Government of Canada Successful in Eli Lilly’s NAFTA challenge on the "Promise of the Patent" Doctrine

On March 16, 2017, an arbitral tribunal (the Tribunal) appointed pursuant to the North American Free Trade Agreement (NAFTA), released its final decision in favour of the Government of Canada regarding Eli Lilly's case against the "promise utility doctrine."¹ On June 13, 2013, Eli Lilly brought this claim arising from the invalidation of two Canadian patents for Strattera² (atomoxetine) and Zyprexa³ (olanzapine), on the grounds of inutility.⁴ Eli Lilly claimed that the Canadian courts' decision to invalidate the two patents was based on the Canadian judiciary's adoption of the "promise utility doctrine," which it alleged was radically new, arbitrary and discriminatory against pharmaceutical companies and products. As such, the promise doctrine contravened Canada's obligations related to patent protection under NAFTA Chapter 17 and the protections against unfair and inequitable treatment, and unlawful expropriation under NAFTA Chapter 11.

On the issue of the promise doctrine, the Tribunal addressed the following two questions: 1) has there been a dramatic change in the utility requirement in Canadian patent law?; and 2) is the utility requirement in Canadian patent law, as applied to the Zyprexa and Strattera Patents, arbitrary and discriminatory?

The Tribunal held that Eli Lilly had failed to demonstrate a fundamental or dramatic change in Canadian patent law and that the evolution of the Canadian legal framework relating to Eli Lilly's patents could not sustain a claim of arbitrariness or discrimination in violation of NAFTA Chapter 11.

Has There Been a Dramatic Change in the Utility Requirement in Canadian Patent Law?

The fundamental question before the Tribunal was whether there was a "dramatic" change in the utility requirement in Canada. Eli Lilly bore the burden of establishing the facts on which they brought the claim, and the Tribunal addressed whether Eli Lilly had adduced sufficient evidence to prove its allegation that "[i]n the mid-2000s, after the patents for Zyprexa and Strattera had been examined and granted, but prior to their invalidation by the courts, Canada's patent utility law underwent a dramatic transformation."⁵

The Tribunal concluded that it was difficult for Eli Lilly to establish that there had been a dramatic change in Canada's patent utility law where the relevant Canadian judicial decisions were handed down over a period of more than six years, encompassing a range of cases from first instance to appellate tier.⁶ In reaching such a conclusion, the Tribunal performed careful analysis of each of Eli Lilly's arguments. Three topics of discussion addressed by the Tribunal were: 1) the utility requirement in Canadian jurisprudence; 2) Manual of Patent Office Practice (MOPOP) amendments and Canadian Intellectual Property Office (CIPO) Practice; and 3) statistical evidence.⁷

1. The Utility Requirement in Canadian Jurisprudence

The Tribunal addressed the following three elements of the promise doctrine: (i) the identification of a “promise” in the patent disclosure, against which utility is measured; (ii) the prohibition on the use of post-filing evidence to prove utility; and (iii) the requirement that pre-filing evidence to support a sound prediction of utility must be included in the patent.⁸

In addressing the "promise" standard in which utility is assessed, the Tribunal held that one may look beyond the claims in the patent to the disclosure in order to construe the "promise,"⁹ and also affirmed the 1981 Consolboard Inc. v. MacMillan Bloedel (Sask) Ltd.¹⁰ decision as the authority for the promise standard.¹¹ Furthermore, the Tribunal recognized other Canadian authorities for the promise standard in order to conclude that the promise standard failed to constitute a dramatic change in the law.¹²

On the issue of post-filing evidence to prove utility, the Tribunal concluded that the Supreme Court of Canada's decision in Apotex Inc. v. Wellcome Foundation Ltd. (AZT)¹³ to disallow post-filing evidence to demonstrate utility was not a dramatic change from previously well-established law.¹⁴ The Tribunal also provided that the disclosure requirement for sound prediction was set forth in AZT and applied in subsequent utility cases, which represented a change that is more incremental and evolutionary than dramatic.¹⁵

2. MOPOP Amendments and CIPO Practice

Eli Lilly claimed that MOPOP amendments in 2009 and 2010 incorporated all three elements of the promise doctrine, illustrating evidence of dramatic changes in Canadian patent law and reflecting CIPO's interpretation of the Patent Act. The Tribunal disagreed with Eli Lilly and provided that MOPOP provides a "high level internal guidance but cannot be considered a complete summation of Canadian patent law."¹⁶ Therefore, MOPOP on its own does not represent reliable evidence of a change in the law.

