Impact Of CETA On Canadian Patent Law

Misha Benjamin

Potential Impact of CETA on Canadian Patent Law

CML 3351 – Directed Research
University of Ottawa
Law Faculty, Common Law Section

Paper presented to
Professor Elizabeth Judge

Submitted December 16, 2001
Ottawa, Ontario Potential Impact of CETA on Canadian Patent Law
Table of Contents
1.0 Introduction 3
1.1 Patent Rights – A Balancing Act 3
1.2 Financial Impact of Pharmaceutical Patent Rights 4
1.3 Paper Outline 5
2.0 Current State of the Law 6
2.1 Qualifying for a Pharmaceutical Patent 7
2.1.1 Appropriate Subject Matter 8
2.1.2 Novelty 10
2.1.3 Usefulness 10
2.1.4 Non-Obviousness 12
2.2 Exclusive Commercial Rights Term 13
2.3 Notice of Compliance (NOC) Regulations 14
2.3.1 Applying for a NOC 14
2.3.2 Notice of Allegation 16
2.3.3 Evergreening 17
2.3.3 Damages granted under the NOC regulations 19
2.3.4 Data Protection 19
2.4 Patented Medicine Prices Review Board (PMPRB) 21
3.0 Potential Impact of CETA 22
3.1 On Patent Term Extensions 22
3.2 On Data Protection 25
3.3 On Rights of Appeal 27
3.4 On Border Issues 29
4.0 Summary and Conclusions 31
Bibliography: 35

1.0 Introduction
This paper begins by examining how current Canadian Patent Law and Health Canada regulations together affect the important issue of commercial exclusivity granted to new brand-name drugs. It then assesses the potential impact of the currently negotiated Free Trade Agreement with the EU on Canada’s pharmaceutical patent protection regime.

1.1 Patent Rights – A Balancing Act
The are two conflicting views surrounding the issue of granting patent rights: (1) one that considers that innovators should be rewarded with patent rights because it encourages innovation and its sharing, and thus, in the end, benefits society as a whole, and (2) the other is that assigning monopoly status through patent rights operates against an open and free market economy preventing competition and diminishing the public good.
Because of the importance of both of these concerns, on the societal level, the level of patent protection always reflects a balance between the above two competing social and economic imperatives: the need to encourage investment in and disclosure of innovation by rewarding inventors with patent rights; and the belief that society as a whole should enjoy competitive and affordable access to innovative products and services.

Canadian lawmakers continue to adjust our patent laws to find a balance tailored to current Canadian needs, principles and domestic and international commercial interests. Specifically, Canada’s participation in the North American Free Trade Agreement (NAFTA) in 1994, and the Trade-Related Intellectual Property Rights Agreement (TRIPS) in 2001 have helped shape our current patent regimes. As Canada is currently in the midst of negotiating another Free Trade Agreement, this time with the European Union (EU), our patent laws are likely to be amended again. This new agreement, the Comprehensive Economic Trade Agreement (CETA), will have a wide-ranging impact on many of Canada’s economic sectors.
1.2 Financial Impact of Pharmaceutical Patent Rights
One of the areas of potentially most concern to Canadians is CETA’s impact on pharmaceutical patent law and, in particular, the likelihood that it will increase the period of patent protection. Any increase will further delay the introduction of cheaper generic substitutes, stressing an already challenged healthcare system.
Indeed in Canada, as in most developed countries, pharmaceutical drugs have become an increasingly important part of our healthcare strategy. In 2011, total drug expenditures in Canada will reach $32 billion, or 16% of total healthcare expenditures . Given that 46% of provincial budgets are spent on healthcare, the provinces have increasingly focused on using generic drugs as a major weapon for containing costs. Many provinces have been able to deliver generic drugs at 25% of their brand name equivalents . As a result, the availability of generic versions is having an important impact on reducing Canadian healthcare costs. This is reflected in the fact that total drug expenditures in 2010 rose only 4.8%, compared to an average of 10.1% over the previous decade. This reduced rate of increase is attributed to the fact that new generics were substituted for several blockbuster drugs that came off patent in 2010.
On the other hand, however, it is argued that extending patent protection encourages additional pharmaceutical research and development (R&D) - an important economic activity that reached $1.27 billion in 2009 . Indeed, studies have estimated that previous patent term extensions increased real pharmaceutical R&D spending by $4.4 billion over the 15-year period between 1988 and 2002, and helped to extend Canadian life expectancy between 0.54 and 0.81 years. Other studies, however, have argued that patent extensions have not led to substantial R&D investment .

1.3 Paper Outline
This paper begins by examining how patent law applies specifically to pharmaceutical invention. The period of exclusivity is explored and compared to other jurisdictions. This is followed by a discussion of Health Canada’s role in regulating the introduction of new drugs and specifically how these regulations are used by the brand-name drug manufacturers to extend their period of market exclusivity. The role of the Patented Medicine Prices Review Board which directly monitors and controls brand-name drug prices is then presented. Finally, based on available draft documentation, the potential impact of CETA on patent drug exclusivity is discussed.
In this paper drug companies who research, develop and patent new drugs are called Innovative Drug Manufacturers (IDMs), while manufacturers and distributors of finished generic pharmaceutical products are called Generic Drug Manufactures (GDMs).

2.0 Current State of the Law
The current legal regime governing pharmaceutical patents is found principally in the general Canadian patent laws, as stipulated in the Patent Act.
This is supplemented by various Health Canada regulations in its role of overseeing the sale of drugs. These regulations include the Patented Medicines Notice of Compliance (NOC) Regulations and the Food and Drugs Act.
These laws are in part the product of amendments required to fulfil Canada’s international obligations from various negotiated free trade agreements. Two of the most influential accords entered into by Canada are the North American Free Trade Agreement (NAFTA) in 1994 and the Trade-Related Intellectual Property Rights Agreement (TRIPS) in 2001.
While the Patent Act is a general act in the sense that it covers all inventions, it does have sections that relate specifically to the pharmaceutical sector. There are 4 important aspects that fully describe the rights and issues related to pharmaceutical patents : (1) the criteria that qualifies a drug for patent consideration, (2) the right of exclusive commercialization which is the most important right granted to the patent holder (3) Health Canada’s regulatory process for safely introducing a drug into the marketplace, known as the Notice of Compliance (NOC) Regulations and finally (4) the Patented Medicine Prices Review Board (PMPRB), a quasi-judicial body whose role is to ensure reasonable pricing of protected drugs. Each aspect
is discussed below.

