IN THE MATTER OF AN ARBITRATION UNDER CHAPTER ELEVEN OF THE NORTH AMERICAN FREE TRADE AGREEMENT AND THE UNCITRAL ARBITRATION RULES (1976) BETWEEN: ELI LILLY AND COMPANY Claimant/Investor AND: GOVERNMENT OF CANADA Respondent/Party (Case No. UNCT/14/2) GOVERNMENT OF CANADA REJOINDER MEMORIAL December 8, 2015 Trade Law Bureau Departments of Justice and of Foreign Affairs, Trade and Development Lester B. Pearson Building 125 Sussex Drive Ottawa, Ontario K1A 0G2 CANADA REJOINDER MEMORIAL INDEX Volume I Rejoinder Memorial Volume II Witness Statements Dr. Marcel Brisebois Dr. Michael Gillen Volume III Expert Reports Ronald E. Dimock Timothy R. Holbrook Heidi Lindner T. David Reed Dr. Daniel J. Gervais Volume IV Exhibits Volume V Legal Authorities TABLE OF CONTENTS I. INTRODUCTION .................................................................................................. 1 A. Preliminary Statement .................................................................................. 1 B. Evidence Submitted in Support of Canada’s Rejoinder .............................. 7 II. BACKGROUND .................................................................................................. 10 A. Canadian Law Provides Protection for Patent Rights Where Such Protection Is Warranted ............................................................................. 11 1. The Patent Bargain Reflected in Canada’s Patent Act Involves a Careful Balance of Benefits and Obligations ................................ 11 2. Secondary Patents Must Satisfy the Patent Bargain and Meet All Patentability Criteria ..................................................................... 15 3. The Patent Applicant, the Patent Office and the Courts Each Play a Role in Ensuring that the Patent Bargain Is Met ........................... 20 a) The Applicant Determines the Scope of the Monopoly that It Seeks .............................................................................. 20 b) The Patent Office Determines Whether the Patentability Requirements of the Patent Act Are Met Based On the Record Before It ................................................................ 22 c) The Courts Ultimately Determine a Patent’s Validity Based on the Evidence and Argument Presented by Litigants .... 23 B. Claimant’s Invalid Raloxifene, Atomoxetine and Olanzapine Patents Were Speculative Secondary Patents ......................................................... 26 III. CLAIMANT’S CHALLENGE TO THE CANADIAN LAW ON UTILITY IS OUTSIDE THE TRIBUNAL’S JURISDICTION RATIONAE TEMPORIS ...................................................................................... 30 A. Overview .................................................................................................... 30 B. Articles 1116(2) and 1117(2) Establish a Strict Three-Year Time Limit to Submit a Claim to Arbitration ...................................................... 32 C. The Time Limit in NAFTA Articles 1116(2) and 1117(2) Begins to Run from the First Date a Claimant Acquires Knowledge of the Alleged Breach and a Loss ........................................................................ 34 D. Claimant Failed to Submit Its Claims Challenging the Canadian Law of Utility Within the Prescribed Three-Year Time Limit .......................... 39 1. Claimant Is Now Challenging the Judicial Interpretation of Canada’s Patent Act ...................................................................... 39 i Eli Lilly and Company v. Government of Canada Rejoinder Memorial of Canada December 8, 2015 2. Claimant First Acquired Knowledge of the Challenged Judicial Interpretations in the 2008 PM(NOC) Proceedings Related to its Raloxifene Patent .......................................................................... 42 a) The “Promise of the Patent” Doctrine Was Applied in the Raloxifene Proceedings .................................................... 43 b) The Post-Filing Evidence Rule Was Applied in the Raloxifene Proceedings .................................................... 44 c) The Sound Prediction Disclosure Rule Was Applied in the Raloxifene Proceedings .................................................... 45 3. Claimant Incurred a Loss as a Result of the Challenged Judicial Interpretations in 2009, More than Three Years Before Submitting This Claim to Arbitration .............................................................. 46 IV. CANADA’S LAW ON UTILITY AND ITS APPLICATION TO CLAIMANT’S PATENTS ARE NOT AN UNLAWFUL EXPROPRIATION IN BREACH OF ARTICLE 1110 ................................... 49 A. Overview .................................................................................................... 49 B. A Judicial Determination That a Patent Is Invalid Does Not Engage the Obligations Under Article 1110 ........................................................... 