Eli Lilly and Company v Canada, Case No. UNCT/14/2

The first ever final award on patents and international investments rendered by the International Centre for Settlement of Investment Disputes (“ICSID”) has upheld the Canadian promise doctrine, and set the bar for future patent disputes under NAFTA.

In this arbitral decision, an ICSID Tribunal dismissed Eli Lilly and Company Inc.’s (“Eli Lilly”) claim against the Government of Canada (“Canada”), [471] which was brought in relation to two patents owned by Eli Lilly: Canadian Patent No. 2,041,113 (“the ‘113 Patent”) [73] and Canadian Patent No. 2,209,735 (“the ‘735 Patent,” and collectively, “the Lilly Patents”). [88] The claim was predicated on what has come to be known as the “promise doctrine” – which holds that if a patent describes a particular utility but fails to deliver on it, then the patent is invalid. In addition to having the entirety of its claim dismissed, Eli Lilly was ordered to pay the entire costs for the arbitration [457] and to cover 75 percent of Canada’s legal representation fees. [460]

In the evidence presented by Eli Lilly, particularly surrounding the allegations of a dramatic change in the law creating the promise doctrine, [367] and the allegations of the promise doctrine being arbitrary and discriminatory, [390, 397] Eli Lilly’s expert witnesses were unable to convince the Tribunal as to causal links between the promise doctrine and patent invalidations.

Background

The ‘113 Patent, covering the compound olanzapine, [73] and the ‘735 Patent, covering the use of atomoxetine in treating attention deficit hyperactivity disorder (ADHD), [88] were both separately invalidated by the Federal Court (“FC”) for failing to deliver the utility specified within them. [82, 93] Appeals for both FC decisions were dismissed by the Federal Court of Appeal (“FCA”), [83, 94] and both decisions were subsequently denied leave to appeal to the Supreme Court of Canada, prompting Eli Lilly to bring the issue before the ICSID. [84, 94]

Requests for Relief

In addition to costs and interest, Eli Lilly requested the following forms of relief: damages for the full measure of direct losses, consequential damages sustained as a result of Canada’s alleged breach of its obligations under NAFTA Chapter 11, estimated in an amount not less than $500 million, and any payments Eli Lilly or its enterprise would be required to make arising from the improvident loss of the Lilly Patents or its inability to enforce the Lilly Patents. [95]

Eli Lilly also requested that the Tribunal: reject Canada’s jurisdictional objection as untimely under UNCITRAL Article 21(3) or, in the alternative, reject Canada’s objection on the merits; and, in either case, award Eli Lilly all costs incurred in connection with Canada’s belated jurisdictional objection. [97]

In its defence, Canada requested dismissal of Eli Lilly’s claim in its entirety, in addition to costs an interest. [98]

Issues for the Tribunal to Consider

In conducting its analysis, the Tribunal considered the following issues:

  • What is the scope of the Tribunal’s jurisdiction, if any?
  • Is denial of justice the only basis of liability for judicial measures under NAFTA Chapter Eleven?
  • Has there been a dramatic change in the utility requirement in Canadian patent law?
  • Is the utility requirement in Canadian patent law, as applied to the Lilly Patents, arbitrary and/or discriminatory?
  • If (iii) and/or (iv) is answered in the affirmative, did the invalidations of the Lilly Patents breach Canada’s obligations under NAFTA Article 1110 and/or Article 1105? [110]

The Tribunal analyzed each of the aforementioned issues in turn.

Analysis

The Dispute is Within the Scope of the Tribunals Jurisdiction

The applicable laws for this issue were Article 21(3) of the UNCITRAL Rules, which specifies that a “plea that the arbitral tribunal does not have jurisdiction shall be raised not later than in the statement of defence,” and NAFTA Articles 1116(2) and 1117(2) (collectively, “the NAFTA Articles”), which stipulate that investors may not makes claims on their own behalf or on the behalf of an enterprise if more than three years have elapsed from the date on which knowledge of the breach was acquired.

The Tribunal found that the merits of Canada’s objection to the Tribunal’s jurisdiction turned on the identity of the “alleged breach” as stipulated in the NAFTA Articles. [161] The Tribunal further found that the “alleged breach” for the purposes of the NAFTA Articles was the invalidation of the Lilly Patents by Canadian courts through application of the promise doctrine. [165] As Eli Lilly had submitted its claim within the three-year limitation period set forth in the NAFTA Articles, Canada’s objection to the Tribunal’s jurisdiction based on limitation periods was denied. [170]

