Pharmaceutical Research and Manufacturers of America - Policy Views - Issues Around The World

Pharmaceutical Research and Manufacturers of America - Policy Views - Issues Around The World - Special 301 Report

PRIORITY WATCH COUNTRY

Canada

Intellectual Property Protection

Since 1992, Canada has taken steps to afford stronger protection to patents. Some of our member companies made significant investments in Canada as the protection of our intellectual property was strengthened. Nevertheless, the Canada Patent Act is deficient in its implementation of TRIPS in various aspects, leaving the country in violation of its basic obligations. For that reason, PhRMA believes that Canada should be included in the 2000 "Special 301" Priority Watch List.

Term of Protection: Article 33 of the TRIPS agreement obligates Canada to provide a 20-year term of protection for all patents, counted from the time of filing. Article 70.2 establishes that the 20-year term of protection applies to all patents that existed at the time that the TRIPS agreement took effect, that is, on January 1, 1996. Canada amended its patent law in 1987 to provide 20-year protection from the date of filing for all patent applications filed on or after October 1, 1989. Despite the clear language of TRIPS, Canada never extended the 20-year patent term to those patents which had been filed before October 1, 1989, and which took less than three years to obtain. Important pharmaceutical and other products will be denied the full length of protection required by TRIPS and will be prematurely forced off patent with extensive commercial loss to PhRMA member companies operating in Canada. PhRMA expects that the interim report of the WTO dispute panel will confirm Canada's clear breach of its TRIPS obligations and that Canada will, at that point, take the requisite action to ensure that additional patents not lose the patent protection required by the TRIPS agreement. PhRMA strongly believes that USTR should make the expeditious disposition of the WTO case a high priority in its trade relations with Canada.

Data Protection: Canada's data exclusivity provisions and their implementation violate TRIPS Article 39.3 because submission and processing of generic approval applications are allowed during a five-year period, and essentially eliminate the non-reliance requirement of TRIPS. Resolution of this issue is important for the Canadian market, and would eliminate a major negative precedent for less developed countries (LDCs). Canada has for some years allowed generic companies to have access to patented pharmaceuticals, for the purpose of having the product registered in Canada, as well as for starting up commercial-scale manufacture and export. The European Union WTO dispute settlement case against Canada is near resolution, as the panel report is expected within weeks. Canada also gives generic copiers the benefit of "Springboarding" by allowing the copier to rely on the originator's proprietary data during the statutory five-year period of data exclusivity, for the purposes of product registration.

Other Obligations: Canada is required under both TRIPS and NAFTA to ensure effective enforcement of the standards of patent protection provided for in those Agreements. Article 28 of TRIPS and Article 1709 of NAFTA require Canada to confer on patent owners the exclusive right to prevent third parties not having the owner's consent from making, using or selling the product or process that is the subject of the patent. Article 41 and related Articles of TRIPS and Article 1714 and related Articles of NAFTA require Canada to "ensure that enforcement procedures are available under its law so as to permit effective action against any act of infringement of intellectual property rights covered by (these) Agreements, including expeditious remedies to prevent infringements and remedies which constitute a deterrent to further infringements."

Enforcement: Systemic inadequacies in Canada's administrative and judicial procedures call into question whether Canada is meeting its TRIPS and NAFTA obligations with respect to pharmaceutical patents. These inadequacies allow generic versions of patented medicines to be approved by Health Canada, to be listed for use by doctors and use or even mandatory substitution by pharmacists, and to reach or be ready to reach the market in commercial quantities while valid patents are still in force. This can occur under the Patented Medicines (Notice of Complianc) Regulations, the so-called "linkage regulations" administered by Health Canada, and as a result of how patent infringement claims are treated in the Canadian Courts.

The linkage regulations fail to provide for transparent and equitable consideration of the rights of patent owners and prevention of patent infringement.

Under the linkage regulations, generic producers can apply at any time for approval by Health Canada of generic medicines. Such generic medicines are assessed for safety and efficacy against data and clinical trials relating to previously approved patented medicines.

These regulations extend significant advantages to generic companies. Furthermore, the Patent Act, s. 55.2(1) and (2), also provides benefits to generic companies that are not available in other countries, including the "early working" and "stockpiling" provisions that are now the subject of a WTO dispute settlement case brought by the European Union.

The linkage regulations indicate that Health Canada must determine whether there are patents registered that could be infringed if approval, i.e., a Notice of Compliance (NOC), was granted for the generic medicine. If a patent is identified, the generic producer is required, in principle, to issue a Notice of Allegation (that there would be no infringement) to the brand name company who, if it believes the allegation is not justified, may challenge that allegation in the Court. Thus, the brand name company has access to a judicial procedure to present its claim and seek an order of prohibition to prevent the issuance of an NOC.

