LETTING TIME SERVE YOU:  BOOT CAMPS AND ALTERNATIVE SENTENCING FOR FEMALE OFFENDERS


INFRINGING ON INVESTMENT: HOW ONE 
COMPANY IS USING INVESTMENT PROTECTIONS 

OF NAFTA TO SAVE ITS INTELLECTUAL 
PROPERTY 

Jillian Rabe 

I. INTRODUCTION

A. Eli Lilly v. Canada

In 1994, twenty years ago, the United States, Canada, and Mexico 
signed the North American Free Trade Agreement (“NAFTA”) into law.1 It 
had a number of goals, including the intent “to eliminate barriers of trade 
and investment between the United States, Canada and Mexico.”2 NAFTA 
has a number of provisions to achieve its goals, including decreasing the 
tariff between the three countries in order to increase trade.3 The decreasing 
tariff was intended to lower trade barriers with the hope of making 
consumer products cheaper.4 With respect to a number of consumer 
products, this hope was made into a reality.5 Importation from Mexican and 
Canadian factories without trade barriers made a number of goods, 
including automobiles, electronics, and clothing, cheaper in the United 
States.6  

However, there is one area of consumer products that did not achieve 
the hoped for price decline in the United States: the prescription drug 
industry. There is a long-held belief in the United States that prescription 
drugs are made available at cheaper prices in countries such as Canada 
because of the availability of generic drugs.7 While this may not always be 
true in the cases of some prescription drugs,8 there is a basis for this claim.9 

1 The North American Free Trade Agreement (NAFTA), BOUNDLESS (last accessed Feb. 12, 2014) 
https://www.boundless.com/marketing/textbooks/boundless-marketing-textbook/global-
marketing-7/important-international-bodies-and-agreements-54/the-north-american-free-trade-
agreement-nafta-266-4078/ [hereinafter NAFTA I]. 
2 Id. 
3 Id. 
4Amy Fontinelle, Pros and Cons of NAFTA, INVESTOPEDIA (Dec. 21, 2012), http://www. 
investopedia.com/financial-edge/1212/pros-and-cons-of-nafta.aspx. 
5 NAFTA I, supra note 1. 
6 Vincent Intondi, On the 20th Anniversary of NAFTA, HUFFINGTON POST, Nov. 3, 2013, available 
at http://www.huffingtonpost.com/vincent-intondi/nafta-immigration_b_4209250.html. 
7David Gross, Prescription Drug Prices in Canada, AARP PUBLIC POLICY INSTITUTE, 2009, 
http://assets.aarp.org/rgcenter/health/ib62_can_rx.pdf. 
8 While there are a number of reasons that Canadian pharmaceuticals may be cheaper than their 
American counterparts (including, but not limited to price caps and other restrictions, which are 

http://dx.doi.org/10.18060/7909.0031



572 IND. INT’L & COMP. L. REV. [Vol. 25:3 
 
Since 2005, Canadian courts have invalidated the patents of eighteen 
prescription drugs produced by a number of pharmaceutical companies due 
to its interpretation of the Canadian Patent Act.10 As the basis for their 
claim, Eli Lilly claims that Canada has unfairly invalidated two of its 
patents prior to their expiration date because the Canadian courts have 
started using this different interpretation of the Canadian Patent Act.11  

It is well recognized that patents play an important role in innovation, 
having been recognized since Ancient times. “In the ancient Greek city of 
Sybaris in about 500 B.C., [‘]encouragement was held out to all who should 
discover any new refinement in luxury, the profits arising from which were 
secured to the inventor by patent for the space of a year.[’]”12 Patents 
entered into English common law in 1449 when John of Utynam was 
granted one for a “twenty-year monopoly” for a new method of staining 
glass.13 This twenty-year period of exclusive rights to patented ideas has 
become the standard of today’s world, both in the United States and 
abroad14. However, some countries—such as Canada—have invalidated 
patents before this twenty-year period expires based on their interpretation 
of their respective Patent Acts despite the fact that the patents that were 
granted were supposed to be valid for the standard twenty-year period.15 

The importance of protecting patents is as vital to innovation today as 

                                                                                                                 
outside the scope of this paper), one reason is the effect of the Canadian Patent Act. The judicial 
interpretation has invalidated a number of American pharmaceutical patents before the patent was 
set to expire. When a company does not have to spend so much money on the research and 
development of a pharmaceutical, the product can be distributed at a cheaper rate than the original 
version of the drug. Michael Bihari, Why Are Medications Cheaper in Canada?, ABOUT.COM 
(Jan. 7, 2009) http://drugs.about.com/od/faqsaboutyourdrugs/f/Canada_ 
cheap.htm.  
9 Gross, supra note 7. 
10 Notice of Arbitration, Eli Lilly v. Canada (NAFTA 2013), ¶11, available at 
http://www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/disp-diff/eli-
03.pdf [hereinafter Notice of Arbitration]. 
11 Id. 
12 About Cybaris, CYBARIS INTELLECTUAL PROPERTY LAW REVIEW (last accessed Feb. 12, 2014), 
http://web.wmitchell.edu/cybaris/, citing CHARLES ANTHON, A CLASSICAL DICTIONARY:  
CONTAINING AN ACCOUNT OF THE PRINCIPAL PROPER NAMES MENTIONED IN ANCIENT AUTHORS, 
AND INTENDED TO ELUCIDATE ALL THE IMPORTANT POINTS CONNECTED WITH THE GEOGRAPHY, 
HISTORY, BIOGRAPHY, MYTHOLOGY, AND FINE ARTS OF THE GREEKS AND ROMANS TOGETHER 
WITH AN ACCOUNT OF COINS, WEIGHTS, AND MEASURES WITH TABULAR VALUES OF THE SAME 
1273 (Harper & Brothers 1841), available at http://books.google.com/books?id=3iQQAAA 
AYAAJ&oe=UTF-8. 
13 United Kingdom Patent Applications, LEXISNEXIS (last accessed Feb. 12, 2014), 
http://w3.nexis.com/sources/scripts/info.pl?278252.  
14 Gerald T. Bodner, U.S. Patent System Under GATT and NAFTA, BODNERROURKE.COM (last 
accessed Feb. 12, 2014), http://www.bodnerorourke.com/pdf/NAFTA.pdf. In the earlier days of 
the Republic, the United States granted patents for a period of seventeen years. However, the 
patent granting practice was modernized to twenty year period. Id. 
15 Patent Act, R.S.C., 1985, c.P-4, §44 available at http://laws-lois.justice.gc.ca/eng/acts/p-4/ 
[hereinafter Canadian Patent Act]. 



2015] INFRINGING ON INVESTMENT 573 
 
it was in Sybaris in 500 B.C. This is especially true in the realm of 
pharmaceuticals, where innovations can have exponential beneficial effects 
on the quality of life for individuals. In addition to the importance these 
pharmaceuticals have on the quality of life, they are also incredibly 
expensive to produce.16 Pharmaceutical companies argue that they spend 
hundreds of millions of dollars for research and development on each drug 
that they are able to market to the public.17 Patents are necessary for those 
companies to protect all of the money they invested in producing those 
drugs. Without them, the pharmaceutical companies may become hesitant 
to continue on the path of innovation.18  

Furthermore, companies need to have a way to enforce the patents 
that they have been granted. Normally, they have an enforcement 
mechanism in the form of the courts in the violator’s country under the 
protections of that country’s patent act. However, the Canadian courts have 
invalidated two of Eli Lilly’s patents that should have been protected by the 
Canadian Patent Act.19 In response to the court’s invalidation of its two 
pharmaceutical patents, Eli Lilly filed its most current Notice of Arbitration 
against the Government of Canada under NAFTA on September 12, 2013, 
seeking $500 million in damages for lost profits on the two drugs that were 
invalidated prior to their expiration date.20 

NAFTA contains an entire chapter on intellectual property that 
expands protection of patents.21 Eli Lilly’s claim asserting violations of 
Chapter 17’s intellectual property rights are used to support its basis for 
relief under Chapter 11’s investment protection from “unfair treatment.”22 
While it has been postured that Chapter 11 protections can be used to 

 
                                                                                                                 
16 Matthew Herper, The Cost Of Creating A New Drug Now $5 Billion, Pushing Big Pharma To 
Change, FORBES.COM (Aug. 11, 2013), available at http://www.forbes.com/sites/matthewherper/ 
2013/08/11/how-the-staggering-cost-of-inventing-new-drugs-is-shaping-the-future-of-medicine/. 
17 Id. 
18 Josh Bloom, Should Patents on Pharmaceuticals be Extended to Encourage Innovation?, 
WALL STREET JOURNAL (Jan. 23, 2012), available at http://online.wsj.com/news/harticles/ 
SB10001424052970204542404577156993191655000. 
19 See generally Eli Lilly v. Novopharm (Zyprexa), [2009] F.C. 1018 (Can.), available at 
http://decisions.fct-cf.gc.ca/site/fc-cf/decisions/en/item/57179/index.do [hereinafter Zyprexa 
2009]; Eli Lilly v. Novopharm (Zyprexa), [2010] F.C.A. 197 (Can.), http://decisions. 
fca-caf.gc.ca/site/fca-caf/decisions/en/item/36863/index.do[hereinafter Zyprexa 2010]; Eli Lilly v. 
Novopharm (Zyprexa), [2011] F.C. 1288 (Can.), http://decisions.fct-cf.gc.ca/site/fc-
cf/decisions/en/item/60137/index.do [hereinafter Zyprexa 2011]; Eli Lilly v. Novopharm 
(Strattera), [2010] F.C. 915 (Can), http://decisions.fct-cf.gc.ca/site/fc-
cf/decisions/en/item/58458/index.do [hereinafter Strattera 2010]. 
20 Notice of Arbitration, supra note 1, ¶85. 
21 Sharan Leslie Goolsby, Protection of Intellectual Property Rights under NAFTA, 4 NAFTA L. 
& BUS. REV. AM. 5, Fall 1998, 9. 
22 Notice of Arbitration, supra note 10, ¶13; Eli Lilly concedes in its complaint that a breach of 
Chapter 17 alone is not enough to support a Chapter 11 claim, but that it is a factor to consider. Id. 
at footnote 2. 



