U.S. Rejects Canada’s Claims to Self-Define IP Terms in Ongoing Dispute

NAM Vice President of International Economic Affairs Linda Dempsey and NAM Vice President and Deputy General Counsel Patrick Forrest co-authored this blog post.

Manufacturers welcome the U.S. government’s strong rejection of Canada’s arguments in a pending investor-state dispute settlement (ISDS). Like the National Association of Manufacturers (NAM), the U.S. government has made clear that Canada cannot self-define core intellectual property (IP) obligations in the North American Free Trade Agreement (NAFTA). In a filing to the NAFTA tribunal hearing the case, the United States also fully affirmed that patents are investments that are protected from expropriation, meaning that the governments cannot seize or invalidate them without fair compensation. IP rights are of high importance to manufacturers in the United States and the good-paying jobs manufacturing provides throughout the country.

Eli Lilly’s investment treaty dispute against the government of Canada stems from expropriation of its property—namely, the invalidation of granted patents protecting some of Eli Lilly’s best-selling products in Canada—as a new Canadian patentability requirement not seen anywhere else in the world. Around the world, a new invention must be tied to a product or process that offers utility to receive a patent. Historically—and under trade agreements such as NAFTA—“utility” is a low threshold that is satisfied by stating that the patented invention has a specific, practical use.

Canadian courts, however, have tried to rewrite NAFTA IP provisions by creating a “promise utility doctrine” that redefines utility requirements. To sustain the validity of an already issued patent, Canadian courts may require evidence that the “promise of the patent” as stated at the time the patent was filed has been satisfied. If it doesn’t meet that “promise,” the patent may be revoked. This doctrine has been used to revoke 24 patents for innovative products since 2005—patents on products widely used around the world.

The U.S. submission confirms that Canada’s claims that it could self-define utility requirements are inconsistent with its NAFTA obligations. Although countries can determine how to implement IP provisions, they cannot add “requirements or conditions that would vitiate the obligation to make patents available for inventions that meet” requirements for granting patents. In addition, the U.S. submission unequivocally reaffirms that patents are investments that are protected from both direct and indirect expropriation under NAFTA.

Unfortunately, the U.S. submission fails to acknowledge the broad range of foreign government actions, including judicial decisions that result in IP expropriation that should be subject to ISDS review. Manufacturers are highly disappointed by the U.S. government’s failure to put forth a broader defense against the unwarranted rejection of IP by courts and governments. These rules are meant to protect the value of U.S.-created IP and the growth of U.S. manufacturing.

The NAM has been active in advocating the full protection and enforcement of IP rights around the world. IP is vitally important for growing innovative manufacturing in the United States and the millions of American jobs manufacturing supports. As part of the NAM’s longstanding work in this area, the NAM’s Manufacturers’ Center for Legal Action filed an amicus brief with the NAFTA tribunal on these issues and was one of only a handful of groups—and the only U.S. association—whose brief was accepted by the tribunal.

The NAM has sought to bring to light the broad implications of Canada’s actions, which discourage innovation and investment in advanced industries, and undermine the predictability of IP rights. This case is not a narrow dispute over pharmaceutical patents but one of import to all manufacturing sectors that rely on patents. Canada’s actions embolden other countries that hope to undercut the value of IP in the interest of gaining access to cheap products to challenge similar language in other international agreements.

These issues are critical, not only to sustain and grow American manufacturing jobs in a highly competitive global economy, but also to build a healthy U.S.Canada relationship, the importance of which was highlighted just two weeks ago with the state visit of Canadian Prime Minister Justin Trudeau. That type of productive relationship requires the United States and Canada to work together to ensure a healthy, predictable IP environment for investors on both sides of the border.

Linda Dempsey

Linda Dempsey

Linda Dempsey is the vice president of international economic affairs at the National Association of Manufacturers (NAM). In this capacity, Ms. Dempsey leads the NAM’s efforts to improve the global competitiveness of manufacturers in the United States by advocating intellectual property protection, increased export financing and the elimination of trade barriers as well as pushing for agreements and treaties to open up new export markets to create jobs. Ms. Dempsey is noted for her experience on a wide range of international trade and investment policy issues.
Linda Dempsey

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