‘Giving Effect’ to VCLT: Analysing the Treaty Interpretation Route Taken by the Panel and the Arbitrators in China-Enforcement of Intellectual Property Rights

[Kartik Sharma is an undergraduate law student at National Law School of India University, Bengaluru and an analyst at SpicyIP]

The first sentence of Article 1.1 of the TRIPS agreement requires members to ‘give effect to the provisions’ of TRIPS. Its exact meaning found centre-stage in a WTO dispute between the European Union and China, wherein Chinese courts were issuing anti-suit injunctions (ASI), thereby prohibiting Standard Essential Patent (SEP) holders from enforcing their rights abroad (through legal proceedings) in other WTO members’ jurisdictions. Now the member state obviously must implement TRIPS provisions within its own domestic system. But can it undertake acts that have a bearing on IP rights in other territories? The WTO panel ruled in China’s favour, whereas the arbitrators under the Multi-Party Interim Appeal Arrangement (MPIA) agreed with the EU’s assertions concerning the incompatibility of Chinese policy with TRIPS. In this piece, I explain the competing approaches used by the panel (Report) and the arbitrators (Award) in reaching their respective interpretations of Article 1.1. First, this piece proposes that their diverging conclusions are predicated upon two different ways in which they use the notion of good faith and then link it to the objectives and overall functioning of the TRIPS regime. For the panel, a particular member state should not be concerned with the impact of its measures on the implementation of IP laws in other member states. For the arbitrators, however, this perspective is a mistaken image of the TRIPS framework and rather the member states are prohibited from instituting measures that interfere with the exercise of IP rights in other jurisdictions. A contrary understanding, according to the arbitrators, would lead to a situation where the regime would essentially break down or become dysfunctional. 

The Panel Report on Article 1.1

The panel interpreted the phrase ‘give effect to’ in the first sentence of Art 1.1 as requiring member states to implement TRIPS provisions within their domestic legal systems. For the panel, the other sentences of Art 1.1 provided the necessary context for this interpretation. In this regard, the second sentence allows states to implement higher standards of protection ‘in their law’ and the third sentence allows them to decide on the means of implementing TRIPS provisions ‘within their own legal system and practice’ (para 7.214). Both allude to the domestic legal framework of the member states, and thus, the panel concluded that the first sentence is also to be read accordingly within narrow confines (paras 7.215 and 7.217). 

The EU, however, argued in their submissions that in addition to this domestic implementation obligation, Article 1.1 also obliges members to refrain from preventing other members from implementing the provisions of TRIPS. Doing so would be a breach of the object and purpose of the TRIPS agreement. For this submission, the parties relied on Article 26 of the Vienna Convention on the Law of Treaties (VCLT) which contains the principle of pacta sunt servanda (a manifestation of good faith) that treaty parties have to observe in the carrying out of their obligations. 

The panel disagreed with the EU. It held that good faith is not a principle of interpretation that allows for agreements to be construed in a manner that stretches the ordinary meaning of the text beyond its boundaries. (para 7.226) Even in panel reports where good faith was invoked, those instances involved the adjudicatory body finding specific provisions of agreements to be reflective of the good faith principle. (para 7.228) These cited decisions, however, had not used good faith as a tool to reach a particular interpretation. Moreover, the panel also held that Article 1.1 first sentence was not reflective of pacta sunt servanda (para 7.229).

The Arbitrators Take an ‘Interactive View’ of TRIPS

The arbitrators rendered an opposite decision on interpreting the phrase ‘to give effect to,’ with the award showing both divergences from as well as certain agreements with the panel’s approach. 

On the relationship between the three sentences of Article 1.1, the arbitrators acknowledged that the latter two provide context for the interpretation of the first one. Yet, the term ‘give effect’ in the first sentence has broader implications, according to the tribunal, than the word ‘implement’ used in the second and third sentences (para 4.55). ‘Give effect’ entails the member state taking active and continuous steps to ensure operation of the TRIPS provisions, and not just a singular act (para 4.56). The arbitrators also referred to the broader context of the TRIPS agreement that obliges member states to maintain national systems which give effect to the minimum standards of protection for IP rights. 

What’s important to note is that with the referred interpretation the arbitral tribunal is indirectly saying that Article 1.1 pertains to the domestic measures that countries take through their national IP laws. From this point of view the arbitrators reveal their disagreement with the panel report.

The award notes that the legal systems of member states exist in an interactive and interdependent manner; this is evident from the presence of provisions for inter-state cooperation and information exchange (Article 69 and 63.3). This can be read as a break from the panel report that viewed the domestic laws of states in isolation. Moving ahead, the award places substantial reliance on Article 7 of the TRIPS agreement, a provision that the panel report had mentioned in passing, to drive home its point (para 4.68). Article 7 specifies the goals and principles underlying TRIPS agreement, some of which include promotion of technological innovation and balance of rights and obligations. Article 7 has been utilized before in interpreting other provisions of the agreement. The protection and enforcement of IP rights must contribute to adequately balance rights and obligations, which the award felt could not happen if the panel’s approach was to be taken (para 4.70). This is because the national systems of member states would not function at all if they directly or indirectly frustrated each other’s IP regimes. Thus, the first sentence of Art 1.1 was not articulating any additional obligation; rather, this prohibition against interference was a corollary of the duty to give effect to provisions within one’s domestic law. 

