Will upcoming amendments to the Patent Act help repair Canada’s reputation?

The sophistication of Canada’s patent system lags behind many other jurisdictions. But with upcoming amendments to the Patent Act, is that about to change?

The U.S. Chamber of Commerce
calls Canada an international IP outlier. The Chamber may have a point. After all, Canada is the only G7 country on the United States Trade Representative’s intellectual property watch list, which this country has graced since 1985 in company with countries like Russia, China and India.

Citing the watch list, pharmaceutical giant Eli Lilly and Company, having seen Canadian courts invalidate patents for its ADHD drug Atomoxetine (Strattera) and the anti-psychotic Olanzapine (Zyprexa), has filed a $500-million NAFTA claim alleging that Canadian patent law does not conform with NAFTA and other international treaties because it is unpredictable and weaker than international norms.

“Our patent system is getting a bad rap internationally because it has become extremely liberal in moving from pro-patentee to anti-patentee,” says Andrew Bernstein of Torys LLP in Toronto.

Canada’s sullied reputation arises largely because Canada is the sole developed nation that requires applicants to demonstrate the “utility” of an invention at the time of application. To be sure, Canada’s Patent Act mandates that an invention must be “useful” to be patentable. Usefulness is not defined in the legislation but throughout the twentieth century courts consistently ruled that an invention only needed to have a “scintilla of utility” to be patentable.

All this changed in 2002 in the seminal decision Apotex Inc. v. Wellcome Foundation Ltd. Historically, utility had been examined by the Patent Office as of the date the patent was challenged. But in Wellcome, the SCC held that patent applicants must either demonstrate or “soundly predict” the utility of an invention as of the filing date. This effectively required applicants to evidence utility in the patent application, even though this disclosure requirement is not found in the Patent Act. Some lawyers say that makes sense, because pharmaceutical patent applications are often filed long before the clinical trial process is over.

Consequently, courts have been assessing utility against the “promise of the patent,” a subjective construct that the courts determine by reading the patent as a whole, as opposed to just the patent claims. The upshot is that determining the promise has become a very contentious and unpredictable issue in Canadian patent litigation and a fruitful ground for attacking pharmaceutical patents in particular.

“Utility is the biggest issue in patent law right now,” says Jennifer Raoul of Borden Ladner Gervais LLP in Ottawa.

In following Wellcome, Canadian courts have gone so far as to strike patents on the basis that utility has not been shown in the patent application even though the drugs have in fact proved useful by the time the courts dealt with the issue. Generic drug companies, of course, have benefitted from this because it allows them to launch generic versions of a drug in Canada well before a patent would otherwise have expired.

According to Donald Cameron of Bereskin & Parr LLP in Toronto, who represents innovators, Canadian courts have decided that a host of blockbuster drugs are not “useful” under Canadian patent law. Apart from Strattera and Zyprexa, the list includes Mevacor, a cholesterol-lowering agent; Nexium, an acid reflux medication; Evista, used to treat and prevent osteoporosis; Altace, prescribed for high blood pressure; and Xalatan, to ameliorate high eye pressure. Eli Lilly says that decisions of this kind have cost it $1 billion in sales and deprived the country of 280 jobs.

“The upshot is that we’re out of whack with the rest of the world on the utility requirements,” says Cameron’s partner Ian McMillan, who is based in Bereskin & Parr’s Mississauga, Ontario office.

To some extent, it appears that Canadian courts have taken notice.

“The Federal Court of Appeal in particular has recently softened or corrected earlier decisions by attempting to clarify the utility requirement,” Raoul says, citing Sanofi-Aventis v. Apotex Inc., which involved Plavix, an anti-clotting medication; and Apotex Inc. v. Pfizer Canada Inc., in which the court upheld the validity of the patent for the anti-inflammatory drug Celebrex. Apotex and Mylan Pharmaceuticals ULC, the generics asserting the invalidity of the Celebrex patents, are seeking leave to appeal to the SCC.

