Industry Committee on Oct. 4th, 2012

[The Chair, Conservative, David Sweet]

Bonjour and welcome to the 40th meeting of the Standing Committee on Industry, Science and Technology.

We have before us a number of witnesses, as well as witnesses by teleconference. I'll introduce them.

From the Canadian Generic Pharmaceutical Association, we have Jim Keon, the president, and Benjamin Gray, vice-president, and legal and general counsel of Mylan Pharmaceuticals ULC.

From the Ontario Bioscience Innovation Organization, we have Gail Garland, who is the president and chief executive officer.

We also have with us George Dixon, the vice-president of research at the University of Waterloo, who is appearing as an individual.

By video conference, we have Norman Siebrasse, who is appearing as an individual. He is a professor in thefaculty of law at the University of New Brunswick.

We will begin with Jim Keon.

Please contain your opening remarks to six minutes as we have five witnesses.

I would also ask members to remember, once we get into the questioning, that we do have somebody by video conference. I know it's easy to focus on the witnesses at the end of the table and leave out the person who is joining us by video conference. I'm certain that Mr. Siebrasse would not enjoy that.

Mr. Keon, please give us your opening remarks.

[Jim Keon, President, Canadian Generic Pharmaceutical Association]

Thank you very much, Mr. Chair and honourable members of the committee, for providing Canada's generic pharmaceutical industry with the opportunity to contribute to your study of our domestic intellectual property regime.

As you mentioned, I am joined today by Ben Gray. Ben is vice-president and general counsel at Mylan Pharmaceuticals in Canada.

I have a couple of words to say about our generic pharmaceutical industry in Canada. We consider it Canada's life sciences success story.

We directly employ more than 12,000 Canadians in highly skilled research, development, and manufacturing positions, and we export our value-added products to more than 115 countries. Our industry, the generic industry, is a net exporter of value-added products and positively contributes to Canada's balance of trade in pharmaceuticals.

Canadian generic pharmaceutical manufacturers operate the largest life sciences companies in Ontario, Quebec, and Manitoba. Canada's single largest research and development spender in the life sciences sector is generic drug maker Apotex, which is Canada's largest pharmaceutical company and also the owner of Canada's largest biopharmaceutical company.

Today, we are talking about intellectual property. In our opinion, there is no link between increased intellectual property and pharmaceutical research and development. Any purported links between increased intellectual property and increased pharmaceutical research and development investments are dubious at best.

Patents have national treatment. Countries must grant the same protection regardless of where the research is done. Decisions about where to site research are not linked to intellectual property. Most investments by brand-name drug companies are today directed to corporate headquarters and to developing countries that are not renowned for their intellectual property protection, such as the BRIC—Brazil, Russia, India and China.

Given these investment realities, the question then becomes what is the appropriate level of IP protection to support therapeutic innovations conducted in other countries?

Canada has a small market size, representing just 2.5% of the global market for pharmaceuticals. Nevertheless, Canada has a very strong intellectual property regime for pharmaceuticals. In its totality, pharmaceutical intellectual property in Canada is stronger than that in any other industrial sector in Canada. In many ways it is stronger than pharmaceutical intellectual property in the United States and Europe.

For example, in Canada brand-name pharmaceutical companies benefit from a unique automatic injunction against generic entry up to 24 months long. Most often there are two rounds of patent infringement litigation on the same set of patents, which creates business uncertainty. In contrast, the U.S. patent linkage system, on which Canada's was based, does not allow for multiple rounds of litigation and provides much better business certainty.

In Canada, unlike in the U.S., we have no statutory incentive for generic pharmaceuticals to challenge patents. Our regulatory data protection lasts several years longer than the international average. In Canada, pharmaceutical patentees have the ability to obtain patents on multiple aspects of a drug, without any mechanism for generic companies to oppose such patents, except through litigation.

In fact, importantly, our Canadian system relies on generic patent challenges to operate effectively. This is not often discussed, but it is a key component of pharmaceutical patent policy in every developed country that requires a robust mechanism to ensure that only genuine inventions are afforded monopoly protection.