2.1 Qualifying for a Pharmaceutical Patent
The first part of the patenting process does not differ procedurally from that of patenting any other invention. Therefore, we can refer to the Patent Act to determine the patentability of a proposed the new medicine. Section 27 (1) stipulates that a patent may be granted for an “invention”, and Section 2 of the Act defines an “invention” as: “any new and useful art, process, machine, manufacture or composition of matter, or any new and useful improvement in any art, process, machine, manufacture or composition of matter ”.
More specifically the Patent Act requires that the invention satisfy four criteria : (a) the subject matter must be acceptable, (b) it must be novel, (c), it must be useful, and (d) it must be non-obvious. There has been much debate and jurisprudence surrounding these criteria, so we will analyse each in greater detail, first in their general application and then in their specific use in pharmaceutical patents.
2.1.1 Appropriate Subject Matter
The acceptable subject matter of a patent comes from the last part of the statutory definition of the word “invention”, which defines it as “art, process, machine, manufacture or composition of matter, or any new and useful improvement in any art, process, machine, manufacture or composition of matter ”. Therefore, to be statutorily acceptable, the proposed invention must fall into one of these categories.
It should be noted that the majority of patents are for improvements of prior art. Isaac Newton’s phrase “if I have seen far, it is by standing on the shoulder of giants” is often referred to in Patent Law to show that most patents are based on incremental improvements of already existing technologies The language of acceptable subject matter in the Canadian Patent Act is similar to that of many other jurisdictions, as Canada has signed on to various international trade agreements such as TRIPS.
The easiest way to delineate the areas of acceptable subject matter is to first highlight those areas which are expressly prohibited. Some of these prohibitions can be found in the Canadian Patent Act itself, in Article 27, such as the prohibition from patenting a “scientific principle of abstract theorem ”. This article is to be used to interpret the patentable areas of subject matter, to give them a stricter definition. As SCC Judge Pigeon stated: “Just as in the case of “art”, the scope of the word “process” in s. 2(d) is somewhat circumscribed by the provision of s. 28(3) excluding a “mere scientific principle or abstract theorem ”
For pharmaceutical products, as well as patents in general, the first basis for exclusion from patentability would be if the drug was actually a “discovery” rather than an “invention”. As stated in Diamond v. Chakrabarty: “a new mineral discovered in the earth or a new plant found in the wild is not patentable subject matter ”. Therefore, if a pharmaceutical company discovered a new plant that could cure cancer, they could not obtain patent rights for the plant itself, but only for the manner in which it is prepared or transformed to cure cancer.
One other major area of exclusion is methods of medical treatment. The leading case confirming this exclusion is Tennessee Eastman Co. et al. v. Commissioner of Patents, decided by the Supreme Court of Canada in 1972 . The plaintiff had discovered that certain pre-existing compounds could also be used to bind cuts and was attempting to have the use of these compounds in binding skin patented. It was ruled that this was a “method” and hence not patentable. In fact, the Court went further to say that: the therapeutic use cannot be claimed by a process claim apart from the substance itself. Otherwise, it would mean that while the substance could not be claimed except when prepared by the patented process, its use however prepared could be claimed as a method of treatment.

This was confirmed in Apotex v. Wellcome and is integrated into the patent regime today by its inclusion in the Manual of Patent Office practices, which states, in section 17.02.03 that: a method which provides a practical therapeutic benefit to a subject, even if this is not its primary or intended purpose, is considered to be a method of medical treatment and is therefore not patentable (emphasis added)
2.1.2 Novelty
The novelty requirement for an invention is found at the very beginning of Section 2’s definition of invention. The first set of criteria according to which a patent application can be refused because of a lack of novelty relates to the patent application process itself and is outlined in s. 28.2(1). Accordingly, an application can be refused if the invention was disclosed to the public more than one year before the filing date, or if the invention was disclosed to the public by someone who is not on the patent application, or if someone else has already applied for the same patent.
While these conditions are relatively easy to assess, the real difficulty in evaluating the novelty of an invention lies in demonstrating that the drug does not currently exist. This criterion is dealt with in the second paragraph of section 15.01.01 of the Manual of Patent Office Practice, where it is stated that novelty should be evaluated on a claim-by-claim basis and the invention will have been anticipated if it disclosed in a single prior art reference. It states that: novelty is assessed on the basis of a single item of prior art it is permitted to read into prior art things that can be considered to be implicit therein, but references may not be combined to find a lack of novelty. Combining references to show lack of novelty has been referred to as an improper “mosaic” of references (Pope v. Spanish River, 46 RPC 1929)

