Nearly a quarter-century ago, the United States, Canada and Mexico concluded the North American Free Trade Agreement (NAFTA), implemented in 1994, and it included the first intellectual property (IP) chapter in an international trade agreement, chapter 17. This chapter was negotiated against the backdrop of negotiation of the World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS), which has served as the backbone for global intellectual property standards for over two decades.

Since NAFTA and TRIPS, the United States has worked to commit its trading partners to expand their IP protection beyond the TRIPS requirements. The US achieved this through the Trans-Pacific Partnership (TPP), committing Canada and other TPP members to abide by numerous intellectual property treaties, codify minimum pharmaceutical IP protection standards, and increase copyright terms and the scope of protection. That was, until President Donald Trump withdrew the US from the TPP, just a week after his inauguration.

Now, Canada, the US and Mexico will negotiate over updates to the NAFTA IP chapter. A critical question will be whether Canada’s negotiators will spend their time playing defence against US demands, or whether they can summon some offence of their own by making demands designed to promote Canadian interests.

Setting the battle lines

Despite the US withdrawal from the TPP, Washington has not changed its position on intellectual property. Drafts of the TPP IP chapter, leaked by Wikileaks throughout TPP negotiations, revealed the US was pushing for the expansion of copyright term and scope, and enhanced pharmaceutical IP protection; stricter enforcement measures to combat counterfeiting and piracy; and greater availability of patent term extensions.

The US will almost certainly use the final draft of the TPP IP chapter as the notional starting point for negotiations and seeking to further expand IP rights. Canada was instrumental in striking balance between the US’s and developing countries’ positions on key IP issues, finding the middle ground on such issues as pharmaceutical data protection and Internet service provider liability for third-party copyright infringement. Expect the US to continue to push Canada to ratchet up its IP protection or, at a minimum, to use IP concerns as negotiating leverage for more contentious issues.

Canada is unlikely to capitulate on IP issues this time around. It made IP concessions in the Comprehensive Economic and Trade Agreement (CETA) with the European Union, expanding IP protection for pharmaceuticals and signing on to all major IP treaties. The Canadian Intellectual Property Office has begun consultations to implement CETA-related changes this summer. Canada is far better prepared for a trade-related IP negotiation than it has ever been, and it may even push back on concessions it made during the TPP talks, including extended patent terms.

The federal government is developing a 21st-century intellectual property strategy, which will be pertinent to NAFTA as well as to other trade talks. Innovation, Science and Economic Development Canada is tasked with enabling Canadian inventors and organizations to protect their IP, improve the IP trade balance with the US and the rest of the world (the notional amount countries pay each other to use IP), and fairly distribute the benefits from Canadian IP among Canadians. The federal government will bristle at new commitments pushed by American negotiators that undercut these critical objectives.

Expect Canada (and Mexico) to question the need for significant new IP commitments in NAFTA, now that Canada has implemented TRIPS and has committed to implement major IP treaties in CETA. Unlike during NAFTA negotiations in the 1990s, there is a multilateral IP treaty to set minimum requirements for all forms of IP. Canada provides substantially more IP protection than does TRIPS. Except for a couple of issues that are of concern to the US (which I discuss below), there is no clear motivation or justification for Canada to make any further international IP commitments.

Big-ticket IP issues on the table

The Canadian IP issue that was of greatest concern to the US – the promise doctrine, or utility requirement, in patent law – is now no longer an issue. For a decade or so, Canadian courts had issued decisions finding pharmaceutical patents invalid because inventions failed to achieve the promised level of utility. Although the application of this doctrine had narrowed significantly since 2013, for some years the US trade representative has applied sustained pressure on Canada to abolish the doctrine. On June 30, 2017, the Supreme Court of Canada found that the promise doctrine was not good law in Canada, overruling the doctrine and obviating the entire issue in one fell swoop.

Another Canadian IP issue of great concern to the US is Canada’s unwillingness to seize shipments of counterfeit goods that are en route to the US and originate from abroad. The US views Canada as a weak link in the global counterfeit goods supply chain, because counterfeiters abroad can ship goods to Canada and then route them south at lower risk than if the goods were shipped directly to the US. The US negotiated a bilateral arrangement with Canada, as part of TPP, to stop such trans-shipments and require Canada to report to the US on its enforcement of this. However, now that the US has withdrawn from the TPP, the arrangement to stop trans-shipments has not yet taken effect. The US will expect Canada to recommit to this concession.

Unlike the US, Canada does have a wish list for changes to other countries’ IP systems. However, there will still be opportunities Canada can seize during the negotiations of an NAFTA IP chapter. For example, Canada should take steps to immunize Canadian businesses against opportunistic patent lawsuits in the US. Recently, the US Supreme Court made it far more difficult for foreign companies to sue US companies for patent infringement in patent-friendly courts like the US District Court for the Eastern District of Texas, nicknamed the “rocket docket.” However, foreign companies can still be sued anywhere in the US, including in the Eastern District of Texas. In NAFTA negotiations, Canada could insist that Canadian companies receive the same protection from patent-friendly venues as American companies.

Canadian negotiators could also negotiate protections against foreign capture of Canadian IP. The US government influences the IP trade balance with Canada through its funding of Canadian research. When accepting US government funds, Canadian researchers often agree to restrictions on IP; for example, to give American funding agencies the option to patent Canadian work. Restrictions imposed by Canadian governments for funding are typically less onerous. NAFTA presents an opportunity for Canada to review this issue carefully and ensure that IP generated at Canadian universities stays in Canada and is not being captured by US interests as a result of domestic US funding policies.

Can we win?

As was the case with the NAFTA negotiations 25 years ago, other countries will be watching closely to see where NAFTA ends up on IP issues, as Canada has a reputation for taking a balanced approach to the promotion of innovation and affordable access to goods and services. Canada should recommit to its balanced approach, while also striking an IP bargain that will protect Canadians from American IP policies that could harm Canadian companies and result in their exclusion from the US market, or in the American capture of Canadian IP through the requirements imposed on researchers.

To be able to win in the NAFTA IP negotiation, Canada’s negotiators need to understand the importance of IP: where it creates winners and losers across borders, and how it drives growth. The US negotiators are driven by a deep understanding of these issues. Will Canada finally offer its own blueprint for cross-border IP that will promote Canadian innovation far into the future? These negotiations present an ideal opportunity to do so.

This article is part of the Trade Policy for Uncertain Times special feature.

Photo: Shutterstock, by Billion Photos.

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Nathaniel Lipkus
Nathaniel Lipkus is a partner in the Intellectual Property Department of Osler, Hoskin & Harcourt LLP. His litigation practice focuses on contentious legal issues confronting innovation-intensive industries, with an emphasis on patent and regulatory issues facing pharmaceutical and biotechnology companies.

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