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Canada turns up on U.S. naughty list over rules governing drug patents

WASHINGTON - Canada has once again made the U.S. government's naughty list in an annual survey of intellectual property standards around the world.

It was the only G7 country among the 36 nations on this year's watch list, released Wednesday by the U.S. Trade Representative. The report singled out Canada's failure to protect drug patents and expressed alarm at how easily Canadian courts have struck them down.

The U.S. administration promised to push for changes in ongoing trade talks. It said unfair court decisions had cost American drug makers, and expressed hope the issue would be resolved during negotiations toward the 12-country Trans Pacific Partnership.

"The United States ... has serious concerns about the lack of clarity and the impact of the heightened utility requirements for patents that Canadian courts have applied recently," said the USTR's annual report on intellectual property standards around the world, released Wednesday.

"Under this amorphous and evolving standard, courts can invalidate a patent on utility grounds by construing the 'promise of a patent' years after the patent has been granted, leading to uncertainty for patent holders and applicants and undermining incentives for investment in the pharmaceutical sector," the report said.

"In applying this standard, courts have invalidated a number of patents held by U.S. pharmaceutical companies, finding now that those products lack utility ... even though such products have been in the market and benefiting patients for years."

The annual survey looked at 82 countries and placed 37 on its list.

Canada and 25 other countries made the lower-level watch list, including Mexico, Brazil and Greece. Ten were placed on the more serious "priority" watch list, including China, India and Russia.

Ukraine was in a category of its own last year and faced possible sanctions, but that process has been suspended given the instability there.

Canada had actually improved its standing in 2013, following four years on the priority list, after a pair of moves by the Harper government including the Copyright Modernization Act, which targeted Internet piracy.

But earlier this month, 32 members of Congress wrote to U.S. Trade Representative Michael Froman to complain about Canadian patent standards. They said that the evolving interpretation of international patent law by Canadian judges had cost U.S. drug makers 18 patents over the last decade.

No other country had revoked patents on similar grounds, said the letter, which called it egregious that generic drug makers were arguing successfully in court to have patents declared useless, only to turn around later and produce the same drugs at cheaper prices.

It called the issue essential for the U.S. economy, with one-third of American jobs tied to innovation.

Indiana-based Eli Lilly and Co. also filed a complaint last fall with a NAFTA panel, seeking US$500 million in compensation. It said Canadian court rulings invalidating patents for two of its drugs were illegal under the trade pact.

"We believe Canada has gotten a little bit offside in how it goes about making determinations on utility," said Doug Norman, Eli Lilly's vice president and general patent counsel.

Norman said companies like his couldn't afford to keep spending $5 billion a year on research, in a legal climate where generic drug makers could knock down one patent after another and then copy the recipe.

That's exactly what's happening in Canada, he added.

Federal Court decisions voided patents for anti-psychotic and ADHD drugs by Eli Lilly from 2009 to 2011. In the case of the anti-psychotic drug Zyprexa, generic medicine-makers tried the tactic all over the world but were successful only in Canada.

"If we keep losing patents based upon arguments like this, then sooner or later we're not going to have the ability to continue investing in the underlying research," Norman said.

The Canadian government, meanwhile, brushed off the findings of the U.S. annual report, known as the Special 301.

"Canada does not recognize the validity of the Special 301 and considers the process and the report to be flawed," said an email from Caitlin Workman, a spokeswoman at Canada's Department of Foreign Affairs, Trade and Development.

"The report fails to employ a clear methodology and the findings tend to rely on industry allegations rather than empirical evidence and objective analysis."

She said Canada agrees strong intellectual property protection has a central role in a knowledge-based economy, and that Canada's enforcement rules are perfectly consistent with its international obligations.

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