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Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue 4 - Evidence

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OTTAWA, Wednesday, March 21, 2001

The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill S-17, to amend the Patent Act, and Bill S-16, to amend the Proceeds of Crime (Money Laundering) Act, met this day at 3:45 p.m. to give consideration to the bills.

Senator E. Leo Kolber (Chairman) in the Chair.

[English]

The Chairman: Honourable senators, today we are discussing Bill S-17, to amend the Patent Act. Appearing before us is the Honourable Brian Tobin, PC, MP, Minister of Industry. With the minister are officials from Industry Canada.

We are delighted to have you with us, sir.

Mr. Brian Tobin, Minister of Industry: Mr. Chairman and honourable senators, it is a pleasure to be here before the Standing Senate Committee on Banking, Trade and Commerce to discuss Bill S-17, to amend the Patent Act.

Mr. Chairman, this is my first appearance before a Senate committee in my capacity as Minister of Industry. I am aware of the experience and perspective that each of you brings to the Senate and, in particular, to this committee. Let me say on behalf of myself, and my colleagues who are here with me today, that we value the input that you bring to this bill.

I wish to acknowledge the Honourable Jack Wiebe, who kindly acquiesced in sponsoring this bill on my behalf in the Senate.

There are two key areas that I would like to discuss with you today. First, I want to give you a brief introduction to the history behind Bill S-17. I hope this will help all of us to understand our rationale and need for action. The other area is the effect of these proposed changes on the people of Canada.

Bill S-17 has one purpose, that is, to bring Canada's Patent Act into compliance with two rulings of the World Trade Organiz ation. The amendments to the act, as you will have noted, are straightforward and do not undermine the structure of our patent regime.

I submit to you there has never been a time when the importance of intellectual property in Canada has been so clear. As the government recently outlined in the Speech from the Throne, we need to ensure that Canadian laws remain among the most progressive and modern in the world.

Senators, if we can, we need to act quickly. On February 28, a WTO arbitrator gave Canada until August 12, 2001, to comply with the "term of protection" ruling. Our action will send a clear signal that Canada is serious about its international obligations and is committed to a world trading system based on rules. Together, we need to ensure that this bill is passed before the summer recess.

Let me now turn to the events that made Bill S-17 necessary. Over the course of the last three years, two challenges to Canada's patent regime were brought before the World Trade Organization by the European Union and the United States. These challenges were not related to one another and involved different aspects of our patent system. Overall, we successfully defended our patent regime and achieved, I believe, a notable victory for Canadians.

A WTO panel validated our "early working" exception, which is a fundamental element of our patent system. Our Patent Act is based on a foundation of balance. On the one hand, we need to consider the requirements of Canadian and global patent standards. On the other hand, we need to balance those with the needs of consumers, industry, and innovators.

The validation of the early working exception is an important part of that balance. This allows third parties to use a patented invention during its term of protection. However, this use is to be directed at obtaining regulatory approval to market an equivalent product only upon the expiry of the patent.

The best example of what I am talking about can be found in the pharmaceutical industry. It is estimated that this exception accelerates the market access to generic drugs by a period of three to six and a half years, while ensuring full patent protection for brand-name drug companies. At the end of the day, this means lower drug and health costs for Canadians.

However, there were two areas where the WTO ruled that Canada's regime was inconsistent with our international obliga tions. Our "stockpiling" exception was one; and our term of protection for certain "old act" patents, that is, pre-1989, was the other.

Canada has already implemented the WTO ruling with respect to stockpiling by regulation. Thus, Bill S-17 simply ensures that the Patent Act conforms to our international obligations and conforms to actions we have already taken by regulation in order to be in compliance.

We only have until August 12 to implement the WTO "patent term" ruling.

The most important amendments in the bill result from the dispute with the United States. The U. S. argued during the WTO proceedings that certain old act patents in Canada did not benefit from a minimum 20-year term of protection from the date they were filed, as required by the Trade-Related Aspects of Intellectual Property Rights, or TRIPS, Agreement.

The WTO TRIPS Agreement sets out minimum international standards of intellectual property protection, and came into force in Canada in 1996. Canada, and all nations, benefit from the standards and principles outlined in this agreement. In September 2000, the WTO appellate body sided with the U.S. interpretation and recommended that Canada bring section 45 of its Patent Act into conformity with TRIPS.

The amendments in Bill S-17 would bring the Patent Act into compliance with the WTO ruling. These would establish the term of protection for outstanding old act patents as the greater of either 17 years from the date the application was granted, or a minimum of 20 years from the date the application was filed in Canada, as defined by the patent rules.

Bill S-17 also contains amendments that result from the issue raised by the European Union. In this case, a WTO panel ruled in March 2000 that Canada's stockpiling exception was inconsistent with TRIPS. This exception allowed generic drug manufacturers to manufacture and stockpile their version of a patented product during the last six months of a patent term. As I mentioned earlier, we have already complied with this ruling by regulation.

The amendments for your consideration reflect our imple mentation of the ruling by repealing the stockpiling exception contained in the Patent Act. This will ensure that the statute itself is in conformity with our TRIPS obligations. The federal government has had several recent and substantial reviews of our patent system. The WTO ruling resulted in the need for amendments to provide extensions to certain old act patents that are still in force which did not receive the full 20 years of protection. This 20 years is from the date the patent application was filed. Of course, with every passing day and every passing week, the relative importance of the old act patents declines as new patents are filed and granted, and many of these old patents are expiring.

As of January 1, 2001, there were 138,800 outstanding old act patents. Of these, 53,500 had patent terms of less than 20 years from the date of filing. In fact, only a few have commercial value. Only the pharmaceutical industry has identified commercially significant patents that would be affected by this ruling, and not all of these old act patents are affected. Those patents that benefited from the 20-year patent protection were not at issue in the dispute. They are not affected by these amendments; nor are the patents that are currently being filed and granted under the new regime on a go-forward basis.

For some, patent protection has erroneously become synony mous with pharmaceutical patents. This is simply not the case, as our patent regime protects all types of innovation in Canada. However, the pharmaceutical manufacturers are - and this is probably an understatement - the most interested in these changes. In fact, this was the only industry that came forward in the course of consultations on this issue. Some have strong, and indeed opposing, views as to what revisions should be made to the Patent Act. I submit to you, honourable senators, that now is not the time to enter into this larger debate.

Bill S-17 is narrowly focussed to directly address the WTO rulings, and more importantly, to address the time frame in which we are operating. The worst-case scenario - the failure to move ahead with this change - could delay the savings achieved through generic alternatives for a few months.

The amendments outlined in Bill S-17 will not lead to increases in the overall price of drugs for Canadians. We know that as of today, the number of commercially significant drugs that could benefit from this change stands at 32. By way of example, we have looked at what would happen were this bill not to come into compliance until July 1. By that time, we would be down to about 25 patents that would be affected. Of the 32 that are affected today, each would benefit, on average, by an extra 5.75 extra months of protection, the longest being some 13 months and the shortest a matter of weeks.

It is important to put this in perspective. Currently, there are about 5,200 patented and non-patented drugs available for health purposes for Canadians. You will be able to see in a chart that I will release the name of each of the drugs affected, the purpose for which the drugs are being used, the patent expiry date of each of those drugs, an estimate of the monthly and yearly sales of those drugs, and some sense of their value to each of the companies. We will table that with the committee today, Mr. Chairman, if you will allow it.

I wish to give that information to make the point to Canadians that while this amendment is necessary for us be in compliance with the WTO ruling, it is not one that will bring about a substantial change in drug prices in Canada. In fact, we estimate that the maximum amount of lost savings will be less than one-tenth of one per cent of drug sales over the eight-year period during which affected old patents expire. These forgone savings will only be this great if every affected drug is copied by a generic manufacturer, which is generally not the case, as you know, and if the generic drug captures 100 per cent of the market immediately after its entry, which is also unlikely.

Honourable senators, these are generous assumptions. You can see that the real impact of these changes on Canadian consumers is not significant. Some of you, I am afraid to say, may recall that in the past I have been a strong proponent of providing Canadians with access to affordable pharmaceuticals, and this has not changed. Indeed, I was a strong critic of drug patent protection when it was first proposed. I feared a rapid increase in drug prices, but this simply did not happen. Indeed, the Canadian Institute for Health Information has stated that given that the drug price index has remained relatively stable since the early 1990s, it appears that increased utilization and the entry of new drugs into the market are the main factors behind the increase in drug expenditures.

