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<html> <head> <meta name="Generator" content="Corel WordPerfect 8"> <title>CANADA WELCOMES WTO RULING ON EU CHALLENGE OF CANADA'S PHARMACEUTICAL PATENT REGIME </title> </head> <body text="#000000" link="#0000ff" vlink="#551a8b" alink="#ff0000" bgcolor="#c0c0c0"> March 17, 2000 (2:00 p.m. EST) No. 48 CANADA WELCOMES WTO RULING ON EU CHALLENGE OF CANADA'S PHARMACEUTICAL PATENT REGIME The Government of Canada is pleased that a World Trade Organization (WTO) dispute settlement panel has validated Canada's early working exception, a significant element of Canada's patent regime. The European Union (EU), in its challenge of Canada's patent regime, alleged that the exception was contrary to our obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and requested that the issue be examined by a WTO dispute settlement panel. The panel, in a report issued today, clearly decided in favour of Canada's early working exception. "The decision is an important win for Canada. I am pleased to see that the WTO panel agreed that this exception is consistent with Canada's trade obligations," said Minister for International Trade Pierre S. Pettigrew. "This will help clarify international trade rules." In Canada, the early working exception allows manufacturers to begin the process of seeking regulatory approval for competing versions of patented products prior to the expiration of the patent term. This exception is particularly important for the pharmaceutical sector. It allows entry into the market of generic drugs as soon as possible after patent expiry. "Canada's success proves that it is possible to have effective patent protection and effective competition that benefits consumers," said Minister of Industry, John Manley. "This is good news for Canadians," said Minister of Health, Allan Rock. "It helps provide Canadians with access to drugs at reasonable prices." As part of the ruling, the panel decided that Canada's stockpiling practices were not consistent with our international obligations. Pharmaceutical manufacturers are able to stockpile quantities of product during the six months prior to the expiration of the patent. The benefits of this exception are minimal in regard to the advantage of the early working exception. The Government of Canada is considering its options regarding this aspect of the decision. All WTO members must be given at least 20 days before the report can be considered for adoption by the WTO dispute settlement body. WTO rules also provide that the panel report must be adopted or appealed within 60 days from the date it was circulated to WTO members. - 30 - Background information is attached. A copy of the report is available at <a href="www.dfait-maeci.gc.ca/tna-nac/dispute-e.asp">www.dfait-maeci.gc.ca/tna-nac/dispute-e.asp</a> For further information, media representatives may contact: Sylvie Bussières Office of the Minister for International Trade (613) 992-7332 Jennifer Sloan Office of the Minister of Industry (613) 995-9001 Derek Kent Office of the Minister of Health (613) 957-1515 Media Relations Office Department of Foreign Affairs and International Trade (613) 995-1874 This document is also available on the Department of Foreign Affairs and International Trade's Internet site: <a href="https://bac-lac.wayback.archive-it.org/web/20061209063138/http://www.dfait-maeci.gc.ca/">http://www.dfait-maeci.gc.ca</a> Backgrounder PROFILE OF CANADA'S PHARMACEUTICAL INDUSTRY Overview The Canadian pharmaceutical industry is a leading-edge, technology-intensive industry that covers a range of activities -- from research, to the production of innovative drugs, to the manufacturing of generic versions of these drugs -- based on both chemical and biological processes and materials. The world pharmaceutical sector was valued at $400 billion in 1998, with a growth rate of about 7% per year. Growth rates of around 9% are forecasted for Canada between 1998 and 2003. The largest market in the world is North America, which has 39% of the total, followed by the European Union with 32%, and Japan with 16%. The Canadian market, worth $7.8 billion in 1998, is about 2% of the global market, and ranks ninth in market size. In 1998, the Canadian pharmaceutical industry employed over 24 000 persons, according to Canada's Research-Based Pharmaceutical Companies (Rx&D) and the Canadian Drug Manufacturers Association (CDMA). Manufacturing employment has remained stable over the past 10 years, but there has been a significant increase in employment outside of manufacturing, driven by growth in R&D. Between 1990 and 1998, total manufacturing sales of the industry increased at an average rate of 10% per year, to reach $7.8 billion in 1998. Drug prices in Canada have declined since 1993 and have also declined compared to prices in other countries. In 1998, prices of patented drugs were 12% below the median price of a basket in similar countries used by the Patented Medicines Prices Review Board (PMPRB) for comparison, and close to 40% lower than prices in the United States. Performance by Sector Brand-name companies specialize in the development and marketing of innovative drugs. The brand-name sector is the largest component of the pharmaceutical industry in Canada, with about 85% of pharmaceutical sales. It employed approximately 19 600 people in 1998. Generic firms specialize in the manufacture of off-patent drugs and drugs licensed under the previous compulsory licensing regime. The generic sector employed approximately 4 800 people in 1998. Forty percent of prescriptions are filled by a generic drug, representing 14.5% of the dollar value of the prescription market. Backgrounder EUROPEAN UNION CHALLENGE TO CANADA'S DRUG PATENT POLICY Canada's patent policy, as it applies to the pharmaceutical sector, pursues a balance between providing effective patent protection to reward innovation in new drugs, and providing early and effective competition for drugs to ensure access to health care products at reasonable prices. The European Union has challenged Canada's Patent Act under the World Trade Organization (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement in respect of two exceptions: <ul> <li>the early working exception, set out in Section 55.2(1) of the Patent Act; and</li> </ul> <ul> <li>the stockpiling exception, set out in Section 55.2(2) of the Patent Act.</li> </ul> The "regulatory review" or "early working" exception allows third parties to use a patented invention during its term of protection, provided such use is directed at obtaining regulatory approval for the marketing of an equivalent product upon expiry of the patent. This is an exception to normal patent protection, which in most circumstances prohibits the use of a patented invention by another, and would expose an unauthorized user to patent infringement liability. In the context of the pharmaceutical industry the early working exception is a particularly valuable component of the Canadian government's balanced policy, given that the regulatory review for drug approvals can be very time-consuming. It is estimated that it may take a generic manufacturer from 2 to 4 years to develop a regulatory submission and another 1 to 2.5 years for Health Canada to complete its approval. The exception is important in that it allows competitors to do this work prior to patent expiry and supply consumers with an approved generic drug soon after patent expiry. The WTO panel found that Canada's early working exception is consistent with Canada's trade obligations under the TRIPS Agreement. The second of the two exceptions is termed the "stockpiling" exception. In the case of second-entry drug manufacturers who have taken advantage of the early working exception and are entitled to regulatory approval upon expiry of the patent, the stockpiling exception authorizes the manufacture and accumulation of the generic product during the last six months of the patent term. The WTO panel found that Canada's stockpiling exception is not consistent with international obligations. The Government of Canada is considering next steps in this process. WTO members must be given at least 20 days before the report can be considered for adoption at a meeting of the WTO Dispute Settlement Body. WTO rules also provide that the panel report must be adopted or appealed within 60 days from the date it was circulated to the WTO members. </body> </html>

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