3. Statistical Evidence

Quantitative evidence put forward by Eli Lilly illustrating (i) the number of successful utility challenges, and (ii) the rate of success of such challenges since 2005 were deemed insufficient evidentiary support of a dramatic change in law. First, Eli Lilly had provided quantitative evidence of utility outcomes from 1980 to 2004 and 2005 to 2016, where January 1, 2005, served as a dividing line between "before" and "after" the adoption of the promise doctrine.¹⁷ The Tribunal held that there was insufficient rationale for selecting January 1, 2005, as the cut-off date. Even a slight change to the date resulted in a substantial change in the rate of utility-based invalidations of pharmaceutical patents, which undermined Eli Lilly's position that the spike in utility challenges in the pharmaceutical sector was a direct result of the adoption of the promise doctrine. Second, the Tribunal held that validity challenges of pharmaceutical patents on other grounds such as obviousness and anticipation also increased, suggesting a broader trend of increasing pharmaceutical patent litigation and greater numbers of invalidations. Subsequently, in the absence of evidence that attributes the promise doctrine as being a single factor for the invalidation of pharmaceutical patents, the quantitative data provided was found to be insufficient evidentiary support for illustrating the dramatic change in the law.¹⁸

Is the Utility Requirement in Canadian Patent Law, as Applied to the Zyprexa and Strattera Patents, Arbitrary and Discriminatory?

Eli Lilly alleged that the promise doctrine is arbitrary as it (i) is unpredictable and incoherent, (ii) serves no legitimate public purpose, and is discriminatory against pharmaceutical patents as a field of technology.¹⁹ The Tribunal addressed the question of whether the promise doctrine in fact was an arbitrary or discriminatory measure; if it was, Canada could be held liable for breach of the fair and equitable treatment standard under Chapter 11 of the NAFTA — even in the absence of a fundamental or dramatic change in the relevant area of law.

The Tribunal held that Eli Lilly could not sustain their claim, having failed to establish the factual premise (i.e. the evolution of the Canadian legal framework relating to Eli Lilly's patents) on which its allegations of arbitrariness and discrimination were based.

1. Arbitrariness

The Tribunal held that the Canadian courts' interpretation of the promise doctrine was well within the scope of duties that courts are asked to perform every day. Inconsistency in judicial interpretation and some level of unpredictability is present in the application of the law and is to be expected, especially in the adversarial system.²⁰ Further, the Tribunal held that the Canadian courts' application of the promise doctrine was justified by a legitimate public policy as the doctrine helps to ensure the patent bargain, which grants the inventor exclusive rights in a new and useful invention for a limited period, in exchange for disclosure of the invention to the public for their benefit of knowing such information. As such, the Tribunal concluded that the promise doctrine is rationally connected to legitimate policy goals.²¹

The Tribunal also provided that the non-acceptance of post-filing evidence of utility is not arbitrary, but rather a bright line rule that identifies the date by which patentees must prove utility. Again, such a requirement was identified to be rationally connected to the goal that patents should not be granted on the basis of speculation.²²

Lastly, the Tribunal held that the disclosure requirement to support a sound prediction of utility under the promise doctrine was not arbitrary as the sound prediction doctrine allows inventors to obtain a patent before the usefulness of the invention is demonstrated.²³

Therefore, the Tribunal found that none of the three elements of the promise doctrine is arbitrary and that the Canadian courts'; application of the doctrine had not demonstrated arbitrariness, including the decisions in the Strattera and Zyprexa cases. The Tribunal concluded in emphasizing that their role is not to question the correctness of the policies or the courts' decisions, but rather to examine if the doctrine and the courts' decisions are coherent and consistent with the policy justifications.

2. Discrimination

Eli Lilly alleged that the promise doctrine discriminates against pharmaceutical patents (as a field of technology) on the basis of statistical difference between utility-based invalidity rates for pharmaceutical and non-pharmaceutical patents since 2005.²⁴ The Tribunal disagreed and stated that Eli Lilly had failed to establish the crucial link between the higher proportion of utility-based invalidity rates in the pharmaceutical sector and the promise doctrine. In the absence of such a crucial link, it was not feasible to rule out the possibility that alternative factors, such as patenting practices of pharmaceutical companies, gave rise to or contributed to the difference in rates of utility-based invalidity findings.²⁵ The utility-based invalidity rates Eli Lilly had relied on also failed to isolate "promise" cases from all utility cases, including those in which the courts had not applied the promise doctrine.²⁶

Unable to adequately prove the causal link between the promise doctrine and the higher rates of utility-based invalidity decisions in the pharmaceutical sector, Eli Lilly could not establish substantial grounds to confirm discrimination under the doctrine.

What's next

The Tribunal dismissed Eli Lilly's NAFTA Challenge and Eli Lilly is to bear the costs of the arbitration, and 75% of Government of Canada's legal fees and disbursements. Eli Lilly can commence a proceeding before the courts in the District of Columbia (the seat of arbitration) to vacate the award within three months of the date the award was rendered.

