Tribunal:

Lord Nicholas Phillips President

Mr. Horacio A. Grigera Naón Arbitrator

Mr. J. Christopher Thomas, QC Arbitrator

ICSID Secretariat:

Ms. Luisa Fernanda Torres Secretary of the Tribunal

For the Claimants:

Mr. Justin Williams Akin Gump Strauss Hauer & Feld

Mr. Stephen Kho Akin Gump Strauss Hauer & Feld

Ms. Katie Hyman Akin Gump Strauss Hauer & Feld

Mr. Johann Strauss Akin Gump Strauss Hauer & Feld

Ms. Katherine Afzal Akin Gump Strauss Hauer & Feld

Mr. Kevin McClintock-Batista Akin Gump Strauss Hauer & Feld

Mr. Thomas Kingsbury (*) BSAM and BSLS, Witness

Ms. Audrey Williams (via video link) (*) Benedetti & Benedetti, Witness For the Respondent:

Mr. E. Whitney Debevoise Arnold & Porter Kaye Scholer LLP

Ms. Gaela Gehring Flores Arnold & Porter Kaye Scholer LLP

Ms. Mallory Silberman Arnold & Porter Kaye Scholer LLP

Ms. Amy Endicott Arnold & Porter Kaye Scholer LLP

Ms. Katelyn Horne Arnold & Porter Kaye Scholer LLP

Mr. Kelby Ballena Arnold & Porter Kaye Scholer LLP

Ms. Bailey Roe Arnold & Porter Kaye Scholer LLP

Ms. Sara Ureña Arnold & Porter Kaye Scholer LLP

Ms. Karla González Embassy of Panama in the U.S.

Ms. Geniva Escobar (via video link) Ministry of Economy and Finances

Mr. Norman Harris Ministry of Commerce and Industry

Mr. Francisco Olivardia Embassy of Panama in the U.S.

Ms. Marissa Lasso de la Vega Ferrari Alfaro, Ferrer & Ramírez, non-testifying independent Panamanian Law Expert

For the United States :⁵

Ms. Nicole Thornton U.S. Department of State

Mr. Matthew Olmsted U.S. Department of State

Mr. John Blanck U.S. Department of State

Ms. Amanda Blunt Office of the U.S. Trade Representative

Court Reporter(s):

Mr. David Kasdan B&B Reporters

(*) present during his/her examination

On behalf of the Claimants:

Mr. Thomas Kingsbury Witness

Ms. Audrey Williams (via video link) Witness

• Claimants : Demonstrative Exhibits CD-001 to CD-002; Exhibits C-127 to C-129; Legal Authorities CLA-039 to CLA-047.

• Respondent : Demonstrative Exhibits RD-001 to RD-003.

The facts that follow are background facts that are not in dispute. There are disputes, however, about the implications of some of these facts. The Tribunal will look more closely at the facts when dealing with these disputes. The following facts merely set the scene for the more detailed analysis that follows.

"a. that, in accordance with Article 10.20.5 of the TPA, the Tribunal evaluate the objections articulated herein on an expedited basis, [...]; and

b. that, at the end of the expedited proceeding, the Tribunal issue an award dismissing the case in its entirety for lack of jurisdiction, ordering Claimants jointly and severally to bear all costs of the arbitration, and awarding Panama full recovery of all of its costs and expenses (including attorneys’ fees and expenses), with interest thereon at the rate of six-month LIBOR plus 2% per annum from the date of the award to the date of payment."³⁷

The Claimants contend that "it is not for [them] to prove that the Tribunal does have jurisdiction" but "rather it is the Respondent that has the burden of proving that it does not."³⁹ And, it is "[t]he Respondent [who] has the burden of proving its Objections because it invoked this preliminary and expedited process."⁴⁰ This conclusion, the Claimants argue, also "accords with practical sense" given that in an expedited process a claim may be disposed of at the outset, without a full process and a full hearing.⁴¹ The Claimants submit they are not aware of authority supporting the view that in a preliminary expedited proceeding the burden of proof is the same applicable to any jurisdictional objection, i.e., that the Claimants bear the burden proof, that no factual allegations are accepted pro-tem, and that both Parties are entitled to adduce evidence.⁴²

• "[T]he natural and ordinary meaning of Article 10.20 is that the terms of 10.20.4 apply to the 10.20.5 expedited procedure, save to the extent the provisions at 10.20.4 as to timing are superseded by 10.20.5."⁵¹

• It would be "incompatible with the spirit, purpose and context of the clause" and "manifestly absurd and unreasonable" to conclude that Article 10.20.5 permits "mini-trials" while Article 10.20.4 does not.⁵²

• "[I]t would make no sense for an objection under the first limb of Article 10.20.5 to be subject to such deemed truthfulness and an objection under the second limb not to be so."⁵³

• "[I]t would not be sensible for objections as to competence that are brought on an expedited basis to have a broader scope than objections brought on an expedited basis under Article 10.20.4."⁵⁴

In the course of oral argument, however, the Claimants amended their positions in this chart:

• As to the first objection, the Claimants ultimately submitted that indeed it does also involve merit issues.⁶⁴

• As to the second objection, the Claimants ultimately contended that "as it is now, as the positition has now emerged, is not one of competence."⁶⁵

"[…] 'Should the Tribunal rule on Panama’s objections under Article 10.20.5 of the TPA as a matter of law on assumed facts, applying (either as a matter of law or as a matter of discretion) the approach laid down in Article 10.20.4(c), or instead, should the Tribunal make final and definitive findings of fact and law in relation to those objections'?

[...] because Panama’s objections under Article 10.20.5 are objections to jurisdiction, there is no basis for applying the approach laid down in 10.20.4(c). And, consistent with the general rule under international law, the Tribunal must make final and definitive findings of fact and law in relation to those objections.

