Canada `Bombshell’ Patent Ruling Seen Favoring Foreign Firms (1)

(Bloomberg) — A Canadian Supreme Court ruling Friday that overhauls patent law will largely favor multinational patent holders over the country’s own startups and may ease Nafta talks due to begin with the U.S. this year, observers say.

The decision, the latest from a Canadian court to reshape intellectual property rights, effectively lowers the bar to receive and defend a patent in the country, tilting the playing field in favor of existing holders. While applauded by larger firms and industry groups, the ruling threatens to upend the domestic technology sector and undercut Prime Minister Justin Trudeau’s aims of reshaping Canada as a leader in innovative industries.

“It’s a bombshell of a decision,” said Richard Gold, a law professor at Montreal’s McGill University who studies intellectual property. He’s a member of the university’s Centre For Intellectual Property Policy, which intervened in the case. “We’re now the only country in the developed world that when an inventor says, ‘my invention does X,’ it doesn’t actually have to do X.”

The Supreme Court ruled that a current standard, known as the “promise doctrine,” goes too far, because it allows for patents to be invalidated if an invention doesn’t do any of the things it promised.

The decision removes a potential spur in North American Free Trade Agreement talks, due to begin as early as August, by resolving an issue the U.S. had already flagged. It follows another ruling this week that ordered Alphabet’s Google to remove search results from websites offering goods that infringe on intellectual property.

‘Key’ Irritant

Friday’s ruling “removes a key irritant,” Michael Geist, a law professor at the University of Ottawa, said in a written statement. “Combined with the Google case from earlier this week, Canada is now home to some of the toughest anti-piracy laws in the world along with some of the friendliest patent rules for patent holders.”

“Canada joins trade agreements and IP treaties in order to not be an outlier,” Andre Albinati, an adviser to pharmaceutical sector for Earnscliffe Strategy Group, an Ottawa-based government relations firm, said in an email. “This decision strengthens Canada’s investment hand by demonstrating that it has a predictable legal and policy environment for companies.”

While Canadian patents will now be easier to get for domestic and foreign firms alike, the vast majority of existing patents in Canada are foreign-held — and emboldened multinationals will probably now be able to gum up the system to the disadvantage of Canadian firms, Gold said. “The effect is we’re making it harder for the smaller players to come up with the invention,” Gold said.

AstraZeneca, Apotex

Friday’s ruling specifically allowed an appeal from the Canadian unit of Cambridge, U.K.-based pharmaceutical giant AstraZeneca Plc, maker of a drug called nexium. The dispute with Apotex Inc., a closely held Toronto-based firm that bills itself as the largest Canadian-owned pharmaceutical company, is over a generic version of the drug.

The ruling “obliterates” the Canadian patent law principle known as the “Promise Doctrine,” Gold said. With its ruling, the court made Canadian patents much easier to get and hold than, for instance, in the U.S. It gives large holders of intellectual property — such as those in the pharmaceutical sector or giants like Microsoft Corp. and Alphabet Inc. — the upper hand in Canada, Gold said.

“It means patents that they have that might be ruled invalid in the United States might be ruled valid in Canada, so it gives them more leverage against Canadian firms,” he said. “This is a boon to foreign patent holders.”

AstraZeneca welcomed the decision, which “will resolve a key issue for Canadian innovators because it removes the ambiguity that the promise doctrine created,” a company representative said in an email. “It signals to global investors that Canada is a good place to invest with a predictable and stable market, aligned to other major trading partners.”

Innovative Medicines Canada, a pharmaceutical industry group, also applauded the ruling for doing away with the “unreasonable and inconsistent” promise doctrine standard.

Patent Validity

Courts in Canada had previously ruled patents are only valid if the invention does what the patent says it will do and the courts had generally been strict in their application, said Florian Martin-Bariteau, director of the University of Ottawa’s Centre for Law, Technology and Society.

Friday’s ruling affects “the foundation of patent law in Canada” and means a patent is still valid if it’s useful for some purposes, even if it wasn’t able to do what was described in the patent, he said.

“Today, Canada has become one of the less restrictive jurisdictions in the world,” Martin-Bariteau said in an email. “It is certainly good news for patent holders because it removes one of the biggest restrictions.”

The ruling raises “serious questions about Canadian patent law and the prospect of creating patent barriers to new innovation,” Geist said. The biggest impact in the short-term is a political one — Canadian patent law has been the top intellectual property concern for the U.S., he said.

The U.S. Chamber of Commerce’s Global Intellectual Property Center welcomed the ruling. “Today, the Supreme Court has begun to restore much-needed clarity and confidence that biopharmaceutical innovators will be afforded equal protections under the law,” Patrick Kilbride, vice president of international intellectual property policy, said in a written statement.

“We are assessing the decision and its impact on Canada’s patent system,” Karl Sasseville, a spokesman for Innovation Minister Navdeep Bains, said in an e-mail. “Canada is strongly committed to innovation in the pharmaceutical sector. We are always working to ensure that the patent system properly incentivizes and rewards research and development without prematurely foreclosing promising areas of research.”

Apotex didn’t immediately respond to a request for comment.

(Updates with reaction throughout.)

©2017 Bloomberg L.P.

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