Lingering Questions on Good Faith and Purpose

The differing conclusions on Article 1.1 reached by the panel and arbitrators reveal their respective takes on the usage of good faith in treaty interpretation. The decisions also understood and applied the TRIPS agreement’s object and purpose in their own ways. For the panel, good faith did exist as an important principle in International law, as was also evident from Article 26 VCLT. The panel limited its utility however to that of an embodiment of an expectation and requirement for implementation on part of treaty parties. What the members had to implement in good faith was limited to the obligation that the text of Article 1.1 explicitly revealed. In matters of interpretation, I read the Report to be reticent in its use of good faith. It perceived the EU’s arguments to be advocating for an overstretch of the treaty’s ordinary text on the basis of good faith, essentially alluding to the often-invoked statement that good faith cannot create new obligations where none would otherwise exist (Nicaragua v Honduras para 94). This concern also finds voice in Article 3.2 of the WTO Dispute Settlement Understanding that prohibits WTO rulings from adding to or diminishing the already existing rights and obligations under agreements such as TRIPS.

For the arbitrators, the impermissibility of interfering with other members’ domestic implementation of TRIPS provisions was not an extraneous obligation to the text. Rather, they read it as a corollary of the duty that already existed in the first sentence of Article 1.1. From an Article 3.2 DSU perspective, this reading would amount to a clarification of Article 1.1’s scope, and not an impermissible construction. Consequently, the two decisions are actually agreeing that Article 1.1 pertains to domestic implementation of obligations, therefore reinforcing the principle of territoriality. Where the distinction comes is how they frame other member states’ actions: For the panel it was an additional obligation and for the arbitrators, the same could already be read as a corollary. In this regard, this article agrees that the logic behind this understanding is rather simple: A member’s ability to give effect to provisions does not exist in a vacuum but is likely influenced by other member states’ acts. This would be the appropriate interpretation, unless one understands ‘give effect’ to limit the assessment to what that a particular member state does. 

The arbitrators interestingly didn’t make detailed references to good faith. At the outset, Article 31.1 VCLT is mentioned which provides for interpretation to be “done in good faith.” The concurrent reference to good faith in Articles 26 and 31 VCLT also establishes that interpretation and application of treaties as a hard rule cannot be understood in isolation; the latter presupposes the former. Treaties have to be applied in a reasonable manner so that the purpose of the treaty itself can be realised (Gabčíkovo-Nagymaros para 142). Moreover, Brabandere and Van Demme note that good faith has sometimes been taken as a meta-norm that underlies all forms of treaty interpretation and their practical usage. One such variant of the meta norm is the effectiveness principle, where the desired interpretation enables the treaty to have appropriate effects. As a side note, ILC Special Rapporteur Wadlock had initially proposed to codify it as a separate Article 72 (p. 53 of Third Report on Law of Treaties). The proposal was however dropped owing to opposition by members ,including concerns of too extensive interpretation (see 766^th meeting of ILC’s 16^th session),  as well as the already implicit presence of the norm in good faith principle. The arbitrators’ method of looking at Article 1.1 is reflective of these facets of good faith; one can notice their implicit goal of enabling the TRIPS agreement insofar as member states are prevented from interfering with each other’s performance of obligations. An opposing understanding will allow states to take actions that would be unreasonable and not in good faith. The panel, contrarily, took a relatively constricted view of good faith’s potential as a norm. 

The two opinions also bring forth the challenges in applying a purposive approach to treaty interpretation. Scholarly literature (chapter 7 of the cited book) indicates that the ‘object and purpose’ canon is a complicated domain in itself. The treaty as a whole may have multiple objectives that it seeks to fulfil. Additionally, specific provisions may have their own teloi that the interpreter would wish to align with the overall treaty. Ultimately, it boils down to the interpreter’s subjective decisions on how it chooses to view the framework established by that particular instrument. The panel seems to have taken an individual obligation centric approach whereas the arbitrators were focused on preserving the institutional efficacy of the regime. 

Both decisions referred to the preamble to TRIPS, where the agreement recognises the need for adequate standards, principles, and the related provisions for the availability and enforcement of IP rights. The panel concluded its analysis of the agreement’s purpose at this point, whereas the arbitrators went a step further and relied on Article 7, which has been noted for enabling a flexible interpretation and implementation of TRIPS. Interestingly, the panel noted that the object-and-purpose method doesn’t imply that ‘specific provisions of a treaty must necessarily be interpreted to prohibit measures that contradict or undermine the object and purpose of that treaty’ (ft 625). The sole focus here, according to the panel, is to apply customary rules of interpretation to ascertain the precise scope of the provision. Yet, a question becomes imminent: if the interpretation that one arrives at undermines the treaty’s objective, then what use is it of? Then it will provide a free license to states to take treaty subversive measures that would also run counter to good faith’s function as a sovereignty regulating norm.

Conclusion

In conclusion, this dispute provides continuing avenues of discussion on the interplay of general international law principles and the WTO dispute settlement process. There is literature that has expressed concerns over the overbroad use of good faith in WTO adjudication and the need to prevent judicial activism through a concrete delineation of its content.  Critics of the tribunal’s decision therefore may express similar reservations and instead side with the conclusions the panel reached. On the  IP front, the contrasting decisions of the panel and tribunal hold relevance for understanding territoriality in International Intellectual Property law (see further, here) and assessing the possible TRIPS-compliance of transnational litigation concerning royalty rates for Standard Essential Patents.