Canada: Pharmacapsules @ Gowlings - June 2006

Last Updated: June 26 2006

Edited by Jane Steinberg and Ken Clark


  • US Free Trade Deals: Eroding or Enhancing Progress on TRIPS and Health?
  • Reducing the Cost of Canadian Innovation: The Scientific Research & Experimental Development (Sr&Ed) Tax Credit Program
  • Biotech Sector Sees Collaboration Between Indian and Canadian Groups
  • Federal Panel Requests Review of Canadian Commercialization Programs
  • Conference on Public Health Law Association of Local Public Health Agencies Toronto
  • Countries Have not Acted on Canadian Law for Access to Drugs
  • Recent Cases

US Free Trade Deals: Eroding or Enhancing Progress on TRIPS and Health?

In December 2005, WTO Members finally reached agreement on the long-awaited "Public Health" amendment to the Agreement on Trade-Related Aspects of Intellectual Property Rights (known as TRIPS). The amendment had been under negotiation since 2001 and is to come into force in December 2007. It allows poor countries to import copies of patented drugs produced under compulsory licence (i.e., without the permission of the patent holder) in order to address public health problems such as HIV/AIDS, tuberculosis and malaria. Previously, drug production under compulsory licence could be authorized provided it was predominantly for the supply of the domestic market, with the result that developing countries without capacity to manufacture their own drugs had difficulty importing cheaper generic medicines.

The United States is now being accused of trying to roll back this achievement by requiring developing countries to sign bilateral free trade agreements (FTAs) that prolong U.S. drug makers' patents and limit the circumstances where patents can be bypassed. The U.S. flatly denies these accusations. Responding to criticisms about the draft US-Thailand FTA, the United States Government maintains that the FTA will fully respect Thailand's rights under the TRIPS amendment and denies that the FTA will raise the price of generic medicines in Thailand. The United States also claims that it has not proposed extension of patent rights; rather, it has requested Thailand to clarify practices with respect to data protection. Thai law already provides for 20 year patents, the same protection required under the proposed FTA. Moreover, data protection is currently required under TRIPS. The United States also emphasizes the need to provide incentives for continuing research and development and the conduct of clinical trials so that second generation HIV/AIDS and other lifesaving drugs will be available in the future.

The ongoing debate underscores the difficult balance that must be achieved between ensuring that patent protection for pharmaceutical products does not prevent people in poor countries from having access to affordable medicines, while at the same time maintaining the patent system's role in providing incentives for research and development into new medicines.

The U.S.-Thai FTA is expected to bring significant economic benefits to Thailand through the elimination of tariffs, liberalization of services including in the telecommunications sector, financial services, and distribution. Strengthening the protection of intellectual property through provisions on data protection could assist Thailand to achieve its stated goal of becoming a regional life sciences hub, as well as complement the expanding clinical research that has been conducted in Thailand in recent years. Indeed, the U.S.-Jordan FTA, which includes an intellectual property chapter covering data protection, could bode well for Thailand. Since the conclusion of the FTA in 2000, there have been 32 new innovative product launches in Jordan, and the Jordanian drug industry has begun to develop its own innovative medicines.

Reducing the Cost of Canadian Innovation:

The Scientific Research & Experimental Development (Sr&Ed) Tax Credit Program

The SR&ED program is a federal tax incentive program that is the largest single source of federal government support for industrial research and development. The SR&ED program gives claimants cash refunds and/or tax credits for their expenditures (such as wages, materials, machinery, equipment, some overhead, and SR&ED contracts) on eligible research and development (R&D) work done in Canada. The tax credits are deducted from a company's tax liability, which subsequently reduces the net cost of the business's R&D activities.

The Benefit to Your Business

Generally, if a business qualifies as a Canadian-controlled private corporation (CCPC) it could earn an investment tax credit (ITC) of 35% up to the first $2 million of qualified expenditures for SR&ED carried out in Canada, and 20% on any excess amount. Other Canadian corporations, proprietorships, partnerships, and trusts can earn an ITC of 20% of qualified expenditures for SR&ED carried out in Canada.

Generally, a CCPC, after applying these tax credits against taxes payable, can receive a 100% refund on remaining tax credits earned at the 35% rate and 40% refund of any excess. However, ITCs earned by a Canadian corporation that is not a CCPC are non-refundable, but may be used to reduce income taxes payable. The ITC earned by a proprietorship or certain trusts may be partially refunded after applying these tax credits against taxes payable.

In the 2006 Federal budget announced on May 2, 2006, the carry forward period for unused ITCs was increased from 10 years to 20 years for taxation years that end after 2005.


To qualify for the SR&ED program, work must advance the understanding of scientific relations or technologies, address scientific or technological uncertainty, and incorporate a systematic investigation by qualified personnel. Work that qualifies for SR&ED tax credits includes:

  • experimental development to achieve technological advancement to create new materials, devices, products, or processes, or improve existing ones;
  • applied research to advance scientific knowledge with a specific practical application in view;
  • basic research to advance scientific knowledge without a specific practical application in view; and
  • support work in engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, or psychological research, but only if the work is commensurate with, and directly supports, the eligible experimental development, or applied or basic research.

The following activities are not eligible for benefits under the program:

  • social science and humanities research;
  • commercial production of a new or improved material, device, or product, or the commercial use of a new or improved process;
  • style changes;
  • market research or sales promotion;
  • quality control or routine testing of materials, devices, products, or processes;
  • routine data collection;
  • prospecting, exploring, or drilling for or producing minerals, petroleum, or natural gas; and
  • development based solely on design or routine engineering practice.