The amendments contained in Bill S-17 will not affect the principle of balance that is entrenched in our current patent system.

Let us recall that the early working exception was successfully defended before the WTO. This will continue to provide Canadians with access to alternatives sooner for all patents under our regime.

The Government of Canada remains committed to rewarding innovation combined with early and effective competition. We have not upset the essential balance among consumers, innovators and industry. I submit to you that there is substantial evidence to support this claim.

The latest report from the Patented Medicines Prices Review Board found that our current patent regime serves Canadians well. In fact, Canadians are paying 40 per cent less for their patented drugs than Americans. I suspect the spectre of buses crossing the border with Americans who, while they are here visiting Canada, are buying drugs because of the savings, will continue to be a fact of life.

Additionally, it is noted that brand-name pharmaceutical companies spent close to $900 million on R&D in Canada in 1999, consistent with their obligations. This ought to be encouraging and comforting news for Canadians.

In conclusion, honourable senators, Bill S-17 is necessary to bring the Patent Act into compliance with the two recent WTO rulings. It has become an immediate priority for the government. I look forward to the assistance, advice and guidance of members of this committee, and their co-operation, I hope, in giving this bill speedy and appropriate examination and subsequent passage.

Senator Lynch-Staunton: Mr. Minister, thank you for your statement. It was certainly more welcome than previous state ments you made on this topic not so many years ago. I will not remind you of all of them.

Mr. Tobin: You cannot resist a couple and I do not blame you.

Senator Lynch-Staunton: It is not to rub it in so much, as to wonder why one sees such an extraordinary change in attitude when one reads the debates on Bills C-22 and C-91. Not only were we warned that the price of patented drugs would increase by $1 billion over 10 or 15 years, we were also warned that the generic companies would suffer tremendously and that the Patented Medicines Prices Review Board would be impotent in controlling drug prices.

You now quote the review board. The generic companies seem to be in pretty good shape. Drug prices, as you say yourself, have not risen by the amount you feared. Thus, you come forward today with the same arguments that the government of the day was presenting in favour of Bill C-91, which was proposed under the FTA and the then GATT. The question is, why should we give your assurances more credibility now than we received when we gave the same ones 10 to 15 years ago?

Mr. Tobin: Senator, if this question is an indication of your support for this bill, I certainly welcome that.

Senator Lynch-Staunton: I said in the chamber that I support the bill.

Mr. Tobin: Thank you very much, senator.

Senator Lynch-Staunton: I just want to know why the assurances you are giving today are more credible than the same assurances which we gave when we were in government. You are using the same sources, I assume, that we did.

Mr. Tobin: Senator, I think we have the experience of hindsight. We have had an opportunity to see how the Drug Patent Act has worked in Canada. We have had an opportunity to hold the brand-name companies, in particular, to account on their record of performance, as opposed to their promise of perform ance, with respect to R&D in this country. It has been substantial and can be documented, as you know. As to the pricing regime in this country, it is unquestionably the fact that drug prices in Canada remain at 40 per cent less than those in the United States.

Senator, if you are telling me that as a parliamentarian so many years ago, when I gave strong, colourful - I would even say, in retrospect, flamboyant - speeches questioning -

Senator Lynch-Staunton: You are reading my script, minister.

Mr. Tobin: - questioning the validity of the claims that were being made at the time, I want to assure you that you are being gentle in your admonition and correct in your assessment. However, I must say there is no question that we live today in an international regime based on international rules. Canada, as a member of the WTO, is obligated to fulfil its commitments - in particular, those under TRIPS with respect to drug patent protection.

There is no question that we have an obligation to proceed with this WTO ruling. There is equally no question that drug prices in Canada have remained competitive vis-à-vis our nearest neigh bour, the United States.

Senator Lynch-Staunton: Let me quote one of your flamboy ant statements.

Mr. Tobin: I do not know why you would want to do that, senator. The gentleman to your right might want to do that because he was on the other side of the House at the time.

Senator Lynch-Staunton: On April 7, 1987, on the Bill C-22 debate you said:

The citizens will need more than generic drugs to recover from the festering wounds which are about to be inflicted on the exposed ankles of Canada's poorest citizens when the Minister sinks his teeth in, past the bone, into the marrow and sucks the life's blood out of Canada's poorer citizens with Bill C-22.

Mr. Tobin: Senator, you obviously have not heard there was a very effective ankle cream developed as a result of the drug regime in this country. The ankles of this country are in great shape.

Senator Lynch-Staunton: Is the cream under patent, or can I get it cheaply?

Mr. Tobin: I am not sure, senator.

Senator Lynch-Staunton: You know where I come from, and I am glad you have moved closer to us on this issue, as you did in Davos when you made a public confession. I think we are hearing one again today.

As far as the bill goes, what I would like to hear from you and your officials arises from the brief which we received from the Canadian Drug Manufacturers Association, which claims that through regulations, and perhaps even through this amendment, many existing products are protected for longer than 20 years. Their brief claims that the WTO requires a minimum patent term of 20 years from the filing, but that many pharmaceutical patents have terms that far exceed 20 years from filing.

They will argue their case tomorrow. I am not arguing their case, I am just asking if this is factual. When we discussed Bill C-91, we were thinking of 17 years and 20 years. According to this brief, those delays, which we thought were maximums, can actually be extended. Today we are talking about 20 years. Again, many drugs which are patented for what we think would be 17 years or 20 years, go far beyond that. I will just finish by reading again from the brief:

The best-selling heart drug enalapril, for example, went-off patent in 2000 in the United States, but will not be off-patent in Canada until 2007, a term of 28 years from filing.

Is there anyone with you - unless you can do it yourself, sir - who can explain that when we think we are fixing maximums, we actually are not?

Mr. Tobin: Senator, if I may, there are two questions here. One is a question with respect to this bill and the amendments contained in it. The question being asked is: Is there anything here in this bill, as opposed to the broader package, which would extend drug patent protection? I submit to you the answer to that question is no. I will ask Mr. Sulzenko to comment further.

The second issue is with respect to regulations, which is another question entirely, and part of a broader debate, as I think you understand, that has been ongoing for some time, and I suspect that, at the first invitation, will be engaged again between brand-name and generic companies. When I appeared before the Standing Committee on Industry last week, I said that I thought there would be an opportunity for a further and more broad debate on the issue of drug patent protection specifically, as well as patent protection generally, at another time and in another place. Some of the issues that you have raised flow more from the debate about regulations than from any specific amendment in this bill.

I will ask Mr. Sulzenko to comment further.

Mr. Andrei Sulzenko, Assistant Deputy Minister, Industry Canada: Yes, it is a fact that some patents have an effective life of more than 20 years. When we implemented the TRIPS Agreement originally, some patents effectively had a life of less than 20 years - which is why the Americans took us to the WTO - and some had a life of more than 20 years.

That was the status quo ante before the bill. This bill does not change that. All it does is bring us into conformity with the WTO ruling that those patents that were short of 20 years be brought up to that minimum of 20 years. It does not affect the other patents which, in effect, had a longer term under the old act.

The Chairman: I am not sure that answers the question.

Senator Lynch-Staunton: The question was: Why are we under the impression that we are fixing a maximum when in effect the regulations allow extensions of patent protection for longer periods?

The Chairman: We were lobbied extensively by both sides, by both the generic companies and the brand-name companies. It is not a subject that this bill really addresses. A company can get a patent for a drug named "X", and then, after 17 years, they find that it has other, unanticipated beneficial effects, so they take out another patent. In other words, there are patents which are given seriatim. I do not understand how it works. Is that not the case?

Mr. Tobin: I will ask Mr. Sutherland-Brown to comment further. The points the senator raised are indeed clear and valid. I think an explanation is in order.

Mr. Rob Sutherland-Brown, Senior Counsel, Industry Canada: Mr. Chairman, the issue at hand involves the old Canadian patent system, sometimes referred to as the old act, which provided for a term of protection that was measured from the date the patent was issued. The WTO system, and our new act system, measures the term of protection from the date that the patent application is filed. Just because you file a patent application, it does not mean that you will receive one. The Commissioner of Patents has to examine the application to see if it meets the patentability criteria of newness, novelty, inventive ness, and utility. The time required varies quite considerably, depending on the sophistication of the patent application and the behaviour or conduct of the applicant in prosecuting its application.

