Guest Post: The U.S. Government Continues to Have "Serious Concerns" with Canada's Heightened Patent Utility Requirements

By Canadian Patent Utility Coalition* --

While the United States and Canada share a border, common values and a strong commitment to international trade and security issues, many are surprised to learn that protection of intellectual property (IP) is a source of significant friction in our relationship.  Indeed, in its 2014 annual "Special 301" report released last week on IP practices overseas, the Office of the United States Trade Representative (USTR) again placed Canada on its "Watch List" for inadequate IP protection and enforcement.  In making this determination, USTR highlighted in particular that Canada's application of heightened patent utility requirements is "leading to uncertainty for patent holders and applicants and undermining incentives for investment in the pharmaceutical sector".  In comments filed with USTR leading up to the issuance of its 301 report, a number of organizations -- including the U.S. Chamber of Commerce's Global IP Center (GIPC), Intellectual Property Owners Association (IPO), and the Canadian Patent Utility Coalition (CPUC) -- detailed the negative impact of Canada's heightened and improper patent utility standard on U.S. jobs, innovation and competitiveness.  USTR's Special 301 process shines a spotlight on the degree to which the Canadian utility standard is contrary to internationally accepted norms and its own trade obligations.

The Issue

It is common for patents involving innovative medicines to be litigated.  Competitors often argue that a patent should not have been granted because the invention was obvious or was not really new.  However, it is extremely rare for patents to be challenged for lack of usefulness or utility.  This is because patents are typically challenged by those who wish to revoke the patent and market the product themselves.  If an invention is not useful, it makes little business sense to bear the costs of challenging the patent.  Conversely, if the product is actually in production and being used by customers, it should be difficult to demonstrate that the invention is not useful and never should have been patented.

Unfortunately, a pattern has developed in Canada whereby patents for innovative medicines are being challenged on the grounds that the inventions are not useful.  Ironically, these challenges have come from companies seeking to have the patents revoked so that they can copy and market these medicines themselves.  As a result, Canada has revoked valuable patents for nearly 20 useful medicines over the past nine years because the patents fail to satisfy Canada's unique patent standards.  As noted by USTR, under this standard, courts are invalidating patents held by U.S. pharmaceutical companies on the basis of inutility, "even though such products have been in the market and benefiting patients for years".

Background: International and U.S. Patent Standards

Robust intellectual property protections are vital to the biopharmaceutical sector; adequate and effective patent protection, in particular, is what drives innovators to undertake enormous risks by investing in the research, development, and delivery of innovative new therapeutics to patients globally.  The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and North American Free Trade Agreement (NAFTA) require patents to be granted for inventions relating to all fields of technology that are new, result from an inventive step, and are "capable of industrial application."  "Capable of industrial application" is synonymous with "useful" and is often referred to as the "utility" standard.  Thus, TRIPS and NAFTA require signatories to provide patent protection to useful inventions that meet the other requirements for patentability.

The utility standard is by no means intended to be a burdensome requirement.  It is designed simply to ensure that patents are not granted for inoperable, fanciful, or purely aesthetic inventions.  For example, in applying the patent utility test, the United States Patent and Trademark Office and U.S. courts require simply that an invention's claimed utility be specific and practical.  The patent utility test applied in the U.S. is very similar to the tests applied in the European Union and Japan, among most other industrialized nations.  When a patent is challenged for a lack of utility under Section 101 of the Patent Act, U.S. courts focus on actual utility and will consider evidence developed and submitted after the filing of the patent application in evaluating an invention's utility.  Specific utility can be shown where a pharmaceutical or biotechnology patent discloses a specific disease against which the claimed compounds are useful.

Importantly, U.S. courts have made it abundantly clear that the human testing necessary for U.S. Food and Drug Administration (FDA) approval is not a prerequisite for finding usefulness for a therapeutic under the patent laws.  The FDA's focus on human testing to demonstrate the safety and efficacy of a therapeutic before it is sold on the market is distinct from the Patent Act's patentability requirements.  At the same time, USPTO and the U.S. courts accept evidence of FDA approval of human clinical trials as creating a strong presumption that the utility standard has been met.  The U.S. approach is consistent with the practices of most if not all other WTO members.  Canada's approach is the exception, and is inconsistent with international standards.

