The Trouble with the TPP series now shifts to patent law reforms and the likely costs to the health care system (prior posts include Day 1: US Blocks Balancing Provisions, Day 2: Locking in Digital Locks, Day 3: Copyright Term Extension, Day 4: Copyright Notice and Takedown Rules, Day 5: Rights Holders “Shall” vs. Users “May”, Day 6: Price of Entry). The TPP patent provision changes are very significant since they lock Canada into extending the term of patent protection, which will ultimately increase health care costs. Moreover, global organizations such Doctors Without Borders has warned that the agreement will raise the price of medicines for millions of people, particularly in the developing world.

The Conservative government tried to downplay the impact of patent law changes in the TPP, arguing that the agreement is consistent with current law or is “in line with outcomes secured in the Canada – EU Comprehensive Trade and Economic Agreement (CETA)”. The reference to CETA, which comes from the government’s TPP IP summary, represents a neat of sleight of hand.

The CETA changes, which the government admitted would result in increased health care costs, are not part of current Canadian law. They are not part of any bill that has been introduced before the House of Commons. In fact, given the long delays in proceeding with any implementation of CETA (indeed, the growing sense that Europe may reject the agreement in its current form), the CETA patent provisions are best described as aspirational. The inclusion of CETA-style patent provisions in TPP should be viewed on their own as ratification of the TPP could easily come before CETA ever makes its way before the House of Commons. Should that happen, the TPP will be responsible for increased health care costs arising from the extension of patent protection for pharmaceuticals.

The TPP requires several significant changes to Canadian patent law. Article 18.48 creates a requirement for a patent term adjustment for delays due to marketing approvals (described as unreasonable curtailment). The Canadian government believes that CETA’s two year patent restoration provision will meet the TPP requirement. The effect of the TPP is therefore to lock in CETA’s patent restoration extension even if CETA is never ratified or implemented. According to one study, the impact of these provisions in CETA could lead to increased drug costs of between $850 million and $1.6 billion annually.

In fact, the TPP expands the extension requirements even beyond those found in CETA. Article 18.46 requires a patent term adjustment due to patent office delays. The section provides that “an unreasonable delay at least shall include a delay in the issuance of a patent of more than five years from the date of filing of the application in the territory of the Party, or three years after a request for examination of the application has been made, whichever is later.” No similar extension is found under current Canadian law nor within CETA.

As one of my recent technology law column noted (Toronto Star version, homepage version), the escalation in patent protections is set to occur just as drug prices hit all-time highs in Canada and pharmaceutical investment in research and development sinks to decade-long lows. Those results come from a recent report released by the Patent Medicines Panel Review Board (PMPRB), an independent body charged by the government to track patent medicines pricing and spending alongside investment in research and development by pharmaceutical companies.

The report indicates that Canadians pay more for patented drugs than consumers in France, the U.K., Italy, Sweden, and Switzerland (only the U.S. and Germany pay more among the countries tracked by the PMPRB). The PMPRB says that this represents a change over time:

In 2005, Canadian prices were, on average, approximately equal to or below corresponding prices in all comparators other than Italy. By 2014, Canadian prices were decidedly above prices in the United Kingdom, France and Italy, and somewhat higher than prices in Sweden and Switzerland.

Moreover, over the past 12 years, Canadian expenditures on drugs has outpaced all other comparator countries, including the U.S., with 184.4 per cent growth in total drug expenditures.

Not only have Canadian expenditures on drugs been high, but the ratio of sales to research and development in Canada by pharmaceutical companies has fallen to record lows. In the 1980s, the industry lobbied for patent reforms that provided new rights and longer protections. In return, it promised to increase spending on research and development in Canada so that it would rise to 10 per cent of total sales by 1996. The report indicates that the ratio is now at only 4.4 per cent, the lowest recorded since 1988 (the peak rate was 11.7 per cent in 1995).

Canada is a significant laggard when it comes to pharmaceutical research. Despite ranking as one of the 10 most important markets and paying some of the world’s highest prices, the ratio of sales to research in other comparator countries is triple the Canadian rate. In other words, in countries such as the UK and France, drug prices are lower and research expenditures are far higher.

The confluence of high prices, low investment in research and development, and ever-increasing demands for further patent protections has caused the PMPRB to question the effectiveness of the Canadian system. It notes with regard to CETA:



Its implementation will require amendments to the Patent Act to provide pharmaceutical patentees with up to two years of additional market exclusivity. Such a change would come at a time of high drug prices and record low R&D, causing some to question the effectiveness of the PMPRB and whether a policy balance conceived over 25 years ago continues to serve its intended purpose.

The concern over Canadian pharmaceutical policy is long overdue as the evidence leaves little doubt that catering to the demands of the largely foreign-based companies have yielded few benefits. Canadians pay significantly more for pharmaceutical drugs than consumers in many other developed countries and the promised increased investment in research and development has not materialized. Yet despite the costly state of affairs, the government is set to reward the industry with even stronger protections through the TPP that will result in an extension of the higher prices.