacco products.29 Currently, it has 180 parties intotal.30 Although trademarks are not mentioned in the Framework Convention, according to the Guidelines for Implementation of Article 11 of
the WHO Framework Convention on Tobacco Control, the parties to the
Framework Convention are required to adopt measures to “restrict or
prohibit the use of logos, colors, brands images or promotional information on packaging other than brand names and product names displayed in standard color and font style.”31 Moreover, there is an international move to adopt plain packaging legislation restricting or prohibiting
the use of logos.32
Therefore, trademarks are being caught up in the world-wide war
against the globalization of the “tobacco epidemic”. 33 Traditionally,
trademarks served as means for identifying the product producer or service supplier. However, over the last hundred years several new functionsof trademarks, such as guarantee of the quality of goods or services,
communication, investment or advertising functions, have developed.34
Nowadays, trademarks are therefore widely recognized as critical asset
for corporations in global economy.
Most tobacco control legislations impose restrictions on colors,
shape and finish of retail packaging for tobacco products.35 In particular,
fctc/about/en/ (last visited Jan. 9, 2017).
29
See, e.g., WHO Framework Convention on Tobacco Control, opened for signature Jun. 16, 2003, 2302 U.N.T.S. 166, http://apps.who.int/iris/bitstream/
10665/42811/1/9241591013.pdf.
30
See Parties to the WHO Framework Convention on Tobacco Control,
http://www.who.int/fctc/signatories_parties/en/ (last visited Jan. 9, 2017).
31
See WHO, Guidelines for Implementation of Article 11 of the WHO Framework Convention on Tobacco Control (Developing effective packaging and labelling of tobacco products), ¶46, http://www.who.int/fctc/guidelines/article_11.
pdf?ua=1 (last visited Jan. 9, 2017).
32
See, e.g., Owen H. Dean, Trademarks and Human Rights: The Issue of Plain
Packaging, in INTELLECTUAL PROPERTY LAW AND HUMAN RIGHTS 573 (Paul L.C.
Torremans ed., 2015).
33
See Dean, supra note 32, at 573.
34
See Darren Meale & Joel Smith, Enforcing a Trade Mark When Nobody’s
Confused: Where the Law Stands after L’Oréal and Intel, JIPLP 5(2), 96 (2010).
35
Australia has adopted the Tobacco Plain Packaging Act 2011 (the TPP Act).
New Zealand, Ireland, the United Kingdom and Namibia are working on legisla知的財産法政策学研究

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plain packaging legislations prevent owners of tobacco trademarks fromusing color, shape, logo device marks or label marks on cigarettes packaging. Although it is internationally recognized that states possess regulatory autonomy to adopt measures necessary for protection of publichealth,36 such plain packaging legislations can amount to significant
prohibition of the use of trademarks that are not plain word marks.37
It is thus not surprising that the plain packaging measures havebeen challenged on national level38 as well as through the Worth Trade
Organization (WTO) dispute settlement system. 39 To protect theirtrademarks against infringements in a foreign country, the Agreement on
Trade-Related Aspects of Intellectual Property Rights (hereinafter“TRIPs”) and other international IP treaties tend to be invoked by thetrademark owners concerned. However, IP holders cannot directly invoke
the protection under the TRIPs or other international IP treaties. In order
to avoid this shortcoming, IP holders demand for protection of their investment, including trademarks, under bilateral or multilateral investment
protection treaties via international investment arbitrations.40
The question then arises as to how private rights to hold intellectual property can be reconciled with states’ regulatory autonomy. It ishighly controversial whether states have autonomy to restrict certain usesof trademarks for the purpose of protecting public health. Some argue
that the adoption of tobacco control measures can interfere with trademark rights. They even question whether any additional measures, suchas plain packaging legislation, are necessary to be adopted in the name oftion to restrict the use of trademarks on the packaging of tobacco products.
36
See, e.g., Resolution on the Permanent Sovereignty over Natural Resources,
GA res. 1803 (XVII), U.N. Doc. A/52/7, 17 U.N.G.A.O.R., 15 (1962).
37
See Dean, supra note 32, at 575.
38
See, e.g., Philip Morris v. Australia, award on jurisdiction and admissibility.
39
See, e.g., Australia-Certain Measures Concerning Trademarks and Other Plain
Packaging Requirements Applicable to Tobacco Products and Packaging, WTO
Case No. WT/DS434/15, Communication from the Panel (Oct. 27, 2014),
https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(@Symb
ol=%20wt/ds434/*)&Language=ENGLISH&Context=FomerScriptedSearch&lan
guageUIChanged=true#.
40
See, e.g., Jeswald W. Salacuse & Nicholas P. Sullivan, Do BITs Really Work?
An Evaluation of Bilateral Investment Treaties and Their Grand Bargain, 46:1
HARV. INT’L L.J. 67 (2005).
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INTELLECTUAL PROPERTY AND REGULATORY AUTONOMY (Li)public health, when in most countries smoking in public places is alreadyprohibited.
However, until recently, only a few cases involved claims that astate had expropriated investors’ investment with respect to their IP. Accordingly, the analysis of recently emerged IP-related cases might give
us hints on tensions between private interests in intellectual property
protection and public interests in regulatory autonomy.
1.1. Philip Morris v. Uruguay
In February 2010, Philip Morris Products S.A. (Switzerland), together with Philip Morris Brands Sàrl (Switzerland) and the 100% subsidiary of Philip Morris Brands, Abal Hermanos S.A. (hereinafter“Abal”), brought a claim against Oriental Republic of Uruguay pursuant
to Article 10 of Agreement between the Swiss Confederation and theOriental Republic of Uruguay on the Reciprocal Promotion and Protection of Investments (hereinafter “Switzerland-Uruguay BIT”), and Article
36 of the Convention on the Settlement of Investment Disputes between
States and Nationals of Other States (hereinafter “ICSID Convention”).
The dispute between Philip Morris Products and Uruguay dealt
with several tobacco-control measures regulating tobacco industry. The
measures concerned included the single presentation requirement (hereinafter “SPR”) and the 80/80 Regulation. The SPR precludes tobacco
manufacturers from marketing more than one variant of cigarette perbrand family. The 80/80 Regulation requires to increase in the size ofgraphic health warnings on cigarette packages.41
1.2. Claims
According to the claimants, the government’s adoption of “challenged measures” resulted in a deprivation of claimants’ intellectual
property rights and thus constituted an act of expropriation. 42 The
claimants’ expropriation claim is based on Article 5 of the Switzerland-Uruguay BIT.
The claimants used the Marlboro, Fiesta, L&M, Philip Morris,
41
42

