Astrazeneca, Eli Lilly, the Supreme Court of Canada, NAFTA & a Rogue Elephant - Tomorrow Promises to be an Interesting Day

(images from Wikimedia Commons)

Tomorrow will be an eventful and very interesting day – especially for Canadian IP and trade lawyers,  a wide variety of other lawyers, as well as Canadian diplomats, politicians and bureaucrats.

On Tuesday, November 8, 2016, Election Day in the USA, the Supreme Court of Canada (“SCC”) will hear a patent case between AstraZeneca Canada Inc., et al. v. Apotex Inc., et al.  This involves the issue of “whether a promised utility doctrine properly exists”, in the words of the SCC’s summary of the case, which is not “official” and “are placed on the Court file and website for information purposes only”. Here is the full SCC summary:

Intellectual property – Patents – Medicines – Utility – Validity of patent for drug used in treatment of gastric acid conditions challenged in infringement and impeachment action – Whether “promise” in patent of improved pharmacokinetic and metabolic properties for improved therapeutic profile demonstrated or soundly predicted at time patent filed – What is the correct applicable standard for patent utility in Canada? – Whether a promised utility doctrine properly exists.

The applicants, (collectively, “AstraZeneca”) owned the Canadian ‘653 patent for the compound, esomeprazole, a proton pump inhibitor used in the reduction of gastric acid, reflux esophagitis and related conditions. It was sold under the name Nexium, and was a very successful drug for AstraZeneca. The respondents (collectively, “Apotex”) applied to the Minister of Health to obtain a Notice of Compliance which would allow it to sell its generic version of the drug. In response, AstraZeneca brought a prohibition application under the Patented Medicines (Notice of Compliance) Regulations, SOR/93-133 to prevent Apotex from entering the market until after the expiry of the ‘653 patent. In 2010, that application was dismissed and Apotex received its Notice of Compliance and commenced sales of its generic esomeprazole. AstraZeneca brought an action against Apotex for patent infringement. Apotex counter-claimed to impeach the ‘653 patent on several grounds.

It looks like this issue will now finally actually be considered on the merits by the SCC. However, there is an unusual history as to how it got here. Almost exactly two years ago, on November 3, 2014, Apotex and Sanofi settled a case scheduled to be heard by the SCC literally the next morning. The Justices were, so to speak, all dressed up, prepared and ready to go. They and the interveners may not have been too pleased. Here is what I wrote at the time:

In a very unusual development in a case that promised to be very interesting and important both domestically and internationally, Apotex has filed a notice of discontinuance literally on the day before and figuratively on the steps into the Court in its appeal against Sanofi in the Supreme Court of Canada that was to have been heard earlier today in Apotex et al v. Sanofi et al.  The notice states that “The Appellants wholly discontinues this Appeal on a without costs basis on consent.” This language suggests that some kind of settlement agreement – presumably very confidential – must have been concluded.

…

In today’s discontinued case, the “promise doctrine” and “utility” are also very much are the heart of the Eli Lilly NAFTA Chapter 11 investor/state challenge, although today’s case and the NAFTA case are not directly linked. However, whatever the Court might have ruled in today’s discontinued case might well have been of some considerable interest in the NAFTA case that we will hear much about in the future as it unfolds.

Even that was not the first time the SCC had heard about the “promise doctrine”.  In 2013, a panel of the Court led by now retired Justice Rothstein held an extraordinary rare oral hearing on whether Eli Lilly should be allowed leave to appeal on this issue. On May 16, 2013, the Court declined the leave application, as usual without reasons. Here is the webcast of the hearing.

At tomorrow’s hearing there will a rogue elephant lurking nearby and possibly even in in the room that I expect will remain almost completely silent and will likely be carefully ignored. However, it may well be on everyone’s mind – perhaps even that of the Justices. It is perfunctorily alluded to in the material.  This is the Eli Lilly NAFTA challenge, which has been brought under the ultra-controversial Investor State Dispute Settlement (“ISDS”) provisions of NAFTA. ISDS, of course, is one of the reasons, if not the main reason, for the CETA and BREXIT crises and the controversy over the TPP. Deadlines for treaty signature sharpen the mind. The timing of tomorrow’s hearing is somehow ironic – since the NAFTA and proposed TPP have become major issues in the USA election campaign, which has been otherwise largely devoid of substantial issues and mostly about personalities.