Successful filing of eligible SR&ED claims will keep more money in your business. For more information on whether your business would be eligible to reduce its corporate tax liability under the SR&ED program, and for assistance in defending and maximizing your SR&ED claim, contact one of the members of the Gowlings National Tax Group.

Biotech Sector Sees Collaboration Between Indian and Canadian Groups

A Memorandum of Understanding has been signed between India's Association of Biotechnology LED Enterprises and Canada's National Biotechnology Association, BIOTECanada. The Canadian biotech sector had revenues of nearly $4 Billion in 2005 and India's biotech industry generated $1.25 Billion in revenue in 2005.

Under the Memorandum of Understanding, the two groups plan on a number of collaborations, including improving and producing selected bio-materials for agriculture and industry, with respect to biological reactors, and to train and exchange human resources in these areas.

For more information, please see:

Federal Panel Requests Review of Canadian Commercialization Programs

A federal panel has indicated that the government should better fund commercialization and should better organize the current 150 programs designed to help companies commercialize research, which is currently running with little integration between many of the programs.

Conference on Public Health Law

Association of Local Public Health Agencies

Toronto – November 5-7, 2006

The Association of Local Public Health Agencies is sponsoring a very timely conference on Public Health Law. The conference will be held November 5 to 7, 2006, in Toronto. The theme of the conference is The Role of Law in Promoting and Protecting the Public's Health . The aim of the conference is to promote an enhanced understanding of the application of various legal and policy instruments in public health in Canada. The conference should also foster inter-professional and inter-sectoral linkages across disciplines for the purpose of strengthening the relationship between the law and public health.

The Program features several leading authorities on public health law. A particularly interesting Panel will include five judges who have led public inquiries into public health issues: Laing (North Battleford water); Haines (Ontario Meat Inspection); O'Connor (Walkerton); Campbell (SARS); and Krever (Tainted Blood).

There will be sessions on Environmental Health Law, Foodborne Diseases, HIV/AIDS, Drug Law Reform and Health Information Privacy.

Countries Have not Acted on Canadian Law for Access to Drugs

Bill C-9, implementing a WTO Decision to assist in access to medicines in developing and least developed countries, passed with unanimous consent in May 2004 and came into force May 2005. However, no countries have yet signed up for access under the program. Only one drug firm, Apotex, is reported to be working on a generic drug to take advantage of the law.

For more information, please see:

Recent Cases

Abbott v. Apotex; March 15, 2006; 55.2 Proceeding; Interlocutory Motion

- Court granted motion to disqualify affidavit of expert witness for generic company as the same expert had received confidential information and litigation strategy from the innovator in respect of a different generic company's attack on the validity of the same patent

- the Court factored into its decision the risk that that information would be disclosed; the risk of prejudice; and that there was no evidence that the innovator had been attempting to retain experts to prevent them from testifying for the opposing party

The full text of this decision can be found at:

Axcan v. Pharmascience; April 26, 2006; 55.2 Proceeding

- prohibition denied due to the patent being invalid as claiming a method of medical treatment

- the Court held that the dosage portion of the claim was an essential element, thus the patent was not invalid due to anticipation by a prior publication

- however, the Court found that patent claimed a method of medical treatment as it claimed a dosage based on a patient's weight, not a dosage in a capsule, and thus was not a vendable product

Merck v. Apotex; April 26, 2006; Infringement Action

- the Court held that the innovator's patent was valid and infringed

- the patent at issue was one of a number of divisionals from an original genus and two of the parties had already litigated the validity of one of the other divisionals. The Court found that earlier litigation precluded the litigation of new grounds of invalidity in this proceeding.

- in the event that decision was overturned, the Court found that the patent was not invalid for delay, improper divisional or double patenting

- certain lots of medicine were found exempt from infringement under s. 55.2(1) of the Patent Act , as being needed for submission of information to government authorities; and as part of a "fair dealing" exemption for the use in ongoing research and development of alternate formulae and alternate techniques for tablet making.

- due to the fact that the innovator stopped marketing the product; and took no steps to match price or compete in other ways, upon Apotex entering the market, they were not entitled to elect an award of profits

- in separate reasons, costs were awarded under the high end of Column IV of the tariff; one set for both plaintiffs

- a stay of injunction was not granted pending appeal to the Federal Court of Appeal due to an undertaking provided by the innovator

The full text of the decision on the merits can be found at:

The decision relating to costs can be found at:

The decision relating to the stay can be found at:

Abbott v. Ratiopharm; May 18, 2006; Appeal of Merits Of 55.2 Proceeding

- at trial, the application for prohibition was dismissed on the basis of non-infringement of a claim to the medicine itself. Although the patent claimed a polymorphic form of the medicine that was necessary to produce the form being sold, the Court held that as the claims were essentially to an intermediate, infringement could not be determined under the Regulations .

- the Court of Appeal overturned that decision, and found that if the generic product passes through the claimed polymorphic form, an allegation of non-infringement would not stand

- the Court of Appeal then considered the validity of the patent, and found the patent to be invalid due to anticipation. As a person following the prior art to make another form of the medicine would inevitably make the claimed form of the medicine, the patent is anticipated.

- the remaining allegations of invalidity and non-infringement in respect of two other patents were upheld

The full text of the decision can be found at:

Johnson & Johnson v. Arterial Vascular Engineering; May 23, 2006; Infringement Action – Appeal of Interlocutory Motion

- at trial, the Court had granted summary judgment due to payment of patent fees at the wrong scale. The appeal was allowed and the motions for summary judgment were dismissed.

- since the decision of the Motions Judge, the Patent Act had been amended to allow "top-up" payments to be made with the retroactive effect of recognizing the payments as if they had been made correctly initially.

The full text of the decision can be found at:

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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