A Cautionary Kudos: Canada Moves Up on USTR IP Watch List

A Cautionary Kudos: Canada Moves Up on USTR IP Watch List

Earlier this month, the United States Trade Representative (USTR) released its annual “Special 301 Report,” which evaluates the intellectual property rights (IPR) protection and enforcement of its trading partners. Over the last few years, Canada has been listed on the “Priority Watch List”, which is reserved for countries that have the most deficient IP protection according to the United States. In the 2013 edition of the report, Canada was placed on the “Watch List” - the first time in four years it has moved up on the list.

To read the report’s section on Canada, click here.

Results of the Report: A Commendation with Qualification

In the report, the USTR commends Canada for its recent legislative reform. The two initiatives cited in the report were Canada’s passage of the Copyright Modernization Act in June 2012 - legislation that represents Canada’s implementation of the WIPO Internet Treaties - and the introduction of the Counterfeit Products Act in March 2013 - which attempts to target commercial-scale trafficking of counterfeit products. Both of these initiatives were endorsed by the USTR,  who went on to suggest in the report a further expansion of this type of legislation in order to give more power to border officials to seize goods in-transit.

The report was not universally complimentary, however, with the USTR expressing serious concerns regarding Canada’s pharmaceutical industry. One concern that was mentioned was the absence of a right of appeal in the administrative process of Canadian regulatory pharmaceutical approval. In addition, the USTR expressed apprehension regarding the impact of the heightened utility requirements for Canadian pharmaceutical patents. This statement likely refers to the controversial and unpredictable judicial interpretation that has taken place over the last decade regarding what constitutes the “utility” required for pharmaceutical patents in Canada; originating from the landmark SCC case Apotex v Wellcome Foundation Ltd.

Reaction to the Report

The movement of Canada from the “Priority Watch List’” to the ‘”Watch List” has been met with some criticism; with some American entities publicly voicing their displeasure with Canada’s new position. The most scathing reaction to the report comes from the Pharmaceutical Research and Manufacturers of America (PhRMA), who released a statement stating that they were very “disappointed” with Canada’s changing designation. In the report, PhRMA claims that “Canadian policies and judicial opinions continue to harm international innovators to the benefit of domestic industries” and that the “heightened standard for patentable utility for pharmaceutical patents is inconsistent with Canada’s trade treaty obligations.” The PhRMA statement also contains a critique of India’s pharmaceutical IPR regime - a country that is notorious for their historically weak pharmaceutical IP protection. Including these statements side-by-side might reflect the view that the American biopharmaceutical industry has of Canada's pharmaceutical intellectual property laws and policy.

A Precarious Political Climate

Although there have been concerns raised about the legitimacy of the USTR “Special 301 Report” from both Canada and other countries, an evaluation of Canada’s IP regime by its biggest trading partner is undoubtedly an important diplomatic and economic concern. Indeed, Canada’s actions over the last few years seem to indicate their intention to conform to the wishes of their American counterparts, with the recent legislative reform that is responsible for Canada’s improvement on the watch list seemingly being a direct response to concerns raised in past USTR reports.

What makes the most recent report particularly interesting is the fact that it has been released at a complex political time period for Canada. The pharmaceutical company Eli Lilly recently launched a $100 million dollar NAFTA challenge of Canada’s patent utility requirements, and the Comprehensive Economic and Trade Agreement (CETA), a free trade agreement between the Canada and the European Union (EU), is bound to be completed in the next few months. The recent legislative changes made by Canada could be viewed as political posturing for the impending CETA, which purportedly has the EU calling for increased IPR protection and enforcement in many sectors. This agreement also allegedly includes an increase in patent protection for innovative pharmaceuticals in Canada at the request of the EU, which has been criticized for its potential to greatly increase drug costs. However, with drug and health care costs being a sensitive political topic and being projected to rise significantly in Canada over the next few decades, there are signs that the strengthening of IP pharmaceutical protection may not ultimately make it into the final draft of the CETA despite the EU's wishes.

It could be the case that the recent Canadian legislative reform is an effort by Canada to please its biggest trading partners without making drastic changes to its domestic pharmaceutical industry. The issue of rising health care costs is undoubtedly an important domestic political issue, and perhaps the seemingly “Jekyll and Hyde” approach to pharmaceutical and non-pharmaceutical IPR  is a necessary compromise that Canada has to make in order to function diplomatically with its trading partners while maintaining what it views as a healthy domestic state. It would be hard to name many things that are more complex than trying to adequately fit domestic IP policies within international free trade agreements, but Canada must continue to strive to achieve that seemingly impossible balance. At the end of the day, like in most matters in life (and politics), you certainly can’t please everyone.

Adam Falconi is an IPilogue Editor and a JD Candidate at Osgoode Hall Law School.