2005 SPECIAL 301 REPORT FROM OTTAWA

UNCLAS SECTION 01 OF 03 OTTAWA 000590

SIPDIS

SENSITIVE

DEPT FOR EB/TPP/IPE

E.O. 12958: N/A
TAGS: ECON ETRD KIPR CA CBSA RCMP
SUBJECT: 2005 SPECIAL 301 REPORT FROM OTTAWA



1. (SBU) Summary: The regulatory picture on IPR has not
changed much from earlier years, however Canada is moving to
address many of the issues raised in the Special 301
submissions, even though results are unlikely to be visible
before the end of April. On the headline issues of
enforcement and WIPO ratification, there is incremental
progress. Canada continues to inch toward WIPO
ratification, with legislation due this spring. Departments
responsible for IPR issues are also working to develop more
effective cooperation on enforcement, but are not seeking
greater enforcement powers at the border at this point. End
Summary.


2. Econoffs met with representatives of FAC, Industry
Canada, International Trade, Health Canada (HC),the Royal
Canadian Mounted Police (RCMP),the Patent Medicine Prices
Review Board (PMPRB),and the Canadian Border Services
Agency (CBSA) to get their perspective on public submissions
under Special 301 and the state of Canadian IPR law in
general. Under the caveat that GOC finds the Special 301
process "deeply flawed", GOC officials responded to the
points in the public submissions and gave an update on the
status of intellectual property protection in Canada.

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PhRMA Comments on Patents: GOC Response
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3. (SBU) Data exclusivity: In December, Industry Canada
published its proposed regulation to allow for longer data
protection for patented medicines. At the same time, Health
Canada has published complementary regulations that would
circumscribe industry's ability to patent incremental
innovations in existing drugs in a practice commonly known
as "evergreening". Public comments on these regulations are
due February 24th. Under the proposed rules, any Health
Canada reliance on proprietary data in judging a generic
application engages the protection period. HC is also
proposing eight years of data exclusivity (three more years
than the current five) and an extra six years for pediatric
information. (Comment: Canadian patent-based industry
reps have told us that in general their industry is happy
with the extended data exclusivity and resigned to tighter
controls on 'incremental innovation.' End Comment).


4. (SBU) International Trade Canada (ITCan) and Health
Canada representatives disputed PhRMA's argument that brand-
name manufacturers are legally vulnerable even when they
comply with Canadian Notice of Compliance rules, saying
that, while lawsuits are underway, no decisions have been
reached and therefore it is too early to claim injury to the
industry. They also commented that the pharmaceutical
industry's claims of damages do not take into account the
public costs of using NOC to delay legitimate generic drugs.


5. (SBU) Approval times: Health Canada officials
described their efforts to streamline the approval process,
noting their appreciation for FDA's advice and assistance.
In the past year, Health Canada has hired new staff and
adopted some of FDA's practices, such as assignment of a
'point person' to guide each submission through the process,
and a move toward team reviews of submissions. Over 70%
of the existing backlog has been eliminated, and Health
Canada is aiming for on-time review in the near future.


6. (SBU) Price controls: Industry Canada reiterated that
Canadian drug prices are in line with OECD prices and that
price differentials also reflect the U.S. and Canadian GDP
per capita differential of roughly 40 percent. (Comment: the
first point is true by definition, since PMPRB generally
sets prices at about the OECD median. The second point,
which we have heard before, is dubious. Canada's per capita
GDP is only about 20% below the U.S. figure; moreover, as
drug costs are assumed by provincial health plans, it is
hard to see why consumer disposable income is a factor. End
comment.)


7. (SBU) Patent term restoration: Industry Canada and
Health Canada officials acknowledged that this is a long-
term concern for PhRMA, and noted that PhRMA has had the ear
of several senior government officials on the issue. Canada
is not obligated under WIPO to offer patent term restoration
and has no current plans to do so. Nevertheless, Industry
and Health Canada officials understand that the lack of
patent term restoration affects the investment climate for
pharmaceutical companies. They are optimistic that the
issue will become less pressing as the drug approval process
in Canada becomes faster.


8. (SBU) Patent protection for higher lifeforms: Canadian
courts have prohibited the patenting of higher lifeforms.
The GOC has no plans to amend the Patent Act to overrule
that decision. However, Industry Canada experts argue that,
as several Supreme Court Justices pointed out, patenting of
genes offers adequate if indirect protection to
bioengineered life forms. Industry Canada experts noted
that the biotech industry did not mention this issue in a
recent meeting with Industry Minister Emerson.