Philip Morris v. Uruguay, Award, ¶9.
Id. ¶¶193-6
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Casino and Premier trademarks to sell tobacco products in Uruguay.43
They owned thirteen variants of those trademarks within six brand families.44 Marlboro was claimants’ most importance brand.45 This brandconsisted of Marlboro Fresh Mint, Marlboro Red, Marlboro Blue, andMarlboro Gold.46 After the adoption of challenged measures, the claimants eliminated seven of their thirteen variants (including Marlboro Gold,
Marlboro Blue, Marlboro Fresh Mint, Fiesta Blue, Fiesta 50/50, Philip
Morris Blue, and Premier).
The claimants challenged these measures for the reason that the
respondent breached its commitments to protect claimants’ right to use
their trademarks.47 They complained that the SPR measure restricted theuse of colors on tobacco packaging,48 and the 80/80 Regulation significantly undermined the ability to use their trademarks.49
Conversely, according to the respondent, the state’s interferencewith foreign investor’s property was valid exercise of police power andthus its action could not be considered as expropriation. The respondent
further put forward that the threshold of expropriation can be triggered
only when the investor is deprived wholly of use, enjoyment or benefit of
its investment.50
As to the claimants’ trademark rights, the respondent argued thecolors used on tobacco packaging have significant strength and meaning
to customers. 51 Furthermore, the respondent alleged that firstly, theclaimants did not own the trademarks, and secondly, Uruguay’s trademark law only confers upon trademark owners the rights to exclude others from using their trademarks, but not the right to use their trademarks.52
43

Id. ¶ 65.
Id. ¶144.
45
Id. ¶72.
46
Id.
47
Id. ¶450.
48
Id. ¶110.
49
Id. ¶450.
50
Id. ¶¶187-90.
51
Id. ¶250.
52
Id. ¶453.
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1.3. Eli Lily and Company v. The Government of Canada
Another recent case dealing with expropriation of IP has emergedin the field of patent law. In 2012, Eli Lilly and Company brought aclaim against the government of Canada based upon the NAFTA.53
Eli Lily and Company claims that the invalidation of its Strattera
and Zyprexa patents constituted an act of direct or indirect expropriation.54 Canada granted Eli Lilly the Zyprexa patent on April 24, 1991
and the Strattera patent on January 4, 1996.55 However, in 2005 the Federal Court of Canada and the Federal Court of Appeal created a new judicial doctrine, the so-called “promise doctrine”.56 The promise doctrine
requires that at the time of filing a drug patent application, the patentapplicants are required to prove the utility of the drug in a certain degree.57 Canada invalided the two patents based on the promise doctrine.58
To refute claimant’s expropriation claim, the government of
Canada argues that “in all but rare circumstances, a determination by adomestic court concerning the existence of a property right, including an
intellectual property right, cannot amount to an expropriation at international law”.59
Similarly to Philip Morris v. Uruguay, the regulatory power ofthe host state to regulate IP rights within its territory is debated by parties.
Once such IP rights have been granted, foreign investors are protectedunder international investment law.60 To constitute an exercise of state’s
regulatory power, the requirements provided under international investment law must be satisfied. It is worth to note that the claimant argues
that the invalidation of its Strattera and Zyprexa patents constituted an
53

Eli Lilly v. Canada, Notice of Intent to Submit a Claim to Arbitration under
NAFTA Chapter Eleven, ¶¶1 et seqq.
54
Eli Lilly v. Canada, Notice of Arbitration, ¶75.
55
Id. ¶¶25 et seqq.
56
Id. ¶9.
57
Id. ¶10.
58
Id. ¶¶49 et seqq.
59
Eli Lilly v. Canada, Government of Canada Statement of Defense, ¶107.
60
See, e.g., LUKAS VANHONNAEKER, INTELLECTUAL PROPERTY RIGHTS AS FOREIGN DIRECT INVESTMENT FROM COLLISION TO COLLABORATION 70 (2015).
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act of direct or indirect expropriation. Invalidation of the patents meansthat the property rights in question cease to exist.
In this case, Canada adopted a new doctrine which substantiallymodified its IP law under which the patent rights in question were granted. As a result, the patent rights could be and later were invalidated on
this new ground. In such a scenario, it is “necessary to evaluate theconformity of the new legal regime with international law” and the investor’s legitimate expectations.61 This analysis must be undertaken on acase-by-case basis and must pay attention to whether the character of themeasure under consideration was arbitrary or discriminatory and whether
investors could have expected such a change in patent law.62
As Eli Lilly v. Canada is still pending, the following analysis will
mainly focus on scrutinizing the arbitral award recently delivered in
Philip Morris v. Uruguay. Nonetheless, before doing so, the current stateof interpreting the concept of expropriation in international investment
law is examined.

2. Expropriation in International Investment Law
Private investment is generally protected by international investment treaties. However, their protection is not unlimited since expropriation is allowed under specific circumstance.63 To balance a state’s sovereign rights of expropriation and an investor’s interests, uncompensateddirect and indirect expropriations are prohibited.64 Expropriation usually
involves a transfer of investor’s investment to a state or to a third party.65
It always appeared as straight-out taking of investor’s property in the20th century, such as “takings of foreign investments in developing

61

See VANHONNAEKER, supra note 60, at 72.
See, e.g., RUDOLF DOLZER & CHRISTOPH SCHREUER, PRINCIPLES OF INTERNATIONAL INVESTMENT LAW 105 (2d ed. 2008).
63
See VANHONNAEKER, supra note 60, at 37.
64
See HENCKELS, supra note 12, at 75.
65
See, e.g., CAMPBELL MCLACHLAN QC, LAURENCE SHORE & MATTHEW WEINIGER, INTERNATIONAL INVESTMENT ARBITRATION: SUBSTANTIAL PRINCIPLES 266(2010).
62350

