European Commission Fines Qualcomm EUR 242 Mio. for Predatory Pricing

By Maria E. Sturm

On July 18, 2019, the EU Commission, the European antitrust supervisory body, fined Qualcomm Inc. for using predatory prices between 2009 and 2011. The EU Commission argued as follows:

1. It explained that Qualcomm had a dominant position in the world market. This dominance is based on:
2. Its market share of 60% and
3. The high entry barriers: competitors are confronted with significant initial investments for research and development in this sector, as well as with obstacles regarding intellectual property rights.
4. While it is not illegal to hold a dominant position, the EU Commission accuses Qualcomm of abusing such a position by using predatory prices for UMTS-chip sets. To prove this, the EU Commission used a price-cost test for the chipsets in question. In addition, it claimed to have qualitative evidence for anti-competitive behavior. Qualcomm used this problematic pricing policy when its strongest competitor, Icera, tried to expand on the market in an effort to hinder Icera from building up its market presence.
5. Finally, the EU Commission argues that Qualcomm’s behavior could not be justified by potential efficiency gains.

 

History

This Commission decision is the latest, but presumably not the final point of a long case history. Already in 2015, the Commission has initiated a formal investigation and issued Statements of Objections against Qualcomm. In 2017, the Commission requested further information from Qualcomm. As Qualcomm did not respond to this request, the Commission made a formal decision which Qualcomm claimed to be void. Qualcomm filed for annulment of the decision and an application for interim measures. The latter was dismissed on July 12, 2017.  Art. 278 TFEU establishes the principle that EU actions do not have a suspensory effect, because acts of EU institutions are presumed to be lawful. Thus, an order of suspension or interim measures is only issued in exceptional circumstances where it is necessary to avoid serious and irreparable harm to the applicant’s interests in relation to the competing interests. The cumulative requirements are:

1. The applicant must state the subject matter of the proceedings.
2. The circumstances must give rise to urgency.
3. The pleas of fact and law must establish a prima facie case for the interim measures.

Qualcomm mainly brought forward two arguments for the urgency of the matter:

1. The amount of work and cost for answering the questions would be too burdensome. In response, the Court stated that the damage would be only of a pecuniary nature. Such damage normally is not irreparable, because it can be restored afterwards. Qualcomm did not argue that its financial viability would be jeopardized before the final judgment would be issued, that its market share would be affected substantially, or that it was impossible to seek compensation.
2. The enormous amount of work for the employees of the financial department would make it impossible for them to perform their regular tasks. However, Qualcomm mentioned itself that the burden would weigh particularly heavily on a limited number of employees in the financial department only. The Court held that if only some employees of only one department would be affected, the argument is not strong enough to justify urgency.

 

Latest decision

The latest decision in this case was issued on April 9, 2019, about Qualcomm’s claim for annulment. Qualcomm brought forward six pleas against the EU Commission, but all of them were dismissed:

 

1. Infringement of the obligation to state reasons.

According to relevant case law, statements of reasons must be appropriate to the measure at issue and must disclose the reasons clearly and unequivocally. The Commission must show that the request is justified. The undertakings concerned must be able to assess the scope of their duty to cooperate and their right to defense must be safeguarded. However, the EU Commission is not obliged to communicate all information at its disposal, as long as it clearly indicates the suspicions. Since the Commission clearly indicated the products and the customers involved, as well as the suspicions of infringement, it fulfilled its obligation to state reasons.

 

2. Infringement of the principle of necessity.

There must be a correlation between the request for information and the presumed infringement and the Commission must presume reasonably that the information will help determine whether the alleged infringement has taken place. Qualcomm accused the Commission of having expanded the scope of the investigation and contended that the required information was not necessary. Concerning the first point, Qualcomm mainly referred to the Statement of Objections and said the Commission must terminate its preliminary investigations before issuing such a document. However, according to the Court, the Statement of Objections is only procedural and preliminary, the Commission is thus free to continue with fact-finding afterwards. Concerning the second point, the Court grants the Commission broad powers of investigation, including the assessment of whether information is necessary or not. In particular, the Commission needed the information required from Qualcomm to avoid factual errors in calculating the price-cost test. The Commission had to request the information to keep up with its obligation to examine carefully and impartially.