In Canada we have no mechanism for opposing the grant of a patent. Patents are reviewed and issued based on the representation of patent applicants, without any counterweight.

For pharmaceuticals, these unopposed patents can get listed on Health Canada's patent register and then automatically block approval of generic drugs for up to two years. Some of these patents are genuinely innovative and deserving of protection, but many are not.

This is where the generic industry comes in. The only disciplining agent on the effect of weak pharmaceutical patents in Canada is the generic industry. Generic companies challenge weak patents in the pharmaceutical sector in Canadian courts in order to launch their products in Canada. If we're successful, we open up the market to generic competition and generate substantial savings for Canadians.

However, reforms are needed in our system. Over the past several years stakeholders in the public and private sectors, including judges of the Federal Court, have increasingly expressed concern about the proliferation of complex pharmaceutical patent litigation in Canada. There have been more than 100 pharmaceutical intellectual property cases initiated in each of the past seven years. The current system is an inefficient use of our limited court resources and places the generic companies at a potentially grave financial risk upon launching a product in Canada.

I'll say just a few words about the complexity.

We have a system of patent linkage that links Health Canada's approval to the patent system. That's an extraordinarily powerful enforcement mechanism for a patentee. In Canada it blocks the health and safety approval of a new generic medicine by way of an automatic injunction without any upfront burden of proof. It is interesting to note that such a patent linkage system is actually illegal in the European Union under their competition laws.

Canada has a litigation system for pharmaceutical patents that also has no meaningful deterrents to discourage weak and frivolous patent litigation by brand-name pharmaceutical companies. This system has been described by the Supreme Court of Canada as draconian in terms of its treatment of generic manufacturers. Common law principles for damage injunctions are not available currently in Canada.

The complexity and unfairness of this environment has increased since regulatory amendments were made in October 2006. While positive changes were made at that time to reduce patent evergreening, a new legal tactic has emerged whereby generic manufacturers are routinely sued a second time for patent infringement. This means most generic medicines are launched at risk. This duplicative litigation system makes Canada an international outlier, with no other country providing both pre- and post-market litigation. The system is inefficient, increases business uncertainty, and has a chilling effect on the entry of new generics.

We have submitted proposals to Industry Canada—

[The Chair, Conservative, David Sweet]

I'm going to have to cut you off there. We're way over time, and I have to go to the next witness. Hopefully, you can get some more of your material in during the question period.

[Jim Keon]

All right. Thank you.

[The Chair, Conservative, David Sweet]

Madam Garland, please, for six minutes.

[Gail Garland, President and Chief Executive Officer, Ontario Bioscience Innovation Organization]

Good morning. I am Gail Garland, CEO of the Ontario Bioscience Innovation Organization, a private sector, membership-based organization engaged in advocacy to enable development and commercialization in Ontario of life science technology through investment, strategic alliances, stakeholder engagement, thought leadership, and industry promotion.

As I prepared for today's session, I consulted with OBIO's membership—companies engaged in developing therapeutics, devices, and diagnostic technologies. Today I will use their lens in my comments about changes that can be made to Canada's patent regime that will help commercialize life sciences technology out of Canadian biotech companies and academia, and make Canada a better place to commercialize.

The first recommended change is on the subject of scope of patentable subject matter. In Canada, the recent proposed amendments to CIPO's examination guidelines have raised a number of concerns as to how the Canadian Intellectual Property Office, CIPO, will decide whether a claimed invention is considered patentable subject matter. This is particularly troubling for certain claims to diagnostic methods and medical uses, which under the new guidelines would not be considered patentable.

The view of legal experts working with biotechnology SMEs in Canada is that restricting what is considered an invention and therefore patentable subject matter is not an effective way of either increasing the quality of issued patents or encouraging innovation. There are approximately 40 diagnostic SMEs in Ontario advancing personalized medicine technology whose ability to patent their technologies could potentially be impacted by these amendments.