2.1.3 Usefulness The utility criterion has had many different standards of interpretation in different jurisdictions. In Pfizer Canada Inc. v. Mylan Pharmaceuticals, the Federal Court placed the Canadian standard relatively low relative to international norms “It is sufficient that it be new, better, cheaper, or afford a choice .This standard implies that we look at what the invention will offer the consumer when it is commercialized. While ostensibly the standard of consumer value appears rather simple, it becomes more nebulous when applied to pharmaceutical patents because of the long delay between applying for a patent and its validation in human trials. In this context, how can the patent applicant definitively prove utility to the end consumer? This question was first answered in Hatmaker v Joseph Nathan & Co Ltd where it was established that the “promise” of utility was sufficient for granting a patent. The validity of the promise, however, is a question of law to be evaluated by relying upon experts and taking into consideration the available science at the time . Moreover, should the promise not come to fruition, i.e. should the invention fail to produce the result which was claimed, the patent would be annulled. The standard of interpretation for the promise of utility is unique to this type of subject matter where the Court should be “neither benevolent nor harsh ” This concept has evolved into the doctrine of sound prediction, which fills the usefulness criterion for patents on a product that still must undergo testing before it can receive regulatory approval. The test for sound prediction was elaborated in the Aptoex case and requires three elements: (1) a factual basis for prediction (2) a sound line of reasoning in the application and (3) proper disclosure.
2.1.4 Non-Obviousness This criterion has evolved substantially over the years. It began in the form of “inventive ingenuity” and it was not until 1986 in Beloit Canada Ltd. v. Valmet OY that the criterion of non-obviousness was first mentioned . The difficulty in evaluating the non-obviousness of an invention is that most things seem obvious to someone versed in the art once the invention is explained. Therefore, a careful test has been elaborated. First, the non-obviousness of an invention is to be evaluated from the perspective of what has been termed the “unimaginative skilled technician”. This “technician” is defined as a skilled person reasonably well versed in the art from which the patent was made. Therefore, the more complex the subject area of the invention, the more educated and skilled this person should be. However, no matter how complex the issue or the education of the technician, he is to have “no scintilla of inventiveness or imagination ”. The fact that this person is versed in the art simply means that he only knows what would be considered general knowledge in his field of work. This common knowledge: comprises knowledge which is established by evidence to have been sufficiently disseminated and accepted within the art so as to be generally known and understood by the real life equivalents of the unimaginative skilled technician in the art.

Therefore, the question is whether this “unimaginative technician”, being privy to the common knowledge in his field at the time of the application, and to available prior art to the invention, could have been led to the same invention without some spark of inventiveness.
2.2 Exclusive Commercial Rights Term Obviously, the primary motivation for patenting an invention is to benefit from the term during which others will be precluded from selling that same product. As previously discussed, the length of such a term has been established as a compromise between two principles including the one that rewards a company for its commitment to innovation and disclosure. In Canada, it was decided (Bill C-91 in 1993) that a 20 year term from the filing date, as granted by section 44 of the Patent Act, achieved that balance. This term is fairly common worldwide as it corresponds to the minimum term allowed by Article 33 of the TRIPS agreement. However, we will see that the effective period of exclusive commercialization for most pharmaceuticals will, in practice, differ from the 20-year statutory term. The most critical factor affecting the length of time during which a pharmaceutical company can benefit from its patent exclusivity is the time it takes from patent filing to actually getting the drug into the market. In practice, the twenty-year patent term starts almost as soon as the drug is made, and certainly well before the company starts seeking Health Canada’s approval and its clinical trials. As it can take up to 15 years to complete these trials , the actual exclusive commercial term can be a fraction of the statutorily granted patent length for pharmaceutical patents. In order to address this issue, several jurisdictions have allowed extensions to patent rights. The Hatch-Waxmann legislation in the US and the Supplementary Protection Certificate (SPC) in the EU permit extensions of up to five years in order to compensate pharmaceutical companies for delays in the regulatory approval process . In the US, the length of the extension is directly tied to the time the pharmaceutical company spends on clinical human trials, up to a maximum of 5 years. Canada, however, has refused to allow patent extensions, even during NAFTA negotiations. We will see in the following section, however, that the IDMs can and do use Health Canada’s Regulatory regime to extend their market exclusivity period using a controversial process referred to as “evergreening”. Canadian lawmakers and courts continue to attempt to limit such practices.
2.3 Notice of Compliance (NOC) Regulations

As discussed above, Health Canada’s NOC Regulations were enacted to facilitate the introduction of new drugs, ensuring their safety, efficacy and quality. . As a result of NAFTA, the NOC regulations also links the above safeguard criteria with patent protection so that Health Canada is prevented from issuing authorization for an generic until the GDM proves that all the patents on the brand name drug have expired. As such, these regulations also formally regulate the relationship between pharmaceutical companies, and their generic drug company competitors. These regulations have become a critical mechanism governing the functioning of the patent/generic drug marketplace.
2.3.1 Applying for a NOC IDMs receive authorization (through a NOC, issued by Health Canada) to sell these products in Canada by first submitting a New Drug Submission (NDS) pursuant to section C.08.002 of the Food and Drugs Regulations. It is important to note that the IDM’s patent application typically would have been filed much earlier in the process as the NDS additionally requires extensive human trials to prove its safety, efficacy and quality – beyond just its innovativeness. Associated with a NDS is a list of applicable patents which Health Canada manages in a Patent Register. The Patent Register is a key element that Generic Drug Manufacturers must address in filing for their generic equivalents. GDMs typically submit an Abbreviated New Drug Submission (ANDS) pursuant to section C.08.002.1 of the Food and Drug Regulations. Generic drugs receive a declaration of bioequivalence to a Canadian Reference Product pursuant to Section C.08.004 (4)), which will be stated on the NOC. With regards to generic drugs, the original intent of the NOC Regulations was to promote their timely introduction into the marketplace as soon as the patent holder’s rights expired by requiring only an “Abbreviated” NOC (ANOC). This goal is synergistic with the “early-working” exception provided under section 55.2(1) of the Patent Act which states:
It is not an infringement of a patent for any person to make, construct, use or sell the patented invention solely for uses reasonably related to the development and submission of information required under any law of Canada, a province or a country other than Canada that regulates the manufacture, construction, use or sale of any product