There are many things about ISDS generally and this case in particular that are very controversial. However, the most controversial aspect of this by far is the fact that Eli Lilly has refused to accept the SCC’s denial of its leave application as the end of this matter. It has, in effect, attempted to go over the head of the SCC. The SCC, after giving Eli Lilly the almost unheard of privilege of a lengthy oral leave hearing, declined to hear their appeal. For any Canadian litigant, that would have been the end of the road. Not, however, for Eli Lilly, a foreign investor, which had applied for leave to appeal on November 8, 2012 and filed its Notice of Intent Notice of Intent to Submit a Claim to Arbitration Under NAFTA Chapter Eleven on June 13, 2013, having been turned down for leave to appeal by the SCC less than a month earlier. Canadians do not get to bypass or, in effect, appeal from decisions of Canadian courts. Their only recourse is to the SCC. And when the SCC says it’s over, then it’s over. The only recourse then, which is not judicial or arbitral, and which is exceedingly rare is that Parliament may decide to change the law following a judicial decision that it finds unacceptable. Even then, Parliament is bound by Canada’s constitution, which is exceedingly difficult to change. Of course, a government can invoke the “notwithstanding clause” – but this is bordering on the “nuclear option” in today’s Canada.

Eli Lilly, at least, had exhausted its recourse in Canada in this instance. That is not the case in many other NAFTA ISDS disputes.

Only now are more and more people beginning to understand why ISDS is so controversial. It not only arguably ousts the jurisdiction of Canadian superior courts. It arguably discriminates on the basis of nationality by providing greater rights and remedies to foreigners than are provided to Canadians.  This, and much more, may get challenged by Paul Hellyer, P.C. in a recently launched lawsuit in which he is being represented by Rocco Galati, who succeeded in a controversial challenge to the appointment of the Honourable Marc Nadon to the SCC. The recent decision by the UK High Court regarding Brexit may well be cited in Canada with respect to limits on the royal prerogative and other issues.

Many experts do not believe that Eli Lilly should or will win the NAFTA challenge on the merits. It is difficult to believe that a finding of patent invalidity by one of the best judicial systems in the world with an extraordinary oral hearing for leave to appeal to Canada’s highest court could lead to the conclusion that Canada, in Eli Lilly’s words:

“Wrongfully Expropriated Claimant’s Patent Rights In Zyprexa and Strattera”

or

“Failed to Accord Fair and Equitable Treatment to Claimant’s Investments in Violation of NAFTA Article 1105”

However, Eli Lilly has paid out a lot of money to get expert reports and make arguments that suggest otherwise and Canada has chosen to defend on the merits, rather than attempting to end this case at the outset on jurisdictional grounds.  To no doubt oversimplify, the main issue is whether a ruling by the Canadian courts that a patent is invalid is an “expropriation”. That, of course, is arguably an absurd suggestion. Patents are regularly invalidated by courts everywhere. That is not “expropriation”. This is how the system works. The patent has not been seized or taken by the government without compensation.

Sometimes – and I do not for a moment suggest that this is the case here – the courts get things wrong. The wrong decision is not always corrected on appeal, for any number of reasons. A country’s highest court cannot hear every case brought to it – and rarely do any top courts engage simply in “error correction” as such.  Unless there is evidence of corruption or other serious denial of natural justice in the judicial system - which is clearly not the case here or ever likely to be the case in Canada - ISDS should never be allowed to be used to bypass or, in effect, override Canada’s judicial system. If Canada’s statute is offside with its treaty obligations, there is a state/state remedy procedure in the WTO.  However, that has not been sought in this case.

Also, more another day on why the Government of Canada did not seek at the earliest possible stage to have this case dismissed on what would seem to be arguably clear jurisdictional grounds – instead of spending about $6,000,000 that we know about in fees, disbursements and costs. However, the real and even more serious risk is that there could be a ruling by the arbitrators for damages of $500 million + costs that, even worse still, might unravel Canadian patent law and contradict our courts – including our highest court. Even if Canada wins on the merits, there is also a real risk that there could be many more of these challenges that threaten sovereignty and the rule of law - unless there is a very clear jurisdictional ruling in Canada’s favour. Litigants such as Eli Lilly, Phillip Morris and others with deep pockets have little to lose and much to gain if they can instill some regulatory chill and even buy time in appropriate cases. I may have more to say about ISDS and Canada in the future.