 

3. Infringement of the principle of proportionality.

Qualcomm argued that the information requested was disproportionate, because it was not legally obliged to keep documents for longer than three and a half years and that they did not organize their documents systematically. Here, the Court said that at least from the moment when Qualcomm learned about the Commission’s investigation, it should have been more careful and should have kept documents. Moreover, undertakings who keep their documents in an organized and systematic order cannot be penalized for that. Therefore, the unsystematic organization falls under Qualcomm’s responsibility. Furthermore, a significant workload is not per se disproportionate. One must consider it in relation to the investigated infringement. An alleged predatory pricing requires complex analyses of a large amount of data and is not disproportionate because of its nature.

 

4. Reversal of the burden of proof.

This plea is, according to the Court, based on a misreading. Qualcomm was asked to neither audit financial accounts nor prove that they have conducted their business in accordance with the law.  Rather, it was only asked to issue information for the Commission to conduct the price-cost test and internal documents pertaining to the relevant period.

 

5. Infringement of the right to avoid self-incrimination.

Qualcomm claims that the Commission’s requests were beyond the scope of simply providing information. According to Regulation No 1/2003, undertakings cannot be forced to admit that they have committed an infringement, but they are obliged to answer factual questions and to provide documents, even if this information may be used to establish against them. Therefore, they do not have an absolute right of silence. On the contrary, in order to ensure the effectiveness of Regulation No 1/2003, the Commission is entitled to request all necessary information concerning relevant facts to prove the existence of anticompetitive conduct.

 

6. Infringement of the principle of good administration.

Qualcomm claimed the required information was excessive and that the Commission abused its investigative power by prolonging a flawed investigation. According to the relevant case law, the principle of good administration requires EU institutions to observe the good guarantees afforded by the legal order. Those guarantees include the duty to examine carefully and impartially all the relevant aspects of the individual case. Here, the Court held that the Commission requested the information in question precisely to comply with its duty to examine carefully and impartially the arguments put forward by Qualcomm regarding the Statement of Objections.

On June 18, 2019, Qualcomm lodged an appeal for the annulment of the General Court’s judgment. The case is to be continued.

U.S. Qualcomm Case Update: Privilege Assertions

By Nicole Daniel

On 22 March 2018, in a court hearing in the Qualcomm case, Judge Koh expressed her concern over possible abuses in asserting legal privilege over certain documents.

In January 2017, the U.S. FTC sued Qualcomm, alleging that the company consistently refused to license its essential patents to competitors, thereby violating its pledge to standards organizations that it would license them on FRAND terms (fair, reasonable and non-discriminatory). Allegedly, Qualcomm also engaged in a policy of withholding processors unless its customers agreed to patent licensing terms favorable to Qualcomm. A trial is set for January 2019.

Furthermore, a class action alleged that Qualcomm’s behavior raised the prices of devices operating with its chips.

At the hearing, judge Koh said she is “deeply disturbed” by the very high percentage of privilege assertions by Qualcomm. However, Qualcomm continues to produce documents after reviewing them again and removing earlier assertions of privilege. Judge Koh expressed her concerns at the court hearing several times and said that she will allow witnesses to be redeposed, as often as necessary, until all documents are available before testimony.

This issue centers around documents from Apple and other customers which were gathered under an EU investigation into the baseband chipsets market. Even though the plaintiffs have already obtained a redacted version of the Commission’s January 2017 decision fining Qualcomm EUR 997 million, they ask for an unredacted version. In this decision, Qualcomm was fined for paying Apple to refrain from buying rival manufacturers’ chips.

