Promise utility doctrine and compatibility under NAFTA: expropriation and chapter 11 considerations.

AuthorPhillips, Freedom-Kai

ABSTRACT: The 2013 filing by Eli Lilly of a notice of arbitration under Chapter 11 of NAFTA relating to the application of the promise utility doctrine in Canadian jurisprudence brought to light latent tensions relating to domestic patent standards, perceived barriers to innovation, and international investment standards. This paper explores applicable NAFTA obligations and patent regimes in an effort to identify points of convergence and divergence, and argues that the promise utility doctrine while differentiated on procedural grounds domestically has significant substantive alignment across jurisdictions, and is overall consistent with the standard of treatment established under NAFTA. The promise utility doctrine, which is grounded in a harmonized view of the theoretical underpinnings of the patent bargain, progressively articulates the enduring need to maintain highly-specific disclosure standards to support sound patent practices, maintain ongoing innovation, and dissuade otherwise speculative or suppressive practices.

TABLE OF CONTENTS I. Introduction II. Background A. Patent History: Zyprexa and Strattera B. Procedural History: Zyprexa and Strattera III. Applicable Obligations under NAFTA A. Standard of Treatment B. Expropriation C. Intellectual Property IV. Patent Standards across NAFTA Jurisdictions A. Patent Law of Canada and the Patent Utility Doctrine B. Patent Law of the United States and the Enablement and Written Description Doctrines C. Patent Law of Mexico V. Compatibility of the Promise Utility Doctrine and Obligations under NAFTA A. An Inquiry into the Standard of Treatment B. An Inquiry into the Expropriation C. An Inquiry into Intellectual Property VI. Concluding Thoughts I. INTRODUCTION

Invalidation of a patent for lack of utility based on the promise utility doctrine identifies important questions pertaining to the compatibility of such an approach with pre-existing trade obligations, particularly those established under the North American Free Trade Agreement ("NAFTA"). (1) In 2013, Eli Lilly & Company ("Eli Lilly") filed a notice of arbitration under NAFTA claiming that the recent invalidation of two patents based on the application of the promise doctrine was tantamount to direct or indirect expropriation. (2) This paper will explore the validity and compatibility of the promise utility doctrine as articulated in Canadian jurisprudence with investor-state protections as established under NAFTA through a review of the current Chapter 11 dispute initiated by Eli Lilly over the invalidation of patents for Zyprexa and Strattera. First, a brief outline of the Chapter 11 dispute will be offered as background, including both patent and procedural historical summaries. Second, applicable investor-state protections as established under NAFTA are summarized. Third, patent standards across NAFTA jurisdictions are discussed with particular emphasis on highlighting the evolution and alignment of the promise utility doctrine. Fourth, the promise utility doctrine is critically appraised to assess consistency with established NAFTA obligations, with specific emphasis on direct and in-direct expropriation. Finally, concluding thoughts are offered, highlighting points of convergence and divergence. The promise utility doctrine marks a progressive evolution in the assessment of a patent's utility which, while initially raising prima facie concerns over incompatibility, remains consistent with NAFTA obligations.

While consistent with the position of the Government of Canada in the dispute overall, it is on the scope of Intellectual Property ("IP") system alignment and the applicability of the police powers exception to expropriation where our positions slightly diverge. I assert that IP regimes under NAFTA jurisdictions are far more harmonized theoretically and substantively than previously recognized, with mechanical deviation relating to the operative components of the regime to address a utility inquiry acknowledged. I also note the unique market circumstances which have fostered the promise utility doctrine. Furthermore, the fair, non-arbitrary and transparent judicial application of the patent bargain through the promise utility doctrine fits within the police powers exception to expropriation. International law cannot be utilized to justify dilution of the patent system to the point where speculative patent practices are encouraged or accepted. The promise utility doctrine marks an inflection point for patent interpretation in an age of unbounded innovation, an evolutionary step rightly grounded in a harmonized view of the theoretical underpinnings of the patent bargain, and a progressive approach to patent interpretation which benefits the global patent community.


