Originally from The American Review of International Arbitration (ARIA)

PREVIEW

ABSTRACT

In recent years, digital platforms have become a key target of government regulatory and enforcement actions. Thus, some digital platform businesses may want to challenge the government measures that affect them in investment arbitration. Meeting the territoriality requirement, i.e., protection of investment in the territory of the host state under investment treaties, is particularly challenging for digital platforms given the intangible and transnational nature of their businesses. This article examines three routes to meet this threshold: territoriality of investment, territoriality of damages, and the definition of investment. There are substantial uncertainties in these areas of international investment law, which is further complicated by their overlap in function. As explored through the course of this paper, digital platforms may face significant difficulties in crossing the territoriality threshold through the first two routes, but under certain circumstances, they may take the third route, counting their user network in the host state as an investment, thus satisfying the territoriality requirement.

I. INTRODUCTION

This article discusses how the territoriality threshold in international investment arbitration would apply to digital platforms. As a general principle, investment treaties only protect investment in the territory of the host state. This territoriality requirement becomes an issue for digital platforms due to the intangible and transnational nature of their businesses. Digital platforms often concentrate their physical assets and intellectual properties in their home jurisdictions and a few overseas hubs. Thus, in the geographical sense (which can be different from legal sense), they may not have investments in many jurisdictions, and even if they do, the scale of typical investments may not match the scale of their digital operations. Despite the foregoing, the monies spent by digital platforms in maintaining operations in some jurisdictions can be huge. In this scenario, can they bring a claim under the investment arbitration regime to challenge government measures? Can they get full recovery for what they lose as a result of state action? This paper examines three potential routes. Each of them concerns a doctrine in international investment law: (1) connecting investments abroad to the host state (“territoriality of investment route”); (2) attaching all damages to can-be-trivial investments in the host state (“territoriality of damages route”); and (3) recognizing user network as an investment (“definition of investment route”).

The importance of the territoriality issue for digital platforms has been rising as we see government actions around the globe targeting digital platforms in recent years.  Just to name a few, the European Union Digital Service Act and Digital Market Act, a group of countries restricting the use of Tik Tok, Indonesia banning e-commerce on social media, and Norway temporarily forbidding Meta from customized advertising. While many of these government measures are based on justifiable concerns, such as antitrust, data protection, consumer and small business protection, geopolitical tensions etc., it is not always clear, at least from the investors’ perspective, how these measures taken by the sovereign nations are consistent with established international standards. Inevitably, some companies owning digital platform businesses will want to examine the government measures that affect them in an independent and impartial international adjudicatory process. As no other regime can offer the same widely available international channels for individual businesses to challenge a foreign government’s action (or even for an entity to challenge foreign government measures at all, since the WTO dispute resolution currently stands paralyzed by the appellate body crisis), investor-state arbitration tribunals appear an attractive forum for such disputes. Indeed, Uber sent a notice of dispute against Colombia in 2019, though the case did not go forward.  Regardless of one’s policy preference about whether ISDS should be open to “Big Tech,” it is still important to understand where the current doctrines stand.