Canada: European Union - Canada Debate IP Rights For Pharmaceuticals

Norton Rose Group's head of pharmaceuticals and life sciences, Patrick Kierans (based in Toronto), together with partners Richard A. Wagner (Ottawa) and Mélanie Thill-Tayara (Paris), assess the recent response by Canadian generic manufacturers to proposed reform of intellectual property law in Canada.

This briefing – written at the invitation of Canada's Research-Based Pharmaceutical Companies (Rx&D) – provides a further contribution to the current debate around IP rights for pharmaceuticals in Canada. The European Union seeks heightened IP rights; Canada's views are split.

A dispassionate take on what is becoming an increasingly heated argument would suggest that all parties involved are entitled to their hour in the sun, i.e. their right to an appeal to the courts, regardless of other rights already held. Canada's data protection law will benefit from reform. And the introduction of PTR (patent term restoration) will close an increasingly embarrassing gap in Canada's IP rights regime. This is our conclusion after weighing both sides of the argument.

Introduction

Canada and the European Union (EU) are currently negotiating a Comprehensive Economic and Trade Agreement (CETA). Intellectual property rights have been identified by the EU as an area where Canada must improve. Since many of Canada's significant IP rights stem from, or are guided by, its international treaty obligations – such as under the North American Free Trade Agreement (NAFTA) and the World Trade Organization Trade-Related Aspects of Intellectual Property Right (WTO-TRIPS) – the impact of trade agreements on IP rights cannot be understated.

At the start of the year, the Canadian Intellectual Property Council (CIPC) (a branch of the Canadian Chamber of Commerce) published Innovation for a Better Tomorrow: Closing Canada's Intellectual Property Gap in the Pharmaceutical Sector (the CIPC report). The Canadian Generic Pharmaceutical Association (CGPA) then commissioned a response to the CIPC report.

The purpose of this briefing is to assess the merits of the case put by the CGPA in their official response.

The CIPC report concluded that "Canada must improve and strengthen its intellectual property regime to close the gap with other leading industrialized countries to attract research and investment in the pharmaceutical sector." It recommended that the Canadian government make three crucial legal reforms:

• provide innovator companies with an effective right of appeal in court proceedings against generic manufacturers under the Patented Medicines (Notice of Compliance) Regulations
• extend the term and scope of data protection
• implement patent term restoration.

In its response, the CGPA claims that international IP right comparisons between Canada and its key trading partners (the US and the EU) do not point to a need for Canadian IP reform.

In our view, there is a case to be made for reform. The basic facts are set out below.

Establish innovator right of appeal

Court proceedings between innovative and generic manufacturers under Canada's Patented Medicines (Notice of Compliance) Regulations (NOC Regulations) are intended to resolve patent issues fast, before generic drug market entry.

Right now, only generic companies attacking a patent have an effective right to appeal an adverse decision. Once an NOC proceeding is dismissed and the generic drug approved (and a notice of compliance issued), any innovator right to appeal becomes almost irrelevant. This is because the court lacks the authority (whether in the NOC Regulations or elsewhere) to reverse the issuance of a notice of compliance.

Innovators invariably see their only recourse as one of long and costly patent infringement proceedings.

The CIPC report recommended that the Canadian government provide innovative drug companies with an effective right of appeal in NOC proceedings in order to "restore fairness and balance" to Canadian patent law. In their response, the CGPA rejects this recommendation on the basis that pharmaceutical patentees already benefit from other IP rights in Canada, rights such as the "automatic" 24-month injunction, available under the NOC Regulations.

The CGPA response does not mention the fact that only a limited subset of patents related to a drug that meet specific listing criteria are eligible for enforcement under the NOC Regulations; nor that 24 months is the maximum length of stay afforded by the NOC Regulations: in practice, this is now around 16 months (Health Canada Therapeutic Products Directorate Statistical Report, 2009) unlike the US Hatch-Waxman regime (upon which Canada's NOC Regulations are loosely based), which provides for a stay of up to 30 months. NOC proceedings are intended to operate in tandem with the Minister of Health's review of the generic drug submission; the generic drug may, therefore, not be approved for a number of months at the outset of the stay. A successful generic can also be compensated for any sales lost during the period it was kept out of the market by the stay (the NOC Regulations, section 8).

