[Ip-health] Investor–State Arbitration to Challenge Host State Compliance with International IP Treaties?

Riaz K Tayob riaz.tayob at gmail.com
Wed Jan 16 10:44:04 PST 2013

  International Economic Law and Policy Blog
  <http://worldtradelaw.typepad.com/ielpblog/> - Guest Post by Henning
  Grosse Ruse - Khan: Investor–State Arbitration to Challenge Host State
  Compliance with International IP Treaties?

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*posted by Simon Lester*

*A Guest Post by Henning Grosse Ruse - Khan:*

Last week, Luke Peterson reported that the U.S. based pharma 
corporation Eli Lilly has put Canada on notice of its intent to submit a 
claim to arbitration under NAFTA Chapter 11 following the invalidation 
of some of its patents by Canadian courts 
(http://www.iareporter.com/articles/20121203_2). The Notice of 7 
November 2012 is now available on Andrew Newcombe’s website 
(http://italaw.com/cases/1625). It reveals an interesting new interface 
between international IP and investment law.

In /Eli Lilly and Company v. The Government of Canada/, the US 
pharmaceutical complains about too strict
patentability requirements as applied by the Canadian Courts since 2005. 
In a nutshell, Eli Lilly alleges that the courts interpret the utility 
(or industrial applicability) standard for patent protection – one of three
criteria an invention must meet to be patentable – and the requirement 
to disclose the invention so that it can put into practice in a way that 
leads to frequent invalidation of pharmaceutical or bio-pharma patents 
in Canada. As for the utility criterion, the notice alleges that since 
2005, federal Canadian courts have created a so called promise doctrine 
‘whereby utility is assessed not by reference to the requirement in the 
Patent Act that an invention be “useful”, but rather against the 
“promise” that the courts derive from the patent specification’ (p.10). 
Eli Lilly argues that this doctrine has led to ‘a dramatic increase in 
the number of patents invalidated for the lack of utility’ – 17 in the 
last 7 years (all in the area of bio-pharma patents), as compared to 2 
in the 15 years before (p.15). The US company also complains about ‘a 
new, non-statutory disclosure obligation’ imposed by Canadian courts 
which interacts with the enhanced utility standard ‘in a manner that is 
fatal to valid pharmaceutical and biopharmaceutical patents’ (p.16, 18), 
such as those for its drugs ‘Strattera’ (for treating attention-decifict 
hyperactivity disorder, ADHD), Zyprexa and Evista.

For me, the most interesting aspect is that Eli Lilly claims 
expropriation and a breach of the fair and equitable treatment (FET) 
standard /because/ the Canadian court decisions which invalidate its 
patents ‘are contrary to Canada’s international treaty obligations’ 
(p.24); in particular those deriving from the WTO TRIPS Agreement, NAFTA 
Chapter 17 on IP rights and the Patent Cooperation Treaty. In 
essence, the company argues that (1) the “promise doctrine” imposes an 
utility standard which violates Art.27:1 TRIPS to make available patents 
for inventions which are new, non-obvious and useful; (2) the judicial 
decisions amount to a de facto discrimination of biopharma patents 
contrary to the Art.27:1 TRIPS obligation not to discriminate among 
different fields of technology; and (3) infringe the Patent Cooperation 
Treaty (PCT) by imposing additional form and content requirements 
relating to international patent applications. These breaches on 
international IP treaties are argued to violate investment protection 
standards because Eli Lilly claims to have a reasonable expectation that 
Canada complies with these IP treaties (pp.25-26).

Leaving aside the merits of the claims of inconsistencies with 
international IP treaties (especially the absence of any further 
definition of the patentability criteria in TRIPS is 
generally understood as conferring flexibility on WTO Members to define 
these criteria in their national laws), there are systemic implications: 
Should investor – state arbitration function as a new venue to litigate 
compliance with international IP treaties? Can it serve as an 
alternative forum for rightholders to challenge TRIPS consistency 
(instead of lobbying their governments to bring a WTO dispute)? And if 
we end up with parallel proceedings (as in the challenges to Australia’s 
plain packaging measures where Phillip Morris equally claims a 
BIT violation based on alleged inconsistencies with TRIPS and the 
Paris Convention), will investment arbitration come up with its own 
assessment or wait for a WTO decision?

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