[…] 'Does the obligation under Article 10.20.5 to decide on an expedited basis any objection that the dispute is not within the Tribunal’s competence apply to any objection, or all objections to competence or only those that do not require the Tribunal to determine the merits of the Claimants’ substantive claim?'

[…] the answer is: first, as indicated by the words 'any objection (to competence),' the obligation applies to all objections to competence; and in any event, none of the objections here requires the Tribunal to determine the merits of the Claimants’ substantive claims […]."⁹⁹

"Subparagraph (c) states that, for any objection under paragraph 4, a tribunal 'shall assume to be true' the factual allegations supporting a claimant’s claims. The tribunal 'may also consider any relevant facts not in dispute.' This evidentiary standard facilitates an efficient and expeditious process for eliminating claims that lack legal merit. Subparagraph (c) does not address, and does not govern, other objections, such as an objection to competence, which the tribunal may already have authority to consider."¹⁰¹

"[M]odifies the applicable arbitration rules by requiring a tribunal to decide on an expedited basis any paragraph 4 objection as well as any objection to competence, provided that the respondent makes the request within 45 days of the date of the tribunal’s constitution."¹⁰³

"(1) The Tribunal shall be the judge of its own competence.

(2) Any objection by a party to the dispute that that dispute is not within the jurisdiction of the Centre, or for other reasons is not within the competence of the Tribunal, shall be considered by the Tribunal which shall determine whether to deal with it as a preliminary question or to join it to the merits of the dispute."

"(1) Any objection that the dispute or any ancillary claim is not within the jurisdiction of the Centre or, for other reasons, is not within the competence of the Tribunal shall be made as early as possible. […]

(3) Upon the formal raising of an objection relating to the dispute, the Tribunal may decide to suspend the proceeding on the merits. […]

(4) The Tribunal shall decide whether or not the further procedures relating to the objection made pursuant to paragraph (1) shall be oral. It may deal with the objection as a preliminary question or join it to the merits of the dispute. […]"

"(1) Should the Tribunal rule on Panama’s objections under Article 10.20(5) of the TPA as a matter of law on assumed facts, applying (either as a matter of law or as a matter of discretion) the approach laid down in Article 10.20(4)(c) or should the Tribunal make final and definitive findings of fact and law in relation to those objections[?]

(2) Does the obligation under Article 10.20(5) to decide on an expedited basis 'any objection that the dispute is not within the Tribunal’s competence' apply to all objections to competence or only to those that do not require the Tribunal to determine the merits of the Claimants’ substantive claim?"¹¹¹

"[T]he evidentiary rule in Article 10.20.4(c) of the U.S.-Panama TPA has no application in the present proceeding, and the Tribunal will address the issues on the basis of the evidence."¹¹²

The Tribunal will now explain the basis and the implications of this Order.

"105. […] the Tribunal approaches the procedure under CAFTA Article 10.20.4 tempered by a lack of formalism, with an emphasis on substance and practical common-sense.

[…]

106. As regards the expedited procedure under Article 10.20.5, it is twinned with the procedure under Article 10.20.4 with an additional ground of objection as to competence [...]

110. […] to grant a preliminary objection, a tribunal must have reached a position both as to all the relevant questions of law and all relevant alleged or undisputed facts that an award should be made finally dismissing the claimant’s claim at the very outset of the arbitration proceedings, without more. Depending on the particular circumstances of each case, there are many reasons why a tribunal might reasonably decide not to exercise such a power against a claimant, even where it considered that such a claim appeared likely (but not certain) to fail if assessed only at the time of the preliminary objection.

111. At all times during the exercise under CAFTA Articles 10.20.4 and 10.20.5, the burden of persuading the tribunal to grant the preliminary objection must rest on the party making that objection, namely the respondent.

112. Given the tight procedural timetable and deadlines under CAFTA Article 10.20.5, it is clear that an expedited preliminary objection is not intended to lead to a 'mini-trial.' A contrary conclusion would attribute to the CAFTA Contracting Parties a perverse intention to render investor- state arbitration even more expensive and procedurally difficult for the disputing parties, when it would seem from these provisions (read as a whole) that the actual intention of the Contracting Parties was, manifestly, the exact opposite. The procedure under CAFTA Article 10.20.4 is clearly intended to avoid the time and cost of a trial and not to replicate it. […]"

"[…] [T]he applicable standard is the same one that always applies in the context of jurisdictional objections, under which the claimant bears the burden of proof, there is no presumption of the veracity or acceptance pro tem of its factual allegations, and both parties are entitled to adduce evidence."¹¹⁹

"Paragraph 5 provides an expedited procedure for deciding preliminary objections, whether permitted by paragraph 4 or the applicable arbitral rules."¹²²

"Paragraph 5 thus modifies the applicable arbitration rules by requiring a tribunal to decide on an expedited basis […] any objection to competence […]."¹²³

• The "revenue sharing rights" in the sales by a subsidiary are not "investments", because the TPA expressly provides that "claims to payment that are immediately due and result from the sale of goods or services are not an investment."¹³⁸

• Chapter 10 of the TPA applies only to investments located in Panama, and thus, the rights must "exist under Panamanian domestic law", which is not the case with respect to the three licenses submitted with the Claimants’ 25 October 2016 letter (C-048 to C-050).¹³⁹

• The Agreement to License Trademarks between Bridgestone Licensing Services, Inc. and Bridgestone/Firestone Americas Holding, Inc. (1 December 2001) (C-048) (hereinafter, the "FIRESTONE Trademark License") is not an "investment" because (a) it is not an "asset" in Panama, but rather a limited and non-exclusive right to "use" a Panamanian trademark, conferred by a contract between two U.S. entities, created, governed and performed under U.S. law; and (b) and even if it were an "asset", it is not owned or controlled by BSAM, as demonstrated by the fact that BSAM had to license it from a third party and by the terms of the agreement.¹⁴³