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INTELLECTUAL PROPERTY AND REGULATORY AUTONOMY (Li)countries in the course of decolonization process”.66 Such an outrighttaking is considered as direct expropriation.
The concept of expropriation is reasonably defined as follows:“[I]t is a governmental taking of property for which compensation is required. Actions ‘short of direct possession of the assets may also fallwithin the category’ of expropriation”.67 However, such definition makes
it difficult to precisely confirm the situations covered by the concept.68
Therefore, arbitral tribunals have to assess whether measures taken bystates constitute expropriations. It is the lack of precise definition thatcreates the opportunities and possibilities for parties to dispute whether
an expropriation has occurred.69
The definitions of expropriation in international investment treaties distinguish between direct and indirect expropriations. Direct expropriation is relatively easy to recognize. For instance, it occurs when“governmental authorities take over a mine or factory, depriving the investor of all meaningful benefits of ownership and control, or there has
been a compulsory transfer of property rights”.70 Accordingly, direct
expropriation involves transfer of title to a state or a third party.71
In recent years, investor-state investment disputes have mostly
focused on indirect expropriation. 72 Indirect expropriation is usuallydescribed as “‘de facto’, ‘creeping’ expropriation, or measures ‘tantamount to’ or ‘equivalent to’ expropriation”.73 Some describe indirect
expropriation as “measures that significantly affect the value of the investment or that result in the effective loss of the investor’s enjoyment ofor control over their property”.74 However, not every significant inter66

See id.
See id. at 266.
68
See HENCKELS, supra note 12, at 75-6.
69
See MCLACHLAN ET AL., supra note 65, at 267.
70
See id. at 290.
71
See HENCKELS, supra note 12, at 75.
72
See DOLZER ET AL., supra note 62, at 101; see also Henckels, supra note 12, at
75.
73
See MCLACHLAN ET AL., supra note 65, at 292.
74
See, e.g., JAMES CRAWFORD, BROWNLIE’S PRINCIPLES OF PUBLIC INTERNATIONAL LAW 621 (2012); see also HENCKELS, supra note 12, at 75.
67

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ference with the investment of a foreign investor will always amount toan act of indirect expropriation.75 It is internationally recognized thatstates are permitted to exercise their regulatory powers under certain circumstances without any liability even when such actions might significantly interfere with investment.76 Therefore, any decision on indirect
expropriation depends on specific circumstances of a regulatory measurein question.
In their examination of states’ regulatory measures, arbitral tribunals first determine whether any indirect expropriation has actually occurred in a particular case. If the answer is positive, they examine whether the expropriation was legitimate.77 For this purpose, international investment treaties stipulate when an act of expropriation is lawful. However, they provide little guidance on whether a state’s action constitutes
an expropriation.78
Consequently, several essential elements for identifying whether astate’s action constitute an act of indirect expropriation are established bycase law and further developed by scholars. They include intensity ofinterference with property rights, effect on investor, legality, transparency,
and consistency, protection of investor’s legitimate expectations, proportionality and discrimination.
Before examining these elements, it is important to clarify whatkind of property is protected under investment treaties. The scope ofprotected rights has broadened over the time. It is therefore significant tomake clear to what extent investor’s property can be protected.
2.1. Scope of Protected Property
For deciding whether an act of expropriation has occurred, thequestion of how to identify a foreign investor’s investment or property
rights is inevitable. Investment treaties must clarify this issue. Unless thescope of protected property is clearly defined in a treaty, individuals will
not be able to realize that they have lost any property right and any act of75

See HENCKELS, supra note 12, at 75.
See DOLZER ET AL., supra note 62, at 120-23; see also HENCKELS, supra note
12, at 75.
77
Parkerings Compagniet v. Lithuania, Award, ¶¶441-2.
78
See HENCKELS, supra note 12, at 75.
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expropriation has occurred.79 As commentators put it, “investment treaties have to some degree remedied this problem because many include
detailed provisions defining the types of investment protected from expropriation.”80 At the same time, the same commentators point out that“[t]reaty provisions tend to go beyond the scope of property protected bycustomary international law”.81
In the past, there were two common grounds for international
protection against expropriation. One was “repudiation” of agreements,
i.e. “repudiation or breach by the state of a contract with a national ofanother state”.82 The other common ground was “denial of justice”, particularly in the pre-twentieth century era.83
Nowadays, it is undisputed that “contractual and quasi-contractual rights, as a subset of property protected by the law of expropriation, deserve special mention, particularly government-issued
permits and contracts with government entities”.84 In the case of Libyan
American Oil Company (LIAMCO) v. The Libyan Arab Republic, thetribunal treated concessions rights in the following way:
Concession rights did constitute ‘property’, as it could be both
corporeal and incorporeal, as long as those rights had a pecuniary
or monetary value. The Tribunal held that the right of property,
including incorporeal property of concession rights, wasinviolable in principle, as recognized by both Libyan andinternational law.85