A second recommendation is to allow Canadian applicants to file a terminal disclaimer. In Canada, an applicant must claim all of the embodiments for a single invention in a single application. In the U.S., companies can file a terminal disclaimer as a way to overcome the objection to double patenting. For Canadian biotech start-ups, there are often compelling business reasons why a company may want to get a first patent issued quickly and then also have additional patents directed to other embodiments or aspects of the invention. This is possible in the United States but not in Canada, where the prohibition against double patenting requires that an applicant claim all of the embodiments for a single invention in a single application. This can delay the issuance of patents in Canada that would otherwise be valuable to companies, as they drag out prosecution to ensure they get claims to all the possible embodiments in a single patent. Bilateral agreements, such as the patent prosecution highway, are helpful for SMEs because they accelerate patent prosecution at no extra cost. Further moves towards a globally harmonized patent system will help Ontario bioscience companies compete in the global business environment.

Going against the spirit of global participation, there have been some judgments recently that could potentially damage Canada as a jurisdiction in which to file because of the amount of data required in an application to support the utility of a claim and measured as the “promise of the patent”. In some cases, it was determined that human chronic data that wouldn't normally be available until a product had been on the market needed to be included in a patent application at the time of filing.

The number of these cases is still small, but the impact is felt when companies decide not to file in Canada because they are worried they may not have enough data, or investors simply ignore commercializing in Canada. One way this issue can be addressed is by harmonizing with the U.S., where they use post-filing data to support a claim.

Here are some easy wins for patent reform. As it stands now, the Canadian IP system is unforgiving despite best intentions by applicants. Deadlines can be missed due to events such as correspondence lost in the mail and mistakes in fee payments. Since there is very little discretion to remedy these situations, an SME could lose its patent. If online patent information and file histories were accessible, someone could go online and see if something is missing or if there is a deadline approaching.

By comparison, both the U.S. Patent Office and the European Patent Office have online systems that allow the public to access file histories. Along the same lines, even though the current system allows companies to pay reduced fees by filing as an SME, the reality is that very few do because of the risk that at some point they could be challenged on their SME status and they could lose their patent.

Redrafting these rules so that they are more forgiving would allow SMEs to sleep better at night.

An issue that affects Ontario SMEs hoping to partner their technology is the lack of patent term extension in Canada. SMEs in the U.S. and the EU can have their patent term extended for up to five years to compensate for time lost in regulatory delays. Investors and MNEs valuing an Ontario SME's intellectual property adjust negatively for the lost commercial opportunity resulting from fewer years of market exclusivity. Less market exclusivity in Canada, already a small market for a multinational, may also negatively impact its willingness to market innovative technologies here.

For SMEs to realize their full economic potential, Canada must match global standards for intellectual property protection. To this end, we recommend the adoption of CETA, the comprehensive economic and trade agreement with the European Union. CETA is a unique opportunity for Canada to become the only country in the world with favoured trade status with both the U.S. and the EU. This is a competitive advantage that we need and should embrace.

In conclusion, Canadian patent reform should include global harmonization that is cost effective and speeds up granting of high-quality patents. Bioscience companies looking to make their way in the world need a competitive intellectual property regime that is predictable, stable, flexible, and consistent with trading partners.

[The Chair, Conservative, David Sweet]

Thank you very much, Madam Garland.

We'll now go to Mr. Dixon, for six minutes, please.

[George Dixon, Vice-President, Research, University of Waterloo, As an Individual]

Thank you, Mr. Chair.

At the hearings of this committee on May 17, the committee received input from Mr. Scott Inwood who is the director of commercialization at the University of Waterloo. He outlined the IP policies at the University of Waterloo. He also discussed the commercialization climate in Waterloo region. I am not going to repeat that activity or those types of observations, because Mr. Inwood summarized those quite well.

What I would like to do is make three observations, and feel free to ask me to expand on them. I'll be quite willing to expand on them in the question period, if it's appropriate. After 20-odd years of working as the dean of science at the University of Waterloo and the vice-president of research, and being active in the commercialization area, these are observations of where I see Canada could improve its performance and optimize the return on investment in research in the intellectual property that has developed from that work.

The first observation has to do with ensuring that work suitable for protection and commercialization is actually disclosed within the university system. You might think that this is not obvious, but within the university you have to effectively support the development of a culture that allows people to recognize what something is when it is worth disclosing and protecting. They need to have the ability in their background to identify whom they go to in order to do that.