• The Trademark License Agreement between Bridgestone Corporation and Bridgestone/Firestone North American Tire, LLC (1 December 2001) (C-052) (hereinafter, the "BRIDGESTONE Trademark License") confers a right that cannot be construed as an "asset" in Panama, and even if it did, it would not be owned or controlled by BSAM.¹⁴⁴

• The Trademark Sublicense Agreement between Bridgestone Americas Tire Operations LLC and Bridgestone Costa Rica, S.A. (1 January 2015) (C-049) is not an "investment" in Panama, because (a) it only authorizes a Costa Rican subsidiary to use Costa Rican trademarks, it does not discuss Panamanian intellectual property, and it is governed by U.S. law; and (b) is irrelevant because it post-dates the Supreme Court decision of May 2014, and thus it does not demonstrate that BSAM had an investment at the time of the alleged violation.¹⁴⁵

• The Trademark License Agreement between Bridgestone Corporation and Bridgestone/Firestone Americas Holding, Inc. (1 January 2002) (C-050) is irrelevant because (a) it is governed by Japanese law; (b) it does not confer any right to conduct activities in Panama; (c) the right that it confers is not an "asset"; and (d) even if it were an "asset" the nature and the terms of the agreement establish that BSAM does not "own or control" it.¹⁴⁶

• The Bandag System Franchise Agreement between Bandag Inc. and Rodelag, S.A. (27 September 1965) (C-064) (hereinafter, the "Bandag Agreement") authorized a Panamanian entity to use a U.S. patented method in exchange for royalty, but (a) given that the underlying patent has expired is unclear what rights the agreement confers at present, and how those patents have any relevance; (b) not every contract wherein royalty payments are made falls under the category listed in Article 10.29(e) of the TPA; and (c) it does not qualify as the type of licenses referred to in Article 10.29(g) of the TPA because it is a private contract, governed by U.S. law that confers the right to use U.S. intellectual property.¹⁴⁷

"[…] numerous tribunals have applied [it] to determine whether investors have an investment within the meaning of the applicable treaty and under Article 25 of the ICSID Convention. However, while some tribunals have held that all of the components listed in the Salini test have to exist in order to find an investment, the language of the TPA, given its natural and ordinary meaning, makes clear that the criteria are merely examples of the characteristics of an investment, such that an investment may include some of these characteristics but not necessarily all of them. The list is also non-exhaustive, so other characteristics may be taken into account; clearly, the intention of the drafters was that 'investment' be interpreted broadly."¹⁶¹

• BSAM has "intellectual property rights" comprised of the two 2001 licenses, namely, the BRIDGESTONE Trademark License (C-052) and the FIRESTONE Trademark License (C-048).¹⁷⁰ The BRIDGESTONE Trademark License was granted by BSJ to a predecessor of Bridgestone American Tire Operations ("BATO"), a wholly-owned subsidiary of BSAM. It confers rights, inter alia, over BSJ’s Panamanian trademarks,¹⁷¹ and it is under this trademark that "BSAM undertakes all of its activities in Panama - the sale and distribution of tires bearing the BRIDGESTONE mark, and the marketing and training activities […]."¹⁷² The FIRESTONE Trademark License is granted by BSLS to a predecessor of BSAM, confers rights over BSLS’s FIRESTONE trademarks in Panama, and gives BSAM the right to "use the Marks" on the Western Hemisphere except the United States.¹⁷³

• Contrary to the Respondent’s position, "there is no requirement in the TPA that an intellectual property right create a right protected under domestic law" because the provision referring to domestic law is in item (g) of the definition of "investmen t" in Article 10.29 on "licenses", and not in item (f) on "intellectual property rights."¹⁷⁴

• In any event, the Claimants contend, the FIRESTONE Trademark License does create a right protected under Panamanian law.¹⁷⁵ Although the license is governed by U.S. law, BSLS’s FIRESTONE trademark in Panama is protected under Panamanian law, and the FIRESTONE Trademark License licenses that Panamanian law right to BSAM.¹⁷⁶ Similarly, the BRIDGESTONE Trademark License licenses to BSAM’s subsidiary (BATO) the BRIDGESTONE Panamanian law right, and both BATO and BSAM’s rights are recognized under Panamanian law.¹⁷⁷

• "BSAM and its wholly-owned subsidiaries" carry out a wide range of activities in support of BSAM’s core investments (i.e. the intellectual property rights contained in the FIRESTONE and BRIDGESTONE Trademark Licenses). The Claimants explain that "BSAM sub-licenses its intellectual property rights to its wholly-owned subsidiary, […] BSCR […] , which manufactures, sells, markets and distributes BRIDGESTONE and FIRESTONE tires throughout the region, including in Panama. "¹⁷⁸ According to the Claimants, BSAM sets the marketing activities at the regional level, and those are implemented locally by BSCR (pre-October 2015) and now by another entity called Bridgestone Latin American North ("BS-LAN ").¹⁷⁹ BSAM (through BSCR and BS-LAN) has spent an estimated US$469,417 in marketing activities in Panama.¹⁸⁰

• BSAM also has "revenue sharing rights" and "licenses in Panama" through its wholly-owned indirect subsidiary, Bridgestone Bandag LLC (formerly Bandag Inc.). This refers to the franchise agreement between Bridgestone Bandag LLC and Bandag de Panama S.A., a Panamanian entity, that allows such local entity to use a patented method, trademarked apparatus and supplies to offer retreading services in Panama. Bridgestone Bandag LLC receives royalties, and the Panamanian entity is required to make minimum supply purchases.¹⁸¹ Sales and marketing is carried out by BSCR.¹⁸²