 

Still, utility isn’t the only area in which Canadian patent law has departed from international norms.

Consider, for example, the case of the OncoMouse, colloquially known as the “Harvard mouse.” Scientists at Harvard Medical School engineered the OncoMouse more than 30 years ago by manipulating genes that cause cancer. Because they created the mouse to quickly develop cancers found in humans, these mice have proven invaluable to researchers studying cancer cures and treatments.

Harvard obtained numerous patents on the mouse in the United States, Europe, Japan and Australia. But the university’s 17-year-old battle to patent the OncoMouse in Canada ended with disappointment in December 2002 when the Supreme Court of Canada ruled, in a 5‒4 decision, that the mouse wasn’t patentable under Canadian legislation. That left Canada as the only first-world country to refuse the patent.

Otherwise, Canada lags far behind other jurisdictions in bringing forward emerging patent issues, such as the patentability of human genes, for judicial consideration. Consequently, it’s uncertain whether Canadian courts will follow the lead of the US Supreme Court’s 2013 decision in Association for Molecular Pathology v. Myriad Genetics, Inc., which found that naturally occurring genetic information was a product of nature that could not be patented simply because it had been isolated or sequenced.

The Canadian position could be determined in a recent case brought by Nathaniel Lipkus and Sana Halwani of Gilbert’s LLP in Toronto on behalf of the Children’s Hospital of Eastern Ontario. The hospital is seeking a declaration that University of Utah patent claims relating to five genes implicated in a heart disorder are invalid; the hospital is also attacking the validity of patents for related diagnostic tests.

 

“Defining the line between invention and discovery is very difficult and a global problem,” McMillan says. “But in Canada there’s the additional problem that the courts and the Canadian Intellectual Property Office are not always in accord.”

By way of example, McMillan cites the fate of business method and software patents following on the Federal Court of Appeal’s 2011 decision regarding Amazon’s one-click patent.

In that case, Amazon had obtained a US patent for the one-click feature in 1998. But in 2004, CIPO refused to issue a Canadian patent for the process. On appeal, the Patent Appeal Board (PAB) shocked the intellectual property community with a definitive statement against the patentability of business method patents (BMPs) in Canada. The PAB also categorically stated that previous decisions allowing BMPs were wrong.

In November 2011, however, the Federal Court of Appeal rejected the PAB’s analysis and ordered CIPO to re-examine whether the one-click patent was “patentable subject matter.” While the court was clear that business methods could be patented, the decision left considerable uncertainty as to how specific applications would be treated by CIPO and the courts in the future.

As it turned out, CIPO granted the “one-click” patent shortly thereafter, but the area remains in flux. “CIPO’s examiners continue to harbour a bias against BMPs,” says Neil Henderson of Gowling Lafleur Henderson LLP in the Waterloo Region and Toronto offices.

McMillan agrees, saying statistics from CIPO evidence a disinclination to grant “computer-implemented patents,” which include BMPs.

“The ratio of allowed computer-implemented patents are low, even taking into account applications under that heading that are not controversial,” McMillan says. “And despite the fact that the Federal Court criticized CIPO for making up its own rules, it continues to do exactly that. Some examiners have even admitted that they have been instructed not to look at the case law.”

The upshot, says Jung-Kay Chiu, an IP partner at Norton Rose Fulbright Canada LLP in Toronto, is that Canada rates only “in the middle of the pack among first-world countries” for the sophistication of its patent system.

 

But change is in the air. In December 2014, more than 14 years after Canada undertook adherence to the Patent Law Treaty adopted in Geneva in June 2000 by 36 countries, including the US and the European Union, amendments to the Patent Act and the Patent Rules fulfilling these undertakings received Royal Assent.

The international treaty seeks to simplify and harmonize administrative practices among national intellectual property offices with respect to the patent application process. The domestic amendments relate to filing formalities, additions and incorporations by reference, notification of unpaid fees, the reinstatement process, restoration requirements, intervening rights and transfers. At press time, the date for the coming into force of these amendments had not been established.

