Excerpt from a Fact Sheet from Public Citizen’s Global Trade Watch.
Click here for the full Fact Sheet
Eli Lilly and Company has initiated formal proceedings under the North American Free Trade Agreement (NAFTA) to attack Canada’s standards for granting drug patents, claiming that the denial of a medicine patent is an expropriation of its property rights granted by the agreement. The investor privileges provisions included in NAFTA and other U.S. “free trade” agreements (FTAs) empower private firms to directly challenge government policies before foreign tribunals comprised of three private-sector attorneys, claiming that the policies undermine their “expected future profits.” Eli Lilly’s move marks the first attempt by a patent-holding pharmaceutical corporation to use U.S. “trade” agreement investor privileges as a tool to push for greater monopoly patent protections, which increase the cost of medicines for consumers and governments.
Eli Lilly launched its NAFTA attack after Canadian courts invalidated Eli Lilly’s monopoly patent rights for an attention deficit hyperactivity disorder (ADHD) drug, having determined that the drug had failed to deliver the benefits the firm promised when obtaining the patent. However, in its formal notice of intent to take Canada to a NAFTA investor tribunal, Eli Lilly makes clear that it is not only challenging the invalidation of its particular patent, but Canada’s entire legal doctrine for determining a medicine’s “utility” and, thus, a patent’s validity. While pushing for a patent standard that would raise medicine prices, Eli Lilly, the fifth-largest U.S. pharmaceutical corporation, is demanding $100 million from Canadian taxpayers as compensation for Canada’s enforcement of its existing medicine patent standards.
…
In the Name of “Free Trade,” Eli Lilly Asserts a Right to Maintain Monopolies, but Break Promises
The trigger for Eli Lilly’s NAFTA attack was the invalidation of its patent for Strattera, a drug used to treat ADHD. Both a Canadian federal court and a court of appeals ruled that the patented drug failed to demonstrate the utility that Eli Lilly had promised when applying for the monopoly protection rights provided by the patent. The Canadian court decisions paved the way for Canadian drug producers to produce a less expensive, generic version of the ADHD drug. (The domestic court case challenging Eli Lilly’s patent for Strattera was initiated by Novopharm, a generic drug company.)
Eli Lilly’s formal NAFTA challenge notice to the Canadian government directly targets Canada’s basis for the patent invalidation, known as the “promise doctrine.” To obtain a patent in Canada, as in most countries, a drug must be shown to be “useful.” Countries’ policies define usefulness in varying ways. The Canadian “promise doctrine” provides that a drug patent will be honored so long as promises regarding the drug’s efficacy are also honored. The corporation lambasts this patent policy framework as “discriminatory, arbitrary, unpredictable and remarkably subjective.” It presumes to declare what Canada’s policy should be – that Canada must issue a patent and allow a drug firm to charge monopoly prices if a medicine has a “mere scintilla” of utility.
…
Eli Lilly Cites / Invents Sweeping “Rights” that Could Chill Access-to-Medicines Policies
Eli Lilly specifically claims that Canada’s invalidation of the Strattera patent violated the “minimum standard of treatment” that NAFTA signatories are obliged to provide to foreign investors. Sovereign States, including the United States, have consistently argued that this standard means providing police protection and due process, such as that afforded to Eli Lilly when it defended its patent before Canada’s courts. But investor-state tribunals have generated increasingly inventive interpretations of the minimum standard, arguing that it also requires governments not to enact policies that could plausibly violate foreign investors’ expectations. As the United States argued in a previous investor-state case, “if States were prohibited from regulating in any manner that frustrated expectations – or had to compensate for any diminution in profit – they would lose the power to regulate.” Yet, this extreme interpretation is precisely the one on which Eli Lilly relies in accusing Canada’s courts of “contravening” its expectations by raising patent standards to include “new and additional requirements.” Such elastic interpretations have made the minimum-standard-of-treatment claim the single most successful investor-state allegation that corporations can mount against a State, as the number of such cases explodes.
Eli Lilly also claims that Canada violated NAFTA’s “national treatment” obligation, which requires governments to afford foreign investors treatment that is “no less favorable” than that afforded to domestic corporations “in like circumstances.” But after quoting this NAFTA definition, Eli Lilly ignores it, inventing instead a standard that would require Canada to afford foreign investors treatment no less favorable than what Canadian companies could hypothetically receive in other countries. Such a speculative obligation is rather unprecedented even among the musings of inventive investor-state tribunals, seemingly concocted by Eli Lilly itself.
The corporation also alleges that the courts’ patent invalidation violates national treatment by advantaging Canadian generic firms that can now create and market generic versions of Strattera.26 Here, Eli Lilly presumes to challenge Canadian courts’ removal of a patent on the incredible basis that patent removals help expand the availability of less expensive generic medicines. Of course the removal of patents helps generic producers – it always does, but it does so regardless of whether the generic firms and/or the patent holders are foreign or domestic. Were Eli Lilly’s skewed logic to be accepted by the tribunal, any patent invalidation, regardless of the basis, could be construed as a violation of FTA-protected national treatment obligations. Such an interpretation would jeopardize generic medicines in nearly any country that finds cause to terminate a patent but also finds itself subject to a NAFTA-style treaty.
Eli Lilly’s final claim is that Canada violated NAFTA’s obligation to not expropriate investments. The company first tries to argue that the patent invalidation constituted a “direct expropriation” of investments, even though that term has long been understood to mean government seizure of real property, such as land or a factory, not the invalidation of monopoly patent rights. The company then alleges that Canada committed an “indirect expropriation,” an extreme NAFTA provision that allows companies to obtain government compensation for “regulatory takings.”27 This is a legal theory generally rejected by most nations’ courts, including the U.S. Supreme Court, that governments must compensate property holders for any government policy or action that may reduce the property’s value. (A classic example would be the government having to compensate for a land use law of general application if it forbids a property in a residential area from being used for more profitable industrial purposes.) Interestingly, Eli Lilly does not argue that Canada’s policy violates NAFTA’s Intellectual Property Chapter. This highlights how it would expand corporate privileges under NAFTA immensely if a tribunal would accept Eli Lilly’s claim and allow a patent revocation to be considered an indirect expropriation. NAFTA’s Investment Chapter explicitly states that the expropriation provision “does not apply to the issuance of compulsory licenses granted in relation to intellectual property rights, or to the revocation, limitation or creation of intellectual property rights, to the extent that such issuance, revocation, limitation or creation is consistent with Chapter Seventeen (Intellectual Property).”28 Rather than try to show that Canadian policy violates the Intellectual Property Chapter, and thus that the patent revocation is subject to an expropriation claim, Eli Lilly is trying to expand the scope of what the expropriation provision covers altogether. Unfortunately, the investor-state system empowers three private attorneys meeting behind closed doors in a foreign tribunal to now determine the validity of Eli Lilly’s inventive interpretation and the legitimacy of Canada’s patent policy.