In the meantime, don’t take my word for what is problematic about ISDS. Here is what the Chief Justice of Australia, RS French, had to say about ISDS on July 9, 2014 – and bear in mind that sitting Chief Justices in common law countries are invariably very constrained in their comments on public policy issues:

A rule of law issue

The topic of investor-state dispute settlement has a regional significance for Australia because of the number of BITs and FTAs it has entered into or is negotiating with countries in the Asia Pacific. However, the significance of ISDS arbitral processes is global. They have general implications for national sovereignty, democratic governance and the rule of law within domestic legal systems. Their long-term consequences for national judiciaries cannot be stated with confidence. They attract vigorous and articulate proponents and detractors, but their merits and demerits are not easy to assess. Moreover, those merits and demerits may vary according to the circumstances in which ISDS is applied and the scope and limitations of particular ISDS provisions.

(emphasis added)

The possibility of diverging findings on the same issue now looms very large. We do not know when the NAFTA arbitrators will rule. While they work on their conclusion, they are each being paid at the rate of USD $3,000 per diem. One would think that, if the arbitrators were inclined to dismiss on straight jurisdictional grounds, which Canada eventually got around at the end to forcefully arguing, that they would have so ruled by now or will do so rather soon. The hearing concluded in early June of 2016. Our SCC usually rules within six months of a hearing – so one can expect a ruling from the SCC likely no later than April of 2017.

It will be a potentially huge problem if the NAFTA arbitrators and the SCC disagree on substantive patent law. It will be awkward enough if, as seems inevitable, one rules before the other. Would the NAFTA arbitrators pay any attention to the SCC, or vice versa? A disagreement on the merits would likely have profound implications for international trade, diplomacy, the rule of law and national sovereignty. However, I have probably said more than enough about all this for now….

Tomorrow’s webcast – assuming it is not delayed due to a “sealing order” should be available here.

HPK

The Cost of Canadian Copyright Term Extension Capitulation in the TPP - Estimates Based Upon New Zealand Study

(Wikimedia)

Here’s the important study from New Zealand (recently mentioned by Michael Geist in his “must view” CIGIOnline talk) entitled Economic Modelling on Estimated Effect of Copyright Term Extension on New Zealand Economy.  The study was commissioned in 2009.

Here’s the bottom line from the first page of the NZ summary:

Based on this research, the Government estimated that the average cost to New Zealand from the obligation under TPP to extend New Zealand’s copyright period from 50 to 70 years would average around $55 million per year.

…

The study estimated the total cost for New Zealand of copyright term extension for

books and recorded music in terms net present value (i.e. the equivalent amount of

money that, if invested today, would cover all future costs for every year). The study

considered a time period of 70 years for recorded music (the extended copyright term,

which is generally calculated from time of production) and 110 years for books. The

study estimated a net present value of $208-239 million for recorded music and $263-

300 million for books.

(footnote omitted)

Here are key comparative statistics:

NZ $1.00 = CDN $0.86

NZ GDP = ~ 10.4% of CDN GDP based upon World Bank figures for 2014.

Assuming that the New Zealand study methodology for calculation of the cost of a 20 year copyright term extension were to be more or less applicable to Canada and that the results would be more or less proportional to the difference in GDP, here are some admittedly “back of the envelope” calculations:

The average present value of the cost of 20 year copyright for recorded music and books term extension (which included an estimate for film and television) was estimated by NZ is NZ $505 million, which is CDN $434 million, which adjusted by GDP ratio, would work out to about CDN $4.176 billion.

The average annual cost for NZ is NZ $55 million, which is $CDN 47.3, which adjusted by GDP ratio, would work out to about CDN $454 million.

I look forward to reading the whole study in detail. If Canada has anything comparable and credible by way of independent analysis, it would be useful to know. If not, it would useful to know why not. It has been too long since Canada based its copyright policy on actual evidence, such as we saw in the Consumer and Corporate Affairs studies in the early 1980’s, or the Economic Council, Ilsley, and Parker Commissions during the decades before.

Canada needs to look at the costs of copyright term extension very carefully before we decide to sign on to the TPP - or to insist that certain aspects of it be renegotiated. Given that Canada has a new Government, that the current TPP deal was agreed to by a "caretaker" government during an election, and that acceptance of the TPP is anything but assured in the USA, anything is possible. 

