Monday, November 07, 2016

Astrazeneca, Eli Lilly, the Supreme Court of Canada, NAFTA & a Rogue Elephant - Tomorrow Promises to be an Interesting Day

(images from Wikimedia Commons)

Tomorrow will be an eventful and very interesting day – especially for Canadian IP and trade lawyers,  a wide variety of other lawyers, as well as Canadian diplomats, politicians and bureaucrats.

On Tuesday, November 8, 2016, Election Day in the USA, the Supreme Court of Canada (“SCC”) will hear a patent case between AstraZeneca Canada Inc., et al. v. Apotex Inc., et al.  This involves the issue of “whether a promised utility doctrine properly exists”, in the words of the SCC’s summary of the case, which is not “official” and “are placed on the Court file and website for information purposes only”. Here is the full SCC summary:
Intellectual property – Patents – Medicines – Utility – Validity of patent for drug used in treatment of gastric acid conditions challenged in infringement and impeachment action – Whether “promise” in patent of improved pharmacokinetic and metabolic properties for improved therapeutic profile demonstrated or soundly predicted at time patent filed – What is the correct applicable standard for patent utility in Canada? – Whether a promised utility doctrine properly exists.

The applicants, (collectively, “AstraZeneca”) owned the Canadian ‘653 patent for the compound, esomeprazole, a proton pump inhibitor used in the reduction of gastric acid, reflux esophagitis and related conditions. It was sold under the name Nexium, and was a very successful drug for AstraZeneca. The respondents (collectively, “Apotex”) applied to the Minister of Health to obtain a Notice of Compliance which would allow it to sell its generic version of the drug. In response, AstraZeneca brought a prohibition application under the Patented Medicines (Notice of Compliance) Regulations, SOR/93-133 to prevent Apotex from entering the market until after the expiry of the ‘653 patent. In 2010, that application was dismissed and Apotex received its Notice of Compliance and commenced sales of its generic esomeprazole. AstraZeneca brought an action against Apotex for patent infringement. Apotex counter-claimed to impeach the ‘653 patent on several grounds.

It looks like this issue will now finally actually be considered on the merits by the SCC. However, there is an unusual history as to how it got here. Almost exactly two years ago, on November 3, 2014, Apotex and Sanofi settled a case scheduled to be heard by the SCC literally the next morning. The Justices were, so to speak, all dressed up, prepared and ready to go. They and the interveners may not have been too pleased. Here is what I wrote at the time:
In a very unusual development in a case that promised to be very interesting and important both domestically and internationally, Apotex has filed a notice of discontinuance literally on the day before and figuratively on the steps into the Court in its appeal against Sanofi in the Supreme Court of Canada that was to have been heard earlier today in Apotex et al v. Sanofi et al.  The notice states that “The Appellants wholly discontinues this Appeal on a without costs basis on consent.” This language suggests that some kind of settlement agreement – presumably very confidential – must have been concluded.
In today’s discontinued case, the “promise doctrine” and “utility” are also very much are the heart of the Eli Lilly NAFTA Chapter 11 investor/state challenge, although today’s case and the NAFTA case are not directly linked. However, whatever the Court might have ruled in today’s discontinued case might well have been of some considerable interest in the NAFTA case that we will hear much about in the future as it unfolds.

Even that was not the first time the SCC had heard about the “promise doctrine”.  In 2013, a panel of the Court led by now retired Justice Rothstein held an extraordinary rare oral hearing on whether Eli Lilly should be allowed leave to appeal on this issue. On May 16, 2013, the Court declined the leave application, as usual without reasons. Here is the webcast of the hearing.

At tomorrow’s hearing there will a rogue elephant lurking nearby and possibly even in in the room that I expect will remain almost completely silent and will likely be carefully ignored. However, it may well be on everyone’s mind – perhaps even that of the Justices. It is perfunctorily alluded to in the material.  This is the Eli Lilly NAFTA challenge, which has been brought under the ultra-controversial Investor State Dispute Settlement (“ISDS”) provisions of NAFTA. ISDS, of course, is one of the reasons, if not the main reason, for the CETA and BREXIT crises and the controversy over the TPP. Deadlines for treaty signature sharpen the mind. The timing of tomorrow’s hearing is somehow ironic – since the NAFTA and proposed TPP have become major issues in the USA election campaign, which has been otherwise largely devoid of substantial issues and mostly about personalities.

There are many things about ISDS generally and this case in particular that are very controversial. However, the most controversial aspect of this by far is the fact that Eli Lilly has refused to accept the SCC’s denial of its leave application as the end of this matter. It has, in effect, attempted to go over the head of the SCC. The SCC, after giving Eli Lilly the almost unheard of privilege of a lengthy oral leave hearing, declined to hear their appeal. For any Canadian litigant, that would have been the end of the road. Not, however, for Eli Lilly, a foreign investor, which had applied for leave to appeal on November 8, 2012 and filed its Notice of Intent Notice of Intent to Submit a Claim to Arbitration Under NAFTA Chapter Eleven on June 13, 2013, having been turned down for leave to appeal by the SCC less than a month earlier. Canadians do not get to bypass or, in effect, appeal from decisions of Canadian courts. Their only recourse is to the SCC. And when the SCC says it’s over, then it’s over. The only recourse then, which is not judicial or arbitral, and which is exceedingly rare is that Parliament may decide to change the law following a judicial decision that it finds unacceptable. Even then, Parliament is bound by Canada’s constitution, which is exceedingly difficult to change. Of course, a government can invoke the “notwithstanding clause” – but this is bordering on the “nuclear option” in today’s Canada.

