When a foreign company wants to set up operations within a particular nation, there are a few factors that it may consider. Flexibility or ease of setting up, obtaining permissions, potential for growth, and audience reach could be a few criteria being analysed by the company. However, another important aspect that the company needs to consider is Intellectual Property (IP). The IP of the company can be considered an “investment” in the host state if the country that houses the company and the host state have entered into a Bilateral Investment Treaty (BIT), the clauses of such Treaty that determine the willingness of the host state to protect the Intellectual Property, which is considered “investment” in this context.
Add current developments in BITs and include an IP perspective to it
What are BITs?
A Bilateral Investment Treaty (BIT) is a formal agreement between two nations aimed at promoting and protecting reciprocal investments by minimising legal and regulatory barriers. For instance, if India signs a BIT with Australia, Australian investors investing in India will be protected under said BIT and vice versa.
A BIT ensures that there exists a certain level of understanding, co-operation and friendliness between the two nations that benefit from the reciprocal investments. Circling back to the above example, when India signs a BIT with Australia, Indian investors who want to invest in an Australian company will have certain rights protected in Australia. BITs also include terms for resolving a dispute that may arise between the Indian investor and the Australian company through arbitration or any other means. This renders confidence in investors to go ahead with cross-border investments.
Principles incorporated in a BIT
Every BIT follows certain ground principles implicitly or explicitly. These principles are:
- Fair and equitable treatment: Every BIT must ensure that the foreign investors are treated at par with domestic investors in a fair, just, equitable and transparent way. In a nutshell, every State is obligated to frame laws and legislation that are stable and ensure due process is followed with domestic and foreign investors on par.
- Protection from Expropriation: Expropriation refers to the snatching of foreign investments by the Host State without due process and adequate compensation. An example of expropriation would be if an investor from Country A has invested in a solar company in Country B and the host state decides to nationalise the solar sector; adequate compensation must be given to the investor.
- Free transfer of funds: The concept of free transfer of funds emphasises the fact that investors must be given the right to move around money without excessive procedural restrictions. It basically means that the profits, dividends, capital, liquidated proceeds and compensation received must be easily transferred in or out of the host state without “trapping” the investor’s money through restrictions, exchange formalities and regulations imposed by the host state.
- Legal recourse via Arbitration: When a dispute arises between the investor and the host-state, it is termed an Investor-State Dispute. Settlement mechanisms to solve such disputes are called Investor-State Dispute Settlement (ISDS). Usually, Alternative Dispute Resolution (ADR) Mechanisms are elucidated in BITs. The most common one is Arbitration with a mention of the forum, the most chosen one being the International Centre for Settlement of Investment Disputes (ICSID).
Intellectual Property and BITs
A quick perusal of the Model Text for the Indian Bilateral Investment Treaty shows the way Intellectual Property clauses are included in BITs. Clause 1.4 (b) of the Model Text states that an “investment” includes copyrights, technical know-how, patents, trademarks and industrial designs. Model texts of many countries have incorporated intangible assets into the definition of “investment”. IPRs that have the characteristics of an investment would fall under the clause.
The question at this juncture would be, how would IPR be considered an investment in the first place? If a big U.S pharma company licenses the patent for a drug to an Indian company, such a license arrangement is considered an investment. The U.S. pharma company earns profit via royalties. Similarly, when a global company like Starbucks licenses its trademark to a local company, Tata, for a joint venture, it is an investment. When a production house licenses streaming rights of its movie to another country, it invests its copyright for commercial gain.
However, for IPR to enjoy protection in the host state, it must be recognised or granted based on the territoriality principle. For instance, if a patent has been applied for in India, it will be considered an investment only after the patent has been granted. In case of licensing of a patent, since it is a contractual term, the license itself acts as an investment, qualifying for protection.
Likewise, trademarks must be registered in the host state to be considered as an investment. However, in the case of licensing, the contractual arrangement in itself is considered an investment without the need for any registration.
In the case of Philip Morris v. Uruguay, Uruguay introduced regulations requiring tobacco manufacturers not to sell multiple varieties of their brand. Furthermore, they were required to display health warnings on 80% of the product. Only 20% of the product space would be available for the trademark and other details of the company. Tobacco companies, including Philip Morris Brands Sàrl and Philip Morris Products, initiated arbitration proceedings in ICSID against the host state, Uruguay, as their trademark usage on the package was being restricted. The ICSID, however, ruled in favour of Uruguay because the tobacco control measures were adopted to protect public health.
In the case of Shell Brands International AG and Shell Nicaragua S.A. v. Republic of Nicaragua, local banana workers filed a class action lawsuit against Shell Oil, citing health concerns arising out of pesticides supplied by Shell. A local Nicaraguan court awarded approximately $489 million in damages. In 2006, the Nicaraguan government seized Shell’s trademarks to enforce the order. As a result of this, Shell filed a claim in ICSID stating that its rights as an investor were violated by the host state of Nicaragua. This matter was later settled.
Impact of IP clauses in BITs on product consumption
Clauses in BITs that deal with the protection of investment that includes IP strengthen the protection of the IPR of that particular brand. This increases brand availability and perception in the market. As discussed above, when a license is granted by a pharma company for the patent of a drug, the availability of the drug in the host state increases.
Higher availability in a new market can be accompanied by higher prices. However, a class of consumers might be willing to shell out money due to the “foreign” aspect of such brands. By treating patents, trademarks, copyrights, trade secrets, industrial designs, and licenses as protected investments, BITs give multinational companies the confidence to expand into foreign markets. This often boosts the availability and consumption of global goods—ranging from branded consumer products and luxury items to advanced technology and digital content like movies, music, and software. Protections for licensing and franchising also help international chains such as McDonald’s and Starbucks spread more quickly, reshaping local consumer habits. On the positive side, this means consumers enjoy greater access to authentic, high-quality products and services. Yet, strong IP protections under BITs can also drive up the cost of essential goods, particularly medicines and software, limit access to affordable local alternatives, and create a “regulatory chill,” where governments hesitate to enforce health or cultural policies (such as tobacco restrictions or plain packaging laws) out of fear of investor lawsuits. In this way, while IP clauses in BITs enhance consumer choice and global integration, they may also compromise affordability, accessibility, and government autonomy in regulating essential or harmful products.
Authored by: Ms. Chinmayee Hegde, Blogger, The IP Press
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