• Commitment of Capital and Other Resources. According to the Claimants, BSAM has committed substantial amounts of capital to its investments in Panama as well as non-monetary resources, in relation to marketing and sale activities.¹⁸⁴ Both type of contributions are to be considered, and as there is no monetary threshold in the TPA, no large expenses are needed, and the only requirement is that the investor’s commitment has "some economic value."¹⁸⁵ Further, BSCR has contributed nonmonetary resources, by employing personnel tasked specifically with Panama’s sales and marketing, who travel to Panama to perform their duties including provision of know-how to local distributors and customers.¹⁸⁶ Lastly, "capital is being committed to obtaining the intellectual property rights, i.e. the assets, through royalty payments";¹⁸⁷ which is different from the capital committed to sale and distribution of the tires, and "it is the brands that BSAM is spending capital to use and market."¹⁸⁸

• Expectation of Gain and Profit. The Claimants argue that BSAM’s investments were made with the expectation of gain and profit because: (i) the licenses were granted to BSAM and its subsidiaries "so that BSAM could make money in Panama by selling tires", and (ii) BSAM’s subsidiary entered into the franchise agreement with Bandag de Panama S.A. with the expectation that it would earn money.¹⁸⁹

• Assumption of Risk. For the Claimants, the existence of an investment dispute is an indication of risk. Further, the Supreme Court decision of May 2014 created a significant risk for BSAM, namely, that the "dilution of the value [of the] trademark" will result in trademark infringements and competing registrations, and reduce sales and decrease profits in Panama. In addition, the Claimants contend, BSAM faces risk in "its activities including payment risk" from customers and distributors for the tires shipped to Panama.¹⁹⁰

• Duration. The Claimants argue that BSAM meets this criterion as: (i) it has held its investments based on the BRIDGESTONE and FIRESTONE Trademark Licenses since 2001; (ii) it "has sold into Panama for decades"; (iii) its wholly-owned subsidiary BSCR has been in charge of the Panama market since 1997, and has a distribution agreement to sell tires in Panama that dates back to 1979; and (iv) the franchise agreement with Bandag de Panama S.A. dates back to 1 965.¹⁹¹

• They have identified an "asset" that BSAM’s "owned or controlled" at the time of the 28 May 2014 Supreme Court decision, namely, the 1 December 2001 BRIDGESTONE Trademark License (C-052) and FIRESTONE Trademark License (C-048).²⁰³ They note that "[ s ] pecifically, BSAM is the named rights holder in the FIRESTONE Trademark License […], while BSAM’s wholly-owned subsidiary, […] BATO […], is the named rights holder in the BRIDGESTONE Trademark License […]."²⁰⁴

• The Respondent has misunderstood the nature of the "asset" when arguing that the lack of ownership is demonstrated by the fact that BSAM needed to license it from third parties. The BRIDEGESTONE and FIRESTONE Trademark Licenses are themselves the "assets that are owned by BSAM […] which constitute Panamanian intellectual property rights", and "the asset is the license, because it is the license that confers on the licensee Panamanian intellectual property rights."²⁰⁵

• The issue whether BSAM’s intellectual property rights under a Panamanian trademark registration conferred by the FIRESTONE Trademark License constitute "assets in Panama owned by BSAM" is a question of Panamanian law.²⁰⁶

• As supported by Article 121 of Law 35 of 1996, and the statement of Ms. Audrey Williams,²⁰⁷ "under Panamanian law (i) the right to use a trademark granted by a license is an intellectual property right in that trademark; (ii) the license granting such intellectual property right need not be granted under Panamanian law in order to be effective; and (iii) such intellectual property right is an asset owned by the holder of that right";²⁰⁸ and "a trademark license holder may sue under its agreement in the Panamanian courts and enforce its rights against third parties. "²⁰⁹

• The Tribunal should be guided by the substance and not the nomenclature of Panamanian law.²¹⁰ And "in substance" the intellectual property rights conferred by the FIRESTONE and BRIDGESTONE Trademark Licenses are owned directly and indirectly by BSAM.²¹¹ The Claimants explain that, while Ms. Williams indicated at the Hearing that "ownership of IP rights is always considered to remain with the original trademark owner, in substance it is plain that the licensee of intellectual property rights owns those rights subject to the terms of the license. "²¹² Indeed, "the licensee is the one who may use and benefit from those rights" and therefore, it is the licensee who by virtue of the license "owns or controls the right to use and commercially exploit the mark in the territory. "²¹³

• The terms of the two license agreements also support the conclusion that BSAM directly and indirectly controls the intellectual property rights conferred by the agreements, even though control is not unfettered.²¹⁴ The Claimants note, for example, that BSAM has control over how to commercially exploit the license, how to use the license, how to market and promote tires, who to sub-license, and it must exercise quality control over the products.²¹⁵

• BSAM’s rights are transferrable, and while this requires the consent of the trademark holder, that does not take way from BSAM’s ownership and control.²¹⁶

• BSAM’s intellectual property rights "are in Panama" because they are "deriving from trademarks registered in Panama."²¹⁷

• Remark that Article 10.29 refers to "intellectual property rights" as distinguished from "intellectual property."²²²

• Note that the term "intellectual property rights" is not defined in Chapter 10 or Chapter 15 of the TPA, but argue relying on the applicable law provision in Article 10.22.1 of the TPA, that there is useful context in the TPA that can assist the Tribunal. The Claimants refer to Article 15.2.10, Article 15.11.6 and footnote 20, as support for the distinction between "intellectual property (i.e. the trademark)" and "intellectual property rights."²²³

• Argue that the Respondent has analyzed BSAM’s intellectual property rights under the criteria of Article 10.29(g) of the TPA referring to "licenses" overlooking whether they were "intellectual property rights" falling under Article 10.29(f). Further, Panama has also implied that the only intellectual property right that could be an asset is the trademark, thereby conflating intellectual property with intellectual property rights.²²⁴