574 IND. INT’L & COMP. L. REV. [Vol. 25:3 
 
protect intellectual property rights,23 this marks the first time that a patent 
claim has been challenged through the use of investment protection.24 The 
lawsuit alone creates a number of issues for all NAFTA countries, and the 
result, regardless of which side wins, will create further problems that will 
have to be addressed moving forward, either through the amending of 
domestic laws or the amending of the trade agreement. It can also open a 
floodgate of litigation that can negatively impact the signatories of NAFTA 
because of the costs associated with defending against any future companies 
that may decide to make a similar claim. 

B. Issues 

This Note will start of by discussing background information on 
NAFTA. It will focus on the requirements to file a claim under both 
Chapter 17, the intellectual property provision, and Chapter 11, the foreign 
investment protection provision. The Note will then look at the history of 
the NAFTA claim that has been brought by Eli Lilly, including an analysis 
of the two lawsuits in the Canadian courts that led to the rise of Eli Lilly’s 
claim under NAFTA. It will also compare the difference between the 
interpretation of Canadian patent laws and their international counterparts, 
as one of the allegations is that Eli Lilly could not have been expected to 
anticipate such a strong departure from international norms when it the 
patents were first accepted.25  

Next, the Note will take an in-depth look at the Notice of Arbitration 
filed by Eli Lilly where the company claims that it is entitled to damages 
because Canada allegedly failed to meet its obligations under the foreign 

 
                                                                                                                 
23 See John Terry, Lou Ederer, and Jennifer A. Orange, Cross-Border NAFTA:  the first treaty to 
protect IP rights, INTELLECTUAL ASSET MANAGEMENT MAGAZINE (Jan. 2005); available at 
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CCc
QFjAA&url=http%3A%2F%2Fwww.torys.com%2FPublications%2FDocuments%2FPublication
%2520PDFs%2FAR2005-1NT.pdf&ei=L976UuWOO-
qq2wW0s4DoBg&usg=AFQjCNEiytUQKt0EGO4w8I5RjhOlc_ErUw&sig2=IwxsZzQsZN7u7
NiOcR6t6g. 
 (Experts suggest that Canadian internet pharmacies selling drugs produced in the United States 
and shipped to Canada for sale before being exported back to American buyers violates Chapter 
11 because the pharmaceuticals “are not being granted the full protection and security under 
Canadian law.” However, this issue has not been arbitrated under the North American Free Trade 
Agreement.) 
24 See generally NAFTA Investor-State Arbitrations, U.S. DEPARTMENT OF STATE, 
http://www.state.gov/s/l/c3439.htm [hereinafter Investor-State Arbitrators]. As of the last time the 
Department of State’s website was updated, there was no Chapter 11 claim against any NAFTA 
member for violating patent protections except for Eli Lilly’s claim against Canada; See also 
North American Free Trade Agreement – Chapter 11 – Investment, FOREIGN AFFAIRS, TRADE, 
AND DEVELOPMENT CANADA, http://www.international.gc.ca/trade-agreements-accords-
commerciaux/topics-domaines/disp-diff/nafta.aspx.   
25 Notice of Arbitration, supra note 10, ¶65. 



2015] INFRINGING ON INVESTMENT 575 
 
investment provision of the North American Free Trade Agreement. 
Analyzing Chapter 11, the Note will discuss how an investor can prove 
unfair treatment and whether Eli Lilly has met its burden of proof with the 
current claim which focuses on the discrimination of the pharmaceutical 
industry as a whole with regards to the protection of intellectual property 
rights under the current judicial interpretation of the Canadian Patent Act. It 
will also discuss the general repercussions of the filing of the suit along 
with the additional consequences depending on which party wins the claim. 

Finally, this Note will discuss how and why the claim should be 
decided in favor of the government of Canada and the policy reasons 
supporting the government of Canada in this case. It will argue that Canada 
should not be held liable for the $500 million that Eli Lilly is seeking for 
the two patents that were invalidated prior to their expiration date because 
Eli Lilly has not made a sufficient claim against the government of Canada 
for unfair treatment under NAFTA’s Chapter 11. It will discuss any 
ramifications that this decision may have on both the international 
community and the innovation and production of drugs in the 
pharmaceutical industry. Additionally, it will recommend how the NAFTA 
signatories can attempt to protect themselves from further litigation under 
Chapter 11.  

II. HISTORY/BACKGROUND 

A. NAFTA 

1. Background of NAFTA 

On January 1, 1994, NAFTA was launched, and the final policies 
were implemented on January 1, 2008.26 The general goal of NAFTA was 
to increase trade among the signatories by decreasing trade and investment 
barriers.27 The NAFTA signatories had the hope of lowering prices for the 
consumer goods in Canada, Mexico, and the United States.28 Among a 
number of other, more specific goals, NAFTA was established to “ensure a 
predictable commercial framework for business planning and investment” 
and “foster creativity and innovation, and promote trade in goods and 
services that are the subject of intellectual property rights.”29 These 

 
                                                                                                                 
26 Andrea Ford, A Brief History of NAFTA, TIME, Dec. 30, 2008, available at 
http://content.time.com/time/nation/article/0,8599,1868997,00.html. 
27 NAFTA I, supra note 1. 
28 Id. 
29 See generally North American Free Trade Agreement, U.S.-Can.-Mex., preamble, Dec. 17, 
1992, 32 I.L.M. 289 (1993), available at http://www.worldtradelaw.net/nafta/preamble.pdf 
[hereinafter NAFTA II]. 



576 IND. INT’L & COMP. L. REV. [Vol. 25:3 
 
intellectual property protections fall under Chapter 17 of NAFTA30, and the 
passage of the North American Free Trade Agreement expanded the 
protection of intellectual property rights to an unprecedented level.31   

NAFTA has a number of other provisions, including the protection of 
foreign investments under Chapter 11.32 If it meets all of the requirements 
for bringing a claim under Chapter 11, an investor – a company in this 
instance – may bring a NAFTA claim against one of the signing states even 
if the claim stems from a violation of the provisions designed to protect 
intellectual property rights.33 As will be discussed below, the violation of 
the intellectual property provisions must show unfair treatment in addition 
to whatever Chapter 17 violation occurred.34 

The concept of NAFTA was in circulation long before NAFTA went 
into effect. On an international scale, as opposed to the regional scale of 
NAFTA, the General Agreement on Trade and Tariffs (“GATT”) was in 
effect from 1948 to 1994.35 It also had a goal of increasing trade by 
lowering tariffs.36 In 1995 the World Trade Organization replaced GATT.37 
On a more regional level, President Ronald Reagan spoke of a North 
American trade agreement while campaigning in 1979, fifteen years before 
NAFTA came into existence.38 In 1989, the Canada-United States Free 
Trade Agreement, the precursor to the North American Free Trade 
Agreement, was signed into law as an agreement between the United States 
and Canada.39  

In Eli Lilly v. the Government of Canada, two chapters of NAFTA 
come into play. First, Chapter 17 is necessary to mention as the violations 
of intellectual property protection partially gave rise to the claim because 
Eli Lilly alleges that the discrimination against the pharmaceutical industry 
is indicative of a potential Chapter 11 claim.40 Second, the notice of 
arbitration was filed under the investment protections under Chapter 11.41 
Eli Lilly alleges that the pharmaceutical industry in general, and the 
company specifically, was treated unfairly under Chapter 11 because of the 
discrimination the pharmaceutical industry faces with regards to how the 
interpretation of the Canadian Patent Act affects the treatment of their 

 
                                                                                                                 
30 See generally id. at ch. 17. 
31 Goolsby, supra note 21, at 9. 
32 See generally NAFTA II, supra note 20, at ch. 11.  
33 Terry, supra note 23. 
34 Id. 
35 Bodner, supra note 14. 
36 Id. 
37 Id. 
38 Ford, supra note 26. 
39 Ford, supra note 26. 
40 Notice of Arbitration, supra note 10, ¶66. 
41 Id.  ¶3. 



2015] INFRINGING ON INVESTMENT 577 
 
pharmaceutical patents.42 

2. Chapter 17 

Chapter 17 of NAFTA sets forth intellectual property protection 
requirements for the signatories. It requires Canada – along with Mexico 
and the United States – to grant patents for inventions that “are new, result 
from an inventive step and are capable of industrial application.”43 This is 
the usefulness requirement that was at issue in the two cases that led to Eli 
Lilly’s NAFTA claim. The chapter further states that a country “may revoke 
a patent only when: (a) grounds exist that would have justified a refusal to 
grant the patent.”44 The provisions for granting and invalidating patents 
under the North American Free Trade Agreement are greatly expanded 
beyond what some of the individual countries had previously operated 
under, allowing for more patents to be granted.45 The protection of those 
patents was also supposed to be expanded, but that desired effect may not 
be extended to all of the industries that have been issued patents in 
Canada.46 

NAFTA has a number of provisions relating to intellectual property 
that include Chapter 17, Articles 2003-21, Annex 2004, and Articles 2106-
07.47 NAFTA creates the "highest standards of protection and enforcement 
so far achieved by U.S. negotiators."48 Chapter 17 creates the bare 
minimum of intellectual property protection, but individual countries are 
allowed to create domestic laws that provide even more protection if they so 
choose.49 Any additional protections that a country invokes must be 
extended to the other two countries under 1703.50 However, they are not 
permitted to lower the standards of intellectual property protection.51 Eli 
Lilly is claiming that the judicial interpretation of the Canadian Patent Act 
had, in fact, lowered the standards of intellectual property protection, at 
least with regard to the drugs patented by the pharmaceutical industry.52 

The “bare minimum” of protection includes protecting all intellectual 
property rights, a phrase that is defined broadly under 1703.53 With regard 
to patents, NAFTA has imposed the “first to invent” law of the United 
 
                                                                                                                 
42 Id. ¶66. 
43 NAFTA II, supra note 20, at art. 1709(1).  
44 Id. at art. 1709(8).  
45 Goolsby, supra note 21, at 13-14. 
46 Notice of Arbitration, supra note 10, ¶11 (eighteen patents invalidated since 2005). 
47 Goolsby, supra note 21, at 10-11. 
48 Id. at 9. 
49 Id.at 3. 
50 Id. 
51 Id. 
52 Notice of Arbitration, supra note 10, ¶¶10-12. 
53 See NAFTA II, supra note 29, at art. 1721(2). 



