WorldTradeLaw.

net Dispute Settlement Commentary (DSC)

Panel Report
Canada - Patent Protection of Pharmaceutical Products
(WT/DS114/R)

Parties Timeline of Dispute

Complainant: EC Panel Request: November 11, 1998
Respondent: Canada Panel Established: February 1, 1999
Third Parties: Australia, Brazil, Colombia, Cuba, India, Panel Composed: March 25, 1999
Israel, Japan, Poland, Switzerland, Thailand, U.S. Interim Report Issued: January 21, 2000
Final Report Circulated: March 17, 2000
Panelists Adoption: April 7, 2000
Mr. Robert Hudec (Chairperson),
Mr. Mihály Ficsor, Mr. Jaime Sepúlveda

Table of Contents
BACKGROUND ...........................................................................................................................................................2
SUMMARY OF PANEL'S FINDINGS ........................................................................................................................3
PROCEDURAL AND SYSTEMIC ISSUES .........................................................................................................................3
Principles of Treaty Interpretation.........................................................................................................................3
Burden of Proof - TRIPS Agreement Article 30....................................................................................................3
SUBSTANTIVE ISSUES .................................................................................................................................................3
TRIPS Agreement Articles 28.1 and 30 - Canada's Stockpiling Provision ...........................................................3
TRIPS Agreement Articles 28.1 and 30 - Canada's Regulatory Review Provision ...............................................5
TRIPS Agreement Article 27.1 - Canada's Regulatory Review Provision ............................................................7
COMMENTARY ..........................................................................................................................................................9
TRIPS Agreement Article 30 - Exceptions to Rights Conferred ...........................................................................9
TRIPS Agreement Article 27.1 - De Facto Discrimination ...................................................................................9
Members' Representations/Pledges to the Panel..................................................................................................10

Key Findings

 The "regulatory review provision" of Canada's Patent Act satisfies all three conditions of the exception
set out in TRIPS Agreement Article 30. Because the conditions of Article 30 are satisfied, Canada's
regulatory review provision is not inconsistent with TRIPS Agreement Article 28.1.
 The "stockpiling provision" of Canada's Patent Act is inconsistent with TRIPS Agreement Article 28.1.
Moreover, the stockpiling provision does not satisfy the first condition of TRIPS Agreement Article 30
because it is not a "limited exception." Therefore, the inconsistency of the stockpiling provision with
TRIPS Agreement Article 28.1 cannot be justified.
 The European Communities failed to prove, under TRIPS Agreement Article 27.1, that the regulatory
review provision results in discrimination against a particular "field of technology," in this case
pharmaceuticals.

© 2001 WorldTradeLaw.net LLC

WorldTradeLaw.net DSC Canada - Pharmaceuticals (Panel)

BACKGROUND

This dispute concerns two aspects of Canada's Patent Act which grant exceptions to the exclusive
rights accorded to patent holders. The main provisions at issue in this case are the following:

Patent Act, Section 55.2(1): "It is not an infringement of a patent for any
person to make, construct, use or sell the patented invention solely for
uses reasonably related to the development and submission of
information required under any law of Canada, a province or a country
other than Canada that regulates the manufacture, construction, use or
sale of any product."

Patent Act, Section 55.2(2): "It is not an infringement of a patent for any
person who makes, constructs, uses or sells a patented invention in
accordance with subsection (1) to make, construct or use the invention,
during the applicable period provided for by the regulations, for the
manufacture and storage of articles intended for sale after the date on
which the term of the patent expires."

Certain regulations relating to Section 55.2(2) were also at issue.

The provisions at issue permit non-right holders to use patented inventions during the life of the
patent, as follows. Section 55.2(1) is known as the "regulatory review provision." In the case of
pharmaceuticals, the provision effectively permits generic manufacturers to complete the time-consuming
marketing approval process prior to the expiration of the patent (it takes from one to two and a half
years). Specifically, it allows the generic manufacturer to produce samples of the patented product for
use during the regulatory review process. In this way, assuming the generic manufacturer obtains
regulatory approval, it is able to begin selling its product immediately upon expiration of the patent. (This
process should be compared with that for manufacturers of new pharmaceutical products, i.e., the original
patent applicants. These producers are required to develop and gain regulatory approval during the patent
period. This development and approval process can take up to 12 years, such that manufacturers of new
products effectively lose to this process one-half of the term of market exclusivity conferred by a patent.)