The U.S. plaintiffs argue that Qualcomm should have simply asked for third parties’ permission to share the information given to the EU investigators. Qualcomm in turn argued that it cannot circumvent EU law by making the disclosures asked for and referred to the version of the decision to be published by the Commission. In the public version, the Commission makes its own redactions. The U.S. plaintiffs further argued that they contacted Apple, as well as its contracted manufacturers, and those parties do not object to disclosure. Qualcomm replied that they could simply ask them directly for the information. In sum, the U.S. plaintiffs called Qualcomm’s behavior unfair, as it prevents them from fully understanding the EU decision.

Until early May 2018, no public version of the Commission was available. The Commission and the companies involved are still in the process of deciding on a version of the decision that does not contain any business secrets or other confidential information.

Update on the Apple and Qualcomm Proceedings

By Nicole Daniel

Introduction

The proceedings between Apple and Qualcomm began in January 2017 in the U.S. District Court in San Diego when Apple filed suit against Qualcomm over its allegedly abusive licensing practices with its wireless patents. Qualcomm then filed unfair competition law counterclaims. This case is being overseen by U.S. District Judge Gonzalo Curiel.

Apple then sued Qualcomm for similar violations in the UK, China, Japan, and Taiwan.

In July 2017 Qualcomm filed patent claims against Apple also in the U.S. District Court in San Diego. This case is being overseen by U.S. District Judge Dana M. Sabraw. At the same time Qualcomm filed a complaint with the U.S. International Trade Commission accusing the Apple iPhone of infringing five Qualcomm patents.

 

District Court Case I

In November 2017, Judge Curiel issued a split decision in the first patent and antitrust case between Apple and Qualcomm.

Apple has been seeking a declarative judgment that it had not infringed the nine Qualcomm patents at issue and asked the court to decide on a fair and reasonable licensing rate. Judge Curiel denied those claims, holding instead that no detailed infringement analysis as to the Additional Patents-in-Suit had been conducted.

Judge Curiel further held that Qualcomm had not adequately pleaded claims against Apple based on California’s Unfair Competition Law. These allegations stemmed from Apple’s decision to use both Qualcomm and Intel chips in its iPhone. Before, Apple exclusively used Qualcomm’s chips in earlier versions of the iPhone.

In a hearing in October 2017 the lawyers for Qualcomm claimed that Apple executives threatened to end their business relationship if Qualcomm publicly claimed that its own chipsets were superior to Intel’s. In his order judge Curiel held that Qualcomm had not adequately pleaded the specific facts indicating its own reliance on an alleged omission or misrepresentation by Apple.  Accordingly, Qualcomm lacked standing under Unfair Competition Law.

District Court Case II

In the district court patent case, Apple filed counterclaims arguing that Qualcomm infringed patents relating to enabling extended battery life in a smartphone or other mobiles devises by supplying power only when needed. This technology serves to maximize battery life.

Apple further argued that it created the smartphone as its own product category in 2007 when it introduced the iPhone. Qualcomm merely developed basic telephone technology which is now dated.

Qualcomm, on the other hand, argued that the success of the iPhone is due to its technology as Qualcomm has developed high-speed wireless connectivity over decades.

The discussion of who essentially invented the smartphone is of importance since under U.S. President Trump the term “innovator” has become very significant. On 10 November 2017 Makan Delrahim, the new chief of the Department of Justice’s antitrust division, made a policy speech and stated that the government aims to rebalance the scales in antitrust enforcement away from implementers who incorporate the inventions of others into their own products. There will be more emphasis on the innovators’ rights so as to protect their patent-holder rights in cases concerning patents essential to technology standards.

 

 

Further Cases filed and the Case at the US International Trade Commission

In November 2017, Qualcomm filed three new district court patent cases against Apple as well as one new complaint for the case pending before the U.S. International Trade Commission. In sum, Qualcomm accuses Apple of infringing 16 non-standard essential patents for technology implemented outside the wireless modern chip.

Despite this litigation, Qualcomm has so far remained a key supplier of chips to Apple.

