Canada Joins An Unrepentant Rogue's Gallery

Visit the rogue's gallery of international patent law and you'll find an unrepentant crew glowering back at you: China, India, Russia, Pakistan, Venezuela, Belarus, and...Canada?

Yes, Canada, sorry to say. Usually a reliable advocate for property rights, free trade, and global law and order, in recent years our northern neighbor has been honored with a spot on the "watch list" for intellectual property violators by the U.S. Trade Representative, right up there between Bulgaria and Colombia, and has occasionally graced the "priority watch list" in company with the hardcore offenders named above. If you're wondering how America's biggest trading partner and closest ally ended up here, you're not alone.

Its uncharacteristic notoriety is the result of a series of controversial rulings by the Supreme Court of Canada dating back almost a decade. These judgments have dramatically - some might say capriciously - changed the rules for patentability, in effect making it nearly impossible for innovative companies to win protection for their scientific and technical achievements. This strikes at the very foundation of progress by deterring research and development, a danger well illustrated by the example of the pharmaceutical industry.

The common conception of IP doesn't take a law degree to understand: most developed countries agree that patents should be reserved for inventions that are "new, non-obvious, and useful," with "useful" generally defined as "capable of industrial application." Take the IP-intensive pharmaceutical sector, for instance. When it comes to new drugs most governments also separate patent approval from regulatory approval, setting a lower threshold for demonstrating utility when granting patents and leaving more exacting reviews to health officials.

However, beginning in 2005 Canada's Supreme Court has effectively combined patent and regulatory approval - and the result is an unholy mess. Under the new regime, drugs must not only be both new and useful, their utility must also be proven with clinical trials before the patent is ever issued - something no other developed country requires.

Under this idiosyncratic interpretation, Canadian courts have retroactively overturned patents on 17 drugs simply because clinical trial data wasn't on hand when the patent was issued - even though the drugs were subsequently approved by Canadian health officials and have been in use for years. We should notice that the patents were overturned at the behest of generic drug manufacturers, who proceeded to make knockoffs of these "not useful" drugs.

As a result, IP innovators face a farcical paradox: on one hand a new drug can't be considered "useful" because it hasn't undergone clinical trials, while on the other a drug that has demonstrated its utility through years of trials can no longer be considered "new." At some point, given the billion dollar cost for research and development, absent reliable patent protection, it's simply not worth it for pharmaceutical companies to fund innovation.

To be fair the ongoing dispute isn't just a north-south feud, as plenty of Canadian drug makers are also highly critical of the new patent policy, rightly blaming it for depressing domestic research and development, and deterring foreign investment. And today's assault on pharmaceuticals won't be the end of things. The most productive parts of our modern economy are IP-intensive. From next-gen high-tech to energy and resource extraction, companies need certainty that their patents will be respected.

It's now up to Canada's Parliament to fix this bizarre situation by passing legislation restoring the longstanding, internationally accepted IP standards that have underpinned scientific progress in the modern era. For its part, U.S. government officials need to keep up the pressure on our friends north of the border. No one wants to see Canada remain an outlier and impediment to free trade and the sharing of knowledge - a strange and hopefully temporary aberration for a country that is in so many ways a global stalwart for sensible government and the rule of law.