51 C. Article 1110(7) Also Bars the Application of Article 1110 in this Case ... 58 1. Canada’s Law Is Consistent With Article 1701(1) ....................... 59 2. Canada’s Law Is Consistent With Article 1709(1) ....................... 61 a) Claimant’s Analysis of the Meaning of Article 1709(1) Is Flawed ............................................................................... 61 b) The Ordinary Meaning of Article 1709(1) Makes Clear that the NAFTA Parties Have the Flexibility to Set and Implement the Utility Requirement .................................. 66 (1) The NAFTA Parties Had Different Thresholds for Utility Prior To NAFTA ....................................... 67 (2) The NAFTA Parties Implemented Their Utility Standards in Different Ways When NAFTA Was Signed ................................................................... 71 c) The Context of Article 1709(1) Confirms that the NAFTA Parties Did Not Adopt a Restrictive Definition of Utility in Article 1709(1) .................................................................. 77 d) Subsequent Practice Confirms that the NAFTA Parties Did Not Adopt a Restrictive Definition of Utility in Article 1709(1) .............................................................................. 79 ii Eli Lilly and Company v. Government of Canada Rejoinder Memorial of Canada December 8, 2015 e) Relevant Rules of International Law Confirm that the NAFTA Parties Did Not Adopt a Restrictive Definition of Utility in Article 1709(1) .................................................. 80 f) Supplementary Means of Interpretation Confirm that the NAFTA Parties Did Not Adopt a Restrictive Definition of Utility in Article 1709(1) .................................................. 82 3. Canada’s Law Is Consistent With Article 1709(7) ....................... 83 4. Canada’s Law Is Consistent With Article 1709(8) ....................... 91 D. There Has Been No Unlawful Direct or Indirect Expropriation of Claimant’s Patents ..................................................................................... 94 1. Claimant’s Legal Theory On Judicial Expropriation Is Incorrect 95 2. Claimant’s Patents Were Not Directly Expropriated .................. 100 3. Claimant’s Patents Were Not Indirectly Expropriated ............... 100 a) The Measures Did Not Substantially Deprive Claimant of Its Investment .................................................................. 102 b) The Measures Did Not Violate Claimant’s Reasonable Investment-Backed Expectations .................................... 102 c) The Character of Canada’s Measures Weighs Heavily Against a Finding of Indirect Expropriation ................... 106 4. Canada’s Measures Do Not Breach Any Other Rule of International Law ........................................................................ 107 V. CANADA’S LAW ON UTILITY AND ITS APPLICATION TO CLAIMANT’S PATENTS DO NOT BREACH ITS OBLIGATIONS UNDER ARTICLE 1105 ................................................................................... 109 A. Overview .................................................................................................. 109 B. Claimant Has Not Established the Existence of a Rule of Customary International Law Other Than Denial of Justice Applicable to Judicial Adjudication ............................................................................................. 110 C. Claimant Has Failed to Meet Its Obligation to Establish That Customary International Law Provides the Protections It Alleges .......... 115 1. Claimant Has Failed to Establish That Customary International Law Protects Against Arbitrary Conduct .................................... 117 2. Claimant Has Failed to Establish That Customary International Law Protects Against All Forms of Discrimination ................... 118 3. Claimant Has Failed to Establish That Customary International Law Protects Its “Legitimate Expectations” ............................... 120 D. The Threshold for Establishing a Breach of Article 1105(1) Is High ...... 122 iii Eli Lilly and Company v. Government of Canada Rejoinder Memorial of Canada December 8, 2015 E. Claimant’s Arguments Rely on Mischaracterizations and Misrepresentations of Canadian Law and Court Decisions ..................... 122 1. The Decisions of the Federal Courts Were Not Arbitrary .......... 122 2. The Decisions of the Federal Courts Were Not Discriminatory . 126 3. The Decisions of the Federal Courts Did Not Violate Claimant’s “Legitimate Expectations” .......................................................... 128 VI. REQUEST FOR RELIEF ................................................................................. 129 iv Eli Lilly and Company