European Commission Communication on Standard Essential Patents

By Giuseppe Colangelo

On November 29, 2017, the European  Commission released the much-awaited Communication on standard essential patents (SEPs) licensing [“Setting out the EU approach to Standard Essential Patents”, COM(2017) 712 final].

The Communication comes in the wake of the UK judgement Unwired Planet v. Huawei,^[1] recently delivered by Mr. Justice Birss and analyzed in our previous newsletter. As highlighted by the UK decision, after the judgment in Huawei/ZTE (Case C-170/13), in which the European Court of Justice identified the steps which SEPs owners and users must follow in negotiating a FRAND royalty, there are still several unresolved questions. Notably, the different approaches adopted by Germany and the UK have spurred the Communication to set out “key principles that foster a balanced, smooth and predictable framework for SEPs”.

The key principles reflect two stated objectives: incentivizing the development and inclusion of top technologies in standards by providing fair and adequate returns, and ensuring fair access to standardized technologies to promote wide dissemination.

First, the Commission takes the view that the quality and accessibility of information recorded in standard development organizations (SDOs) database should be improved. Therefore, the Commission calls on SDOs to ensure that their databases comply with basic quality standards, and to transform the current declaration system into a tool providing more up-to-date and precise information on SEPs. Moreover, the Commission stated that declared SEPs should be scrutinized to assess their essentiality for a standard, and will launch a pilot project for SEPs in selected technologies in which an appropriate scrutiny mechanism will be introduced.

Second, the Commission sets out certain general principles for FRAND licensing terms, stating that it is necessary and beneficial to establish a first set of key signposts on the FRAND concept, so as to provide for a more stable licensing environment, guide parties in their negotiations, and reduce costly litigation. In this regard, provided that the parties are best placed to arrive at a common understanding of what are fair licensing conditions and fair rates, the Commission states that:

1. there is no one-size-fit-all solution on what FRAND is: what can be considered fair and reasonable can differ from sector to sector and over time;
2. determining a FRAND value should require taking into account the present value add of the patented technology: that value should be irrespective of the market success of the product which is unrelated to the value of the patented technology;
3. to avoid royalty stacking, parties must take into account whether the aggregate rate for the standard is reasonable;
4. the nondiscrimination element of FRAND indicates that rightholders cannot discriminate between implementers that are ‘similarly situated’ (see Unwired Planet);
5. for products with a global circulation, SEP licenses granted on a worldwide basis may contribute to a more efficient approach and therefore can be compatible with FRAND (see Unwired Planet).

A third part of the Communication is devoted to providing guidance in order to achieve a balanced and predictable enforcement environment. With regards to the availability of injunctive relief, the FRAND process requires both parties to negotiate in good faith, including responding in a timely manner. The willingness of the parties to submit to binding third-party FRAND determination – should the (counter-)offer be found not to be FRAND – is an indication of a FRAND behavior. Furthermore, in terms of the timeliness of the counter-offer, no general benchmark can be established, as case-specific elements play a role. Nonetheless, there is a probable trade-off between the time considered reasonable for responding to the offer and the detail and quality of the information provided in the SEP holder’s initial offer.

Even if injunctive relief can be sought against parties acting in bad faith (i.e. parties unwilling to take up a license on FRAND terms), courts are bound by Article 3(2) of the IPR Enforcement Directive, and notably the requirement to ensure that injunctive relief is effective, proportionate, and dissuasive.

Finally, the Commission states that patent assertion entities should be subject to the same rules as any other SEP holder.

[1] [2017] E.W.H.C. 711 (Pat).

European Patent Office Adopts Study on Patents and Publishes First Edition of the Unitary Patent Guide

By Kletia Noti

On November 14, 2017, the European Patent Office (“EPO”) published a study titled “Patents, trade and foreign direct investment in the European Union” (hereinafter, “Study”). Inter alia, the Study assesses “the impact of the European patent system on the circulation of technologies through trade and foreign direct investment in the EU single market. The Study opines that the current patent system in Europe could bring increased benefits if further harmonization were accomplished. Under the current patent system, fragmentation post-grant gives rise to limitations which may hinder cross-border trade and investment in IP- and technology-intensive industries. According to the Study, the Unitary Patent will remove many of these limitations.