“We’re finally amending the Patent Act to harmonize our procedures with other countries, at least in some respects,” McMillan says.

The Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU, on which agreement in principle was announced in 2014, will also improve Canadian protection of pharmaceutical innovators’ patents but won’t narrow the gap entirely.

The three key areas in which Canadian protections lag behind those of the UK (as well as the US and other developed nations) are patent term restoration, which extends the life of patents to account for mandatory regulatory delays; data exclusivity, which limits the period during which generics may use innovator data for drug approval applications; and rights of appeal, which Canada’s Patented Medicines (Notice of Compliance) Regulations, used to resolve issues between innovators and generics, grants only to generics.

“The fact that innovators have no right of appeal has skewed the case law in favour of the generics,” Raoul says.

Currently, the US and EU offer up to five years of patent restoration, while Canada offers none: CETA envisions Canadian protections to a maximum of two years. Innovators will also get a right of appeal when a court invalidates their patents. Otherwise, data protection does not appear to have been addressed in CETA, meaning that the gap between Canada, at up to 8.5 years, and the EU, which offers 10 years plus one year for new indications, will likely remain. (The US offers five years plus one year for regulatory delays plus three years for new indications for pharmaceuticals and 12 years for biologics.)

According to Nadeem Esmail, Director of Health Policy Studies at the Fraser Institute, the partial harmonization that results could augur further change as Canadian trade policy expands. “These enhanced protections might also be valuable in future trade negotiations and relationships such as the Trans-Pacific Partnership (TPP) and in regions like Asia and Latin America where the EU and US are aggressively pursuing free trade agreements,” he writes.

 

Whatever one’s perspective on the pros and cons of Canada’s patent system, there’s little doubt that the country’s participation in the Patent Prosecution Highway (PPH) has been a tremendous success.

Canada participates in the Global PPH pilot program, including a permanent agreement with the United States, and pilot agreements with the EU and more than 20 other nations. PPHs are bilateral agreements between national patent offices. When one office has indicated that a patent is allowable, the other patent office will accelerate its consideration of the corresponding application so long as the claims are the same. And that’s exactly what CIPO has done.

“[The PPH] has positioned the country as a highly cost-effective jurisdiction in which to procure patent protection with exceptional speed and efficacy,” writes Ottawa-based Elliott Simcoe of Smart & Biggar/Fetherstonhaugh in the firm’s IP Update – Canada. “According to statistics maintained by the Canadian Intellectual Property Office, applications examined under the PPH have far shorter wait times for examination, receive fewer office actions and are granted at a higher rate. Accordingly, the fast tracking of patent examinations under the PPH can generate significant cost savings for applicants without sacrificing patent quality.”

An internal study of PPH efficiency, conducted by Smart & Biggar between January 2014 and June 2014, found that PPH applications surpassed the CIPO average wait time for examination, number of office actions, allowance rate with no office actions and overall grant rate, in many cases by enormous margins.

Canadian lawyers and patent agents have taken notice.

“We’re starting to use PPH more and more,” says Teresa Reguly of Torys LLP in Toronto. “It’s a great way to expedite patents issued in Canada where you’re dealing with the type of invention that doesn’t require a lot of changes to the original application.”

Even where changes are required, resort to the PPH can be beneficial.

“The PPH system doesn’t require claims to be identical,” Chiu says. “Applicants can submit commensurate claims where it is advantageous to do so having regard to local law.”

 

As it turns out, anticipated reforms to the EU patent regime, combined with a PPH pilot agreement between the EU and Canada that came into force in January, could make the PPH system even more attractive to applicants for Canadian patents, as well as Canadian applicants for EU patents.

The EU reforms, likely to be implemented within the next year or two, envisage a European Patent having unitary effect, and a Unified Patent Court with divisions located throughout the EU.