• Dispute the allegation that the purpose of a trademark license is to allow the licensee to use the "good will" of the brand, and that BSAM not having rights to that "good will" it does not have any "intellectual property rights." The purpose of the trademark license is to allow use of the trademark, a right which the licensee owns and controls, pays for, and receives benefits from, though manufacturing and selling branded products.²²⁵

• Argue that the present situation has parallels to oil exploration and production licenses, in which the licensee does not own the concession area, but it does own the right to explore and produce in that area in accordance with the license.²²⁶

"In determining whether an asset falls within the definition, the analysis should be guided by whether it has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk."²²⁸

"investment means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk. Forms that an investment may take include:

(a) an enterprise

(b) shares, stocks, and other forms of equity participation in an enterprise;

(c) bonds, debentures, other debt instruments, and loans;

(d) futures, options and other derivatives;

(e) turnkey, construction, management, production, concession, revenue- sharing, and other similar contracts;

(f) intellectual property rights;

(g) licenses, authorizations, permits, and similar rights conferred pursuant to domestic law; and

(h) other tangible or intangible, moveable or immovable property, and related property rights, such as leases, mortgages, liens and pledges."²³¹

"Whether a particular type of license, authorization, permit or similar instrument (including a concession, to the extent that it has the nature of such an instrument) has the characteristics of an investment depends on such factors as the nature and extent of the rights that the holder has under the law of the Party. Among the licenses, authorizations, permits, and similar instruments that do not have the characteristics of an investment are those that do not create any rights protected under domestic law. For greater certainty, the foregoing is without prejudice to whether any asset associated with the license, authorization, permit or similar instrument has the characteristic of an investment."²³²

• (1) In what circumstances does a trademark qualify as an investment?

• (2) In what circumstances, if any, are the FIRESTONE Trademark License and the BRIDGESTONE Trademark License capable of qualifying as an investment?

• (3) In the light of the answers to 1 and 2, was the FIRESTONE Trademark License an investment in Panama owned or controlled by BSAM?

• (4) In the light of the answers to 1 and 2 was the BRIDGESTONE Trademark License an investment in Panama owned or controlled by BSAM?

• commitment of capital or other resources;

• expectation of gain or profit;

• assumption of risk.

These are characteristics of an investment that have been identified in the abundant investment treaty jurisprudence on the topic over the years and reduced to the text of the TPA. The Claimants have accepted them as typical characteristics of an investment and Panama has not demurred from this.

"[...] An intellectual property right is therefore negative in character: it is a right to exclude others and corresponds to an obligation in rem by which all subjects of the legal system have a negative duty to refrain from exploiting an invention or representing one’s business or its products by a certain name or symbol and so on."

"[...] Rights, activities, commitments of capital and resources, expectations of gain and profit, assumption of risk, and duration do not add up an 'investment' when they are simply the rights, activities, commitments, expectations, and risks associated with, and the duration of, cross-border sales."²⁴⁴

• (i) the FIRESTONE Trademark License fell within the definition both of "intellectual property rights" under Article 10.29(f) of the TPA, and of a "license" under Article 10.29(g);

• (ii) the rights granted by the License were protected under the law of Panama;

• (iii) the total of the activities carried on by BSAM in relation to those rights, coupled with the License itself as the core investment, had the characteristics of an investment.

• (i) the rights granted by the License were so restricted that (a) they could not properly be described as intellectual property rights, or a license, or an asset; and (b) BSAM could not properly be said to own or control the rights;

• (ii) the rights were not recognized or protected by the law of Panama;

• (iii) the rights were not in Panama;

• (iv) there were insufficient activities carried on by BSAM in Panama under or in relation to the License to give the two together the characteristics of an investment.

"5. [Bridgestone/Firestone Americas Holding, Inc.] may use Marks only on Licensed Products after receiving the written approval of [BSLS] and only after [BSLS] has seen, inspected and approved a sample of the use of each of the Marks as well as a sample of each of the Licensed Products provided by [Bridgestone/Firestone Americas Holding, Inc], at its expense, displaying the proposed usage of the Marks. Thereafter until expiration of this Agreement, the Marks must only be used in the style, font, color and manner as required by [BSLS].

[…]

11. [Bridgestone/Firestone Americas Holding, Inc.] agrees that [BSLS] owns of [sic] the Marks and all the goodwill associated therewith. [BSLS] shall retain all right, title and interest in and to the Marks, the goodwill associated therewith, and all registrations granted thereon. Any and all uses of the Marks by [Bridgestone/Firestone Americas Holdings, Inc.] shall inure to the benefit of [BSLS]. […]"

"Article 121 : The owner of a registered trademark can grant, by means of a contract, a license to use the trademark in favor of one or several persons in connection with all or part of the goods or services covered by the registration. The owner of the registered trademark can reserve the right to simultaneously use the trademark."²⁴⁶

"9. […] Through operation of Article 121 a trademark registration holder may therefore transfer their intellectual property rights with respect to the use of the trademark to a licensee. It follows that the person to whom the trademark rights have been licensed possesses those trademark rights of use. While it is clear that the trademark owner must grant such license by contract, it is not required that such contract be governed by Panamanian law.

[…]

13. In addition, the right to use the mark granted to the licensee will also allow the licensee to participate in opposition and annulment actions against identical and/or confusingly similar trademarks as either a co-plaintiff or as a collaborating party of the plaintiff. […]."²⁴⁷

"Use of a trademark is understood as the placement of products bearing the mark in the national marketplace, whether they have been produced, manufactured, made or finished in the Republic of Panama or abroad. […] The use of a mark by a licensee or by another person authorized to do so shall be deemed as effected by the owner of the registration, for all purpose related to the use of the mark."²⁴⁸

"As the use of the trademark by the licensee will be considered the same as use by the trademark owner, for all purposes for which the use of the mark is relevant, the role of the licensee will be of paramount importance. This is particularly the case when the trademark owner is not using the mark itself or has no other licensee in the territory. For instance, the use of the mark by the licensee will make it possible to maintain the exclusivity of the rights awarded under the registration certificate, as otherwise it can be cancelled if the mark is not used for five consecutive years. Therefore, the use made by the licensee can be enforced before a court of law by the trademark owner to prevent the cancellation of a trademark registration."²⁴⁹

"In summary, the right to use a trademark granted to a licensee by the owner of a trademark registered in Panama is a valuable asset, and constitutes an intellectual property right under Panamanian law."²⁵⁰

"Q. […] I understand that one of the things that you're saying is that, under Panamanian law, the right to use a trademark granted to a licensee is an 'intellectual property' right; is that correct?