Eli Lilly, at least, had exhausted its recourse in Canada in this instance. That is not the case in many other NAFTA ISDS disputes.

Only now are more and more people beginning to understand why ISDS is so controversial. It not only arguably ousts the jurisdiction of Canadian superior courts. It arguably discriminates on the basis of nationality by providing greater rights and remedies to foreigners than are provided to Canadians.  This, and much more, may get challenged by Paul Hellyer, P.C. in a recently launched lawsuit in which he is being represented by Rocco Galati, who succeeded in a controversial challenge to the appointment of the Honourable Marc Nadon to the SCC. The recent decision by the UK High Court regarding Brexit may well be cited in Canada with respect to limits on the royal prerogative and other issues.

Many experts do not believe that Eli Lilly should or will win the NAFTA challenge on the merits. It is difficult to believe that a finding of patent invalidity by one of the best judicial systems in the world with an extraordinary oral hearing for leave to appeal to Canada’s highest court could lead to the conclusion that Canada, in Eli Lilly’s words:
“Wrongfully Expropriated Claimant’s Patent Rights In Zyprexa and Strattera”


“Failed to Accord Fair and Equitable Treatment to Claimant’s Investments in Violation of NAFTA Article 1105”

However, Eli Lilly has paid out a lot of money to get expert reports and make arguments that suggest otherwise and Canada has chosen to defend on the merits, rather than attempting to end this case at the outset on jurisdictional grounds.  To no doubt oversimplify, the main issue is whether a ruling by the Canadian courts that a patent is invalid is an “expropriation”. That, of course, is arguably an absurd suggestion. Patents are regularly invalidated by courts everywhere. That is not “expropriation”. This is how the system works. The patent has not been seized or taken by the government without compensation.

Sometimes – and I do not for a moment suggest that this is the case here – the courts get things wrong. The wrong decision is not always corrected on appeal, for any number of reasons. A country’s highest court cannot hear every case brought to it – and rarely do any top courts engage simply in “error correction” as such.  Unless there is evidence of corruption or other serious denial of natural justice in the judicial system - which is clearly not the case here or ever likely to be the case in Canada - ISDS should never be allowed to be used to bypass or, in effect, override Canada’s judicial system. If Canada’s statute is offside with its treaty obligations, there is a state/state remedy procedure in the WTO.  However, that has not been sought in this case.

Also, more another day on why the Government of Canada did not seek at the earliest possible stage to have this case dismissed on what would seem to be arguably clear jurisdictional grounds – instead of spending about $6,000,000 that we know about in fees, disbursements and costs. However, the real and even more serious risk is that there could be a ruling by the arbitrators for damages of $500 million + costs that, even worse still, might unravel Canadian patent law and contradict our courts – including our highest court. Even if Canada wins on the merits, there is also a real risk that there could be many more of these challenges that threaten sovereignty and the rule of law - unless there is a very clear jurisdictional ruling in Canada’s favour. Litigants such as Eli Lilly, Phillip Morris and others with deep pockets have little to lose and much to gain if they can instill some regulatory chill and even buy time in appropriate cases. I may have more to say about ISDS and Canada in the future.

In the meantime, don’t take my word for what is problematic about ISDS. Here is what the Chief Justice of Australia, RS French, had to say about ISDS on July 9, 2014 – and bear in mind that sitting Chief Justices in common law countries are invariably very constrained in their comments on public policy issues:
A rule of law issue
The topic of investor-state dispute settlement has a regional significance for Australia because of the number of BITs and FTAs it has entered into or is negotiating with countries in the Asia Pacific. However, the significance of ISDS arbitral processes is global. They have general implications for national sovereignty, democratic governance and the rule of law within domestic legal systems. Their long-term consequences for national judiciaries cannot be stated with confidence. They attract vigorous and articulate proponents and detractors, but their merits and demerits are not easy to assess. Moreover, those merits and demerits may vary according to the circumstances in which ISDS is applied and the scope and limitations of particular ISDS provisions.
(emphasis added)

The possibility of diverging findings on the same issue now looms very large. We do not know when the NAFTA arbitrators will rule. While they work on their conclusion, they are each being paid at the rate of USD $3,000 per diem. One would think that, if the arbitrators were inclined to dismiss on straight jurisdictional grounds, which Canada eventually got around at the end to forcefully arguing, that they would have so ruled by now or will do so rather soon. The hearing concluded in early June of 2016. Our SCC usually rules within six months of a hearing – so one can expect a ruling from the SCC likely no later than April of 2017.

It will be a potentially huge problem if the NAFTA arbitrators and the SCC disagree on substantive patent law. It will be awkward enough if, as seems inevitable, one rules before the other. Would the NAFTA arbitrators pay any attention to the SCC, or vice versa? A disagreement on the merits would likely have profound implications for international trade, diplomacy, the rule of law and national sovereignty. However, I have probably said more than enough about all this for now….

Tomorrow’s webcast – assuming it is not delayed due to a “sealing order” should be available here.


No comments:

Post a Comment