On March 16, 2017, the International Centre for Settlement of Investment disputes rejected Eli Lilly’s claim that the Canadian Courts use of the “promise doctrine” to invalidate patents owned by Eli Lilly and the Canadian government’s failure to correct this by legislation constituted a breach of Canada’s obligations under the North America Free Trade Agreement (NAFTA).
The “promise doctrine” is a judge-made doctrine that sets out what is required to fulfill the statutory requirement of utility under Canadian patent law, In its present form it has three components: 1) identification of a “promise” in the patent disclosure against which the question of whether the specification shows utility or provides basis for a sound prediction of utility is to be measured; 2) the prohibition of post-filing evidence to prove utility and 3) the requirement that pre-filing evidence to support a sound prediction of utility must be present in the patent.
The doctrine first attracted attention of the outside world in 2002 in when in Apotex Inc. v. Wellcome Foundation, the Supreme Court of Canada held that Wellcome’s patent on AZT was invalid for failure to meet the requirements of the doctrine. Courts have frequently held that the specification lacks any basis for sound prediction (typically the presence of actual data) that the promise will be fulfilled and this has been a bone of contention between Canada and its trading partners many of which either have no such utility requirement or permit statements as to the usefulness of an invention that are set out in the specification to be verified by evidence submitted after filing the patent application.
As is common (and controversial), many free trade agreements include provisions for certain private parties to demand arbitration where it is claimed that a country has caused damage to that private party by breaching its obligations under the free trade agreement and that the country cannot plead sovereign immunity as a defense to such an action. Chapter 11 of NAFTA provides for settlement of disputes between a country that is a party to NAFTA and an investor from a different country that is a party to NAFTA to seek arbitration for the settlement of investment disputes.
Eli Lilly brought proceedings before the International Centre for the Settlement of Investment Disputes. It alleged that the Canadian courts’ holdings that Lilly’s patents for its drugs Strattera (this compound being a selection from a broader earlier tent covering a large number of compounds for the same use) and Zyprexa (where the patent was for a new use of an old compound) were invalid deprived Lilly of the fruits of its investment in these drugs. These holdings were based on Canada’s interpretation of the utility requirement to incorporate the promise doctrine which Lilly claimed was in breach of its obligations under NAFTA and international patent law norms that Lilly reasonably expected to be applicable in Canada.
Article 1709(1) of NAFTA requires that each member country shall make patents available for any inventions, whether products or processes, in all fields of technology, provided that such inventions are new, result from an inventive step and are capable of industrial application. Article 1709(8) specifies that patents may be revoked only when: (a) grounds exist that would have justified a refusal to grant the patent; or (b) the grant of a compulsory license has not remedied the lack of exploitation of the patent.
Key issues in the case included:
- Rejection of an assertion by Canada that the demand for arbitration was filed too late. NAFTA Articles 1116 and 1117 establish a three year statute of limitations. Canada argued that Lilly had first suffered damage as a result of the promise doctrine in another case not mentioned in these proceedings and so should have commenced its action within three years of that earliest occurrence. The arbitration tribunal rejected this on the basis that each event causing damage started its own three year period.
- The extent to which a country was responsible for the acts of its courts was considered. NAFTA Articles 1105 and 1110 refer to situations where there has been a denial of justice. The Tribunal decided that because of its conclusion on the substantive law issue discussed below, it did not have to decide what the actual test should be, but noted that there was precedent for finding that this could be the case where the courts breached customary international law or where there was a gross denial of justice, manifest arbitrariness, blatant unfairness, a complete lack of due process, evident discrimination or manifest lack of reasons, but that arbitration proceedings such as the present could not be used as a further tier of appeal in the national court system.
Lilly claimed that Canada’s adoption of the promise doctrine was a dramatic change from earlier interpretations of the utility requirement and that this change affected Lilly’s legitimate expectations in its investment in the drugs covered by the patents in question. In support, it argued that prior to the Apotex Inc. v. Wellcome Foundation decision, the utility requirement in Canada had been an easy one to meet but this had changed dramatically as was shown by statistical evidence and changes in the Canadian Patent Office’s examination guidelines. Canada responded that the change had started in 1979 with the Canadian Supreme Court’s decision in Monsanto v. Commissioner of Patents that patent claims should encompass only what was soundly predictable based on the information given in the specification and pointed to language in a 1981 Canadian Supreme Court decision in Consolboard Inc v MacMillan Bloedel. which had referred to an invention as lacking utility if it will not do what the specification promises it will do and to the fact that Lilly had received official actions referring to the promise doctrine before filing the applications giving rise to the patents under consideration.
The Tribunal concluded:
Taken as a whole, the evidence before the Tribunal shows that Canada’s utility requirement underwent incremental and evolutionary changes between the time the Zyprexa and Strattera patents were granted and invalidated, in particular in the six year period the Claimant highlights (2002-2008). Over these years there was an increased number of utility-based challenges to pharmaceutical patents, which appears to have increased the pace of the law relevant to that sector. The Tribunal also sees that each of the three rules that Claimant sees as part of the promise utility doctrine has a reasonably solid foundation in prior authority, even if there is a question about the extent to which that authority was applied in practice.
Consequently the Tribunal concluded that Lilly had failed to establish its case that its legitimate expectations in its investment in the drugs in question had been violated by the application of Canadian patent law to the patents under consideration.
Finally the Tribunal considered whether the utility requirement of Canadian patent law was arbitrary and discriminatory such as might provide an alternative basis for a challenge under Article 1105 or 1110 of NAFTA. On the question of arbitrariness, the Tribunal concluded that Canada had sound policy reasons for adopting the promise doctrine to help ensure that “the public receives its end of the patent bargain” and that “it encourages accuracy while discouraging overstatement in patent disclosure” Although the requirement that any data to be relied on must be present in the application as filed might create problems for applicants, it could not be said to be arbitrary and had a rational basis in seeking to prevent the grant of patents on mere speculation.
On the question of discrimination, Lilly had argued that the promise doctrine discriminated against the pharmaceutical sector. However, the Tribunal found that the evidence put forward to support this argument was insufficient to enable a reliable conclusion to be drawn.
In the meantime, on November 8, 2016, the Canadian Supreme Court heard oral arguments in AstraZeneca Canada Inc v. Apotex on the question of whether the promise doctrine imposed requirements beyond the utility requirement of the statute and if so what the proper application of the doctrine should be.