578 IND. INT’L & COMP. L. REV. [Vol. 25:3 
 
States54 onto Canada and Mexico.55 Canada and Mexico had previously 
been under a first-to-file system.56 This means at the time of this lawsuit, 
the first person to conceptualize an invention in the United States, Canada, 
or Mexico can receive the patent if that person shows proof that they were 
working on it, even if that person was the second to file for the patent in the 
patent office.57 “Canada and Mexico recognize that evidence of invention 
must be subject to U.S. discovery proceedings to the same extent as if the 
acts occurred in the United States.”58 This has the possibility of giving 
Canadian and Mexican inventors priority that they may not have had before 
NAFTA went into effect as inventors in countries previously applying first 
to file.59 Under the previous laws of Canada and Mexico, evidence of being 
the first to start working on an invention had no bearing on who received 
the patent.60 In those countries, the first to effectively file for a patent 
received the patent regardless of whether that person was the first to start 
working on that particular invention.61 

Violations of Chapter 17’s intellectual property provision can occur in 
a number of ways.62 Violation of the intellectual property provision 
includes the discrimination by one of the treaty signatories against a 
particular industry.63 One of the bases for Eli Lilly’s claim is that the 
interpretation of the Canadian Patent Act discriminates against the 
pharmaceutical industry in violation of Chapter 17.64  

General dispute resolutions are expressly permitted under Annex 
2004.65 The intellectual property provision of NAFTA provides for “a 
dispute-settlement procedure with trade related sanctions and, in some 

 
                                                                                                                 
54 First Inventor to File, USPTO.GOV (last visited Feb. 12, 2014), http://www.uspto.gov/aia_ 
implementation/faqs_first_inventor.jsp [hereinafter First to File].  (In 2011, the United States 
passed legislation that would change the patent system from first to invent to first to file. The 
change went into effect on March 16, 2013. This change puts the United States more in line with 
how the rest of the world determines who will be granted a patent as most countries operate under 
a first to file system.  The effect of the changes in patent legislation on NAFTA intellectual 
property provisions is beyond the scope of this note.) Id. 
55 NAFTA II, supra note 29, at art. 1709. 
56 Goolsby, supra note 21, at 56. 
57 Bodner, supra note 14. 
58 Goolsby, supra note 21, at 56, citing Report of the Industry Functional Advisory Committee for 
Trade in Intellectual Property Rights on the North American Free Trade Agreement, Sept. 11, 
1992. 
59 Id. 
60 First to File, supra note 54 (explaining the difference between first to invent and first to file). 
61 Id. 
62 Most violations of NAFTA’s Chapter 17 are outside of the scope of this Note. 
63 Mike Palmedo, Eli Lilly Formally Requests Arbitration Against Canada Under NAFTA in 
Dispute Over Drug Patents, INFOJUSTICE.ORG (Sept. 16, 2013), http://infojustice.org/archives/ 
30694 [hereinafter Palmedo]. 
64 Id. 
65 Goolsby, supra note 21, at 11. 



2015] INFRINGING ON INVESTMENT 579 
 
cases, damages payable to intellectual property holders, to provide effective 
recourse against infringements of intellectual property rights.”66 Those 
damages, however, are presumably less than the damages Eli Lilly is 
seeking through the use of the foreign investment protection provisions of 
NAFTA.   

NAFTA also allows enforcement beyond what is normally permitted 
by Chapter 17.67   

[G]eneral enforcement provisions in Chapters 11 and 20 
apply to the enforcement of intellectual property rights. 
Chapter 20 provides a procedure for one state party to bring 
a complaint against another, to be settled by means of a 
specified dispute resolution process. Chapter 11 allows a 
private investor to bring a claim directly against a NAFTA 
state party.68 

However, just because there is a violation under Chapter 17 does not 
mean there is automatically a claim for damages under Chapter 11.69 There 
are additional requirements to prove a Chapter 11 claim. 

3. Chapter 11 

NAFTA’s Chapter 11, the section of the trade agreement under which 
Eli Lilly is seeking damages, protects foreign investments from unfair 
practices. Specifically, “Article 1105 requires that the [signatory’s] 
investments of [United States] investors . . . be granted full protection and 
security under the [signatory’s] law.”70 NAFTA tends to define investments 
rather broadly, including most property and business interests.71 The 
Chapter 11 provisions even specifically include intangible property (i.e., 
patents) rights in the definition of investment.72 The main thing that will 
exclude a NAFTA claim is if an investor is trying to bring a claim against 
its own government for harm done in that territory.73 

NAFTA’s Chapter 11 has traditionally been used when a statute or 
policy of one of the signatories unfairly discriminates against a company or 
individual of one of the other two signatories in favor of its domestic 

 
                                                                                                                 
66 Terry, supra note 23. 
67 Id. 
68 Id. 
69 Id. 
70 Id. 
71 NAFTA Claim Information, NAFTACLAIMS.COM (last visited Nov. 3, 2014), 
http://www.naftaclaims.com/claim-info.html [hereinafter NAFTA Claims]. 
72 Terry, supra note 23. 
73 NAFTA Claims, supra note 71. 



580 IND. INT’L & COMP. L. REV. [Vol. 25:3 
 
alternative.74 Claims generally arise from the protectionist nature of those 
policies and how they harm the foreign party.75 Under that interpretation, it 
is a different type of discrimination than Chapter 17, which includes a 
provision about discrimination against a specific industry when choosing to 
invalidate patents.76 While intangible property is protected under Chapter 
11, a violation of the intellectual property protections of Chapter 17 does 
not automatically mean that there is a violation under Chapter 11.77 “For a 
rights holder to establish that a state party has infringed Chapter 11, it must 
establish a breach of one of the provisions of Chapter 11, such as 
discrimination, unfair or inequitable treatment not in accordance with 
international law, or expropriation without compensation.”78 

When NAFTA claims are brought under Chapter 11, an international 
tribunal is established with three members chosen by the investor bringing 
the claim and the NAFTA party being sued.79 After arguments by the 
investor and three NAFTA countries (should the other two choose to 
intervene on behalf of one side80), the tribunal will write a decision called 
the award.81 If a NAFTA signatory is found in breach, it will be ordered to 
pay damages.82 NAFTA tribunals are not allowed to recommend that a 
signatory change its laws.83 

Between the time of its creation and 2010, sixty-four Chapter 11 
foreign investment claims were filed for arbitration.84 Of those cases that 
have concluded, NAFTA parties have won fifteen times and the foreign 
entities have won nine times.85 Of those cases in which Canada was a party, 
the government has won three times while the investors have won in four 
instances.86 

B. How this claim arose 

In the 1990s, Canada granted patents protecting Eli Lilly’s 

 
                                                                                                                 
74 See generally Investor-State Arbitrators, supra note 24. 
75 Id. 
76 Palmedo, supra note 63. 
77 Id. 
78 Terry, supra note 23. 
79 NAFTA Claims, supra note 71. 
80 Id. (All three NAFTA signatories are allowed to make an argument on behalf of one side or the 
other.  However, it is not required that they address the tribunal.) 
81 Id. 
82 Id. 
83 Id. 
84Table of NAFTA “Chapter 11” Foreign Investor-State Cases and Claims November 2010, 
PUBLIC CITIZEN (Nov. 2010), https://www.citizen.org/documents/NAFTA_Investor_State_Chart_ 
Nov_2010.pdf [hereinafter Table]. 
85 Id. 
86 Id. 



2015] INFRINGING ON INVESTMENT 581 
 
pharmaceutical products, Strattera and Zyprexa.87 The patents should have 
been valid for the standard twenty-year period.88 However, “[a Canadian] 
Federal Court decision in 2010 invalidated Eli Lilly's patent for Strattera 
(atomoxetine), a drug used to treat attention deficit hyperactivity disorder 
(ADHD), six years before it was due to expire.”89 Canadian federal courts 
also made “decisions in 2009 and 2011 [that] voided the patent for Zyprexa 
(olanzapine), an anti-psychotic drug used to treat schizophrenia, which was 
to expire in April 2011.”90 The patent had been originally granted in 1991 
and it, too, had been anticipated to have the standard twenty-year patent 
protection.91 The reasoning for invalidating the patents was similar in all of 
the written judgments.92 In both cases, there was an attempt to appeal to the 
Supreme Court of Canada, which was denied.93 

Both of these lawsuits were brought against a Canadian 
pharmaceutical company specializing in generic drugs.94 Both of these 
drugs had been deemed effective and safe by Health Canada and had been 
used by “hundreds of thousands of patients in Canada and are commercially 
successful products.”95 Yet, both of their patents were invalidated, allowing 
the generic company to manufacture similar pharmaceuticals legally 
without spending as much money on developing the drugs.96 

In November 2012, Eli Lilly announced that it would be making a 
NAFTA claim against the Canadian government under the unfair treatment 
investment protection of NAFTA’s Chapter 11.97 The original complaint 
was for “$100 million in compensation for the Straterra decision.”98 In June 
2013, Eli Lilly amended the complaint after the Zyprexa case was decided 
and “upped the compensation demand to $500 million after the Supreme 
Court refused to hear its final appeal of the Zyprexa decision in May.”99 Eli 
Lilly is essentially using a NAFTA tribunal to appeal the decisions of the 
 
                                                                                                                 
87 Notice of Arbitration, supra note 10, ¶2.  
88 Canadian Patent Act, supra note 15, §44. 
89 Kazi Stastna, Eli Lilly Files $500M NAFTA Suit Against Canada Over Drug Patents, CBC 
NEWS, (Sept. 13, 2013, 11:57 PM), http://www.cbc.ca/news/business/eli-lilly-files-500m-nafta-
suit-against-canada-over-drug-patents-1.1829854. 
90 Id. 
91 Canadian Patent Act, supra note 14, §44. 
92 See generally Zyprexa 2009, supra note 19; Zyprexa 2010, supra note 19; Zyprexa 2011, supra 
note 19; and Strattera 2010, supra note 19. 
93 Notice of Arbitration, supra note 11, ¶21. 
94 See generally Zyprexa 2009, supra note 19; Zyprexa 2010, supra note 19; Zyprexa 2011, supra 
note 19; Strattera 2010, supra note 19. 
95Notice of Arbitration, supra note 11, ¶2. 
96 Ranit Mishori, Why Are Generic Drugs Cheaper Than Brand-Name Ones?, WASH. POST (Jul. 
11, 2011), http://www.washingtonpost.com/national/health-science/why-are-generic-drugs-
cheaper-than-brand-name-ones/2011/07/05/gIQAwZdL9H_story.html. 
97 Notice of Arbitration, supra note 11, ¶19. 
98 Stastna, supra note 89. 
99 Id. 



