NAFTA Tribunal rules against Eli Lilly in “promise of the patent” dispute

Apr 28 2017

In a much–anticipated decision on March 16, 2017, a NAFTA tribunal ruled against the pharmaceutical company Eli Lilly and Company, in favour of the Canadian government. Lily had launched the arbitration in 2012 before the International Centre for Settlement of Investment Disputes, seeking compensation for the invalidation of two of its patents by Canadian courts. The patents had previously been invalidated by the Federal Court (upheld by the Federal Court of Appeal) for a lack of utility due to the “promise of the patent” doctrine.

According to the “promise of the patent” doctrine, a court may determine whether the specification of a patent makes a “promise” pertaining to the utility of the claimed invention. If no such promise has been made in the specification, then the inventor need only show that the invention provides a “mere scintilla” of utility. However, if the specification promises a particular use or result, then this must either have been demonstrated as of the application filing date or the specification must provide a sufficient factual basis to enable a skilled person to make a “sound production” that the claimed invention would provide the promised result.

Lilly’s arbitration was brought under chapter 11 of NAFTA and asserted that the doctrine was contrary to NAFTA for several reasons: the doctrine is inconsistent with Canada’s obligations relating to patent protection under Chapter 17 of NAFTA; it gave rise to an unlawful expropriation of Lilly’s assets; and it breaches Canada’s obligation to provide minimum standards of treatment. Lilly stated that the doctrine presented a “radical departure” from previous judicial interpretations of the “utility” requirement under Canada’s patent law.

The tribunal ruled that in principle, a judicial decision is an act by a state and thus subject to a ruling under NAFTA. However, the role of a NAFTA tribunal is not analogous to an appellate court which reviews the legal merits of a lower court decision; rather, a NAFTA tribunal will only award a remedy in exceptional circumstances in which there is “clear evidence of egregious and shocking conduct”. This was not found in the present case.

The tribunal found that the “promise” doctrine did not represent a radical departure from Canada’s traditional utility requirements for patents. Rather, the doctrine arose through normal, incremental and evolutionary changes in the law. The tribunal considered but was unpersuaded by Lilly’s evidence, which included a historical review of administrative guidelines of the patent office purporting to show a change in the patent office’s interpretation of the utility requirements, and statistical evidence which was said to show a dramatic increase in patents invalidated by the doctrine after it was introduced into Canadian law.

The tribunal also rejected Lilly’s arguments that their “legitimate expectations” were violated by the doctrine, that the Canadian courts were arbitrary or discriminatory in applying the doctrine and that the doctrine resulted in expropriation of patent owners’ property. The tribunal stated that the doctrine was justified by the legitimate public policy goal of maintaining the “patent bargain”, particularly for inventions that relate to a new use of a known product or a “selection” of a product from a known class of related products. The doctrine was also justified as a means to discourage overstatement and speculative patenting by inventors. The tribunal also rejected the claim that the doctrine discriminates against pharmaceuticals as a field of technology. They found insufficient evidence that the doctrine discriminates against foreign patent holders (research – based pharmaceutical companies) in favour of a prominent domestic industry (generic drug companies).

The “promise” doctrine is presently the subject of a case which is before the Supreme Court of Canada, and for which a decision is expected shortly. That decision is eagerly anticipated and has the potential to change or at least clarify the law relating to the “promise” doctrine.

Author: Adrian Zahl (former partner)

This article is for information purposes only and does not constitute legal or professional advice.

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Tags: NAFTA, Patents