November 2001
Pharmaceutical Patent Regulation is an Invitation for Litigation
by Brent Robinson
The Canadian government introduced the Patented Medicines (Notice of Compliance) Regulations in 1993 as part of amendments to Canada’s Patent Act. Although recognizing patents held by brandname drug manufacturers, the amendments to the Patent Act also introduced the "early working” or Bolar exception. This exception allows a generic manufacturer to make a patented drug solely for Health Canada’s approval, but not for sale. The goal of this was to facilitate the speedy approval of lower-priced generic alternatives to patented brandname drugs. Because the regulatory process occurs while the drug is still patented, the generic manufacturer is theoretically able to bring its drug to market immediately after the patents have expired.
In exchange for this exception in the Patent Act, the regulations force generic companies to prove that they are unlikely to violate brand name companies’ patents before Health Canada approves a generic drug for sale. The regulations function through a patent register that Health Canada maintains. The patent register contains all the patents for a new drug that contain a claim for the medicine or the use of that medicine. In order to have its product approved by Health Canada, a generic company must compare its drug to a previously approved brandname drug. This comparison must show that the generic drug is essentially the same as the brandname drug, a condition called bio-equivalence. If there are patents on the register concerning the drug to which a generic company wants to compare its version, the company must submit a letter to Health Canada and the brandname manufacturer alleging that it will not infringe any of the patents on the register.
Frequently, the brand name and generic companies disagree over whether the generic company has justified its allegations. When the generic and brand name companies disagree, the regulations call for a 24month stay prohibiting Health Canada from approving the generic drug. In these cases, the generic product cannot come to market for at least 24 months or the duration of the court proceedings, whichever is shorter.
This has resulted in a torrent of litigation. Of 463 submissions for health approval of generic products since 1993, brandname companies have launched court proceedings in response to 210 (45 percent) of them. For the rest, either the generic company agreed to wait for patents on the register to expire or the brandname company did not dispute the allegations. Imagine any other industry that had to go to court to sell 45 percent of its products!
The regulations do provide a fast and cheap system to provide legal resolution to potential pharmaceutical patent conflicts when compared to actual patent lawsuits. Normal pharmaceutical patent trials generally take years to settle and are much more expensive than the summary proceedings under the regulations. However, the unintended result of the regulations is the increase in smaller disputes.
Without the regulations, a generic company would have to carefully consider the likelihood of its drug violating a patent. Infringing upon a patent would be a costly mistake by a generic company. With the regulations in place, the generic company does not have to consider this risk. Instead, by simply serving a letter to Health Canada and the brandname manufacturer, it forces the court to provide an opinion on whether or not its product is likely to infringe upon the patents in question. Therefore, there is little incentive for a generic company that wants to copy a branded drug to wait until that drug’s patents expire.
Similarly, without the regulations, a brand name company would have to consider the likelihood of success in any patent infringement suit. Patent infringement suits can be long and expensive with an unfavorable result making the endeavor fruitless. The 24month stay provides the possibility for an automatic extension of the brand name drug’s patent protection. Even if the brand name company loses its case under the regulations, it gains information about the potential outcome of a full patent infringement trial and delays the entry of a competing generic product.
Further study is required to quantify the costs and benefits of the regulations as they stand. The onus should be on proving that the benefits of these regulations outweigh the costs they create. Europe is about to institute the early working provision without similar regulations. The United States is examining proposals that would eliminate their mandatory stay period and place a limit on the number of patents brandname companies can place in the Orange Book, the American equivalent to the Canadian patent register. Canada should consider these options in reforming its own pharmaceutical regulations.
Brent Robinson was a Fraser Institute Summer Intern for 2001 in the Pharmaceutical Policy Research Centre. He has a B.A. in Economics and Political Science from the University of Calgary and is currently studying law at the University of British Columbia.
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