The “early-working” exception was included to help generic drug companies mitigate the lengthy approval process by allowing the generic drug manufacturers to apply for regulatory approval for a bioequivalent drug through an ANDS, before the patents on the brand-name drug have actually expired. The ANDS can use much of the scientific information submitted in the original New Drug Submission (NDS). Without this exception an ANDS submission would infringed on the patent rights . The Notice of Compliance (NOC) for the generic will then be issued on the expiry of the patents in the innovative drug.
2.3.2 Notice of Allegation As mentioned previously, a NOC application for a generic drug requires the GDM to address all the patents in the brand-name drug. The GDM may simply elect to wait for expiry for all of the patents listed on the Patent Register, in which case Health Canada will issue a NOC at the expiry of the all patents. Frequently however, to accelerate its market entry, a GDM will serve a Notice of Allegation (NOA) on the IDM that its generic product does not infringe on the listed patents or that the brand-name patents are invalid on the basis that “ no claim for the medicinal ingredient, no claim for the formulation, no claim for the dosage form and no claim for the use of the medicinal ingredient would be infringed [by the generic drug]”, as provided for by Section 7(b). The IDM can simply oppose such a challenge by filing within 45 days an application for an order of prohibition with the Federal Court regarding all or some of the patents addressed in the NOA. “Once a proceeding is initiated, Health Canada is prohibited from issuing an NOC to the generic for up to 24 months while the proceeding is ongoing and potentially for the unexpired term of listed patents if the Court finds that none of the allegations made by the generic are justified. The NOC Regulations effectively result in an interlocutory injunction, which would otherwise be very difficult to obtain in Canada ”.
2.3.3 Evergreening IDMs often exploited the above regulatory framework to obtain virtually automatic 2-year extension on the term of patent protection by filing new and often trivial patents on the expiring original patent, and then using these new patents to challenge any NOAs on the original drug. In 2006, new Health Canada regulations restricted IDMs ability to challenge NOAs to infringements on only the original patents and not to subsidiary patents awarded after the NOA was filed (subject to the 2008 amendments that negate the retroactive effect of the 2006 amendments). We will see in the following section that the weak regime for GDMs collecting damages from IDMs on failed challenges does nothing to dissuade IDMs to launch challenges regardless of their merit. In fact, even though 75% of these cases are decided in favour of the GDMs , the IDMs still benefit from these automatic injunctions, whether won or lost. The NOC Regulations provide the IDMs with other advantages that often allow them to extend their exclusivity. First, Section 7, in conjunction with section 5, states that the Health Canada can only issue a NOC for a generic drug if there are no surviving patents on the innovative drug. An IDM’s submission to the Federal Court to determine whether or not there are valid surviving patents initiates an automatic injunction, which prevents Health Canada from issuing a NOC for the generic drug. This injunction lasts until the expiry of the patent or the end of the proceedings, which can be very lengthy, up to a maximum of two years. This injunction is non discretionary, so the pharmaceutical companies can automatically extend their period of exclusive commercial rights even if the Federal Court rules in favour of the generic drug company. Upon a decision of the Court in favour of the GDM, the injunction is ended and Health Canada issues the NOC. Therefore, should the IDM wish to appeal the decision, as Pfizer attempted to do in Pfizer Canada v Apotex Inc. , the GDM continues to have the right to market the drug in question, making any such appeal ostensibly moot. The Courts have however left this issue open to challenge; the Courts are willing to be convinced that the appeal would be useful for the purposes of an official interpretation. Other evergreen tactics include “miniscule modifications in delivery system or formulation, combinations, licensing agreements ( 'authorized generics ') and 'buy-outs ' of generic competitors ” It is important to note that the NOC Regulations “are a special enforcement remedy which exists in addition to, not in lieu of, the right to pursue an action for patent infringement. ” Therefore, if an IDM fails in its opposition to the issuance of a generic drug NOC, it still can seek redress under the Patent Act for patent violations. The resulting damages that can be obtained by the patent holder include “all damage sustained by the patentee (…) by reason of the infringement ” which can include punitive damages, delivery up of infringing goods and an accounting of profits, among other remedies.
2.3.3 Damages granted under the NOC regulations As we have seen, the NOC process allows IDMs to extend their market monopolies by challenging Notices of Allegation even when it is evident that the generic drug does not infringe the surviving patents. As well, even if the IDMs lose their claim, the 2006 amendments to Health Canada’s Food and Drug Regulations significantly limited the scope of damages that generic companies could claim. By removing the reference to profits in section 8 dealing with damages, these amendments limited the damages to the loss incurred by the GDM , and not to the substantially higher profits made by the IDM. As a result, litigation remains a very profitable tactic for the IDMs. Perhaps, the greatest problem with our current NOC regulations is that its permissive attitude to extending patent rights provides no compensation to the party that bears the greatest cost - the Canadian taxpayer. If our patent laws are designed to strike a balance between encouraging innovation and allowing the public affordable access to innovative products, there is clearly a problem when regulations outside of these laws are exploited to provide additional exclusivity without any public recourse to impose fines or punitive damages.
2.3.4 Data Protection In addition to the term of protection granted by Section 44 of the Patent Act, and, as we have seen above, its extension through various regulatory manoeuvres, an IDM also receives additional protection under Health Canada’s data protection regime. This comes from Part C, Section C.08.004.1 of the Food and Drug Regulations which was established to satisfy Canada’s international obligations (both NAFTA and TRIPS) . Specifically, it protects any data submitted in a NDS by an IDM in support of its NOC application. Primarily, this pertains to its clinical trial data conducted to prove the safety, efficacy and quality of the drug. This regime stipulates that a GDM cannot submit an ANDS based on this data for a period of eight years from the issuance of the original NOC. Moreover, in order to encourage research of drug uses for children, the term can be extended another six months if pediatric trials are conducted. This protection is motivated by the fact that trial data is not protected by Patent Law even though clinical trials can be extremely costly, frequently amounting to half of the cost of the development of a drug . As well, long trials reduce the effective exclusivity period provided by patent laws as the patent exclusivity clock starts ticking well before the trials even begin. The data protection clock on the other hand starts at the end of the process and thus provides the IDM with at least 8 years of exclusivity. Certain limitations apply to this protection. It is only available for a medicinal ingredient being approved for the first time; combination drugs (unless containing an innovative drug as well) and new usages or dosages do not benefit from this protection. The drug must also be marketed in Canada to benefit from data protection.
2.4 Patented Medicine Prices Review Board (PMPRB) The granting of patent rights for any innovative products is, in a certain sense, a contract between the patentee and the general public. If a patent-holder abuses his patent rights by not making the product available to the public in a reasonable, cost-effective way, he is violating this contract. The Patent Act contains a provision specifically intended to protect the public from this type of violation. Section 65 (1) provides that after the first three years from when a patent is granted an interested person or the Attorney General can apply to the Commissioner an abuse of patent rights. In particular, the following section specifies that there is an abuse, inter alia, “ (c) if the demand for the patented article in Canada is not being met to an adequate extent and on reasonable terms.” With regards to pharmaceutical patents in particular, Canadian lawmakers recognized that pricing in the pharmaceutical industry is too important a public concern to have this be the only safeguard. As a result, Section 91 (1) of the Patent Act established the Patented Medicine Prices Review Board (PMPRB). The board is an independent body with certain judicial powers as per Section 96 (1). Its function is to oversee the prices at which pharmaceutical companies distribute their products to wholesalers and to ensure that this price is not “excessive ”. PMPRB has the power to fine and order price rollbacks on non-compliant firms.