Under the old act, you always got a fixed term of protection of 17 years measured from the date that the patent itself was issued. If you examine that 17 years and adjust it by the amount of time that it took the patent office to issue its patent, the term of protection, when viewed from the application filing date, is all over the map, from a minimum of about 17 years and three months to a maximum of somewhere around 59 years. This is not a question of extending the term of the patent. The patent is never issued until the date the commissioner actually grants it.

However, there is a considerable period of time during which the patent application is being examined and approved in the patent office.

Senator Lynch-Staunton: I realize that regulations are not in this bill, Mr. Chairman. I am referring specifically to drug patents because the cost of drugs is borne largely by governments. It seems to me that if the protection which one would have thought would come to an end at a given time is extended by using whatever methods are allowed while the end product remains the same, that delays the introduction of generic drugs. Therefore it contributes to the increased cost of drugs, which might not have been necessary had the 20 years - and I do not think I am the only one who assumes this - been a maximum and not a minimum. By complying with the WTO, we are actually saying, "We will give you a minimum of 20 years." I do not know how helpful that is to the taxpayers and others who have to carry the costs of drugs.

Why do we not introduce a maximum? I know the drug companies are furious at hearing this, and they will argue, and with reason, that their costs of research and so forth have to be recouped over a given period, and I accept all that. However, the given period seems to get longer and longer as they become more inventive in finding ways to extend their patents. I am just saying that in terms of drugs, and maybe other products - and I will stop here because I think I have made my point - why not fix a maximum and let the copy-cats in? That would relieve the burden of the cost of drugs that we all must carry, particularly as the population gets older, et cetera. That is the focus of my question, minister, and my apprehension.

Mr. Sutherland-Brown: There are two patent terms under the old act. I am referring to the pre-1989 act and certain patents, the applications for which were filed before 1989. They are entitled to a term of protection of 17 years from the date the patent is granted. Under the new act, and under the TRIPS formula, the term of protection is measured from the date of application. The actual life of the patent is 20 years from the date the application is filed. If the patent is not issued, as is typically the case in Canada, for five years after the date of application, the effective life of the patent is 15 years, which is shorter.

What I think representatives of the Canadian Drug Manufac turers Association have been talking about is the impact, in some cases, of the patented medicines notice of compliance regulations, a set of regulations which allows infringement issues to be litigated while the generic applicant is seeking a notice of compliance from the Minister of Health for the approval and sale of a generic version of a patented medicine. There are circumstances where a patentee will add additional patents. However, that does not affect the term of any individual patent. What it affects is the timing of the market entry of the generic competitor.

Senator Lynch-Staunton: I have strayed from the purpose of the bill itself. I will ask you one last question. When these notice of compliance regulations are looked at, is Health Canada consulted?

Mr. Sutherland-Brown: There is close co-operation between both the legal advisers at Industry Canada and Health Canada, as well as between the policy and administrative groups. In developing regulations, yes, the government speaks with one voice.

Senator Lynch-Staunton: Minister, would you consider putting a maximum protection period on drugs?

Mr. Tobin: On a go-forward basis, as Mr. Sutherland-Brown has just indicated, the new regime gives patent protection from the filing of application. The issue that you are raising, senator, is one that really arises out of regulations which are not before us today. There has been an effort by Health Canada to purge, if I can use that word, the list to prevent regulatory, if you want, "abuse," which word I am hesitant to use, on the part of some parties. That has been addressed by Health Canada in the past and a purging of the list has occurred. This is a question we will have to come back to. It is a fair question, senator. I would suggest to you that nothing in the bill before us today -

Senator Lynch-Staunton: I am just taking advantage of the bill to bring forward the question.

Mr. Tobin: The intention should be to give 20 years of patent protection. The intention should be to avoid things which would allow abuse to unnecessarily and, in an unearned way, extend that period of patent protection. That I would agree with. However, I say to all of us that that is a discussion we should engage in on another day.

Senator Furey: I should like to thank you all for coming today. My question deals with the industry. How do you think the pharmaceutical industry is being affected and will be affected in the future by the repeal of stockpiling?

Mr. Tobin: You say "the pharmaceutical industry." I suspect that we would get two different views; one from the brand-name companies and one from the generics. The brand names, I assume, would be pleased with the repeal and the generics less so. That being said, I reiterate that what we are doing brings us into compliance with a WTO ruling. Of course, Canada`s trade is founded on a rules-based regime and we have recently taken strong exception ourselves to those nations that refuse to comply with the rules provided by the WTO.

Therefore, while it is certain that a sector of this industry would question the impact of the rule change, we cannot pick and choose when we want to be part of an international trade-based regime.

Senator Tkachuk: Minister, the bill states that the Governor in Council may make regulations as the Governor in Council considers necessary. At the end of a 20-year period, a generic manufacturer announces it is going to make a particular drug. What process does that generic manufacturer use to get that drug on the market, and how can the patent holder prevent that manufacturer from doing so?

Mr. Tobin: I am going to turn that question over to someone who knows a lot more about it than I do.

Mr. Sutherland-Brown: If it is really at the end of the patent regime, the patent holder's rights are exhausted, so nothing would stand in the way. However, were a generic manufacturer to seek Health Canada's approval to sell a generic version of a product during the pendency of the patent term, and they were purporting to get that approval on the basis of the bio-equivalent of the patented version of the medicine, they would have to issue a notice of allegation and serve it on the patentee, explaining that they did not believe that they were infringing the patent or that the patent was valid.

Once they do that, the patentee has 45 days to apply to the courts for an order of prohibition preventing the Minister of Health from issuing a notice of compliance to the generic applicant until the expiry of the patent, or until the potential infringement issue has been litigated and found to be justified or not, as the case may be.

When the patentee seeks the order of prohibition, there is a regulatory stay preventing the minister from issuing the notice of compliance that runs now for a period of 24 months. It was originally 30 months. The purpose of that is to allow the parties to litigate and hold them in the same position in which they otherwise would have been.

It has in the past taken the Minister of Health a varying amount of time, but it runs from around 20 to 30 months to process an abbreviated new drug submission. In a typical case, if the two processes are running together, there should not be an adverse impact. However, the typical case is not every case.

Senator Tkachuk: The patent holder would find every reason to hold on to that patent for two more years, so they must make use of this a lot.

Mr. Sutherland-Brown: This happens during the term of the patent, sir, not after. If the patent expires, that is the end of the prohibition.

Senator Tkachuk: Can the patent holder add new patents to the original patent, and do they do that now? I think they call it "evergreening."

Mr. Sutherland-Brown: If they invent something new, they can get a patent on it. If it relates to the strength, dosage, form and route of administration of the same medicine, they can add it to the list.

Senator Tkachuk: Therefore if a company invents a drug which is to be taken three times a day and then they say that the same drug with the same ingredients is now required only once a day because of how it is absorbed into the body, that is a new patent?

Mr. Sutherland-Brown: It may be.

Senator Tkachuk: They could have had this knowledge when they first put the drug on the market. They then have a monopoly on the drug and can charge $350 a bottle. In other words, how does Health Canada know that they did not already have this knowledge and are simply using it as a means to extend their patent by filing for another one in three years?

Mr. Tobin: If there is evidence of that kind of complicity, there is an obligation on the part of Health Canada to refuse to allow that drug to be relisted. As you know, there was a comprehensive review of the regulations in 1997. There were complaints at that time about the use of evergreening, as it is called, or listing. There were certainly complaints about abuse of the notice of compliance regulations. In fact, there were complaints made by both sides, and there still are. Amendments were introduced at that time. As a consequence, Health Canada has refused to list drugs and has purged the list of some others.

These questions are fair. None of the amendments contained in Bill S-17 impact on these questions regarding the use or abuse - depending upon which side of the argument one is listening to - of the existing regulations. As I said at the beginning of questioning on my presentation, there is no doubt that there will be an appropriate time for us to look at all these questions and examine the regulations again, as we did in 1997. However, I have no hesitation in saying that if there are examples of a manufacturer abusing or attempting to abuse the system to obtain an extended period of drug patent protection, it is up to the regulator and the minister responsible to act.