Section 55.2(2) is known as the "stockpiling provision." This provision, along with related
regulations, allows generic producers to make the drugs and begin stockpiling them six months prior to
the expiration of the patent. Thus, it allows the generic producer to have on hand a stockpile of products
that it can sell as soon as the patent expires. The stockpiling provision is available only to those who have
also invoked the regulatory review provision.

(Paras. 2.1-7)

The European Communities argued that the provisions of the Canadian Patent Act at issue violate
TRIPS Agreement Article 28.1 (in conjunction with Article 33 with respect to the stockpiling provision)
and Article 27.1 (for reasons of judicial economy, the Panel found it unnecessary to examine the
stockpiling provision under TRIPS Agreement Articles 27.1 or 33).

© 2001 WorldTradeLaw.net LLC 2

WorldTradeLaw.net DSC Canada - Pharmaceuticals (Panel)

SUMMARY OF PANEL'S FINDINGS

PROCEDURAL AND SYSTEMIC ISSUES

Principles of Treaty Interpretation

The Panel noted the interpretive guidance of Articles 31 and 32 of the Vienna Convention on the
Law of Treaties ("VCLT"). The Panel further noted that in the framework of the TRIPS Agreement, the
"context" for purposes of interpretation includes the provisions of the international instruments on
intellectual property protection incorporated into the TRIPS Agreement, as well as any agreement
between the parties relating to these agreements, within the meaning of VLCT Article 31(2). Similarly, if
the Panel were to resort to the negotiating history of the TRIPS Agreement provisions at issue under
VCLT Article 32, it considered that it may go beyond the negotiating history of the TRIPS Agreement
itself and also inquire into that of the incorporated international instruments on intellectual property. In
particular, for this case, the Panel noted the importance of Article 9(2) of the Berne Convention for the
Protection of Literary and Artistic Works (1971) ("Berne Convention"). (Paras. 7.13-15)

Burden of Proof - TRIPS Agreement Article 30

The Panel considered that Canada, for all practical purposes, conceded that its provisions violate
TRIPS Agreement Article 28.1. It reached this decision because Canada relied on the exception contained
in TRIPS Agreement Article 30 as a justification for the provisions at issue, without developing rebuttal
arguments under Article 28.1. The Panel noted that because Article 30 is an exception to TRIPS Agreement
obligations, the burden is on Canada to demonstrate that the patent provisions at issue comply with the
criteria established in that provision. (Para. 7.16)

SUBSTANTIVE ISSUES

TRIPS Agreement Articles 28.1 and 30 - Canada's Stockpiling Provision

The Panel began its analysis with the EC claim that the stockpiling provision violates TRIPS
Agreement Article 28.1, and Canada's defense that the measure is justified as an exception under TRIPS
Agreement Article 30. (Para. 7.17)

The Panel found that the stockpiling provision is not justified under Article 30, and it therefore
violates Article 28.1. It began by examining the text of the relevant provisions. TRIPS Agreement
Article 28.1, titled "Rights Conferred," provides:

A patent shall confer on its owner the following exclusive rights:

(a) Where the subject-matter of a patent is a product, to prevent third

parties not having the owner's consent from the acts of making, using,
offering for sale, selling, or importing for these purposes that product;

Thus, Article 28.1 sets out five legal rights that stem from a patent: making, using, offering for sale, selling
and importing. There was no dispute that the stockpiling provision violates this provision, as it infringes
upon these exclusive rights; the only question was whether it is justified under an exception to these
requirements.

© 2001 WorldTradeLaw.net LLC 3

WorldTradeLaw.net DSC Canada - Pharmaceuticals (Panel)

The Panel then examined TRIPS Agreement Article 30, which provides an exception to the
obligation in Article 28.1. Article 30, titled "Exceptions to Rights Conferred," states:

Members may provide limited exception to the exclusive rights conferred

by a patent, provided that such exceptions do not unreasonably conflict
with the normal exploitation of the patent and do not unreasonably
prejudice the legitimate interests of the patent owner, taking account of the
legitimate interests of third parties.