Despite extensive educational activity and networking within the university, this is something that has to be worked on continuously in order to get, in particular, an undergraduate student to come forward with an idea that they want to disclose and protect.

While we tend to capture a very significant portion of this at Waterloo, it is by continuous activity in terms of identifying and networking with these people. One area that concerns me, although I won't say it keeps me awake at night because nothing keeps me awake at night, is individuals that have a really good idea, particularly at the undergraduate level, but they're not aware of how to go about disclosing it. We spend a lot of time actually working at that type of activity.

Another observation would be regarding very early stage investment. Significant resources in budget 2012 were put in place for what I'd call late angel and venture capital funding. In my opinion, to some degree the greatest need is in the early pre-commercialization investment. This is the de-risking component, the proof of principle component associated with any intellectual property at the very early stages of its commercialization. I often call it archangel investment. It's the investment before the angel investor is willing to come forward.

Some funds are available. The scientists and engineers in business initiative through FedDev is a very good example. NSERC has an ideas to innovation program, I to I. A number of programs are run at the provincial level. All of these programs have relatively complicated application procedures. The timeline for decision-making is in the range of six to twelve months.

I fully recognize that these folks have to do their due diligence, but if graduate or undergraduate students are looking to found a company, you need to have a timely decision in order to keep the individuals with that IP together to form the company. These are often very sharp people that have a lot of competitive job offers and if they're not making a living, waiting six to twelve months for a decision is not something that is really appropriate.

I think the only way you can get around this is what I'll call local funding, some combination of philanthropic money. There are some venture capitalists who are willing to invest in this type of activity, but this needs to be developed and controlled at the local level so that decisions are made very rapidly.

At Waterloo, we have a fund of about $2 million, based on philanthropic money. We allocate $25,000 a shot for young undergraduate and graduate students who want to move down this trail. We can turn that around in about three weeks. But the demand far outstrips the supply, when I look outside the university at the broader region in Waterloo.

Another point to mention is risk tolerance in the private sector around new products and innovation.

I'm not talking about risk tolerance with respect to investment. I'm talking about receptors for new technology and products either as a first customer, or as a licensee of IPs, that is, first customer start-up or licensee of IPs.

Compared to my experience in Europe and the United States, Canadian business tends to be very risk averse and often doesn't want to be the first to try the new product or innovation. I don't know how we solve that problem.

I would hate to tell you how many companies I have seen where their first sales are offshore and sales in Canada follow once they've demonstrated the approach. One of the approaches here is that government is a very significant purchasing agent within Canada. That may be an opportunity. There may be incentives to try new technology coming through tax incentives, or whatever.

Those are three observations. I don't pretend to have a solution. I would say these are observations from the trenches.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Dixon.

Now on to Mr. Siebrasse, for six minutes please.

[Prof. Norman Siebrasse, Professor, Faculty of Law, University of New Brunswick, As an Individual]

Can you hear me all right?

[The Chair, Conservative, David Sweet]

You're just fine, thanks.

[Prof. Norman Siebrasse]

Thank you for inviting me to appear today. The first point I'd like to address in my remarks is the subject of business method patents and patentable subject matter more broadly.

Business method patents have been controversial since the 1998 U.S. decision opened the door, or floodgates as some would call it, to patent a new business method. Many academics have argued that such patents are bad for innovation in business, and for that reason the courts should hold that business methods are not patentable.

I'd like to make two points in this respect. First, this is a matter for the legislature and not the courts, and certainly not the patent office, to decide whether business methods should be patentable. The entire area of patentable subject matter needs clarification to ensure that innovation will be promoted in crucial areas such as personalized medicine. Second, the implications of this decision go far beyond business methods, to important emerging areas such as personalized medicine.

The patentability of business methods has recently been at issue in Canadian litigation over Amazon.com's application for a patent for one-click shopping. The application was refused by the patent office, which said business methods are not patentable in Canada. Amazon.com appealed to the Federal Court, which said business methods are patentable. The patent office appealed to the Court of Appeal, which said, "It depends."

I won't try to explain what it depends on, not because this is a technical area of law, but because I don't understand what they said. My view is that their decision is incoherent and internally inconsistent.