HPK

My Unsolicited Advice to Prime Minister-designate Justin Trudeau & his Team on TPP, Copyright, CBC, Cabinet & Committees

I am not partisan. I was a public servant for about a dozen years. I was in the public service during the end of the Pierre Trudeau era, the Brian Mulroney era and early Jean Chrétien period. I’ve observed much since then and appeared several times at Parliamentary and Senate Committee hearings. I’ve fought and won some victories in some important cases up to and including at the Supreme Court of Canada.  There are many IP, trade and cultural issues that I care a lot about and which are or should be non-partisan. So, I hereby offer my free, unsolicited and non-partisan advice on some of them – for what it’s worth – to Canada’s new Prime Minister-designate and Government: 

-    Re the TPP, there should be very open and adequate committee hearings as soon as possible to support a fully informed debate in Parliament. Many committees will need to look at this. The proposed agreement - which is sadly still secret – apparently has huge implications for the auto, agriculture, pharma, health, high tech, academic and innovation based sectors – for starters. It may have enormous implications for the rule of law and national sovereignty if it allows foreign corporate “investors” to effectively limit or even undo Canada’s right to regulate in many areas. It may even allow them to effectively overturn the outcome of decisions of our highest courts including the Supreme Court of Canada, which are among the finest courts and most respected courts anywhere in the world. The TPP needs all the scrutiny and all the time we can give it. It’s not likely going anywhere fast, based upon what we have heard from Hillary Clinton and President Obama’s situation in the USA.  There could very well be an opportunity to reopen it and to more strongly assert Canada’s best interests, if necessary. The complete shroud on public transparency in the negotiations - which was not the case with the historic WTO Uruguay agreement in 1994 or many other treaties, such as those from WIPO - has understandably created suspicion and scepticism.

-    Regarding intellectual property and free trade, don’t assume that higher levels of IP make for freer trade. The evidence suggests otherwise, unless one is dealing with rogue or pirate nations that have not even ratified or which flout the basic WIPO and WTO-TRIPs treaties.  There are few if any such places left and none of our significant trading partners could be remotely so described.  Don’t take my word for this. Read what Nobel Prize winner Joseph Stiglitz recently had to say about the “Trans-Pacific Free Trade Charade”.

-    Don’t assume that more or longer copyright protection is necessarily good for Canada. Remember the controversial report from Sarmite (“Sam”) Bulte and her committee.  It’s important to have knowledgeable committee chairs who have an open mind. Also, remember how Jim Prentice learned that more is not necessarily better when it comes to copyright and that bad bills can quickly evoke significant protest. He was one of the first to learn about what social networking to do to bad policies and bad legislation.

-    Get Canada back into business in a visible and meaningful manner at the World Intellectual Property Organization (“WIPO”), the WTO and other international multilateral fora. It is unfortunate that we have become largely silenced in this respect over the last decade and even more. We have much to contribute through our capable public service delegates and it can only help Canadians if we do so. Canada can also much to help other countries and should consider resuming its role as “honest broker” in international fora.

-    Don’t pander to the Mickey Mouse “Forever-Less-A-Day” movement, lavish music and film industry galas, receptions and the other glamorous and seductive lobbying initiatives that will be surely present themselves. Much of what you will be asked to do by these folks will be bad for Canada. And even bad politically. Remember Sam Bulte and her infamous “fundraiser” with Hollywood, the music industry and other strongly pro-copyright interests. That event was widely regarded as being instrumental in her electoral defeat and the apparent demise of her political career.  Or ask Sheila Copps about the most lobbied issue ever in Canadian federal policy making. Or ask her about her ill-fated and ill-advised back-door attempt to extend the copyright term for unpublished works by Lucy Maud Montgomery and others who died before 1949. (I’m proud to have played a significant role in the demise of the relevant provisions of the bill that would have made this happen).  Or ask outgoing Prime Minister Stephen Harper why he suddenly and without any public consultation or subsequent debate provided a windfall copyright term extension for sound recordings of an additional 20 years in an omnibus budget bill and wrote a letter to the American recording industry’s “Canadian” lobbying association on the very day that the controversial provision was tabled, just a few months before he lost in this week’s historical election. Bob Tarantino has a good take on how this term extension will work. Think about repealing it.