(Para. 7.19) The Panel considered that Article 30 "establishes three criteria that must be met in order to
qualify for an exception: (1) the exception must be 'limited'; (2) the exception must not 'unreasonably
conflict with normal exploitation of the patent'; (3) the exception must not 'unreasonably prejudice the
legitimate interests of the patent owner, taking account of the legitimate interests of third parties.'"
Moreover, the Panel noted that the three conditions are cumulative. (Para. 7.20) The Panel interpreted this
provision in light of the parties' arguments, which began with a discussion of the object and purpose of the
TRIPS Agreement.

Canada pointed to Articles 7 and 8 of the TRIPS Agreement as relevant to the object and purpose of
Article 30. (Para. 7.23) Article 7, titled "Objectives," states:

The protection and enforcement of intellectual property rights should

contribute to the promotion of technological innovation and to the
transfer and dissemination of technology, to the mutual advantage of
producers and users of technological knowledge and in a manner
conducive to social and economic welfare, and to a balance of rights and
obligations.

Article 8, titled "Principles," provides in relevant part:

1. Members may, in formulating or amending their laws and

regulations, adopt measures necessary to protect health and nutrition, and
to promote the public interest in sectors of vital importance to their socio-
economic and technological development, provided that such measures are
consistent with the provisions of this Agreement.

(Para. 7.23, emphasis added by Panel) Canada argued that these provisions together "call for a liberal
interpretation of the three conditions stated in Article 30 of the Agreement, so that governments would have
the necessary flexibility to adjust patent rights to maintain the desired balance with other important national
policies." The European Communities countered that Articles 7 and 8 describe a balancing that had already
taken place during the TRIPS Agreement negotiations and they are not intended to allow a Member to
"renegotiate" the overall balance. The Panel considered both views and stated that the words of Articles 7
and 8 should be borne in mind in terms of context, but that the three limiting conditions of Article 30 make
clear that the TRIPS Agreement negotiators did not intend for a re-negotiation of the basic balance of the
Agreement. (Paras. 7.24-26)

With these principles in mind, the Panel turned to an interpretation of the three criteria in Article 30.
It began with the first criterion, that any exception be a "limited" one. The Panel held that the term "limited
exception" must connote a "narrow exception - one which makes only a small diminution of the rights in
question." (Para. 7.30)

© 2001 WorldTradeLaw.net LLC 4

WorldTradeLaw.net DSC Canada - Pharmaceuticals (Panel)

The Panel agreed with the EC argument that the term "limited" should be "measured by the extent
to which the exclusive rights of the patent owner have been curtailed." By this, the panel referred to the
legal rights at issue, rather than size or extent of the economic impact. However, the Panel disagreed with
the EC methodology of "counting" the number of legal rights impaired, and instead articulated a standard
under which "the extent to which the patent owner's rights have been curtailed must be measured."
(Emphasis added) The Panel pointed out that a very small act could potentially violate all five rights
conferred under Article 28.1, but for all practical purposes leave the owner's rights intact. In this regard, the
Panel rejected Canada's argument that the focus should be on whether the right to "sell" has been infringed,
pointing out that "making" and "using" are also essential patent rights. (Paras. 7.31-33)

The Panel concluded that the stockpiling provision violates the "limited exception" criterion. In
particular, the Panel pointed to the fact that there are no limitations on the quantity of production for
stockpiling. Moreover, the Panel stated that a patent right contains a corollary right to a "short period of
extended market exclusivity after the patent expires." A third-party right to "make" or "use" the patented
invention during the patent period would eliminate that benefit of extended market exclusivity. While the
Panel refrained from defining exactly what level of curtailment would be disqualifying under the "limited
exception" standard, the Panel concluded, "an exception which results in a substantial curtailment of this
dimension cannot be considered a 'limited exception.'" (Emphasis added) In addition, the panel rejected
Canada's argument that the stockpiling provision is "limited" because it applies only to products which
require regulatory approval, holding that "each exception must be evaluated with regard to its impact on
each affected patent, independently." (Paras. 7.34-37)

For these reasons, the Panel found that the stockpiling provision in the Canadian Patent Act
does not constitute a "limited exception" under TRIPS Agreement Article 30. As a result, the Panel
concluded that the stockpiling provision constitutes a "substantial curtailment of the exclusionary
rights" granted to patent holders under TRIPS Agreement Article 28.1, and is therefore inconsistent
with TRIPS Agreement Article 28.1. The Panel considered it unnecessary to examine the stockpiling
provision under the second and third criteria of Article 30, given that it had already found that the provision
fails to meet the first criterion. (Paras. 7.36, 7.38)

TRIPS Agreement Articles 28.1 and 30 - Canada's Regulatory Review Provision

Neither party disputed that, on its face, the regulatory review provision of the Canadian Patent Act
violates Article 28.1. Therefore, as with the stockpiling provision, the issue became whether the provision
falls within the exception provided under Article 30. (Para. 7.39) The Panel examined each of the three
Article 30 conditions individually.

