Canada’s IP Doctrine Yields “Absurd Results”? One U.S. Pharmaceutical Thinks So, Awaits Results of NAFTA Arbitration

After failing in Canadian courts, a major U.S. pharmaceutical company, Eli Lilly, is taking Canada to NAFTA arbitration over their patent rights to two drugs.  The case will help define when companies’ IP interests trump nations’ public interest concerns.

WSJ offers readers on update on the case, stressing growing U.S. political pressure on Canada’s to change it’s take on intellectual property (IP) rights.  But a 2014 International Law Association case summary proves much helpful to understanding the case–even if it pours cold water on WSJ‘s riveting, multi-million Canada-U.S. dispute narrative.

From WSJ:

The drive is getting results. Last week, a bi-partisan group of 32 lawmakers obliged the drug maker by signing a letter urging the U.S. Trade Representative to  reinforce Lilly’s request. Seven of the lawmakers are from Indiana, where Lilly is based.

The moves come several weeks after the Pharmaceutical Research and Manufacturers of America trade group also asked the U.S. Trade Representative to elevate Canada’s status in its upcoming annual report about trading partners and intellectual property rights. A PhRMA spokesman, however, declined to say which, if any, other drug makers singled out Canada before the trade group submitted its views. Canada’s Department of Foreign Affairs, Trade and Development did not respond to a request for comment.

Lilly has been battling Canada for some time. Last fall, the drug maker filed for arbitration under the rules of the North American Free Trade Agreement and sought $500 million in damages in hopes of forcing Canada to alter the way patent rights are administered. The drug maker is pursuing an investor-state dispute which, under international trade treaties, allows companies to initiate claims against foreign governments.

Lilly argues that Canada violated obligations not only under NAFTA, but also the Trade-Related Aspects of Intellectual Property Agreement and the Patent Cooperation Treaty by allowing generic rivals to challenge patents without providing sufficient evidence of utility or usefulness.

The patents in question pertain to the Strattera attention-deficit disorder pill and the Zyprexa antipsychotic treatment, which were invalidated by Canadian courts in 2010 and 2011, respectively, after Canada implemented a doctrine for determining intellectual property rights. In its filing, Lilly contends the doctrine produced “absurd results”and also accused Canada of expropriation.

The International Law Association has an excellent summary and viewpoint on the case as well (page 8):

Recently a major pharmaceutical originator company (Eli Lilly) has initiated dispute settlement against Canada under the NAFTA for an alleged taking of patents. The claim is that by adopting and enforcing a particular interpretation of the criterion of utility, the courts of Canada have engaged in an act of expropriation. This is an extraordinary challenge to the sovereign courts of Canada, and to the way in which intellectual property law has traditionally developed, including in the United States, EU and other industrialized countries. Neither the TRIPS Agreement, the Paris Convention on the Protection of Industrial Property nor the NAFTA define the way the criterion of utility is to be implemented or interpreted. The rule that has been adopted by the Canadian courts is an eminently reasonable one (the so-called “doctrine of sound prediction”). Although Eli Lilly’s cause of action borders on the far-fetched from the standpoint of international IP law and customary international law, if it were to succeed it would transform the way international IP law is governed.

While this case could be used to highlight Canada-U.S. tensions, it also highlights the strength of the bilateral partnership.  Canada and Eli Lilly consented to arbitration.  And this dispute will help prevent future trade squabbles, making for a more efficient and orderly Canada-U.S. trade relationship.

Now whether an effective arbitration system can work three years after the alleged trade law infraction is another question.  But that time frame is actually pretty fast.  Just look at the WTO Shrimp-Turtle case.

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