-    Fix the problems at the Copyright Board, which takes too long to render decisions that are too retroactive, too costly and sometimes just simply wrong. This will almost certainly require regulations. The fault, if there is any fault to be found, may lie more with the parties and their lawyers than the Board. But the Board has, despite its competence, dedication and good intentions, proven unable or unwilling to deal with these problems and to confront the perennial parties and the small cadre of counsel who have done well under the status quo and who don’t want to see any meaningful change. Regulations are the answer. Virtually all other comparable Canadian tribunals and courts operate under clearly enacted rules that set out timelines, procedures, etc.  Establishing such rules through regulations is relatively easy – because regulations don’t require legislation. They just require hard analysis and serious consultation. We do not need further statistical study, especially when the Board only renders two or three significant substantive decisions a year. I’ve written about this a lot.

-    Fix the CBC. Start with a new Board of Directors chosen for their knowledge and ability and not on the basis of partisan considerations. Get a new President ASAP who is committed to running the CBC according to its historical and legislated mandate and bringing in more capable senior management.  Running the CBC does not mean running it into the ground. Listen to voices who can provide non-partisan wisdom, such as Tony Manera – a highly principled and highly respected former president. The CBC is an indispensable part of Canada. Bring it back to life and let it flourish. It was once a national treasure admired around the world. This can happen again.

-    Use your elected talent pool wisely. You have knowledgeable and experienced people who could contribute in cabinet on issues such as the above. Chystia Freeland comes to mind on international trade. David Lametti is certainly the first and foremost intellectual property law expert elected as an MP in Canada in modern times and probably since Confederation. He has been a distinguished full professor of law at McGill and could make a great contribution in several places, such as Justice, Industry or Heritage. (I should disclose that I represented his McGill institute and worked with him and Prof. Ariel Katz of U of T in a recent Supreme Court copyright case, for which the copyright community is eagerly awaiting the result).

-    Use your bureaucrats wisely. Many of them are very capable. The system should encourage expertise and experience in IP on the part of senior levels in the bureaucracy, which has rarely been the case in Canada – in notable contrast to the USA.

The previous government did do some good work on copyright. The 2012 legislation was reasonably well balanced. The decision to get rid of the proposed “new tax on iPods and MP3 players”, an idea that then Industry Minister James Moore called "really toxic and, frankly, really dumb” through regulation was a clear, decisive and an important step (I admit to involvement on this file). Resist the likely attempt to reverse this positive step. However, the sudden windfall copyright term extension for sound recordings in the recent omnibus budget bill was unfortunate. The leaked IP chapter of the TPP seems to indicate that Canada “caved” on key issues, as Michael Geist explains. But, as noted above, hopefully that damage, if is confirmed, can still be repaired.

IP should not be a partisan issue. IP costs are overwhelmingly paid for by the “middle class” who buy gadgets, pay cable bills, go to the movies, pay for their kids expensive tuition, pay taxes for education, use prescription drugs, consume brand name food and beverages, wear brand name fashion and pay out in countless other ways. Good IP policy is essential to an innovative, independent and competitive Canadian economy. IP is everywhere and that’s why the lobbying is so intense on these files.

Free trade. copyright and the CBC should not be partisan issues. These are issues that should be dealt with on the basis of evidence, analysis and what’s best for Canada.

Mr. Prime Minister-designate, I wish you all the best in your dealing with these and the many other complex issues before you. You have a great elected team and a great public service to help the Government you will lead to undertake these challenges.

HPK

Canada, Fair Dealing, and #FordhamIP 23rd Annual Conference at Cambridge University

@jamie_love Canada has no greater champion than @howardknopf! #fordhamip
— Managing IP (@ManagingIP) April 9, 2015

During panel on Fair Use, @howardknopf extols Canada's approach on exceptions. #fordhamip pic.twitter.com/e3ZrRPTl2D
— James Love (@jamie_love) April 9, 2015

I'm very proud of these tweets from the 23rd annual  #FordhamIP conference held this year once again at Cambridge University.

I do my best each year to tell it like it is regarding Canadian copyright law at this the leading international IP conference by far....which it has been for 23 years and going strong....

The news from Canada has not always been good but overall we have much to be proud of. Right now, the USA and the EU would be wise to look very carefully at Canada's statute and jurisprudence on fair dealing. I've done my little bit to contribute to this, along with Ariel Katz - as you can see reflected in the Province of Alberta decision from Canada's Supreme Court. 

It's surprising that they are so unaware - and sad for them that they do not realize the potential that they could achieve if they simply read our statute and our Supreme Court of Canada cases.

And they should ignore Canadian lobbyists who have tried unconvincingly and without success to discredit these achievements on irrelevant and inapplicable grounds. 