Turning to the first criterion required under Article 30, the Panel recalled its interpretation of the
phrase "limited exception" above, i.e., that the words "express a requirement that the exception make only a
narrow curtailment of the legal rights which Article 28.1 requires to be granted to patent owners, and that
the measure of that curtailment was the extent to which the affected legal rights themselves had been
impaired." (Para. 7.44) (Emphasis added) The Panel found that Canada's regulatory review provision
meets this criterion. It considered that "[a]s long as the exception is confined to conduct needed to comply
with the requirements of the regulatory review process, the extent of the acts unauthorized by the right
holder that are permitted by it will be small and narrowly bounded." (Paras. 7.45) With regard to Canada's
arguments that both the negotiating history of Article 30 and the "subsequent practices of certain WTO
Member governments" supported the view that Article 30 was understood to permit regulatory review
exceptions, the Panel said it "did not accord any weight to either of those arguments … because there was
no documented evidence of the claimed negotiating understanding, and because the subsequent acts by
individual countries did not constitute 'practice in the application of the treaty which establishes the
agreement of the parties regarding its interpretation' within the meaning of Article 31.3(b) of the Vienna

© 2001 WorldTradeLaw.net LLC 5

WorldTradeLaw.net DSC Canada - Pharmaceuticals (Panel)

Convention." (Para. 7.47) The Panel concluded that the regulatory review exception is a "limited
exception" within the meaning of Article 30. (Para. 7.50)

The Panel then turned to the second criterion of Article 30, which prohibits exceptions that
"unreasonably conflict with a normal exploitation of the patent." The parties essentially agreed that
"exploitation" involves "the extraction of commercial value from the patent by 'working' the patent," either
by selling the product or licensing others to do so. The parties differed, however, on the meaning of
"normal." (Para. 7.51)

The Panel articulated a definition of "exploitation" as referring to "the commercial activity by which
patent owners employ their exclusive patent rights to extract economic value from their patent." Moreover,
the Panel found that the term "normal," as used in Article 30, combines two possible meanings: either an
"empirical conclusion" about what is common within a relevant community, or a "normative standard"
pertaining to the concept of "entitlement." The Panel explained that the normal practice of exploitation by
patent owners "is to exclude all forms of competition that could detract significantly from the economic
returns anticipated from a patent's grant of market exclusivity." It noted that the forms of exploitation
change with developments in competition due to technological advances and the evolution of marketing
practices. In this regard, the Panel rejected Canada's argument that post-expiration market exclusivity (i.e.,
exclusivity that continues to flow to the former patent holder after expiration of the patent, as a result of the
time it takes competitors to bring a competing product onto the market) can never meet the definition of
"normal exploitation" per se. The Panel explained that there is nothing "abnormal" about the period of
market exclusivity that occurs after a patent has expired. (Para. 7.54-56)

However, the Panel considered Canada's argument to be on "firmer ground" when, as in this case,
the post-expiration market exclusivity is the result of a government's regulatory process. The Panel agreed
with Canada that a right to this type of protection falls outside the bounds of "normal." The Panel
concluded:

The additional period of market exclusivity in this situation is not a natural

or normal consequence of enforcing patent rights. It is an unintended
consequence of the conjunction of the patent laws with product regulatory
laws, where the combination of patent rights with the time demands of the
regulatory process gives a greater than normal period of market exclusivity
to the enforcement of certain patent rights.

