Canada’s Promise Doctrine Should Be a Warning to America

By Chris Gallagher
November 1, 2016

Dirty crumpled Canadian FlagIt is common knowledge in patent policy circles that China is strengthening its IP standards while we weaken ours. Increased uncertainty corrodes investment comfort within any innovation ecosystem, discouraging commercialization development of promising invention by the private sector, especially during early stage tech transfer. Absent such investment, promising inventions cannot become innovative reality. Specific adverse economic outcomes are difficult to demonstrate except in retrospect when it is too late to repair their damage. But sometimes similar outcomes elsewhere provide reliable warning. A recent Canadian survey (CRA Survey) has conclusively attributed lowered levels of R&D investment in Canada’s innovation ecosystem to the country’s unique judicial “Promise Doctrine.” The Promise Doctrine is a controversial patent elimination dynamic, judicially imposed during patent enforcement proceedings, often after a patented product has achieved its developmental endpoint, having successfully completed its long and costly commercialization. By its unpredictable applicability, like an unseen open manhole, Canada’s promise doctrine can cancel the benefits of a long journey at its market-ready endpoint.

As the Survey’s Executive summary explains:

“In recent years, Canadian federal courts have interpreted utility requirements of Canada’s Patent Act in a way that differs from the way utility is interpreted in other countries and which predominantly impacts the pharmaceutical industry. If, in a given court case, the demonstration or evidence of the anticipated utility falls short of fulfilling the“promise” deemed to have been contained in the patent, the patent will be invalidated for lack of utility even if the invention is useful either to a different degree than promised or for some other purpose.”

Essentially it provides that where a patent specification is found to promise a specific utility, that utility must be specifically demonstrated or soundly predicted as of the patent’s filing date. Canada’s use of the promise doctrine is facing NAFTA challenge, and with “Leave” granted by its highest court in March of 2015, it may soon be judicially clarified. See Leave to file appeal. Over a ten year time-span, 28 pharmaceutical products, fully developed, tested and approved for public distribution had their patents solely or partially invalidated in Canadian Federal courts. As the Survey suggests, long-lasting damage to Canada’s innovation ecosystem may already have occurred, which is why the Survey bears so heavily on the U.S. patent system’s own endpoint “open manhole”, Inter partes review (IPR). However Canada deals with its promise doctrine woes, we too have much to learn from this Canadian Survey.

[International]

The Survey concluded that the promise doctrine’s unpredictable imposition has had a chilling effect on private investment in Canada’s development of early stage life science research. This foreign finding’s bearing on US patent policy is significant, not just because the doctrine disrupts an important trading partner’s economy, but because of the promise doctrine’s ominous resemblance to IPR’s widely-acknowledged investment chilling impact. Like its promise doctrine cousin, IPR is often triggered by post-development free riders seeking to share the proceeds of patented product’s commercial success. And we can readily understand IPR’s financial impact when patent claim elimination happens at life science commercialization’s market-ready endpoint. Moreover IPR’s expedited mini-trials defy due process. Its patent claim elimination is statistically too frequent. In short, this recently released Canadian Survey warns U.S patent policymakers that our nation’s R&D innovation ecosystem will soon similarly suffer R&D investment decline unless we quickly defuse IPR’s investment chill, especially regarding commercializing basic life science research. Meanwhile China is closing in on our global leadership in R&D investment. (here).

The Survey clearly states the promise doctrine’s three subjectively determined requirements: (Survey, p.1)

  1. A judge may construe the “promise of the patent” from the patent specification.
  1. A heightened evidentiary standard for proof of utility is applied if a promise is construed, which requires that the promised utility either be “demonstrated” by the patentee or be based on a “sound prediction” of utility from the date of filing.
  2. In relation to “sound prediction,” a heightened disclosure requirement mandates that evidence establishing utility must have been disclosed in the original patent application.” 

Given judicial subjectivity they afford, it is no surprise the Survey confirms that Canada is now perceived as having fallen behind other developed countries in investment R&D because of its failure to adequately ensure more certainty within its IP ecosystem. And while the Survey notes that scientific strength and research cost components are often deemed more important by investors, the Survey states that the looming possibility of the promise doctrine’s development endpoint application has significantly contributed to reducing Canada’s R&D innovation investment levels, adversely affecting its overall economy. That such uncertainty thwarts prudent investment is neither surprising nor earth-shattering. It confirms what common sense compels. Investment in the early stage commercialization of life science is risky. Adding unpredictable enforcement risk after basic scientific technology is nursed through long expensive development, testing and regulatory approvals can convert high-risk investment outlays into imprudent gambling.  