Of course, if Canada is offside internationally, then we would be in very good company with the USA and its Section 107 of the USA Copyright Act, which has never been challenged and almost certainly never will be - and if it is, will almost certainly emerge unscathed. 

This is very important for #TPP and #ISDS.

HPK

Canada's Best Kept Fair Dealing Secrets Revealed at #FordhamIP Conference

During panel on Fair Use, @howardknopf extols Canada's approach on exceptions. #fordhamip pic.twitter.com/e3ZrRPTl2D
— James Love (@jamie_love) April 9, 2015

I got in a good shot from the floor about Canada's excellent statutory and judicially considered views of fair dealing - of which some very important people in USA, UK and EU are sadly and surprisingly unaware.

I am proud to be a part of this picture, along with Ariel Katz in the Province of Alberta case in the #SCC in 2012.

Canada has the best of  both possible worlds in many ways between the USA and  UK...

Pity for them both that neither of them quite get it!

We'll keep out secret for ourselves!

Hopefully, we won't abandon this advantage in the #TPP due to misguided, inaccurate and misleading references to the three-step test, etc. coming from Canadian and American sources ...

HPK

Just Say No to Copyright Term Extension - Why More is Less: My Views on #TPP

I was honoured on July 9, 2014 to participate with Michael Geist and others in an event organized by  EFF and its partners in the Our Fair Deal coalition to brief invited TPP negotiators about key certain key copyright issues thought to still be in play in this sadly secret process. These are the issues of term extension and "notice" provisions and the obligations of intermediaries. Here is my PowerPoint presentation:

Here is Michael's:

The End of the Great Canadian Trade-mark Hyphen – and other Consequential Changes

The hyphenated spelling of “trade-mark” had become something of an – ahem – trade-mark for Canada. It was a bold proclamation of independence and innovative thinking when Bob Kelly - an arcane and erudite veteran of the Department of Justice from a bygone era – came up with this bright idea. That hyphen was inserted in 1993 and served a useful purpose, since many people were confused between the American/WIPO spelling ("trademark") and the British spelling ("trade mark"), which the Brits still use.  After all, isn’t the purpose of trade-marks law to avoid confusion? Canada had earlier used the British spelling. So - we are now following the American lead...Hopefully, this capitulation will appease the Americans and they will back down on term extension, prevention of parallel imports, repealing fair dealing, jail terms for petty infringers, ACTA implementation, the TPP and other aggressive efforts. As if!

Seriously, the Government has introduced numerous changes to the venerable Trade-marks Act (enjoy the spelling while you can) – above and beyond removing the hyphen from "trade-mark". These numerous changes to the Trade-marks Act are hidden in plain sight in the omnibus budget implementation Bill C-31 and they can be found here.

Fortunately, Rob Kittredge has gone to the trouble of preparing both a consolidated and redlined version that can be found on his blog, here, along with a short discussion by him, including his thoughts on the process of including these changes in an omnibus budget bill. All Canadian IP practitioners owe Rob a big vote of thanks for making these changes transparent and doing this so quickly over the weekend.

In days to come, I may and others no doubt will discuss the changes and how the bill is likely to be handled – and whether committee hearings should be undertaken. Along with Bill C-8 - the anti-counterfeiting legislation that goes well beyond what is needed to address counterfeiting and which had only perfunctory committee hearings - we are about to see a massive revision of the one piece of Canadian IP law that arguably needs little or no revision and which has worked really well since 1954, when it was introduced after a model consultation process led by the late John Osborne, an eminent practitioner in his day. No - I don't remember this first hand. But I heard a lot about it from the late Gordon Henderson and Bill Hayhurst, who both thought very highly of the legislation and the way that it was developed. Unfortunately, the days when such a process would work effectively are probably gone forever, given the role of lobbyists and well-funded trade associations.

HPK

Speech From the Throne 2013 – Will We Really Get Price Parity on Consumer Goods with the USA? IP Law is a Key Issue.

Yesterday’s  Speech from the Throne (#SFT13) contained two items that will require detailed consideration of amendments or clarifications of existing Canadian intellectual property law and amendments or clarifications to the anti-counterfeiting Bill C-56 from the previous session – or whatever it is numbered if and when it is resuscitated.

#SFT13 says:

·         “Our Government will ...Take further action to end geographic price discrimination against Canadians."
·         “And our Government will take additional action to protect Canadian consumers. Canadians are tired of hidden fees. They deserve to know the real cost of paying by debit or credit card. And they should not be charged more in Canada for identical goods that sell for less in the United States.”