Canada's Patent Utility Standard: An Insolvable Riddle for Patentees

Canada's utility test has three elements which taken together present a riddle that is impossible to solve.

• First, the court or CIPO subjectively construes the "promise of the patent" from the patent specification, sometimes going beyond a mere statement of use and also beyond that which is specifically claimed in the patent application.  There is no similar concept under U.S. law or practice.  For example, "promises" have been construed as treatment of disease over the long term for conditions deemed chronic.  There is no way to know in advance how the "promise" might be construed by the Court or Canada's Intellectual Property Office (CIPO).

• Second, the court or CIPO, using a heightened evidentiary standard of proof, determines whether utility is demonstrated by reference to the promise of the patent.  As in the first test, there is no way a patentee can know in advance whether enough proof has been provided.  For example, even completed human clinical trials have been found inadequate to demonstrate utility in Canada where the courts have questioned the size or duration of the trials.  This stands in sharp contrast to U.S. practice, as noted above, where data from human clinical trials (even those trials conducted after filing of the patent application) create a presumption of usefulness.

• Third, if utility is not demonstrated, the court or CIPO determines whether, at the time of the filing, there was a "sound prediction of utility."  In Canada, evidence of utility generated after the filing date is not considered and only evidence contained within the application may be used as proof of utility.  This last prong creates heightened disclosure requirements inconsistent with U.S. practice, which does not require evidence of utility to be found within the specification as of the filing date.

The Consequences of Canada's Application of its Outlier Patent Utility Standard

Since the "promise" of the patent is construed by the court years after the filing date, the promise doctrine leads to great uncertainty among innovators as it is now unclear how much information is required at the time of filing to meet these new, onerous requirements.  Moreover, this judicially-created utility doctrine applies a shifting standard that places applicants and patentees in an untenable "Catch-22" predicament:  To be patentable, useful inventions must also be novel and inventive over all prior art available at the patent filing date.  If an applicant aims to meet Canada's enhanced test for proof of utility, which may include carrying out long-term clinical trials prior to filing a patent application, the applicant would have to delay patent filings in Canada and other countries such as the United States.  Such delays would increase the risk of patent refusal and patent invalidity in numerous countries on the basis of prior art published during the long-term clinical trials.

Canada's approach to utility is also inconsistent with the patent laws of similarly-situated economies and impedes ongoing efforts to achieve patent harmonization internationally.  The Canadian approach is strikingly out of step with the first-to-file rule of the America Invents Act, which encourages early filing.  It also compromises the ability of innovators to file patents in Canada using an international application under the Patent Cooperation Treaty (PCT), which has less onerous disclosure obligations.  Moreover, the results in Canadian cases contradict those in the United States and Europe:  pharmaceutical patents found to lack utility by Canadian courts have been upheld as having utility in U.S. and European proceedings, if utility is challenged at all.

Moreover, Canada's promise doctrine, in practice, has discriminated against a particular area of technology -- the biopharmaceutical sector.  Since 2005, all patent revocations based on utility in Canada have involved pharmaceutical patents.[1]  Given the disproportionate impact of the promise doctrine on the biopharmaceutical sector, Canada is failing to meet its international obligation to apply patent standards in a non-discriminatory manner across different technologies.  The graphic below illustrates the disproportionate impact on drug patents.

Conclusion

The heightened test applied by Canada is substantially different from the test required under TRIPS and NAFTA.  Parties to these trade agreements cannot redefine core terms like "useful" and "capable of industrial application" without fundamentally changing the essence of the agreements.  Canada's substantial redefinition of "usefulness" has severely undermined patent protection for innovators.

* The Canadian Patent Utility Coalition (CPUC) represents 19 innovative companies who are extremely concerned about Canada's heightened and improper patent utility standards which are causing significant economic harm and uncertainty to innovative companies.  To learn more about CPUC and its views, please refer to the group's Special 301 Written Submission (footnote 1 of the submission provides a list of the member companies).

