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.

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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.