Investment disputes, trademarks and licenses, and ICSID tribunals-"Bridgestone v. Panama"

Kat friend Simon Klopschinski, of rospatt osten pross, has kept IPKat readers up-to-date on major developments in arbitration law as they apply to IP. Below he discusses an important recent result in this regard, Bridgestone v. Panama.

In the recent intellectual property-related investment arbitration of Bridgestone v. Panama, the arbitral tribunal in its Decision on Expedited Objections of December 13, 2017 assumed jurisdiction over the case. It did so by qualifying trademarks and licenses as “investment” within the meaning of Article 25 of theICSID Convention and the relevant international investment agreement (IIA), i.e. the United States-Panama Trade Promotion Agreement (TPA). The ICSID Convention establishes the International Centre for Settlement of Investment Disputes (ICSID) in Washington DC, which is the major investor-state dispute settlement (ISDS), forum. Article 25 ICSID Convention provides “[t]he jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment [...].”

The Bridgestone v. Panama case differs from previous IP-related investment arbitrations, e.g. Philip Morris v. Uruguay, in that the tribunal regarded trademarks and licenses as sufficient to constitute an “investment” under Article 25 ICSID Convention, despite the absence of any other form of investment commonly associated with investment, e.g. shares or real property. Thereby, the tribunal has opened an additional possibility to litigate IP disputes in an ISDS context.

The facts of the Bridgestone v. Panama arbitration read like an unjustified threats case gone wild. Different entities of the Japanese Bridgestone group, which manufactures and markets tires, owned the trademarks BRIDGESTONE and FIRESTONE or were licensees of these trademarks, respectively. It was the policy of the Bridgestone group to oppose any third party application to register a trademark in relation to tires that bears the suffix “-stone”. After the Chinese Luque Group had unsuccessfully tried in 2002 to register the RIVERSTONE trademark in the US, on November 3, 2004, Bridgestone’s US lawyers wrote to Luque, warning them that Luque would be “acting at its own peril” if it used the RIVERSTONE trademark in other countries. In 2005, a Luque subsidiary filed for registration of the RIVERSTONE trademark in Panama. In response, the two Bridgestone entities BSJ and BSLS, in their respective capacities as the owners of the BRIDGESTONE and FIRESTONE trademarks in Panama opposed the Luque application. The opposition was denied in first instance proceedings. BSJ and BSLS filed an appeal but subsequently withdrew it.

Luque then commenced proceedings in the Panamanian court against BSJ and BSLS, alleging that its filing of the opposition proceedings had been wrongful and had caused Luque to cease sales of RIVERSTONE tires out of a fear that their inventory would be seized if they were to lose in court. Luque, inter alia, argued that these fears were justified taking into account the letter of Bridgestone’s US lawyers of November 3, 2004 (see above). In 2014, the Panamanian Supreme Court decided in favour of Luque and ordered in its judgment of May 28, 2014 BSJ and BSLS to pay US$ 5 million (plus attorney fees) to Luque.

In response, the two Bridgestone entities BSLS and BSAM filed a request for arbitration with the ICSID against Panama. BSLS and BSAM claimed for compensation in the amount of US$ 16 million under the TPA, arguing that the judgment of the Panamanian Supreme Court had diminished the value of their investment, i.e. trademarks and licenses, by weakening the protection given to them in Panama and elsewhere in Latin America. As far as BSLS is concerned, the investment relied on is the FIRESTONE trademark registered in its name in Panama. The investments in relation to which BSAM seeks relief are (i) the license that it had been granted by BSLS to use the FIRESTONE trademark registered in Panama; and (ii) the license that its wholly owned subsidiary, BATO, had been granted by BSJ to use the BRIDGESTONE trademark registered in Panama. In its Decision on Expedited Objections of December 13, 2017, as discussed below, the arbitral tribunal dismissed a number of preliminary objections that Panama had raised.

One of Panama’s objections was that BSAM did not have a qualifying investment. Under the applicable rules of the TPA, an “investment” must be an asset that is capable of being owned and controlled. In addition, the asset claimed to be an investment must have the “characteristics” of an investment, i.e. a commitment of capital or other resources, expectation of gain or profit, and assumption of risk. Similar criteria apply to an “investment” under Article 25 ICSID Convention. The tribunal set up the following legal standards under which trademarks and licenses can qualify as an investment:

“In summary, a registered trademark will constitute a qualifying investment provided that it is exploited by its owner by activities that, together with the trademark itself, have the normal characteristics of an investment” (para. 177)."

“Under the footnote to Article 10.29 (g) of the TPA a license will not have the characteristics of an investment unless it creates rights protected under domestic law, that is under the law of the host State. No similar provision applies to (f) “intellectual property rights”, but the Tribunal is in no doubt that they must be rights protected under the law of Panama, otherwise they can neither properly be described as “intellectual property rights”, nor as “assets.”

The respective Claimant must own or control, directly or indirectly, the rights granted by each License.

The License must be exploited by the licensee in the same way as a trademark must be exploited if it is to qualify as an investment, as above described” (paras. 178 to 180).

The tribunal held that a trademark is exploited by the manufacture, promotion and sale of goods that bear the mark. Such exploitation confers upon the trademark, by virtue of the core trademark functions, the characteristics of an investment. Thus, resources are dedicated, both to the production of the articles sold bearing the trademark and to the promotion and support of those sales. Another way to exploit a trademark is that the owner may license the use of the trademark under an agreement that grants to the licensee the right to exploit the trademark for its own benefit.

Against this background, the arbitral tribunal found that BSAM’s rights as licensee of the BRIDGESTONE and FIRESTONE trademarks were qualifying investments:

“Where the owner of a trademark licenses its use to a licensee, it is necessary to distinguish carefully between the interest of the owner and the interest of the licensee, each of which may be capable of constituting an investment. If the owner does no more than grant a license of the trademark, in consideration of the payment of royalties by the licensee, the value of the trademark to the owner will reflect the amount of royalties received, while the value of the license to the licensee will reflect the fruits of the exploitation of the trademark, out of which the royalties are paid.

Thus, in the present case, the claim of BSLS, as the owner of the FIRESTONE trademark, must be distinguished from the claim of BSAM, as licensee of that trademark.

So far as the BRIDGESTONE trademark is concerned, BSJ, as owner, has no claim because, being a Japanese company, it falls outside the protection of the TPA. BSAM’s claim as indirect owner and controller of the license enjoyed by BATO, mirrors its claim as licensee of the FIRESTONE trademark” (para. 219 to 221).

Another objection raised by Panama was that there was no investment “arising directly out” of an investment, as required by Article 25 ICSID Convention. The tribunal dismissed the objection insofar as it relates to Bridgestone’s disputed claim to have suffered damage within Panama, as follows:

“Any owner of a trademark, or a license to use a trademark, in Panama will be concerned, as a result of the precedent set by the Supreme Court, that steps reasonably taken to enforce it may result in a heavy liability in damages. The chilling effect of this makes the protection afforded by or in respect of a trademark in Panama more expensive to enforce, and the trademark less attractive and less valuable in consequence. This in its turn is likely to encourage the registration and use in Panama of trademarks that are confusingly similar to, inter alia, the FIRESTONE and BRIDGESTONE trademarks, thereby further diminishing the goodwill attaching to those brands” (para. 245).

The results of the arbitral proceedings on their merits remain to be seen. In any event, the arbitral tribunal’s decision is a further step towards IP rights entering the ISDS theatre. For further reading have a look here, here, here, and here.

Picture on upper left by Jack. E Boucher is in the public domain.

Picture on lower right by Alexrk and is licensed under GNU Free Documentation license.