Achieving these goals requires dealing with some extremely complex issues that have bedevilled courts and legislatures for decades. The elephant in the room is the issue of “parallel imports” or “grey market” goods – namely perfectly legitimate and authentic products that have been legally made and put on the market outside of Canada and which can be imported into Canada at a cheaper price than that demanded by the so-called “exclusive” distributor.  These good are by no means whatsoever “counterfeit” or “pirate” in any sense.

Despite the complexity of the “parallel imports” issue in terms of copyright law, some propositions are very simple.

Truly “free” trade cannot permit the imposition of “private tariffs” in the form of IP laws that permit geographic price discrimination or market segmentation. That would allow copyright law to become an unintended “instrument of trade control”, in the words of retired Justice Fish of the Supreme Court of Canada, and a very effective and unregulated “private tariff”.

Canada has explicit provisions in its Copyright Act regime that permit and encourage just such a regime for books. The situation for goods other than books is more complicated.

In 2007, the Supreme Court of Canada in the Kraft decision allowed a victory for the importer of “parallel import” or “grey market” Toblerone chocolate bars, largely based upon arguments that I made on behalf of the Retail Council of Canada. For a number of reasons, including the complexity of the decision and the issue itself, that victory has not been fully understood, even by some those importers who might benefit from it. Here’s an analysis I did for the Law Society of Upper Canada in 2008 that’s still useful.

Here is a summary of where the law now stands:

1. The sui generis book regime in the Copyright Act works well to keep out commercial scale importation of parallel imports and my much missed “remainder” fine art books, but is ineffective to stop personal importation by travellers and by Canadians who cross-border shop from the comfort of their own home or with their smart phone via electronic commerce in very large quantities.
2. Trade-marks law is ineffective to stop parallel imports.
3. In theory, copyright on elements of packaging and labelling can be used to exclude parallel imports if the copyright is assigned to a Canadian entity that is different than the foreign entity that made the packaging.
4. However, there’s a very good chance that such an assignment will trigger one or more of the following unintended and unfortunate consequences:

• Undesirable corporate and tax law consequences
• “Loss of distinctiveness” resulting in invalidity of trade-mark registrations
• Defence and Counterclaim allegations in any vigorously fought litigation relating to sham transactions, copyright misuse, abuse, and/or various Competition Act issues. (I have raised such allegations in a test case proceeding which then fizzled and never went forward).

Thus, copyright law – other than in respect of books – is essentially a toothless tiger when it comes to excluding legitimate parallel imports. But a lot of supposedly well-informed importers don’t get that, for the reasons stated above and for other reasons, which I won’t go into here.

Therefore, clarification of the law would be useful and maybe even essential. Even experienced IP lawyers have been baffled by it for decades. It is little wonder, then, that many of their clients and even the general counsel of their clients often don’t understand it. Maybe Parliament needs to make it sufficiently clear in simple terms so that even a copyright lawyer can understand it. I look forward to helping to find the appropriate language.

In the case of books, unless we want to keep an arguably anachronistic, anomalous and clearly protectionist regime that guarantees higher prices to Canadian consumers and higher profits to Canadian “exclusive distributors” but little else in terms of benefits to Canada, it is essential that the Copyright Act be amended. Otherwise, we are certain to continue have higher book prices overall in Canada than the USA, unless the current market forces of Amazon and others put Canadian exclusive distributors and some publishers out of business, which would not be a desirable result. As for the rest of Canadian copyright law, clarifying language seems necessary for the reasons stated above.

The anti-counterfeiting Bill C-56 – which may or may not get revived in the new session – has countless confusing references that deal with parallel imports.  While the intention seems benign, the result may not be. Much more scrutiny and simplification may be required to ensure consistency with the Speech from the Throne statements.

In any event, these Speech from the Throne items cannot be achieved without considerable attention to IP details.

No doubt, the lawyers and lobbyists who would like to preserve the “private tariff” of IP to prevent real free trade and to geographically segment the Canadian market for price discrimination purposes are already hard at work to thwart the Government’s intention and to recover from their failed attempt in the Kraft case to hijack copyright law for this purpose.

And last but not least, let’s hope that the #CETA and #TPP agendas don’t derail the perfectly laudable sentiments in #SFT13.