The Study follows the EPO publication, on 18 August 2017, of the first edition of the Unitary Patent Guide (hereinafter, “Guide”)^[1]. The Guide aims to provide companies, inventors and their representatives with an outline of the procedure involved in obtaining a Unitary Patent from the EPO, once the EPO has granted a European patent on the basis of the provisions laid down in the European Patent Convention (“EPC”)^[2]. In particular, the Guide addresses the mechanisms to obtain and renew a Unitary Patent, the information which will be rendered available about the already granted Unitary Patents, who can act before the EPO with regard to a Unitary Patent and how to record changes of ownership and licenses.

In addition to the classic routes to obtain a patent in the EU (i.e. the national route; the European patent), a Unitary Patent can be sought as a result of the Unitary Patent reform^[3]. The Unitary Patent will make it possible to get patent protection in up to 26 EU Member States by submitting a single request to the EPO, making the procedure simpler and more cost effective for applicants. More specifically, the Unitary Patent is a “European patent with unitary effect”, which means a European patent granted by the European Patent Office under the rules and procedures of the European Patent Convention (EPC).

At the pre-grant phase, the procedure will follow the same steps as those for European patents granted by the EPO under the rules of the EPC.  If the criteria set out under the EPC are met, the EPO grants a European patent. Once the European patent is granted, the patent proprietor will be able to request unitary effect, thereby obtaining a Unitary Patent which provides uniform patent protection in up to 26 EU Member States^[4].  Namely, what distinguishes the European patent from the Unitary Patent is that, after the grant, the proprietor may ask the EPO for unitary effect to be attributed for the territory of the participating EU Member States in which the Agreement on a Unified Patent Court (hereinafter, “UPCA”) ^[5], an international treaty, has taken effect at the date of registration^[6].

Against the above background, the Unitary Patent will thus cover the territories of those participating EU Member States in which the UPCA has taken effect at the date of registration of unitary effect by the EPO. The EPO clarifies that, as it is likely that the ratification will occur successively, there will be different generations of Unitary Patents with different territorial coverage. This means that, although 26 EU Member States are currently participating in the Unitary Patent scheme, Unitary Patents registered at the outset will not cover all 26 of their territories, because some of them have not yet ratified the UPCA^[7].

On November 20, 2017, the President of the Council of the EU published a summary of the situation in the 25 Member States which have signed the Unified Patent Court Agreement (UPCA) concerning both their ratification of the UPCA and their consent to be bound by its Protocol on Provisional Application (PPA)^[8].

While France has already ratified the UPCA and has expressed consent to be bound by the PPA, the UK and Germany have not done so yet.

In particular, what the impact of Brexit on the Unitary Patent project would be is still unclear^[9]. On December 4, 2017, the UK House of Commons formally approved the draft Unified Patent Court (Immunities and Privileges) Order 2017^[10]. The House of Lords Grand Committee also met on December 6, 2017 to consider this draft Order. The approval of such an Order by the House of Lords and its subsequent approval (along with the corresponding Scottish Order) by the Privy Council are the final steps in the UK’s ratification process that need to be completed before the UK can formally ratify the UPC Agreement^[11].

Earlier in 2017, a constitutional complaint^[12] was lodged with the Federal Constitutional Court in Germany. The complaint is currently pending and, if upheld, is expected to likely cause delay to the German ratification of the UPCA and Germany consenting to be bound by the PPA^[13].