“While the current patent granted by the European Patent Office is called a European patent, it does not create a single uniform IP right providing protection across the EU,” says Dr. Markus Gampp, a patent litigator based in DLA Piper’s Munich office.

Indeed, current EPO patents need to be validated separately in each jurisdiction, and enforcement requires action in each relevant jurisdiction. “What the current patent amounts to is nothing more than a bundle of national patents,” Gampp says.

By contrast, under the proposed system, a patent holder can achieve unitary effect by applying for the unitary patent during the application for or subsequent to the grant of a European patent. The EPO will continue as the examining and granting body, as well as overseeing opposition proceedings.

At press time, 24 of 28 EU member states are fully behind the new system. Spain and Croatia are not, while Poland and Italy support it partially. Spain filed two complaints against various aspects of the system with the European Court of Justice. The first was dismissed and the second is pending.

“But the Attorney General recently recommended in its opinion to the court that the second complaint be dismissed, and I expect the court to follow that advice when it gives judgment,” Gampp says.

However that may be, the new system and the Unified Patent Court are expected to have a tremendous impact on patent law and practice. “From both a legal and an economic perspective, this is the biggest game-changer in European patent law in history for all stakeholders,” Gampp says.

Given that about 30 per cent of all patent applications in Canada – some 10,000 – come from the EU, the reality of CETA, and the growing co-operation fostered by the PPH, the overseas reforms could well impact the game in Canada too.

 

What’s worth asking, however, is how the Canadian patent game is faring now.

By some accounts, not all that well. Recently, Lexpert columnist George Takach of McCarthy Tétrault LLP in Toronto lamented the “sorry statistics” relating to Canada’s patent performance that he had derived from research conducted by the World Intellectual Property Organization.

“When it comes to the ICT [information and communications technology] sector, Canada is nowhere near the top in fact, we’re not even in the top 20 patent-filing countries in the world, whether considered on a per capita basis or proportionate to the size of our economy,” Takach wrote.

Making matters worse is a report from the C.D. Howe Institute entitled Measuring Innovation in Canada: The Tale Told by Patent Applications. As Takach points out, the report demonstrates that ICT, along with construction, are among the better-performing patenting sectors in Canada, way ahead of sectors like pharmaceutical, manufacturing, oil and gas, agriculture, forestry and mining.

“When you consider this C.D. Howe report alongside the WIPO statistics … the patenting landscape in Canada does appear to be really bleak,” Takach writes.

But there are some mitigating factors. As Stéfanie Power, a spokesperson for Industry Canada, points out in an email responding to Lexpert’s inquiries, it’s not just Canadian patent applications to CIPO that have declined: foreign applications have also declined some 14 per cent since 2000.

So who, or what, is to blame?

Our culture, it seems, has a lot to do with it. “The US Patent Office celebrates innovation as central to the American Dream and American culture,” McMillan says. “CIPO doesn’t do that and I’m not sure they’re constituted to do that or that innovation is even part of our culture.”

No surprise, then, that Canadian business doesn’t regard patents as part of its arsenal to the extent that the Americans do. “Patents aren’t part of our DNA the way they are in the US, where patents, like litigation, are regarded as just another business tool,” says Sheldon Burshtein of Blake, Cassels & Graydon LLP in Toronto. “We often look at the cost of patenting and end up deterred without seeing the upside.”

Part of the difficulty, Burshtein says, is that Canada doesn’t have the “technological backbone” in terms of large companies. “The big Canadian-owned businesses tend to be retailers, who don’t generate patents, and banks, who have just recently started thinking about patents,” he says. “In other cases, a Canadian subsidiary of a foreign company may be responsible for an invention, but the rights might be assigned to another company in the corporate chain and licensed back to Canada instead of being patented here.”

Conversely, as Power also points out, the majority of Canadians file patents outside of Canada to protect their IP in the markets where it makes the most business sense for them. “The number of Canadians who do file abroad has actually been trending upward over the last decade-and-a-half,” she advises.