Senator Tkachuk: Why is the injunction automatic?

Mr. Sutherland-Brown: That again is a question directed at the policy that underlines the patented medicine notice of compliance regulations. The United States has a similar scheme. In the United States, there is a legal presumption of infringement as soon as a generic applicant files an abbreviated new drug submission. In Canada, we do not assume that. We have provided that the use of a patented medicine for the purposes of seeking regulatory approval is free from infringement liability.

I am sorry, sir. In giving the explanation, I lost the final point.

Senator Tkachuk: I asked why the injunction was automatic.

Mr. Sutherland-Brown: Where there is no infringement, if you were to bring an infringement action against them, there is protection on the one hand. You cannot get an injunction in Canada very easily in circumstances where there is an allegation of infringement and the balance of convenience and the other tests which are associated with interlocutory relief can be met. Consequently, to allow the matter to go ahead and be litigated, the regulatory stay against the minister's issuance of the notice of compliance obtains automatically on the commencement of the prohibition order or application by the patentee.

Senator Tkachuk: I will have to read the transcript for sure.

Mr. Tobin: Me too.

Mr. Sutherland-Brown: I might too.

Senator Tkachuk: If the words "The Governor in Council may make such regulations" were removed from the bill in order to bring forward the debate on these items that the minister so adequately stated earlier he would like to see - that is, the evergreening, which is patent on patent on patent, and I believe the injunction would fall under that as well - would it affect the bill at all? Would we not still meet the WTO compliance?

Mr. Tobin: No. I will defer to wise legal counsel here, but I think that if you took that out you would effectively eviscerate the drug patent regime in Canada. First, we would be non-compliant, and second, we would be out of business in terms of the workings of the regime.

Senator Tkachuk: Therefore you have plans for many more regulations on this bill that we do not necessarily know about. Otherwise, what would it matter?

Mr. Tobin: No. My point is that the bill is designed strictly to comply with the requirements of the WTO and to do nothing more than that; not to selectively weigh one way. Let us be very clear about this. There is a strong, ongoing and vigorous debate in this country between brand-name drug manufacturers and generic manufacturers, as we all know. The intent of this bill is to comply purely and simply with the requirements of the WTO and not to weigh into that debate one way or the other; to try and be as balanced and as neutral as possible. If there is need for a debate on all of these other questions, that should occur at another time and in another place.

The reality is that we must be compliant within a few months or we will find ourselves in difficulty with the WTO. While your suggestion is made with the best of intentions, it would cause great consternation.

Senator Tkachuk: That is only because, instead of putting in the act what is necessary, you want to give yourself the power to make regulation to do what is necessary. This bill has nothing to do with anything except giving the Governor in Council the power to do what is necessary.

Mr. Tobin: We already have that power. The regulatory power exists.

Senator Tkachuk: That is why I am asking why we have that in there.

Mr. Sutherland-Brown: It is basically for a technical reason. We have taken out of the act subsections 55.2(2) and (3), which were the provisions which supported the stockpiling regulations. Consequently, the wording of subsection 55.2(4) would no longer make sense because it makes reference to 55.2 (1) and (2), but we have repealed subsection (2). Therefore, 55.2(4) is being amended to remove a one-number reference to (2) that used to be there. You can see this on the right-hand side of the draft legislation. You will see the existing format of 55.2(4). That is all that is being done. That dates from the making of Bill C-91.

Senator Tkachuk: I got it. I should not have asked the question.

Senator Furey: My question extends from a comment made by Senator Tkachuk.

The Canadian Drug Manufacturers Association has basically stated that, as a result of patent protection, drug costs are rising steeply. We heard the minister address that briefly in his opening remarks. They have also made the statement that Canada's trade deficit in pharmaceuticals is also rapidly rising.

Do we have any information on which we can assess that comment?

Mr. Sutherland-Brown: I am not sure what the trade figures are at the moment, but we will undertake to look into the matter and report back to the committee.

Senator Furey: Thank you very much.

Senator Lynch-Staunton: When you get around to amending the regulations, will you be willing to submit them to Parliament for discussion? Sometimes the intent of the legislator is not reflected in regulations. I am not talking about this particular set of regulations. I think we are all under the impression that we are going to do our fixing on maximum patent protection, and the regulations allow extensions for drugs. I am speaking only of drugs and nothing else.

It would be very helpful to both the House of Commons and the Senate if such regulations, which have such a great impact on all citizens, were brought before us for discussion and explana tion, rather than having to wade through them in The Canada Gazette. By the time they are printed there they are pretty well a fait accompli.

The Chairman: You bring up a terrific point. On all the legislation that has come to us so far, we have requested of the minister that once a year we be given copies of whatever regulations are proposed. It would be up to us if we wanted to have a hearing on them or just accept them. There is a joint parliamentary committee that scrutinizes all regulations, as you know, but we believe that we bring a certain expertise to what comes here that that committee does not have. Therefore, we have been asking for and have received undertakings that we would see copies of the regulations, and then we could decide to do nothing or to do something.

Senator Lynch-Staunton: I would like to see them before they are finally approved.

Mr. Tobin: It is important to know a couple of things. First, the regulations are pre-published. There is an opportunity for comment. Second, if you are offering the assistance of the committee to the department in examining and advising on questions arising out of the ongoing debate about drug regulations and how they are used, I would certainly welcome that. This is a difficult, contentious and combative issue with very substantial financial interests on both sides of the equation. Any thoughtful and expert evaluation of the merits of the case on both sides would certainly be welcome. It would be my intention to come back to both Houses of Parliament at the appropriate time to seek assistance with a review of this very question.

[Translation]

Senator Hervieux-Payette: First, I would like to know the position of the provinces. Are they comfortable with the amendments? Then, to my knowledge, companies pay to receive patents. A section of your department is in charge of granting them. Do you have the needed personnel, equipment and whatever it takes to carry out the tests to determine whether a patent should be granted or not? I was told that for some drugs up to 1,000 pages of documents are submitted. Is this branch working with a deficit or does it have a surplus, given that the companies pay for the service?

I ask you this question in view of the problem that arises when we want to know whether a patent has been granted for an existing drug, an apparently modified drug or a truly new drug. How does your personnel deal with applications? Can your assistants give us an idea of how much time they spend studying applications? What are your basic criteria when, for instance, you deal with generic drugs where a patent has already been filed for the same drug? It is a new drug, it used to be round, and now it is square. Do you have the needed personnel to study the thousands of pages of documents that come with the application?

[English]

Mr. Tobin: I thank you for your questions. It is important to note the impact on provincial formularies and provincial budgets of our drug patent protection regime.

Although I do not purport to speak for any one province, having just spent five years as a provincial premier, I can tell you that I have participated in many debates on health care, in public and in private, with colleagues who served as Canada's first ministers. There is no question that a very great part of the cost of health care in Canada relates to the cost of drugs and the way in which formularies are used, drugs are listed, and so on.

There is and must be a continuing concern about drug costs in this country, but I do not think any provinces are on the record as suggesting that the federal government should act in a manner inconsistent with the requirements of the WTO. I have received no representations in that regard.

There is a recognition that the kinds of investments that were talked about at the time these bills were brought forward have been made. If you look at the latest year for which numbers are available, you will see that in excess of $900 million of investment was made in this country.

Therefore, benefits have been realized while at the same time maintaining a price differential that is substantial. A similar shopping basket of drugs costs 40 per cent less here than in the United States.

With respect to the internal capability of the department and of the patent office to do their work, I will ask the assistant deputy minister to comment further. I appreciate that your comment relates to efficiency.

[Translation]

Mr. Sulzenko: The Department of Health is responsible for applying the rules, not our department. I know that many people work on this on a daily basis, but I do not know how many.

Senator Hervieux-Payette: Are the delays between filing an application and granting a patent comparatively satisfactory?

Ms. Bincoletto: The patent office is responsible for the delays between filing and granting applications. We have not compared the time it takes the patent office to grant the patent and the time it takes for Health Canada to certify the drug's quality, but we could try to find the answer for you.

[English]

The Chairman: This is an extremely narrow bill. Everything that is being discussed is interesting, et cetera, but does not really pertain to the bill, although it will at some point.

