INTRODUCTION

1. Under the North American Free Trade Agreement (“NAFTA”), patents must be made available for innovations that satisfy three core criteria of patentability: novelty, non-obviousness, and utility. This case is about the third criterion, utility, and about Canada’s adoption of a new, radically different standard for determining whether inventions fulfill that requirement. Applying this new and unique utility standard, the promise utility doctrine, Canada’s Federal Courts have decided 23 times over the past nine years that a pharmaceutical patent lacks utility. This pattern stands in stark contrast with the record in Canada during the previous quarter century, when (i) not a single pharmaceutical patent was found to lack utility and (ii) only two patents outside of the pharmaceutical sector were found to lack utility, and only then because the patented inventions were shown subsequently not to work at all.

2. The cases decided under Canada’s promise utility doctrine are striking because everything that happened in the interval between the patent examiners’ decisions to grant the patents, and the invalidations of those patents, confirmed the patent examiners’ determinations that the inventions were indeed useful, i.e., that they had utility. Canada’s health regulatory agency (“Health Canada”) found the drugs to be “safe” and “effective” – a higher standard than mere usefulness under patent law – and the drugs have been used by hundreds of thousands of Canadian patients.

3. The Claimant, Eli Lilly and Company (“Lilly”), is an innovative pharmaceutical company that relies on patent protection to justify the timeconsuming and expensive task of developing new medicines. It takes on average US$ 1 billion and 11-14 years for a pharmaceutical company to develop a new drug and bring it to patients in the marketplace. For every drug that succeeds, thousands of compounds have failed. Patents, and the time-limited rights that they provide, are vital economic incentives for this research-intensive industry.

4. This arbitration concerns two of Lilly’s patents that have been invalidated by the Canadian Federal Courts under its unique promise utility doctrine. One is for Zyprexa, a revolutionary second-generation anti-psychotic used to treat schizophrenia and related psychotic disorders. The other is for Strattera, the first non-stimulant available to treat Attention Deficit Hyperactivity Disorder (“ADHD”). Both medicines have been approved by Health Canada as safe and effective and have been used by hundreds of thousands of patients in Canada. It is undisputed that the Zyprexa and Strattera patents are protected “investments” under NAFTA and that Lilly is a protected foreign investor under the Agreement.

5. In the 1990s, when Lilly sought patents for Zyprexa and Strattera, the patentability criterion of utility was a well-understood concept, both in Canada and around the world. Utility is a term of art in patent law that is synonymous with “useful” and “capable of industrial application.” To be patentable, an invention must have the capacity to be put to a specific, industrial use. It cannot be simply a fanciful invention or something that is inoperable on its face.