I'm Still Your Baby: Canada's Continuing Support of U.S. Linkage Regulations for Pharmaceuticals

Ron A. Bouchard is an Associate Professor in the Faculties of Medicine & Dentistry and Law, University of Alberta.  Professor Bouchard has a new article available on SSRN and describes it below.

One of the most strongly contested aspects of pharmaceutical policy concerns the role of intellectual property rights in providing economic incentives to firms and in shaping the agenda for basic medical research. A relatively new addition to the basket of intellectual property rights is a novel form of legal ordering referred to as “linkage regulations.” So named because they tie patent protection for marketed pharmaceuticals to the drug approval process, linkage regulations enable pharmaceutical firms to list as many patents as are deemed relevant to a marketed product on a patent register. Each patent must be demonstrated in litigation to be invalid or not infringed for generic market entry. In Canada, this occurs under the aegis of the Patented Medicines (Notice of Compliance) Regulations (NOC Regulations).

Canada’s linkage regime for pharmaceuticals was enacted under intense political pressure to harmonize the nation’s intellectual property law with those of other developed nations. The original policy intent of the regulations was two-fold: first, to encourage the development of new and innovative drugs, and second to facilitate the timely market entry of generic drugs. The NOC Regulations were expressly intended to balance the goals and objectives of food and drug law with those of patent law. Prior to the linkage regime coming into force, drug regulation and drug patenting represented distinct goals and policy objectives. Under the terms of the linkage regime, there must be a specific functional nexus between approved drugs and patent protection for those drugs pursuant to the NOC Regulations.

In choosing the words “the development of new and innovative drugs” to be one half of the balance linking patent law to food and drug law, the federal government articulated a clear public policy goal that pioneering drug development is desired in exchange for the unusual protections afforded to the pharmaceutical industry by the linkage regime. In choosing the words “timely market entry of their lower priced generic competitors” the government articulated a second public policy goal of cost savings, triggered by expiry of specific patents on specific drug forms that are no longer new and innovative. Thus the “balance” sought to be effected by the NOC Regulations is not just a qualitative balance between two poles, but also a quantitative balance. The more reward there is on the private side of the ledger, the more there must be on the public side in order to maintain legal equilibrium.

It has now been almost two decades since the regulations were enacted. Given the continuing public debate over high drug prices, the large fraction of research and development carried out by publicly-funded institutions ultimately enveloped within commercialized products, and wide criticism of the failings of the patent system to promote innovation, it is an excellent time to assess whether the NOC Regulations have in fact satisfied the twin policy goals of encouraging new and innovative drug development and the timely market entry of generic drugs.

We recently completed three empirical studies on the linkage between drug approval and drug patenting under the NOC Regulations. The empirical work was designed to investigate whether and how the NOC Regulations have encouraged the development of new and innovative drugs since being enacted. The importance of empirical studies to assessing the efficiency and effectiveness of policy levers such as intellectual property law and regulations cannot be overstated. As noted by some of the most prominent scholars of the economy, innovation and patenting over the last decades, robust conclusions regarding the consequences for technological innovation of changes in patent law and policy are few and far between. This is due primarily to a fundamental lack of relevant empirical data. The same applies in the reverse, as governments have specific legal and policy goals in mind when drafting law and regulations that are reviewable by the courts in judicial review proceedings.

The first study focused on the type of brand-name and generic drug approvals over an eight year term following the coming into force of the linkage regime and leading up to the debate on progressive licensing of drug products. The second was an analysis of patenting characteristics for therapeutic products before and after the coming into force of the NOC Regulations. The study also involved a detailed analysis of patent and therapeutic classes in which multinational drug companies are focusing their attention and how these can be used to support various types of new and follow-on drug development. The third was a more nuanced analysis of the innovative nature of new and follow-on drugs approved by regulators over this time frame coupled with an investigation into how patent monopoly periods for pharmaceuticals were extended via the linkage regulations.

The empirical findings reviewed are at odds with the goals of stimulating the development of new and innovative drugs and facilitating the timely entry of generic drugs. Questions as to the validity of the NOC Regulations arise when a purposive patent-specific approach to interpreting the NOC Regulations is taken, as stipulated by the Supreme Court of Canada in its leading patent jurisprudence. Taking this approach to analysis of the linkage of drug approval and drug patenting in the specific context of s. 55.2(1) of the Patent Act, one could argue that the concept of early working does not refer to the working of any patent at any time. As suggested by testimony by the federal government before the Legislative Committee on Bill C-91, the early working provision was intended to refer to a specific patent on a specific drug so as to allow generic firms to prepare for timely market entry in relation to that drug and that patent. A second element of a patent-specific analysis is that a drug referred in s. 55.2(1) is not a new and innovative drug for the purposes of all time. It is a drug that is new and innovative at a particular time in history. The moment when this drug is no longer new or innovative, for example when it becomes the basis of SNDS submissions and follow-on drugs, constitutes the moment in history when patents are no longer in relation to “new and innovative” drugs and thus the moment which may reasonably trigger “timely” generic entry.

Data such as those reviewed in the article suggest that blending of industrial and health policy goals may be ineffective and possibly counterproductive in terms of public health outcomes. There is no question that established and emerging drug regulatory regimes have great potential to increase the efficiency of public health provision by placing both new and innovative and older blockbuster remedies in clinical environments sooner. However, growing evidence such as ours seems to indicate that the efficacy of this approach can be weakened through inadequate monitoring and supervision, such that pharmaceutical firms perceive a higher incentive to exploit existing patented technologies in new ways rather than increasing the flow of new technologies. At a more general level, the data lend empirical substance to an emerging consensus that, in many circumstances, intellectual property rights may be an inhibitor of innovation.

Professor Bouchard’s full article “I’m Still Your Baby: Canada’s Continuing Support of U.S. Linkage Regulations for Pharmaceuticals” is available for download on SSRN here.