Senator Di Nino: I should like to welcome the minister back to Ottawa and also to congratulate him on his conversion. In the old days it happened on the road to Damascus, but I guess today it happens on the road to St. John's, or Davos.

I should like to take this opportunity to ask about the Patent Medicines Prices Review Board. First, does the mandate of the patent review board give it any role to play in the issue of patents on patents?

Mr. Sulzenko: I am not sure I quite understood the question. The main role of the Patent Medicines Prices Review Board is to review prices internationally vis-à-vis Canadian prices and to regulate prices of patented drugs in Canada. They produce an annual report and therefore there is a high degree of transparency in their role. If this committee is interested in more information on that role, we would be happy to provide it. That agency reports to the Minister of Health, not to Minister Tobin.

Senator Di Nino: My question was in the vein of the discussion we have been having about the possible extension of patents through minor amendments to a drug. Does the patent review board play a role in reviewing that?

Mr. Sulzenko: No, they are not involved in that process at all.

Senator Di Nino: Thank you.

My second question deals with a report on the effectiveness and efficiency of the patent review board. The numbers indicate that they are doing a good job. Is the minister to whom they report satisfied that this entity is performing a useful service and the tasks for which it was intended?

Mr. Tobin: All of these agencies are, of course, subject to review and their work should be reviewed on a regular and ongoing basis. However, the evidence would indicate, as I have said repeatedly today, a substantial price differential between the cost of drugs in this country and in the United States. There is nothing in the amendments proposed today that would alter that difference, which is in Canada's favour. I expect that we will still see busloads of American tourists who are visiting Canada stopping at our drugstores. That is perhaps the most powerful manifestation of the considerable advantage we enjoy over our friends to the south with respect to the price of drugs.

Senator Di Nino: Thank you for that answer. I am just wondering whether the review board plays a role in ensuring that that is happening, or is that just a question of the competitiveness of the market?

Mr. Tobin: There is no question that the board plays a role and is effective.

The Chairman: Mr. Minister, thank you for being with us, along with your officials. This has been very interesting and illuminating. Let us look forward to cheap drug prices.

Mr. Tobin: Mr. Chairman, may I take advantage of your dismissal of me to thank colleagues from the other side of the aisle for their gentle treatment of me with respect to earlier declarations. I had my office research all of those statements as well.

Senator, there were some that you could have selected that would have been far more entertaining.

Senator Lynch-Staunton: They may have been libellous.

The Chairman: Senator Lynch-Staunton is noted for his gentility.

Mr. Tobin: I have noticed that.

The Chairman: Senators, our next witnesses on S-17 are from Canada's Research-Based Pharmaceutical Companies: Mr. Murray J. Elston, President of Rx&D; Dr. Aldo Baumgartner, President and Chief Executive Officer of Wyeth-Ayerst Inc. Canada Branch and President of the Executive Committee of Rx&D; Mr. Dan Wayand from Proctor and Gamble; Mr. Terry McCool, Vice-President, Corporate Affairs, Eli Lilly; and Bernadette Connaughton, President, Pharmaceutical Group, Bris tol-Myers Squibb.

Mr. Murray J. Elston, President of Rx&D, Canada's Research-Based Pharmaceutical Companies: Mr. Chairman, our presentation will be split between Dr. Baumgartner and Mr. McCool.

[Translation]

Dr. Aldo Baumgartner, Chairman and Chief Executive Officer of Wyeth-Ayerst Canada Inc. Branch and Chairman of the Board of Directors of Rx&D: Canada's Research-Based Pharmaceutical Companies Rx&D welcomes the opportunity to share with the Senate Standing Committee on Banking, Trade and Commerce its views on Bill S-17, an Act to amend the Patent Act which is now before you for consideration. This legislation constitutes the response of the Canadian government to two recent challenges at the World Trade Organization (WTO) - one by the United States and the other by the European Union - on certain provisions of Canada's Patent Act. These two challenges resulted in the Appellate body of the WTO judging Canada in violation of international agreements and recommending that Canada amend some articles of the Patent Act (and repeal others) in order to conform to its obligations under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement.

Let us state at the outset that Rx&D fully supports the will of the Government of Canada to respect its international obligations by rapidly taking steps to correct the so-called "17/20" and stock-piling issues. Historically, Canadian governments have advocated the importance of intellectual property protection and its essential role in stimulating innovation. One notable and unfortunate exception, however, has been in the area of patent protection of pharmaceutical products.

By adopting Bill S-17, Canada will comply with its interna tional treaty obligations. It will also restore internationally - albeit minimally - accepted standards of patent protection. This is not only the right thing to do to increase the research-based pharmaceutical industry's international competitiveness but it is also, as Industry Minister Brian Tobin has said, the first step in advancing the government's innovation agenda.

The Canadian government's priorities include making Canada a world leader in the knowledge and technology-based economy.

In the January 2001 Speech from the Throne, the Government clearly identified innovation as a high priority in the following terms:

Our objective should be no less than to be recognized as one of the most innovative countries in the world. Achieving this will require a comprehensive approach and the support and participation of all governments, businesses, educational institutions and individual Canadians.

We must strive for Canada to become one of the top five countries for research and development performance by 2010. This is a challenge for all Canadians, but in particular for the private sector as the largest research investor in Canada.

The objectives of this submission are to provide our views on Bill S-17 and to summarize the kinds of activities that we see as necessary to fully realize the country's capacity for innovation in pharmaceutical and biopharmaceutical research and development. We also wish to highlight the role the federal government has played and must play to make Canada a world leader in these areas.

Canada's Research-Based Pharmaceutical Companies is the national association representing close to 21,000 Canadians who work for this country's research-based pharmaceutical and biopharmaceutical companies.

All member companies share a primary objective: to discover and develop innovative medicines that improve the quality of life of Canadians and enhance our healthcare system. More than 4,200 of the people employed by R&D members are directly involved in medical and pharmaceutical R&D activity.

For more than 80 years, the research-based pharmaceutical sector has been represented by our association.

[English]

The Chairman: Could you tell us about the bill itself? We understand that your group is fully in favour of this bill. I am somewhat at a loss to understand what your presentation is about.

Mr. Baumgartner: I will shorten my remarks, Mr. Chairman.

[Translation]

Mr. Baumgartner: I will now talk very briefly about our research effort. In Canada, our companies are currently spending nearly one billion dollars on research. As I said to you earlier, 4,200 employees work full time on research and, indirectly, 5,000 additional research jobs were created as a result of our activities.

Since 1987, our members have invested more than $5.5 billion in R&D, of which $1.2 billion were basic research. We had an R&D-to-sales ratio of close to 14 per cent.

I would now like to turn the floor over to Mr. McCool.

[English]

The Chairman: I do not mean to be rude, sir, but we do not need a commercial about what great people you are. You are great people, and you know you make a great contribution to Canada. However, I am at a loss to understand what this has to do with the bill. If you could confine your remarks to the bill, we would be grateful.

Mr. Terry McCool, Vice-President, Corporate Affairs, Eli Lilly: Mr. Chairman, I will confine my remarks to some of the questions that were raised previously. I think everyone has the brief from Rx&D. I will skip the prepared text to deal with some of the questions that have been raised.

There was a lot of discussion on the 20-year patent term. I think we have to understand that for most inventions, 20 years is probably adequate. One must realize that for pharmaceuticals, half of that time is taken up by development. Thus, half of that patent life is taken up by the development and regulatory approval of a drug. Therefore, it takes at least 10 years before a product actually gets to market. Your effective patent life is down to 10 years, not 20 years.

There was a question about why the courts would deal with granting injunctions or why the regulations would be automatic. As a group, we might be prepared to deal with some of those questions.

I will skip my prepared text and open it up to questions.

Senator Lynch-Staunton: I do not think the issue that was raised was a question of whether it should be a maximum of 20, 30 or 50 years. Many of us were under the impression that when we were talking years, that was it. We have now found out that there are ways to extend the protection of the same product for an additional number of years.

Can you tell us what the policy is in the European Union, the United States, or other countries where patent laws can be compared with ours and how drug companies in particular are more poorly protected or better protected than here?