The Panel also found it relevant that the lengthy regulatory demands at issue here are not applicable to the
vast majority of patented products. (Para. 7.57) For these reasons, the Panel concluded that the regulatory
review provision does not conflict with a normal exploitation of patents under TRIPS Agreement Article 30.
(Para. 7.59)

Finally, the Panel considered the third criterion of Article 30, which states that the proposed
exception must not "unreasonably prejudice the legitimate interests of the patent owner, taking into account
the legitimate interests of third parties." The Panel noted that the focus would be on the issue of whether
patent owners can claim a "legitimate interest" in the economic benefits that can be derived from an
additional period of post-expiration exclusivity and whether the regulatory review provision "unreasonably
prejudice[s]" that interest. (Paras. 7.60-61)

The Panel noted the dictionary definition of "legitimate" and concluded that this term "must be
defined in the way that it is often used in legal discourse - as a normative claim calling for protection of
interests that are 'justifiable' in the sense that they are supported by relevant public policies or other social
norms." (Para. 7.69) To further develop the meaning of the phrase, the Panel also looked to the negotiating

© 2001 WorldTradeLaw.net LLC 6

WorldTradeLaw.net DSC Canada - Pharmaceuticals (Panel)

history of this provision, in particular, that of Berne Convention Article 9(2). This negotiating history
confirmed the Panel's interpretation. In this way, the Panel attributed to the phrase a broader definition than
only "legal interests," as argued by the European Communities. (Para. 7.70-72)

Next, the Panel considered the European Communities' normative claim that generic producers
should not be given an advantage over the patent holders in terms of time to develop the product (i.e., while
the patent holder typically loses one-half of the patent period to obtain marketing approval for the drug,
under the regulatory review provision, the generic companies are able to deal with the burdensome process
during the patent period, and thereby lose no time in marketing the drug as soon as the patent expires).
(Paras. 7.74-78) The Panel rejected the EC claim that this situation creates a "legitimate interest" for the
patent holders. In particular, the Panel found that this interest was "neither so compelling nor so widely
recognized" to constitute a "policy norm" that falls within TRIPS Agreement Article 30. Moreover, the
Panel found it "significant that concerns about regulatory review provisions in general, although well known
at the time of the TRIPS negotiations, were apparently not clear enough, or compelling enough, to make
their way explicitly into the recorded agenda of the TRIPS negotiations." Ultimately, the Panel explained
that it did not want to use the concept of "legitimate interests" in Article 30 to decide a normative policy
issue that still requires political debate. (Para. 7.82) Therefore, the Panel concluded that Canada had
demonstrated that the regulatory review provision does not prejudice "legitimate interests" of affected patent
owners within the meaning of Article 30. (Para. 7.83)

Having found that Canada's regulatory review provision meets all three conditions contained
in TRIPS Agreement Article 30, the Panel concluded that the provision is not inconsistent with
Canada's obligations under TRIPS Agreement Article 28.1. (Para. 7.84)

TRIPS Agreement Article 27.1 - Canada's Regulatory Review Provision

The European Communities also claimed that the regulatory review provision of the Patent Act
violates TRIPS Agreement Article 27.1. (Para. 7.85) Article 27.1, titled "Patentable Subject Matter,"
provides:

Subject to the provisions of paragraphs 2 and 3, patents shall be available

for any inventions, whether products or processes, in all fields of
technology, provided that they are new, involve an inventive step and are
capable of industrial application. Subject to paragraph 4 of Article 65,
paragraph 8 of Article 70 and paragraph 3 of this Article, patents shall be
available and patent rights enjoyable without discrimination as to the
place of invention, the field of technology and whether products are
imported or locally produced.

(Para. 7.85, emphasis added). Specifically, the European Communities argued that under this provision, any
exceptions to the basic TRIPS Agreement rights must be non-discriminatory. Here, it argued, Canada's
regulatory review provision discriminates based on "the field of technology" (i.e., against pharmaceutical
products), in both a de jure manner, based on the legislative history of the provision, and a de facto manner,
in that the measure is effectively limited to pharmaceuticals. (Paras. 7.86, 7.95-96)

The Panel rejected the EC claims. As a threshold matter, however, the Panel rejected Canada's
argument that Article 27.1 does not apply to exceptions granted under Article 30. Specifically, Canada
argued that Article 27.1 prevents discrimination only as to the enjoyment of "patent rights," and that
measures which fall within Article 30 are explicitly described as "exceptions to the exclusive rights," such
that they are not subject to the non-discrimination requirement of Article 27.1. The Panel considered that
Article 30 contains no indication that any exemption from non-discrimination rules is intended. Moreover,