582 IND. INT’L & COMP. L. REV. [Vol. 25:3 
 
Canadian federal courts. 

1. Cases at issue 

The Canadian Court System is, in relevant parts, structurally similar 
to the court system of the United States. It has local courts that make 
original decisions that can be appealed to an appellate court and, if granted 
review, to the national Supreme Court.100 Much like the judiciary of the 
United States, the Canadian judiciary is separate from the executive and 
legislative branches.101 “Judicial independence is a cornerstone of the 
Canadian judicial system.”102 This means that Canadian judges are free to 
interpret the laws passed by the legislature however they choose. As such, 
they have the ability to introduce new doctrines into common law through 
statutory interpretation. The doctrine at issue in Eli Lilly’s lawsuit against 
Canada is what Eli Lilly refers to as the “Promise Doctrine,” which will be 
discussed below. 

a. Zyprexa 

In 2009, the first case at issue was brought in front of a federal court. 
Eli Lilly had sued the Canadian generic pharmaceutical company 
Novopharm for patent infringement for the drug Zyprexa.103 Novopharm 
had begun to produce a generic version of Zyprexa in violation of the patent 
protections.104 Novopharm even conceded that “if the [ ] patent is valid, it is 
infringing it by marketing a generic version of olanzapine.”105 Therefore, 
Novopharm challenged the validity of the patent and won.106 After an 
appeal and a remand, the patent was ultimately invalidated by the Canadian 
courts in 2011.107 The federal judge provided three principles to analyze: 

1.   There must be a substantial advantage to be secured or 
disadvantage to be avoided by the use of the selected 
members. 
2.   The whole of the selected members (subject to “a few 
exceptions here and there”) [must] possess the advantage in 

 
                                                                                                                 
100 How the Courts are Organized, DEP’T OF JUSTICE CANADA, http://www.justice.gc.ca/eng/csj-
sjc/ccs-ajc/page3.html (last visited Nov. 17, 2014) [hereinafter Court Organization]. 
101 Keeping the System Fair and Efficient, DEP’T OF JUSTICE CANADA, http://www.justice.gc.ca/ 
eng/csj-sjc/ccs-ajc/page4.html (last visited Nov. 17, 2014). 
102 Id.    
103 Zyprexa 2009, supra note 19, ¶1 (The patent was approved in Canada in 1998.). 
104 Id. 
105 Id. ¶11. 
106 Id. ¶13. 
107See generally Zyprexa 2010, supra note 19; Zyprexa 2011, supra note 19 (remand and appeal 
cases). 



2015] INFRINGING ON INVESTMENT 583 
 

question. 
3.   The selection must be in respect of a quality of a special 
character peculiar to the selected group. If further research 
revealed a small number of unselected compounds 
possessing the same advantage, that would not invalidate 
the selection patent. However, if research showed that a 
larger number of unselected compounds possessed the 
same advantage, the quality of the compound claimed in 
the selection patent would not be a special character.108 

These principles are used to determine whether the patent meets the 
usefulness requirement of the Canadian Patent Act.109 In assessing the claim 
that the patent was invalid, the judge took the following steps: 

[First] is to decide whether one or more of the asserted 
advantages of olanzapine was known to exist, or was 
soundly predicted, at the time the [olanzapine] patent was 
filed in 1991. Second, I must decide whether at least one of 
them could be considered a substantial advantage over the 
[similar] compounds and somewhat peculiar to olanzapine. 
And, if so, the third question is whether the disclosure of 
that substantial and special advantage in the [olanzapine] 
patent was adequate. If I decide any one of them in the 
negative, I must find the [olanzapine] patent to be 
invalid.110 

After reviewing the evidence brought forth by both Eli Lilly and 
Novopharm, the judge in that case determined that “some of the assertions in 
the [olanzapine] were hopeful. They were based on too little evidence to be 
factual contentions or even sound predictions of olanzapine’s alleged 
advantages.”111 Because the patent did not have the advantage that it had 
alleged in its patent application, the judge ultimately decided to invalidate the 
patent.112 When reviewed by the Canadian appellate court this decision was 
upheld.113 

b. Strattera 

In 2010, the Canadian courts invalidated the patent for the drug 

 
                                                                                                                 
108 Zyprexa 2009, supra note 19, ¶48. 
109 Canadian Patent Act, supra note 14, §2 (at ‘invention’). 
110 Zyprexa 2009, supra note 19, ¶55. 
111 Id. ¶ 153. 
112 Id. 
113 See generally Zyprexa 2010, supra note 19. 



584 IND. INT’L & COMP. L. REV. [Vol. 25:3 
 
Strattera, which is used to treat attention deficit hyperactivity disorder.114 
This case was brought by Novopharm. Novopharm asserted “that as an 
interested party115 it [was] entitled to bring this proceeding.”116 Novopharm 
argued for the Strattera patent to be invalidated and void on the grounds of 
inutility.117 In this case, the Canadian federal judge had to decide if the drug 
met the usefulness requirement of the patent act by doing what Eli Lilly 
promised it would do:118  

. . . it is sufficient utility to support a patent that the 
invention gives either a new article, or a better article, or a 
cheaper article, or affords the public a useful choice. . . . If 
when used in accordance with the directions contained in 
the specification the promised results are obtained, the 
invention is useful in the sense in which that term is used in 
patent law. The question to be asked is whether, if you do 
what the specification tells you to do, you can make or do 
the thing which the specification says that you can make or 
do.119 

 Under this interpretation of utility, a mere hypothesis that the 
patent will do what is promised is not enough.120 The patent must at least 
partially do what the filer “promised” to do in order to meet the utility 
requirement.121   

The doctrine of sound prediction has three 
components.  Firstly, as here, there must be a factual basis 
for the prediction. . . . Secondly, the inventor must have at 
the date of the patent application an articulable and “sound” 
line of reasoning from which the desired result can be 
inferred from the factual basis. . . . Thirdly, there must be 
proper disclosure.  Normally, it is sufficient if the 
specification provides a full, clear and exact description of 
the nature of the invention and the manner in which it can 

 
                                                                                                                 
114 Strattera 2010, supra note 19, ¶2. 
115 Strattera 2010, supra note 19, ¶3. Prior to this proceeding, Novopharm filed a new drug with 
Health Canada (the Canadian department in charge of, among other things, determining if 
pharmaceuticals are allowed to be marketed in the country), making it an interested party.  
Interested parties are allowed to bring claims in Canadian courts. 
116 Id. 
117 Id. 
118 Id. ¶91. 
119 Id. 
120 Id. ¶92. 
121 Id. 



2015] INFRINGING ON INVESTMENT 585 
 

be practised . . . It is generally not necessary for an inventor 
to provide a theory of why the invention works.  Practical 
readers merely want to know that it does work and how to 
work it. In this sort of case, however, the sound prediction 
is to some extent the quid pro quo the applicant offers in 
exchange for the patent monopoly. Precise disclosure 
requirements in this regard do not arise for decision in this 
case because both the underlying facts (the test data) and 
the line of reasoning (the chain terminator effect) were in 
fact disclosed, and disclosure in this respect did not become 
an issue between the parties.  I therefore say no more about 
it.  
It bears repetition that the soundness (or otherwise) of the 
prediction is a question of fact. Evidence must be led about 
what was known or not known at the priority date, as was 
done here. Each case will turn on the particularities of the 
discipline to which it relates. In this case, the findings of 
fact necessary for the application of “sound prediction” 
were made and the appellants have not, in my view, 
demonstrated any overriding or palpable error.122 

That court looked at the evidence presented by Eli Lilly and 
determined that, although it had enough utility to get approval for 
distribution, Eli Lilly did not produce enough evidence to show that 
Strattera did what the patent promised it would do:123 

An invention is only useful if it does what the inventor 
claims it will do. In this case the requirement of utility 
would be met if, at the Canadian filing date of the ’735 
Patent, there was sufficient evidence that atomoxetine was 
clinically useful in treating some patients with ADHD or, 
alternatively, that such efficacy could be soundly 
predicted. That was, after all, what the ’735 Patent offered - 
an effective treatment for ADHD - and that was the 
consideration required of Lilly for the monopoly it 
claimed. Proof of utility in this context does not, however, 
equate with the evidence required to obtain regulatory 
approval.124 

The court thus invalidated the patent because it did not meet the utility 

 
                                                                                                                 
122 Id. 
123 Id. ¶93. 
124 Id. 



586 IND. INT’L & COMP. L. REV. [Vol. 25:3 
 
requirement required by the Canadian Patent Act.125 

According to the Canadian Patent Act, inventions must be “new and 
useful . . . composition of matter, or any new and useful improvement in 
any . . . composition of matter.”126 The Canadian courts have since 
interpreted that to mean usefulness under what Eli Lilly refers to as the 
“Promise Doctrine.”127 It is this “Promise Doctrine” for utility that led to 
the invalidation of the patents for both Zyprexa and Strattera, along with 
other patents in the pharmaceutical industry.128 Under this interpretation, 
patents are treated to a higher standard than what they were in the past.129 
The judiciary created three main steps that a patent must pass through in 
order to be valid.130 

