Eli Lilly, the U.S. pharmaceutical company, is accusing the Government of Canada of violating its obligations to foreign investors under the North American Free Trade Agreement (NAFTA) because its courts invalidated patents on two of its drugs, Strattera (covering treatment for attention deficit/hyperactivity disorder) and Zyprexa (covering treatment of schizophrenia and bipolar disorder). The company filed its Notice of Arbitration with NAFTA on September 12, seeking U.S.$500 million in compensation. A copy of the Notice of Arbitration is available here.
Lilly demanded arbitration under NAFTA Chapter 11, which allows investors in NAFTA countries to bring claims against the governments. Lilly alleged that in invalidating the patents, Canadian courts applied rules that are in conflict with Canada’s obligations under NAFTA. Lilly argues that Canada’s ability to invalidate patents can only be grounded in facts that could have prevented issuance of the patent during prosecution of the patent applications as required under NAFTA. Lilly’s Notice of Arbitration also accuses Canada of expropriation through the courts’ failures to abide by its obligations under NAFTA and utilizing rules that are in direct conflict with Canada’s obligations under NAFTA.
In recent years, the Canadian courts began utilizing the “promise doctrine,” requiring that patents demonstrate or predict usefulness as of the filing date of the patent applications. Canadian courts invoked that doctrine and found the Strattera and Zyprexa patents invalid. Lilly asserts that the decisions demonstrate Canada’s continuing disregard for and unpredictable implementation of established international thresholds for patentability and validity. Specifically, Lilly alleges that Canada’s federal courts violated the country’s obligations under NAFTA as well as the Trade-Related Aspects of Intellectual Property Agreement (TRIP) and the Patent Cooperation Treaty (PCT). The pharmaceutical company argues that NAFTA obligates Canada to grant patents on applications that are new and have an “inventive step” with industrial applicability regardless of the technological field, despite the Canadian courts’ apparent discriminating treatment of pharmaceutical patent applications.
The parties can expect the arbitration proceeding to take approximately two years to reach resolution in front of a three-person arbitration panel agreed on by the parties.
The Lilly case comes on the heels of an award in a Chapter 11 case brought by Apotex Inc., a Canadian pharmaceuticals corporation, against the United States. The arbitration related to the treatment Apotex allegedly received from courts and agencies in the course of its efforts to bring new generic drugs to market. On June 14, 2013, the arbitration panel issued an Award on Jurisdiction and Admissibility, dismissing all of the claims and ordering Apotex to pay the United States’ legal fees and arbitral expenses. The award in that case can be found here.