79

See, e.g., ROSALYN HIGGINS, THE TAKING OF PROPERTY BY THE STATE: RECENTDEVELOPMENTS IN INTERNATIONAL LAW 267-78 (1982).
80
See, e.g., CHRISTOPHER DUGAN, DON WALLACE, NOAH RUBINS & BORZU SABAHI, INVESTOR-STATE ARBITRATION 439 (2011).
81
See id.
82
See, e.g., LOUIS HENKIN, RESTATEMENT OF THE LAW, THIRD: FOREIGN RELATIONS LAW OF THE UNITED STATES 96 (1987).
83
See DUGAN ET AL., supra note 80, at 431.
84
See DUGAN ET AL., supra note 80, at 429.
85
See, e.g., Case summary: Libyan American Oil Company (LIAMCO) v. The
Libyan Arab Republic, ¶5, at 4, http://www.biicl.org/files/3939_1977_liamco_v_
libya.pdf (last visited Jan. 9, 2017).
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In a more recent case, CME Czech Republic B.V. v. The Czech
Republic, the tribunal found that “the expropriation by consent that theCzech Republic extorted from CNTS through its administrative proceedings is no more permissible under international law than the outright appropriation of an investment” and that the right to use a license constituted the legal basis.86 Further, the tribunal emphasized that “investment
assets of CME in the Czech Republic also plainly include CNTS’s tangible and intangible property-including […] intellectual property rights,
such as its rights to air licensed programs”.87
Most of modern international investment treaties thus assign
protection to every kind of asset. For instance, under Agreement between
the Government of Hong Kong and the Government of Australia for the
Promotion and Protection in Investment, Article 1(e) clearly defines the“investment” as every kind of assets including intellectual property
rights.88 According to Article 1(2) of the Switzerland-Uruguay BIT, theprotected “investment” includes “every kind of assets and particularly
copyrights, industrial property rights”.89
2.2. Approaches in Identifying the Existence of Expropriation
As mentioned above, investment treaties do not provide for specific guidance to identify whether a state’s action constitutes an expropriation.90 The expropriation disputes represents tensions between two opposite interests––investor’s interests and state’s interests. In case law, we
can find three directions of settling such disputes. Some tribunals have
only focused on investor’s interests without taking into consideration thereasons of adopting a regulatory measure in question. This approach is
known as the “sole effect doctrine”. Conversely, other tribunals have86
CME Czech Republic B.V. v. The Czech Republic, UNCITRAL, Partial Awards,¶154 (Sep. 13, 2001), http://www.italaw.com/sites/default/files/case-documents/
ita0178.pdf; see also DUGAN ET AL., supra note 80, at 440.
87
CME v. Czech Republic, Partial Awards, ¶147.
88
Agreement for the Promotion and Protection of Investments, H.K.-Austl., art.
6, Sep. 15, 1993, 1748 U.N.T.S. 385, https://www.tid.gov.hk/english/ita/ippa/
files/01.IPPAAustraliae.pdf.
89
Agreement on the Reciprocal Promotion and Protection of Investments,
Switz.-Uru., Oct. 7, 1988, 1976 U.N.T.S. 413, http://www.italaw.com/sites/
default/files/laws/italaw6239.pdf.
90
See HENCKELS, supra note 12, at 75.

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adopted the so-called “radical police power doctrine” which concentrates
on the interest of host states without taking into account the impact ofsuch regulatory measures. Recently, the third approach has emerged. It
attempts to draw a proper and adequate line between the exercise ofstate’s regulatory power and the protection of investor’s property. It has
been adopted by an increasing number of tribunals. This approach iscalled the “moderate police power doctrine”.
2.2.1. The Sole Effect Doctrine
According to the sole effect doctrine,91 the effect of a state’s action is the central factor or even the sole factor in determining whether astate’s regulatory measure constitutes an expropriation.92 In other words,
this approach regards that every significant interference with an investment amounts to an expropriation.93
In the cases of Metalclad v. Mexico,94 Marion Unglaube andReinhard Unglaube v. Costa Rica95 and BG v. Argentina96, the tribunals
held that the consideration of the states’ objective of regulatory measures
was not required when determining whether an expropriation had takenplace. They therefore regarded the effect of assessed measure on the investment as sole element.
This approach is criticized that the only factor for assessing astate’s regulatory measure is its effect regardless of its purpose. For establishing expropriation no balance between the interests of investors andstates is required by the approach.
91

See, e.g., Ursula Kriebaum, Regulatory Takings: Balancing the Interests of theInvestor and the State, 8.5 J. INV. & TRADE 717, 725 (2007), http://www.univie.
ac.at/intlaw/kriebaum/pub_uk_12.pdf.
92
See, e.g., Rudolf Dolzer, Indirect Expropriations: New developments?, 11
N.Y.U. ENVTL L.J. 64, 79-80 (2002), http://heinonline.org/HOL/Page?handle=hein.journals/nyuev11&div=11&g_sent=1&collection=journals.
93
See HENCKELS, supra note 12, at 75.
94
Metalclad Corporation v. The United Mexican States, ICSID, Case No. ARB(AF)/97/1, Award (Aug. 30, 2000).
95
Marion Unglacube and Reinhard Unglaube v. Republic of Costa Rica, ICSID
Case No. ARB/08/1, ICSID Case No. ARB/09/20, Award (May 16, 2012).
96
BG Group Plc. v. The Republic of Argentina, UNCITRAL, Final Award (Dec.
24, 2007).
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2.2.2. The Radical Police Power Doctrine97
According to the radical police power doctrine, the decisive criterion is the action’s public purpose. Under this doctrine, there is no expropriation when a state’s action is adopted for public purpose.98 This
doctrine was applied in the MethanexCorp. v. USA99 as well as Saluka
Investments BV v. Czech Republic.100 The lack of considering the consequences and degree of state’s interference with foreign investments
makes it quite difficult for foreign investors to bring arbitration against
host states.101
However, this doctrine is also criticized. The reason is that in assessing an expropriation claim the existence of an expropriation should
be considered first and then whether it was lawful should be further examined. Under the radical police power doctrine, the“non-discrimination”, “public interest” and “due process” factors wereused to determine the existence of an expropriation. However, these factors are originally used to determine whether an expropriation is lawful.
Therefore, under this doctrine, the criteria used to determine the existence of an expropriation are the same as the criteria used to determine thelawfulness of an occurred expropriation.102
2.2.3. The Moderate Police Power Doctrine103
Pursuant to the moderate police power doctrine, the effect ofstate’s interference, the purpose of the measure as well as the investor’s
legitimate expectations need to be taken into consideration for finding an