First, a judge subjectively construes the “promise of the patent.”131 
Second, a heightened evidentiary standard for proof of utility is applied, 
which requires that the “promised” utility either be “demonstrated” by the 
patentee or be based on a “sound prediction” of utility as of the date of 
filing.132 Third, with regard to “sound prediction,” a heightened disclosure 
requirement mandates that evidence establishing utility must have been 
disclosed in the original patent application.133 

2. Canadian interpretation vs. other interpretations 

The United States has a much more liberal interpretation of 
usefulness. According to the United States Manual of Patent Examining 
Procedure, “[a] small degree of utility is sufficient” for protection.134 
Courts have interpreted usefulness to allow for further research so as to 
incentivize research and development.135 In its cases against Novopharm, 
Eli Lilly argued for a similar standard for determining utility under the 
Canadian Patent Act.136 The company suggested that it only needed to 
show a "mere scintilla of utility."137 The judge conceded that if he or she used 

 
                                                                                                                 
125 Id. ¶122. 
126 Canadian Patent Act, supra note 14, §2‘invention.’ 
127 Notice of Arbitration, supra note 11, ¶3. 
128 Id. ¶4-13 
129 Id. ¶9. 
130 Id. ¶36 
131 Id. 
132 Id. 
133 Id. 
134 US Manual of Patent Examining Procedure §2107.01, USPTO.GOV, http://www.uspto.gov/ 
web/offices/pac/mpep/s2107.html#d0e198682 (last visited Nov. 17, 2014), citing E.I. du Pont De 
Nemours and Co.v.Berkley and Co., 620 F.2d 1247, 1260 n.17, 205 USPQ 1, 10 n.17 (8th Cir. 
1980). 
135 Id. 
136 Strattera 2010, supra note 19, ¶93. 
137 Id. 



2015] INFRINGING ON INVESTMENT 587 
 
the American standard argued by Eli Lilly, that patent would have been 
valid.138 “If that phrase means only that atomoxetine be shown to be 
somewhat useful to treat ADHD, I accept Lilly's point.”139 However, the 
Canadian courts opted to require a higher standard for usefulness in order for 
the patents to be valid.140 

Usefulness in patent law, and particularly in the context of 
pharmaceutical inventions, necessarily includes the expectation of further 
research and development.141 “The stage at which an invention in this field 
becomes useful is well before it is ready to be administered to humans.”142 
“Were we to require Phase II testing in order to prove utility, the associated 
costs would prevent many companies from obtaining patent protection on 
promising new inventions, thereby eliminating an incentive to pursue, 
through research and development, potential cures in many crucial areas 
such as the treatment of cancer.”143 

The United States courts that looked at the Strattera patent affirmed it, 
saying that the mere fact that there was a clinical trial was enough to prove 
the usefulness of the patents.144 According to the NAFTA complaint, 
Zyprexa has been challenged and upheld throughout the world, including in 
the United States, United Kingdom, Australia, Germany, Netherlands, 
Austria, Czech Republic, Russia, Portugal, Hungary, Romania, Slovakia, 
China, Finland, Norway, Spain, Bulgaria, and Korea.145  

Eli Lilly asserts that, with regard to both drugs, Canada is the only 
country to have overturned these patents.146 This weighs into their 
allegation that Canada’s patent law goes against international norms and is 
in violation of NAFTA’s intellectual property provisions in Chapter 17.147 

In addition to the allegation that Canada’s interpretation is different 
than most interpretations, Eli Lilly’s claim goes further to state that the 
current interpretation is an unpredictable departure from what it was when 
NAFTA was signed and when the patents were applied for.148 This is the 
premise of part of their claim for expropriating investments and treating 
them unfairly.149 In fact, Eli Lilly continues to say that, due to the unique 
nature of pharmaceuticals and the uncertainty associated with drugs when 
patents are first applied for, the pharmaceutical industry is discriminated 
 
                                                                                                                 
138 Id. 
139 Id.  
140 Id. 
141 In re Brana, 51 F.3d 1560, 1568 (Fed. Cir. 1995). 
142 Id. 
143 Id. 
144 Eli Lilly & Co. v. Actavis Elizabeth LLC, 435 F. App’x 917, 923 (Fed. Cir. 2011). 
145 Notice of Arbitration, supra note 11, ¶65. 
146 Id. 
147 Id. 
148 Id. ¶9. 
149 Id. ¶4. 



588 IND. INT’L & COMP. L. REV. [Vol. 25:3 
 
against when compared to other types of patent holding industries.150 

III. ANALYSIS 

A. Eli Lilly v. Canada 

Eli Lilly has claimed that by implementing a different utility rule than 
the standard at the time NAFTA was signed and contrary to international 
norms, “Canada has expropriated Claimant’s investments, including in 
particular its patent rights in both Strattera and Zyprexa, and has failed to 
provide Lilly with fair and equitable treatment as required under NAFTA 
Article 1105.”151 

There are some in the field that believe that this dispute will turn on 
the question of whether or not Eli Lilly can prove discrimination from other 
companies based on location of the company.152 However, Eli Lilly’s claim 
is not that it was put into a disadvantageous state when compared to other 
companies, but rather that the “Promise Doctrine” Canada’s judiciary used 
when interpreting patent law is discriminating against the pharmaceutical 
industry as a whole when compared to other industries receiving patents.153 
That claim is a valid one. All of the eighteen patents that have been 
invalidated under the “Promise Doctrine” interpretation of Canada’s Patent 
Act have been pharmaceuticals.154   

Chapter 17 of NAFTA states that, “patents shall be available and 
patent rights enjoyable without discrimination as to field of technology,”155 
and Canada may only revoke a patent on grounds that would have justified 
a refusal to grant the patent in the first instance.156 The law supports the 
contention that the way of interpreting patents in Canada falls below the 
standard required by NAFTA as evidenced by the fact that the only patents 
to be invalidated have been from the pharmaceutical industry.157 Thus, the 
interpretation of the Canadian Patent Act has discriminated against the 
pharmaceutical industry. Their complaints regarding Chapter 17’s 
intellectual property therefore is enough to be legitimate one. 

However, in order to reach the damages prayed for in the notice of 
arbitration, Eli Lilly’s success turns not on the ability of the company to 
prove a breach in the intellectual property section, but rather the company’s 
 
                                                                                                                 
150 Notice of Arbitration, supra note 10, ¶12. 
151 Id. ¶13. 
152 Simon Lester, Eli Lilly NAFTA Chapter 11 Claim – Part 3, INTERNATIONAL ECONOMIC LAW 
AND POLICY BLOG (Dec. 12, 2012) , http://worldtradelaw.typepad.com/ielpblog/2012/12/eli-lilly-
nafta-chapter-11-claim-part-3.html  
153 Palmedo, supra note 63. 
154 Notice of Arbitration, supra note 10, ¶13. 
155 NAFTA II, supra note 29, at art. 1709(7) & (8). 
156 Id.  
157 Notice of Arbitration, supra note 10, ¶13. 



2015] INFRINGING ON INVESTMENT 589 
 
ability to prove that Canada breached its Chapter 11 investment protection 
obligation.158 “It must establish a breach of one of the provisions of 
Chapter 11, such as discrimination, unfair or inequitable treatment not in 
accordance with international law, or expropriation without 
compensation.”159  

1. Unfair Treatment 

NAFTA standards set the definition for unfair treatment based on “the 
customary international law minimum standard of treatment for aliens” as 
the minimum standard to be allowed for the investments of investors of 
another NAFTA signatory.160 “[I]t states that the concept of fair and 
equitable treatment does not require treatment beyond that required by the 
customary international law minimum standard of treatment.”161 “In Neer 
v Mexico 4 R Int'l Arb Awards (Oct 15 1926), it was held in order to 
meet that standard, a plaintiff is required to show that a country’s conduct is 
‘so far short of international standards that every reasonable and impartial 
man would readily recognize its insufficiency.’”162  

This “minimum standard” is a relatively high standard to meet 
because an investor must prove that a NAFTA signatory’s laws and policies 
deviate so grossly from the international norm that every reasonable and 
impartial man can tell that the law or policy is inherently unfair. Since the 
NAFTA provisions went into effect twenty years ago, only nine investors 
have been able to prove such a strong deviation from the international norm 
and recover damages under Chapter 11.163 

2. Expropriation of Investments  

Eli Lilly has also claimed that the judicial rulings interpreting 
Canada’s Patent Act equate to an expropriation of investments.164 While 
nationalization of a sector or seizure of an asset is indicative of 
expropriation, the idea extends beyond that to include “actions tantamount 
to expropriation.”165 This includes “incremental acts attributable to the state 

 
                                                                                                                 
158 Terry, supra note 23, at 2. 
159 Id. 
160 Anna Kirk, et al., NAFTA Tribunal Considers Fair and Equitable Treatment, PRACTICAL LAW, 
Apr. 21, 2012 http://us.practicallaw.com/1-502-0785?q=&qp=&qo=&qe=. 
161 Id. 
162 Id. 
163 Table, supra note 84. 
164 Notice of Arbitration, supra note 10, ¶4. 
165 Latham & Watkins, Guide to International Arbitration, LW.COM, 28 (last accessed Feb. 12, 
2014), http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja& 
uact=8&ved=0CEkQFjAC&url=http%3A%2F%2Fwww.lw.com%2FthoughtLeadership%2Fgui
de-to-international-arbitration-2014&ei=ecY-



590 IND. INT’L & COMP. L. REV. [Vol. 25:3 
 
that unreasonably interfere with an investment to such a degree that the 
investor is essentially deprived of its fundamental rights of ownership.”166 
While the claim invalidating the patents may affect property rights, Eli Lilly 
still maintains an ownership right over the specific drug. The interpretation 
of Canada’s Patent Act is not “tantamount to expropriation.”167 Therefore, 
that argument should fail. 

