US embassy cable - 05OTTAWA590

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, Special 301 
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. 
 
----------------------------------------- 
PhRMA Comments on Patents: GOC Response 
----------------------------------------- 
 
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. 
------------- 
Enforcement 
------------- 
 
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. 
 
------------------ 
Copyright Reform 
------------------ 
 
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. 
 
 
------------ 
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