[1] Available at: https://www.epo.org/law-practice/unitary/unitary-patent/unitary-patent-guide.html

[2] https://www.epo.org/law-practice/legal-texts/epc.html

[3] http://europa.eu/rapid/press-release_MEMO-12-970_en.htm?locale=en

[4] Whether the United Kingdom continues to participate in the Unitary Patent and the Unified Patent Court after its withdrawal from the EU will be a political decision for the EU, its remaining Member States and the United Kingdom and may be addressed as part of the exit negotiations. See Guide, Section 15.

[5] In February 2013, 25 EU Member States, i.e. all EU Member States except Spain, Poland and Croatia, signed the Agreement on a Unified Patent Court (UPCA), Date of entry into force unknown (pending notification) or not yet in force, OJ C 175, 20.6.2013, p. 1–40. The UPCA is the third component of the Unitary Patent package. The Unified Patent Court (UPC) is a common court for all the Member States party to the UPCA and therefore, it is part of their judicial system. It has exclusive competence in respect of Unitary Patents as well as in respect of classic European patents validated in one or several of those states. See: https://www.epo.org/law-practice/legal-texts/html/upg/e/uppg_a_v_3.html. In September 2015, Italy joined the Unitary Patent and became the 26th member of the enhanced cooperation on Unitary Patent protection.

[6] The EU regulations establishing the Unitary Patent system (No 1257/2012 and No 1260/2012) entered into force on 20 January 2013, but they will only apply as from the date of entry into force of the UPCA, namely on the first day of the fourth month following the deposit of the 13th instrument of ratification or accession (provided those of the three Member States in which the highest number of European patents had effect in the year preceding the signature of the Agreement, i.e. France, Germany and the United Kingdom, are included). See EPO, When will the Unitary Patent start:  https://www.epo.org/law-practice/unitary/unitary-patent/start.html

[7]See, for a list of the (so far) 14 Member States which have already ratified the UPCA: http://www.consilium.europa.eu/en/documents-publications/treaties-agreements/agreement/?id=2013001# (last accessed 17 December 2017)

[8] Note from Presidency to the Council, Unitary Patent and Unified Patent Court – Information on the State of Play, 20 November 2017.

[9] On December 22, 2017, a note was sent to the UK Government by the UK Law Society which had been contributed to and signed by other IP stakeholder organisations, asking the Government to provide legal certainty regarding the UPC post-Brexit.

[10]See, for an overview: https://publications.parliament.uk/pa/cm201719/cmvote/171204v01.html

[11] M.Richardson, The Lords Consider the UPC: Where is it?, 12 December 2017, available at:  https://ipcopy.wordpress.com/2017/12/12/the-lords-consider-the-upc-where-is-it/

[12]Juve, UPC: Düsseldorfer Rechtsanwalt Stjerna legte Verfassungsbeschwerde ein, September 6, 2009: https://www.juve.de/nachrichten/verfahren/2017/09/upc-duesseldorfer-rechtsanwalt-stjerna-legte-verfassungsbeschwerde-ein

[13] For the PPA to come into effect, 13 signatory states – which have signed the UPCA (and which must include France, UK and Germany) and have ratified the UPCA or informed the depositary that they have received parliamentary approval to ratify the UPCA – must have signed and ratified, accepted or approved the Protocol or declared themselves bound by Article 1 of the Protocol. Therefore, Germany’s consent to the PPA is needed before the provisional application phase can start.

The Battle for CRISPR Technology: Who really Owns It?

By Bart Kolodziejczyk

The face of genetic engineering is being revolutionized with the emergence of the CRISPR/Cas9 technology. You have probably heard of it, but if you haven’t, here you go: CRISPR stands for Clustered Regularly Interspaced Short Palindromic Repeats, and it is a group of bacterial DNA sequences into which pieces of viral DNA were plugged into while the bacterium was being attacked. The CRISPR/Cas9 is a genome editing technology that can be used to alter genes in living organisms permanently.

In July 2017, a research team in the U.S proved that they could alter the DNA of human embryos using CRISPR/Cas9 technology. However, there have been controversies surrounding this technology, mainly because of ethical and biosafety concerns. Importantly, the question of who owns the patent to this technology is also undecided, which brings up the question of who can use the technology for commercial purposes.

