Mr. Speaker, I am pleased to rise in my place today to respond to the motion put forward by the hon. member for Regina-Lumsden.
We share his concern over the impact of the amendments to the Patent Act that were introduced in the last Parliament. The laws that govern pharmaceuticals must balance many different interests. They must serve the industry, consumers and provincial governments whose health care plans account for about half of prescription sales in this country. As a result, I think it altogether appropriate that the government take a careful look at the results of the changes to the patent laws that were introduced by the last government.
We would like to remind this House that the compulsory licensing regime for drugs was first adopted in 1923 following the example of an act in the United Kingdom. Until 1969, however, few compulsory licences were issued because the act required that active ingredients used in the manufacture of the generic drug would be produced in Canada.
That changed in 1969. In that year the Patent Act was amended to allow generic companies to import active ingredients. This allowed a generic drug sector to develop in Canada.
Under the system that was established compulsory licence applications were filed with the Commissioner of Patents who determined the royalty rate to be paid by generic companies to the patentees. The royalty rate was generally set at 4 per cent of the sales of the generic product. This system continued for the next 18 years.
Some have argued that the system served Canada well. They would point out how the Canadian health care system benefited from cheaper pharmaceuticals. Because the results of their investment, hard work and innovation was not protected by our patent laws, the makers of brand name pharmaceuticals were reluctant to establish research facilities in Canada.
Back in 1969 this was not considered to be as important a cost in light of the benefits of cheaper pharmaceuticals. For one thing, it seemed unlikely that brand name pharmaceutical companies would establish research facilities in this country in any event. After all, most of the innovative pharmaceutical companies were foreign multinationals and they tended to set up their research facilities in their home countries.
Indeed, when a commission of inquiry on the pharmaceutical industry, chaired by Harry Eastman, tabled its report in 1985 it maintained that the innovative pharmaceutical companies were not hurt financially by the compulsory licensing regime. The profits of the industry from 1968 to 1982 were substantially higher than for total manufacturing in most other industries.
In fact, the Eastman commission recommended that compulsory licensing brought a competitive element to the industry. It estimated that it saved Canadian taxpayers and consumers $200 million in 1983 alone. The commission recommended that compulsory licensing be continued but that the royalties paid to patentees be increased to reflect the costs of research and development to the innovator. The report also recommended that patentees be allowed four years of market exclusivity before generic companies would be permitted to enter the market.
The Eastman commission tabled its report at a time of profound change in the worldwide pharmaceutical industry. Mr. Eastman could not have anticipated some changes in the global environment for research and development that were taking place.
The major multinational drug manufacturers were beginning to invest their research and development dollars in countries other than their home country. One of the assurances that they sought in return for this investment was adequate intellectual property protection for their products.
Around the world other leading industrialized countries abandoned their compulsory licensing regimes for drugs. Canada became increasingly isolated in trade discussions and subject to pressure to repeal the compulsory licensing regime.
Many members of the House will recall the bitter debates that took place over the amendments to the Patent Act that were passed in 1987. Pharmaceutical patent owners were guaranteed a period of market exclusivity of seven to ten years instead of the four years that had been the case previously. In exchange, the brand name pharmaceutical companies made a public commitment to increase its research and development to sales ratio from 4.9 per cent, which is where it was in 1987, to 10 per cent by the year 1996.
In fairness to these companies the House should acknowledge that they have been increasing their R and D. The House will recall that the Patented Medicine Prices Review Board was created under Bill C-22 to control the prices of patented medicines as well as to report on R and D investments.
As the House knows, the previous government was not content to leave the patent legislation as it was amended through Bill C-22. In 1993 after another very bitter debate further changes were introduced through Bill C-91.
These amendments abolished the compulsory licensing regime entirely. They did so retroactively. The amendments rendered inoperative any compulsory licence not granted by the Commissioner of Patents as of December 20, 1991. That was the date the so-called Dunkel text of the GATT was made public. The NAFTA also requires implementation on that date. These two trade agreements, the GATT and the NAFTA, limit the possibility for change in patent laws in Canada. Compulsory licensing specifically for drugs is not allowed.
However some changes introduced in Bill C-91 went beyond what was required by these agreements. The government is taking a very close look at ways where it can harmonize the interests within the pharmaceutical industry and among consumers, provincial governments and drug companies.
I also remind the House that Bill C-91 strengthened the powers of the Patent Medicine Prices Review Board. For example, failure to comply with the board's orders now carries a fine of up to $100,000 a day for a company and $25,000 a day for an individual. Although the price tests applied by the board were not changed, new price control factors can now be added by regulation after consultation with stakeholders.
Another aspect of the act to amend the Patent Act should be mentioned here. Regulations were adopted that prevent the health protection branch of Health Canada from approving a generic product before the expiry of the Canadian patents on the brand name equivalent. These regulations have led to many lawsuits within the pharmaceutical industry and the volume of litigation arising from this provision is being reviewed.
These are matters the House must take into consideration when dealing with the motion before us. It would not be appropriate to look at just one side of this very complex issue as the hon. member for Regina-Lumsden has done.
I understand the Minister of Industry has met with representatives of the pharmaceutical industry. He is reviewing carefully the current drug policy and its effect on investments in Canada, job creation and drug prices. He will ensure that consumers are treated fairly.
The challenge is to ensure that drug patent legislation supports the development of Canada's pharmaceutical industry while making patented drugs available to Canadian consumers at affordable prices.
The government will not take the side of the pharmaceutical industry over the side of health care objectives. It will take all interests into consideration. That is what the government is committed to doing. It is what Canadians expect of us. The government is weighing very carefully the various issues at stake and acting upon its commitment to review the drug patent policy.