A. Yes, it is

Q. […] it also seems that you're saying that Panamanian law establishes that the right to use a trademark granted to a licensee is a 'valuable asset.' Are you saying that with that sentence? Are you saying that Panamanian law states that trademark rights granted to a licensee are valuable assets?

A. No, I am not saying that."

"sells foreign-manufactured tires to third party dealers and distributors in Panama, and conducts certain activities in connection with these sales."²⁵⁵ The Tribunal assumes that the former submission was directed at the absence of documentary evidence conferring on BSCR the right to use the trademarks in Panama, for the witness statements of Mr. Calderon and Mr. Hidalgo clearly establish that BSCR had been selling tires bearing the FIRESTONE and BRIDGESTONE marks in Panama.

"95. In the opinion of the Tribunal, for the legal dispute to arise 'directly' out of the investment there must be an immediate 'cause-and-effect' relationship between the actions of the host State and the effects of such actions on the protected investments; one must be able to establish firsthand a causal link between the investment and the actions of the host State that produce the harm. This does not mean, however, that the measures taken by the State must be aimed specifically against the investment. It is sufficient that an immediate (as opposed to a remote) link can be established between the harm to the investment and the actions that cause it."

This seems to the Tribunal a sound and sensible test and it is happy to adopt it.

• There is no indication that BSLS has any business activities in the United States in multiple databases consulted (such as, corporate directories, domestic and international litigation reporters, business news sources, trade journals and trademark registration databases).³¹⁴

• As far as Panama can discern, BSLS is "precisely the type of 'shell company'" excluded from protection under the TPA as: (i) BSLS does not appear to own any assets in the United States; (ii) has issued 1,000 shares with a par value of zero; (iii) does not appear in public documents describing the Bridgestone family corporate structure; (iv) was not mentioned in BSJ’s 2015 Annual Reports; and (v) has virtually no presence in public databases.³¹⁵

• The document provided to show that BSLS had taken all the necessary actions to authorize the Request for Arbitration in this case was apparently signed and notarized in Japan.³¹⁶

• BSLS’s business address in the United States is the same used by BSAM and other Bridgestone entities, and it is not clear whether BSLS has any employees of its own that work at this address.³¹⁷

• Incorporation alone does not demonstrate any business activities, especially when the Claimants have admitted that all work associated with maintaining BSLS’s corporate status is conducted by external counsel and corporate service firms.³¹⁹

• The business address in Nashville provided as BSLS’s official address is the headquarters of BSAM, which conducts all management matters for BSLS; BSLS does not have separate phone or suite; and BSLS does not appear to lease separate office space.³²⁰

• BSLS does not have any full-time employees.³²¹

• BSLS has no letterhead, no product and no public visibility.³²²

• BSLS’s board is formed by three Japanese citizens; it does not meet in the United States; it apparently holds conference calls in lieu of meetings; it does not keep minutes; and its resolutions are prepared by outside counsel.³²³ Further, only one member is allegedly based in Nashville, and he states in a social network profile that he is employed by BSAM; BSLS’s officers likewise appear to be BSAM’s employees to whom BSLS’s has contracted out work; and one of those officers concedes that he only spends 7-10% of his time working on BSLS’s matters.³²⁴

• The evidence provided by the Claimants regarding BSLS’s financial activities is problematic because: it gives no insight about the state of affairs at the time of the Request for Arbitration; the financial statements appear as internal spreadsheets and do not indicate who prepared them and for what purpose; the tax documents provided with the Response on Expedited Objections only attest that a return was filed, but do not show an actual tax return, and in any event paying taxes in the State of incorporation does not reveal the existence of substantial business activities;³²⁵ and the Claimants have made certain statements about BSLS’s financial activities that are misleading.³²⁶

• The evidence shows that all of the activities associated with management of the FIRESTONE trademark are conducted by external entities, not by BSLS itself; and BSLS is subject to BSJ’s supervision in this aspect.³²⁷ And it is BSAM (not BSLS) who manages the contractors performing the work.³²⁸

• The licensing agreements provided in the Response on Expedited Objections range from 2001 to 2017, and thus "most" do not assist in establishing business activities on the relevant date; many are not revenue generating; and in any event, the mere existence of license agreements between BSLS and third parties alone is no evidence of substantial business activities.³²⁹

• The "activities" that BSLS claims to conduct (i.e. "licensing" and "management" of non-US trademarks) "essentially take place in the ether", need not be done from a certain location and appear not to be done from any particular location.³³⁰

• What BSLS does is "sign pre-negotiated contracts, collect royalty payments and enter into retainer agreements with outside counsel", which to the extent it can be considered an "activity", is neither "substantial" nor "business" activity in the territory of the United States.³³¹

• Passive income is not an "activity", and the passive nature of BSLS’s income is highlighted by its heavy-dependence on intra-company loans.³³²

• The tax filings, bank statements, board resolutions, retainer agreements, and law firm invoices that BSLS has been able to "scrounge up" simply show that BSLS is doing the "bare minimum" required of a U.S. incorporated company.³³³

• "Japanese nationals do everything from the hiring of counsel and initiation of this arbitration, to the handling of finances."³³⁴

• BSLS is only a passive holder of the FIRESTONE trademark outside of the United States, used by the Japanese parent for trademark licensing outside of the United States. It exists on paper, but the Claimants cannot point to substantial business activities.³³⁵

• First, to take as true the Claimants’ pleaded facts as to BSLS’s business activities in the Request for Arbitration and October 2016 letter and refuse to consider the disputed facts alleged by the Respondent.

