15 June, 2004Issue 3.3EssaysNorth AmericaPolitics & Society

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Patent Indifference

Tina Piper

A Singaporean lawyer once told me that Canada had a reputation as a ‘rebel’ of the common-law world. She had a point: recent legal decisions have made it at least arguably legal to hold marijuana for personal use, get baked at the anti-war rally where the Prime Minister calls Bush a ‘mistake’, and then trundle off to the church on time to marry your same-sex lover. It could all be laid at the door of ‘northern’ culture, especially now that poutine is haute cuisine in New York City. But the story of Canada’s rebellious pharmaceutical laws doesn’t begin or end with the usual discussion of BC bud vs. Ontario hydro in the C$3 billion untaxed green market: it’s about the full-on regulation of pharmaceutical industry giants, or ‘Big Pharma’, and the courts’ participation in that regulation through creative interpretation and application of the patent law.

Canadians call this regulation of Big Pharma an ‘independent approach’, which is more or less heresy to its major trading, and (patent) law-abiding, partners. Biotechnology and pharmaceuticals may be admittedly less newsworthy than the recent marijuana bust in Ontario that found over 3,000 fully grown plants in an ‘abandoned’ brewery, but it is usually admitted by all but the entertainment reporters that they affect a larger proportion of the population. In an area where progressive developments in the public interest are notoriously rare, hard-fought and infrequently won, Canadian policy-makers, judges and vocal ‘interest groups’ appear to be creating a new precedent for international action. These exciting developments all stem from a largely inaccessible but fundamentally simple text, the Patent Act.

It seemed inevitable that once people realised that it was cheaper and easier, due to different regulatory and legal regimes, to make clothes in Central American sweatshops, labour and corporations would begin their inevitable flow south. This resulted in reduced costs to the North American consumer at the price of domestic labour and manufacturing capacity. In a country where healthcare is privatised and market-driven it seems assured, in hindsight, that similar flows would occur of health products. Where textiles moved south, drugs moved north. This past year in particular has seen the rapid growth of US corporations, individuals, even entire municipalities, purchasing drugs in Canada as part of a grass-roots consumer protection movement.

But they moved north for different reasons. Canada has a high-wage, developed North American economy with one important twist: it has public health care and has regulated pharmaceutical companies to keep costs closer to the actual cost of production. The buds of this bonanza sprouted in the 1920s when Canada changed its patent law to allow compulsory patent licences that forced companies to grant licences over patented medical processes at very low royalty rates to ensure low-cost domestic manufacture of valuable medical goods. This responded to the fact that Canada, like many present-day Third World countries, was highly dependent on drug imports; almost 95% of drug patents were foreign-owned and little pharmaceutical research actually occurred in Canada. Canadian patent law also did not allow patents on products (such as substances and chemicals) but merely on processes, which meant that if scientists could reverse-engineer a substance then they could take out a patent on that process without being blocked by a patent on the substance. This led to the growth of a vibrant generic drugs industry and some of the cheapest drug prices in the world. Although this regime was largely dismantled, in response to the Big Pharma lobby, under the leadership of Prime Minister Brian Mulroney in the late ‘80s, Canadians continue to pay only 62% of the cost of brand-name drugs that Americans pay1 and the generic drug industry plays a significant role in drug development in Canada. It is an example of the trend noted in HJ Chang’s Kicking Away the Ladder2 that many developed countries benefited from lax patenting regimes that stimulated domestic growth and only supported aggressively property-friendly patent regimes once their domestic industries were well-established. Tellingly, the terms of the Trade Related Agreement on Intellectual Property Rights (TRIPS) require developing countries to allow both product patents and curtail the use of compulsory licensing. TRIPS is the international minimum standard of intellectual property protection required by the World Trade Organization (WTO) of its member nations.

Canada benefits from low drug costs because of the strength of its generics industry and historical control of patent medicine prices. This led to the creation of regulatory price controls, which do not exist in the United States, negotiated between the Patented Medicines Prices Review Board and drug companies. In part the strength of the pro-patent lobby in the United States ensures that the price of drugs remains high to assure pharmaceutical companies what many would argue is a disproportionate return on their investment in research and development.

Big Pharma responds with arguments generally heard from the mouths of labour activists and environmentalists: Canada is a haven of imitation and poorly-regulated drugs that threaten the safety of innocent consumers, a fake Rolex factory of anti-cholesterol remedies undermining the profits of drug companies in the US. Behind the fear-mongering lies some truth –some online pharmacies (the primary means of moving pharmaceuticals between the two countries) are foreign companies masquerading as Canadian businesses selling unregulated drugs. In addition, the prolific growth of online pharmacies, especially in Manitoba, may limit the effectiveness of pharmacists as gatekeepers to protect patients. But what really concerns Big Pharma is that although Canada itself is a small market for American drugs it has the potential, by distributing to US citizens, to become the US market.