9. (SBU) Access to medicines: GOC officials were puzzled by
the PhRMA comments that "implementation must be in line with
both parts of the WTO decision", as they believe this point
is explicitly covered in both Canadian legislation and draft
regulations.
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Enforcement
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10. (SBU) IT Canada and other GOC officials argue that the
enforcement picture in Canada has measurably improved
because of more effective coordination within the existing
legal structure. The GOC has formed an interdepartmental
working group consisting of ITCan, Industry Canada, Canadian
Heritage, the RCMP, CBSA, Justice, and Public Safety and
Emergency Preparedness Canada to coordinate enforcement of
IPR laws. This working group has also met with industry
associations, and GOC representatives are looking forward to
meeting with U.S. officials on STOP.


11. (SBU) Since December of 2003, RCMP and CBSA are under
the same minister, a development which has led to greater
cooperation between the agencies. Both CBSA and RCMP
representatives listed increased training and cooperation as
major improvements in IPR enforcement in Canada. A recent 5-
day workshop in Ontario drew over 100 participants, the
largest workshop of its kind in North America. Upcoming
training includes five two-day workshops in 2005 in other
Canadian provinces. The RCMP officials also cited two
continuing joint force operations, Castille in Montreal and
Ocat in Toronto, which have already resulted in the seizure
of large shipments of counterfeit goods. CBSA
representatives highlighted their organization's efforts to
streamline the procedure when they encounter counterfeit
goods, including a standard process for contacting
appropriate officials and determining whether it is GOC's
priority to intercept a particular shipment.


12. (SBU) The CBSA representative explained that CBSA
operates on a "risk management" basis using a list of
government priorities, including IPR. Standard procedure
now requires CBSA to detain suspect counterfeit goods until
RCMP or other enforcement agencies are notified and can act.
The CBSA representative also clarified that they can now
look for shipments based on information received from other
law enforcement agencies. Although there is no customs
infraction as such if counterfeit goods are properly
declared, the RCMP representative noted that they almost
always break other laws. He cited as evidence of an
improved enforcement climate the fact that goods no longer
arrive at the Canadian border with declarations that
explicitly identify them as counterfeit.



13. (SBU) Justice has also increased IPR training and has
created a network for prosecutors to share case law and
training information. In a positive development, 2004 saw
higher criminal penalties in IPR cases. Two examples were a
C$150,000 fine for a company guilty of selling electrical
goods with fake UL labels and a case where two men were each
fined C$25,000 and sentenced to 60 days in jail for selling
illegal satellite equipment.

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Copyright Reform
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14. (SBU) There are no solid developments in Canadian
copyright reform since the US-Canada experts' meeting in
December 2004. Legislation covering WIPO ratification,
access for higher education, ISP liability, and protection
of photos among other issues is currently in the drafting
process. Canadian Heritage expects a bill to be introduced
in Parliament "in the first half of this year", but most
likely not before May, and that the law will probably not
pass this year. In the meantime, the government's reply to
the 2004 Heritage Committee report on copyright reform is
due in April. This report will most likely reflect the
substance of what the government plans to table.


15. (SBU) On the controversial 2004 filesharing decision,
ITCan said that many observers considered that section 80
sub 2 of existing law seems to address the situation, and
the Finckenstein decision came as a surprise to many
officials. The December private copying tariff decision
(which excluded embedded memory and harddrive copying from
the private copying levy) is expected to be appealed to the
supreme court. If upheld, GOC experts believe it would
eliminate the legal basis for the filesharing decision, in
which Judge Finckenstein relied upon the existence of the
private copy levy as evidence that such copying was not an
infringement. Econ officers reiterated that the best and
simplest solution to the problem remains rapid ratification
of the WIPO treaties.


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Conclusion
--------------


16. (SBU) At this point, the regulatory picture on IPR has
not changed much from recent years. However, Canada is
moving to address many of the issues raised in the Special
301 submissions, even though results are unlikely to be
visible before the end of April. While WIPO ratification
remains a good way off, Canadian IPR officials are no longer
claiming to us that existing Canadian law offers adequate
protection; pressure from the Heritage Committee and the
consternation generated by the filesharing decision make it
likely that legislation will at last come before Parliament
this spring as promised. While its fate under a minority
government is hard to predict, there is strong support among
both Liberals and Conservatives for WIPO ratification; other
issues contained in the bill are likely to prove more
controversial. On enforcement, it is hard to tell yet
whether better enforcement training and coordination will
lead to more seizures at the border; Post would like to hear
from US firms about their experiences so that we can
continue to engage the interdepartmental committee on the
issue. Action request: GOC has requested advance notice of
USTR's decision if possible; post would appreciate a heads
up.

CELLUCCI