Canada: Trade-Driven Changes Coming to Canadian Patent and Data Protection Laws? Canada-European Union Trade Negotiations

Last Updated: January 11 2011
Article by Alexander Stack

This article is distributed with permission from Update and was originally published in their May/June 2010 issue.

Canada and the European Union (EU) are negotiating an intellectual property (IP) agreement, as part of a broader free trade agreement, which may have great impact in the pharmaceutical and related industries. The Comprehensive Economic and Trade Agreement (CETA) is potentially the most important Canadian IP treaty since the North American Free Trade Agreement (NAFTA).

Negotiations for trade deals differ from lobbying legislators, and results in areas such as data protection or patent term extension that could not be reached by legislation may be reached through treaty. The Canadian government, and perhaps the EU, are still open to submissions, and interested parties should consider communicating their interests before negotiators' positions crystallize. American companies should also consider whether the CETA will bolster their European competitors' legal and strategic position in Canada at their expense.

Intellectual Property and the Trade Negotiation Context

Different results from legislative change? Canada and the EU have been working towards the CETA since 2008. Preparatory documents clearly show both governments' intent that IP will be addressed in the final agreement.

The EU's initial negotiating position strongly supports its international pharmaceutical industry—primarily by requesting data protection and patent term extension—and has implications for the medical device and food industries as well. Generally, the Europeans are requesting that Canada adopt European standards.

Calls for Canada to adopt patent term extension and enhanced data protection, including pressure from the United States and Europe, are hardly new. So what is different this time? Why might this process result in substantive change where past efforts have failed?

First, treaty negotiation is different from domestic lawmaking. Domestic legislative change is often marked by interest groups competing to negotiate trade-offs in respect of a specific issue through government officials or interested legislators. In the trade context, states are negotiating over a broad range of issues through trade officials.

Put simply, Canada could trade an agreement on IP that satisfies European interests in return for agreement in a separate area that advances Canadian interests. Also, trade officials may give a particular subject area less weight than the officials directly responsible for that area—i.e., a trade official may regard patent and pharmaceutical regulation as simply one area among many that he has to balance, while an official responsible for drug approval may regard pharmaceutical regulation as of fundamental importance.

Interest groups still play a key role in the trade context by affecting—maybe even determining—what a state regards as its self-interest. In the past, industry representatives have sometimes been at the table with the trade officials during negotiations. However, the groups that influence a state's trade interests may be different from those that influence specific domestic issues. Years of building credibility, trust and influence with patent or pharmaceutical policy officials might be of little benefit when the key decisionmakers are trade officials. Trade officials' perceptions of domestic interests may differ from decisionmakers with responsibility for specific fields, and trade officials may be less influenced by interest groups perceived as "foreign."

Second, this is a negotiation with the EU. The EU is much larger and more influential than other countries with which Canada has recently negotiated free trade agreements.

If past behavior is a guide, the EU will aggressively pursue the interests of its international pharmaceutical industry, and has the negotiating clout to move Canada towards its positions. For its part, Canada seems intent on securing a deal "deeper and broader" than NAFTA, and may be willing to make significant concessions to reach agreement.

Third, it is 2010. Europe will be seeking concessions taking the present system as the baseline for comparison. A concession by Canada that may have been politically unacceptable in the Canada-U.S. Free Trade Agreement (CUSFTA) and NAFTA negotiations in the late 1980's and early 1990's may now be just one of many topics to be negotiated.

What's on the Table— the Initial Negotiating Positions

A review of the draft chapter on IP reveals that the EU is interested in addressing the entire range of IP topics, from copyright, patents, trademarks and designs to standards for enforcement and border controls, while Canada has minimal demands. The following are the topics on the table of the greatest interest to the food and drug industry.

1) Data protection

This is likely to be a contentious topic, and is one of the few areas where Canada has submitted alternative drafting language to accompany the European proposals.

Canada's data protection regime was amended in 2006 to provide for effective data protection for innovative drugs—"a drug containing a new medicinal ingredient not previously approved in a drug by Health Canada and not a variation of a previously approved drug." The regime gives eight years of exclusivity, and for the first six years a generic is prevented from filing an abbreviated submission—" 6 plus 2" years of exclusivity.

The EU position is that data protection should apply to "data submitted for the purpose of obtaining an authorization to put a pharmaceutical product on the market." In other words, the EU position would eliminate the innovative drugs qualification, and grant data protection widely. Canada, in contrast, would limit data protection to "new chemical entities" where the origination of such data "involves considerable effort."

The EU also wants to extend Canada's data protection regime to 8+2 years rather than the present 6+2. Data protection is to be extended to 11 years if the holder of the basic authorization obtains another authorization for new therapeutic indications of significant clinical benefit compared to existing therapies.

The Canadian position is that data protection should be a minimum of five years, and that "subject to this provision, there shall be no limitation on any Party to implement abbreviated approval procedures ... on the basis of bioequivalence and bioavailability studies." This would write into treaty a 1999 ruling of the Federal Court of Appeal allowing Health Canada to grant marketing approval for generics based on bioavailability and biosimilarity comparisons to the brand name drug within the data protection period as long as it does not explicitly "rely" on the protected data.

2) Patent term extension – supplementary protection certificates

Canada does not have patent term extension, whether tied to delays in granting patents or for delays in granting authorization for the marketing of pharmaceuticals.

Unsurprisingly, the EU would like Canada to implement patent term extension, tied to marketing authorization, through the granting of "Supplementary Protection Certificates." Canada has suggested no relevant language.