Although the Tribunal dismissed Eli Lilly's NAFTA challenge, the promise doctrine as addressed by the Tribunal may not represent the legal standard for addressing utility for much longer. The Supreme Court of Canada will soon be rendering a decision on whether the promise doctrine properly exists and the correct applicable standard for patent utility in Canada in AstraZeneca Canada Inc., et al. v. Apotex Inc., et al.²⁷ This decision is expected in summer 2017 and may have important consequences in interpreting patent validity, especially in the context of pharmaceutical patents.

_________________________

¹ Eli Lilly and Company v Government of Canada, UNCT/14/2 [NAFTA Challenge].

² Novopharm Ltd. v. Eli Lilly & Co., 2010 FC 915.

³ Eli Lilly Canada Inc. v. Novopharm Ltd., 2009 FC 1018; Eli Lilly Canada Inc. v. Novopharm Ltd., 2011 FC 1288.

⁴ Eli Lilly delivered its first Notice of Intent to Submit a Claim to Arbitration to the Government of Canada in respect of its patent for Strattera on November 7, 2012. Eli Lilly delivered a second Notice of Intent to Submit a Claim to Arbitration to the Government of Canada on June 13, 2013, which contained claims identical to those raised in the first Notice of Intent, but with additional claims relating to the Zyprexa patent. Eli Lilly later withdrew the first Notice of Arbitration.

⁵ NAFTA Challenge, supra note 1 at para 308.

⁶ Ibid at para 309.

⁷ The Tribunal also addressed arguments on comparison with other jurisdictions and legitimate expectations, which are not addressed in the bulletin.

⁸ NAFTA Challenge, supra note 1 at para 313.

⁹ Ibid at para 317.

¹⁰ Consolboard Inc. v. MacMillan Bloedel (Sask) Ltd., [1981] 1 SCR 504 [Consolboard].

¹¹ See NAFTA Challenge, supra note 1 at paras 319-321.

¹² Ibid at paras 322-324; see in particular Wellcome Foundation Ltd. v Apotex Inc.,  [1995] F.C.J. No. 226, 60 C.P.R. (3d) 135 at para 50.

¹³ Apotex Inc. v Wellcome Foundation Ltd., 2002 SCC 77 [AZT].

¹⁴ NAFTA Challenge, supra note 1 at paras 326-337.

¹⁵ See ibid at paras 338-351.

¹⁶ Ibid at para 355.

¹⁷ See ibid at para 368.

¹⁸ See ibid at paras 368-376.

¹⁹ See ibid at paras 419 and 431.

²⁰ Ibid at para 421.

²¹ See ibid at paras 420-423.

²² See ibid at paras 424-426.

²³ See ibid at paras 427-429.

²⁴ Ibid at para 431.

²⁵ Ibid at para 435.

²⁶ See ibid at paras 431-439.

²⁷ Leave to appeal from the judgment of the Federal Court of Appeal, Number A-420-14, 2015 FCA 158, dated July 6, 2015.

Le mois dernier, le Canada a publié sa première Stratégie industrielle de défense (la Stratégie), qui souligne l’engagement du Canada à développer une base industrielle de défense solide et à stimuler la croissance économique. Ces efforts pourraient aussi comprendre le renforcement de l’état de préparation à la biodéfense et aux contre-mesures médicales, ce qui pourrait constituer des débouchés pour le secteur canadien des sciences de la vie en raison de l’importance accordée aux capacités nationales en ce sens et de la nécessité d’atténuer les risques d’urgences sanitaires.

Développement de contre-mesures médicales au Canada

Comme indiqué dans les bulletins précédents, le quatrième pilier de la Stratégie est axé sur la « sécurisation des chaînes d’approvisionnement pour les intrants et les biens clés » par le renforcement de la production nationale et le stockage de ressources. L’accent est mis tout particulièrement sur les contre-mesures médicales, en précisant que nos « alliés ont établi un lien explicite entre l’état de préparation à la biodéfense et aux contre-mesures médicales et leur sécurité économique et nationale, en élaborant de nouvelles stratégies et de nouveaux mécanismes pour faire progresser ces travaux ». Les contre-mesures médicales désignent divers produits réglementés pouvant être utilisés pour protéger la population lors d’une situation d’urgence de grande ampleur, comme l’éclosion d’une maladie ou une attaque impliquant des armes chimiques, biologiques ou nucléaires. Il peut s’agir de vaccins, de médicaments thérapeutiques et produits biologiques, de dispositifs de tests diagnostiques, des équipements de protection individuelle ou industrielle, et d’autres dispositifs médicaux. Les contre-mesures médicales sont essentielles à la réduction et à l’atténuation des dommages lors d’une urgence de santé publique.