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[1] In only one case outside the pharmaceutical sector have any challenged claims been found to lack utility; a distinct claim under the same patent was upheld as useful, such that the patent remained valid.  See Bell Helicopter Textron Canada Limitée v. Eurocopter, 2013 FCA 219.

Comments

[Dan Feigelson]

Kevin, Don, I fully agree with the author's sentiments and his assessment of the situation in Canada; I'm on the record criticizing the Israel PTO for similar thinking (http://www.iliplaw.com/2013/03/sleep-on-that-even-when-trying-to-help-hapless-pro-se-mattress-inventors-ilpto-awards-excessive-fees.html). And the need in certain circumstances for anonymity in posting one's view's is clear. But I don't think this is one of those cases, and consequently I think it undermines this blog's credibility, and that of the author, when you allow a piece like this to be published anonymously, under the by-line "Canadian Patent Utility Coalition". The name alone reminds me of the deceptively-titled "Patent Fairness Coalition" in the US, a group for which I have little sympathy. At the very least, you could have told us who constitutes the membership of this coalition, even if the identities of the likely candidates are obvious. It's not like Canada is going to make life worse for these companies because of their advocacy against what amounts to a taking of their IP by Canada.

[EG]

I find this concern by the USTR about the heightened utility standard in Canada ironic given what Our Judicial Mount Olympus has done in heightening the patent-eligibility standard under 35 USC 101 as it relates to medical diagnostic methods (Mayo v. Prometheus), so-called "products of nature" (AMP v. Myriad), and data processing methods/software (Bilski v. Kappos). In other words, we "south of the border" need to be careful about "throwing stones" at those "north of border" given the "glass house" we in the States currently live in.

[Lewis Carroll has a new book out...The USTR in Canadaland]

I'm confused--the *U.S. government* is criticizing the Canadian government for weakening patent protection? Seriously?? Is the problem that Canada is taking a different approach to weakening patent protection than the U.S. (cf. the USPTO 101 guidelines)? Or are we (i.e., the USTR) pretending that the USPTO guidelines don't exist? This is just too bizarre to be the product of rational thought.

[Courtenay Brinckerhoff]

Joining the fray here - can we get the U.S. Chamber of Commerce to look at the new Patent Eligibility Guidance?

[Skeptical]

Leave a little skeptical room for me...

OK, let me take the contrary view: Since patent law by its very nature is territorial, and notwithstanding treaty agreements, each country maintains its own sovereignty without hegemony, What Canada decides to do - for all matters in Canada - should be considered the starting point of any discussion, eh?

[GrzeszDeL]

I guess this is just piling on at this point, but I want to echo EG, Lewis Carroll..., and Ms. Brinckerhoff. It is simply too rich to criticize Canada by saying that "[p]arties to these trade agreements cannot redefine core terms like 'useful' and 'capable of industrial application' without fundamentally changing the essence of the agreements." That criticism should first be directed to our Supreme Court (I'm looking at you Justice Breyer).

[Donald Zuhn]

Dan:

I have added a description of the organization to the end of the post. Unfortunately, the CPUC does not appear to have a website. While the article is attributed to the Coalition, it was not provided to us anonymously.

Thanks for the comment,

Don

[Pragmatic]

Setting aside the newly court created disaster of whatever section 101 now means in the U.S., what Canada is doing makes perfect sense. It's about the economy and nothing but the economy. Canada does not innovate new drugs to speak of so it makes perfect economic sense to poison that well for innovators. That primarily hits the U.S. Wealth from pharmaceutical sales does not flow out of Canada. That is where the real logic resides. Trying to actually understand Canada's utility law from a patent attorney's point of view makes little or no sense because it isn't supposed to cater to that point of view. It's just public policy.