Whatever one thinks of patent term extension, the proposed European mechanism seems unrealistic—an extension for "the period that elapses between the filing of the application for a patent and the first authorization to place the product" on the market minus five years (to a maximum of five years). This seems ill-suited for the Canadian context, where there have been cases where the marketing approval comes after the expiration of the first relevant patent. Without the addition of a mechanism to reflect the diligence of the patentee in pursuing marketing authorization, the proposed language seems to be a free pass for applicants to dawdle.

3) Right of Appeal for Innovative Pharmaceutical Companies from Patented Medicines (Notice of Compliance) Proceedings

Canada has a patent linkage mechanism similar to the United States', where marketing authorization (a "Notice of Compliance" or NOC) is linked to relevant patents owned by the brand name company. Unlike in the United States, in Canada the proceeding to oppose the issue of an NOC is an application rather than an action, and a loss by the brand name company results in the immediate and irrevocable issuance of the NOC. As a result, while a generic company can always appeal from an NOC proceeding, a brand company effectively cannot appeal—the NOC irrevocably issues upon a loss, and further proceedings are moot.

The European proposal would oblige Canada to "ensure that the patent holders and the manufacturers of generic medicines are treated in a fair and equitable way, including regarding their respective rights of appeal." Assuming this means that patent holders should have an effective appeal route, it implies that Canada modify its NOC procedures to either delay the issue of an NOC until all rights of appeal are exhausted or allow an NOC to be revoked if a decision favourable to the generic applicant is overturned on appeal.

4) Data Protection and Patent Term Extension for Plant Protection Products

The leaked EU negotiating position also seeks data protection and patent term extension for "plant protection products," a European term for active substances and preparations that protect plants or plant products against harmful organisms.

If a test or study report is necessary for the marketing authorization of the plant protection product, the EU would like a 10-year period of data protection to apply, starting at the date of first authorization in Canada, to be extended to 13 years for "low risk" plant protection products. Canada's position is to grant data protection for agricultural chemical products identically to pharmaceuticals. The EU and Canada's positions on patent term extension are identical to that for pharmaceuticals.

5) Avoidance of Duplicative Testing

The EU proposals require rules to prevent duplicate safety or efficacy testing on vertebrate animals. Any applicant intending to perform such tests is required to verify that such tests have not already been performed, and if they have "the new applicant and the holder ... of the relevant authorizations shall make every effort to ensure that they share tests..." If no agreement is reached, the new applicant is still entitled to use the test data, but the holder of the authorization is entitled to "a fair share of the costs incurred by him."

6) Border Measures

An irritant in Canadian relations with the United States and Europe is Canadian border measures—measures designed to catch infringing goods at the border before they enter the stream of commerce. The EU is proposing language that would allow customs officials to detain goods suspected of infringing an IP right, either further to an application by a right-holder or on the customs authority's own initiative, even if such goods are merely in passage to another jurisdiction. For example, a drug or active ingredient brought ashore in Vancouver before shipping to the United States could be seized as potentially violating Canadian patent laws even if the product clearly does not infringe any United States law.

7) Right of Information

Rights-holders are often unable to trace counterfeit goods to their source or to detect where the goods have passed in commerce. The EU is proposing a "right of information" which is new to Canada and would provide a valuable new tool for rights-holders seeking to eliminate counterfeit goods.

This right would be applied against a person (a) who was found to be in possession of infringing goods or using infringing services or providing services used in infringing activities, or (b) a person indicated by a person under (a) to be involved in the production, manufacture or distribution of the goods or services. It obliges such a person to provide information on producers, manufacturers, distributors and previous holders of the goods or services as well as the intended wholesalers and retailers, and to disclose information on quantities and prices.

6) Geographical Indications

The EU proposes language to bolster protection for geographical indications― legal protections for marks that link products to a specific location of origin, such as Parma for ham or Champagne for sparkling wine. This is one of the few sections of the draft chapter that reveals sharp differences between the Canadian and European positions, with both parties submitting substantive language. The Canadian position is terse, affirming the parties' obligations under Trade- Related aspects of Intellectual Property Rights (TRIPs) Agreement and creating lists of European and Canadian products entitled to protection under geographical indications. The European position is several pages long, obliging the signatories to provide effective protection for geographical indications (including sections on rights of use, scope of protection and enforcement), and would establish an institution―a "joint committee"―to monitor compliance, share information and "intensifying their cooperation and dialogue on geographical indications."

7) A New Intellectual Property Institution

Finally, the EU has suggested the creation of a new institution (separate from that proposed under geographical indications) with a view to "supporting implementation of the commitments and obligations undertaken under" the IP chapter.

With no details provided, this is clearly subject to further negotiation. However, international institutions designed to monitor compliance, exchange information and promote ongoing dialogue have played a critical role in shaping the development of laws, regulations and international cooperation. Such an institution has the potential for driving IP developments long into the future.

Implications, and Spillover to the United States

In the longer term, an EU/Canada free trade agreement may raise an interest in the United States to come to the table to protect American interests. For example, investor protection mechanisms in CETA could lead to American companies being disadvantaged in Canada compared to their European counterparts. The usual solution is either to conclude an EU/Canada/United States agreement or to amend NAFTA to reflect the contents of the CETA.

Negotiations are ongoing with the next round set for July 12–16. Although discussions are reported to be going surprisingly well, government officials have indicated that they are still interested in feedback from concerned parties, and public scrutiny and criticism of the agreement is just beginning to occur. Companies in the pharmaceutical, food and related industries should monitor developments, consider communicating their interests to responsible officials and be prepared to take advantage of anticipated legal changes if the negotiations progress towards a conclusion.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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