Canada: Canada-EU Free Trade Deal: Intellectual Property Issues For The Pharmaceutical Industry

Context

Canada and the European Union (the "EU") have signed a tentative deal to open markets and drop nearly all import taxes on everything from food to cars. Under the Comprehensive Economic Trade Agreement (the "CETA") and NAFTA, Canada will have preferential access to more than half of the world's economy. The agreement also provides for working groups to look at non-tariff barriers — regulations on health and sanitation, for example — that interfere with trade.

Such an economic agreement with the EU will provide Canadian pharmaceutical companies with preferential access to a market of 503 million consumers. CETA shall exceed the scope of the North American Free Trade Agreement (which is part of "first generation" series agreements), and inscribes itself as part of a new series of "second generation" agreements. CETA, as the agreements of first generation, continues to cover trade in goods and services. However, in the second generation agreements, added emphasis is placed on dismantling non-tariff barriers such as public procurements, the protection of IP rights, competition, mutual recognition of professional qualifications, sustainable development, environment, education and investment. This agreement will allow EU companies to compete with US exporters on the Canadian market by leveling the playing field, in addition to benefitting from preferential treatment going beyond NAFTA.

Main differences between Canada and the EU regarding IP

With respect to the protection of IP rights, CETA establishes standards which supersede those of the Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRIPS"). For instance, the protection of IP rights has been particularly strengthened by extending the length of protection. In this respect, the EU and Canada have different levels of protection, as summarized in the following table:

In Canada, the patent's term was increased from 17 to 20 years in 1989 to comply with Canada's international commitments (including TRIPS¹, which provides for a minimum of twenty years of protection). However, in practice and especially in the pharmaceutical industry, the length of commercial exploitation of patents is actually reduced due to clinical trials and obtaining the notice of compliance ("NOC"). In fact, the commercial life of a patent for an innovative drug is about ten years on average: which is half the term of patent protection in Canada. The approval period for a patent application can take four years and on average, it takes six years to complete the clinical trials and obtain a NOC. Note also that such delays are higher than in other industrialized countries.

In Europe, the patent regime takes into account the "commercial" shortening of the patent lifespan resulting from the delays in obtaining an authorization to commercialize (the "AC") before the products are put on the market. In order to promote research and development of innovative drugs, the EU compensates for the loss of time caused by the administrative authorization process through the "Certificate of Complementary Protection", which can extend the lifetime of a patent for a maximum of five years where the application meets certain criteria. The Canadian regime does not provide for such an extension on patent protection. 

In addition, the EU regime provides for a ten year protection period on the clinical data collected by innovative pharmaceutical industries on the condition that they comply with their obligations under the AC. This protection covers data collected by a company during its clinical trials.  However, after a period of eight years, the clinical data pertaining to the original drug can be used to prepare an AC request by the generic industry, which can then be approved at the expiration of the ten year protection period. Furthermore, an additional protection of one year is available to the original drug manufacturer if it can demonstrate that during the initial eight years of commercial exclusivity it had obtained an AC for one or several new therapeutic indications.

Furthermore, to encourage the pharmaceutical industry to develop their research with respect to drugs intended to treat rare diseases and "orphan" drugs, the EU chose to grant innovative companies a full exclusivity period of ten years.

Thus, the level of protection is higher in Europe and much emphasis is placed on protecting R&D results.

The differences benefit the Canadian generic industry. Indeed, the lower level of protection in Canada actually benefits the generic industry and its competitiveness on the European market, since it allows companies to commercialize their generics before their European competitors. However, while this latter segment of the pharmaceutical industry stands to benefit, the innovative companies remain adversely affected by the Canadian regime as the comparatively lesser duration of protection limits their commercial exclusivity in Canada. Since Europe has longer protection of intellectual property rights, the generic drugs produced by a European company are available on the European market at a later time in comparison to Canada.

Negotiations requirements of the EU

During negotiations, the EU had made three requests: (1) An extension of the legal duration of patents; (2) The duration of the exclusive data protection must expand the scope of its application and shall be extended to at least ten years from the issuance of the Notice of Compliance Regulations (the "NOC") and to at least eleven years if, during the eight first years following the issuance of the NOC, the innovative pharmaceutical company obtains an authorization to process one or several new therapeutic indications; (3)The reinforcement of patent holder rights under the NOC regulations by offering a right of appeal of any Court decision granting NOC to commercialization of a generic drug.

It will be interesting to see if the provision of the final text, when it is published, will include such requirements. Meeting these EU requirements would therefore in turn require many modifications to the Canadian legislation, namely the Food and drug Regulation, the Notice of Compliance Regulations and the Patent Act. It can possibly lead to the creation of new regulations supporting those modifications.

Conclusion

The CETA can significantly modify the Canadian IP landscape for the pharmaceutical industry. This has brought about  significant controversy regarding the balance between the protection granted to patent holders on one side and the accessibility (in terms of price) for the consumer on the other side.

From the innovative pharmaceutical industry's perspective, changes leading to an extension of the exclusive commercialization period would allow it to better absorb the cost of research. This would in turn represent an incentive for innovators to push their research even further. This might promote greater investment in R&D in Canada. However, this hypothesis is tempered by the fact that according to some observers, there is no direct correlation between an extension of IP protection and increased investment in R&D. 

Nevertheless, this extension of the IP protection duration would be a significant challenge for the generic industry in Canada. Similarly, the delay in the commercialization of the generic products will lead to a rise in cost for medication and will increase costs for provincial authorities, which bear this burden since they will have to wait longer before having access to generic drugs.

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Footnote

1. The WTO Agreement on TRIPS, negotiated during the Uruguay Round, which took place from 1986 to 1994, introduced, for the first time, rules relating to IP in the multilateral trading system. Section 33 requires a minim of 20 years protection for patents.

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