by Ioana Bratu and Arijit Sanyal[1]
As explored in our article “Data as Protected Investment in the Background of Einarsson v. Canada” (IJAL 12:2 2024), on which this post is based: data is increasingly recognised as a significant asset in international investment arbitration. The pending Einarsson v. Canada case[2] addresses the question of whether seismic data used in oil and gas exploration qualifies as a protected investment under international investment agreements (IIAs). This case exemplifies the tension between intellectual property (IP) rights in seismic data and state regulatory measures.
The increased importance of data in international investment arbitration is driven by its centrality to business operations across various sectors. As there are limited cases directly addressing data as a protected investment under IIAs, the discussion can be framed around related disputes involving IP rights, such as Apotex Holdings v. United States[3] or Eli Lilly v. Canada[4] on pharmaceuticals patents, on the one hand, and state measures affecting IP-dependent digital assets, on the other. Although Einarsson does not directly involve Apotex or Eli Lilly, these cases share legal themes like expropriation, fair and equitable treatment (FET), and the balance between regulatory sovereignty and investor protections.
In both Apotex and Eli Lilly, the tribunals reaffirmed the state’s right to regulate in the public interest (health regulations in Apotex and patent law in Eli Lilly). Einarsson would likely take a similar approach, examining whether Canada’s actions were legitimate exercises of regulatory power. Furthermore, like Apotex and Eli Lilly, Einarsson would consider whether Canada’s actions met the standard for FET under NAFTA. The tribunal might look at whether Canada’s actions were arbitrary, discriminatory, or in breach of the investor’s legitimate expectations. Following Apotex and Eli Lilly, the tribunal would likely set a high threshold for finding a violation, especially if Canada’s actions were taken in accordance with domestic laws and regulations. Lastly, both Apotex and Eli Lilly highlight the importance of investors’ legitimate expectations, but they also clarify that these expectations must be reasonable and grounded in existing legal frameworks. In Einarsson, the tribunal might assess whether the investor’s expectations were reasonable in light of Canada’s legal and regulatory environment.
The Case of Einarsson v. Canada
In Einarsson v. Canada, the Claimants, Theodore Einarsson and his sons, were involved, through their Geophysical Services Incorporated (‘GSI’) company, in the creation and utilisation of seismic data pertinent to oil and gas exploration in the offshore areas of Newfoundland and Labrador, Canada.
In the Claimants’ Memorial of 27 September 2022, Einarssons argue that the Canadian government’s regulatory measures, which required the submission and potential public disclosure of GSI’s seismic data, constitutes an indirect expropriation of their IP rights without adequate compensation and a breach of the fair and equitable treatment standard. The Claimants maintain that data would qualify as ‘investment’ per Article 1139 of NAFTA, as it represents an ‘enterprise of a party’ as that term is defined in Article 1139 of NAFTA, that is operated in the ‘territory’ of Canada. However, the gist of the claim is that GSI is entirely reliant on the seismic data and its protection, which describes a data-related copyright claim – a novel issue for an investment arbitration tribunal (Lentner, 2023).
The Canadian government, on the other hand, is defending the measures as necessary in light of public policy objectives, such as environmental protection and resource management, and argues that they were applied non-discriminatorily to both domestic and foreign investors. Furthermore, Respondent holds that the Canadian Regulatory Regime offered GSI opportunities to licence its seismic data during and after the confidentiality period. GSI still retained the field data, processed data, including in SEG-Y format, as well as reprocessed data remained in GSI’s possession, and GSI did not submit it to the Boards and could still licence to third parties, therefore being able to extract value. GSI also retained any copyright that it might have had in its seismic data.
Key Issues
The arbitration tribunal in Einarsson v. Canada is tasked with addressing several critical issues:
- Nature of Seismic Data as an Investment: Determining whether seismic data qualifies as an investment under NAFTA and is protected similarly to other IP rights.
- Indirect Expropriation: Assessing whether the Canadian government’s measures constituted indirect expropriation by significantly impairing the value and economic use of the seismic data.
- Fair and Equitable Treatment: Evaluating whether the regulatory measures were arbitrary or lacked due process, thus violating the FET standard under NAFTA.
Implications
The outcome of the Einarsson case will have significant implications for the treatment of data as an investment in international law. Recognising data as a protected investment could extend IIA protections to data assets, covering aspects like expropriation, restrictions on data transfer, and discriminatory measures affecting data-driven investments. However, it also raises complex legal and policy questions, such as defining the scope of ‘data’ as an investment (if at all recognised), jurisdictional boundaries in a digital context, and balancing data protection with states’ regulatory rights.
Digital assets, including IP rights, data, and cryptocurrencies, further complicate the interpretation of investment treaties. The broad, asset-based definitions within these treaties could potentially encompass digital assets, provided there is a flexible interpretation of the required territorial nexus. Yet, the question remains whether these treaties and the corresponding investor-state dispute settlement mechanisms, are equipped to handle disputes arising from digital investments, particularly when such assets lack a physical presence in the host state. Moreover, as Polanco foregrounds, data localisation and source code disclosure requirements might challenge the principle of national treatment, raising concerns about discriminatory practices against foreign investors.
Arguably, the regulatory environment surrounding data is markedly different from that of IP. While IP rights are designed to encourage innovation and creative endeavours by granting inventors and creators exclusive rights to their works, data regulation is often driven by privacy concerns, security requirements, and the need to balance the free flow of information with the protection of individual rights and the public interest. The challenging legal issues that the tribunal will have to grapple with, span from determining whether and under what conditions copyrights and data can be classified as protected investments under NAFTA, to defining the scope and boundaries of the protections afforded to such investments, if any, particularly in relation to the FET standard and the prohibition of uncompensated expropriation.
Conclusion
The Einarsson v. Canada case underscores the tension between investor protections and state regulatory authority in international investment law. The tribunal’s decision will likely reflect a balance between protecting IP rights and recognizing states’ legitimate regulatory space. This case highlights the need for a nuanced understanding of IP rights as investments and the complexities in distinguishing between legitimate regulatory measures and indirect expropriation. The decision will influence the regulatory discretion of states, the protection of foreign investments, and the broader relationship between international investment law and public policy areas like data protection.
Ioana M Bratu is an arbitration practitioner and doctoral researcher at the Open University Institute, based in London. She is studying conflicts of jurisdiction in cross-border disputes, with a focus on arbitration and disputes emerging from digitalisation, through the lens of systems theory. Arijit Sanyal is an international disputes resolution associate at Skywards Law, New Delhi, and qualified to practice before the courts of New Delhi and India. ↑
Theodore David Einarsson, Harold Paul Einarsson & Russell John Einarsson v. Canada, ICSID Case No. UNCT/20/6. ↑
Apotex Holdings Inc. v. United States of America, ICSID Case No. Arb (AF)/12/1. ↑
Eli Lilly & Co. v. Government of Canada, UNCITRAL, ICSID Case No. UNCT/14/2. ↑