The CGPA also states, correctly, that injunctive relief is "rarely granted by Canadian courts." In Europe, however, injunctions are granted in pharmaceutical cases without the need for any kind of linkage or Hatch-Waxman type regulations. (For example, the EU adopted a 2004 regulation (directive n°2004/48) to reinforce the efficacy of interim measures and remedies against potential infringements.) International trade obligations under TRIPS and NAFTA require Members to provide "prompt and effective provisional measures" to prevent the infringement of IP rights; without the stay provided by the NOC Regulations, Canada might find itself in an awkward position (TRIPS, article 50, NAFTA, article 1716).

In our view, all parties should have a right of appeal simply as a basic procedural right. The fact that a party already holds some rights can be no justification for refusing it another right.

The CIPC report did not recommend an "additional" right of appeal for innovators—only that innovators have the same opportunity to appeal an adverse decision under the NOC Regulations as a generic drug manufacturer. Based on an average 16-month NOC trial period, an innovator appeal could usually be heard within the existing timeframe of the 24-month stay.

Extend the term of data protection

Data protection safeguards the considerable investment undertaken by pharmaceutical innovators in developing drug submissions and clinical trials in order to obtain a new drug approval. A new drug submission can contain as many as 100 to 300 volumes of data.¹

The CIPC report recommended that the Canadian government adopt additional data protection consistent with the level provided in the US and Europe in order to maintain Canada's industry competitiveness.

The CGPA states in its response that Canada's data protection laws are adequate in their current form.

Canada is required to provide data protection in order to comply with its international treaty obligations under NAFTA and TRIPS. Under existing data protection laws in Canada, eligible "innovative" drugs have eight years of market exclusivity. A six-month extension is available if eligible pediatric trials are submitted within the first five years of the eight-year term. A generic manufacturer is prohibited from filing a comparative submission for an "innovative" drug until year six of the eight-year period. No generic marketing approval will be issued until the full eight-year term has expired.

Data protection in Canada, however, is only available to a limited subset of new drugs. Only a medicinal ingredient being approved in a new drug for the first time will be eligible for data protection in Canada (Health Canada, March 2010). New combination drugs are not eligible for data protection unless the drug contains at least one eligible "innovative drug." Important new drug uses, formulations and dosage forms are also not eligible for data protection. Any eligible "innovative drug" must also be marketed in Canada in order to retain data protection.

The CGPA states that "the five-year period contained in NAFTA represents the norm for data exclusivity in the US." NAFTA in fact states that "a reasonable period shall normally mean not less than five years" from the date of the first marketing approval (NAFTA, article 1711(6)). Five years is the minimum threshold of data protection. The US exceeds the five-year NAFTA minimum by providing a five-year base period, with the possibility of a six-month pediatric extension, and/or a three-year extension for new uses, dosage forms etc. The US also provides 12 years of data protection for eligible biologics in recognition of the risk and expense involved in developing large-molecule drugs.

EU data protection laws provide for 10 years of market exclusivity, with the possibility of a one-year extension for new uses, dosage forms etc. A six-month patent term extension is also available for the submission of pediatric data.

The EU regime is based on the same scheme as the Canadian one: generic applicants can only apply for marketing authorization two years before the expiry of the data protection term. In the EU, however, the "no-filing" period is extended by a further two years to eight years after the first marketing of the product.

The US and Europe also have orphan drug legislation. Orphan drug programmes consist of funding grants and market exclusivity terms to encourage the development of drugs for rare diseases. Eligible orphan drugs can qualify for seven years of market exclusivity in the US. In Europe, up to 10 years of commercial exclusivity is granted to the first orphan drug qualified in its area, in addition to various other advantages (reduced administrative costs, etc.), subject to a reassessment after a first period of five years. Canada has no such legislation.

Canada's data protection law remains in its infancy compared to the US and Europe (and following the failure of an attempt, in 1995, to enact data protection). Canada provides shorter terms of data protection, no possibility of extension for new indications, dosage forms etc., and no orphan drug legislation. This is a significant failure, particularly for biologic drugs which are widely regarded to be the future of the industry.