Mr. McCool: It is safe to say that in Europe, the U.S. and Japan, patent life is a little longer than in Canada because they will restore some of the patent life that you lose in terms of the length of development of a product. In effect, they allow somewhere between 14 and 15 years, but it depends on the product. If you have been a long time in development, they will add on to that at the end of the day.

You raised an issue about adding additional patents. Prior to 1997, the only patent that was allowed in Canada was a process patent, that is, the way in which the compound was made, which was completely out of compliance with the WTO. Since then, you have been able to add compound patents and use patents. Quite often, you will come to market with a product that has a patent life of, say, 20 years, but during the course of that time you will find that if you investigate the use of that drug in another indication, you will have to go back and do the development and clinical work, as well as file for regulatory approval, which could take somewhere between five and seven years. On those kinds of indications, you can get a patent if you can convince the Canadian patent office that it is novel, that it is workable, and that it is inventive. It is not easy to convince the Canadian patent office to give a patent frivolously. If it is patentable in other countries for those kinds of uses, it probably will be patentable in Canada. That is a new wrinkle in Canada's patent law since 1997.

Mr. Baumgartner: When your original or first patent expires, the generic company can come to the market with the product. The only protection would pertain to whatever the indications or the novelties are for the new patent. There is really no extension of the original patent. The original patent runs for 20 years and the generic company has access to the market after that.

Senator Lynch-Staunton: If you change the same product from a pill to a capsule, you can get a patent on that, can you not?

Mr. Baumgartner: If it is judged as a novelty by the patent office, you can.

Senator Lynch-Staunton: And that happens.

Mr. Baumgartner: A generic drug company can imitate the pill if a patent expires. You see also very often that provinces which take the decision to reimburse or not to reimburse for drugs will not necessarily list a novel drug if they feel that the cost benefit is not there. Generics have access to the original patent.

Senator Lynch-Staunton: To get back to Europe, do they have this patent extension provision also?

Mr. McCool: It makes up for some of the development time.

Senator Lynch-Staunton: That is within the 20-year period. If it takes you 10 years of development, they might give you an additional 5 years. In effect, you have 15 years of true protection.

Mr. McCool: It usually takes longer than 10 years to develop.

Senator Lynch-Staunton: Do they then allow what I call an extension of the patent through changing the format, changing the dosage or changing something when, in effect, the same product remains?

Mr. Baumgartner: It is not technically an extension of the patent.

Senator Lynch-Staunton: I know that.

Mr. Baumgartner: You need a new patent. The original patent will expire. It will then be accessible to generic products.

Senator Lynch-Staunton: Is that done in Europe?

Mr. Baumgartner: Yes.

Senator Lynch-Staunton: And in the United States?

Mr. Baumgartner: Yes.

Senator Lynch-Staunton: And in Japan?

Mr. Baumgartner: In Japan, they have a different system. However, there is also a way to prolong the patent somehow, taking into account the fact that it takes a long time to get new drugs to market.

Senator Lynch-Staunton: Have any of your members devel oped their own generic drugs?

Mr. McCool: Some of our companies have generic divisions around the world. I do not believe there are any in Canada.

Senator Lynch-Staunton: Are there any in Canada?

Mr. Baumgartner: Not to our knowledge. Some of our member companies have generic affiliates.

Senator Lynch-Staunton: Does it happen in Canada that a pharmaceutical company has an original drug and also a copycat of it at the same time?

Mr. Baumgartner: That is possible.

Mr. McCool: If the patent has expired.

Senator Lynch-Staunton: You cannot copy yourself. What is to stop you from imitating one of your own products before the patent expires?

Mr. Baumgartner: I think it is important to know that we -

The Chairman: Might I ask a supplementary question along the lines of the question asked by Senator Lynch-Staunton? Instead of having the generic product, why not just lower the price?

Mr. Baumgartner: We need to recoup the investments made in the development of new drugs.

Today, to develop a new drug, you have to invest around $750 million. For example, the cost to my own company to build the manufacturing plant for one biotech product was another U.S.$750 million.

These are huge investments. You cannot recoup them if you lower your price to the level of a generic drug. We have different cost structures. Generic companies do not have to invest in research and development. Therefore, they can sell their products at lower prices.

Senator Lynch-Staunton: Does it happen that after the expiry of the patent the same company will come up with a generic drug?

Mr. McCool: It can happen, yes.

Mr. Baumgartner: It is not the rule, but it can happen.

Senator Lynch-Staunton: Is it happening now in Canada? That is what I am getting at.

Mr. Baumgartner: Yes.

Senator Lynch-Staunton: This discussion started earlier with the minister, and I am sure it offended you, but let me assure you it is more about questioning than indicating any direction I may be going in. Would you have any objection to a longer patent protection period, knowing that when it came to an end that was the end? I am not asking this on behalf of your competitors.

Mr. Elston: It would be interesting, if you had certainty. What is most important for our industry is to be sure that we can invest and develop products. We take a lot of risk in finding the new routes of administration, the new compounds, and so on. We would need some absolute assurance from the Canadian govern ment that we would actually get the minimum. There is evidence of some situations in which there are efforts to get a product on the market as a generic before the patent expires. All kinds of things are done to try to prevent the current 17-year, or even the new 20-year regime, from applying.

What we need is the assurance and the understanding that if we have a certain standard, which in this case would be the implementation of TRIPS, the 20-year standard, that we could count on it. It probably would be helpful, as opposed to having to go through all the litigation when people try to get our patented products before their expiry dates. That has been a traditional battleground for a number of years. I suspect some of you probably sat through some of the discussions around the linkage regulations and otherwise. Certainty it is absolutely critical to ensure that we can get the investment and win the opportunity to leverage the types of research and development which are necessary in an innovation-type economy.

I apologize to senators for trying to lay the basis that we think it is important to establish that we must have that assurance of certainty for investments. We must have that assurance that our research can be done here in Canada because we have a lot of very good resources on which to build. However, we need the security of time to ensure that we can get the returns on those investments. That was the only reason, Mr. Chairman, it perhaps appeared that we were advertising how good we are. We were trying to set the understanding that it is critical for us globally to have a very competitive environment, if that is the innovative economy that we really are trying to strike in this country.

Senator Lynch-Staunton: On another topic, but related to the main one, does the elimination of stockpiling extend your exclusions on the market?

Mr. McCool: The simple answer is no.

Senator Lynch-Staunton: What was the advantage of stock piling then, if it did not change your protection of being exclusively on the market?

Mr. McCool: It was a WTO ruling.

Senator Lynch-Staunton: At one time, generics were allowed to stockpile, and once the patent expired, then they served the market. Now there is no stockpiling, so it will take them longer after the protection period is over to get the same product on the market. They will not have any inventory.

Mr. McCool: It will take them marginally longer, a few months.

Senator Lynch-Staunton: Is that all it takes?

Mr. McCool: Yes, more or less.

Senator Lynch-Staunton: Does that mean generic drug companies are manufacturing the product during the patent period?

Mr. McCool: That is something you would have to ask them.

Senator Lynch-Staunton: I am asking you. I will ask them, too.

Mr. Elston: Early working is the development of the product. Early working permits them to work the patent in preparation for regulatory approval. They have everything in line to make it available commercially by the time the patent expires. Before, they were permitted to start manufacturing a prior supply. In this case, it means that they can only manufacture, for commercial purposes, the supply at the end of the patent period. They have already worked the patent under the early working provisions.

Senator Lynch-Staunton: Can they ask for a patent during that time?

Mr. Elston: They do not get a patent.

Senator Lynch-Staunton: But do they get approval?

Mr. Elston: They have no patented products. I should not say that. Their business is to copy our products. Their business is not to have patented products. They apply for the right, the so-called notice of compliance, through the Ministry of Health, to be approved to offer the product for sale.

Senator Lynch-Staunton: When would they ask for that? When can they ask for that?

Mr. Baumgartner: Any time the Health Protection Branch cannot issue a notice of compliance. However, they can review an application while the patent is still valid. That is what early working is. The only change is that they cannot stockpile. They can only start manufacturing once the NOC is given, which will probably delay their entry into the market by a few months.

Senator Lynch-Staunton: That is very helpful information. Thank you.

Senator Wiebe: Mr. Baumgartner, in your answer to the question about the costs that have to be recovered, you mentioned something about U.S.$750 million for one plant to manufacture one product. Is that the cost of producing the product, or does that include the research that went into it?