This arrangement, in principle, could provide the basis for effective protection of pharmaceutical patent owners' rights as required under TRIPS and NAFTA. Experience shows, however, that the manner in which the procedures are applied fails to extend such protection in a majority of cases where infringement is at issue.

The legal burden is on the brand name company to prove that the generic company's allegation of non-infringement is not justified. Access to information on the generic company's product may be restricted, however, because there is not necessarily discovery in such proceedings. The brand name company may therefore be reliant on whatever information the generic company is prepared to supply. This approach is open to abuse to the detriment of the brand name company.

Health Canada has been inconsistent in its policies and practices relating to the listing of brand name companies' patents and in requiring generic companies to send a Notice of Allegation. In some cases no Notice is provided. This means that the brand name company has no opportunity to present a claim and, in fact, may remain unaware that a generic version of its drug has been submitted for approval until an NOC is issued. This has occurred in a recent case and could easily occur again in future.

The linkage regulations do not apply to process patents, notwithstanding the fact that claims to a medicine itself were previously forbidden under Canadian patent law. This means that many brand name companies have only process patents to protect their inventions. This situation will continue for a period of years.

As a result of these inadequacies, there have been dozens of cases since 1993 (when the linkage regulations came into effect) in which patentees had an infringement claim but were unable to prevent the issuance of an NOC and the marketing of a generic version of a patented medicine.

The Canadian courts fail to provide effective recourse in cases where an NOC is issued for an infringing generic medicine.

If a patentee is unsuccessful in preventing the issuance of an NOC by Health Canada, the next step would be to seek relief through an infringement action. In the first instance, a patentee could apply for an interlocutory injunction to maintain its rights and, in particular, to prevent the marketing of an infringing generic version pending trial.

It is virtually impossible, however, to obtain an interlocutory injunction. It is estimated that less than 10 percent of requests for such injunctions are granted.

The Canadian Courts apply a very high standard of "irreparable harm", the test applied for the granting of an interlocutory injunction. This standard is impossible to meet in practical terms.

A patentee is required to establish that there will be irreparable harm that cannot be compensated by the eventual award of damages. The Courts do not accept that a monetary damage award may not provide full compensation for loss of market share for the product and related products, lost business, lost investment and research opportunities due to the absence of income from sales, or for loss of reputation and goodwill.

It generally takes two to five years before an action for patent infringement is tried. After this amount of time, a brand name company's market share has been severely eroded. Moreover, Canadian Courts may be reluctant to grant the large damage awards that a brand name company would be owed in such cases.

The standards applied by the Canadian Courts are not consistent with the standards provided for in TRIPS and NAFTA.

The fundamental private right under these Agreements is, of course, the exclusive right to prevent the making, use or sale of a patented product or process that is not authorized by the patentee.

In terms of the enforcement of that right, Article 50 of TRIPS and Article 1716 of NAFTA call for "prompt and effective" provisional measures, i.e., including interlocutory injunctions, "to prevent an infringement of any intellectual property right, and in particular to prevent the entry into the channels of commerce in their jurisdiction of allegedly infringing goods". The test under TRIPS and NAFTA for provisional measures is that "any delay in the issuance of such measures is likely to cause irreparable harm to the right holder", a clearly lower standard than that applied by the Canadian Courts.

The concerns of pharmaceutical patent owners are serious and have important implications beyond economic losses in Canada.

Damage Estimate

PhRMA is currently studying methodology for estimating damages caused by the aforementioned trade barriers in Canada (See Appendix B). Although Canada has eliminated its former compulsory licensing system for pharmaceuticals as a result of NAFTA and TRIPS, there continues to be a strong bias favoring the early and often infringing entry of generic versions of patented medicines into the marketplace. There are systemic inadequacies in administrative and judicial procedures that allow this to occur, resulting in substantial and on-going economic losses to patent owners and calling into question Canada's compliance with its obligations under both NAFTA and TRIPS.

Moreover, Canada's policies and practices constitute a dangerous example that could be followed by others, particularly developing countries.

USTR should attach high priority to remedying this situation, as patent infringement in Canada results in hundreds of millions, if not billions, in economic losses to U.S. pharmaceutical patent owners. This alone is sufficient cause for USTR to take steps to address the systemic problems with Canada's enforcement procedures.

Last Update: September 18, 2000