Exploiter les voies réglementaires mises en place lors de la pandémie de COVID-19

Pendant et après la pandémie de COVID-19, le Canada a mis en place plusieurs nouvelles voies réglementaires comme mécanismes d’accélération des approbations de produits médicaux, ce qui pourrait offrir au gouvernement des options pour déployer des contre-mesures médicales afin de faire face aux risques pour la santé publique. Au début de la pandémie, Santé Canada a émis diverses ordonnances provisoires pour permettre l’importation et la vente de médicaments et de dispositifs médicaux qui n’avaient pas eu l’approbation des voies réglementaires traditionnelles. Or, Santé Canada a plutôt fait confiance aux voies d’approbation réglementaire et de l’exemption de certaines exigences en homologation de produits des pays impliqués dans la transaction. Beaucoup de ces règles provisoires ont depuis été officiellement intégrées à la réglementation en vertu de la Loi sur les aliments et drogues et ont été appliquées bien après la COVID-19. Conformément au Règlement sur les aliments et drogues, Santé Canada tient à jour la Liste des maladies qui menacent la santé publique et utilisera une procédure d’autorisation modifiée pour les médicaments d’urgence de santé publique pouvant traiter les affections figurant sur la liste. De même, le Règlement sur les instruments médicaux a établi une liste d’instruments médicaux répondant à un besoin urgent de santé publique, ce qui permet à Santé Canada d’autoriser la commercialisation de ces instruments de manière accélérée. Ces outils réglementaires sont utilisés automatiquement quand une situation médicale présente un grand risque pour la santé publique au Canada et nécessite une action immédiate pour contrer ce risque.

Le rôle de la Stratégie dans le renforcement du régime réglementaire de la santé au Canada

La stratégie prévoit que le Canada adoptera une approche proactive en matière de planification en amont des crises sanitaires. Le gouvernement entend s’assurer que les produits médicaux sont déjà disponibles au Canada afin qu’ils puissent être distribués rapidement en cas d’urgence. D’autres modifications récentes au Règlement sur les aliments et drogues permettent de prépositionner au Canada tous les médicaments d’urgence en santé publique, ce qui signifie qu’ils peuvent être importés dans des installations d’entreposage canadiennes avant que leur mise sur le marché n’ait été autorisée. La Stratégie s’appuie sur ces fondements, en faisant référence à l’organisme existant Préparation aux crises sanitaires Canada (PCSC), un organisme opérationnel spécial au sein d’Innovation, Sciences et Développement économique Canada (ISDE), et à un nouveau Fonds des sciences de la vie, lesquels « collaborent avec des partenaires internationaux et de soutenir l’élaboration et la production de contre-mesures médicales ». PCSC supervise la Stratégie en matière de biofabrication et de sciences de la vie du Canada, qui vise à développer un secteur national des sciences de la vie fort et compétitif doté de capacités de biofabrication de pointe, en mettant l’accent sur la capacité à se préparer et à faire face aux futures priorités et crises sanitaires. Dans cette optique, il y aura des occasions pour les fabricants de nouer des collaborations de recherche et des accords commerciaux ou d’approvisionnement liés aux contre-mesures médicales financées par des programmes fédéraux.

Étroitement lié aux capacités nationales, le pilier III de la stratégie implique « Investissement ciblé pour renforcer un secteur canadien de la défense novateur », avec la promesse que le gouvernement fédéral « soutiendr[a] la recherche et le développement, protéger[a] la propriété intellectuelle, soutiendr[a] les petites et moyennes entreprises, investir[a] dans les compétences et la formation, et encourager[a] les exportations afin de créer un secteur de la défense agile et concurrentiel à l’échelle mondiale ». La nécessité de favoriser le développement de la propriété intellectuelle (PI) et la conservation des droits du Canada est mentionnée à plusieurs reprises dans la Stratégie. Par exemple, la Stratégie prévoit l’établissement de partenariats officiels avec l’industrie canadienne qui « [assureront] la propriété et le contrôle nationaux de la propriété intellectuelle (PI) et des capacités essentielles. » La Stratégie reconnaît l’immense talent des établissements canadiens et la précieuse recherche qui y est menée actuellement et qui est déjà financée par des subventions de recherche d’organismes tels que le Conseil de recherches en sciences naturelles et en génie et les Instituts de recherche en santé du Canada, et fait aussi référence à l’engagement de 1,6 milliard de dollars pour de nouveaux fonds de recherche dans le budget de 2025. Cette prise de conscience de la nécessité de promouvoir et de soutenir l’innovation au Canada laisse présager des possibilités de financement, notamment dans les domaines où le Canada accuse un retard en matière de production nationale et où des engagements d’investissement et de fabrication au Canada peuvent être pris.

Prochaines étapes

Dans les prochains mois, nous prévoyons que le gouvernement du Canada publiera d’autres directives et des mesures de suivi. L’équipe de défense des conservateurs poursuivra sa couverture de perspectives sur la défense au Canada en publiant une analyse supplémentaire pour donner des précisions sur l’incidence de la Stratégie sur de multiples secteurs.