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In July 2004, we distributed an information bulletin entitled "Canada Amends Patent Law to Allow Compulsory Licences for Export of Pharmaceuticals." This bulletin discussed the enactment by Parliament of the Jean Chrétien Pledge to Africa (JCPA), a series of amendments to the Patent Act and the Food and Drugs Act which provide for compulsory patent licences to permit the manufacture of certain pharmaceutical products for export to certain countries. The stated purpose of the JCPA is "to facilitate access to pharmaceutical products to address public health problems afflicting many developing and least-developed countries, especially those resulting from HIV/AIDS, tuberculosis, malaria and other epidemics."

The JCPA provides for the issuance by the Commissioner of Patents of an authorization for an applicant "to make, construct and use a patented invention solely for purposes directly related to the manufacture of the pharmaceutical product named in the application and to sell it for export to a country or WTO Member that is listed in any of Schedules 2 to 4 [to the JCPA] and that is named in the application."

The JCPA provides that an application for authorization, as well as several other related documents, must be in the prescribed form. Accordingly, although the JCPA was enacted in May 2004, it could not come into force until accompanying regulations prescribing the relevant forms had been approved. Regulations were also needed to determine the royalties payable in relation to exports made pursuant to the JCPA.

In addition, it was discovered after enactment of the JCPA that some housekeeping amendments had to be made. These amendments were passed by Parliament and received Royal Assent on May 5, 2005.

The JCPA, together with its housekeeping amendments and accompanying regulations, came into force on May 14, 2005.

The Use of Patented Products for International Humanitarian Purposes Regulations prescribe forms for the application for an authorization under the JCPA and for various declarations that must be filed in relation to the application. The Regulations also prescribe the form for the authorization to be issued by the Commissioner.

With regard to the calculation of royalties, the Regulations also provide that the amount payable depends on the country to which the pharmaceutical product is to be exported. The calculations are based on the rank of that country in the United Nations Human Development Index (the "UNHDI"). A maximum royalty of almost 4% is payable in respect of countries near the top of the UNHDI, a median royalty of 2% in respect of countries in the middle of the UNHDI, and a very small royalty (on the scale of hundredths of one percent) in respect of countries at the bottom of the UNHDI. If the destination country does not appear in the UNHDI, the royalty is calculated based on the average of the rankings of the countries listed in the applicable JCPA Schedule that are also listed in the UNHDI.

The royalty rate determined in this way is then multiplied by the "total monetary value, expressed in Canadian currency, of the agreement pertaining to the pharmaceutical product to be manufactured, sold and exported under the authorization." The term "total monetary value" is not further defined in the Regulations, though a very similar term is used in the JCPA, again without further definition. The Regulations provide that royalties are to be paid within 45 days after the date of the export notice provided for in the JCPA, which must precede any shipment under an authorization.

Our July 2004 bulletin discussed the provisions of the JCPA. The following list summarizes these provisions:

• An application for an authorization must provide (i) the name and other details of the pharmaceutical product; (ii) the maximum quantity to be manufactured and sold for export under the authorization; (iii) the number(s) of the relevant patent(s); (iv) the name(s) of the patentee(s); (v) the destination country; (vi) a certified copy of papers filed by the destination country specifying the pharmaceutical product and the quantity needed; (vii) the name and other details of the entity to which the pharmaceutical product is to be sold; (viii) a declaration that the applicant unsuccessfully sought a licence from the patentee(s); and (ix) a declaration that the pharmaceutical product is not patented in the destination country or that the destination country has granted or intends to grant a compulsory licence in respect of same. (While the JCPA also provides for the payment of a prescribed fee, the Regulations do not prescribe any such fee.)
• Provided that (i) the pharmaceutical product is listed in Schedule 1 of the JCPA; (ii) the destination country is listed in one of Schedules 2, 3 or 4; (iii) the application includes the required information in the prescribed form; and (iv) the Minister of Health has approved the pharmaceutical product, the Commissioner is obliged to issue an authorization for a period of two years for the applicant to make, construct and use the patented invention(s) for the purposes of the manufacture and export of the pharmaceutical product, up to the maximum provided for in the application.
• The Commissioner is obliged to notify the patentee(s) without delay of any authorization granted.
• The applicant must establish and maintain a website indicating (i) the name and other details of the pharmaceutical product; (ii) the destination country; (iii) the quantity provided for in the authorization; (iv) the distinguishing features of the pharmaceutical product; and (v) identification of any party that will be handling the pharmaceutical product during transit to the destination country. The Regulations further specify these obligations and require that the following additional information be included on the website: (vi) the name and other details of the entity to which the pharmaceutical product is to be sold; (vii) the quantity of each shipment; (viii) the Minister of Health export tracking number for each shipment; and (ix) the number of the bill of lading for each shipment.
• Before each shipment under the authorization, the holder of the authorization must give notice of and details concerning the shipment to each of (i) the patentee(s), (ii) the destination country, and (iii) the entity to which the pharmaceutical product has been sold.
• The holder of an authorization may obtain a single two-year renewal of the authorization in relation to any quantity of the pharmaceutical product originally authorized but not shipped.
• A patentee may ask the Federal Court to terminate an authorization if (i) the application for the authorization contains any material information that is inaccurate; (ii) the holder of the authorization has failed to establish and maintain a website as required; (iii) the holder of the authorization has failed to provide the required notice of shipment; (iv) the holder of the authorization has failed to pay royalties as required; (v) the holder of the authorization has failed to provide the Commissioner and the patentee(s) with a copy of the agreement reached with the entity to whom the pharmaceutical product is to be sold, as required, or has failed to provide a declaration indicating the total monetary value of the agreement as it relates to the pharmaceutical product, and the quantity sold; (vi) the pharmaceutical product has been improperly exported with the knowledge of the holder of the authorization; (vii) the pharmaceutical product was improperly exported to a country other than that named in the authorization; (viii) the pharmaceutical product was exported in a quantity greater than that permitted in the authorization; or (ix) where the destination country is not a WTO Member, it has permitted the pharmaceutical product to be used for commercial purposes or has not adopted required measures to prevent re-export of the pharmaceutical product.
• A patentee may also seek either termination of the authorization or an increase in royalties on the grounds that the agreement under which the holder of the authorization exports the pharmaceutical product is commercial in nature. The Court may entertain such an application by the patentee if the average price of the pharmaceutical product is at least 25% of the average price in Canada of the equivalent product sold with the patentee's approval. The average price in Canada is determined at the date of filing the application for the authorization based on the Ontario Drug Benefit Formulary, Quebec's Drug Formulary and the PPS Pharma Publication. Even if the patentee can establish this precondition, there are many factors the Court must consider before issuing an order. These include (i) the need for the holder of the authorization to make a reasonable profit, (ii) ordinary levels of profitability in commercial agreements involving pharmaceutical products, and (iii) international pricing trends.
• Within two years of the coming into force of the JCPA (i.e., by May 14, 2007), the Minister of Industry must complete a review of the JCPA and report to both Houses of Parliament.

The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault LLP or any member of the firm on the points of law discussed.

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