If one accepts that as a reasonably accurate perception of reality, then what? How about this: Congress needs to act but unfortunately it cannot. Congress is endlessly focused on intense navel gazing, e.g., posturing, bickering, scheming for the next election, constant spinning and, above all, harvesting cash from donors. They have neither the time nor the focus on the public interest to do their jobs, which in this area is complicated and requires real expertise. Congress is focused on itself and its cash needs first, foremost and almost exclusively.

IMFO (feeble opinion), we need some sort of crude reciprocity in patent law. For example, if India does not allow patents on new crystal forms of old compounds, then fine, but that subject matter is not patentable to their nationals or companies. And, when India makes one of those new crystal forms and imports under license or whatever, there is an import "patent" tax to compensate the innovator for the R&D time and resource. The same hols for Canada. If a country imposes incoherent utility requirements on our innovators, we should do the same to their innovators. You see where this line of thinking can go - the possibilities are endless. We can retake to economic value of innovation that we now give away and recapture at least some of it, preferably 150-300% of it.

I cannot speak for anyone else, but I am violently sick of two-party U.S. politics as usual. That sad enterprise is a dismal failure. The uneven international economic playing field that American companies and innovators always have to face undermines our standard of living. Its long past time for U.S. generosity to end but our political institutions are no longer capable of mounting even a reasonable rear guard defense of our standard of living.

We are going down and this is just one of the thousand cuts we have to bear.

[Skeptical]

Pragmatic,

What you say IS ALREADY POSSIBLE.

The deeper problem is that our Congress has been captured by special interests and the laws they pass ALREADY serve those interests (prime example: the AIA).

The legendary Pogo had a phrase for this: We have met the enemy and he is us.

[Pragmatic]

Skeptical,

Special interest money indeed is one of the key problems. That is the argument of folks and groups like Lawrence Lessig and Rootstrikers (http://republic.lessig.org/ ; http://www.rootstrikers.org/#!/).

Unfortunately, there are two other problems that seem to be just as detrimental to the public interest, (1) political and religious ideology and (2) political self-interest. Together, those two factors plus special interest money constitute the Three Horsemen of the political Apocalypse. Ideology distorts both perceptions of reality and logic - that's just human nature. Social science has elevated that observation from opinion to fact, e.g., http://press.princeton.edu/titles/7959.html.

Political self-interest is human nature too, but unfortunately our current incentive structure rewards it and/or is neutral. More disincentives are needed to partially address that beast. Self-interest is why not much gets done in election years, immigration reform, tax code reform, etc. The real heavy lifts in political social engineering occur in odd-numbered years.

For any issue I can think of, patent law included, some combination of the always-present three stinkers play a non-trivial role. They usually dominate, say 95% of the time? When it comes to Canada's economically rational utility law and some equally stacked patent laws of other countries, the onus is on the U.S. congress to act or continue to allow our intellectual property lunch to be eaten. They will no doubt continue our present wonderful course. After all, its an election year. Maybe in 2015 . . . .

I am unsure of how those three nasties would operate in the area of patent law, e.g., is patent law liberal, conservative or something else? In any attempt to reform, special interests with money will vigorously defend their economic interests with little or no regard for service to the public interest. That's just politics as usual.

[GrzeszDeL]

"[W]e need some sort of crude reciprocity in patent law. For example, if India does not allow patents on new crystal forms of old compounds, then fine, but that subject matter is not patentable to their nationals or companies."

I respectfully disagree. As a practical matter, no pharma innovator makes R&D allocations based on what India does. Even when India allows something to be patented, the Indian market is too small to make the investment worthwhile. The markets with substantial disposable income (mostly the US, with the EU and Japan also as relevant considerations) drive R&D allocations.

If we tell Indian researchers "you cannot have a patent in the US," then this will mostly serve to disincentivize research in India. Why would we want to do that?

If a researcher working in India invents a new polymorph of a drug, and that new polymorph provides a benefit to patients (including US patients) then we are all better off. We should *want* that Indian researcher to make that discovery. Cutting that Indian researcher off from a US patent will mostly serve to harm US patients who could have benefited from that Indian discovery, with comparatively little benefit to US pharma innovators/investors (who would never have been likely to make a lot of money in the Indian market anyway, even if they could get an Indian patent).