These arguments are weak on several fronts. First, the problems with online purchasing are the classic challenges of e-commerce: how to guarantee the credentials of seller, buyer and product and who enforces which law. Many options now exist which can be creatively adapted or adopted from other areas of e-commerce to deal with these issues; the underlying difference in drug prices remains. Second, both foreign and domestic drug companies voluntarily agree to Canadian price controls – one would have a hard time believing they would do so if they weren’t making money. Third, many of the brand-name drugs are actually manufactured and imported from the US. Fourth, Canada’s drug regulation is similar to US standards, having responded to the earlier pressure of those manufacturers to allow the sale of their products in Canada. When appeals to health and welfare fail, Big Pharma uses the patent law stick: if US citizens buy drugs in Canada this will result in long-term harm to the US consumer as pharmaceutical companies develop fewer and less innovative new drugs. Big Pharma’s reluctance to reveal the real proportion of income and profit to R&D hinder any attempts to empirically assess this claim. More ominously, US pharmaceutical companies have now threatened to limit Canada’s supply of drugs to those used by Canadian patients, which could lead to drug shortages in Canada as more pharmaceuticals are siphoned across the border.

Canada’s generic drugs industry is receiving a further boost from the Canadian federal government in Bill C-9 (titled the ‘Jean Chrétien Pledge to Africa’ bill)3 that has now been tabled in Parliament for a third and final reading. Bill C-9 will amend the Patents Act to implement a WTO ruling of 31 August 2003 that would allow developing countries to import generic copies of patented drugs in order to combat health emergencies, from Aids to malaria, without the fear of patent infringement lawsuits. The law in Canada currently prohibits generic copies of drugs until the 20-year patent over the drug has run out. Generic copies typically offer price discounts from 50% to 75% off brand-name drugs,4 saving developing countries and public health care systems a lot of money.

However, as with many initiatives, an initially strong position was watered down through the law-making process. The most recently tabled version of the legislation lists medicines subject to the legislation, a provision limiting the scope of what the legislation can accomplish and which is not required by the WTO decision. Although the Canadian government has extended the list of eligible countries to include non-WTO members, the complex procedure through which those countries must pass may undermine the usefulness and applicability of the legislation in practice. Further, granting permission to a generic company to export copies to a developing country must occur on a product-by-product basis and brand-name pharmaceuticals can take any generic company to court if they feel the supply contract is ‘too commercial’ and not for humanitarian reasons. It will be interesting to see whether this legislation has any effect or whether its bureaucratic details and the concessions to brand-name pharmaceutical companies in fact undermine its purpose and it remains a paper tiger. Its dampening effect, as well, on the development of local generic manufacturing capacity in developing countries should also be monitored.

In addition to its rebellious stand on pricing and access of generics to patented products, a further development that burnished Canada’s role as patent outlaw was the Supreme Court of Canada’s decision in President & Fellows of Harvard College v. Canada (Commissioner of Patents)5 (Harvard Mouse) in December 2002 that affected pharmaceutical research and development interests further up the production chain. Known as the second most famous mouse in the world, the Harvard Mouse is a genetically modified mouse susceptible to the development of cancer and is valuable for cancer research. It raised the key question: is life patentable? Canada has gone against its major trading partners, especially Europe and the US, by prohibiting patents over the mouse as a higher life-form. Most interesting, though, is the response of Canadian law firms and industry. In ominous tones, both predicted a chilling effect on the development of domestic biotechnology, although it has become clear that the ban can be almost entirely avoided through strategic patent claims and clever drafting.

Finally, the Supreme Court of Canada’s recent decision in Monsanto v Schmeiser6 may in effect overturn Harvard Mouse. Although Harvard Mouse held that higher life-forms could not be patented, Monsanto found that a plant ‘incorporating’ (i.e. grown from) a patented gene was in fact protected by the patent law against use by non-patent holders. It remains to be seen whether patenting of plants has been allowed through the backdoor now that patent law protects plants grown from genetically modified seeds.

Being a rebel isn’t without its costs – in most of the G8 nations and anywhere Big Pharma influences politics, Canadian willingness to limit the monopolistic effects of patents is dismissed with disdain and even hostility. Many are trying to find ways to keep the good and resist the bad and make sure that, in the end, Canada’s desire to make everyone happy doesn’t leave it pleasing no one.

Tina Piper is a Canadian DPhil student in Law at Balliol College, Oxford. She is currently co-authoring a textbook on Canadian intellectual property law due to be published in Fall 2005.

Notes

  1. K. Greider The Big Fix: How the Pharmaceutical Industry Rips Off American Consumers ( New York: Public Affairs 2003).
  2. H.J. Chang Kicking Away the Ladder – Development Strategy in Historical Perspective ( London: Anthem Press 2002).
  3. Jean Chrétien, Prime Minister of Canada (1993-2003).
  4. May 10, 2001. Bernard Schwetz, Acting Principal Deputy Commissioner of the FDA. Testimony before United States Senate Committee on Appropriations Subcommittee on Agriculture, Rural Development, and Related Agencies.
  5. [2002] SCC 76.
  6. [2004] SCC 34.