09/04/2013 07:57 EDT

Eli Lilly's NAFTA Lawsuit Threat Against Canada Prompts Calls For Review Of Investor Rights

FILE - In this Jan 25, 2006 file photo, The Eli Lilly and Company headquarters in pictured in Indianapolis. Drugmaker Eli Lilly & Co. said Monday, Sept. 14, 2009, that it will eliminate 5,500 jobs, or nearly 14 percent of its staff, and reorganize into five business units in order to slash costs and speed up development of potential new drugs. (AP Photo/Darron Cummings, File)

A U.S.-based pharma giant’s threat to sue Canada for $500 million under the North American Free Trade Agreement (NAFTA) has prompted activist groups to launch a petition and call for a rethink of investors’ rights in Canada.

Earlier this year, Indiana-based Eli Lilly notified the government it plans to take Canada to a NAFTA arbitration panel, asking for $500 million after Canadian courts invalidated two of its drug patents.

Consumer groups and activists say the move is an attack on Canadian sovereignty that could result in Canadian court decisions effectively no longer applying to U.S. and Mexican companies.

But Eli Lilly argues Canadian courts have been overzealous in striking down drug patents in recent years, and the rulings — which the company says have already cost it $1 billion — could force the company out of Canada.

The activist site has launched a petition accusing the drug maker of suing Canada “because it didn’t make enough profit.”

And the Council of Canadians released a report last week calling on policymakers to rethink investors’ rights in Canada in the wake of the threatened lawsuit.

The suit “would be so harmful to our democracy, and set such a dangerous international precedent, that it cannot be allowed to proceed,” the Council said.

Under Chapter 11 of the North American Free Trade Agreement, companies in one NAFTA country can sue the government of another NAFTA country for “regulatory expropriation.” That can be interpreted to mean a loss of value to the company — such as lower profits — due to actions taken by the government.

Critics of Eli Lilly’s move say the lawsuit over two lost drug patents is an unprecedented expansion of the notion of “regulatory expropriation.” They fear Canadian courts could lose the ability to make judgments on patents held by companies in NAFTA countries. The critics argue NAFTA allows signatory countries to determine their own standards for what is patentable.

In Ely Lilly’s case, the drug maker is objecting to Canadian courts striking down its patents for Strattera, an attention deficit hyperactivity disorder (ADHD) drug, and Zyprexa, a schizophrenia drug.

In both cases, Eli Lilly objects to Canadian courts’ use of the “promise doctrine,” which says that a drug’s patent is only valid if the drug does what the patent applicant “promised” the drug would do.

The promise doctrine not only contravenes Canada’s treaty obligations, it is also discriminatory, arbitrary, unpredictable and remarkably subjective,” Eli Lilly wrote in a letter of intent to the federal government.

The company says that with the “promise doctrine” Canadian courts have “moved outside the bounds of international norms.” Its chief patent lawyer told The Globe and Mail earlier this year he is having a hard time explaining to his bosses “why they keep losing Canadian patents.”

Eli Lilly’s CEO, John Lechleiter, told a Globe editorial board meeting earlier this year that his company has already lost $1 billion due to the patent rulings, and would consider exiting Canada altogether if the trend continues.

Critics of Eli Lilly's move would likely not object to that.

"Lilly’s outrageous claims in its NAFTA dispute should trigger an immediate rethink in Canada of the value of investor-state arbitration to the Canadian economy, and its obvious harmful effects on democracy," the Council of Canadians wrote last week. "Canada has paid out over $160 million in losses or settlements with firms as a result of NAFTA investment disputes."

At present, there are at least eight lawsuits against Canada under Chapter 11 of NAFTA, with about $2.5 billion at stake.

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