Promise Utility Doctrine and Compatibility Doctrine Under NAFTA: Expropriation and Chapter 11 Considerations
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Canada-United States Law Journal Volume 40 Issue 1 Article 8 2016 Promise Utility Doctrine and Compatibility Doctrine Under NAFTA: Expropriation and Chapter 11 Considerations Freedom-Kai Phillips Follow this and additional works at: https://scholarlycommons.law.case.edu/cuslj Part of the Transnational Law Commons Recommended Citation Freedom-Kai Phillips, Promise Utility Doctrine and Compatibility Doctrine Under NAFTA: Expropriation and Chapter 11 Considerations, 40 Can.-U.S. L.J. 84 (2016) Available at: https://scholarlycommons.law.case.edu/cuslj/vol40/iss1/8 This Article is brought to you for free and open access by the Student Journals at Case Western Reserve University School of Law Scholarly Commons. It has been accepted for inclusion in Canada-United States Law Journal by an authorized administrator of Case Western Reserve University School of Law Scholarly Commons. 84 CANADA-UNITED STATES LAW JOURNAL [Vol. 40, 2016] PROMISE UTILITY DOCTRINE AND COMPATIBILITY UNDER NAFTA: EXPROPRIATION AND CHAPTER 11 CONSIDERATIONS Freedom-Kai Phillips* 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 ...................................................................................................... 85 II. Background .................................................................................................... 86 A. Patent History: Zyprexa and Strattera ....................................................... 86 B. Procedural History: Zyprexa and Strattera ................................................ 87 III. Applicable Obligations under NAFTA ......................................................... 89 A. Standard of Treatment .............................................................................. 89 B. Expropriation ............................................................................................ 90 C. Intellectual Property .................................................................................. 91 IV. Patent Standards across NAFTA Jurisdictions ............................................. 93 A. Patent Law of Canada and the Patent Utility Doctrine ............................. 93 B. Patent Law of the United States and the Enablement and Written Description Doctrines .................................................................................... 96 C. Patent Law of Mexico ............................................................................... 97 V. Compatibility of the Promise Utility Doctrine and Obligations under NAFTA ............................................................................................................... 98 A. An Inquiry into the Standard of Treatment ............................................... 98 B. An Inquiry into the Expropriation ............................................................. 99 C. An Inquiry into Intellectual Property ...................................................... 102 VI. Concluding Thoughts .................................................................................. 104 Phillips – Promise Utility Doctrine and Compatibility under NAFTA 85 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. 1 North American Free Trade Agreement, U.S.-Can.-Mex., Dec. 17, 1992, 32 I.L.M. 639. 2 Eli Lilly & Co. v. Canada, Notice of Arbitration, UNCT/14/12, (Sept. 12, 2013). 86 CANADA-UNITED STATES LAW JOURNAL [Vol. 40, 2016] II. BACKGROUND 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”). A. 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