© 2001 WorldTradeLaw.net LLC 7

WorldTradeLaw.net DSC Canada - Pharmaceuticals (Panel)

it explained, "[a] discriminatory exception that takes away enjoyment of a patent right is discrimination as
much as is discrimination in the basic rights themselves." The Panel also found significant the
"acknowledged fact" that the exception for compulsory licenses and government use under TRIPS
Agreement Article 31 is "understood to be subject to the non-discrimination rule of Article 27.1." (Paras.
7.88-91)

Next, the Panel considered whether Canada's regulatory review provision discriminates as to the
field of technology, within the meaning of Article 27.1. The Panel began its analysis by considering the
meaning of the term "discrimination." It recognized that this term is "normative" in nature and "pejorative"
in connotation, and that it extends beyond the concept of "differential treatment." Moreover, it recognized
that discrimination can result from explicitly different treatment (de jure discrimination), or from the
application of formally identical treatment, which, due to differences in circumstances, produces
differentially disadvantageous effects (de facto discrimination). (Para. 7.94)

With regard to de jure discrimination, the European Communities argued that pharmaceuticals were
the only products mentioned in Canada's legislative debates on the enactment of the regulatory review
provision. The Panel found this evidence insufficient to overcome 1) the words of the provision, which do
not discriminate based on technology or product, and 2) the fact that Canada represented to the Panel that
the "meaning" of the regulatory review provision is not limited to only pharmaceuticals. Therefore, the
Panel found that the measure does not constitute de jure discrimination against pharmaceutical products.
Nonetheless, the Panel warned that this finding of conformity "would no longer be warranted" if Canada's
representations were to prove wrong. (Paras. 7.96-99)

The Panel then turned to the EC claim regarding de facto discrimination. First, the Panel presented
an explanation of its understanding of de facto discrimination:

de facto discrimination is a general term describing the legal conclusion

that an ostensibly neutral measure transgresses a non-discrimination norm
because its actual effect is to impose differentially disadvantageous
consequences on certain parties, and because those differential effects are
found to be wrong or unjustifiable. Two main issues figure in the
application of that general concept in most legal systems. One is the
question of de facto discriminatory effect - whether the actual effect of the
measure is to impose differentially disadvantageous consequences on
certain parties. The other, related to the justification for the
disadvantageous effects, is the issue of purpose - not an inquiry into the
subjective purposes of the officials responsible for the measure, but an
inquiry into the objective characteristics of the measure from which one
can infer the existence or non-existence of discriminatory objectives.

(Para. 7.101) Thus, according to the Panel, there are two elements to a finding of de facto discrimination --
discriminatory effect and discriminatory purpose (based on objective characteristics of the measure, as
opposed to subjective purposes of government officials).

Applying this interpretation to the facts of this case, the Panel rejected the EC claim of de facto
discrimination against pharmaceutical products. First, the Panel noted that the European Communities
failed to provide any "systematic information on the range of industries" that use the regulatory review
provision so as to demonstrate the actual effects of the provision under a de facto analysis. As such, the
European Communities failed to prove that the regulatory review provision has had a "discriminatory
effect" against pharmaceutical products. Second, on the issue of purpose, the Panel found that the mere fact
that there was a focus on pharmaceuticals during the Canadian legislative debates on the provision does not

© 2001 WorldTradeLaw.net LLC 8

WorldTradeLaw.net DSC Canada - Pharmaceuticals (Panel)

demonstrate a purpose of discriminating against pharmaceuticals. The Panel recognized that it is often the
case that a preoccupation with the effects of a statute in one area can serve as the "driving force behind
legislative actions of broader scope." Therefore, the Panel found no evidence of de facto discrimination
against pharmaceutical products. (Paras. 7.102-104)

For these reasons, the Panel found that none of the evidence in the record raised a plausible
claim of discrimination against a particular "field of technology" under TRIPS Agreement Article
27.1, and, as a result, it concluded that the regulatory review provision does not violate Canada's
obligations under that provision. (Para. 7.105)

COMMENTARY

For further reading on this dispute, see:

Frederick M. Abbott, "Bob Hudec as Chair of the Canada-Generic Pharmaceuticals Panel – The WTO
Gets Something Right," 6 JIEL 3, 733-737 (2003).

Robert Howse, "The Canadian Generic Medicines Panel – a Dangerous Precedent in Dangerous Times,"
Journal of World Intellectual Property (July 2000).