Invalidation of Eli Lilly Patents not a Denial of Justice

In regards to this issue, the Tribunal noted that as an organ of the State, the acts of the judiciary will in principle be attributable to the State itself. [221] The violation of the customary international law minimum standard of treatment requires that an act is “sufficiently egregious and shocking – a gross denial of justice, manifest arbitrariness, blatant unfairness, a complete lack of due process, evident discrimination, or a manifest lack of reasons.” [222] The Tribunal concluded that the factual predicate necessary to sustain Eli Lilly’s claim was not established. [226]

Promise Doctrine not a Dramatic Change in the Utility Requirement in Canada

The evidence before the Tribunal illustrated that the utility requirement in Canada had undergone an incremental and evolutionary change between the grant and eventual invalidation of the Lilly Patents. [386] Of particular note in the evolutionary timeline was the period spanning 2002-2008, where an increase in the number of utility-based challenges accelerated the development of law in that arena. [386] This evidence led the Tribunal to conclude that there had not in fact been a fundamental or dramatic change in Canadian patent law, [387] and that Eli Lilly’s allegations, which were predicated on a dramatic change, were unfounded. [388]

Utility Requirement not Arbitrary or Discriminatory

With regards to arbitrariness, the Tribunal found that none of the elements of the promise doctrine identified by Eli Lilly were arbitrary. [430] It noted that even Eli Lilly’s own expert witness, Professor Norman Siebrasse, agreed that Canadian courts apply sound principles of construction consistent with principles of statutory construction. [420] Additionally, the Tribunal was unmoved by Eli Lilly’s examples of courts reaching inconsistent determinations [421] or by statements about the unpredictable nature of the promise doctrine. [422] Eli Lilly’s alleged that it is arbitrary for Canadian courts to require patent applicants to disclose a basis of sound prediction of utility in a patent, [427] but the Tribunal agreed with Canada in that the requirement was justified by the fact that the sound prediction doctrine allows inventors to obtain a patent before they can demonstrate that the invention is useful. [428]

In terms of discrimination, Eli Lilly argued that the promise doctrine discriminates against pharmaceutical patents as a field of technology, [431] specifically asserting a causal relationship between the promise doctrine and higher invalidity rates in the pharmaceutical industry. [433] However, Eli Lilly’s expert was unable to substantiate these assertions. [434] As such, Eli Lilly’s request that the Tribunal find a causal link between the promise doctrine and patent invalidations in the pharmaceutical industry was denied. [437] The Tribunal’s conclusion followed that Eli Lilly had not proven its allegation that the promise doctrine discriminates against pharmaceutical patents. [439] Eli Lilly’s secondary basis for discrimination, that “the promise utility doctrine discriminates in favor of a prominent domestic industry at the expense of foreign patent holders,” [440] was similarly rejected for being an underdeveloped theory. [441]

For the above-mentioned reasons, Eli Lilly was found to have failed in establishing a factual premise on which its allegations of arbitrariness and discrimination were based. [442]

Conclusion: Eli Lilly Patent Invalidations Did Not Breach Canada’s Obligations under NAFTA

As there was neither a dramatic change in the utility requirement in Canada, nor was the utility requirement arbitrary or discriminatory, the Tribunal did not address whether Canada was in breach of its obligations under NAFTA.

Award

Consequently, after completing its analysis, the Tribunal dismissed Canada’s objection to the Tribunal’s jurisdiction, but also dismissed Eli Lilly’s claim in its entirely. [480] Eli Lilly was ordered to bear the costs of the arbitration, including paying half of the total sum to Canada. Additionally, Eli Lilly was ordered to cover 75 percent of Canada’s costs of legal representation and assistance. [480]

Commentary

While many allege that the “promise doctrine” puts Canada out of step with most other jurisdictions, this decision illustrates that those differences are not so great as to violate international trade agreements. A main takeaway for patent practitioners and patent holders alike is built around Eli Lilly’s assertion that the promise doctrine was arbitrary and discriminatory. While the way in which the promise of the patent has been applied may be unique to Canada, its development shows that it did not merely appear out of thin air. Canada’s preponderance of patent litigation centered on pharmaceutical inventions is what gradually refined and advanced the concept of a promise of utility – and what follows when that promise is not kept. Furthermore, the analysis shows that a decision applying the promise doctrine is not in violation of the customary international law minimum standard.

The authors also query whether the “promise doctrine” was ever really unique at all under Canadian law, but rather that Canadian jurisprudence simply evolved in a certain manner. The term “promise doctrine” did not even appear in the case law until this NAFTA challenge. Furthermore, the underlying “bargain” of patent law means that the public should be able to rely on the teachings of the specification at the end of the 20-year monopoly as a complete set of instructions for practicing the invention for the general benefit of the public. Enforcing a patent that has incorrect teachings, including failing to achieve what it promises, has the effect of denying the public its end of the bargain. The authors submit that this is not a controversial statement across jurisdictions.