As the Conference Board of Canada has noted, all of this is not necessarily a reflection on the quality of research in Canada.

“In the life sciences field in which I work, Canada is recognized as having world-class research,” Chiu at Norton Rose says. “But we haven’t had the originating patent applications you’d expect from world-class research companies.”

Patents, of course, are an important part of the equation because they represent a bridge from invention to commercialization. According to Chiu, it’s a bit of a chicken-and-egg situation. “Without enough success stories, how do you get the experience to advance commercialization?”

 

It’s not that there haven’t been initiatives or success stories. The MaRS Discovery District in downtown Toronto, for example, was established to bring together academic research and business opportunities. “MaRS is an energetic place that is slowly becoming more sophisticated,” Chiu says. “Overall, we’re making progress, albeit not in leaps and bounds.”

Otherwise, the University of Waterloo enjoys an exceptional global reputation as a hub for innovation and commercialization. “The people at Waterloo created a powerful and rich culture for generating innovation and then instituted policies to ensure that the professors and the students would get some of the commercial benefits,” McMillan says. “So now people from all around the world flock there.”

Waterloo has also clearly rejected what Raoul calls a “socialist culture” in academia.

“Many academics have historically held to the idea that the results of academic pursuits should be freely available to the public, and that obtaining a patent on the fruits of academic research was like crossing to the dark side,” she says. “But I think attitudes are shifting, because even the most innovative ideas won’t make it to the market unless they’re protected by patents.”

It’s important to bear in mind, however, that Waterloo’s success has to a large extent been driven by the private sector. “I’m not sure the federal government can do very much because it tends to push resource exploration and development and those kind of economies tend to score low in innovation indices,” McMillan adds.

For her part, Power concedes that it is a “fair assessment” that small and medium-sized enterprises would “benefit” from additional IP knowledge. To that end, CIPO has engaged with some 200 SMEs “to better understand their requirements” and distributes educational materials and makes presentations about the importance of IP at trade shows and other events. CIPO has also recently revamped its website to promote ease of access to IP information, expanded its presence on social media, and is exploring new services to facilitate the patent application processes.

Burshtein does give CIPO marks for effort. “The patent office has certainly had several initiatives, but the difficulty is that these initiatives don’t seem to be getting enough traction,” he says.

According to Burshtein, the Intellectual Property Institute of Canada (IPIC), the professional association of patent agents, trade-mark agents and lawyers practising in IP, must shoulder some of the blame for the patent deficit.

“IPIC is too staid and not aggressive enough,” Burshtein points out. “Their version of doing something is to have a conference, typically addressed to the membership, but they haven’t done a good job in reaching out to business and other people who actually matter.”

Michel Gérin, IPIC’s outgoing Executive Director, makes no bones about the fact that more needs to be done. “It’s also true that more could be done, but we’re not a large organization, and we have to set priorities,” he says. “We listen to our members when they tell us what they want to focus on, and that is ensuring that innovators, small businesses and other companies have access to well-qualified professionals when they decide to access our IP system.”

The focus, then, is on training, qualification and professional development. “That takes up a large part of our resources,” Gérin points out. “Remember that we have only 1,700 members compared to the 37,000 members of the Canadian Bar Association, and that we have only eight employees, all based in Ottawa.”

IPIC’s second priority is to work with government to ensure that the system works well for applicants, including sole inventors and small businesses. “Our members do up to 25 submissions to government annually,” Gérin says. “But I can understand that some IP lawyers feel we don’t do enough, because a lot of the advocacy is behind the scenes and clearly not as visible as a full-page ad in the Globe and Mail.”

Finally, IPIC provides a bank of speakers who work in partnership with organizations like CIPO and chambers of commerce to raise public awareness.

In the end, there seems to be a common theme among everyone. What it amounts to is that “there certainly is a problem and we’re doing what we can.” But despite the common theme, unity of action and purpose seems more than a touch lacking.

So Canadian, and for the future of our patent system, so unfortunate.