3. Discrimination 

Finally, Eli Lilly claims that the invalidation of its patent was 
discrimination. When interpreting discrimination, the standard is that the 
“host state treat investors no less favourably [sic] than it treats its own 
nationals or the nationals of any third state (also known as ‘most-favoured-
nation’ or ‘MFN’ treatment).”168 As previously stated, Eli Lilly points to 
absolutely no cases in which similarly situated Canadian pharmaceutical 
companies were treated more favorably than it was.169 It also fails to note 
any instances where a foreign company making generic pharmaceuticals 
were treated less favorably than Novapharm was in the two cases that 
invalidated Eli Lilly’s patents.170 

4. Whether Eli Lilly properly stated a claim under Ch. 11 

This case will most likely turn on whether Eli Lilly has sufficiently 
proven that they were treated unfairly when compared to the treatment of a 
similarly situated domestic company.171 As the claim currently stands, 
Canada meets the minimum standard of fair and equitable treatment 
because Eli Lilly has failed to prove that a reasonable and impartial man 
could tell that the “Promise Doctrine” is inherently unfair to the company as 
an investor. In its current complaint, Eli Lilly has failed to even show that it 
was treated less fairly than a domestic investor.172 If it cannot even show 
that it was treated less fairly than a domestic investor, Eli Lilly cannot show 
that Canada’s policy fails to meet NAFTA’s minimum standard of “the 
customary international law minimum standard of treatment for aliens.”173 

Eli Lilly fails to note a single case where a foreign company was 

                                                                                                                 
VIjuK8ywyAT2wIDIBw&usg=AFQjCNFSkbg1_6nFnJF_Rx7K6L0i8ZDVDA&bvm=bv.77412
846,d.aWw.  
166 Id. 
167 Id. 
168 Id. at 29. 
169 Notice of Arbitration, supra note 10, at 24-25. 
170 Id. 
171 Lester, supra note 152. 
172See generally Notice of Arbitration, supra note 10 (Complaint fails to allege a specific instance 
where a foreign pharmaceutical company was treated less favorably than a domestic one). 
173 Kirk, supra note 160. 



2015] INFRINGING ON INVESTMENT 591 
 
treated less favorably than a domestic one under the “Promise Doctrine.”174 
Canadian courts are using the same standard when looking at all patents, 
regardless of the country of origin of the patent holder. If there is any basis 
for a discrimination claim, it comes in the form of discrimination against 
the industry, not discrimination with regards to country of origin. It fails to 
fall “so far short of international standards that every reasonable and 
impartial man would readily recognize its sufficiency.”175  

Eli Lilly is unable to prove discrimination, unfair or inequitable 
treatment not in accordance with international law. Its strongest case is 
expropriation without compensation, but it will most likely fail there as 
well. While Eli Lilly’s patent may have been invalidated, it still maintains 
an ownership interest in the drug through its ability to sell the 
pharmaceutical in Canada. 

Because Canada meets reasonable international standards for its 
treatment of foreign investors, the Canadian government should not be 
liable under the foreign investment chapter of NAFTA. Furthermore, in 
addition to the insufficiency of Eli Lilly’s claim, public policy supports 
finding in favor of Canada and against Eli Lilly. 

5. Arbitration 

Arbitration is a binding form of dispute resolution.176 Arbitration 
tribunals are expected to make decisions based on applicable law as 
opposed to what one may consider “fair.”177 The tribunal chosen in this 
case should decide that Canada has met its obligations under Chapter 11. 
However, in the interest of equity, Eli Lilly may receive the damages it is 
entitled to due to the violations of the intellectual property provisions. The 
relief may not be the entirety of what was prayed for in the notice of 
arbitration because of the lack of Chapter 11 remedies, but it will still 
receive some relief. 

B. Effect of decision if decided against Canada 

In the event that Eli Lilly is successful and the case is decided against 
NAFTA, there are a number of consequences that would challenge both 
Canada and the other NAFTA member states. It would force a sovereign 
nation to change its patent laws and possibly lead to more litigation, both 
against Canada and the other NAFTA member states. While the prayer for 
relief in the current litigation is $500 million, the possibility of future 

 
                                                                                                                 
174 See generally Notice of Arbitration, supra note 10. 
175 Kirk, supra note 160. 
176 Latham & Watkins, supra note 165, at 1. 
177 Id. 



592 IND. INT’L & COMP. L. REV. [Vol. 25:3 
 
litigation can cost Canada, Mexico, and the United States even more.178 
Whenever a government is a party to the suit, the cost of litigation is 
inevitably passed onto its citizens through taxes. This means that the 
citizens of Canada will have the ultimate burden of paying to defend the 
litigation in addition to paying for any damages that Eli Lilly would be 
entitled to if it won. 

1. Effectively forces a change in the laws of a sovereign nation 

Because the current issue stems from the judiciary’s interpretation of 
utility that has become a part of its common law, the legislature would have 
to amend the language in its patent legislation to define utility in a way that 
is more cohesive with the international community’s outlook on what utility 
means. Without any changes to Canada’s current Patent Act, Canada’s 
judiciary would be free to continue interpreting utility under the so-called 
“Promise Doctrine.” Any future patents that could be invalided without a 
change in the legislation could create a large burden on Canadian taxpayers 
if other pharmaceutical companies seek similar damages for unfair 
treatment. The best way to insulate itself from future litigation under 
NAFTA’s Chapter 11 would be to change its current laws, regardless of 
how the tribunal decides this particular case. 

When most treaties are signed, it is with the anticipation that the other 
signatories will continue to legislate in a way that conforms to the 
provisions of the treaty. However, NAFTA tribunals are expressly 
forbidden from recommending that the signatories change their laws.179 
Yet, if Eli Lilly were to succeed in its claim, it would effectively require 
Canada to amend its current Patent Act. As their Patent Act is currently 
interpreted, it is possible that future patents, particularly pharmaceutical 
patents, may be invalidated in the future in a manner similar to how the 
patents in this dispute were invalidated. Should Eli Lilly win and Canada 
not make any changes to its current law, there is a possibility that other 
companies will follow in Eli Lilly’s footsteps and file substantially similar 
claims under NAFTA even after it went through the traditional judicial 
process in the Canadian courts.   

2. Burden on taxpayers for the individual lawsuit 

Eli Lilly is seeking “not less than CND $500 million” in damages for 
the early invalidation of their two drugs.180 It is also seeking “full 

 
                                                                                                                 
178 Palmedo, supra note 63. The $500 million figure only includes the prayer for relief. It does not 
include any of the costs associated with defending the claim. Id.  
179 NAFTA Claims, supra note 71. 
180 Notice of Arbitration, supra note 10, ¶85. 



2015] INFRINGING ON INVESTMENT 593 
 
professional fees”181 which would add hundreds of thousands of dollars to 
the case that has already been in process for years.182 The government will, 
most likely, also be expending hundreds of thousands of dollars in 
defending against the claim.183 While it is possible that Canada has 
attempted to insure itself from this sort of liability,184 the cost associated 
with litigation will be funded by the state. Furthermore, it is possible that 
any insurance Canada may have does not adequately cover the value of the 
claim. If this is the case, any excess damages would have to be paid by the 
Canadian government as well. The burden of paying for government 
expenditures is placed onto the taxpayers of the state. Every taxpayer, 
regardless of whether or not they would have ever used one of the two drug 
patents invalidated, would have to pay their share of the litigation despite 
the fact that the invalidation of those patents was most likely anticipated to 
decrease the cost to the consumers of those pharmaceuticals.185 

This burden of litigation costs rises exponentially if similarly-situated 
pharmaceutical companies follow Eli Lilly’s route and raises Chapter 11 
NAFTA claims against Canada. It is possible that the owners of the 
remaining sixteen186 patents that were invalidated under Canada’s “Promise 
Doctrine” may choose to pursue Chapter 11 NAFTA claims if it sees that 
the claim was effective for Eli Lilly.  

3. Opens up the Canadian government to more similarly-situated 
lawsuits from other pharmaceutical companies 

Even by filing this notice of arbitration, Eli Lilly may have exposed 
the government of Canada to further NAFTA lawsuits. Eli Lilly has met its 
burden of proof under the intellectual property protections of Chapter 17, 
and may be entitled to remedies based on that chapter alone. Other 
companies, seeking some relief for the invalidation of their patents, may 
choose to follow suit if the remedy is enough. 

 
                                                                                                                 
181 See generally id. ¶85. 
182 See generally Eli Lilly v. Canada (NAFTA 2013), available at 
http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-
diff/eli.aspx?lang=eng (Showing that the first notice under NAFTA was in 2012 and that further 
work has been done since that initial filing, including a notice of arbitration and a memorial). 
183 Palmedo, supra note 63. 
184 Gerald R. Gibbons, Liability Insurance and the Tort Immunity of State and Local 
Governments, 1959 DUKE L.J. 588, 588 (1959). 
185 This is evidenced by the fact that the party seeking the invalidation of the patents, Novopharm, 
is a producer of generic pharmaceuticals that can distribute drugs at a much cheaper cost than 
original producers, effectively lowering the costs to consumers. 
186 A total of eighteen pharmaceutical patents were invalidated under the “Promise Doctrine.” 
Notice of Arbitration, supra note 10, ¶13. Subtracting the two patents at issue in this NAFTA 
claim, there are an additional sixteen patents that had invalidated that could be litigated in a similar 
manner should the patent holders decide to follow in Eli Lilly’s footsteps. 

http://dx.doi.org/10.2307/1371306


594 IND. INT’L & COMP. L. REV. [Vol. 25:3 
 

If Eli Lilly were to be successful in its NAFTA claim against the 
government of Canada, it has the possibility of opening up a floodgate of 
litigation for all three signatories of NAFTA, particularly in Canada where 
eighteen pharmaceutical patents have been invalidated under the Canadian 
courts’ “Promise Doctrine.”187 Depending on exactly how the case is 
decided, the filing of the claim alone could lead to an increase in litigation. 
If it is decided against Eli Lilly based solely on the insufficiency of the 
claim, it could cause other companies that have had patents invalidated 
attempt to use this form of litigation to achieve compensation using similar 
tactics with a materially different facts—for example, suggesting that some 
law or policy discriminated against the country of origin of the patent 
holder as opposed to the industry—in order to claim damages under 
Chapter 11.  

