O Canada! Lilly Claims Country’s Invalidation Of Its Patents Violates NAFTA

Lilly is seeking $500 million for revenue it would have made if Canadian courts had not ruled its Zyprexa and Strattera patents invalid; company says Canada’s new “promise utility doctrine” is targeting pharma inventions.

In an unprecedented challenge of Canada’s patent system, Eli Lilly & Co. has brought a complaint against the Canadian government requesting $500 million for revenue lost from the invalidation of its Zyprexa (olanzapine) and Strattera (atomoxetine) patents on the grounds that they were not useful.

On Sept. 12, Lilly served Canada with a notice of arbitration claiming that the government breached its intellectual property protection obligations under the North American Free Trade Agreement. The dispute is to be taken up by a three-person panel of arbitrators.

At issue is the Canadian judiciary’s interpretation of the requirement that inventions be “capable of industrial application.” This utility requirement is included in the patent laws of all countries but Lilly says Canada has created a new “promise utility doctrine” that imposes higher standards to show an invention is useful.

Since the advent of the promise doctrine in 2005, 18 pharmaceutical patents have been invalidated for lack of utility.

Specifically, the doctrine requires that the promised utility be demonstrated or based on a “sound prediction” of utility at the time a patent application is filed and that it be disclosed in the original patent application. By contrast, under U.S. law an applicant can submit a declaration with additional information, such as additional laboratory work or the results of clinical trials, to demonstrate an invention’s utility.

“It was simply shocking to us to lose patents in Canada,” Doug Norman, Lilly’s general patent counsel, said in an interview. The Zyprexa patent has been litigated in 17 other countries around the world and upheld in every instance, and nowhere else was it challenged on the basis of lack of utility. The track record of the Strattera patent has been almost as strong. It was invalidated on the basis of utility only in Canada; it had been unsuccessfully challenged on utility in Denmark.

Only Pharma Patents Found Invalid Under Promise Doctrine

Lilly’s case is remarkable not only for its invocation of NAFTA but for its focus on Canada. The pharmaceutical industry has long opposed the patent policies of countries like India and Thailand, which permit the issuance of compulsory licenses. This is the first time Canada has been called out on the issue – in this case for courts’ interpretation of the patent law – and the arbitration could impact the entire industry.

The complaint notes that since the advent of the promise doctrine in 2005, 18 pharmaceutical patents have been invalidated for lack of utility. In the prior 25 years, only two pharmaceutical patents were invalidated for lack of utility based on a traditional utility test. The complaint also notes that every patent invalidated since 2005 for lack of utility has involved a pharmaceutical invention.

Lilly is the first to go the arbitration route in a patent dispute, having failed to get an appellate court or the Canadian Supreme Court to reverse the trial court rulings.

In the case of Strattera, a federal court ruled in 2010 that the inventors claimed a new use for atomoxetine to treat attention deficit hyperactivity disorder and “implicit in this promise is that it will work in the longer term.”

But Lilly’s complaint says “this ‘implied’ promise was construed from the patent notwithstanding the fact that Strattera is indicated – and approved by Health Canada – for short-term treatment of ADHD, in addition to extended treatment.”

With regard to the patent on Zyprexa, Lilly said a federal court ruled in 2011 that it was invalid “because it failed to meet a construed promise of marked superiority over other known antipsychotic agents, which the court held implicitly included dosing so over the ‘long term.’”

Norman said judges are left to determine what the promise of an invention should be years after a patent application is filed so there is no clear standard. He also questioned how the judiciary could invalidate a patent for lack of utility when Canada’s regulatory agency has approved the product for that very use.

Public Citizen Criticizes NAFTA Challenge

Lilly argues that the promise doctrine imposes a significantly higher burden on the patentee than the standard of utility mandated under NAFTA. Further, the complaint says NAFTA obligates Canada to grant patents without discrimination as to field of technology, and that the new utility standard has fallen almost exclusively on the pharmaceutical sector.

A spokesperson for Canada’s Department of Foreign Affairs, Trade and Development said it is assessing the information provided in the notice of arbitration.

“Our government’s actions will continue to reflect our commitment to ensure Canadians continue to have access to the affordable drugs they need, while promoting innovation and job creation,” the spokesperson stated.

Lilly filed its first notice of intent to pursue arbitration proceedings in November and a second notice in June. After the first notice Public Citizen issued a 10-page document objecting to Lilly’s use of NAFTA to challenge Canada’s patent policy. The group said the investor privileges provided by U.S. trade agreements “enables backdoor corporate attacks on public interest policies.”

Norman disagreed, saying the company is going through the front door in exercising its rights under NAFTA to pursue arbitration and allege another member deprived it of its rights. “We believe we were deprived of the ability to make good on the investments we have made,” he stated.

Lilly is requesting damages of at least $500 million, which Norman said is roughly how much Lilly believes it could have gained in the Canadian market if the patents were upheld through their normal life span. The Zyprexa patent was filed in Canada in April 1991 and would have expired in April 2011 and the Strattera patent was filed in Canada in January 1996 and would have expired in January 2016.

Ultimately, Lilly would like the Canadian parliament to re-write the Patent Act to eliminate the promise doctrine and bring the law back in line with international norm. But in the mean time it is trying to right what it perceives as an injustice through Canada’s treaty obligations.