[Ip-health] Michael Geist: Panel Rejects Eli Lilly Claim Over Canadian Patent Law, Orders Company to Pay Millions in Costs

Thiru Balasubramaniam thiru at keionline.org
Tue Mar 21 23:57:34 PDT 2017


Panel Rejects Eli Lilly Claim Over Canadian Patent Law, Orders Company to
Pay Millions in Costs
March 21, 2017

In the early 1990s, Eli Lilly applied for patent protection in Canada for
two chemical compounds, olanzapine and atomoxetine. The company had already
obtained patents over the compounds, but asserted that it had evidence to
support new uses for the compounds that merited further protection. The
Canadian patent office granted the patents based on the content in the
applications, but they remained subject to challenge.

Both patents ultimately were challenged on the grounds that there was
insufficient evidence at the time of the applications to support the
company’s claims. The Federal Court of Canada agreed, invalidating both
patents. Eli Lilly proceeded to appeal the decision to the Federal Court of
Appeal and later to the Supreme Court of Canada. The company lost the
appeals, as the courts upheld the decision to invalidate the patents.

Under most circumstances, that would conclude the legal story as several
Canadian courts reviewed Eli Lilly’s patent applications and ruled that
they failed to meet the standards for patentability. Yet in June 2013, the
company served notice that it planned to use the ISDS provisions in the
North American Free Trade Agreement to claim that in light of the
decisions, Canada was not compliant with its patent law obligations under
the treaty. As compensation, Eli Lilly sought at least $500 million in

The fear for many was that if the pharmaceutical giant succeeded, it would
have effectively found a mechanism to override the Supreme Court of Canada
and hold Canadian taxpayers liable for hundreds of millions in damages in
the process. Last week, however, the Tribunal hearing the case rendered its
rejecting Eli Lilly’s claims and ordering it to pay millions of dollars to
compensate the Canadian government for its costs.

There are several key takeaways from the decision
First, the Tribunal emphasized that overruling national courts should only
occur in exceptional circumstances. The potential for any such cases will
still be a cause for concern, but the standard it set is quite high:

*the Tribunal emphasizes that a NAFTA Chapter Eleven tribunal is not an
appellate tier in respect of the decisions of the national judiciary. It is
not the task of a NAFTA Chapter Eleven tribunal to review the findings of
national courts and considerable deference is to be accorded to the conduct
and decisions of such courts. It will accordingly only be in very
exceptional circumstances, in which there is clear evidence of egregious
and shocking conduct, that it will be appropriate for a NAFTA Chapter
Eleven tribunal to assess such conduct against the obligations of the
respondent State under NAFTA Article 1105(1)**.*

On the substance of the case, the Tribunal found that Eli Lilly did not
demonstrate a fundamental change to Canadian patent law that might trigger
a NAFTA claim:

*For all of the reasons in subsections (1) to (5) above, the Tribunal finds
that, on the record in this arbitration, Claimant has not demonstrated a
fundamental or dramatic change in Canadian patent law. For the interrelated
reasons in subsection (6) above, the Tribunal finds that Claimant has not
demonstrated, as a factual matter, that its legitimate expectations were
violated by the application of Canadian patent law to the Zyprexa and
Strattera Patents.*

The reasons behind the conclusion include a finding that Canadian patent
law did not change dramatically as the courts addressed questions of patent

*the Tribunal recognizes that the outcome in AZT was unexpected for some
practitioners and even judges who had understood the language of the Court
of Appeal in Ciba-Geigy to mean that utility could be demonstrated through
post-filing evidence (most notably commercial success). Still, having
considered all of the evidence, the Tribunal cannot conclude that the
Supreme Court effected a dramatic change from previously well established
law when it clarified this rule in AZT.*

Further, the statistical data raised by Eli Lilly on invalidating patents
was not persuasive (indeed, the Tribunal was troubled by what appeared to
be cherry-picking of dates to try to make their case):

*Without having been presented with any strong indication toward a single
factor, the Tribunal considers it most likely that a combination of
developments, including those in patent litigation procedures, the
application of substantive patent law, and the pharmaceutical sector, has
led to a rise in challenges directed at pharmaceutical patents and more

Interestingly, the Special 301 process, which I wrote about earlier this
made it into the decision as Eli Lilly used it to argue that Canada was
out-of-step with international IP standards. The Canadian government
response will be familiar:

*Respondent challenges the reliability of the 2014 and 2015 editions of the
USTR Special 301 Report cited by Claimant, in which the United States
expresses “serious concerns” over Canada’s utility requirement. 403
According to Respondent, “the Special 301 Report is based not on empirical
evidence and analysis, but on industry allegations made to USTR, including
representations made by the Claimant **and its industry associations”.** In
addition, these reports were not issued contemporaneously with the changes
in the law that Claimant alleges, but rather at the time of the
commencement of this arbitration. Thus, Respondent supposes that the
reports were the result of Claimant’s own lobbying efforts to bolster its
claims in this arbitration.*

The Tribunal was not completely dismissive of the Special 301 Report, but
instead concluded that it was an outlier given that there was no other
evidence of complaints from other countries:

*The Tribunal has paid particular attention to the 2014 and 2015 editions
of the Special 301 Report of the USTR. In these documents, USTR notes that
the United States “has serious concerns about the lack of clarity and the
impact of the heightened utility requirements for patents that Canadian
courts have applied recently”. This comment cannot be dismissed outright as
a lobbying effort by Claimant, as suggested by Respondent. However, the
Special 301 Report stands alone in the record as a complaint regarding
Canada’s utility doctrine from any other State, including Mexico, in the
decade since the promise utility doctrine was allegedly adopted. For the
Tribunal, that silence speaks louder than the single, brief criticism
contained in the USTR’s Special 301 Report. *

The Tribunal decision represents an enormous win for the Canadian
government and for the supremacy of Canadian law and the judicial system
more broadly. The real fears that dispute settlement could be used to
override Supreme Court of Canada decisions lies at the heart of concern
with ISDS provisions that have found their way into trade agreements such
as CETA and the TPP.

While Eli Lilly failed in its efforts to use the dispute settlement system
to extract hundreds of millions from Canadian taxpayers, the dangers of the
system remain a reality. The Canadian government tried to address some of
the concerns with the reworked provisions in CETA (rules that are not
mirrored in TPP), but as new trade deals are negotiated or renegotiated,
should rethink the need for investor-state dispute settlement provisions in
agreements with countries with respected court systems that offer investors
sufficient protections and reliable legal recourse.

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