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Moving in the Right Direction on Intellectual Property Protection

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The recent announcement of an agreement in principle on the free trade deal between Canada and the European Union is no doubt a positive development for the Canadian economy and ultimately Canadian incomes and standards of living.

Part of the agreement getting some misinformed attention however pertains to improvements in Canadian protections of pharmaceutical innovator intellectual property. While the Comprehensive Economic and Trade Agreement (CETA) will improve the situation somewhat and benefit Canadians, its changes go only part of the way to bringing Canada's protections in line with international standards.

Currently, Canadian intellectual property (IP) protections for pharmaceutical innovators are weaker than those in the US, EU and elsewhere in three key areas. The first is patent term restoration, or restoring patent time lost to mandatory regulatory delays: Canada offers none while both the U.S. and EU offer up to five years.

The second is on a right of appeal for patent holders, or allowing patent holders in Canada the right to appeal court rulings that invalidate their patent. The third is extended data exclusivity, the time during which generic manufacturers are not permitted to use innovator data for drug approvals: Canada offers up to 8.5 years, the EU offers 10 years plus one year for new indications, and the U.S. offers five years plus one year for regulatory delays plus three years for new indications for pharmaceuticals and 12 years for biologics.

While Europe had proposed a closer alignment between Canadian IP protections and those elsewhere, it appears the Canada-EU agreement will result in only a closing of the gap. Innovators in Canada will be able to appeal rulings that invalidate their patent, eliminating the current imbalance where only generic challengers can appeal rulings, and receive up to two years of patent term restoration.

Still, the potential benefits are considerable. First, even without trade, enhanced IP protection for pharmaceuticals in Canada will increase incentives for activity in a knowledge-based industry that pays relatively high wages for both highly-skilled and low-skilled employees. The enhancements in the free trade agreement will result in reduced legal ambiguity and litigation in Canada, greater research and development (R&D) expenditures, and additional job creation in the pharmaceutical industry. These improvements may also signal to innovative and IP-intensive industries that Canada is an attractive destination for them.

Stronger protections for innovator intellectual property will also mean improved access to medical innovations for Canadians, and additional innovation in medicines.

And while enhanced IP protections may not have been the key to the Canada-EU trade agreement, this area is of significant importance to Canada's counterparts in trade discussions, and they may have played an important role. These enhanced protections might also be valuable in future trade negotiations and relationships such as the Trans-Pacific Partnership (TPP) and in regions like Asia and Latin America where the EU and US are aggressively pursuing free trade agreements.

The value of such relationships is impressive. The Canada-EU agreement alone has been estimated to offer a 20 per cent boost to Canada's exports to the EU and to add $12 billion to the economy annually. The proposed Trans-Pacific Partnership may yield annual income gains of $9.9 billion for Canada's economy and increase exports by nearly $16 billion. Expansions in free trade elsewhere will mean additional economic benefits for Canada.

Opponents of stronger intellectual property protection for innovators have labeled the enhanced IP regime as "selling consumers down the river" and a "mixed blessing," while others were thankful their "worst fear" of matching intellectual property protections provided by other jurisdictions wasn't realized.

Of course, opponents of reform are correct that the cost of pharmaceuticals will increase after 2023 or so. (The extensions will be offered only on drugs approved after the Canada-EU trade agreement is ratified, and drugs in Canada currently come to market with about eight years of patent life remaining). But the increases will likely be less than one per cent of health spending, and are dependent on a number of factors including provincial funding approvals for new medicines (these delays are typically long and are often not provided at all). The federal government has also committed to temper any incremental cost increases for provincial and territorial governments.

Focusing only on the cost increases associated with stronger (but still lagging) intellectual property protection for pharmaceutical innovators is simplistic and wrong. It is the balance of these costs and benefits that are the ultimate determinant of whether or not Canadians are better off, not just the post-2023 increase in drug costs to provincial governments, patients, and insurers. These additional costs bring with them considerable benefits, not only in trade terms, whose value likely overwhelms the cost increase in pharmaceutical expenditures. Canadians should be pleased the federal government has taken some small steps in the right direction in this area and welcome further alignment of our intellectual property protection standards with those in the United States and our future free trading partner, the European Union.