97

See, e.g., Kriebaum, supra note 91, at 725.
See HENCKELS, supra note 12, at 77.
99
Methanex Corporation v. United States of America, UNCITRAL, Final Awardof The Tribunal on Jurisdiction and Merits (Aug. 3, 2005), Part IV-Chapter D-p4,
http://www.italaw.com/sites/default/files/case-documents/ita0529.pdf.
100
Saluka Investment BV (The Netherlands) v. The Czech Republic, UNCITRAL,
Partial Award (May 17, 2006), at 53, http://www.italaw.com/cases/documents/
963.
101
See HENCKELS, supra note 12, at 77.
102
See, e.g., Ben Mostafa, The Sole Effects Doctrines, Police Powers and Indirect Expropriation under International Law, 15 AUSTL. INT’L L.J. 267, 274 (2008),
http://www.austlii.edu.au/au/journals/AUIntLawJl/2008/12.pdf; see also HENCKELS,
supra note 12, at 77.
103
See Kriebaum, supra note 91, at 727-28.
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expropriation.104 In other words, both states’ interests and investor’s interests should be taken into account.105
Under the moderate police power doctrine, the proportionality
test is required.106 Recently, many investment arbitral tribunals havebegun to emphasize the proportionality analysis when determining state’s
acts of indirect expropriation. For instance, in the case of Tecnicas Medioambientales Tecmed S.A. v. The United Mexican States, with reference
to case law of the European Court of Human Rights (ECHR), the arbitral
tribunal held that there must be a reasonable proportionality between theburden imposed on foreign investors and the aim sought to be realized
though the adopted measures.107 In the recent case of Azurix Corp. v
Argentine Republic, the ICSID tribunal also sought guidance in the caselaw of the ECHR. It found that the proportionality analysis provides forhelpful guidance of determining acts of indirect expropriation.108 As
August Reinisch put it forward, “although a proportionality analysis carried out in the context of expropriation is typical for the case-law of the
ECHR, such a balancing approach may be regarded as inherent in thetests relied upon by many investment arbitral tribunals”.109 Generally,
the proportionality test consist of four elements: (1) a legitimate end for ameasure; (2) suitability of measure to achieve the end; (3) necessity; and(4) proportionality in narrow sense.110
While all the three abovementioned approaches have been appliedby arbitral tribunals, the moderate police power doctrine seems to be themost suitable approach for assessing expropriation claims by arbitral104

See id.
See HENCKELS, supra note 12, at 77.
106
See id, at 78.
107
Tecnicas Medioambientales Tecmed S.A v. The United Mexican States, ICSID
Case No. Arb(AF)/00/2, Award, ¶122 (May 29, 2003), http://www.italaw.com/
sites/default/files/case-documents/ita0854.pdf.
108
Azurix Corp. v. The Argentine Republic, ICSID Case No. ARB/01/12, Award,¶311 (Jul. 14, 2006), http://www.italaw.com/sites/default/files/case-documents/
ita0061.pdf.
109
See Reinisch, supra note 11, at 450.
110
See, e.g., MATTHIAS KLATT & MORITZ MEISTER, THE CONSTITUTIONALSTRUCTURE OF PROPORTIONALITY 7 (2012).
105

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tribunals.111 The sole effect and radical power police doctrines represent
two extremes. They seem not to consider the complexity of investment
operations and assess the existence of an expropriation on the basis offewer criteria.112 The moderate police power doctrine is thus much more
flexible for tribunals when assessing an expropriation claim.
2.3. Typical Expropriation Clauses in Recent Bilateral Investment
Treaties
The standards in determining the lawfulness of an expropriation
have changed over time. Prior to World War II, the proper remedy for
expropriation was considered to be nothing but full compensation.113 By
the 1950s, an opposite movement emerged.114 Some states argued for theright to expropriate foreign-owned property without full compensation.115
Starting from the 1980s, lots of important expropriation decisions weremade by the Iran-U.S. Claims Tribunals.116 Those tribunals dealt withexpropriation from both the liability and compensation sides.117
Typical expropriation clauses, such as clauses in the Hong KongAustralia bilateral investment treaty and Switzerland-Uruguay BIT, provide less autonomy compared to most recent treaties such as the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area.118 For instance, Article 6 of the Hong Kong-Australia bilateral investment treaty stipulates the requirements for constituting an expropriation, as follow:
Investors of either Contracting party shall not be deprived of theirinvestments nor subjected to measures having effect equivalent tosuch deprivation in the area of the other Contracting Party except
111

See VANHONNAEKER, supra note 60, at 46.
See id.
113
See DUGAN ET AL., supra note 80, at 433.
114
See id. at 435.
115
See id.
116
See id. at 437.
117
See id.
118
See, e.g., Benn McGrady, Implications of Ongoing Trade and Investment
Disputes Concerning Tobacco: Philip Morris v. Uruguay, in TANIA VOON, ANDREW D. MITCHELL & JONATHAN LIBERMAN, PUBLIC HEALTH AND PLAIN PACKAGING OF CIGARETTES: LEGAL ISSUES 182-85 (2012).
112

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INTELLECTUAL PROPERTY AND REGULATORY AUTONOMY (Li)under due process of law, for a public purpose related to the internal needs of that Party, on a non-discriminatory basis, andagainst compensation.119
Accordingly, this provision sets up four following requirements:(1) a purpose for public interest; (2) due process of law; (3)non-discriminatory; and (4) compensation. These four requirements are common to many other international treaties, such as
the clauses in the Switzerland-Uruguay BIT and NAFTA.120

3. Lessons from Philip Morris v. Uruguay
In Philip Morris v. Uruguay the tribunal dealt with expropriation
claim in three steps. The tribunal started its inquiry with examining
119

Agreement between the Government of Hong Kong and the Government ofAustralia for the promotion and protection of Investments, Article 6, available athttps://www.tid.gov.hk/english/ita/ippa/files/01.IPPAAustraliae.pdf (last visited 9
Jan. 2017).
120
See, e.g., Article 5.1 the Switzerland-Uruguay BIT:
Neither of the Contracting Parties shall take, either directly or indirectly,
measures of expropriation, nationalization or any other measure having thesame nature or the same effect against investments belonging to investors of
the other Contracting Party, unless the measures are taken for the publicbenefit as established by law, on a non-discriminatory basis, and under due
process of law, and provided that provisions be made for effective and adequate compensation. The amount of compensation, interest included, shallbe settled in the currency of the country of origin of the investment and paid
without delay to the person entitled thereto.
Article 1110(1) the North American Free Trade Agreement (NAFTA):No Party may directly or indirectly nationalize or expropriate an investmentof an investor of another Party in its territory or take a measure tantamountto nationalization or expropriation of such an investment (“expropriation”),
except:
(a)
(b)
(c)
(d)

