Defining Trademarks as Investment in International Investment Law – Some Guidance from Bridgestone v. Panama

The Panama Canal. One of the biggest and most controversial US investments in Panama.

 

Guest post by Ivan Stepanov*

The relationship between intellectual property (IP) and international investment law is no longer at the fringe of the disciplines. The Philip Morris and Eli Lilly cases brought the uneasy relationship to the attention of a wider audience. The reason the cases rose to prominence was their intrinsic relationship with issues related to public health. Although not so apparent, both cases likewise contributed immensely in a jurisprudential manner, clarifying how IP will be treated in international investment law and arbitration. Following in their footsteps is Bridgestone v. Panama. Seemingly not immediately impactful, Bridgestone v. Panama brings us some novelties that can set the discourse for future IP investment cases.

Background

Bridgestone is an international car tire manufacturer. In the Americas it operates a complex network of subsidiary and affiliate companies. Bridgestone, through its US subsidiaries, owns two national trademarks in Panama – BRDIGESTONE and FIRESTONE. The trademarks are also licensed to affiliated Panamanian undertakings for the purpose of sales and marketing of Bridgestone’s products. A competitor, L.V. International, attempted to register a Panamanian trademark RIVERSTONE in 2002 for the same type of goods and services. The RIVERSTONE trademark was opposed by Bridgestone. During the opposition procedure Bridgestone’s lawyers sent a cease-and-desist letter to the applicants of the RIVERSTONE mark, warning them they risk paying damages should their trademark not be registered. Although the applicants complied, in the end Bridgestone’s opposition was unsuccessful. Moreover, L. V. International lodged a suit against Bridgestone for damages sustained while they ceased operations during the opposition period. Although Bridgestone won the case in the early instances, the Supreme Court of Panama finally ruled in favor of L. V. International and ordered Bridgestone to pay million-dollar damages.

 

Arbitration Proceedings

Not satisfied with the final decision of the Panamanian courts, Bridgestone is now trying its luck in a different forum, in the arena of international investment arbitration. Although the case is still ongoing, a Decision on Expedited Objections dealing with issues of jurisdiction has been rendered by the appointed Tribunal.

International investment treaties afford foreign investors the right to sue a state directly in international arbitration, should they perceive their investment has been mistreated. Bridgestone using this opportunity afforded by the investment chapter of the U.S. – Panama Free Trade Agreement (USPFTA) construed its claims in the following general manner. Although accepting that the opposition was unsuccessful, the fact that Bridgestone had to pay damages for the voluntary break of operations of their competitors, does in fact lower the legal and judicial possibilities stemming from their trademarks. By not being able to enforce their trademarks and having to fear retribution for otherwise legally sanctioned acts, the economic value of their trademarks is diminished. Considering that trademarks and IP are defined investments in the USPFTA, Bridgestone holds that their investments have been mistreated. However, the questions which presents itself is when can a company actually rely on its trademark as an investment in the sense of an international investment treaty? Is a pure definition in the treaty enough or should there be something more?

 

Trademarks as Investments

For any investment Tribunal to assume jurisdiction, several jurisdictional aspects need to be satisfied. One of them is jurisdiction ratione materiae. This means that investment arbitration Tribunals can only arbitrate disputes arising out of investments. Henceforth, a common point of contention in investment arbitration is whether something does in fact constitute an investment. There are multiple factors which affect the determination. A Tribunal will usually look to the appropriate investment treaty and see whether the right in question is accordingly defined. This was the case in Bridgestone v. Panama. However, a pure textual definition of a right as an investment will usually not be enough. Particularly in ICSID arbitrations, and Bridgestone v. Panama being one of them, the Tribunals will consider whether the right in question has the characteristics of an investment. In that sense the Tribunals wish to ascertain whether something indeed deserves investment protection and falls within the ambit of investment arbitration, while excluding other types of non-investment disputes (eg. commercial transaction disputes).

A non-binding characterization of an investment can be found in the USPFTA. The USPFTA states that characteristics of an investment are: (i) commitment of capital and resources, (ii) expectations of gain or profit and (iii) assumption of risk. By applying this legal logic, the Tribunal analyzed Bridgestone’s trademarks and licenses. It determined that a trademark’s function is to generate goodwill which retains customers and is used for promotion to attract new customers. Turning to promotion as a function, the Tribunal stated that promotion requires a commitment of resources. Promotion is also done with a view of attracting customers with a view of attaining profit or gain. Finally, considering that the trademark once put on the market is subject to competition and the possibility of being outperformed by competitors, the risk factor is also fulfilled. In that regard the Tribunal gave a very lucid explanation. However, it did not stop there. The Tribunal went further and stated that trademarks and IP rights are primarily negative, exclusionary rights. When used in such manner, solely to prevent others from using the same or similar rights they do not however constitute investment. As the Tribunal explains, positive use, the use when the right is exploited, depends on activities like promotion, sales and manufacture. It is through these activities that the trademark becomes the center of investment related activities and consequently worthy of investment protection. In the closing paragraphs the Tribunal concluded that if a trademark license is used in the same way as the trademark, as outlined above, it should also be considered an investment as well.

Although the case perhaps does not have the high-profile appeal in the likes of Philip Morris and Eli Lilly, this ruling might yet prove to be seminal in many ways. Considering that it is the first ruling that has analyzed an IP right as an investment in such detail, Bridgestone v. Panama creates a blueprint and paves the way for future investment arbitration cases dealing with IP.

 

*Ivan Stepanov is PhD candidate at the Friedrich-Alexander University Erlangen-Nuremberg (prof. dr. Markus Krajewski) and working as a PhD researcher at the Max Planck Institute for Innovation and Competition in Munich. The focus of his thesis is the intersection of intellectual property and international investment law. Ivan holds two LL. M. degrees – one in International Trade and Investment Law from the University of Amsterdam and the other in Intellectual Property and Competition Law from the Munich Intellectual Property Law Center.

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