3.0 Potential Impact of CETA At the time of writing, CETA had not yet been finalized. However, the contents of the preliminary negotiations have been made available to the public, in order to encourage civil society participation in ex ante impact analysis procedures. Moreover, a copy of the Draft Final Agreement has been leaked. These two sources will be used in this section to assess changes Canada will be potentially required to make to its patent framework. Many of these changes target the Pharmaceutical Patent regime specifically. According to the Draft Agreement (available online at http://tradejustice.ca/en/section/3 ) there are four major items that would significantly strengthen the protection accorded to IDMs. Specifically, the text calls for (1)automatic patent term extensions, (2)a longer term of data protection, (3)a right of appeal under the NOC regulations and (4)border measures that would allow the seizure of inbound products suspected of violating IP laws. Together, these modifications would make Canada’s pharmaceutical patent regime one of the strongest in the world
3.1 On Patent Term Extensions
In the U.S., by virtue of the Hatch-Waxman Act, IDMs receive an extension of their patent equal to half of the length of time it takes to conduct human clinical trials and have them approved, subject to a maximum of 5 years extension and due diligence on the part of the pharmaceutical company. While NAFTA Section 1709(12) granted the Parties the right to adopt such legislation, Canada has consistently resisted granting any patent term extensions “to compensate for delays caused by regulatory approval processes” as allowed by that section. CETA, however, will impose a mandatory patent term extension protocol in Canada. The wording of Section 9.2, as proposed by the EU, reads as follows:
Article 9.2 - Supplementary Protection Certificates

1. The Parties recognise that medicinal and plant protection products protected by a patent on their respective territory may be subject to an administrative authorisation procedure before being put on their market. They recognise that the period that elapses between the filing of the application for a patent and the first authorisation to place the product on their respective market, as defined for that purpose by the relevant legislation, may shorten the period of effective protection under the patent.
2. The Parties shall provide for a further period of protection for a medicinal or plant protection product which is protected by a patent and which has been subject to an administrative authorisation procedure, that period being equal to the period referred to in paragraph 1 second sentence above, reduced by a period of five years.
3. Notwithstanding paragraph 2, the duration of the further period of protection may not exceed five years.
4. A medicinal product for which paediatric studies have been carried out may be entitled to a six months extension of the period mentioned in paragraphs 2 and 3.]

Although the wording of the text is not yet final, several important elements can be gleaned from it. First, the terms in this section are mandatory, unlike the wording in NAFTA. Secondly, the granting of a term extension is automatic and non-discretionary. Unlike the Hatch-Waxman Act, this wording does not provide for a possible reduction of the extension should the pharmaceutical company be partially or even wholly responsible for the delay in receiving regulatory approval. Moreover, compared to the U.S.
regulations, the method of computation of the extension is very favourable to pharmaceutical companies. In fact, whereas the Hatch-Waxman act grants an extension based on the length of clinical trials and delays in regulatory approval, the proposed CETA extension will be based on the period elapsed between filing for the patent and the issuance of the NOC. Because pharmaceutical companies tend to apply for patents early in the drug development process and because it generally takes an average of 11 to 13 years to bring a drug to market , this amendment will be tantamount to granting a 25-year (or 25,5 years if pediatric studies have been conducted) patent term for new drugs. Of course, as there is some room for interpretation in the proposed terms, the full impact of these changes cannot be fully assessed until it is seen how Canada will integrate these requirements in its domestic regime For example, the current text is unclear, as to whether these conditions would apply to existing
patents. More importantly, the exact interpretation of the word “medicinal product” in the second paragraph of section 9.2 can have an important influence on the levels of protection to be granted. For instance, given the present wording, it is ambiguous whether the mandated extensions can apply to combined drugs containing no innovative compounds, new dosages, or new auxiliary patents in a pre-existing innovative drug. The answers to these questions will have a substantial impact on Canada’s pharmaceutical market. In fact, given that the CETA draft reflects, for the most part, EU’s current regime it is likely that Canadian Legislature and Courts will follow the EU’s lead, and provide a generous interpretation to protecting new medicinal products . There is also a possibility that this focus on “medicinal” products might conflict with Canada’s other international obligations. For example, the TRIPS agreement, Article 27, states:
Subject to paragraph 4 of Article 65, paragraph 8 of Article 70 and paragraph 3 of this Article, patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced.

Canada has already argued, in the context of WTO settlement procedures, that the EU’s practice of allowing patent term extensions exclusively for pharmaceutical and agricultural patents violates the non-discrimination obligation in TRIPS. The filing of pharmaceutical patents is not the only area where regulatory approval can limit the effective life of patents – see for example patents regarding nuclear materials. However, these extensions would only apply to the pharmaceutical industry. Switzerland, Australia and the U.S. have joined the consultations. However, although the request for consultation was submitted in December 1998, to date there has been no resolution of the issue
3.2 On Data Protection
In 2006, Canada’s Data Protection regime was upgraded to meet its obligations under NAFTA and TRIPS , providing 8 years of protection from issuance of its NOC, and with a prohibition of any GDM applying for a NOC within the first 6 years .
Data protection will have to be reassessed in light of CETA, The draft text related to this topic, states:
Article 10: Protection of Data Submitted to Obtain an Authorisation to put a Pharmaceutical Product on the Market submitted for the purpose of obtaining an authorisation to put a pharmaceutical product on the market.