for a public purpose;on a non-discriminatory basis;in accordance with due process of law and Article 1105(1); andon payment of compensation in accordance with paragraphs 2 through 6.
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whether the claimants owned the banned trademarks. It then scrutinizedwhether a trademark confers the right to use or only the right to be protected against others. At the end, it inquired into whether the challenged
measures expropriated the claimants’ investment.
At the first step of inquiry, both parties disputed whether theclaimants owned the banned trademarks. If the claimants had not owned
the banned trademarks, there would have been no trademarks capable ofbeing expropriated. Under Uruguayan trademark law, “once the application is submitted, no modifications will be allowed to the representationof the mark”.121 As reaction to the 2005 amendment, the claimants removed the prohibited descriptors from their tobacco packages and renamed their brands. 122 For instance, claimants changed “Marlboro
Light” into “Marlboro Gold”. The respondent therefore argued that theclaimants did not own the altered trademarks, because they did not
re-apply for those altered trademarks.123 However, in the tribunal’s view,even if the claimants failed to apply for new registrations as required by
Article 13 of Uruguayan Trademark Act, there is no provision under the
Uruguay trademark law denying protection to alternations of first registration. Therefore, the tribunal concluded that the altered trademarks continued to be protected under the Uruguay trademark law.124
After concluding that the trademarks continued to be protectedunder the domestic trademark law, the tribunal continued with the second
issue. It examined whether a trademark confers the right to use or only
the right to protect against use by others. The significance of this distinction is in clarifying whether the claimants owned a right capable of being
expropriated. The tribunal viewed “the case as a question of an absolute
versus exclusive right to use”.125
However, the tribunal came to the conclusion that “absence of aright to use does not mean that trademark rights are not property rights
under Uruguayan law.”126 In other words, regardless of whether trade121

Philip Morris v. Uruguay, Award, ¶236.
Id. ¶241.
123
Id. ¶¶236 et seqq.
124
Id. ¶254.
125
Id. ¶267.
126
Id. ¶272.
122360

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INTELLECTUAL PROPERTY AND REGULATORY AUTONOMY (Li)marks confer the right to use, the trademark rights are protected as property rights under the Uruguayan law. The tribunal thus concluded that“the claimants had property rights regarding their trademarks capable ofbeing expropriated”127. Hence, the tribunal refused a narrow constructionof property rights which would cover only property rights to tangible
objects.
Here, it is also important to take into consideration that in addition to legal dimension, trademarks still have commercial dimension.128
As one commentator pointed out, “[a] brand comprises both of trademark
itself and its commercial worth.”129 Legal protection of trademarks ascommercial assets with considerable value is therefore essential.
Finally, the tribunal moved to the third issue. It scrutinizedwhether the challenged measures had expropriated the claimants’ investment. The tribunal came to the conclusion that there was no expropriation. It based its decision on two supporting arguments. First, “aslong as sufficient value remains after the challenged measures are implemented, there is no expropriation”.130 Second, regardless of that, thetribunal found that the challenged measures were proportionate and theadoption of the challenged measures by Uruguay was a valid exercise of
the state’s police power.131 The following analysis will examine thestrengths and drawbacks of both lines of argument.
3.1. No Substantial Deprivation
Regarding their expropriation claim, the claimants argued that thetribunal must “examine whether the investor was deprived, wholly or
partially, of the use, enjoyment, or benefit of the investment”.132 To determine whether there occurred at least partial deprivation, they put forward that the threshold is whether an investor was substantially deprivedof the value of its investment.133 Even when the state takes the measuresin question for public purpose, they argued that the expropriation must be127

Id. ¶274.
See Dean, supra note 32, at 558.
129
See id.
130
Philip Morris v. Uruguay, Award, ¶286.
131
Id. ¶287.
132
Id. ¶¶183 et seqq.
133
Id. ¶¶183 et seqq.
128

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accompanied by adequate compensation pursuant to Article 5 of the
Switzerland-Uruguay BIT.134 A purpose for the public is only one ofseveral prerequisites for a lawful expropriation.135
On the contrary, relying on the awards in Archer Daniels Midland
Company and Tate & Lyle Ingredients Americas, Inc. v. United Mexican
States,136 LG&E Energy Corp., et al. v. Argentine Republic,137 CMS Gas
Transmission Company v. Argentine Republic,138 and Encana Corporation v. Republic of Ecuador,139 the respondent claimed that “if sufficiently positive value remains, there is no expropriation”.140
The tribunal sided with the latter’s position. While it stated that toestablish an expropriation, the state’s measures should amount to a “substantial deprivation” of the value, use or enjoyment of the investment,141
it clearly pointed out that “as long as sufficient value remains […] there
is no expropriation”.142 Accordingly, it held that “a limitation to 20% of
the space available to such purpose could not have a substantial effect on
the claimants’ business”,143 and thus the 80/80 Regulation did not violated the BIT. Similarly, it found that “the effects of the SPR were far
from depriving Abal of the value of its business or even causing a substantive deprivation of the value, use or enjoyment of the claimants’ investment”.144
The problem with the tribunal’s approach is that it failed to ade134

Id. ¶184.
Id. ¶¶184-6.
136
Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc.
v. United Mexican States, ICSID Case No. ARB (AF)/04/5, Award, ¶¶ 246 et seqq.
(Nov. 21, 2007).
137
LG&E Energy Corp. et al. v. Argentine Republic, ICSID Case No. ARB/02/1,
Decision on Liability, ¶ 191 (Oct. 13, 2006).
138
CMS Gas Transmission Company v. Argentine Republic, ICSID Case No.
ARB/01/8, Award, ¶¶ 262-264 (May12, 2005).
139
Encana Corporation v. Republic of Ecuador, UNCITRAL, Award (Feb. 3,
2006).
140
Philip Morris v. Uruguay, Award, ¶190.
141
Id. ¶192.
142
Id. ¶286.
143
Id. ¶276.
144
Id. ¶284.
135