    This section aims to briefly outline the factual elements which underlay the dispute as background. First, the historical backdrop underlying the successful granting of Canadian Patent No. 2,041,113 for "Zyprexa," and Canadian Patent No. 2,209,735 for "Strattera" is summarized. Second, the procedural history relating to challenges to the aforementioned patents is discussed. The evidentiary basis supporting and the procedural steps which led to the invalidation of the Zyprexa and Strattera patents provides valuable context and insight to consider in light of the Investor-State expectation of fair and equitable treatment ("FET").

    1. Patent History: Zyprexa and Strattera

      Founded in 1876, Eli Lilly has progressively established a long history of conducting innovative research and development in the pharmaceutical sector, (3) and like other cost-intensive sectors, is highly dependent upon the use of IP rights system, particularly patents, to recuperate the significant investment associated with drug development. (4) Zyprexa (olanzapine), a thienobenzodiazepine derivative commercially used in the treatment of schizophrenia, was first developed, clinically tested, and patented in the United Kingdom, (5) leading to patent applications in a total of eighty-one jurisdictions including Canada and the United States. (6) Canadian Patent No. 2,041,113 (the "113 patent") for Zyprexa was filed April 24, 1991 and issued July 14, 1998, and covers the pharmaceutical application of 2-methyl-thieno-benzodiazepine to treat disorders to the central nervous system, schizophrenia, schizophreniform disease, acute mania, and mild anxiety states. (7) The 113 patent was a "selection patent," insomuch as it selected specific compounds based on a previous originating ("genus") patent, Canadian Patent No. 1,075,687 (the "687 patent"), which covered a widespread set of compounds based on the common three-ring molecular structure "thienobenzodiazepine." (8) United States Patent No. 5,229,382 was filed May 22, 1992, (9) and issued July 20, 1993, and carries with it an equivalent scope. (10) Following regulatory approval, Zyprexa entered the market in 1996 and gained widespread application for treatment of schizophrenia. (11)

      Strattera (atomoxetine), an early non-stimulant based treatment for attention-deficit hyperactivity disorder ("ADHD"), grew out of early research on the use of atomoxetine for treatment of depression. (12) United States Patent No. 5,658,590 was filed on January 11, 1995, (13) and issued August 19, 1997, and covers the "method of use" of tomoxetine for treatment of ADHD and impulse-type disorders. (14) Filed under the Patent Cooperation Treaty on January 4, 1996 and published July 18, 1996, Canadian Patent No. 2,209,735 (the "735 patent") was issued October 1, 2002. (15) Principal evidence for the filing was a supportive seven-week study conducted by Massachusetts General Hospital ("MGH"), which was provided to Health Canada to support approval but was not disclosed as a component of the patent application. (16)

    2. Procedural History: Zyprexa and Strattera

      Both Zyprexa and Strattera follow a common procedural path resulting from a challenge filed by a generic drug manufacturer, with the former being in retort to claims of infringement and the latter being pre-emptive in nature. In the case of the 113 patent for Zyprexa (olanzapine), Eli Lilly claimed Novopharm, a Canadian generic drug manufacturer, was infringing the aforementioned patent in the production of "novo-olanzapine." This question was first addressed by Justice O'Reilly at the Federal Court [trial judgment], with his judgment of October 5, 2009. Justice O'Reilly dismissed the claim of infringement on the basis that the 113 patent was not a valid selection patent, as at the time of patent, Eli Lilly had not included sufficient information to demonstrate or soundly predict the utility described in the patent application, and that olanzapine was encompassed in the previous 687 patent which lasted between 1980 to 1997. (17) The trial judgment was overturned by the Federal Court of Appeal ("FCA") in the decision delivered by Justice Layden-Stevenson on July 21, 2010 [FCA Judgment], which held that Justice O'Reilly erred in his interpretive approach towards selection patents, and therefore, had fatally undermined the analysis of utility. (18) As such, the questions of utility and the sufficiency of disclosure in the patent were remitted back to the Federal Court for proper consideration. (19)

      In the follow-up decision by the Federal Court [second trial judgment], (20) Justice O'Reilly applied the guidance provided by the FCA in considering utility which included: (i) affirmation that a selection patent must provide a "substantial advantage," have all selected members exhibit the advantageous qualities, and have the selection be made on the basis of this "quality of a special character," (21) and (ii) that while a mere scintilla of utility is generally sufficient, where a patent makes an explicit promise, the principle consideration must shift to "whether the invention does what the patent promises it will do." (22) As a selection patent, the 113 patent was required to...

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