On March 17, 2017, a NAFTA tribunal unanimously ruled that Canada did not violate NAFTA Chapter 11 provisions providing for minimum standards of treatment and protection against expropriation of the property of Eli Lilly when Canadian courts ruled against Lilly in two patent cases based on the so-called "promise doctrine." Lilly had argued that the promise doctrine, under which a patented invention must work as promised or else be held invalid, was a departure from international and pre-NAFTA Canadian patent law.
The NAFTA tribunal found no merit to Lilly's claims. The tribunal was unwilling to shut the door to the possibility of a NAFTA violation based on a radical change in domestic law. However, the tribunal set a high threshold for liability, even while accepting that under certain circumstances, challenges to judicial decisions can ground a NAFTA challenge. However, such challenges should be successful only in very exceptional circumstances, in which there is clear evidence of egregious and shocking conduct by the judiciary. The tribunal in this case refused to question the Canadian judiciary's own interpretation of pre-NAFTA patent law and found that changes to patent law were incremental and evolutionary.
Despite Canada's success, trade pressure from the U.S. regarding the promise doctrine is unlikely to let up. During the March 14 Senate questioning of Robert Lighthizer — President Trump's appointee for United States Trade Representative — Senator Orrin Hatch asked Lighthizer what he will do to ensure that Canada's patent standards are in line with international obligations. Lighthizer indicated that he would place a high priority on strong IP enforcement for trading partners, including determining how to use all appropriate trade tools to address Senator Hatch's concerns.
This exchange suggests that the U.S. Government may be willing to challenge Canada's promise doctrine as a trade violation, possibly before the WTO. Alternatively, the issue may arise in NAFTA renegotiations, just as it did in early TPP negotiations. Both PhRMA and the U.S. Chamber of Commerce have criticized the tribunal decision, and both groups can be expected to push for U.S. intervention on this issue.
Criticism of Canadian law by these industry groups may be misplaced, however, especially since the Federal Court of Appeal made it more difficult to invalidate a patent for lacking utility in its 2013 decision in Sanofi v Apotex. The Supreme Court has yet to weigh in. In view of the industry's level of alarm on this issue, clarity regarding Canada's approach to the utility requirement in patent law would be desirable. The Supreme Court of Canada's decision in AstraZeneca v Apotex, ruling on this very issue, will be very timely.
