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An Eli Lilly & Co. sign is displayed outside the company's office in La Jolla, Calif. (Konrad Fiedler/Bloomberg)
An Eli Lilly & Co. sign is displayed outside the company's office in La Jolla, Calif. (Konrad Fiedler/Bloomberg)

RICHARD GOLD

NAFTA patent ruling a big victory for Canadian innovation Add to ...

Richard Gold is James McGill Professor, McGill Faculty of Law and Faculty of Medicine; CIGI Senior Fellow

Last month, multinational drug firm Eli Lilly lost a big gambit to force Canada to comply with its wishes, rather than what is in the best interests of Canada. It lost big: Not only did its own appointed member of the NAFTA tribunal vote against Eli Lilly, but the tribunal required it to pay some of Canada’s costs.

But the win is only the beginning: The decision strengthens our ability to develop a made-in-Canada innovation policy that places priority on Canadian firms, patients and consumers.

The case Eli Lilly lost revolved around an arcane part of patent law. Essentially, Eli Lilly wanted a patent even if its product did nothing useful: merely taking up space would have been enough. It sued Canada under the North American free-trade agreement for $500-million.

No independent expert believed Eli Lilly had a chance to win, but winning was not its main goal: The company wanted to use the case to persuade Canadian courts and policy makers to change the law to suit its purposes. To their credit, neither our courts nor our federal governments – Conservative and Liberal – gave in.

Most of the patents of commercial importance in Canada are held by foreign firms. This is not bad in itself: We are a small country in a big world. It becomes a problem, however, when those foreign firms gain patents that stifle Canadian innovation. By gaining patents too easily and having the financial resources to assert them aggressively against smaller Canadian firms and universities, these foreign patent holders slow down or keep out Canadian innovators.

After years of a concerted communication campaign that misrepresented Canada’s patent laws designed to apply pressure to Canadian decision-makers, Eli Lilly finally did Canada a favour. By losing – and losing big – the company has made it clear that Canada is free, under NAFTA and World Trade Organization agreements, to design a patent system that suits our needs and our industries. It proved that even under first-generation investor-state dispute-settlement procedures, as in NAFTA, we can fight off patent bullies. These procedures have been the bugbear of international trade, almost holding up the recently concluded Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union. The new generation of dispute settlement procedures significantly improves on the one contained in NAFTA by increasing transparency, decreasing conflicts-of-interest and punishing those who, like Eli Lilly, bring frivolous claims. But more work remains.

As Canada develops its first innovation strategy, implements CETA, revises NAFTA and potentially restarts multilateral trade negotiations after the collapse of the Trans-Pacific Partnership, this win means Canada can shape its domestic environment in a way that reduces frivolous patents; it streamlines the procedures to throw bad patents out; it enhances the ability of Canadian firms to get patents in the world’s big markets; and it ensures Canadian patients and consumers can access medical care and other essential products and services without excess cost or lag.

The ingredients for such a strategy exist. They include using tools such as public-private patent funds to keep Canadian developed knowledge (protected, for example, through U.S. patents) in the hands of Canadians; standard setting that puts Canadian technology at the heart of developments in fields as diverse as communications, aeronautics and health; new models of university-industry partnerships that focus on creating hard-to-move knowledge that attract firms to come to us rather than selling off our knowledge to others; direct support of firms in developing international intellectual property strategies; using university alumni networks to bring scale-up expertise to Canadian firms, and more. All this needs to be backed up by educating today’s innovators and students on how to obtain, deploy and strategize about intellectual property at the global level.

The win over Eli Lilly only opens the door of possibility. It provides us freedom to do what we need to do to have a sustainable innovation policy and bring wealth and well-being to Canadians. Now, we face the hard part: What we do with that freedom.

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