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USMCA Agreement and the Remedies for Patent Infringement

The United States Trade Representative has published a statement regarding the proposed U.S., Mexico and Canada (USMCA) trade agreement drug prices. According to USTR:

“nothing in the newly negotiated USMCA will require changing U.S. laws on pharmaceutical intellectual property rights or lead to higher prices on drugs for U.S. consumers.”

There are several complaints against the USMCA on this issue, including that it both will lock in bad features of current laws, and is inconsistent with U.S. law.

One issue where the USMCA is inconsistent with U.S. law concerns the provisions on the remedies for the infringement of intellectual property rights, including in particular, the standards for damages.

The USMCA’s Chapter 20 focuses on intellectual property rights. In this chapter, Article 20.82, “Civil and Administrative Procedures and Remedies,” sets out a number of enforcement obligations for when intellectual property rights are infringed. Paragraphs 3 and 4 of that article require USMCA members to give judges the authority to consider “any legitimate measure of value the right holder submits, which may include . . . the value of the infringed goods or services measured by. . . the suggested retail price.”

While one might argue that the obligations to provide judges with the authority to use aggressive measures to determine damages are consistent with the general standards for damages found in U.S. laws regarding patents, copyrights and some other types of intellectual property, high damages are actually banned in several special cases. USTR even acknowledges there was a conflict with trademark law, by including footnote 89, which says that “the right holder may not be entitled to any of the remedies . . if there is a finding of non-use of a trademark.” But there is no similar exception acknowledge for cases involving patents, copyrights of other types of intellectual property, despite several such exceptions in U.S. law.

We are concerned here about two special cases involving medical technologies.

Biologic drugs

First, the Biologics Price Competition and Innovation Act of 2009 created an incentive for patent holders to make a limited disclosure of patents that would be infringed by a biosimilar. The incentive was that a failure to make a timely and constructive disclosure would result in progressively severe limits on the remedies for infringement, including the elimination on injunctive relief and damages either eliminated or limited to a reasonable royalty, depending on timing. These exceptions to the general rules on injunctions and damages are not consistent with the USMCA.

The rules on transparency of the patent landscape for biologic drugs may be revised by Congress this year. One bill, S.659, which was introduced by Senators Susan M. Collins and Tim Kaine, and co-sponsored by Senators Portman, Shaheen, Braun, and Stabenow, creates a public list of patents on biologic drugs, and would eliminate any remedy for infringement when “a patent that should have been included in the list . . . was not timely included in such list.”

The medical activity exception

A second exception that has not been discussed enough is the elimination of injunctions and damages for infringement of patents by a doctor or other medical professional performing a medical procedure. It’s a little surprising that USTR wanted to ignore these provisions, because the title of the relevant statute is literally “Limitation on damages and other remedies.”

35 USC § 287(c) provides that injunctions, damages and other remedies for patent infringement “shall not apply against the medical practitioner or against a related health care entity with respect to such medical activity.”

Medical activity is defined in the statute as the performance of a medical or surgical procedure on a body,” but does not extend to “(i) the use of a patented machine, manufacture, or composition of matter in violation of such patent, (ii) the practice of a patented use of a composition of matter in violation of such patent, or (iii) the practice of a process in violation of a biotechnology patent.”

While the exception is narrowly drawn, it addresses an important set of activities, and provides medical professionals with considerable freedom to treat patients. Senator Frist, a physician and the prime advocate for the exception, offered this rationale in the Congressional Record.

As in other areas of human endeavor, improvements in health care often require significant investments of time and money. Without the ability to recoup these investments through patents, critical research, and development would never get off the ground.

The appropriateness and importance of allowing patents for pharmaceuticals and medical devices is now well-established. But the appropriateness of patenting medical innovations that do not involve drugs or devices but are simply improvements in surgical or medical techniques remains highly controversial. I think for good reason.

Unlike innovations in medical drugs and devices, innovations in pure procedures–such as discovering a better way to suture a wound or set a broken bone–are constantly being made without the need of significant research investments.

Allowing a doctor to enforce a patent on such improvements would have disastrous effects. Furthermore, innovations in surgical and medical procedures do not require the midwifery of patent law. They will occur anyway as they have throughout history.

Several countries have exceptions for medical procedures or treatments of humans in their national patent laws, but typically the exception is implemented on a limitation on patentable subject matter. The USMCA and the WTO TRIPS Agreement both permit such exceptions to patentable subject matter. In the TRIPS the exception is in Article 27.3 (a).

Article 27. Patentable Subject Matter

3. Members may also exclude from patentability:

(a) diagnostic, therapeutic and surgical methods for the treatment of humans or animals;

The USMCA has the same exception in its Article 20.36: Patentable Subject Matter. But the U.S. law does not provide an exception to patentability, it provides an limitation on the remedies for infringement — in the words of Kevin Noonan, a “get out of jail free” card for infringement.

One of the USMCA members, Canada, has implemented their exception as a limit on patentability:

A method or process of surgery or therapy on living humans or animals is not considered to be within the scope of the meaning of invention.

USTR has negotiated an agreement that protects the Canadian exception for physicians and other medical professionals, but not our own.

USTR can fix both of these issues, by modifying the USMCA text, to provide more flexibility concerning limitations on remedies for infringement, not only for these two cases, but for any case, including for copyright, where such an exception makes sense.

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