Publication: 2013 Special 301 Report

Author: The Office of the United States Trade Representative  

Nature of Report: Annual Review of the state of intellectual property rights with US trading partners

Date of Report: Released May 1, 2013


On May 1, 2013, the United States Trade Representative (“USTR”) released its annual IP report for 2013.  Canada has been placed on the “Watch List" for 2013 due to “serious concerns” over the treatment of pharmaceutical patents. These concerns relate to the lack of appeal rights for innovative companies under the Patented Medicines (Notice of Compliance) Regulations (the “PM(NOC) Regulations”) and what the USTR describes as “the impact of recently adopted heightened utility requirements”. These new requirements are problematic, as they depart from what Canada agreed to implement in NAFTA and TRIPS.

Canada placed on the USTR “Watch List”

The USTR Report raises concerns related to IP protection, enforcement, and market access in forty-one countries.  In placing Canada on the “Watch List”, the Report cites Canada's mistreatment of pharmaceutical patents as a principal area of concern:

"With respect to pharmaceuticals, the United States continues to have serious concerns about the availability of rights of appeal in Canada's administrative process for reviewing regulatory approval of pharmaceutical products and also has serious concerns about the impact of the heightened utility requirements for patents that Canadian courts have been adopting recently.  The United States looks forward to continuing its close cooperation with Canada on IPR issues, including through the TPP negotiations."

New Concern over Heightened Utility Requirements

Under the Canadian Patent Act, an “invention” must be new, inventive and “useful” in order to be patentable.  While usefulness is not defined in the Patent Act, Courts held throughout the twentieth century that an invention only needed to have a “scintilla of utility” to be patentable, unless something more was promised.  Utility was examined by the Patent Office and assessed by the Court at the date the patent was challenged.1 This all changed in 2002 in the seminal decision of Apotex Inc. v. Wellcome Foundation.2 In that case, the Supreme Court of Canada held that the utility of a patented invention must be demonstrated or soundly predicted as of the filing date.  While the doctrine of sound prediction was intended to protect new and useful inventions, the doctrine has morphed into a new and often successful ground for attacking pharmaceutical patents.  This has been achieved by requiring that the factual basis and sound line of reasoning to support a sound prediction must be disclosed in the patent application, even if it is based on common general knowledge.  This disclosure requirement is not found in the Patent Act.

In addition, the utility of pharmaceutical inventions in Canada is assessed against the “promise of the patent”, a subjective construct that is not based in the Patent Act and is determined by the Court at trial upon reading the patent as a whole, rather than by examining what is claimed. In several cases, the “promise” of pharmaceutical patents has been elevated to a level required for regulatory approval (i.e., clinical evidence of safety and efficacy), even though the Supreme Court held in Wellcome, supra, that this is not appropriate. Determining the promise has become a very contentious and unpredictable issue in Canadian patent litigation.

By adopting this two-pronged approach (i.e., assessing the “promised utility” as of the “filing date”), Canadian courts have struck down a number of pharmaceutical patents in recent years, even though the claimed medicine is clearly useful in fact.  This has led to the approval of generic drug products in Canada many years prior to patent expiry and well-ahead of other countries.

Canada is alone among developed nations in imposing these new utility requirements, which are widely considered to be inconsistent with Canada’s obligations under the North American Free Trade Agreement (“NAFTA”).  Article 1709(1) of NAFTA states that a party (i.e. the Government of Canada) must grant a patent for inventions that are new, result from an inventive step (i.e. non-obvious), and are capable of industrial application (i.e. useful). Pursuant to NAFTA, Canada is not permitted to add further substantive conditions to the grant of patents.  The USTR’s comments come at a time when challenges to Canada’s new utility requirements have been raised in a NAFTA Chapter 11 proceeding initiated by Eli Lilly against the Government of Canada and in various scholarly publications.

Continued Concern over Innovators’ Lack of Appeal in PM(NOC) Proceedings

The USTR is concerned that innovative pharmaceutical companies do not have an effective right of appeal under the PM(NOC) Regulations. While patentees can file an appeal from the dismissal of an application under the PM(NOC) Regulations, any such appeal is rendered “moot” if the Minister of Health approves the generic product before the appeal is decided, which is usually the case, or if the patent at issue expires. Conversely, generic manufacturers can exercise their rights of appeal without restriction, including to the Supreme Court of Canada. This has led to a situation whereby decisions that are adverse to pharmaceutical patentees are effectively immune from appellate review and can operate as precedents effecting subsequent cases.

The USTR’s concerns over the lack of appeal under the PM(NOC) Regulations was raised in the 2012 Special Report justifying Canada’s listing on the “Priority Watch List” alongside the USTR’s concerns over copyright piracy. While the USTR considered Canada to have made “positive” and “welcome” progress in its efforts to combat pirated and counterfeit goods, no effort has been made to address persistent calls to reform the PM(NOC) Regulations.

A Continued Call for Reform

Canada will remain on the USTR “Watch List” and its reputation for adequate and effective IPR protection and enforcement will continue to wane unless: (a) the Canadian Government addresses the concerms raised by the USTR related to the treatment of pharameutical patents; or (b) the Courts interpret the Patent Act in a manner that is consistent with NAFTA which IP provisions were also included in TRIPS.