• Second, to consider the evidence adduced by both sides mindful of the limited opportunity the Claimants have had to adduce evidence given the expedited nature of the proceeding, and dismiss the objection as not being capable of being resolved in an expedited basis.

• Third, to review the evidence adduced so far, and conclude that the Claimants have provided sufficient evidence to demonstrate BSLS’s substantial business activities.

• Submit that the decision in Pac Rim serves as a "useful benchmark", in that: first, it found that the claimant was not a "traditional holding company actively holding shares in subsidiaries" but "more akin to a shell company with no geographical location for its nominal, passive, limited and insubstantial activities"; and second, referred to evidence showing that the claimant (i) did not have employees, (ii) did not lease office space, (iii) only held assets, (iv) did not have a bank account, (v) did not have a board of directors.³⁶²

• Refer to the decision AMTO (i) holding that substantial means "of substance and not merely of form", it "does not mean 'large'" and "the materiality not the magnitude [...] is the decisive question'"; and (ii) concluding that the requirement was met because the claimant conducted activities from premises in the relevant country, employed a "a small but permanent staff", paid taxes, held a bank account and rented office space in that country.³⁶³

• BSLS is a U.S. incorporated company, and the incorporation documents show that it has a board of directors, it has been duly constituted under the laws of the State of Delaware, and has a physical location in the United States.³⁷⁴

• The FIRESTONE Trademark License between BSLS and BSAM is governed by U.S. law, and thus it demonstrates that that BSLS is engaged in business activities in the United States, as it enters into contracts such as this one, which also includes a provision requiring that contractual notices be delivered to BSLS at its address in the United States.³⁷⁵

• It has a Board of Directors, who pass resolutions, are empowered to act for the company, meets regularly by phone, and has a member located in the United States.³⁷⁷

• It owns intellectual property assets in foreign jurisdictions, administers these assets from the United States applying for registrations, monitoring the markets and protecting the trademarks.³⁷⁸

• It has officers based in the United States, who perform specific functions for BSLS, including an Assistant Secretary.³⁷⁹

• It does the necessary legal work itself "thorough Bridgestone personnel", who while not officially employed by BSLS are required to spend certain portion of their time on BSLS business.³⁸⁰

• It currently engages external counsel including various U.S. law firms, to deal with intellectual property matters and corporate matters.³⁸¹

• It enters into contracts (license agreements and product placement agreements) with foreign and local companies, which are governed by U.S. law, earning royalties from some of those contracts.³⁸²

• It holds a U.S. bank account into which royalties are paid, and out of which it pays expenses including legal fees.³⁸³

• It pays taxes in the United States.³⁸⁴

• It has an office in Nashville and pays a handling fee to BSAM for its shared services.³⁸⁵

• It has been located since its inception in the United States, performing the same function.³⁸⁶

• Profits generated by BSLS are reinvested by the company into the FIRESTONE IP portfolio in the form of brand enhancement initiatives through initiatives with Bridgestone Brands LLC.³⁸⁷

• It is not problematic that BSLS’s address is the same as BSAM's. It is a large office in which various Bridgestone companies are located; an address and number are provided to third parties; and while office space is not formally leased by BSLS a board member and officer work at this address, and hard copy documents are stored there and in another location in Tennessee.³⁸⁸

• The board of directors holds conference calls rather than in-person meetings because two directors are in Japan and one in Nashville; and the two officers communicate regularly with the board.³⁸⁹

• Several people are engaged to work part-time for BSLS, one spending 7-10% of his time, the other 30% and a third one spends "some time" working for BSLS.³⁹⁰

• The bank statements for the October 2016 period and relevant tax forms for years 2013-2015 are provided with the Rejoinder, and the tax forms show substantial tax liability, income, assets and liabilities of BSLS.³⁹¹ They further provide insight into the relationship between BSJ and BSLS, including a loan for US$ 31 million in the process of being repaid, showing that BSLS is not just an entity for BSJ to pass funds.³⁹²

• There is no reason to disregard the activities on trademark management carried out by external legal counsel retained, instructed and paid by BSLS. The situation is similar to paying an employee to do the work.³⁹³ And internal records of invoices paid to external counsel since January 2015 are attached to the Rejoinder.³⁹⁴

• As distinguished from the Respondent’s allegations regarding "shell companies", legal counsel and accountants are not just hired to do corporate and tax filings, but rather they do trademark work and are paid around US$600,000 a year.³⁹⁵

• While some of BSLS’s licensing agreements are not revenue generating, they have material value in the way of product advertisement.³⁹⁶

• The licensing agreements generate revenue exceeding US$ 5 million for BSLS, which is substantial.³⁹⁷ And contrary to the Respondent’s contention, this is not passive holding of licensing agreements because: the agreements are negotiated, signed, renegotiated, discussed with board and officers; they generate income; BSLS pays lawyers to draft them; disputes arising out of these agreements are litigated; and BSLS generates revenue deriving from those agreements.³⁹⁸

• The suggested contradiction between putting forward these license agreements (including the FIRESTONE Trademark License) as evidence of activities in the United States, and the argument that it amounts to an investment in Panama is confused and confusing. It fails to appreciate that the agreement grants rights to two parties: for the licensor (BSLS) it generates revenue in the United States; and for the licensee (BSAM) it provides intellectual property rights in various jurisdictions, including Panama. The other agreements serve to demonstrate that BSLS as the licensor has business activities in the United States, where BSLS is situated.³⁹⁹