1. The Parties shall guarantee the confidentiality, non-disclosure and non-reliance of data
2.For that purpose, the Parties shall ensure in their respective legislation that any information submitted to obtain an authorisation to put a pharmaceutical product on the market will remain undisclosed to third parties and benefit from a period of at least ten years of protection against unfair commercial use starting from the date of grant of marketing approval in either of the Parties.
(a) during a period of at least eight years, no person or entity (public or private), other than the person or entity who submitted such undisclosed data, will, without the explicit consent of the person or entity who submitted this data, rely directly or indirectly on such data in support of an application for the authorisation to put a pharmaceutical product on the market;
(b) during a ten-year period, a marketing authorization granted for a subsequent application will not permit placing a pharmaceutical product on the market, unless the subsequent applicant submitted his/her own data (or data used with authorization of the right holder) meeting the same requirements as the first applicant. Products registered without submission of such data would be removed from the market until the requirements were met.
3.In addition, the ten-year period referred shall be extended to a maximum of eleven years if, during the first eight years after obtaining the authorisation in either of the Parties, the holder of the basic authorisation obtains an authorisation for one or more new therapeutic indications which are considered of significant clinical benefit in comparison with existing therapies.

(The article contains a fourth section that is omitted here for consideration in the next section of the paper)

Therefore, in addition to creating an automatic patent extension regime, CETA would also extend the term of data protection to at least 10 years, with a prohibition from applying for a NOC within the first eight years from the issuance of the original NOC. These conditions align with current EU provisions and considerably extend Canada’s present protection periods.
Moreover, the patent term could be extended an additional year if the patent holder “obtains an authorisation for one or more new therapeutic indications which are considered of significant clinical benefit”. The impact of this wording will depend largely on the interpretation of this phrase by Canadian lawmakers and, later, by the Courts.
The part of this proposal, however, that could benefit IDMs the most is not the extension of the length of exclusivity but to the fact that it applies to a broadly inclusive term, “pharmaceutical product” (and once again, to date, there has been no attempt by Canadian negotiators to circumscribe this term). The vagueness of this term could mean that the extensions would be granted not only to new drugs, but to “new” products that are merely a slightly modified version of another drug for which the data protection term is about to expire. It may lead to a revival of robust evergreening in Canada.
3.3 On Rights of Appeal
As previously discussed, the maker of an innovative drug cannot appeal the decision of the Federal Court terminating an injunction and allowing Health Canada to issue a NOC. There is one exception to this denial of the right of appeal - in cases where the appeal is regarding the legal principle and the appellant is seeking an official interpretation for subsequent cases. This has been confirmed by the jurisprudence, for example in cases such as Abbott Laboratories v. Canada (Minister of Health) .
The EU, however, which does not itself have a regulatory scheme similar to the Canadian NOC Regulations, will require that there be an appeal process as stated in paragraph 4 of Article 10:

4.If a Party relies on "patent linkage" mechanisms whereby the granting of marketing authorizations (or notices of compliance or similar concepts) for generic medicines is linked to the existence of patent protection, it shall ensure that the patent holders and the manufacturers of generic medicines are treated in a fair and equitable way, including regarding their respective rights of appeal.

This article results in a peculiarly one-sided obligation; it creates a new obligation for Canada without creating a corresponding one for the EU. While prima facie the fact that no appeal is available against an issued NOC appears unfair, the deleterious consequences of having one far outweigh its absence. As such, it is clear that paragraph 4 will cause difficulties. Various scenarios are presented below.
Currently a dispute in the Federal Court under the NOC regulations is meant to decide whether or not Health Canada should issue a NOC to the GDM. If the GDM prevails, a NOC is issued, and the generic is brought to market. If a subsequent appeal of the decision were allowed, there are two possible approaches that Canadian lawmakers might adopt.
The first would allow the Federal Court of Appeal, on receiving a notice of intent to appeal, to simply extend the current injunction until the dispute is settled. The second would allow the Federal Court of Appeal to let the granted NOC stand until the dispute is settled. Both approaches are highly detrimental to the GDMs as these complex litigations will likely take years to settle, and even in the second scenario, it would create a substantial risk for a GDM to proceed to market with a NOC that could potentially be later revoked. Any hope for workable regime with either of these options will require meaningful damages to ensure claims are made in good faith.
Moreover, as previously stated, an IDM that loses its case under the NOC Regulations still has recourse under the Patent Act. This already constitutes a certain type of appeal process. If NOC appeals are allowed, a GDM issued a NOC after a failed challenge in the Federal Court will have to face the possibility of facing suits on two different grounds: proving again its NOC worthiness and arguing against allegations of patent infringement under the Patent Act. It would also be faced with the possibility that in the future it would not be able to continue to market the drug for which it had received a NOC.
Defending itself on both these grounds will add a tremendous costs to both parties, and, regardless of the final outcome, this cost will ultimately be paid by the taxpayers, who have no recourse against either side. CETA does not contemplate granting damages to third parties who actually bear the cost of prolonged litigation, unlike certain other jurisdictions, such as the U.S.
3.4 On Border Issues
CETA also grants patent and copyright owners concrete means to enforce their rights and be protected from the importation of potentially infringing products. These are found in Article 30 of the Intellectual Property section of the Agreement which states:
Border Measures
1. The Parties shall, unless otherwise provided for in this section, adopt procedures53 to enable a right holder, who has valid grounds for suspecting that the importation, exportation, re-exportation, entry or exit of the customs territory, placement under a suspensive procedure or placement under a free zone or a free warehouse of goods infringing an intellectual property right54 may take place, to lodge an application in writing with competent authorities, administrative or judicial, for the suspension by the customs authorities of the release into free circulation or the detention of such goods.
2. The Parties shall provide that when the customs authorities, in the course of their actions and before an application has been lodged by a right holder or granted, have sufficient grounds for suspecting that goods infringe an intellectual property right, they may suspend the release of the goods or detain them in order to enable the right holder to submit an application for action in accordance with the previous paragraph.
3. The competent customs department shall inform the right-holder and the holder of the goods of its action and is authorised to inform them of the actual or estimated quantity and the actual or supposed nature of the goods whose release has been suspended or which have been detained.
4. (…)

The customs office shall give the applicant the opportunity to inspect goods whose release has been suspended or which have been detained. When examining goods, the customs office may take samples and hand them over or send them to the right-holder, at his express request, strictly for the purposes of analysis and to facilitate the subsequent procedure.

