In the pharmaceutical sector, patent systems are concerned with balancing the interests of innovator drug companies, the public and generic manufacturers. Patent systems are aimed at ensuring innovators are rewarded for their investment in drug research and discovery; yet, public interests necessarily dictate that affordable medications are available. Thus, patent systems must strike a balance between rewarding the innovators and allowing subsequent competition from generic manufacturers.

A limited exemption from infringement for regulatory approval activities is provided for in most patent systems in an effort to address the long regulatory approval process faced by generic manufacturers. In Canada, this regulatory-approval exemption is codified in section 55.2(1) of the Canadian Patent Act. Under this provision, the Canadian patent system excludes activities that would otherwise be considered to be infringing, so long as these activities are "solely for uses reasonably related to the development and submission of information required under the law of Canada, a province or a country other than Canada that regulates the manufacture, construction, use or sale of any product."

The exemption is relatively broad, extending to all types of patentable products where pre-market regulatory approval is required by law, and is applicable to activities performed in Canada for a submission to any foreign regulatory agency, such as the U.S. Food and Drug Administration, and also covers activities carried out by third parties who assist the entity seeking regulatory approval, provided that the activities of such third parties are solely for uses reasonably related to the development and submission of the required information.

Many countries have statutory provisions that are similar to section 55.2(1) of the Canadian Patent Act to provide generic manufacturers the ability to begin developing the necessary information to obtain regulatory approval in advance of the expiry of the innovator's patent.

For example, in the European Union, Directive 2004/27EC of March 31, 2004 established a similar regulatory-approval exemption, providing manufacturers of generic medicines with the freedom to conduct the necessary trials and studies for making a marketing authorisation application for a generic medicine using the abridged application procedure, without fear of patent infringement. Adoption of this Directive at the national level has not been uniform. The scope of adoption by Member States varies from those Member States choosing not to implement such a provision, as they consider their national laws to be in compliance with the Directive, to those Member States that have implemented the Directive. The level of implementation of the Directive, amongst those Member States that have chosen to implement the Directive, however, has not been consistent and ranges from implementing the Directive at its bare minimum to implementing a broader provision than that set out in the Directive.

The U.S. also has a regulatory-approval exemption (35 U.S.C. §271(e)(1)) that bears some similarity to Canada's exemption in that it is not an infringement "to make, use, offer to sell, or sell within the United States or import into the United States a patented invention ... solely for uses reasonably related to the development and submission of information under a Federal law ...". Notably, the U.S. exemption is considered to be narrower in scope than Canada's exemption as it only applies to regulatory approval of medicines for human and veterinary uses.

The commercial advantage provided to generic manufacturers by such regulatory approval exemptions is not insignificant in expediting entry of a generic drug to market. By allowing a generic manufacturer to develop and submit the necessary information required to obtain regulatory approval in advance of the expiry of the innovator's patent, the generic drug can potentially be marketed as soon as the innovator's patent expires. In this way, the generic manufacturer is compensated for the delay caused by the lengthy regulatory approval process.

In contrast to the situation in Canada, the U.S. and the European Union attempt to find a balance between innovation and the regulatory approval exemption. This equalizer comes in the form of patent-term extensions designed to compensate innovators for the effect of lengthy clinical trials and regulatory approval processes on their patent term. Thus, a balance is arguably found between the innovator and generic manufacturer.

Canada, on the other hand, does not offer innovators the compensatory benefit provided by patent-term extensions. This imbalance in Canada's patent system has attracted criticism and raised points of contention among trading partners. In fact, Canada is currently being pressured to become more in line with the U.S. and the European Union in this regard (see Emma Macfarlane and Scott Foster's article in this issue entitled "Time for Change? – Potential Impact of Canada's Trade Negotiations on Pharma Patents"). Should Canada adopt a patent-term extension scheme, balance between innovation and the regulatory approval exemption may soon be achieved.

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