• Even the narrow test articulated by the Respondent at the Hearing discussed supra, paragraph 276 is met because: (i) through license agreements BSLS grants the right to use the FIRESTONE trademark and receives payment therefor, and (ii) disregarding licenses to other Bridgestone companies and concluding that BSLS is licensing to itself would ignore corporate identity and reality.⁴⁰⁰

"2. […] a [TPA] Party may deny the benefits of this Chapter to an investor of the other [TPA] Party that is an enterprise of such other [TPA] Party and to investments of that investor if the enterprise has no substantial business activities in the territory of the other [TPA] Party, and persons of a non-[TPA] Party, or of the denying [TPA] Party, own or control the enterprise."⁴⁰⁶

"This treaty right is consistent with a long-standing U.S. policy to include a denial of benefits provision in investment agreements to safeguard against the potential problem of 'free rider' investors, i.e., third party entities that may only as a matter of formality be entitled to the benefits of a particular agreement. While it has long been U.S. practice to omit a precise definition of the term 'substantial business activities’ in order that the existence of such activities may be evaluated on a case-by-case basis, the United States has indicated in, for example, its Statement of Administrative Action on the NAFTA that 'shell companies could be denied benefits but not, for example, firms that maintain their central administration or principal place of business in the territory of, or have a real and continuous link with, the country where they are established.'"⁴⁰⁷

• The treaty breach occurred with the Supreme Court’s decision on 28 May 2014, and the dispute arose following that judgement.⁴⁵⁹

• BSLS incurred the loss on the date the Supreme Court decision ordered it to pay the damages, i.e., 28 May 2014, and thus it does not matter when the payment was made.⁴⁶⁰ Relying on Mobil Investments, the Claimants contend that "damages are incurred and compensation is due when there is a firm obligation to make a payment [...]."⁴⁶¹

• Even if were correct that loss for the US$ 5.4 million ordered by the Supreme Court only occurred when the payment was made, the Claimants also claim loss in excess of that sum, which is a loss consequential to the Supreme Court decision, that the Claimants began to incur on the date of the decision.⁴⁶²

• Because BSLS and BSJ were held jointly and severally liable for the whole sum, while BSJ could have paid, BSLS can hardly be charged with abuse of process for paying a sum it was ordered by a court to pay.⁴⁶³ While BSJ could have paid, it is not surprising that BSLS being the entity specifically tasked with protecting intellectual property rights made the payment.⁴⁶⁴

• The assertion that it was illogical for BSLS to pay because it is a "shell" company with no assets is both circular and disingenuous. It is also entirely reliant on the success of the denial of benefits objection, which should fail.⁴⁶⁵ In fact, BSLS is an entity with assets and substantial business activities, able to make the payment.⁴⁶⁶ And even if the Tribunal found that BSLS has no business activities in the United States (quod non), the fact remains that BSLS was liable for the sum.⁴⁶⁷

• It is absurd to argue that BSLS paid to put itself into a better position. Had BSLS not discharged the liability imposed by the Supreme Court decision, it was exposed to enforcement actions against its assets in Panama.⁴⁶⁸ It is also absurd to suggest that BSLS and BSJ did not need to pay and should have put themselves in contempt of court or wait for enforcement action.⁴⁶⁹

"[…] the initiation of a treaty-based investor-State arbitration constitutes an abuse of rights (or an abuse of process, the rights abused being procedural in nature) when an investor has changed its corporate structure to gain the protection of an investment treaty at a point in time when a specific dispute was foreseeable."

"[F]or present purposes, those other factors do not matter. The issue here is that Claimants are asserting claims based on the conduct of other States, but the TPA does not impose any obligations on Panama in respect of their conduct, and international law in any event precludes the Tribunal from evaluating such conduct without the consent of those other States. Claimants do not provide any real response on this issue."⁴⁸⁴

• First, consent to arbitration in the TPA is limited to claims arising out of measures already "adopted or maintained" and the resulting damage already incurred.⁴⁸⁶ (The Respondent rejects the allegation that this aspect of the problem was not mentioned before the Hearing.⁴⁸⁷)

• Second, Chapter 10 of the TPA does not apply to investments in other States or to measures by other States different from Panama.⁴⁸⁸ Dismissing the allegation that the only measure at issue is the Supreme Court judgement from which the conduct of the other States flows causally, the Respondent argues that this type of reasoning would only work if the other State had committed an internationally wrongful-act,⁴⁸⁹ which is an issue the Tribunal cannot evaluate.⁴⁹⁰

• It only impacts two of the four possible grounds for loss under this head of damage. And even though the four grounds are "inter-related" that does not mean that they are inextricably linked so that if one fails all do.⁴⁹⁵

• The loss claimed arises directly out of the decision of Panama’s Supreme Court, and the TPA does not preclude a claim for loss suffered outside of Panama or the United States, as long as it meets the basic test for causation.⁴⁹⁶

• In reality, the objection relates to matters of causation, foreseeability and loss, and it cannot be determined under Article 10.20.5 of the TPA, because it is not a jurisdictional objection, and would require extensive evidence to be resolved.⁴⁹⁷

"56. Second, the decision of the Panamanian Supreme Court may be followed in other Latin American countries as a matter of government policy. Many countries in Latin America have historically followed each other’s lead in the implementation of protectionist trade policies in the area of intellectual property rights, and the decision of the Panamanian Supreme Court operates as a de facto protectionist device, allowing potentially confusingly similar marks to enter into the market because intellectual property rights holders are unwilling to risk significant, apparently arbitrary, penalties for their good faith use of the legal mechanisms intended to preserve those rights. […]

57. Third, the decision of the Panamanian Supreme Court establishes a precedent that is likely to be followed in other Latin American legal systems. Such concerns are warranted in light of the fact that it is not uncommon for ideas developed in the courts in one national legal system to be transferred to another. […]

58. Fourth, the decision of the Panamanian Supreme Court to impose damages fo