The Court of Appeal sent the application back to the patent office, which granted the patent. The patent office does not make the law; it merely applies the law set out in the legislation and case law. The result of all this is that even though the Amazon.com patent was litigated to the Court of Appeal and then granted, we still don't know if it's valid.

In an article I've written on the subject, I've argued that the best view of current law in Canada is that business methods are patentable. That is, I believe that if someone litigated this to the Supreme Court, the court would hold the patent to be valid, but I might be wrong. The bottom line is a tremendous uncertainty.

I also want to emphasize that there's a difference between whether business methods are patentable under current Canadian law and whether they should be patentable. While I believe that business methods are patentable under current law, I do not necessarily believe that this is a good thing. Whether these patents are good for business innovation is an empirical question, and it's a very difficult question. There's tremendous uncertainty in the empirical evidence.

What we do know is that patents are very important to the innovation process in pharmaceutical and chemical industries. We also know that the importance of patents varies tremendously between industries. For all industries, besides pharmaceuticals and chemicals, the evidence as to the importance of patents is quite ambiguous. The best generalization seems to be that patents are important in so-called discrete product industries, in which a single innovation provides most of the value of a single product. In complex product industries, in which a large number of innovations contribute a small amount to the value of a particular product, patents tend to be less important.

Business methods appear to have the hallmarks of a complex product industry, suggesting that they are relatively less important in that area. But to say “less important” doesn't mean unimportant. The best I can do here is to quote Professor Bronwyn Hall, one of the leading empirical researchers in this field, who said, "The only conclusion that is certain is that allowing business method patents will cause an increase in the patenting of business methods."

Because of the way in which the issue has been handled by the Court of Appeal, the issue has implications that go far beyond business method patents. In a draft practice notice responding to the Amazon.com decision, the patent office indicated that it believes inventions related to personalized medicine are unpatentable. To my mind, this is an extremely troubling position, as personalized medicine bears many of the hallmarks of a discrete product industry in which patents are important to innovation. Certainly the patentability of personalized medicine is not something that should be decided by the patent office.

In summary, there is tremendous uncertainty as to both law and policy. Whether business method patents are good for innovation depends on complex questions that the courts are not equipped to handle. This entire area needs clarification to ensure that innovation will be promoted in crucial areas, from business method patents to personalized medicine.

I'll now turn briefly to two other topics. One is pharmaceutical patents. As I mentioned, there is a consensus that patents are very important to innovation in the pharmaceutical industry as a whole. In broad terms the system works well, but because the patent system is so important, the details vary greatly.

We've heard already some discussion of some high profile issues, such as patent-term extension, data protection, terminal disclaimers, and the drug approval linkage aspect.

I'd point out that detailed points of law are also important. Some points of doctrine recently developed by the courts have had the effect of making Canadian law less friendly to pharmaceutical patents than the law in the U.S. and Europe, at least on these particular points. This isn't to say that our system as a whole is necessarily unfriendly, but at least on these points, they could have important implications for specific patents.

I'm not sure whether this needs to be addressed by the legislature, as the courts may work it out, but it's certainly something for this committee to keep in mind.

Finally, I'd like to say a brief word about patent trolls. To my knowledge, patent trolls have not yet been active in Canada. Further, the courts have some tools to deal with patent terms, at least in the short to medium term. Arguably, there is not presently a pressing need for government action to deal with this problem. However, I think it's important that the government not take any steps that would make the problem worse.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Siebrasse.

That's the conclusion of the testimony. I remind committee members that we're going to be finishing with our witnesses 15 minutes earlier in order to deal with business, so members should factor that into the rounds of questions.

We'll move on to the first round of questioning.

Mr. Braid, for seven minutes.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you to all of our witnesses for being here this morning. We have received a range of excellent testimony and presentation.

Welcome, Dr. Dixon from the University of Waterloo. I'm pleased to hear that nothing keeps you up at night and that you're well rested, as always.

I have one question for you. In Waterloo region, as you know, we're constantly hearing from the tech industry about the importance of two things: access to talent and access to capital. You touched on the second one in terms of that being a continuing policy issue in Canada.

