Compulsory licensing in Canada—revisited
On March 25, 2020, the government of Canada acted swiftly to enact legislation in response to COVID-19. The legislation, which was introduced into Parliament just the day before, brought sweeping changes to various aspects of Canadian law, including expanding the compulsory licensing framework in the Patent Act.
The Canadian Patent Act has permitted the grant of compulsory licences in four broad circumstances: (i) for a pharmaceutical patent, on application and payment of a nominal royalty (repealed in 1993); (ii) where there has been abuse of patent rights; (iii) for use by the government; and (iv) use for export of pharmaceutical products for humanitarian reasons.
The COVID-19 Emergency Response Act grants the Commissioner of Patents the power to authorise use of a patented invention to the extent necessary to respond to a public health emergency. This form of compulsory licensing builds on the existing framework that has allowed government use of a patented invention.
Historical context
Compulsory licences for medicines specifically
The compulsory licensing provisions of the Patent Act relating to medicines were repealed in 1993 to adhere to Canada’s obligations under the TRIPS Agreement and the North American Free Trade Agreement. All such licences granted after December 20, 1991 were also terminated.
“The authorisation will be limited to making, constructing, using and selling the patented invention for the purposes of responding to the public health emergency.”
Criticisms of the regime included the requisite compensation to patentees. While the royalty rate was not set by statute, in a 1970 decision involving the drug diazepam, the Commissioner selected a royalty rate of 4% of the net selling price, which was generally followed in subsequent decisions. Prior to the 1990s, over 1,000 applications for compulsory licences were made, with the majority granted, allowing the generic manufacturing industry in Canada to flourish.
Abuse
The category of compulsory licences based on abuse of patent rights traces back to the original 1869 Patent Act, with the current iteration found in sections 65 to 71 of the Patent Act.
Abuse can be alleged three years post-grant, with the Commissioner having the power to grant licences, or revoke the patent. The situations that are deemed abusive include: (i) demand for the patented article not being adequately met in Canada on reasonable terms; (ii) refusal by the patentee to license the patent on reasonable terms, with prejudice to trade or industry in Canada, and with the licence being in the public interest; (iii) the patentee has attached conditions to use of the patented article or process that unfairly prejudice trade or industry in Canada; and (iv) use by the patentee of a process or product-by-process patent involving materials not protected by the patent to unfairly prejudice the manufacture, use or sale of any materials in Canada.
The patentee can oppose grant of relief and grant of such licences is very rare. The most recent cases litigated under these provisions involved patents for the medicines lisinopril and enalapril, where applications by Torpharm (2004) and Brantford Chemicals (2006), respectively, were refused.
Use by government
From 1869 to 1993, the Patent Act specified that the government of Canada may use any patented invention, “paying to the patentee such sum as the Commissioner reports to be a reasonable compensation”. The Patent Act was amended in 1993 to create a pathway for such an authorisation and to further protect patentee rights.
Current sections 19 and 19.1 to 19.3 of the Patent Act enable the Commissioner to authorise use of a patented invention (other than semiconductor technology) by the federal or a provincial government. Except in cases of national emergency, extreme urgency or public non-commercial use, a governmental applicant must establish (a) efforts to obtain authority from the patentee on reasonable terms and conditions; and (b) that its efforts have not been successful within a reasonable period.
Authorised users must pay the patentee an amount the Commissioner considers “adequate remuneration in the circumstances, taking into account the economic value of the authorisation”.
Governmental use is to be limited in scope and duration, non-exclusive and authorised predominantly to supply the domestic market. The authorisation is not transferable, and the user must comply with the prescribed conditions. Moreover, the Commissioner is required to notify the patentee of any use of the patented invention that is authorised. Upon application by the patentee, the Commissioner may terminate the authorisation if satisfied that “the circumstances that led to the granting of the authorisation have ceased to exist and are unlikely to recur”. The Commissioner may nonetheless impose conditions to “protect the legitimate interests of the authorised user”.
Historically, these provisions have been used as wartime or defence measures, without a reported decision since the Patent Act was amended in 1993.
Use for export for humanitarian reasons
Implementing the World Trade Organization (WTO) General Council decision of August 30, 2003, sections 21.01 to 21.2 of the Patent Act (and the Food and Drugs Act) were introduced in 2005 “to address public health problems afflicting many developing and least-developed countries, especially those resulting from HIV/AIDS, tuberculosis, malaria and other epidemics”.
Sections 21.01 to 21.2 permit the grant of an authorisation to make, construct and use a patented invention solely for purposes directly related to manufacture of the pharmaceutical product named in the application and sale for export to a country or WTO member listed in any certain schedules to the Patent Act. To date, only a single licence (for Apo-TriAvir, for export to Rwanda) has been granted.
COVID-19 licences: section 19.4 of the Patent Act
The COVID-19 Emergency Response Act builds on the current provisions in sections 19 to 19.3 of the Patent Act. The key features of new section 19.4 are:
Term: this new relief is time-limited: any authorisation under this provision must be granted by September 30, 2020 and can have a maximum one-year term from grant. The Minister of Health may also notify the Commissioner that the authorisation is no longer necessary to respond to the public health emergency set out in the application, terminating the authorisation.
Basis: section 19.4 is limited to addressing public health emergencies, which are not defined in the COVID-19 Emergency Response Act nor the Patent Act, and thus arguably are broader than COVID-19 public health emergencies. Section 19.4 is not specifically limited to a domestic emergency, but the application for the authorisation requires a confirmation that the chief public health officer believes that there is a public health emergency that is a matter of national concern.
Scope: section 19.4 requires the application for the authorisation to be filed by the Minister of Health but unlike section 19, the authorisation is not limited to the government and can be for “any person” specified in the Minister’s application. The authorisation is not transferable. The authorisation will be limited to making, constructing, using and selling the patented invention for the purposes of responding to the public health emergency, as described in the application.
Patentee rights: the patentee is to be notified after the authorisation is granted, but there is no requirement to notify the patentee in advance. The commissioner is to decide “adequate remuneration in the circumstances, taking into account the economic value of the authorisation and the extent to which they make, construct, use and sell the patented invention”.
The patentee may apply to the Federal Court for an order requiring the government or authorised person to cease making, constructing, using or selling the patented invention “in a manner that is inconsistent” with the authorisation.
Section 19.4 may fall short however in addressing:
- Relevant patents: it may be difficult for a third party to identify all patents that relate to a product. Ideally the amendments to the Patent Act would have allowed for a mechanism to ensure that relevant patents are adequately addressed.
- Domestic supply: there is no process to confirm whether the patentee can satisfy domestic demand or be willing to grant a licence to a third party. Sections 19 to 19.3 give the government only the right to use a patented invention, and section 65, which may authorise use by non-governmental third parties, includes element of supply and demand, and willingness to license.
- Compensation: it has been many years since the Commissioner has been required to consider issues of adequate compensation under the Patent Act. If the commissioner is required to do so, this may be an onerous burden.
These questions may ultimately go unanswered, as section 19.4 may never be invoked, and may join the list of rarely used provisions mentioned above to curtail patent rights in Canada.
Daphne Lainson is a partner at Smart & Biggar. She can be contacted at dclainson@smartbiggar.ca
Nancy Pei is a partner at Smart & Biggar. She can be contacted at nppei@smartbiggar.ca