Some companies may simply threaten to make a claim against Canada 
for Chapter 11 NAFTA violations in hopes of getting better protection of 
their patents.188 Those companies that threaten Canada with a NAFTA 
claim may also be doing so in hopes of expediting any damages that they 
think they are entitled to with the thought that Canada may not want to have 
to defend against this type of litigation again.189  

If Eli Lilly were to win the case, however, it would incentivize even 
more companies to go after Canada with similar claims. Any patent holder 
that had a patent invalidated would have the ability to claim that it had been 
treated unfairly under the Canadian laws. The potential liability for the 
government of Canada—and thus the Canadian taxpayers—would be 
almost limitless. Should each of the remaining invalidated patents lead to 
similar lawsuits, the government would be forced to spend hundreds of 
thousands of dollars in both defending the allegations in addition to the lost 
profit damages for invalidating the patent early and attorneys’ fees. If all of 
the companies whose patents were invalidated seek compensation from 
Canada under NAFTA, it would also take hundreds of hours for 
government attorneys to prepare a defense for all of the potential lawsuits, 
taking them away from other needs of their jobs.   

4. Possibly opens up other NAFTA countries (Mexico and United 
States) to similar claims 

Similar to the increasing liability on the government of Canada, the 
governments of Mexico and the United States will be subject to a possible 
increase in litigation stemming from the invalidation of patents by foreign 
companies in the name of unfair treatment in investment. Though the claim 
 
                                                                                                                 
187 Notice of Arbitration, supra note 10, ¶13. 
188 Terry, supra note 23, at 2. 
189 Id. 
 



2015] INFRINGING ON INVESTMENT 595 
 
is based entirely on Canadian courts’ interpretations of utility, similar 
claims could be used against Mexico and the United States any time the 
patent is invalidated for that reason. Even if patents are legitimately 
invalidated or denied,190 a patent holder or applicant may attempt to follow 
Eli Lilly’s route and make a NAFTA claim against the invalidating country 
by claiming that it was treated unfairly. 

Even though Canada is the only NAFTA signatory with a “Promise 
Doctrine,” Mexico and the United States both have utility as a requirement 
to receive a patent.191 Without the so-called “Promise Doctrine” that has 
been interpreted in Canadian laws, it is more difficult for patents to be 
invalidated.192 However, it is possible for patents to be invalidated for lack 
of utility.193 If there is any hint of disparity between the utility analysis of a 
foreign inventor’s patent being declined and a domestic one being accepted, 
the logical conclusion is that a similar lawsuit could be raised under similar 
grounds that Eli Lilly has used.194 Even if the invalidation of a patent or 
declination of an application is legitimate, there is still the possibility that 
the holder or applicant may try to use a Chapter 11 NAFTA to “claim 
substantial damages for an alleged infringement.”195 Much like in the 
current case between Canada and Eli Lilly, any future claims—regardless of 
whether or not the claims are legitimate—against NAFTA signatories could 
cost the country being sued hundreds of thousands of dollars in legal fees in 
addition to whatever relief being prayed for by the inventor. 

C. If decided against Eli Lilly 

In addition to the aforementioned consequences associated with the 
case being decided in favor of Eli Lilly, there are also a number of 
consequences associated with deciding this case against Eli Lilly. Policy 
reasons behind patent protection have been well established around the 
world. One of the most important policies of patent protection is 

 
                                                                                                                 
190 For the purposes of this Note, the phrase “legitimately invalidated of denied” is used to 
describe a patent application that is either not granted or invalidated because it does not meet even 
the most liberal utility standards and would thus be either invalidated or not granted in the vast 
majority of jurisdictions. 
191 See generally Ley de la Propiedad Industrial [Law of Industrial Property], Diario Oficial de la 
Federacion [DO], 09-04-2012 (Mex), available at http://www.diputados.gob.mx/LeyesBiblio/ 
pdf/50.pdf; see generally U.S. Patent Act, 35 USC §§ 1 – 376 (2014). 
192 Id. 
193 See generally Zyprexa 2009, supra note 19; Zyprexa 2010, supra note 19; Zyprexa 2011, supra 
note 19; Strattera 2010, supra note 19. 
194 However, this would be true regardless of whether or not Eli Lilly wins; the process of filing 
the NAFTA claim has created the possibility that other holders of invalidated patents will use this 
approach or declined applications. 
195 Terry, supra note 23, at 2. 



596 IND. INT’L & COMP. L. REV. [Vol. 25:3 
 
encouraging innovation.196 Without patent protection, there is a possibility 
that companies may begin to discourage innovation.197  

Furthermore, this could create a burden on the citizens of Canada 
when it comes to obtaining necessary drugs at reasonable prices. There are 
instances of pharmaceuticals being unavailable in Canada,198 and it is 
possible that the continuing invalidation of pharmaceutical patents may 
further limit the ability of Canadians to get the pharmaceuticals that are 
necessary to achieve their desired quality of life. 

1. Harming innovation 

One of the largest concerns with patent invalidation is the chilling 
effect it can have on the invention process. Patents have historically played 
an important part in innovation.199 Without patent protection, it is possible 
for non-inventors to steal the ideas of true inventors and profit off of 
them.200 When the ability to profit off of inventions becomes impaired, it 
has the potential to discourage innovation.201 Without patents, inventors 
may see innovation as a waste of time, resources, and effort.202 This may be 
particularly true in the pharmaceutical industry where the costs of creating a 
marketable drug can be astronomical.203 Enforcing patents provides more 
incentive for inventors to work, thus making them more willing to share 
their work with society.204 This incentive is extremely important with 
regard to pharmaceuticals as improvements in development relate directly 
to improvements in the health and welfare of society.205 

“The innovative pharmaceutical sector relies upon patent protection 
as the cornerstone of bringing innovative medicines to market.”206 The 
protection of pharmaceutical patents and the “accompanying guarantee of 
market exclusivity provide a critical economic incentive to invest in drug 
development.”207 Pharmaceutical companies argue that it costs hundreds of 
millions—if not billions—of dollars to bring a new pharmaceutical product 

 
                                                                                                                 
196 Aaron B. Thalwitzer, Patent Protection:  Why Are Patents Important?, TACTICAL IP (Jul. 11, 
2011) http://tacticalip.com/2011/07/11/patent-protection-why-are-patents-important/.  
197 Bloom, supra note 18. 
198 William McArthur, Prescription Drug Costs:  Has Canada Found the Answer?  NAT’L 
CENTER FOR POL. ANALYSIS (May 19, 2000), http://www.ncpa.org/pub/ba323. 
199 Thalwitzer, supra note 196. 
200 Id.  
201 Id. 
202 Id.  
203 Herper, supra note 16. 
204 Thalwitzer, supra note 196. 
205 In re Brana, 51 F.3d, at 1568 (illustrating the importance of pharmaceutical innovation with 
regards to curing cancer). 
206 Notice of Arbitration, supra note 10, ¶1. 
207 Id. 



2015] INFRINGING ON INVESTMENT 597 
 
to the market.208 These costs include the cost of development from the trial 
and error of various chemical combinations until it finds the best chemical 
combination that might have the desired effect.209 Once it has spent all of 
the time, effort, and money on finding a suitable chemical combination, the 
pharmaceutical company must engage in an array of testing before it is 
deemed fit for human consumption.210 This testing may lead to an issue 
with the drug that needs to be addressed, leading to more trial and error and 
more testing.211 Once it has completed testing the new drugs and the new 
drugs have been deemed safe for human consumption, the pharmaceutical 
company that produces the drugs must then spend money marketing the 
drug to potential consumers.212  

Eli Lilly claims that for each of its pharmaceuticals, including the two 
drugs involved in this dispute, “bringing an innovative medicine to market 
today involves an average investment of $1 billion or more.”213 The goal of 
all for-profit companies, such as Eli Lilly, is to receive the maximum 
revenue. This means that the patents have to be effective enough to prevent 
another company from marketing a chemically identical drug at a cheaper 
price after re-creating the generic drug from the original drug. Generic 
pharmaceutical companies do not invest as much money into creating a new 
product,214 so they can sell the new product at a lower price,215 effectively 
pushing the original drug out of the market and lowering the profits 
available to the original producer of the drug. 

2. Current difficulty in obtaining prescription drugs in Canada may 
increase 

When thinking about Canada and prescription drugs together, many 
Americans would say that prescription drugs are cheaper in Canada than 
they are in the United States.216 With respect to a number of prescription 
drugs this is a logical conclusion.217 There are a number of anecdotes about 
how prescription drugs can cost as much as fifty percent less in Canada than 
they do in the United States.218 This is because Canada has, among a 
number of policies relating to health care, placed a cap on the price of some 
prescription drugs that lowers how much a company can charge consumers 
 
                                                                                                                 
208 Herper, supra note 16. 
209 Id.  
210 Id.  
211 Id.  
212 Id. 
213 Notice of Arbitration, supra note 10, ¶1. 
214 Mishori, supra note 96. 
215 Id. 
216 Bihari, supra note 8. 
217 Id. 
218 Id. 



598 IND. INT’L & COMP. L. REV. [Vol. 25:3 
 
for their pharmaceutical products.219 However, not all pharmaceutical 
companies accept that price cap and the companies opt simply to not market 
certain pharmaceuticals in Canada.220  

One of the largest concerns that must be discussed is how the NAFTA 
decision will affect the availability of prescription drugs in Canada. Under 
current circumstances, “a large numbers of Canadians come to the United 
States to buy drugs because so many drugs are not available at any cost in 
Canada.”221 Should the case be decided against Eli Lilly, the 
pharmaceutical company and others that are similarly situated may decide 
that some drugs are not worth marketing in Canada because there is no 
guarantee that it can make a profit after it spent so much money developing 
the drug. Considering the importance of pharmaceuticals with regards to 
health and quality of life, this could cause great harm to Canadian citizens 
as an increased number of drugs become unavailable in the country. 