Do you have any thoughts or suggestions on how Canada, not necessarily government, could incent more venture capital or archangel capital, as you have described it?

[George Dixon]

Let's put it this way. I probably shouldn't have brought the issue up if I was expected to find the solution.

I identified it as being very early-stage investment. The only real sources I have seen that are available in a timely fashion are usually some type of philanthropic funding that has been matched by very early-stage venture capital that is available in the market.

One of the programs currently in place with respect to this is the I to I, idea to innovation program, which I already mentioned. This is probably the oldest and best POP, proof of principle, funding area.

I'm not too sure I would be looking at direct investment by government in this area. I would expect that the funding from government would be reserved for encouraging the later stage activity. I don't mean direct investment, but some type of enhanced tax incentive for people to invest in this type of activity would probably be the way to go.

To be perfectly frank, this is risky business. In truth, probably only 25% or 30% of the funding in this area actually will see fruition. When you do a proof of concept or you develop a particular prototype, a lot of the time that's where it ends because it didn't work out appropriately. Making people aware of that fact, particularly in the private sector, and having any incentive for them to invest in this would be appropriate.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Great.

You also spoke about within the university setting the importance of ensuring that undergrad students, if they have a new innovation or invention, know when to disclose and protect it. I presume that's an issue across the post-secondary environment, not just at the University of Waterloo.

Are there any best practices, either at the University of Waterloo or at other institutions in Canada, that help raise that awareness level among undergrad students?

[George Dixon]

We do this in a lot of ways. I won't go through the whole routine, but there is one which I found to be most effective for all of our co-op students. We do 17,000 co-op placements a year.

There is a specific set of courses that are taken around how to function in the workplace. They're given to students before they go out on their first co-op work term. One of those is a module on IT. We have had the greatest success in terms of activating the undergraduate population by that one module that is taken by co-op students. I think, frankly, that's a best practice.

The other one is something which the Australians ran into. It has to do with the degree to which the commercialization function has roots within the university. The Australians took all of their commercialization activity and dumped it outside the university to a third party, but they moved it so far outside the university that nobody had enough trust to walk over to them and disclose. One of the main activities I see for a commercialization office within a university is that continuous legwork—networking, meeting people, seminars with graduate students, seminars with faculty members, one-on-one contact. It keeps the communication open so when someone actually has something they want to disclose, they'll bring it to you.

It doesn't matter whether it's commercialized through the university, or the individual takes it outside and does it totally independently, which they can do at Waterloo, as long as it gets done.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you. I'll move down the table to Mr. Keon.

Mr. Keon, does the generic pharmaceutical industry have its own IP, and can it be better protected?

[Jim Keon]

Yes, many of our companies have patents on manufacturing methods, for instance. One of the attributes of the generic pharmaceutical industry is that they are very efficient at manufacturing and distributing large numbers of products. Our large companies could be making 300, 400, or 500 different products. They're very efficient as to how to do that. They will often protect business methods, business processes, manufacturing methods by patents. That is something we have and we use it.

It typically would not prevent a competitor from manufacturing the same product. It's simply a competitive advantage in how the product is brought to market, and lowering the costs of that.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Okay, thank you.

Ms. Garland, my impression was that your underlying message was that Canada needs stronger patent protection and more efficient processes. Is that what I heard?

[Gail Garland]

Yes.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

You made some comparisons with the U.S. Could you highlight aspects of the U.S. system that work particularly well, which we should consider adopting here in Canada? Could you elaborate on those that you touched on?

[The Chair, Conservative, David Sweet]

Very briefly, please.

[Gail Garland]

I'll restrict my comments to one area, and that's the area of terminal disclaimer. The reason I mentioned that this morning is this recommendation has the potential of making Canada a go-to nation for patent filings. Any opportunity to give us a competitive advantage in this area is one we should be considering.

[The Chair, Conservative, David Sweet]

Thank you, Madam Garland. I'm sorry but time is always our enemy here. Members have heard me say that over and over again. I always would like to have the option of having people finish, but I can't always do that.

Ms. LeBlanc, you have seven minutes.