Mr. Baumgartner: This is a particular example of a biotech product that my company developed. It is the cost to put in place a plant for that particular product and to have it validated. The research costs to bring the drug to market are now estimated to be U.S.$500 million, which of course takes into account the failed research.

Senator Wiebe: Do you include that $500 million in that $750 million figure?

Mr. Baumgartner: No.

Senator Wiebe: If a generic company wanted to produce that product after the patent expired, that company would then have to invest $750 million?

Mr. Baumgartner: Most likely.

Senator Wiebe: Basically, all it is doing is producing. That seems very high, even exorbitant.

Mr. Baumgartner: This is probably a very exceptional situation, but it is a novel biotechnology drug which has an effect on the immune system. When you look now at the tendency of research to deal with genomes and so on, you will find more and more dedicated plants where you cannot produce 10 or 20 different products, but perhaps just one product. That is what makes it so expensive. This is probably not the rule at present.

Senator Wiebe: Can I take it from that that in the future, because the development costs of that particular drug or product was two-thirds of the production cost, that the decrease in price that is afforded by the generic company will not be as great as it is now? Basically, you spent $1.25 billion to get that drug on the market - $500 million to develop it and $750 million to produce it.

A generic company would not have to worry about the $500 million because you have already spent that in developing the product. However, they have to invest $750 million to produce it. They are taking a bit of a risk in doing that, and they will have to sell a heck of a lot of product at a reduced price to be able to recover their $750 million. That is why that figure seems rather high to me.

Mr. Baumgartner: It is a matter of economics finally. There will always be products which are very difficult to produce and must be produced in dedicated plants. It is up to the company to make a judgment on whether they can recoup their investments through commercial sales. In our particular case, if we did not have patent protection, we would not even try to put this product on the market.

Senator Wiebe: I realize that and I appreciate the investment of that $500 million. The point is that the threat to business in the future will probably not be as great because of the investment required to build a plant to produce the product.

Mr. Baumgartner: I will caution you that I gave you an example of one situation. This is not the rule.

Senator Wiebe: You are talking about biotechnology, someth ing that will be very evident in the future, whether it be with drugs, farming, or in other areas. If that is the guide for the future, that would certainly apply to other biotechnology instruments that are being developed.

Mr. Baumgartner: It can apply to certain products in the future, as it probably applies to certain products today that are just not produced by generics because they are too expensive.

Senator Di Nino: When does the 20-year clock start ticking as far as you are concerned?

Mr. Baumgartner: The moment we file the patent.

Senator Di Nino: Do you file the patent when you have the idea, or when you have progressed to a certain point?

Mr. McCool: It depends on the compound, but it is usually when you have the idea. You must remember that the purpose of obtaining a patent is to allow you to share information about that discovery so that other people can build on that knowledge.

Senator Di Nino: I understand that.

How many of the drugs for which you apply for patent protection actually succeed and what percentage would you say make it to market? On what percentage have you wasted a great deal of money and time because they do not become marketable?

Mr. Baumgartner: It is said that 1 out of 10,000 molecules will make it to market. Statistics indicate that, of those products which make it to market, only one out of three will actually recoup the investment and make a profit for the maker.

Senator Di Nino: So two-thirds would not recoup the investment?

Mr. Baumgartner: That is right.

The Chairman: We are getting way off track here. This has nothing to do with the bill.

Senator Di Nino: It has. It is about the extension.

Is your industry making money? Are you happy with the way the Patent Act supports the industry?

The Chairman: That is a totally irrelevant question.

Senator Di Nino: I am not sure that it is. It has to do with whether we should support the extension or not.

Senator Hervieux-Payette: He wants to know whether he should buy shares.

Senator Di Nino: Maybe that is a good idea.

Senator Hervieux-Payette: They are good shares, so buy them.

Mr. Baumgartner: Yes, I think the industry makes money and profitability is probably in line with that of other high-tech, high-risk sectors in the economy.

Senator Di Nino: That is what I wanted to know. Thank you very much.

Senator Furey: I want to clarify an issue that was raised by Senator Lynch-Staunton. If a patent expires and a company applies for and receives a new patent for substantially the same product, does that prevent the generic company from using the expired patent?

Mr. McCool: No. When the original patent expires, they can use the patent on that molecule.

Senator Furey: Even though you now have a new patent for substantially the same product?

Mr. McCool: If there is a new indication or a new use for the product in another area, you can apply for a new patent. The generic company would not be able to use that molecule in that new patent.

Senator Furey: That, in effect, would give you the opportunity to push out at least another two years the ability of a generic to get at that product?

Mr. McCool: It is not easy to explain because the majority of your sales may be in the original molecule, which would be available to the generic industry. If you had a new indication in an area where you probably had to establish a market, you would have minimal sales on that additional patent, but you would continue to be able to develop the molecule for other uses. Otherwise, you would have a one-indication molecule that would never be researched for any other future uses.

Senator Furey: To take it to the other extreme, you could abuse that system by keeping the generics out continuously.

Mr. McCool: I do not think you can because the patent office would not allow you to abuse the system. You cannot get a patent on a frivolous application. It has to be new information.

Senator Tkachuk: We had a previous discussion with the department regarding evergreening, which is the term that they use for extending patent on patent. This is the same point that Senator Furey was trying to get at.

Would you support a limitation of this? I understand that in the United States there is movement in the Senate to limit the number of patents you can put on a particular patented product to force extensions. Would the U.S. drug companies agree with this happening? If not, why not?

Mr. Baumgartner: I will answer this with some examples. First, you cannot extend a patent. Once a patent expires it is accessible to generics.There are two ways to obtain new patents. One is by finding better forms of application for the patient and the other is to get new indications.

I can give you examples of drugs which have been put on the market with one specific indication. My company has one of those. It has an indication in rheumatoid arthritis and it is now being developed in a completely different indication, that being congestive heart failure. It has other potential applications because it affects the auto-immune system.

If you start to limit patents, you have to stop research on these drugs. A number of these new disease-modifying agents or drugs which affect the immune system have potentially three, four, or five different indications. Therefore, research is ongoing with these products. Unless there is patentability for these drugs, they will never be developed.

The original patent is available once it expires. The generic company can come on the market. There is absolutely no way to protect an original patent through what you call evergreening.

Senator Tkachuk: In an attempt to understand this, if you had a drug that was supposed to cure rheumatism, for example, and you found out that this drug could also do something else, is that the same patent on the same drug, or can you add to that?

Mr. McCool: You can get a patent if you investigate it and do all the clinical development work, which takes a minimum of three years, and apply to the regulatory authorities to get approval for the use of that drug.

Senator Tkachuk: To do something else?

Mr. McCool: Yes, to do something else.

Senator Tkachuk: Although it is the same drug, the same chemicals, the same everything, and just by accident they found out that Bayer Aspirin helps the heart?

Mr. McCool: You still have to prove that the drug is safe and effective in that indication and you have to apply to Health Canada to get approval for that use. The development time that you have to go through is very costly and lengthy, and that is why people apply for patents for those new indications.

Senator Tkachuk: Therefore, the patent for that drug in its original form does not finish at the end of 20 years, but rather extends for an extra five years?

Mr. McCool: No, the patent on the original use finishes.

Senator Tkachuk: However, it is the same drug.

Mr. McCool: I know, but the patent is on that original use and a generic can come on the market for that original use. It cannot be used in the new indication.

Senator Tkachuk: All right. It cannot be prescribed for the new indication.

The Chairman: Thank you very much for being with us.

Before we proceed to clause-by-clause study on Bill S-16, to amend the proceeds of crime (money laundering), the sponsor of the bill, Senator Furey, wants to explain one matter to you, and then you can do what makes you happy.

Senator Furey: At the end of our last session, at which we heard from the archivist, there was a question about whether we would amend the clause where we asked for a notwithstanding clause pertaining to the destruction of records - notwithstanding his act. Steve Campbell, from Senator Kolber's office, and myself met with the officials who had discussed with the archivist what particular amendment he wanted. I did not meet with the archivist myself.

The clause pertaining to records now reads:

Notwithstanding the National Archives of Canada Act, shall destroy each report received and all information received or collected on the expiry of the applicable period referred to in paragraph (d).

That is, the fire-year and eight-year periods.

