Intellectual Property Protection
PhRMA and its member companies have been gratified by steps that Canada has taken since 1992 to afford stronger protection to the patents that are the lifeblood of research-based pharmaceutical companies. Some of our member companies have made significant investments in Canada as the protection of our intellectual property has strengthened.
Notwithstanding that, as a developed country, Canada has been obligated to have its laws in conformity with the TRIPs agreement on January 1, 1996, yet it is still in violation of its basic TRIPs obligations. Article 33 of the TRIPs agreement obligates Canada to provide a 20-year term of protection for all patents, counted from the time of filing. Article 70.2 establishes that the 20-year term of protection applies to all patents that existed at the time that the TRIPs agreement took effect, that is, on January 1, 1996. Canada amended its patent law in 1987 to provide 20-year protection from the date of filing for all patent applications filed on or after October 1, 1989.
However, despite the clear language of TRIPs, Canada never extended the 20-year patent term to those patents which had been filed before October 1, 1989, and which took less than three years to obtain. Important pharmaceutical products will be denied the full length of protection required by TRIPs and will be prematurely forced off patent in the coming months.
Canada simply cannot be permitted to pick and choose which TRIPs obligations it is willing to meet. PhRMA is pleased that the USTR has chosen to pursue a WTO disupute settlement case against Canada on this issue, and is looking forward to the outcome of this process and corresponding remedies, in the absence of Canadian efforts to resolve this clear violation of TRIPs.
In addition, Canada has for some years allowed generic companies to have access to patented pharmaceuticals, for the purpose of having the product registered in Canada, as well as for starting up commercial-scale manufacture and export. Recently, the European Union has filed a WTO dispute settlement case against Canada, and the first consultation took place in early 1998. Canada also gives generic copiers the benefit of "Springboarding" by allowing the copier to rely on the originator's proprietary data during the statutory five-year period of data exclusivity, for the purposes of product registration. This violates Article 39.3 of the WTO TRIPs agreement, as it essentially eliminates the non-reliance requirement of TRIPs. The significance of this issue is not limited to Canada, as it constitutes a major negative precedent.
Canada is required under both TRIPS and NAFTA to ensure effective enforcement of the standards of patent protection provided for in those Agreements.
Article 28 of TRIPS and Article 1709 of NAFTA require Canada to confer on patent owners the exclusive right to prevent third parties not having the owner's consent from making, using or selling the product or process that is the subject of the patent.
Article 41 and related Articles of TRIPS and Article 1714 and related Articles of NAFTA require Canada to "ensure that enforcement procedures are available under its law so as to permit effective action against any act of infringement of intellectual property rights covered by (these) Agreements, including expeditious remedies to prevent infringements and remedies which constitute a deterrent to further infringements."
Systemic inadequacies in Canada's administrative and judicial procedures call into question whether Canada is meeting its TRIPS and NAFTA obligations with respect to pharmaceutical patents.
These inadequacies allow generic versions of patented medicines to be approved by Health Canada, to be listed for use by doctors and use or even mandatory substitution by pharmacists, and to reach or be ready to reach the market in commercial quantities while valid patents are still in force.
This can occur under the Patented Medicines (Notice of Compliance) Regulations, the so-called "linkage regulations" administered by Health Canada, and as a result of how patent infringement claims are treated in the Canadian Courts.
The linkage regulations fail to provide for transparent and equitable consideration of the rights of patent owners and prevention of patent infringement.
Under the linkage regulations, generic producers can apply at any time for approval by Health Canada of generic medicines. Such generic medicines are assessed for safety and efficacy against data and clinical trials relating to previously approved patented medicines.
These regulations extend significant advantages to generic companies. Furthermore, the Patent Act, s. 55.2(1) and (2), also provides benefits to generic companies that are not available in other countries, including the "early working" and "stockpiling" provisions that are now the subject of a WTO dispute settlement case brought by the European Union.
