Expanded Analysis: U.S. Pharmaceutical Corporation Uses NAFTA Foreign Investor Privileges to Attack Canada’s Patent Policy
In December we reported that Eli Lilly, the fifth-largest U.S. pharmaceutical corporation, had announced its intent to use the extreme foreign investor privileges enshrined in NAFTA to directly challenge Canada's entire basis for granting patents. Eli Lilly's audacious attempt, sparked by Canadian courts' invalidation of an Eli Lilly medicine patent, marks the first time a patent-holding pharmaceutical corporation has tried to use the extraordinary investor privileges provided by U.S. “free trade” agreements (FTAs) as a tool to push for greater monopoly patent protections, which increase the cost of medicines for consumers and governments. Because Canada has dared to enforce its own patent policy, Eli Lilly is demanding $100 million in compensation from Canadian taxpayers.
We've just released an updated and expanded analysis of this worrisome NAFTA attack, available here. In this expanded briefing paper, we uncover more bogus but dangerous legal claims that Eli Lilly asserts as backing for its attempt to take down Canada's entire legal basis for granting patents. For example, the corporation accuses Canada of using a patent policy that "contravenes" the company's "expectations." Eli Lilly claims that NAFTA guarantees the company the "right" to see its expectations fulfilled by the Canadian government. To make such a cavalier claim, the company ignores the consistent opinions of multiple governments (including the U.S. government) that even NAFTA's sweeping investor protections guarantee no such "right," instead drawing on the inventive interpretations of FTA investor-state tribunals comprised of three private attorneys. As the U.S. government stated in another NAFTA investor-state case, "if States were prohibited from regulating in any manner that frustrated expectations – or had to compensate for any diminution in profit – they would lose the power to regulate."
Eli Lilly also invokes the national treatment privileges that NAFTA provides to investors (that governments should treat foreign and domestic investors alike), but instead of using NAFTA's already broad provisions, the company decides to invent a wholly new goverment obligation to foreign investors. Eli Lilly complains that Canada's patent standards are different from those found in the U.S. and EU, and then asserts that Canada is obliged by NAFTA to enforce those foreign standards. The notion of such a bizarre obligation is rather unprecedented even among the musings of creative investor-state tribunals. In short, Eli Lilly is alleging that Canadian taxpayers should fork over $100 million because their government enforced its own patent laws rather than those of other countries.
Not yet finished, the company alleges an additional national treatment violation by claiming that the Canadian courts' invalidation of its patent for an ADHD drug gives a prohibited advantage to Canadian generic firms that are now allowed to sell the drug. Um, of course the removal of patents helps generic producers – it always does, but it does so regardless of whether the generic firms and/or the patent holders are foreign or domestic. Were Eli Lilly’s skewed logic to be accepted by the investor-state tribunal, any invalidation of a foreign investor’s patent, regardless of the basis, could be construed as a violation of FTA-protected investor privileges.
Finally, Eli Lilly argues that Canada's invalidation of its patent monopoly in accordance with the country's established patent policy constitutes an "indirect expropriation" of the pharmaceutical giant's investment. This avant garde legal claim, one rejected by most nations' courts, would require a government to compensate a corporation even for a nondiscriminatory regulatory policy that happens to diminish the value of the company's "property" (including, according to Eli Lilly, a patent monopoly). In making this allegation, Eli Lilly skirts the fact that even NAFTA allows nations the flexibility to determine their own patent policy standards, and that such autonomously-defined standards cannot be the basis for claims of "expropriation."
As far-fetched as Eli Lilly's allegations are, the anomalous investor-state system enshrined in NAFTA-style deals now empowers three attorneys sitting on a FTA-created tribunal (a body that has become notorious for imaginative and sympathetic approaches to investor claims), to determine the validity of Canada's patent policy. Unfortunately, this radical system would be expanded by the Trans-Pacific Partnership (TPP), a NAFTA-style deal being negotiated between the U.S., Canada, and nine other countries. The TPP's leaked investment chapter would extend the scope of NAFTA's investor privileges to explicitly cover "intellectual property," making it easier for pharmaceutical corporations to launch Eli-Lilly like attacks on sovereign governments' patent polcies.
Will Eli Lilly prove successful in undermining Canada's patent laws to protect its patent monopoly in the ironic name of "free trade?" The outcome of the corporation’s investor-state attack under NAFTA is critical for those seeking to safeguard countries’ ability to determine their own patent standards, a prerogative that is essential for preventing patent “evergreening” and ensuring access to affordable medicines. It is critical not just so that Canadian taxpayers can make sure that the demanded $100 million goes to more worthy ends than enhancing Eli Lilly’s profit margin, but to avoid emboldening other pharmaceutical firms contemplating the launch of similar investor-state demands against other governments that dare to set their own patent policies. As the Eli Lilly case gets underway, negotiations for the TPP and its proposed expansion of the investor-state system continue. Stopping the NAFTA expansion deal presents health advocates with today’s biggest opportunity to halt the advance of the system that empowered Eli Lilly’s audacious threat.
For more analysis of this threat, click here to see our newly expanded briefing paper.