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U.S. drug giant Eli Lilly & Co. is launching a challenge under the North American free trade agreement, demanding $100-million in compensation for Canadian court decisions that stripped the company of its patent for a drug used to treat attention-deficit disorder.

Eli Lilly claims the decisions striking its 1996 patent for the drug Strattera – decisions that sided with Canadian generic drug company Apotex Inc. –violate Canada's obligations under NAFTA, the World Trade Organization and other international treaties.

The company says it has exhausted all its avenues in the Canadian courts after the Supreme Court of Canada declined to hear its appeal earlier this year, leaving it no choice but to resort to NAFTA.

The Department of Foreign Affairs and International Trade published a notice of intent filed by Indianapolis-based Eli Lilly on its website this week. The document marks the first stage of a possible NAFTA challenge.

It's the latest in a series of recent challenges launched under NAFTA's Chapter 11 provisions, which allow U.S. or Mexican companies to sue the Canadian government over actions or policies.

The challenges have come amid debate over a proposed investor-protection treaty with China that would grant similar rights to Chinese companies and investor-protection provisions to be included in a potential trade deal with the European Union.

"The government is carefully assessing the Notice of Intent," Jennifer Chiu, a spokeswoman with the Department of Foreign Affairs and International Trade, said in an e-mail; the department declined an interview request. "Our government will, as always, vigorously defend the interests of Canadians."

Eli Lilly argues that Canadian courts have veered away from other countries' standards in their patent decisions by allowing generic drug companies to challenge patents for failing to provide enough evidence of a new drug's "utility," such as clinical trials.

Drugs are often patented in the early stages of research, and the company says its patent for Strattera, which made Eli Lilly more than $620-million worldwide last year, has been upheld by U.S. courts.

Canada's recent court decisions on this issue diverge with those in Europe and the United States, the company argues in its submission, saying that Canadian judges have developed a legal test called "the promise doctrine" that sets an impossibly high a bar in evaluating a company's "promises" about what the drug it is trying to patent will do.

Generic drug companies are increasingly using the doctrine to pry open patents in Canada in a way they would not be able to in other countries, the company says.

"The promise doctrine not only contravenes Canada's treaty obligations, it is also discriminatory, arbitrary, unpredictable and remarkably subjective," Eli Lilly's submission reads.

The company says Canadian patents for clearly useful drugs, subsequently proven to help patients in large clinical, have been tossed out for failing to include sufficient proof of "utility." This after challenges launched by generic drug companies vying to make the very same drugs – a situation Eli Lilly calls "absurd."

Douglas Norman, Eli Lilly's general patent counsel, said a series of Canadian patent decisions since 2005 "have moved outside the bounds of international norms," even though Canada's patent laws remain similar on paper to those in the U.S. and other members of the Organization for Economic Co-operation and Development.

Canada is the only country in the world where patents are being struck down this way, Mr. Norman said in an interview: "It's really hard to explain to my business executives why they keep losing Canadian patents."

Eli Lilly is also fighting a similar legal battle for its patent for the anti-schizophrenia drug Zyprexa. It has applied to the Supreme Court of Canada to regain its patent on that drug, but the court has not yet said whether it will hear the case.

Eli Lilly's patent Strattera was due to expire in Canada in 2016.

Filing a notice of intent is the first stage in launching a challenge under NAFTA's Chapter 11, which could involve an international arbitration panel. Eli Lilly said it hopes to resolves its issues amicably, through negotiation.

Follow Jeff Gray on Twitter: @jeffreybgrayOpens in a new window

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