So if the promise doctrine’s IP nullification of 28 biopharma products has chilled Canada’s overall R&D investment, IPR’s lop-sided patent nullification statistics predictably will deter similar U.S.  investment, but with far more comprehensive adverse economic impact. At least in Canada life science patent nullifications boost its robust generic drug industry, somewhat softening the doctrine’s overall economic harm. But in the U.S. economy, biopharma product origination plays a far more critical role. Life science product origination is a key component in U.S. Global economic leadership. That’s why the Survey is so significant. What the Survey says is happening in Canada will be more consequential when it happens here. When it comes to endpoint uncertainty for life science commercialization, IPR is a U.S. administrative twin to Canada’s judicially-established “promise doctrine”. We thus with some assurance can expect to discover some day that IPR has dampened U.S. R&D investment here. Unfortunately by then it may be too late to regain the keystone ecosystem support provided now by U.S. venture capital.

Significantly the CRA survey ominously predicts the promise doctrine’s harm will outlast its eventual repeal. “It is also clear from the interviews that an uncertain IP environment can have long-term reputational consequences that would take some time to restore.“ (Survey, p.2).  If IPR is allowed to linger in its present state, economic realities tells us VC capital will flee and “may take some time to restore.” Why? Venture capital investors stay close to their investments. One of VC’s added values is their close involvement with their capital recipients. Such engagement is enhanced by physical proximity and by VC comfort with familiar local innovation ecosystems. Tech transfer officers know all too well how hard it is to lure VC investors to new environs. Once settled somewhere, VC migration to new hunting grounds is rare. Indeed these known inertial tendencies emphasize why increased U.S. VC engagement in China is so significant. As U.S. IPR continues to deter VC investments, VC interest in China will expand. And once ensconced in China, harmful VC out-migration will not easily be reversed. The Survey’s conclusion that even if eliminated, the harm to investment R&D caused by the promise doctrine will have” long term consequences” should persuade U.S. patent policy makers to quickly end IPR’s baleful impact on similar U.S. R&D investment. But will IPR’s investment corrosion creep end soon enough to stop benefitting China?

Don’t bet on it. Housed within a powerful federal agency, IPR’s full-employment turf will be hard to penetrate. Recent congressional apathy (some would say hostility) to patent rights suggests that IPR repeal can only happen in the courts. The Federal Circuit’s “public property” doctrine and apparent apathy to IPR’s constitutional flaws are not encouraging. Recent SCOTUS cert rejections have  made matters worse. The CRA Promise Doctrine Survey timely tells us what we need to learn about R&D investment’s uncertain future. What it doesn’t tell us is how to prevent that future’s ominous ominous outcome from happening.

The Author

Chris Gallagher

Chris Gallagher is President of IP Strategic.com and a perennial selection to The Best Lawyers in America. Having spent years as one of the most influential and highly regarded advocates in the New Hampshire Legislature and state administrative agencies, Chris is now focused primarily on federal policies in Washington, DC. Chris has been involved in nearly every substantial New Hampshire economic regulatory initiative over the last 25 years. He has served as general counsel for the New Hampshire Bankers Association and has represented New Hampshire utilities, hospitals, insurers, aggregate manufacturers and numerous other entities. This experience provides him with a uniquely respected voice on Capitol Hill, enabling him to communicate effectively with members whose federal decision-making must reflect and respect the complexities of their home-state constituents.

A frequent speaker and commentator in local and national media on policy issues, regarding financial services, privacy, business and government, Chris has testified on financial services issues before U.S. House and Senate Committees and has been a panelist in Capitol Hill briefings on intellectual property issues. He can be reached at chris@ipstrategic.com

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 11 Comments comments.

  1. Anon November 1, 2016 11:07 am

    Beware the “divide and conquer” approach in ANY dealings of “utility.”

    Cutting a “deal” for Pharma is the surest way of Balkanizing (and dooming) innovation in other art fields.

  2. Curious November 1, 2016 1:27 pm

    “the promise doctrine’s three subjectively determined requirements”
    What an ugly requirement. Who would want to get a patent in Canada if that hurdle needs to be overcome?

    Cutting a “deal” for Pharma is the surest way of Balkanizing (and dooming) innovation in other art fields.
    Being able to carve out exceptions for particular technological fields is a lobbyist’s wet dream. Every industry will be lobbying for its own set of rules, and the number of industries could number into the hundreds or even thousands. Litigators would love it as well — there is no hard and fast requirement set by statute that the courts won’t blur so as to be given the capability to pick out the winners and losers (see, e.g., 35 USC 101 and claim construction). With the lines now blurry, litigators will have a literal field day arguing that the laws of industry XYZ1A apply while the other attorney will be arguing that the laws of industry XYZ1B apply.

    Balkanizing the patent laws, based upon what technology is being evaluated, will be like throwing sand in the gears of progress. I dread what will happen if that genie gets let out of the bottle.

  3. Anon November 1, 2016 3:15 pm

    Too true, Curious, and yet Pharma is leaning that way (having gone along with portions of the AIA that they now want to be exempted from and all). The tone on the article here – while admittedly perhaps more from me than from the author – also hints at a “let’s treat Pharma different.”

    There be great danger down that path.