[Skeptical]

GrseszDeL,

I too do not think "cutting off" is a good approach. However, as a citizen of the US, I would like to stop subsidizing the lower prices paid in other countries. This is NOT because I would deny anyone access so much as it is I do not think that my access should carry an extra premium just because of where I live. As it is, patent protection remains territorial and the lack of patent protection in certain countries (in part) dictates pricing decisions that simply shift costs to me.

Pragmatic @ 8:50,

Sadly I agree with your views.

And here I thought I was...

[GrzeszDeL]

"[A]s a citizen of the US, I would like to stop subsidizing the lower prices paid in other countries."

I heartily concur with you on this point. That said, I am skeptical that tinkering with the patent laws would do much to end these subsidies.

As I see it, the reason why we are subsidizing drug prices around the world is that other wealthy markets set caps on their drug prices. Pharma innovators do not *like* this, but they say to themselves "oh well, the US does not have any gov't mandated price caps, and they are wealthy enough that if I boost my price in the US, Americans will still pay it. I will just resign myself to the caps in Europe, Canada, Australia, etc, and make up my losses by gouging the Americans."

If we introduce Pragmatic's reciprocity model, this will do very little to change either the price caps in other jurisdictions, or the Pharma innovators' incentives to gouge US consumers to make up their losses.

I suppose that the reciprocity proposal might incentivize some Pharma innovators to move their R&D operations into the US, to ensure that new discoveries are US patent eligible. This would be a boon to US researchers, but would have little effect on prices paid by US consumers.

If we really want to stop subsidizing the rest of the world, I see two workable strategies.

(1) We could set our own price caps (or relax laws against importing drugs from Canada, which would amount to the same thing because it would turn Canada's price caps into a de facto ceiling on US prices). This would put US consumers in the same position as consumers in every other wealthy country. Unfortunately, it would also make pharma innovation much less lucrative, and thereby quickly decrease the amount of R&D investment made in pharma.

(2) We could bring all the same diplomatic muscle to bear on eliminating price caps in other countries that we have previously directed to raising IP standards worldwide. Imagine a sort of TRIPS agreement directed against pharma price caps instead.

[Skeptical]

GzeszDeL,

I reject the conclusion you draw from your option (1).

While I do not discount the possibility of your conclusion, to de facto say that it will happen cannot be done. I do not think that you can say that R&D investment would drop, even though the profit structure would (of course) like to be maintained intact, pharma innovation would still be tied to the product life cycle and the end of that life cycle still results in a patent cliff. New innovation is simply NOT an option that can be eliminated. This is not to say that changes would either be minimal, nor perhaps what we would like to see from a global perspective. I think that a more direct change would simply be withdrawal from those markets that could no longer be subsidized. Since you cannot force a company to do business where it chooses not to, THAT would be the first casualty [ouch, bad pun].

This is why I noted in my comment that I do NOT want to deny others access - but such is the more likely result.

Your option (2) - even if successful - will not create the ability in other countries to pay what is in essence a more fair share. This will also drive to my noted result. The foreign markets that cannot be sustained on their own accord WILL NOT be sustained.

Oddly, this may actually lower prices in the US, even more than just that attributable to the elimination of the artificial carrying costs, as the costs of foreign market attempts may be dropped wholesale.

[Lake]

Well... so what? The argument is that Canada's innovation will go down because of this, right? Let's watch and find out, see how things go compared to the U.S. Personally, I think this is more about ensuring more money is made by those already with the most money than actual invention incentive.

[Richard Gold]

I have to ask: who wrote this drivel? Certainly not someone who knows Canadian patent law or basic statistics. The discussion is plainly wrong in law and the stats, far from showing an increase in invalidity, actual show a decrease starting in 2010 after the appeals court first spoke on the issue. If you actually are interested in the law, rather than uninformed criticism of Canadian law, I suggest you read this peer reviewed (by Canadian patent lawyers!) article: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2361146