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INTELLECTUAL PROPERTY AND REGULATORY AUTONOMY (Li)quately clarify the adopted standard for assessing the interference withinvestor’s property interests. Moreover, the tribunal’s analysis has
several significant drawbacks and treats intangible property differently
than tangible property.
While the tribunal acknowledged that lost profits can amount toan expropriation, it also set up high threshold for such expropriation,
since in case of lost profits sufficient value of investment tends to remain.
In practice, even when the entire profit is lost, sufficient value usuallyremains.
The drawbacks of this approach can be observed on the following
three scenarios of state’s interference with an investor’s proprietary interests. For instance, a state plans to construct a railway line for public
transportation and a foreign company owns three buildings along thisline. In the first possible scenario, the company is deprived of all thethree buildings. In the second scenario, only one or two of buildings aretaken. In the third scenario, none of buildings is taken. Instead, the statesets up a maximum price for renting those buildings or even prohibits thecompany from renting the buildings to others. Applying the tribunal’s
approach to these scenarios can lead to completely different conclusions
in the cases of tangible property and intangible property.
In the first scenario, the state deprives the company of all thethree buildings. In other words, the investor is deprived of its entire investment by the host state’s regulatory measures. Under this premise, no
one can deny that there is a substantial deprivation regardless of being
deprived of buildings or trademarks. Therefore, the taking of either tangible or intangible property usually amounts to an expropriation.
In the second scenario, the state takes of one or two of the investor’s three buildings. In other words, the investor is deprived only partially of its investment. In the case of tangible property, the state’s action
amounts to an expropriation no matter how many of buildings were affected.
However, the conclusion might be considerably different when it
comes to intangible property. The reason is that the tribunal refused toassess the impact of regulatory measures only on the claimants’ affectedtrademarks, but examined the measures’ impact on the claimants’ entire
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investment. Accordingly, it came to the conclusion that the deprivation ofsome trademarks did not amount to expropriation, since substantial valueof investment remained.145
In the third scenario, the state does not deprive the investor ofbuildings themselves. Instead, the state sets up the maximum price forrenting those buildings or even prohibits the company from renting thebuildings to other persons. In other words, the investor is deprived of theability to charge a premium price and thus lost profit from its investment.
The point is that corporations could have made more profits by renting
the buildings or renting the buildings for higher price to someone. In this
scenario, the investor’s investment would be even more profitable if theregulatory measure was not adopted.
This is exactly the case in Philip Morris v. Uruguay. In the caseof tangible property, lost profit can amount to expropriation, if such taking constitute a substantial deprivation. For instance, in Wena Hotel Ltd.
v. Arab Republic of Egypt case, where Egypt interfered with the use of
the hotels, the tribunal held that “the seizure and illegally possessions of
the hotels for nearly a year is more than an ephemeral interference in theuse of that property or with the enjoyment of its benefits, thus the actionof Egypt constitutes an expropriation.”146
However, with regards to intangible property, the tribunal set up a“sufficient value remains” standard to measure whether there is a substantial deprivation. In the present case, the enjoyment or use of theclaimant’s trademark rights was limited by Uruguay. As mentioned above,in practice, it is thus almost impossible that lost profit related to intangible property can amount to an expropriation. Therefore, it seems that theprotection of intangible property is weaker than that of tangible property
and the tribunal did not provide for any justification for such distinction.
As shown above, the tribunal set up too high threshold for expropriation in case of intangible property by requiring that the remaining
145

Id. ¶283 et seqq.
Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Award,¶99 (Dec.8, 2000), http://www.italaw.com/sites/default/files/case-documents/
ita0902.pdf.

146

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INTELLECTUAL PROPERTY AND REGULATORY AUTONOMY (Li)value of entire investment must be less than sufficient. If entire loss ofproperty is needed to establish an expropriation, the threshold is too
stringent to protect foreign investor. Therefore, the future tribunal should
be more cautious in using the approach adopted by the tribunal in thepresent case.
3.2. Proportionality
The tribunal used proportionality as additional supporting argument for finding that the regulatory measure in question did not amountto expropriation.147 It therefore also dismissed claimants’ expropriation
claim on the reason that the challenged measures were proportionate andthe adoption of the challenged measures by Uruguay was a valid exerciseof the state’s police power.
3.2.1. Tribunal’s Finding
In the present case, the tribunal took both purpose and effect ofthe measures into consideration. In other words, it took the state’s as wellas the investors’ interests into account.148 Hence, the tribunal adopted themoderate police power doctrine, which requires the proportionality
test.149
The doctrine permits uncompensated taking of property from aforeign investor. Accordingly, it is necessary to distinguish the exercise
of police power, which does not require any compensation, from lawful
expropriation. The reason is that even if a state’s action is regarded as
lawful expropriation, the payment of compensation is still required. On
the contrary, if a state’s action complies with the police power doctrine,
no payment of compensation is required. As the tribunal put it, “[a] consistent trend in favor of differentiating the exercise of police powers fromindirect expropriation emerged after 2000”.150
The tribunal reiterated the requirements for a state’s action during
the exercise of regulatory power in the following way: “[A]mong thosemost commonly mentioned are that the action must be taken bona fide
147

Philip Morris v. Uruguay, Award, ¶287.
Id. ¶¶284 et seqq.
149
See HENCKELS, supra note 12, at 78.
150
Philip Morris v. Uruguay, Award, ¶295.
148

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for the purpose of protecting the public welfare, must be
non-discriminatory and proportionate”.151 The tribunal then found thatboth SPR and 80/80 Regulation satisfy these requirements.152
The tribunal based its findings also on the fact that the challenged
measures adopted by Uruguay were based on obligations or recommendations under the Framework Convention. Some therefore argue that thetribunal’s findings highlighted the importance of Framework Convention
and confirmed that states need not submit any local evidence, because “itwas sufficient that measures are an attempt to address a public healthconcern and taken in good faith.”153
Moreover, the tribunal also relied upon reports which were presented by the respondent and confirmed the decline of tobacco prevalence in Uruguay after the enforcement of challenged measures.154 In
addition, these reports were submitted to a record. The record showedthat Uruguay got support from the WHO, Pan American Health Organization and Mercosur Member States which demonstrated the decrease insmoking in Uruguay.155 These facts were thus for the tribunal sufficient
to prove that the challenged measures were proportionate.
3.2.2. Drawbacks of Tribunal’s Approach
Although the approach adopted by the tribunal appears to set relatively reasonable requirements for exercise of states’ regulatory power,
there are several issues which need to be pointed out.
Firstly, the tribunal has not clearly explained what kind of test it
applied. If the tribunal used proportionality test, it failed to clarify individual requirements of proportionality test and did not use this test as
normal. As mentioned above, proportionality test requires a legitimate
end for a measure, suitability, necessity and proportionality in narrow
sense. However, the tribunal just concluded that challenged measures
151