In our view, there is no firm basis for rejecting CIPC's recommendation that Canada's laws be reformed in this area.

Implement patent term restoration

It takes an average of US$1 billion and 11 to 13 years to bring an innovative medicine to market.

Patent term restoration (PTR) compensates drug manufacturers for the patent term lost while drugs undergo years of development and regulatory approval. It is not uncommon for new drugs to enter the Canadian market with less than half of the original 20-year patent term remaining. PTR is consistent here with NAFTA, which provides that a party may "extend the term of patent protection, in appropriate cases, to compensate for delays caused by regulatory approval processes." (NAFTA, article 1709, section 12.)

Canada does not offer PTR.

The CIPC report recommended that Canada implement a five-year PTR in order to increase global competitiveness. In their response, the CGPA proposes that Canada already provides pharmaceutical IP holders with sufficient advantages and does not need to introduce PTR (but could instead allocate more resources to the government approval process).

In the US, PTR aims to restore patent term lost in the drug development and regulatory approval phases. The term of restoration cannot exceed five years and cannot extend the total patent life beyond 14 years. Only one patent per product is eligible for extension.

In the EU, PTR is provided in the form of "supplementary protection certificates" and aims to restore patent term lost in the regulatory approval phase, as it is calculated on the basis of the difference between the date of the patent application and the date on which the first marketing authorization was granted. The term restored cannot exceed five years, and cannot result in more than 15 years of market exclusivity. As in the US, only certain patents are eligible for PTR.

The PTR regimes adopted by Canada's major trading partners contain caps on exclusivity that do not provide incentives for innovators to delay drug approval and do not apply to multiple patents for the same drug.

PTR is widely available in Australia, Korea, Israel, Japan, Russia, the US, and throughout the EU (Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom). Only countries with rather less rigorous track records in IP enforcement do not offer PTR: India, China, Brazil – and Canada.

In our view, CIPC's recommendation that PTR be implemented in Canada is valid. This reform will close an increasingly embarrassing gap in Canada's IP rights regime.

Conclusion

The CGPA's response to the CIPC report fails to acknowledge the complex legal, regulatory and trade obligations that underpin Canada's pharmaceutical IP rights. The Canada–EU CETA negotiations are, like all trade negotiations, seeking to increase the flow of trade and investment by concluding an effective trade agreement that grants reciprocal rights and protections to enterprises from the parties to the trade agreement. In the past, Canada changed its pharmaceutical IP regime to conform to reciprocal obligations in trade agreements entered into by Canada, such as the NAFTA and the WTO-TRIPS. Bringing Canada's pharmaceutical IP regime up to EU standards will enable the parties to respect the principle of reciprocity that is essential if CETA is to increase Canada–EU trade and investment, including trade and investment in pharmaceuticals.

The CGPA refers in its response to Canada's classification as a Tier 1 jurisdiction with one of the strongest IP systems in the world (Taylor Wessing 2011 Global Intellectual Property Index).

Alongside Canada's patent ranking in the Index was the following commentary (not picked up by the CGPA):

Every country has an IP regime with its own subtleties and complications. In our view, the concept of subtle differences cannot really justify the three major discrepancies in Canada's IP regime highlighted by the CIPC report. As Canada moves towards closer trade relations with the EU through a trade agreement based on the principle of reciprocity, it must provide an effective appeal right for innovators in NOC proceedings, strengthen its data protection and implement patent term restoration. Where the pharmaceutical sector is concerned, Canada will only reap the benefits of these important trade relations by creating a level playing field.

With competitive resources to offer the pharmaceutical industry in terms of its funding, prominent universities and research opportunities, Canada has every reason to strive to be a leader on IP in the life sciences sector. Reform of its IP regime will benefit all of Canada.

Footnotes

^{1. Canadian Generic Pharmaceutical Association v. The Minister of Health et al. and Apotex Inc. v. Governor in Council et al., 2009 FC 725 at para. 15, aff'd 2010 FCA 334.}

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