Canada: Canada-Europe Free Trade Agreement: A New Prescription For Drug Patents In Canada

On October 17, Canadian Prime Minister Stephen Harper flew to Brussels to conclude a Comprehensive Economic and Trade Agreement ("CETA"), or free trade deal, with the European Union and its 28 member countries. The EU is a market of 500 million people; CETA, if ratified, could be more significant than NAFTA, the North American Free Trade Agreement between Canada, the United States and Mexico, which came into effect in 1994.

Why CETA Matters to Canadian Insurers and Consumers

The actual draft of CETA has not yet been released, and its implementation will depend upon legislation and regulations which are likely years away from being written. However, governments, prescription drug insurance plan administrators and Canadians who pay for their own prescription drugs will want to pay close attention to CETA's drug patent provisions, which were among the main sticking points in the lengthy negotiations between Canada and the EU.

In Canada, brand-name and generic drugs must meet stringent safety, efficacy and quality standards and cannot be sold without federal government approval in the form of a "notice of compliance" or "NOC". Brand-name drugs are approved on the basis of clinical trials demonstrating safety and efficacy for the proposed uses. Generic drugs are approved on the basis of clinical trials demonstrating bioequivalence to the branded product.

Governments around the world try to balance incentives for the creation of new drugs, usually through the time-limited monopolies provided by patents, against the need to have less expensive generic equivalents brought to market as quickly as possible. In Canada, prior to 1993, the federal government's drug approval process focused exclusively on safety, efficacy and quality, without regard to patent considerations. That all changed in 1993, when the government introduced so-called "linkage" regulations – the Patented Medicines (Notice of Compliance) (or "PMNOC") Regulations – that injected patent considerations into the generic drug approval process. Canada joined a fairly small club of countries that have patent linkage regimes – the U.S. does, but the EU and Japan do not.

Challenges for Pharmaceutical Companies in Canada under PMNOC Regulations

Under the PMNOC Regulations, a brand company lists patents relevant to its products on a public "Patent Register". A generic company that wishes to obtain an NOC for its version of a patented drug must notify the brand company that it has submitted an application for an NOC to Health Canada. The generic company must allege that each patent listed for that drug is invalid, or not infringed, or both, and state the legal and factual basis for these allegations (or agree to wait until all listed patents have expired). Upon receiving this notification from a generic company, the brand company may then bring a court case which automatically defers the issuance of the generic's NOC for up to two years while the litigation plays out. If the brand company wins, a court order will prohibit the government from issuing the generic company's NOC until the relevant patent expires.

The PMNOC Regulations were modelled on the 1984 U.S. Drug Price Competition and Patent Term Restoration Act (the "Hatch-Waxman Act"). However, the PMNOC Regulations did a poor job of implementing Hatch-Waxman in Canada. The resulting system has left most everyone unhappy. In the early days of the PMNOC Regulations, one Federal Court of Appeal judge, referring to the linkage of the patent system (aimed at protecting private property rights) with the drug approval system (aimed at protecting public health), famously remarked that "the union is not a happy one."

Because cases under the PMNOC Regulations are "judicial review" applications, they are decided on a paper record (voluminous expert opinion affidavits, transcripts of out-of-court cross-examinations and legal argument) with no live witnesses, and the door is left open to a subsequent full-fledged patent validity or infringement action on the same patent between the same parties, but potentially with a different result than the PMNOC case. Judges are called upon to decide technically complex, hard-fought cases on the basis of massive paper records and oral argument by lawyers. Generic companies face a bizarre form of double jeopardy: a generic company that obtains its NOC after successfully arguing in a PMNOC case that a patent is invalid, or not infringed, or both, can be (and often is) sued for patent infringement in a full action in which the very same patent may be found valid and infringed. A brand company that loses a PMNOC case (with the result that a generic company receives its NOC) may find that it has no right to appeal – the issuance of an NOC to the generic company means that the PMNOC Regulations have no ongoing role and the brand company's appeal is moot (though the brand company can still bring an infringement action).

CETA Calls for Drug Patent Extensions in Canada

In 2009, when CETA negotiations began, brand-name drug manufacturers, many of which are Europe-based, saw an opportunity to push for reforms. These companies have argued that they need stronger patent protection in order to encourage R&D work in Canada, even while many of them have closed their Canadian R&D operations and pharmaceutical R&D work is increasingly being carried out in countries like Brazil, China and India that are not known for strong intellectual property protection. It appears that the brand companies have been at least partly successful. CETA will not require the EU to implement patent linkage, but it will require Canada to provide a new form of marketing exclusivity (akin to the European "supplementary protection certificate") that will have a duration of up to two years, to compensate brand-name drug companies for delays in Health Canada's review of their new drug applications. The federal government has said that it is "prepared to address" the increased drug costs that provinces may incur as a result of this new form of intellectual property protection.

In addition, it appears that CETA will require Canada to address in some fashion the "mootness" doctrine that prevents brand companies from appealing an unfavourable PMNOC decision if a generic has received its NOC. If the manner in which this reform is implemented eliminates serial litigation on the same patent, this may be a win-win for all concerned, as brands will have full appeal rights in PMNOC cases and generics will no longer face the "double jeopardy" of winning a PMNOC case only to be sued for patent infringement and found liable. On the other hand, if this reform is implemented in a manner that permits the two-year deferral of generic drug approvals under the PMNOC Regulations to be extended, generic companies, insurers, provincial governments and consumers will be negatively affected.

Important questions remain unanswered. Which patented drugs will be eligible for supplementary marketing exclusivity, and for how long? How, if at all, will provincial governments be compensated for increased drug costs, and what about other payers? How exactly will serial litigation on the same patent be eliminated? As always, the devil is in the details, which will be found in the full text of CETA (when it is released) and in the legislation and regulations that will be written to implement it.

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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