While this is a general measure, designed primarily to prevent copyright infringement rather than pharmaceutical patent infringement, it will allow IDMs to petition Canada Customs to seize inbound generic medications by alleging patent infringement. It is likely that the Canada Customs officials, who do not have the expertise to deal with the complexities of drug patent disputes, would accede to any such request.
Although it is not yet clear how the Canadian government would implement this obligation, it will likely be up to the Federal Court to decide the merits of such claims. Of course, any Federal Court intervention would cause substantial delays in the importation of generic products. Moreover, a GDM, in order to bring a generic drug to market based on a NOC, would potentially have to defend itself three times in the Federal Court; (1) to overturn the automatic injunction and receive the NOC (plus, now, a potential appeal of that decision), (2) to have its seized products released (if they do not manufacture them in Canada) and (3) to defend itself from potential infringement suits under the Patent Act. It is also somewhat surprising that this agreement contains border measures to protect intellectual property at all given that both parties have recently signed the Anti-Counterfeiting Trade Agreement (ACTA ) . This agreement contains very similar protections, as evidenced by Article 16, which states:

ARTICLE 16: BORDER MEASURES
1. Each Party shall adopt or maintain procedures with respect to import and export shipments under which:
(a) its customs authorities may act upon their own initiative to suspend the release of suspect goods; and
(b) where appropriate, a right holder may request its competent authorities to suspend the release of suspect goods.
2. A Party may adopt or maintain procedures with respect to suspect in-transit goods or in other situations where the goods are under customs control under which:
(a) its customs authorities may act upon their own initiative to suspend the release of, or to detain, suspect goods; and where appropriate, a right holder may request its competent authorities to suspend the release of, or to detain, suspect goods.

This provision is very similar to the corresponding border measures in CETA, with one very important exception; the scope of application in CETA is broader. In fact, “The Parties agree that patents and protection of undisclosed information do not fall within the scope of this Section. ” Therefore, CETA is imposing obligations that go far beyond those contained in the new anti-counterfeiting multilateral agreement that would grant pharmaceutical patent right holders extraordinary powers

4.0 Summary and Conclusions In summary, although pharmaceutical patents are part of Canada’s general patent laws, there are a number of important facets that make it a special case, worthy of our attention. First, pharmaceutical innovation has had and continues to have a dramatic impact on the quality and “quantity” of all our lives - helping to extend life expectancy in Canada from 47 years at the turn of the last century to over 80 years today. Complicating the issue of pharmaceutical patent law is the reality that extensive testing and trial periods can delay the actual commercialization of a new drug by up to 15 years. Thus, determining a fair period of patent protection is very different than most other kinds of patents that can be exploited much faster. To accommodate this, some countries have provided brand-name drug manufacturers various patent extensions. Canadian Patent Law, however, does not support extensions but brand-name drug manufactures use a technique known as “evergreening” to successfully extend their patent protection, sometimes by only slightly tweaking their products just before patent expiry. Although the courts have ruled against this practice, other measures within Health Canada’s regulatory regime have been exploited to this end. As well, drug expenditures have become an increasingly significant part of provincial healthcare budgets driving the market for lower cost generic substitutes. Lawmakers must balance the need to stimulate innovation and disclosure (and increased R&D) through patent exclusivity while encouraging their eventual substitution with lower-priced generics. To this end, Canada’s Patent Laws together with Health Canada’s drug introduction regime have tried to manage this compromise. The result is a complex legal and regulatory environment where the brand-name and generic manufactures battle it out in the marketplace and courts. Much of this environment has been influenced by the need to comply with various trade agreements, in particular, NAFTA and TRIPS. It now appears that another trade agreement, CETA, will again impact the market balance between brand-name drugs and their generic equivalents. The superior bargaining power of the EU is clearly evidenced in the draft CETA documents that have been made available so far, as the terms strongly reflect the current EU patent protection environment. The proposed agreement will require Canada to align its patent protection with EU practices; specifically by introducing patent extensions (extending Canada’s patent protection by up to 25%) and increasing data protection from 8 to 10 years. Unfortunately, these new requirements do not account for existing supplementary protections subsumed in Health Canada regulations. As a result, Canada will have one of the strongest patent protection regimes in the world, surpassing both the U.S. and the EU. Adoption of CETA will create in Canada the only system in the world that combines patent term renewal, a linkage between patents and generic drug applications (the NOC regulations), and a protection of data for up to ten years. This should be particularly disconcerting to Canadians when we consider that our per capita drug expenditures are currently the second highest in the world, just behind the U.S. It has been estimated that the combination of our significantly high per capita drug spending with potentially the strongest patent protection in the world, will increase drug expenditure in Canada by $2.8 billion annually . The brand-name drug manufacturers claim that this added expense would be offset by a resulting stimulus to R&D investments, Historically, however, this promise has not materialized as evidenced by responses to previous patent term increases, The Pharmaceutical Manufacturers Association of Canada had made a commitment to a 10% R&D-to-sales ratio but over the last ten years the actual figure is 6.9% Moreover, it has been found that “Incremental IPR reforms in OECD countries do not seem to increase domestic spending in R&D ”. CETA covers many sectors besides pharmaceutical patents. The agreement is expected to greatly benefit Canada in many other areas, such as the exportation of fish. However, whether or not these advantages will counterbalance the potentially detrimental effect these patent reforms will have on provincial healthcare budgets remains to be seen.