The linkage regulations indicate that Health Canada must determine whether there are patents registered that could be infringed if approval, i.e., a Notice of Compliance (NOC), was granted for the generic medicine. If a patent is identified, the generic producer is required, in principle, to issue a Notice of Allegation (that there would be no infringement) to the brand name company who, if it believes the allegation is not justified, may challenge that allegation in the Court. Thus, the brand name company has access to a judicial procedure to present its claim and seek an order of prohibition to prevent the issuance of an NOC.
This arrangement, in principle, could provide the basis for effective protection of pharmaceutical patent owners' rights as required under TRIPS and NAFTA. Experience shows, however, that the manner in which the procedures are applied fails to extend such protection in a majority of cases where infringement is at issue. Indeed, there is a pattern that reveals clear bias in favor of generic companies.
This is seen in a number of ways:
The legal burden is on the brand name company to prove that the generic company's allegation of non-infringement is not justified. Access to information on the generic company's product may be restricted, however, because there is not necessarily discovery in such proceedings. The brand name company may therefore be reliant on whatever information the generic company is prepared to supply. This approach is open to abuse to the detriment of the brand name company.
Health Canada has been inconsistent in its policies and practices relating to the listing of brand name companies' patents and in requiring generic companies to send a Notice of Allegation. In some cases no Notice is provided. This means that the brand name company has no opportunity to present a claim and, in fact, may remain unaware that a generic version of its drug has been submitted for approval until an NOC is issued. This has occurred in a recent case and could easily occur again in future.
The linkage regulations do not apply to process patents, notwithstanding the fact that claims to a medicine itself were previously forbidden under Canadian patent law. This means that many brand name companies have only process patents to protect their inventions. This situation will continue for a period of years.
As a result of these inadequacies, there have been dozens of cases since 1993 (when the linkage regulations came into effect) in which patentees had an infringement claim but were unable to prevent the issuance of an NOC and the marketing of a generic version of a patented medicine.
The Canadian courts fail to provide effective recourse in cases where an NOC is issued for an infringing generic medicine.
If a patentee is unsuccessful in preventing the issuance of an NOC by Health Canada, the next step would be to seek relief through an infringement action. In the first instance, a patentee could apply for an interlocutory injunction to maintain its rights and, in particular, to prevent the marketing of an infringing generic version pending trial.
It is virtually impossible, however, to obtain an interlocutory injunction. It is estimated that less than 10% of requests for such injunctions are granted.
The Canadian Courts apply a very high standard of "irreparable harm", the test applied for the granting of an interlocutory injunction. This standard is impossible to meet in practical terms.
A patentee is required to establish that there will be irreparable harm that cannot be compensated by the eventual award of damages. The Courts do not accept that a monetary damage award may not provide full compensation for loss of market share for the product and related products, lost business, lost investment and research opportunities due to the absence of income from sales, or for loss of reputation and goodwill.
It generally takes two to five years before an action for patent infringement is tried. After this amount of time, a brand name company's market share has been severely eroded. Moreover, Canadian Courts may be reluctant to grant the large damage awards that a brand name company would be owed in such cases.
The standards applied by the Canadian Courts are not consistent with the standards provided for in TRIPS and NAFTA.
The fundamental private right under these Agreements is, of course, the exclusive right to prevent the making, use or sale of a patented product or process that is not authorized by the patentee.
In terms of the enforcement of that right, Article 50 of TRIPS and Article 1716 of NAFTA call for "prompt and effective" provisional measures, i.e., including interlocutory injunctions, "to prevent an infringement of any intellectual property right, and in particular to prevent the entry into the channels of commerce in their jurisdiction of allegedly infringing goods". The test under TRIPS and NAFTA for provisional measures is that "any delay in the issuance of such measures is likely to cause irreparable harm to the right holder", a clearly lower standard than that applied by the Canadian Courts.
The concerns of pharmaceutical patent owners are serious and have important implications beyond economic losses in Canada.
Patent infringement in Canada results in hundreds of millions, if not billions, in economic losses to U.S. pharmaceutical patent owners. This alone is sufficient cause for USTR to take steps to address the systemic problems with Canada's enforcement procedures.
There is another, equally important reason for prompt action.