The CRISPR battle is being spearheaded by the University of California (UC) against the Broad Institute in Cambridge, Massachusetts, and its associates. UC claims that it has a patent that covers the uses of CSISPR in every type of cell, but the Broad Institute claims that they should own the patent that covers the use of the technology in eukaryotes, which is the focal point for the development of human medicines using the CRISPR technology,

The group of litigants led by the UC argue that the U.S. Patent Trial and Appeal Board (PTAB) ruled wrongly in February in favor of the the Broad Institute in Cambridge, Massachusetts, and two associates — Harvard University and the Massachusetts Institute of Technology in Cambridge — in a judgement that said the Broad group invented the use of CRISPR usage in eukaryotic cells. In order to overturn the ruling, the UC filed an appeal based on the argument that the U.S. Patent Trial and Appeal Board (PTAB) “ignored key evidence” and “made multiple errors.” This argument was contained in a brief sent to the U.S Court of Appeals on July 25.

However, the battle for ownership of CRISPR took a dramatic turn when Millipore Sigma, a subsidiary of Merck KGaA, a German pharmaceutical company entered into the fray. In a claim filed by Millipore Sigma, they claim that they have the right to merge genetic information into eukaryotic cells using CRISPR and that “the method does not comprise a process for modifying the germ line genetic identity of a human being.” The battle seems far from coming to an end as a statement credited to the European Patent Office (EPO) shows that it intends to grant a patent to Millipore Sigma to own the use of CRISPR in this manner. There are other similar patents being submitted, and some have been granted, for example in Australia.

Therefore, even though the CRISPR technology has ushered in new frontiers in genetic engineering, the subject of who owns what looks like it might be the topic of controversial discussions for a while.

Eli Lilly Loses in Chapter 11 NAFTA Arbitration over Drug Patents

By Gabriel M. Lentner

On 16 March 2017, the NAFTA tribunal issued its final award in the case of Eli Lilly v Canada, dismissing the claim.

Two patents of the U.S. pharmaceutical company known as ‘Eli Lilly’ were invalidated by the Canadian federal courts based on judicial interpretations of the utility requirements contained in the Canadian patent statute (referred to as the ‘promise utility doctrine’). Eli Lilly alleged that these interpretations, and in particular the courts’ adoption of the promise utility doctrine, departed dramatically from prior Canadian patent law. On this basis, Eli Lilly initiated proceedings against Canada under Chapter 11 of NAFTA claiming that the invalidation of its patents amounted to unlawful expropriation of its intellectual property (NAFTA Article 1110) and a violation of the Minimum Standard Treatment (NAFTA Article 1105).

The Tribunal dismissed the alleged breaches stating that the Claimant had not met the required burden of proof. However, it noted inter alia that, contrary to what Canada argued, not only may a denial of justice serve as a basis of liability for judicial measures, but also other conduct which ‘may also be sufficiently egregious and shocking, such as manifest arbitrariness or blatant unfairness’. It held that invalidation under naturally evolving patent laws is not a breach of legitimate expectations but also suggested that a violation could take place when ‘a fundamental or dramatic change in Canadian patent law’ occurs.

Finally, the Tribunal noted that the evolution of the Canadian legal framework, in relation to Claimant’s patents, could not sustain a claim of arbitrariness or discrimination amounting to a violation of NAFTA Articles 1105 or 1110.

The award comes at a time of heightened interest (and criticism) surrounding the use of Investor-State Dispute Settlement (ISDS) for the protection of intellectual property rights (see cases of Philip Morris v Australia and Philip Morris v Uruguay).The Tribunal was careful not to dismiss out of hand IP-based ISDS claims, but similarly did not provide any further clarification regarding such cases and the applicable legal standards for IP protection. Thus, this case will not necessarily serve to reduce the uncertainties in this area of law, and as a result, as one commentator put it, it rather further opened the door to such claims.