The archivist has asked that we amend that clause by stating:

shall destroy each report received, and all information received or collected, after the applicable period referred to in paragraph (d), in accordance with Records Disposition Authority No. 2001/003 issued on January 22, 2001 under section 5 of the National Archives of Canada Act, without taking into account any subsequent amendments to or repeal of that Authority.

My concern at the time was whether or not this particular directive, which was given by the archivist, would be repealable either by him or by his successors. When I discussed it with officials from the department, I was told that if we used harsher wording than "without taking into account any subsequent amendments to or repeal of that authority" and if we were to say, for example, "the archivist will issue the authority and that will be non-repealable," we would be dangerously close to attempting to amend the National Archives Act. Of course, we cannot do that with this particular bill.

My concern is that while the proposed amendment leaves the archivist free to do his job, that is, to make or to issue directives to destroy or to save, the officials are telling us that we can ignore that directive. That directive would be ineffectual.

My concern with that is, if that is the reality, if that is the practical effect of it, then we are just trying do through the back door what we cannot do through the front door, which is amend his act. I am saying, for greater certainty, even though it may not be what the national archivist wants, we should stay with the notwithstanding clause in the proposed amendment.

The Chairman: Is that clear, gentlemen?

Senator Tkachuk: I have no problem with that.

Senator Furey: The notwithstanding provision is certain. Even though officials are telling us that this one would stand the test, I have some concerns that it would not. My recommendation would be to go with certainty.

Senator Tkachuk: As it is now, we want them destroyed, right?

Senator Furey: Yes.

The Chairman: Yes. Is it agreed, gentlemen, that we consider the bill clause-by-clause? Is it the intention of any honourable senator to propose an amendment?

Senator Tkachuk: First, I wish to make a statement on the money laundering bill. It will become clear when I finish why it is important that I make a statement.

We studied Bill C-22 last June. At that time, our committee felt strongly about a number of issues. Since the House had already recessed for the summer break, the government asked that the bill be passed unamended. The minister promised that certain amendments of concern would be brought back in the form of a new bill at his earliest opportunity. The minister stated this is a letter, a copy of which you all have.

My understanding is that this letter was drafted and, due to a misunderstanding on the part of the Chair of our committee, which may have been caused my me, him, or both of us, he believed that the Conservatives refused to negotiate. As a result, our specific concerns were not relayed to the minister. Once that misunderstanding was cleared up in committee, we were still left in the predicament of passing the bill unamended until these concerns could be addressed at a later date, which was the next session of Parliament.

Liberal members felt generally that their concerns were met by the letter, but were willing to attach to the committee report a list of observations, which we all agreed to, which were really our observations on Bill C-22.

While we support being tough on crime and giving much- needed tools to government to track down money launderers in this country, we also believe strongly in providing a check on that same government.

That being said, with the establishment of a new agency, FINTRAC, or Financial Transactions and Reports Analysis Centre of Canada, we remain unsatisfied with the clause in Bill C-22 that instituted a five-year review.

I realize that this point could be considered out of order, which is why I asked, and the Chairman so kindly let me go ahead with this, as it does not fall within the scope of Bill S-16. However, I am asking honourable senators to hear me out. I believe our Chair and our members are reasonable people. In all my dealings with the Chairman he has been so.

Our discussion of the letter is reported in the transcripts of the committee hearing. I am quoting myself here when I say that the letter was sent to the Chairman from Mr. Peterson. I asked:

Do you know whether he would be willing to make changes in the letter? Does this letter come about because the minister and his officials were listening to the witnesses and they said, "Oh, these are the items," or was there a whole list of items from which he decided?

The Chairman: I hear where are you going and you are obviously free to go wherever you like, but my understand ing was that you folks would not accept a letter of any kind. That is why we worked out a letter which was acceptable to us to show to you. You told me that nothing less than regular amendments would do and that letters were not acceptable. You are catching me unaware here.

Which I did say. That did not mean that I did not want to negotiate. That is simply what I said. There are two issues here. You had asked whether we would accept the letter. Of course, over the last seven years that I have been here there have been many letters, but nothing has ever happened. That is why we had many concerns over the letter.

If it was not for that misunderstanding, I believe there would have been a very good chance that our review clause would have made this bill. In fact, I have reason to believe that the drafters of this bill in concept are in this room right now.

I am not sure, but I think so. That being said, I humbly ask all senators on this committee to consider unanimously supporting the adoption of my amendment to institute a period of review of three years rather than five years. We all agreed to this in our observations.

It will still be up to the Senate to decide ultimately whether this amendment shall pass. I will have to make my case again before a point of order is called in the Senate. I understand that, according to Beauchesne's and Montpetit and Marleau, scope is a convention of Parliament. In fairness, a committee can choose to overlook a potential point of order if the feeling is unanimous. If it is not unanimous, I understand.

I would like to change the review clause to three years because I think five years is too long to wait to see how well the new agency is operating and all our members feel that way. In fact, last week in committee there was testimony suggesting that a review would even take place within one year, and the chairman asked Minister Cullen whether he would come back in a year and he said that he would. I do not think anybody disagreed in principle with limiting it, and I have amendments here for one year or three years, whatever the wishes of senators are.

I think five years is too long and so I have my amendment.

The Chairman: Would you care to make it formal, please?

Senator Tkachuk: I would, or you could wait until we get to that part of the bill. I think I handed it to the Clerk.

Is it possible to have some discussion as to how members feel before the amendment is proposed?

Let us put it this way: If there is no consideration whatsoever by the government to passing any amendment, to giving any truck to one, we would prefer to have the amendment on division, so at least our point of view is stated in the record rather than through a point of order. That is what I am asking honourable senators to do here today.

The Chairman: My impression is that members on the Liberal side want to go ahead with it as is, which is five years.

Senator Tkachuk: Right.

The Chairman: Do honourable senators agree with that?

Senator Furey, you are the sponsor. Why do you not get into this?

Senator Furey: Just a comment on Senator Tkachuk's issue. I have really no problem with a three-year period, except in this instance, where it is the first three-year period. There is really nothing going on there yet. It is not staffed. Therefore, one of those three years will probably be wasted in terms of collecting information and being able to do a proper assessment. With respect to three rather five, I really have no problem with it at all. It is just that, for start-up reasons, I do not think three is long enough. That is probably the message we were getting from officials.

Senator Tkachuk: You mean one year is too short, three years is not long enough, and five years is about right?

Senator Furey: Yes, that is basically the assessment.

Senator Tkachuk: Are you saying five years, and three years thereafter, or every one year thereafter? Would you be agreeable to that?

Senator Furey: I certainly would be agreeable to five and then every three years. I have no problem with that. I am not speaking for everyone else, obviously.

The Chairman: The only reasonable thing to do would be to recess for three minutes and discuss it.

Senator Tkachuk: That would be fine.

The Chairman: Is that all right with you?

Senator Tkachuk: That would be great.

The Chairman: Is that your only amendment?

Senator Tkachuk: That is the only amendment we have.

The Chairman: Let us recess for three minutes and we will decide.

(The committee suspended)

(Upon resuming)

The Chairman: After much consultation and hearing advice, by Senator Tkachuk's own admission, the proposed amendment is out of order, and I so rule. Shall we continue?

Shall the title stand postponed? Shall clause 1 carry?

Some Hon. Senators: Agreed.

Senator Tkachuk: On division. All on division.

The Chairman: In other words, you are against each one of them.

Senator Tkachuk: You can do it anyway you like.

The Chairman: It is a question of how we report it.

Senator Di Nino: On division.

Senator Tkachuk: Report it all on division.

The Chairman: Shall clause 2 carry?

Some Hon. Senators: Agreed.

Senator Tkachuk: On division.

The Chairman: Shall clause 3 carry?

Some Hon. Senators: Agreed.

Senator Tkachuk: On division.

The Chairman: Shall clause 4 carry?

Some Hon. Senators: Agreed.

Senator Tkachuk: On division.

The Chairman: Shall the title carry?

Some Hon. Senators: Agreed.

Senator Tkachuk: On division.

The Chairman: Shall I report the bill?

Some Hon. Senators: Agreed.

Senator Di Nino: On division.

The Chairman: The Clerk tells me that when we report a bill, it cannot show on division, but the minutes can.

The committee adjourned.

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