The objective of ensuring developing country compliance with the patent provisions of TRIPS has been identified as a key U.S. priority in the next Round of negotiations in the WTO. Those provisions come into effect for developing countries on January 1, 2000.
It is anticipated that difficulties may be encountered with respect to developing country compliance. Some are expected to propose extensions of the deadlines for implementing the patent provisions. Such proposals should not be accepted. Even if extensions are not sought or granted, some developing countries may be reluctant to provide full patent protection and enforcement in the pharmaceutical sector.
If a major developed country such as Canada is failing and continues to fail to comply with the spirit and letter of TRIPS, this will set an example for developing countries. Canadian practices that create a dangerous precedent should be addressed before they are adopted in other jurisdictions.
Although Canada has eliminated its former compulsory licensing system for pharmaceuticals as a result of NAFTA and TRIPS, there continues to be a strong bias favoring the early and often infringing entry of generic versions of patented medicines into the marketplace. There are systemic inadequacies in administrative and judicial procedures that allow this to occur, resulting in substantial and on-going economic losses to patent owners and calling into question Canada's compliance with its obligations under both NAFTA and TRIPS.
Moreover, Canada's policies and practices constitute a dangerous example that could be followed by others, particularly developing countries.
USTR should attach high priority to remedying this situation.
The Patented Medicine Prices Review Board (PMPRB) continues to work revising its overall approach to setting price ceilings, including the U.S. Department of Veterans Affairs (DVA) prices as part of the basis on which those ceilings are established. Reports emerging from the Federal / Provincial/ Territorial Pharmaceutical issues Committee suggest the likelihood of increased collaboration among different levels of government toward more stringent, non-market based interventions.
The use of international price comparisons and the establishment of price ceilings on patented medicines are counterproductive to initiatives to provide high quality health care, and thus improve the health of patients, or to help contain health care spending. The following are among the principal concerns regarding such practices.
Using international comparisons ignores valid reasons for price differentials across countries. The prices of pharmaceutical products, as well as all other types of goods and services, differ widely across countries, for many legitimate reasons. These include living standards, income levels, consumer preferences, disease and drug consumption patterns, product volume, exchange rates, regulatory requirements, as well as the degree of competition in the health services and pharmaceutical markets. Superimposed on these factors are government-mandated reimbursement and price controls, which affect prices throughout the distribution chain. As a result, establishing price ceilings by using prices from other countries ignores prevailing market conditions and impedes biomedical innovation by prohibiting each innovator from establishing prices for its medicines based on market factors.
There is little evidence that international price benchmarking leading to price controls actually curbs overall pharmaceutical spending. Government-set prices preclude the benefits of price competition. In these circumstances, such government interventions in the market have little, if any, positive impact on the rate of growth in pharmaceutical expenditures over the long term. Under market conditions, however, price competition has proven to be an effective way to hold overall spending down and to provide high quality health care.
International price benchmarking threatens patients' health by dampening incentives to improve on today's treatments, thus lowering health care quality. In order to fund critical long-term activities to discover and develop potentially life-saving drugs, pharmaceutical companies must be able to fairly and adequately recoup investment in research and development. Price control practices that prevent innovators from covering their costs will thus impede biomedical innovation and can jeopardize high quality health care for future patients.
Within the broader context of concerns with the practice of comparing prices for patented products across countries, the prices associated with the DVA formulary are an inappropriate benchmark for PMPRB purposes for the following reasons:
The DVA is not equivalent to any of the regulatory authorities in the other six countries whose prices are considered by PMPRB.
DVA prices are not an accurate reflection of the free market.
The DVA formulary is extremely restrictive.
DVA prices reflect only a small component of the market.
In deciding how best to allocate health care resources and resolve the tension between controlling health care spending, improving the health of the population, and ensuring that the research-based pharmaceutical industry can continue to deliver cost-effective innovations for patients, the PMPRB's proposed approach has the potential to negatively impact the latter.
Potential Exports/Foreign Sales
It is not possible at this time to determine the impact on sales for PhRMA member company affiliates in Canada if the aforementioned issues were to be resolved.