The Incredible Shrinking Victory: Eli Lilly v. Canada, Success, Judicial Reversal, and Continuing Threats from Pharmaceutical ISDS
36 Pages Posted: 4 Aug 2017 Last revised: 6 May 2018
Date Written: July 6, 2017
On March 16, 2017, a three-member arbitration tribunal, instituted pursuant to the North American Free Trade Agreement (NAFTA) Investment Chapter, delivered its investor-state-dispute settlement (ISDS) decision in Eli Lilly v. Canada, dismissing the pharmaceutical giant’s claims and awarding $5 million in costs and legal fees to the Canadian government. After a five-year battle, with over $15 million in attorney and expert witness fees, Canada’s victory was hardly “resounding” because of the continuing threat and deterrent effect of this and other intellectual property-based investor-state arbitrations. But the eagerly awaited decision did effectively torpedo Eli Lilly’s specific compensation claims. The tribunal rejected Eli Lilly’s arguments that Canada’s judicial revocations of two new-use pharmaceutical patents had been confiscatory, unfair and inequitable, or discriminatory. However, the tribunal also failed to close the door to the possibility that invalidation of intellectual property rights (IPRs) under domestic law could constitute a violation of international investment law in the future. Nor did it question the possibility that domestic patent laws that are consistent with NAFTA or the World Trade Organization’s Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) could nevertheless be impugned for disappointing expectations of profit under bilateral investment agreements. Accordingly, the claim, heralded by some, that the decision finally buries lingering concerns that “trade tribunals will become supranational courts of appeal over domestic property law disputes” is profoundly misguided – it was at best a temporary, partial, or even pyrrhic victory. Despite winning the ISDS battle, Canada has conceded the war. Three months after Canada’s arbitral victory, the Canadian Supreme Court dramatically loosened its long-standing promise/utility doctrine in AstraZeneca Canada Inc. v. Apotex, Inc. There, after a protracted pressure campaign from the United States and the pharmaceutical industry, the Supreme Court of Canada eviscerated the promise/utility doctrine and adopted a much more forgiving test of utility that requires only “a mere scintilla” of evidence. The lingering effect of the patentability-IP claim in Eli Lilly on Canada’s policy reversal finds kinship in other IP-based ISDS cases involving a compulsory license in Colombia and data exclusivity in Ukraine. Together they show the chilling effect of a toxic brew of private ISDS claims, relentless pressure from trading partners, and a pharmaceutical industry bent on preserving monopoly profits and IP exclusivities.
Keywords: pharmaceutical patents, Eli Lilly, ISDS
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