Bibliography:
Legislation:
1. Anti-Counterfeiting Trade Agreement (not ratified)
2. Directive 2004/27/EC of the European Parliament and of the Council of 31 March 2004 amending Directive 2001/83/EC on the Community code relating to medicinal products for human use (Text with EEA relevance) available online at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32004L0027:EN:HTML. Last viewed on 17/11/12
3. Patent Act (R.S.C., 1985, c. P-4)
4. Patented Medicines (Notice of Compliance) Regulations, SOR/93-133
5. RÈGLEMENT (CE) No 469/2009 DU PARLEMENT EUROPÉEN ET DU CONSEIL du 6 mai 2009 concernant le certificat complémentaire de protection pour les médicaments (version codifiée)

Jurisprudence:
1. Abbott Laboratories v. Canada (Minister of Health) (2006) FCA 187
2. Apotex Inc. V. Wellcome Foundation Ltd. [2002] 4 S.C.R. 153
3. Diamond v. Chakrabarty [1980] U.S 303
4. Eli Lilly Canada Inc. v Novopharm Limited (2010) FCA 197
5. Hatmaker v Joseph Nathan & Co Ltd. (1919), 36 RPC 231 (HL)
6. Merck Frosst Canada Inc. v. Canada (Minister of National Health and Welfare), (1999) F.C.A
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8. Pfizer Canada Inc. v. Mylan Pharmaceuticals, (2011) FC 547
9. Ratiopharm inc. v. Wyeth Canada (2007) FCA 264
10. Re Wellburtin SR Direct Purchaser Antitrust Litigation, US District Court (ED Pen 2004) (no 04-5525)
11. Tennessee Eastman Co. et al. v. Commissioner of Patents, [1974] S.C.R. 111

Books, Journals and Reports:
1. Canadian Intellectual Property Office, Manual of Patent Office Practice [MPOP]
2. CHIH, “National Health Expenditure Trends, 1975 to 2011” available online at https://secure.cihi.ca/estore/produ;ctFamily.htm?locale=en&pf=PFC1671Last viewed 20/11/11
3. The Economist, “Follow the leader The provinces crack down on prescription-drug spending” Jul 8th 2010
4. Industry Canada “A Study on the Patent Law Standard of Non obviousness” (1996)
5. Daniel J. Gervais and Elizabeth F. Judge “Intellectual Property: The Law In Canada” 2nd Edition (2001). Carswell. Toonto, Ontario
6. EC “A trade SIA Relating to the negotiation of a comprehensive Economic and Trade Agreement (CETA) Between the EU and Canada”
7. Government of Canada “Regulatory Impact Analysis statement, Regulations Amending the Patented Medecines (Notice of Compliance) Regulations”. Available online at http://www.gazette.gc.ca/archives/p1/2006/2006-06-17/html/reg6-eng.html Last consulted 22/11/11
8. Jason Fekete “Canada-EU trade deal could hurt agriculture, health sectors, MPs told”, Postmedia News October 27, 2011 available online at: http://www.canada.com/health/Canada+trade+deal+could+hurt+agriculture+health+sectors+told/5618538/story.html#ixzz1dWGo447N last viewed 17/11/11
9. Paul Grootendorst and Livio Di Matteo “The Effect of Pharmaceutical Patent Term Length on Research and Development and Drug Expenditures in Canada” available online at http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2585454/. Last viewed 09/11/11
10. Laura Jones “Can the Drug Approval Process be Reformed to Save Lives?” (2002) The Fraser Institute. Available online at http://oldfraser.lexi.net/publications/forum/2002/02/section_06.html. Last viewed on 20/11/11
11. Keith Maskus, “Intellectual Property Rights and Economic Development”, Case Western Reserve Journal of International Law, vol. 32, p. 471- 506.
12. Norton Rose Legal update “Canada debate IP rights for pharmaceuticals” p. 3 avaiable online at http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=9&ved=0CFkQFjAI&url=http%3A%2F%2Fwww.nortonrose.com%2Ffiles%2Feuropean-union-canada-debate-ip-rights-for-pharmaceuticals-pdf-556kb-54040.pdf&ei=_ai6ToLsH4TY0QGd26nfCQ&usg=AFQjCNE22kwlZv9sRwzJ3LRxws8o_6B2HQ&sig2=4pLDLPQTLKhAc5j5wjoZDA Last consulted 19/11/11
13. OECD “Public Expenditure on Pharmaceutical Goods per Capita and as a Percentage of Total Expenditure on Pharmaceutical Goods, Reporting OECD Comparator Countries (2008)
14. Padmanabha Ramanujam, “Justification of Intellectual Property Rights: A Game Theory Perspective” (2006). Available at SSRN: http://ssrn.com/abstract=980509 Last viewed 1/12/11
15. PMPRB “2010 annual report of the Patented Medicine Prices Review Board”
16. Suzanne Scotchmer, “Standing on the Shoulders of Giants : Cumulative Research and Patent Law” (1991) Journal of economic perspectives, Volume 5, Number 1 – Winter 1991, pages 29-41

Websites:
1. BioTech Canada Website http://www.biotech.ca/uploads/sbarticle_final_.pdf last viewed 05/12/12
2. Canadian Intellectual Property Blog http://www.canadaipblog.com/2010/12/canadas-data-protection-upheld-by.html
3. CIHI Website http://www.cihi.ca/CIHI-ext-portal/internet/en/document/spending+and+health+ workforce/spending/spending+by+category/release_05may11_fig1 Last Viewed 11/11/11
4. DFAIT website : http://www.international.gc.ca/trade-agreements-accords-commerciaux/fo/intellect_property.aspx?view=d last viewed 22/11/11
5. DW Website http://www.dww.com/?page_id=1047
6. Health Canada Website http://www.hc-sc.gc.ca/fn-an/legislation/acts-lois/act-loi_reg-eng.php last viewed 25/11/11
7. Industry Canada http://www.ic.gc.ca/eic/site/lsg-pdsv.nsf/eng/h_hn00021.html last viewed:13/11/11
8. MPA Services Website http://www.mpaservices.co.uk/pharmaceutical-patent-term-extensions.html Last Viewed 20/11/11
9. Patented Medecines Prices Review Board Website http://www.pmprb-cepmb.gc.ca/english/View.asp?x=1433 Last viewed 28/11/11
10. Trade Justice Website http://tradejustice.ca/en/section/3 last consulted 09/12/11
11. WTO website http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds153_e.htm last consulted 14/11/11