[Posted by Henning Grosse Ruse-Khan on the International Economic Law and Policy Blog (CC BY-NC 2.5)] Last week, Luke Peterson reported that the U.S. based pharma corporation Eli Lilly has put Canada on notice of its intent to submit a claim to arbitration under NAFTA Chapter 11 following the invalidation of some of its patents by Canadian courts (http://www.iareporter.com/articles/20121203_2). The Notice of 7 November 2012 is now available on Andrew Newcombe’s website (http://italaw.com/cases/1625). It reveals an interesting new interface between international IP and investment law.
In Eli Lilly and Company v. The Government of Canada, the US pharmaceutical complains about too strict
patentability requirements as applied by the Canadian Courts since 2005. In a nutshell, Eli Lilly alleges that the courts interpret the utility (or industrial applicability) standard for patent protection – one of three
criteria an invention must meet to be patentable – and the requirement to disclose the invention so that it can put into practice in a way that leads to frequent invalidation of pharmaceutical or bio-pharma patents in Canada. As for the utility criterion, the notice alleges that since 2005, federal Canadian courts have created a so called promise doctrine ‘whereby utility is assessed not by reference to the requirement in the Patent Act that an invention be “useful”, but rather against the “promise” that the courts derive from the patent specification’ (p.10). Eli Lilly argues that this doctrine has led to ‘a dramatic increase in the number of patents invalidated for the lack of utility’ – 17 in the last 7 years (all in the area of bio-pharma patents), as compared to 2 in the 15 years before (p.15). The US company also complains about ‘a new, non-statutory disclosure obligation’ imposed by Canadian courts which interacts with the enhanced utility standard ‘in a manner that is fatal to valid pharmaceutical and biopharmaceutical patents’ (p.16, 18), such as those for its drugs ‘Strattera’ (for treating attention-decifict hyperactivity disorder, ADHD), Zyprexa and Evista.
For me, the most interesting aspect is that Eli Lilly claims expropriation and a breach of the fair and equitable treatment (FET) standard because the Canadian court decisions which invalidate its patents ‘are contrary to Canada’s international treaty obligations’ (p.24); in particular those deriving from the WTO TRIPS Agreement, NAFTA Chapter 17 on IP rights and the Patent Cooperation Treaty. In essence, the company argues that (1) the “promise doctrine” imposes an utility standard which violates Art.27:1 TRIPS to make available patents for inventions which are new, non-obvious and useful; (2) the judicial decisions amount to a de facto discrimination of biopharma patents contrary to the Art.27:1 TRIPS obligation not to discriminate among different fields of technology; and (3) infringe the Patent Cooperation Treaty (PCT) by imposing additional form and content requirements relating to international patent applications. These breaches on international IP treaties are argued to violate investment protection standards because Eli Lilly claims to have a reasonable expectation that Canada complies with these IP treaties (pp.25-26).
Leaving aside the merits of the claims of inconsistencies with international IP treaties (especially the absence of any further definition of the patentability criteria in TRIPS is generally understood as conferring flexibility on WTO Members to define these criteria in their national laws), there are systemic implications: Should investor – state arbitration function as a new venue to litigate compliance with international IP treaties? Can it serve as an alternative forum for rightholders to challenge TRIPS consistency (instead of lobbying their governments to bring a WTO dispute)? And if we end up with parallel proceedings (as in the challenges to Australia’s plain packaging measures where Phillip Morris equally claims a BIT violation based on alleged inconsistencies with TRIPS and the Paris Convention), will investment arbitration come up with its own assessment or wait for a WTO decision?