Id. ¶305.
Id. ¶306.
153
See, e.g., TobaccoFreeKids.org, Philip Morris v. Uruguay: Findings from theInternational Arbitration Tribunal, http://www.tobaccofreekids.org/content/press_office/2016/2016_07_12_uruguay_factsheet.pdf (last visited Jan. 9, 2017).
154
Philip Morris v. Uruguay, Award, ¶140.
155
Id. ¶141.
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INTELLECTUAL PROPERTY AND REGULATORY AUTONOMY (Li)were proportional and referred to some local evidence to show that thesemeasures are effective. Thus the question that will emerge is what kind ofevidence is needed. Considering that measures which are effective inother countries might not work in Uruguay, should the evidence be local
evidence or any evidence is enough?
Furthermore, to demonstrate that Uruguay’s action did not constitute indirect expropriation, the tribunal held that the SPR and the 80/80
regulation were taken bona fide for public health, non-discriminatory andproportionate. The tribunal did not apply the necessity analysis which
requires that “no other hypothetical exists that would be less harmful tothe right in question while equally advancing the purpose.”156
However, the way to employ the proportionality test without consideration of the necessity of the measures may be problematic. The
proportionality test is used to limit a state’s interference with investor’s
property. Without a determination that a challenged measure is necessary
to achieve the objective, it could result in a consequence that a measure islawful even if it is ineffective at achieving the objective. Accordingly,
engaging in proportionality test without consideration of necessity will
give tribunals “extremely broad discretion”.157
Secondly, according to the concurring and dissenting opinion, arbitrator Gary Born expressed his agreement with the tribunal’s findings
on expropriation claim.158 In other words, he agreed that there is no expropriation at all. As he stated as follows:
The protection of consumers from misleading or deceptive
marketing in order to safeguard the public health is within thescope of any government’s regulatory powers. That conclusion is
non-controversial and indisputable.159
He agreed with the finding on expropriation claim as well as the tribunal’s adoption of the moderate police power which requires that the156

See AHARON BARAK, PROPORTIONALITY: CONSTITUTIONAL RIGHTS AND LIMITATIONS 317 (2012); see also HENCKELS, supra not 12, at 87.
157
See HENCKELS, supra note 12, at 107.
158
159

Philip Morris v. Uruguay, Concurring and Dissenting Opinion, ¶¶1 et seqq.
Id. ¶148.
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adopted measures must be proportionate.
On the other hand, he dissented on the issue that the SPR measureis neither required nor contemplated by the Framework Convention andthat considering the factual backgrounds and the evidence record, theSPR measure is “manifestly” arbitrary and disproportionate. 160 The
statement that the measure is arbitrary and disproportionate contradicts
his conclusion that the tribunal’s approach is reasonable and there is no
expropriation. It seems that the exercise of state’s regulatory power canbe disproportionate?
3.3. Problem of Forum Shopping
Disputes concerning tobacco regulation have also highlighted
problem of forum shopping. In Philip Morris v. Uruguay, Philip Morris
targeted a developing country where it expected to succeed in investment
arbitration. It might be a wise choice for a large multinational corporation
to bring investment or other international arbitration against a developing
country rather than developed one. As Philip Morris v. Uruguay shows,international arbitrations tend to be quite expensive and not each developing country can afford to spend several millions of US dollars on defending its legitimate domestic regulation.161 Accordingly, Philip Morrismight have had confidence in winning the case against such country at
the time of filing the arbitration. If it won the case, it would be able touse the case as precedent to seek for protection against similar regulatory
measures under other multilateral or bilateral international treaties.
In addition, this was not the only time for Philip Morris to filearbitration against a host state. In 2011, Philip Morris Asia Limited
brought an arbitration against Australia regarding Australia’s enactment
and enforcement of the Tobacco Plain Packaging Act 2011 and the
Tobacco Plain Packaging Regulations 2011. 162 Philip Morris Asia
argued that the plain packaging legislation had restricted its enjoyment of
its trademark and therefore the state’s action constituted an expropriation
under Agreement between the Government of Hong Kong and the160

Id, ¶¶1 et seqq.
See, e.g., Philip Morris v. Uruguay, Award.
162
Philip Morris Asia Limited v. Australia, Written Notification of Claim,
http://www.italaw.com/sites/default/files/case-documents/ita0664.pdf (last visited
Jan. 9, 2017).
161

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INTELLECTUAL PROPERTY AND REGULATORY AUTONOMY (Li)Government of Australia for the Promotion and Protection of
investment.163
However, Australia argued that the reason of why Philip Morris
Asia invested in Australia was to bring arbitration against Australia tochallenge the tobacco control legislation. This was supported by the factthat Philip Morris Asia initiated arbitration shortly after the commence of
the investment in Australia. Therefore, Australia claimed that theclaimant’s claim amounted to an abuse of right.164
The tribunal in this case sent a clear message to such forum
shopping practices. It found that Australia had expressed its intention to
introduce the tobacco control legislation as early as in 2008 165 andtherefore this dispute was considered foreseeable to Philip Morris Asia.
The tribunal then concluded as follows:166
The commencement of treaty based investor-state arbitration
constitutes an abuse of right (or abuse of process) when an
investor has changed its corporate structure to gain the protectionof an investment treaty at a point in time where a dispute wasforeseeable.
Consequently, the tribunal dismissed the claim on the ground that thetribunal lacked jurisdiction over the dispute.167

CONLUSION
The previous analysis showed that we can learn several lessons
from currently ongoing investment arbitrations dealing with IP protection.
Now, it is clear that IP rights are protected as investment under interna163

Philip Morris Asia Limited v. Australia, Written Notification of Claim.
Philip Morris Asia Limited v. Australia, Award on Jurisdiction and Admissibility, p3, http://www.italaw.com/sites/default/files/case-documents/italaw7303_
0.pdf (last visited Jan. 9, 2017).
165
See id.
166
Philip Morris Asia Limited v. Australia, Award on Jurisdiction and Admissibility.
167
See id.
164

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tional investment treaties. Therefore, national regulatory measures affecting the IP rights and the level of their protection can be challenged
under international investment treaties.
Most importantly, this case confers that states have the right toregulate, but the right is not unlimited. The adopted measures must be
non-discriminatory, proportionate and taken for public purpose. However,
the tribunal failed to clarify the criteria of the proportionality test. Thus
the proportionality test needs to be further discussed in future cases. Furthermore, the tribunal set up a too high threshold for expropriation incase of intangible property without any justification, future tribunals
should be more cautious in using this approach.

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