Investor-State Attacks: Health
Eli Lilly v. Canada
Indiana-based Eli Lilly, the fifth-largest U.S. pharmaceutical corporation, challenged Canada’s patent standards after Canadian courts invalidated the company’s patents for Strattera and Zyprexa. (These drugs are used to treat attention deficit hyperactivity disorder (ADHD), schizophrenia and bipolar disorder.) Canadian federal courts applied Canada’s promise utility doctrine to rule that Eli Lilly had failed to demonstrate or soundly predict that the drugs would provide the benefits that the company promised when applying for the patents’ monopoly protection rights. The resulting patent invalidations paved the way for the production of less expensive, generic versions of the drugs. Eli Lilly’s notice argued that Canada’s entire legal basis for determining a patent’s validity – that a pharmaceutical corporation should be required to verify its promises of a drug’s utility in order to obtain a patent – is “arbitrary, unfair, unjust, and discriminatory.” The company alleged that Canada’s legal standard violated the NAFTA guarantee of a “minimum standard of treatment” for foreign investors and resulted in a NAFTA-prohibited expropriation.
On March 16, 2017, after years of high-profile campaigning from access-to-medicines advocates, the tribunal dismissed the claim. However, the grounds on which it based its dismissal allowed the tribunal to refrain from commenting on many of the substantive issues raised in the case, meaning it avoided ruling on the merits of using the specific ISDS claims alleged in this case to attack a country’s patent regime.
Instead, the tribunal focused on procedural matters unique to this filing. Namely, the tribunal noted that under NAFTA, cases must be filed within three years of an alleged “government action” that an investor claims violated its NAFTA rights. Thus, the “alleged breach” in this case was not the previous change in Canadian patent law itself, but the Canadian courts’ enforcement of the law that resulted in Eli Lilly’s patents being invalidated. The tribunal then concluded that such court enforcement did not constitute a “dramatic change” of the law. This fancy legal footwork allowed the tribunal to avoid having to weigh in on whether Canada’s patent law violated its intellectual property obligations and whether that would have constituted a violation of the NAFTA-guaranteed minimum standard of treatment for investors or also whether the law change would constitute an expropriation of Eli Lilly’s investment.
The tribunal ordered Eli Lilly to bear the US$750,000 cost of the arbitration (the hourly fees of the three tribunalists, venue, travel costs, etc.) as well as 75 percent of Canada’s legal fees. This means that this case that it “won” will cost Canada US$1.2 million in tax dollars to pay its lawyers as well as the opportunity costs of those lawyers not being able to do other work for almost four years.
Ethyl Corporation, a U.S. chemical company, launched a NAFTA investor-state case in 1997 over a Canadian ban of MMT, a toxic gasoline additive used to improve engine performance. MMT contains manganese − a known human neurotoxin. Canadian legislators, concerned about MMT’s public health and environmental risks, including its interference with emission-control systems, banned MMT’s intra-provincial transport and importation in 1997. Given that Canadian provinces have jurisdiction over most environmental matters, such actions are how a national ban of a substance could be enacted in Canada. When the law was being considered, Ethyl explicitly threatened that it would respond with a NAFTA challenge. MMT is not used in most countries outside Canada. It is banned by the U.S. Environmental Protection Agency in reformulated gasoline. Making good on its threat, Ethyl initiated a NAFTA claim against the toxics ban, arguing that it constituted a NAFTA-forbidden “indirect” expropriation of its assets.
Though Canada argued that Ethyl did not have standing under NAFTA to bring the challenge, a NAFTA tribunal rejected Canada’s objections in a June 1998 jurisdictional decision that paved the way for a ruling on the substance of the case. Less than a month after losing the jurisdictional ruling, the Canadian government announced that it would settle with Ethyl. The terms of that settlement required the government to pay the firm $13 million in damages and legal fees, post advertising saying MMT was safe, and reverse the ban on MMT. As a result, today Canada depends largely on voluntary restrictions to reduce the presence of MMT in gas.