The International Centre for Settlement of Investment Disputes
(ICSID) has just released a decision on the expedited objections of
the respondent state, Panama, in Bridgestone Licensing Services,
Inc. and Bridgestone Americas, Inc. v Republic of Panama (ICSID
Case No. ARB/16/34). The Tribunal, comprised of Lord Phillips
(Chair), Horacio Grigera Naón (the investors' appointee)
and J Christopher Thomas QC (the state's appointee), considered
in which circumstances registered trademarks and, by extension, the
licences for such trademarks can be considered as investments
qualifying for treaty protection.
The claim was brought by two U.S.-incorporated companies –
Bridgestone Licensing Services, Inc. (BSLS) and Bridgestone
Americas, Inc. (BSAM) – under the ICSID Convention pursuant
to the U.S.-Panama Trade Promotion Agreement (TPA). Panama made
several objections to the jurisdiction of the tribunal. One such
objection was that the claimants had no "investment"
under the TPA.
The first issue arose in relation to the Firestone trademark. By
way of background, BSLS was the owner of the Firestone trademark
registered in Panama and BSAM was the licensee to which BSLS had
granted a licence to use the Firestone trademark in Panama. While
Panama accepted that BSLS's registered trademark qualified as
an investment under the TPA, it objected that BSAM had an
investment by virtue of the grant of the licence to use the
trademark.
The second issue arose in relation to the Bridgestone trademark.
The difference here was that the Bridgestone trademark was owned by
the Japanese parent of the companies in the Bridgestone Group
(BSJ), and was an entity that had no rights under the TPA.
Nevertheless, the licence to use the Bridgestone trademark in
Panama was granted to BATO, a wholly owned subsidiary of BSAM (a
U.S. entity). Panama also objected to BSAM's contention that
this latter licence was an investment under the TPA.
The "narrow compass" of the dispute was the difference
between the ownership of relevant trademarks and the licences to
use these trademarks and then whether either of them satisfied the
definition of investment under the TPA.
Registration of a trademark vs the exploitation of a registered
trademark
Noting that previous jurisprudence did not discuss whether a
trademark can constitute a qualifying investment, the tribunal in
this case embarked on its analysis by first looking at the
definition of investment under the TPA. A covered investment was
defined as "every asset that an investor owns or controls,
directly or indirectly, that has the characteristics of an
investment," such as "the commitment of capital or other
resources, the expectation of gain or profit, or the assumption of
risk." As is the case with most modern bilateral investment
treaties (BITs) or free trade agreements, such assets included
intellectual property rights and "licences ...conferred
pursuant to domestic law."
The tribunal went on to explain that a trademark empowers a
seller to profit from the goodwill attaching to products bearing
its mark. This goodwill could be generated either by designing,
manufacturing and selling products containing the mark, or by
promoting the brand through advertising. Whichever way goodwill was
generated, it would always rest on a commitment of resources over a
significant period, an expectation of profit and an assumption of
risk. In this context, the tribunal viewed the mere act of
registration of a trademark as not amounting to or having the
characteristics of an investment under the BIT. However, the
"picture [was] transformed if the trademark [was]
exploited." Exploitation, either by the owner or by the
licensee of the trademark, would involve a devotion of resources
such as the production, promotion and sale of trademarked goods,
all of which would be beneficial to the host state.
Against this background, the tribunal held that a registered
trademark constituted a qualifying investment subject to its
exploitation by the owner. The remaining question was therefore
whether the exploitation of a trademark by a licensee could
separately constitute an investment.
A licence to use a registered trademark also made the cut
The tribunal further examined whether a trademark licence would
be capable of constituting a qualifying investment. Following the
above analysis, the tribunal determined that, in order to
constitute an investment, a licence must be exploited by the
licensee in the same way as a trademark must be exploited by the
owner.
However, one requirement of the TPA was that in order for a
licence to have the characteristics of an investment, the licence
needed to confer rights on the licence holder under the law of the
host state, in this case, Panama. Evidence of Panamanian law showed
that a licensee of a trademark possesses the rights of use of the
trademark, and thus the role of the licensee is of paramount
importance, not only because a licensee could join the owner in
enforcement proceedings associated to the trademark, but also
because the use of the trademark by the licensee would maintain the
exclusivity of the rights awarded under the trademark registration
certificate.
The tribunal thoroughly discerned the different facts in
relation to the grants of the Firestone and Bridgestone trademark
licences, and concluded that both licences represented investments
under the TPA, thereby paving the way for trademark owners and
licensees to claim treaty protection if the situation arises.
About Investment Treaty Arbitration at Reed Smith
Reed Smith's investment treaty arbitration team advises
investor and state clients on pre- and post-contract investment
strategy and on disputes that arise under bilateral and
multilateral investment treaties.
This article is presented for informational purposes only
and is not intended to constitute legal advice.