TRIPS Agreement Article 30 - Exceptions to Rights Conferred

It is interesting to note that the language of TRIPS Agreement Article 30, which relates to
patents, is in part based on Berne Convention Article 9(2), which actually governs copyrights. Thus, it is
no surprise that the conditions set forth in Article 30 are very similar to the conditions of the analogous
exception provision dealing with copyrights in Section 1 of Part II of the TRIPS Agreement, namely
TRIPS Agreement Article 13. Similar to the language in Article 30, Article 13 states as follows:
"Members shall confine limitations or exceptions to exclusive rights to certain special cases which do not
conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests
of the right holder." Article 13 was applied by the panel in U.S. - Copyright. For further discussion of the
standards contained in Article 13, see DSC for U.S. - Copyright (Panel). Moreover, similar limited
exception provisions are provided in TRIPS Agreement Articles 17 (trademarks) and 26.2 (industrial
designs).

TRIPS Agreement Article 27.1 - De Facto Discrimination

The Panel's discussion of de facto discrimination under TRIPS Agreement Article 27.1 is
noteworthy. The Panel asserted that de facto discrimination is comprised of two essential elements: 1)
empirical differential treatment ("discriminatory effect"), and 2) a discriminatory purpose based on the
measure's objective characteristics. The Panel did not provide much explanation of its basis for taking this
approach to the concept of de facto discrimination. It simply noted that these two elements are used in
"most legal systems" when applying the concept of de facto discrimination. However, the Panel's approach
appears to mirror the "so as to afford protection" analysis used by the Appellate Body under GATT Article
III:2, second sentence, one of the provisions applying the principle of national treatment.

This case was not appealed, so the Appellate Body did not have the opportunity to express an
opinion as to how de facto discrimination under TRIPS Agreement Article 27.1 should be judged. In the
GATT context, the Appellate Body has expressed different views, depending on the provision at issue,
about whether non-discrimination provisions require an examination of both discriminatory effect and
discriminatory purpose, so it is unclear how it would view the Panel's approach. For further discussion of

© 2001 WorldTradeLaw.net LLC 9

WorldTradeLaw.net DSC Canada - Pharmaceuticals (Panel)

the application of the core GATT "anti-discrimination" provisions, Articles I and III, see DSC for EC -
Asbestos (AB), DSC for Chile - Alcohol (AB), DSC for Japan - Alcohol (AB) and DSC for Canada - Autos
(AB).

Members' Representations/Pledges to the Panel

The Panel found that the regulatory review provision does not discriminate against
pharmaceutical products as compared to other fields of technology under TRIPS Agreement Article 27.1.
In its examination of whether the Canadian measure discriminates in a de jure manner (discrimination "in
law"), the Panel noted representations made to the Panel by the Canadian Government that, in fact, the
regulatory review provision is not limited to only pharmaceuticals. The Panel relied on these
representations in reaching its determination that the measure is not limited to pharmaceutical products,
warning that its finding would no longer be warranted if Canada's representations proved wrong.

The Panel's acceptance of the Canadian Government's pledge reflects the fact that in determining
the meaning of a domestic law, panels, to a certain degree, must rely on and respect the interpretations
offered by WTO Members. The panel in U.S. - Section 301 relied, in a similar manner, on "undertakings"
by the U.S. Government as to the manner in which the United States would interpret the measure at issue
in that case. See DSC for U.S. - Section 301 (Panel).

On the other hand, in India - Patents (U.S.), the panel, as upheld by the Appellate Body, refused
to accept representations made by the Indian Government as to the operation of its patent system and
commitments/pledges by the Indian Government that it would implement its system in conformity with
its WTO obligations. See DSC for India - Patents (AB). There are some critics who have questioned the
disparate treatment of the three governments' representations in these cases. However, a key
distinguishing factor that may help explain the different treatment may be that India's law contained a
mandatory requirement that its Patent Office violate WTO rules. As a result, the panel and the Appellate
Body considered that the WTO-inconsistent rules could, in theory, be enforced by Indian courts,
regardless of the pledges made by the Indian Executive to the panel. By contrast, the measures at issue in
Canada - Pharmaceuticals and U.S. - Section 301 both arguably provided the governments with the
discretion to carry out the rules in a WTO-consistent manner. As such, other branches of government
could not force the Executive to act in a WTO-inconsistent manner.

© 2001 WorldTradeLaw.net LLC 10