Canadian Generic Drug Manufacturers To Be Allowed To Produce Patented Drugs For Export

Tuesday, June 1, 2004 - 00:00

In a bold move, Canada's federal government has introduced legislation, Bill C-9, that will allow Canadian generic drug manufacturers to produce patented drugs for export. The purpose of Bill C-9 is to facilitate the developing world's access to drugs in an effort to stem public health problems resulting from HIV/AIDS, tuberculosis, malaria and other epidemics. The bill is in response to the August 2003 decision by the World Trade Organization's General Council for the Agreement on Trade-Related Aspects of Intellectual Property Rights to waive intellectual property obligations when a license is sought to produce drugs for export to countries in need. The decision followed the WTO's recognition that its system of compulsory licenses was ineffective for countries that lacked manufacturing capacity.

In referring to the decision, WTO Director-General Supachai Panitchpakdi stated, "The final piece of the jigsaw has fallen into place, allowing poorer countries to make full use of the flexibilities in the WTO's intellectual property rules in order to deal with diseases that ravage their people." Canada was the first country to respond to the decision with proposed legislation.

The bill sets out a detailed application process for obtaining authorization to produce a patented drug, and also provides some protection for the patent holder. A schedule lists the names of drugs included in the program, most of which are derived from a preapproved list by the World Health Organization (WHO).

Authorization Process

A manufacturer wishing to produce a patented drug under the bill must pay a fee and file a notice of intent setting out the following:

• the name of the drug that the applicant intends to manufacture and sell;

• prescribed information about the version of the drug to be manufactured;

• the quantity to be manufactured;

• the name of the patentee and the patent number as recorded in the patent office;

• the name of the country to which the product is to be exported; and

• the contractual terms and conditions of the agreement between the applicant and the government of the country where the product is to be exported and sold.

The applicant must also submit documents that (a)demonstrate the quantity of the product needed by the recipient country; and (b)show either that the product is not patented in that country or that a compulsory license will be granted in that country for the use of the product.

The Commissioner of Patents will send a copy of the notice of intent to each patentee with a statement informing the patentee that the applicant may be granted authorization to produce the drug unless within 30 days the patentee provides the Commissioner with (a)a statutory declaration stating that the patentee or its agent will supply the drug to the country named in the notice on terms and conditions that are no less favorable than those offered by the applicant; or (b)that the patentee has agreed to grant the applicant a right to produce and export the drug on the payment of a 2% royalty. If there is more than one patentee, one or more of the patentees may agree to supply the drug or each of the patentees may agree to receive the royalty. The Commissioner will not grant the authorization if the patentee agrees to supply the product on the same terms as provided in the notice of intent.

The Commissioner will authorize production of the drug for export only if (a)the applicant complies with prescribed requirements; and (b)the Ministry of Health notifies the Commissioner that the version of the drug meets the requirements of the Food and Drugs Act (Canada) and its regulations, including regulations regarding labeling and packaging that identify the product as having been manufactured in Canada in accordance with the General Council's decision and that distinguish it from the version of that product sold in Canada. The quantity of the product authorized to be produced will be limited to the lesser of that set out in the notice of intent and the stated requirement of the recipient country. The Commissioner will notify each patentee of any authorization granted.

Before exporting a drug manufactured under an authorization, the holder of the authorization must establish a website on which it discloses the prescribed information about the product, the recipient country, the quantity intended to be produced and the product's distinguishing features. The authorization is valid for two years unless another period is prescribed.

Protection Of Patentee

Patentees may apply to the Federal Court of Canada to terminate the authorizations granted under the bill. They may do so on the following grounds:

• the application contained material information that was inaccurate;

• the holder of the authorization failed to establish a website and/or disclose the required information on the website;

• the holder of the authorization failed to pay the royalty; or

• the product was re-exported or diverted from the intended recipient country to another country in significant quantities, and the holder of the authorization knew about the diversion.

