NEWS RELEASES

September 18, 2000 (2:45 p.m. EDT) No. 240

CANADA DISAPPOINTED WITH WTO APPELLATE BODY DECISION

The Appellate Body of the World Trade Organization (WTO) today has upheld the ruling of an earlier WTO panel in the U.S. challenge of Canada's patent term, which found Canada's patent term for certain pre-1989 patents to be inconsistent with obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

"We are disappointed by the Appellate Body report," said International Trade Minister Pierre Pettigrew. "We will review this ruling carefully and continue our consultations with stakeholders and provinces before making any decision on how to proceed with respect to implementation."

"Because this ruling affects only patents filed prior to October 1, 1989, it does not compromise the underlying balance in Canada's patent regime," said Industry Minister John Manley.

Under Canada's Patent Act, the term of protection of patents based on applications filed before October 1, 1989, is 17 years from the date the patent is granted. The WTO Panel concluded on May 5, 2000, and the Appellate Body concurred today, that under the TRIPS Agreement a minimum term of 20 years from the date the patent application is filed must be available. Canada argued that proper interpretation of the TRIPS Agreement accommodates our patent term. Patents based on applications filed on or after October 1, 1989, have a term of 20 years from the date of filing and were not at issue in the dispute. Nor are patents that have already expired.

The Appellate Body report will be adopted at a future meeting of the WTO Dispute Settlement Body. Canada will have to indicate its intentions with respect to implementation within 30 days of adoption.

Further information can be found at the following Web site: http://www.dfait-maeci.gc.ca/tna-nac/dispute-e.asp#Patent

- 30 -

A backgrounder is attached.

For further information, media representatives may contact:

Sylvie Bussières

Office of the Minister for International Trade

(613) 992-7332

Media Relations Office

Department of Foreign Affairs and International Trade

(613) 995-1874

Tony Macerollo

Office of the Minister of Industry

(613) 995-9001

This document is also available on the Department of Foreign Affairs and International Trade's Internet site: http://www.dfait-maeci.gc.ca

Backgrounder

WTO APPELLATE BODY REPORT ON U.S. CHALLENGE

OF CANADA'S PATENT TERM

The Appellate Body of the World Trade Organization (WTO), in its report of September 18, 2000, upheld the May 5, 2000 ruling of a WTO panel which found Canada's patent term for certain patents based on applications filed before October 1, 1989 (pre-1989 patents) to be inconsistent with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The WTO Panel was established in September 1999 at the request of the United States. The dispute with the U.S. concerns patents across all fields of technology.

Canada's Patent Act contains two term of protection provisions:

• the term of patents based on applications filed before October 1, 1989 (Section 45 of the Act), is 17 years counted from the date the patent was granted ("Old Act" patents);

• the term of patents based on applications filed on or after October 1, 1989 (Section 44 of the Act), is 20 years counted from the date the patent application was filed ("New Act" patents).

The 1987 Act to Amend the Patent Act (Bill C-22) introduced the 20-year from filing term of protection into Canadian law, effective October 1, 1989. Previously, all patents had a term of protection of 17 years from the date of grant.

The Appellate Body ruled that TRIPS requires a minimum patent term of 20 years from the date of filing for all patents. Since Canada already provides a patent term of 20 years for all "New Act" patents, the Appellate Body ruling only concerns "Old Act" patents that were granted within three years from the date that the application was filed.

During the WTO dispute settlement proceedings, Canada argued that "Old Act" patents had, on balance, equivalent protection to "New Act" patents, and that a term of 20 years from the date of application filing was available to patent applicants under "Old Act" rules. Canada also argued that the term of protection provision of the TRIPS Agreement did not have retroactive application to patents granted before TRIPS came into force in Canada in 1996. These arguments were rejected by the WTO Panel and the Appellate Body.

Under the WTO's Dispute Settlement Understanding (DSU), the Appellate Body report must be adopted within 30 days following the circulation of the report to WTO members. The DSU affords Canada a reasonable period of time to implement the Appellate Body ruling. Canada would have up to 45 days from the date of adoption of the Appellate Body report to negotiate with the U.S. the reasonable period of time for implementation. In the absence of an agreement, the time period will be decided by binding arbitration. The reasonable period of time for implementation is not to exceed 15 months from the date of adoption of the Appellate Body report, but can be shorter or longer depending upon the particular circumstances.

Compliance with the Appellate Body ruling entails an amendment to the Patent Act to address the term of patent protection provided under Section 45 of the Act.

Number of Patents at Issue

On January 1, 2000, there were 169 966 "Old Act" patents outstanding. Of these, 103 030 had a term of protection equal to or greater than 20 years from the date of filing and were not at issue in this dispute. The remaining 66 936 "Old Act" patents had a term of protection less than 20 years counted from the date of filing. Of the latter, 77 percent had a term of protection greater than 19 years counted from the date of filing. In other words, for more than three-quarters of the 66 936 affected patents, the term of protection at issue in the dispute was less than one year.

Clearly, not all patents have commercial value. In the course of consultations on this issue, attention has focussed on pharmaceutical patents that cover drugs sold by brand-name pharmaceutical companies.

Impact on the Pharmaceutical Sector

The ruling of the Appellate Body may affect the term of some patents covering drug products. Whether or not a drug is affected depends on the patent protection now available, the original application date for the relevant patents, the expiry dates, and the potential extension of patent term.

It is estimated that less than 40 drugs have a term of patent protection of less than 20 years from the date of filing that also appear on the leading products list (pharmaceutical sales) published by IMS HEALTH Canada.

Compliance with the Appellate Body ruling would, on average, extend the term of patent protection for affected products by less than six months. An extension in patent term could delay by a corresponding period the potential entry on the market of generic substitutes.

This would occur as the pre-1989 patents come to term, between now and 2009.

For any drug, the impact would depend on a number of market factors, including sales volume, price, and whether generic substitutes would be available immediately at the end of the patent term.

There would be no sustained impact on the cost of drugs for Canadians.

In Canada, about 40 percent of prescription drugs are funded by the public sector, 40 percent by the private sector and 20 percent by the cash market.

The Patented Medicines Prices Review Board, an independent quasi-judicial body, has the mandate to ensure that prices of patented medicines for sale in Canada are not excessive.