In that connection, beware of the predictable efforts from the US Government and lobbyists representing American interests who will take their frequent posture of “do as we say, not as we do”. The US Supreme Court recently clarified in the Kirtsaeng decision that copyright law cannot be used to stop the parallel importation of goods – indeed the case was about books – largely based upon a “parade of horribles” that would result had it ruled otherwise.

As I occasionally explicitly reiterate, the views expressed on this blog are solely my own.

HPK

Canadian Copyright and Related Issues - Suspense at Summer’s End

Here are some developments we can expect soon in Canadian copyright law:

• York University will likely very soon file a statement of defence in the lawsuit by Access Copyright. This has already taken months longer than usual. York’s position and strategy will inevitably attract much scrutiny, since an adverse outcome for York could profoundly and negatively affect the entire Canadian educational community at all levels.
• The Federal Court could rule at any time in the Voltage Pictures effort to compel Teksavvy to hand over the identities of thousands of its customers. Teksavvy, it will be recalled, has spent a lot of money not to take a position on this issue and to buy time for a law school clinic to get involved as an intervener. Teksavvy’s counsel spoke briefly at the end of the hearing, which took place on June 25, 2013 but Teksavvy had not previously taken any position.
• The Copyright Board has just advised that “the Tariff of Levies to Be Collected by CPCC in 2012, 2013 and 2014 on the Sale, in Canada, of Blank Audio Recording Media is scheduled to be published in the Canada Gazette this Saturday, August 31, 2013. The links to the certified Tariffs, as well as the decision in respect of each Tariffs will be available on our web site under the heading “What’s New” on Friday, by the end of the business day.” The Board will also, at some point, rule on whether it intends to proceed with a hearing on whether there can be a levy on microSDs for the period of January 1 to November 6, 2012. The Government published a regulation on November 7, 2012 that stated that “Memory cards in microSD form factor, including microSD, microSDHC and microSDXC cards, are excluded from the definition “audio recording medium” in section 79 of the Copyright Act.”
• The Supreme Court of Canada could at any time now deliver its judgment in the case involving Cinar and Claude Robinson, et al which will presumably focus on the question of what is a “substantial part”.

In the somewhat longer term, we know that we will see:

• The hearing in the Federal Court of Appeal on the Warman v. Fournier case, which involves fair dealing, substantial copying, limitation periods, etc. and in which there are now some prominent interveners.
• A ruling by the Copyright Board in Access Copyright’s quest to get a tariff on copying by provincial civil service employees.
• A hearing next May by the SCC on the interplay between the Status of the Artist Act and the Copyright Act and whether the National Gallery must negotiate exhibition rights, etc. with respect to pre-existing art works under the aegis of the former act rather than the latter, under which the artists have apparently never even tried to get a tariff at the Board.
• A hearing by the Federal Court of Appeal on whether Catherine Leuthold gets the $22 million or so that she believes she is owed by CBC for the few apparently inadvertently unlicensed re-uses of a few of her still photos from 9/11 that the Federal Court said was worth less than $20,000 and what the cost consequences may be to her if she does not succeed.
• A hearing beginning February 11, 2014 by the Copyright Board of the Access Copyright proposed Post-Secondary Tariff, in which the AUCC has spent almost $2 million that we know about and withdrawn its objections, leaving its members without any representation in a hearing in which Access Copyright is seeking what it considers to be a “mandatory” tariff.
• A hearing by the Copyright Board beginning April 29, 2014 into Access Copyright’s proposed tariff for K-12 schools, which is taking place notwithstanding that the K-12 school boards have stopped paying anything to AC under the previous tariff.

Other issues to watch in the medium term will include:

• How will the educational community react to York’s defence of the Access Copyright litigation?
• Will Access Copyright sue one or more K-12 school boards?
• Whether the Government will look at growing calls to deal with certain issues involving the Copyright Board, some of which could be dealt with by regulation, rather than legislation.
• Whether Canada gives into expected American and/or European pressure to extend the copyright term to life + 70 years, etc. and other potentially controversial US and EU IP demands in the TPP and/or CETA negotiations.
• Whether the far reaching Bill C-56 dealing with anti-counterfeiting – but which goes far beyond what might be required even by ACTA – is reintroduced after the expected prorogation, whether changes will be made before it is re-introduced, and what will happen to it if it proceeds through the committee process.

Most of the above issues have been discussed before on this blog. Watch here for further developments.

HPK