Eli Lilly goes afta Canada under NAFTA

In November 2012, Eli Lilly initiated legal proceedings against Canada, alleging that the Canadian Federal Courts’ invalidation of Eli Lilly’s patents violated the North American Free Trade Agreement (NAFTA). In particular, Eli Lilly asserted that the courts’ invalidation of two of its pharmaceutical patents (for Zyprexa and Strattera) was based on jurisprudence that was not present at the time NAFTA came into force. As a result, Eli Lilly claims that Canada wrongfully expropriated its patent rights and failed to accord fair and equitable treatment to its investments.

Eli Lilly’s Canadian patent application for Zyprexa (also known as olanzapine, used for treating schizophrenia) was filed in 1991 and issued in 1998. In the course of a subsequent infringement action brought by Eli Lilly, the Federal Court invalidated the Zyprexa patent for lack of utility (Eli Lilly Canada Inc. v. Novopharm Limited, 2011 FC 1288). The decision was affirmed by the Federal Court of Appeal (Eli Lilly Canada Inc. v. Novopharm Limited, 2012 FCA 232), and the Supreme Court of Canada refused to grant leave to appeal. 

The other Eli Lilly patent at issue is for Strattera (also known as atomoxetine, used for treating ADHD). The Strattera patent application was filed in 1996 and issued in 2002. In 2008, Novopharm brought an action in the Federal Court seeking to invalidate the Strattera patent. The Federal Court invalidated the patent for lack of utility (Novopharm Limited v. Eli Lilly and Company, 2010 FC 915). The decision was affirmed by the Federal Court of Appeal (Eli Lilly and Company v. Teva Canada Limited, 2011 FCA 220), and the Supreme Court of Canada refused to grant leave to appeal. 

Eli Lilly has alleged that the Federal Courts, in invalidating the Zyprexa and Strattera patents, relied on an elevated utility requirement that is not found in other jurisdictions and is not consistent with historical Canadian jurisprudence on utility. According to Eli Lilly, under this new, so-called “promise utility doctrine”, the Federal Courts are scrutinizing statements (or “promises”) in the patent to assess whether utility is met, are imposing a heightened evidentiary burden for demonstrating utility, and are requiring that the evidence and line of reasoning relied upon by a patentee for sound prediction be in the patent itself. Eli Lilly contends that this is contrary to prior jurisprudence, which, for example, required only a “mere scintilla” of utility.

Canada has countered that the Federal Courts were merely performing their statutory duties in interpreting and applying the law to decide whether the patents were validly granted. Furthermore, Canada contends that the principles relied upon by the Federal Courts in invalidating the Zyprexa and Strattera patents were in fact longstanding doctrines under Canadian jurisprudence. For example, Canada points out that a patent must be construed as a whole, and it is therefore permissible to refer to statements in the description in construing the promise(s) of the patent.

 Furthermore, Canada has argued that the Federal Courts’ invalidation of the Eli Lilly patents did not amount to expropriation because the patents were found to be invalid ab initio. Even though Eli Lilly were granted patents after examination by the Canadian Intellectual Property Office, s. 42 of the Patent Act explicitly states that the grant is “…subject to adjudication in respect thereof before any court of competent jurisdiction”.

Eli Lilly claims that the breach of Canada’s obligations under NAFTA (i.e. the invalidations of its patents) have resulted in damages “… estimated in an amount not less than CDN $500 million”.

Canada, for its part, cautions that accepting Eli Lilly’s arguments would result in NAFTA tribunals being turned into “supranational courts of appeal”

The matter is now before an arbitral tribunal established under the terms of NAFTA. The most recent step in the proceeding was the filing on September 11, 2015 of Eli Lilly’s reply memorial, which responded to Canada’s defenses and arguments. The arbitration hearing is currently scheduled for May 30 to June 9, 2016. Any decision may have important ramifications for the ability of domestic courts to arbitrate disputes involving multinational corporations.