The drugmaker filed what is known as an investor-state dispute which, under provisions of international trade treaties, allows companies to initiate disputes against foreign governments. In this case, Lilly maintains the court decisions violated Canadian obligations under NAFTA, the Trade-Related Aspects of Intellectual Property Agreement and the Patent Cooperation Treaty.
More specifically, Lilly argues that Canada failed to uphold international obligations and allowed generic rivals to challenge its patents for not providing sufficient evidence of a utility. An example would be clinical data. So Lilly (LLY) accuses Canada of expropriation, failing to meet minimum standards of treatment and discriminatory "national treatment."
The claim raises the possibility that the drugmaker may be able to use a private NAFTA tribunal, which is a form of arbitration, to override judicial rulings on patents. The drugmaker maintains this was necessary because Canada violated its rights, but consumer advocates worry the move is a way of thwarting generic competition and, as a result, higher drug prices.
"All domestic avenues of appeal in Canada have been exhausted and the only recourse left to Lilly is to seek arbitration under Chapter 11 (of NAFTA). Lilly did not make this decision lightly," a Lilly statement says. The drugmaker maintains that 17 drug patents were "rendered invalid or unenforceable" under a new judicial standard despite approval by Health Canada.
"The Canadian court decision demonstrates the sharp divergence of Canadian law from Canada’s international obligations and internationally accepted standards. Canada has become an outlier within the Organisation for Economic Co-operation and Development on the core issue of utility in patent applications."
"Lilly believes that Canadian courts have, in effect created new and more burdensome utility requirements that do not exist anywhere else in the OECD and that are offside Canada’s treaty obligations. The Government of Canada has not clarified its legislation in order to bring it into line with international norms and with its treaty obligations."
Consumer advocates, however, maintain that the so-called investor-state system essentially elevates companies to the same level of sovereign governments, and this empowers them to circumvent domestic laws and courts, and directly challenge public interest policies before United Nations and World Bank tribunals. These tribunals are comprised of three lawyers.
"Eli Lilly’s announcement that it will attempt to skirt the rulings of Canada’s courts and directly challenge Canada’s patent policy in a private NAFTA tribunal confirms the alarming threat that the extreme investor-state system poses to access to medicines," says Ben Beachy, research director at Public Citizen Global Trade Watch.
He adds that this "threat" would be expanded under the Trans-Pacific Partnership, which he calls a "NAFTA-style deal that would explicitly expose Canada, the United States, and other countries to sweeping, new patent protections for large pharmaceutical firms like Eli Lilly." He notes that taxpayers foot the bill for any compensation that is awarded.
Among the issues raised by Lilly is expropriation. The drugmaker hopes to convince a tribunal that the language in trade deals bars governments from not only takeovers of actuall physical property, but also intangible property - such as patents - because such a move would diminish the potential for real profits.
As to meeting minimum standards, Lilly would hope for a ruling that interprets trade agreement language to mean that governments must not enact policies that could violate expectations that foreign investors may have had upon investing. Essentially, the drugmaker is arguing that Canadian courts contravened its expectations and violated its protection under due process.
The drugmaker also contends Canada has also violated the NAFTA provision regarding national treatment, which means a government must treat foreign and domestic entities in like circumstances similarly. By invalidating its Strattera patent, Lilly argues Canada gave preferential treatment to Canadian generic drugmakers.
The challenge, which was filed early last month, came to light after the Canadian Department of Foreign Affairs and International Trade published a notice of intent this week (here is the notice).