Exported Drugs Must Meet Food And Drugs Act Requirements

The bill also amends the Food and Drugs Act. Section 37 of the Act provides that drugs and devices manufactured in Canada may be exported without meeting the requirements of the Act and its regulations as long as their packaging has distinctive markings and the manufacturer has no knowledge that the product violates a legal requirement in the importing country.

Bill C-9 amends this provision to provide that if the product is manufactured for the purpose of export in accordance with the General Council's decision, it must meet the requirements of the Act as if the drug were to be sold in Canada. This provision guarantees that the quality of any drugs manufactured under this program will meet the high standards of drugs produced for sale in Canada.

Proposed Amendments To Bill C-9

After Bill C-9 had its first and second readings in the House of Commons on February12,2004, it was referred to the House of Commons Standing Committee on Industry, Science and Technology. That committee has been considering amendments to the legislation in response to feedback from the pharmaceutical industry, non-governmental organizations and the public. The first proposed amendment concerns the requirement that patent holders be given the right of first refusal to supply the drugs. That provision was criticized because it would be a disincentive to Canadian generic manufacturersÑwho would need to invest time and money in negotiating supply contracts with the governments in developing countries. The proposed amendment maintains the requirement that the generic manufacturer seek a voluntary license from the patentee before applying for a compulsory license, but it removes the requirement for the generic manufacturer to notify the patentee before signing a contract with the importing country.

A further proposed amendment deals with the schedule listing the names of preapproved drugs. The original schedule was based on lists provided by the WHO that contain drugs recognized as essential to health needs. The proposed amendments add products to the list that were previously excluded for technical reasons. The criticism remains that developing countries themselves should be allowed to identify the drugs that they require since they are in the best position to know their own population's health problems.

The proposed amendments contain an expanded number of countries that may be eligible under the program by allowing non-WTO member countries to use the system to import drugs as long as they act in good faith in meeting their public health needs. This proposed amendment deals with criticisms of the bill relating to the spirit of the Doha Declaration on the TRIPS Agreement and Public Health, which refers to "access to medicines for all."

As indicated above, the royalty rate contained in the bill is set at 2%. Under a proposed amendment, the royalty rate would be determined by a formula that is based on the ranking system of the United Nations' human development index for eligible importing countries. For most of the least-developed countries, the formula would result in a royalty that is less than 2%.

An important criticism of the bill is that it allows only for a government or its agents to enter into supply contracts with Canadian manufacturers. In practice, health services in the least-developed countries are often provided by non-governmental organizations and private sector entities. There is a proposed amendment to change the language in the bill so that a licensed product may be sold to "the entity or person, purchasing on behalf of the importing country." This amendment would allow aid organizations to purchase necessary drugs for the populations they serve.

The final proposed amendment would allow patentees the right to contest an authorized compulsory license if they can show that the product is being sold above the established price threshold. This provision also meets the requirements of the General Council decision that the licensing regime be used in good faith.

Outstanding Concerns

Despite all the safeguards contained in the bill, it is still unclear whether the patentee will be adequately protected through the proposed licensing scheme. One key concern is diversion of drugs. This concern was recognized at the General Council meeting in August 2003. The General Council noted that "members recognize that the purpose of the Decision would be defeated if products supplied under this Decision are diverted from the markets for which they are intended." The bill allows a patentee to apply to the Federal Court if the product at issue is diverted from the intended recipient country to another country in significant quantities and the holder of the authorization knows about the diversion; however, there may be limited instances in which the holder of the authorization would know about such a diversion.This problem is magnified by the fact that the products may be distributed in countries with sometimes ineffective regulatory systems.

While Bill C-9 has many critics, it will be interesting to observe if Canada will truly break new ground by passing the bill into law. If it does, we will watch with further interest to see if Canadian generic drug manufacturers engage in the program described in the bill and begin selling low-cost drugs to least-developed countries.

Jennifer A. Orange (jorange@torys.com), an Associate in the Toronto office of Torys LLP, practices civil litigation in a variety of areas, including corporate/commercial, class actions, administrative, trade, labor and constitutional law.