  4. Chris Gallagher November 1, 2016 4:25 pm

    Anon and Curious
    The Canadian Promise Doctrine has been most prominently applied to biopharma patents where commercialization is traditionally; high risk,long, and costly. Its NAFTA challenge and Canadian court review were launched by Pharma firms. My concern however is prevent ALL early stage research university tech transfer from losing private sector investment support for All research disciplines. There is nothing in my post that mentions or even hints at any “special deal” for Pharma (which certainly can take care of itself. The subject Survey relates to the Doctrine’s Canadian consequences. My post calls attention to the Doctrine’s late stage review’s resemblance to IPR’s PTAB post-commercialization patent cancellations. My concern is what happened in Canada will likely happen here unless IPR is fixed for all patented technologies.That said, IPR’s deficiencies likely will first adversely affect early stage investment in life science discoveries during their commercialization in early stage tech transfer where future risk and cost uncertainties most inflate investment risk.

  5. Anon November 1, 2016 7:59 pm

    Thanks Chris – I see that I do need to make my caveat stronger: it is MY (and solely my) reading into the story the “vision” of somehow Pharma wanting to splinter off and be treated “uniquely.”

  6. Chris Gallagher November 1, 2016 10:15 pm

    Anon
    Response appreciated … And BTW I agree with you that U.S. patent law, (like The Three Musketeers) should still be”all for one and one for all”

  7. Noel Courage November 2, 2016 10:15 am

    The promise doctrine is getting a lot of press in the pharma industry. The issue is going to be on the table at the Supreme Court of Canada in an oral hearing shortly. There should be a judgment next year providing clarity (hopefully!) on fundamental issues such as whether there should even be a promise doctrine, and, if so, what would be the scope. In the meantime, the patent environment for innovative companies in Canada still has many benefits, such as ‘linkage regulations’ which the US also has, but the EU does not have. One can easily judge the up-side of these linkage regulations to brand name pharma merely by how they have made the Canadian generic industry association apoplectic for over two decades. The Canadian government also just introduced a new Bill (hot off the press) that provides for patent term extension. So, even though a brand-name industry funded survey indicates that morale and research dollars are down, companies keeping their eye on the ball know that it’s still a pretty darn good environment in Canada to file patents AND do R&D! 🙂

  8. Ternary November 2, 2016 11:36 am

    We really do not have to look at Canada for this. Patent Law balkanization is doing well in the USA. How else did we get CBM review? Interest groups love to get “special status.” See also efforts to undermine patent ownership by introducing the “patent troll” problem in Congress or the unrelenting attacks on ”software patents.”

  9. Chris Gallagher November 2, 2016 3:18 pm

    Noel Courage
    Thanks for the added intel Noel. We all wish Canada well so please keep us posted as the promise doctrine continues. If the U.S. continues heading in the wrong direction, Canada may soon become a permanent U.S. patent redoubt .

  10. William Loss-Wells November 7, 2016 11:01 am

    Thanks for taking the time to write this, Chris. I’m skeptical with respect to the conclusions drawn by the CRA report that you rely on, particularly when it comes to the linkage between Canadian IP law and R&D investment levels in pharma. I’m a casual reader, so I’m curious if there are legal realities that redeem the report. My problem with it is this: pharmaceutical patents tend to be commercialized globally (or at least in major developped markets) irrespective of where they are developed. Any new drug developped by research labs here in Montreal is going to be primarily commercialized and earning revenue in the US and probably EU. I understand that pharma companies do not want lax IP laws in any market where they are selling, and I think a short consultancy report for a pharma company is predictably going to reflect this. However, I don’t see the public interest argument at all, especially balanced against the total economic benefit to consumers, which you don’t mention at all. I raise this as a strong objection to how you characterize Canada’s experience, but it does rest on the assumption that patent rules in the country of development have little or no effect on how the patent is filed or enforced in other jurisdictions. My interest is only in the Canadian example you use, and since it rests precisely on the fact that Canada is a relatively small market, I have no comment on your broader concern with US patent policy. I would appreciate your point of view if you have time to follow up, especially if my ignorance has misled me.

  11. Chris Gallagher November 9, 2016 11:45 am

    William Loss-Wells
    Your thoughtful commentary is well-put. My primary concern is the chilling effect on early stage commercialization investment in the U.S caused by U.S.’s post-commercialization patent elimination trap, IPR. As a major developed country, Canada’s conduct provides support for continuing such practices in the U.S. and elsewhere. As you noted I was using the Report as an example, but also as a warning. I believe Canada eventually will find a way to eliminate its outlier promise doctrine, just as the U.S. similarly should fix its IPR. Consumers ultimately suffer when well-developed countries like Canada seem to bless such early stage investment-chilling conduct. What especially caught my eye in the Report however was the credible warning by CRA that the negative effects of such a doctrine are not instantly overcome by their repeal. That warning applies to both countries. As for broader adverse economic impacts to the overall Canadian economy beyond life science investment, I agree they were not firmly established within the Report. It is reasonable however to infer from the Report that if this investment-chilling conduct spreads to other well-developed countries, consumers everywhere will be harmed by the absence of early stage investment to develop much needed innovative therapies and broader economic growth.