Furthermore, “[w]hile some drugs do cost less in Canada, others 
don't.”222 There are a large number of drugs that cost more in Canada than 
they do in the United States. “Canada has been unable to hold down the 
overall cost of . . . prescription drugs.”223 If it faces the continued threat of 
patent invalidation, Eli Lilly and other pharmaceutical companies may 
attempt to raise the price of their prescription drugs to accommodate the 
increased risk associated with selling in Canada. This will create a further 
increase in cost of obtaining necessary drugs in Canada and could harm 
Canadians in the long run. 

IV. RECOMMENDATION 

The recommendation is split up into two parts. First, the NAFTA 
tribunal should decide the case against Eli Lilly so that the government of 
Canada is not liable for the invalidation of the patents. This is because of 
both the failure to prove unfair treatment under NAFTA’s Chapter 11 and 
also because public policy slightly favors Canada over Eli Lilly. Second, 
there are ways in which Canada (and the other two NAFTA signatories) can 
attempt to insulate themselves from further litigation, including taking 
proactive steps to amend current legislation to best avoid future accusations 
of unfair treatment under their respective Patent Acts. 

 
                                                                                                                 
219 Id. 
220 McArthur, supra note 198. 
221 Id. 
222 Id. 
223 Id. 



2015] INFRINGING ON INVESTMENT 599 
 
A. Why the claim should be decided for Canada (or, if a decision comes 
down, why it should have been) 

Canada has a number of good defenses against Eli Lilly’s claim. First, 
Eli Lilly’s complaint is insufficient to grant relief to the company because it 
fails to prove unfair treatment that meets the standard set by NAFTA. 
Second, public policy—being forced to change its laws, the burden on the 
taxpayers, and the possible floodgate of litigation that would be faced by 
Cana—favor deciding the case in favor of Canada instead of Eli Lilly. 

1. Insufficiency of the claim 

There are several issues with Eli Lilly’s claim as it currently stands. 
Eli Lilly has claimed unfair treatment because of the nature of the 
judiciary’s proceedings.224 However, in the claim itself Eli Lilly has failed 
to meet its standard of proof—that Canada’s treatment of Eli Lilly’s 
investment fell “so far short of international standards that every reasonable 
and impartial man would readily recognize its insufficiency.”225 There is no 
showing that Canada is treating Eli Lilly unfairly in comparison to other 
companies. There is no suggestion that domestic entities are being treated 
better than the Eli Lilly or any other foreign producer. Eli Lilly failed to 
suggest that a Canadian patent holder had a patent treated more favorably 
on this alleged “Promise Doctrine.”226 It also failed to suggest that 
Canadian owned generic companies were more successful in challenging 
the validity of patents than foreign-owned companies making similar 
challenges.227 

The claim, however, is enough to prove that Canada’s law was a 
violation of the Intellectual Property protections provided by NAFTA. Eli 
Lilly’s claim sufficiently argued that the “Promise Doctrine” discriminated 
against the pharmaceutical industry as a whole in violation of NAFTA’s 
intellectual property protections in Chapter 17.228 As mentioned above, 
showing an intellectual property violation is not indicative of a violation of 
the foreign investment protections provided by NAFTA.229 Therefore, 
while the claim was sufficient for the damages provided by Chapter 17,230 
there is not enough evidence to entitle Eli Lilly to the $500 million (plus 
costs) that it seeks under Chapter 11. 

 
                                                                                                                 
224 Intondi, supra note 6. 
225 Kirk, supra note 160. 
226 See generally Notice of Arbitration, supra note 10. 
227 See generally id.  
228 Palmedo, supra note 63. 
229 Terry, supra note 23, 2. 
230 Palmedo, supra note 63. 



600 IND. INT’L & COMP. L. REV. [Vol. 25:3 
 

2. Public Policy Considerations 

There are a number of public policy considerations that weigh in 
favor of Canada. First and foremost is the importance of allowing a country 
to continue to make its own laws. The burden on the taxpayer and the threat 
of future litigation, which goes hand in hand with the laws of the country, 
are also important matters. 

The ability of a country to determine its own laws is a well-
established right. Canadian patent laws had to be amended dramatically to 
reach the heightened standards for protection negotiated with the United 
States and Mexico.231 In compliance with 1703,232 the Canadian legislature 
has not significantly amended its patent laws in this respect since NAFTA 
was signed. It was neither an act of the legislature nor an order from an 
executive that led to the change in interpretation. The judiciary made a 
decision—independent of the legislative and executive branches—that is 
expected to be respected. 

As discussed above, the Canadian courts have an independent ability 
to interpret the laws that the legislature has passed.233 Unfortunately, this 
has lowered the standard expected under Chapter 17 of NAFTA.234 A 
violation of Chapter 17, however, is not enough to succeed in an investment 
protection claim.235 While the change may be required to avoid future 
litigation under Chapter 17,236 it should not be the result of a Chapter 11 
claim as the standard arises under a different chapter than the claim. 
Furthermore, as NAFTA tribunals are not even allowed to recommend that 
a signatory change its laws,237 a decision that effectively requires Canada to 
change its patent laws238 would go against the policies of NAFTA. 

Effectively requiring that change in legislation would also make 
Canada more vulnerable to other Chapter 11 claims or threats of claims. 
The cost of defending each of the possible claims outweighs the potential 
harm done if Canada wins. While there is the slight chance that it will harm 
innovation, it unfathomable to think that Eli Lilly or any other 
pharmaceutical company will stop trying to produce new drugs. Even the 

 
                                                                                                                 
231 Goolsby, supra note 21, at 59-60. 
232 NAFTA II, supra note 20, at art. 1703. 
233 Court Organization, supra note 100. 
234 See generally NAFTA II, supra note 20, at art. 1703. 
235 Notice of Arbitration, supra note 10, at 16 n.2. 
236 See generally Goolsby, supra note 21 (citing Report of the Industry Functional Advisory 
Committee for Trade in Intellectual Property Rights on the North American Free Trade 
Agreement, Sept. 11, 1992.); Any ramifications of an IP violation claim is beyond the scope of 
this Note. 
237 NAFTA Claims, supra note 71. 
238 When I say a decision effectively requires a country to change its laws, it is a decision that 
states that Eli Lilly has a valid claim under Chapter 11 and is entitled to damages under the foreign 
investment clauses. 



2015] INFRINGING ON INVESTMENT 601 
 
possibility of restricting access to pharmaceuticals in Canada to a greater 
extent than it already is unlikely. Because the risks associated with a 
decision in favor of Canada are smaller than the social costs associated with 
an Eli Lilly victory, public policy suggests that Canada should win. 

B. How NAFTA signatories may protect themselves from Ch. 11 IP claims. 

There are a number of ways for NAFTA signatories to protect 
themselves from investment claims brought under Chapter 11 for 
invalidations of patents held in one of the other two countries. First, as the 
basis for unfair treatment is the protection of a domestic entity at the 
expense of a foreign entity, countries can do their best to ensure that all 
patents—regardless of the nationality of the owner—are inspected with the 
same standards. If there is no deviation and each entity has its patent 
examined with the same standards of every other entity’s patents, there can 
be no claim for unfair treatment. 

As a last resort, one that appears to be relatively unnecessary provided 
that it follows the aforementioned advice and does not treat a foreign entity 
differently from a domestic entity, a signatory may choose to change its 
laws. Amending its laws does not equate to admitting fault, so the change 
will not make them liable for future claims set up the same way as Eli 
Lilly’s. The important difference to note between this recommendation and 
a reason for holding against Eli Lilly is that any change that occurs would 
be because it was the choice of the Canadian legislatures and not because it 
was forced to change its laws to comply with a treaty. 

V. CONCLUSION 

NAFTA has a number of goals, and it also encompasses the intent “to 
eliminate barriers of trade and investment.”239 NAFTA has a number of 
provisions to achieve its goals, including decreasing the tariff between the 
three countries to increase trade.240 Among these provisions are Chapter 
17’s intellectual property provisions, which expanded the protections of 
patents beyond what had existed in Canada and Mexico,241 and Chapter 
11’s foreign investments provisions, which protect against unfair treatment 
of a signatory against an investor.242 It is possible to use intellectual 
property violations in support of a violation of the foreign investment 

 
                                                                                                                 
239 NAFTA I, supra note 1. 
240 Id. 
241 Goolsby, supra note 21 (citing Report of the Industry Functional Advisory Committee for 
Trade in Intellectual Property Rights on the North American Free Trade Agreement, Sept. 11, 
1992, at 15). 
242 See generally NAFTA II, supra note 20, at Ch. 11. 



602 IND. INT’L & COMP. L. REV. [Vol. 25:3 
 
provisions, but certain requirements must be met.243  

While an innovative way to bring a lawsuit, Eli Lilly will ultimately 
fail on the sufficiency of the claim. The claim does not support a violation 
of minimum standard of “the customary international law minimum 
standard of treatment for aliens.”244 The claim fails to show any sign that 
Canada’s domestic pharmaceutical companies have been favored over 
foreign pharmaceutical companies. Even if the claim was sufficient, there 
are significant policy reasons that would support the government of Canada 
over Eli Lilly in this case, including the cost—both monetarily and 
temporarily—in getting bogged down in litigation.   

It is for those reasons that Canada should not be liable to Eli Lilly for 
the prayed relief of $500 million dollars. However, this litigation shows a 
warning that, if it can prove the foreign investment standards, a patent 
holder may have a legitimate claim against a NAFTA signatory for 
violations of Chapter 11 when a patent is invalidated. The claim in this case 
is insufficient, but it is possible that another company might have a stronger 
claim than Eli Lilly does in this case. If that should happen, the country 
defending the complaint may be liable for damages under NAFTA’s 
Chapter 11 for failure to protect the foreign investment of a patent. All 
NAFTA signatories should be wary of this possibility and should keep it in 
mind when drafting any amendments to their current patent laws or if courts 
begin to read in more stringent requirements.   

 

 
                                                                                                                 
243 Terry, supra note 23, at 2. 
244 Kirk, supra note 160.