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Made-in-Canada supply chain for COVID-19 medical equipment runs IP risks, lawyers warn

Medtronic CEO Omar Ishrak at the 2016 Consumer Electronics Show in Las Vegas in January 2016.
Medtronic CEO Omar Ishrak at the 2016 Consumer Electronics Show in Las Vegas in January 2016. David Paul Morris/Bloomberg via Getty Images
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As Ottawa tries to source more supplies to combat the COVID-19 crisis within Canada’s borders, manufacturers across the country are retooling idle factories to make personal protective and medical equipment. But even in these extraordinary circumstances—and despite the federal government’s emergency powers letting it override patents—legal experts warn that companies are putting themselves at risk if they’re infringing on others’ intellectual property.

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Talking Point

Canadian manufacturers are pivoting to produce personal protective and medical equipment as Ottawa tries to procure more domestic supplies to fight the COVID-19 pandemic. But while the federal government has given itself new powers to circumvent patents to combat the public health emergency, lawyers say they may need other IP assets and should be careful not to infringe them.

In early April, Ottawa announced orders for up to 30,000 ventilators and millions of surgical masks from new domestic suppliers. “There’s strain and stress on our global supply chains,” said Innovation Minister Navdeep Bains. “That’s why we’re also looking at made-in-Canada solutions that [use] domestic sourcing, as well.”

The government’s emergency legislation modifies the Patent Act so it can choose a third-party manufacturer to make and sell a patented invention, although the IP holder must be notified and paid compensation. “The classic example would be if there was a drug that was seen as the treatment [for COVID-19] and they didn’t want to pay through the nose for it,” said Nathaniel Lipkus, a partner focusing on biotech at Osler, Hoskin & Harcourt. “[If] there was a patent, then they would compel a licence.” The same principle could apply to masks or ventilators. 

Some emerging economies have imposed similar rules or limited extended protections for expensive cancer or AIDS drugs. But Lipkus said it’s “extremely rare—it’s a nuclear option in terms of what the bargain is with industry.” 

Véronique Simard, Bains’s press secretary, said the government respects patent rights. “To date, we have not had to exercise this authority,” she said, referring to the new powers under the Patent Act. “However, if needed, these amendments ensure that there is a mechanism in place to facilitate an urgent response.”

Even if the federal government does choose to use the Patent Act provisions, companies still need other IP assets to be able to successfully produce personal protective or medical equipment, according to Natalie Raffoul, managing partner at Ottawa-based law firm Brion Raffoul. “That doesn’t access the know-how [or] the trade secrets,” she said. “We’re not necessarily getting the whole bundle of rights to be able to build [that equipment].” 

Take a mask, for example. Canada currently gets all its U.S.-made N95 respirators—masks that are crucial for health-care workers interacting with COVID-19 patients—from Minnesota-based 3M, Politico Pro reported. In early April, the Trump administration briefly blocked the company’s exports, requisitioning the supplies for domestic use, before reaching a deal with Ottawa.

The N95 is a standard for filtration administered by the U.S. National Institute for Occupational Safety and Health (NIOSH), not a specific model of 3M mask. NIOSH doesn’t list any patents that are required to meet that standard, although Lipkus said companies may have IP protections on particular components or specifications. “3M, for example, has a patent that is not expiring anytime soon on a nose clip,” he said. 

But other parts of the mask may be protected. Last week, 3M sued New Jersey-based Performance Supply for patent infringement, alleging it tried to sell masks with the former’s trademark to New York City at inflated prices. Raffoul said a retooled manufacturer can’t simply mimic another company’s design because it could be covered by registered industrial designs, while replicating instruction sets may put a firm at risk of copyright infringement. Or it could have a chemical coating, the specific formulation of which is a trade secret. 

Asked whether Bains was concerned about IP risks to new Canadian manufacturers of medical supplies, the minister’s office pointed to the Patent Act changes. “We are not currently considering amending other intellectual property statutes,” said Simard. “We continue to closely monitor the marketplace and stand ready to respond should a need for further action arise.”   

The government has moved to increase domestic supplies of the respirators. Its Strategic Innovation Fund will award Pointe-Claire, Que.-based Medicom an as-yet-undetermined sum to set up its first Canadian mask facility by July, which will produce up to 50 million N95s and surgical masks annually. The company already makes the respirators overseas. “We do not have patents on our N95 masks, but we do have trademarks for our brand names and have experience and know how that result in design files and quality standards to meet government regulations,” said Gayle Padvaiskas, Medicom vice-president of marketing. The company said it has not received any requests to make that IP freely available to other manufacturers.

Ottawa is also ordering other medical equipment domestically. Ventilators for Canada—a new group formed by Guelph, Ont.-based appliance-manufacturing firm Danby Appliances, automation firm JMP Solutions and medical-device manufacturer Baylis Medical—will make 10,000 ventilators. Danby CEO Jim Estill had originally spoken with his designers and engineers about building their own ventilator to help fill the shortage. “We were probably a little arrogant to think we were going to design one and solve the problem,” he said. “What I learned pretty quickly is ventilators are complicated. There’s medical licensing involved and Health Canada approvals—we couldn’t do it on our own.” 

The consortium is using a design from U.S. medical-technology firm Medtronic, which published specifications for one of its ventilators in March. The model is Health Canada-approved, and Baylis already produces Medtronic’s products. “There would be tens of thousands of these in hospitals today, and that means the medical professionals know how to use them,” said Estill. 

CAE, the Montreal-based technology firm best known for its flight simulator, is also pivoting to ventilator production. The company owns the IP related to its prototype, but isn’t licensing any for it, said Erick Fortin, director of engineering, innovation and product management for CAE Healthcare. The company declined to provide details. Fortin said it’s “still premature to say” whether CAE will release its IP to other firms, as Medtronic did.

Procurement Minister Anita Anand’s office did not answer a question from The Logic about whether the government is conducting due diligence to ascertain if suppliers have the necessary IP assets and licences for the products it’s ordering from them. 

The lawyers to whom The Logic spoke disagreed on whether IP holders are likely to pursue legal action against Canadian producers who turn out equipment for the COVID-19 pandemic. “If some of these Canadian manufacturers start to retool and become profitable, litigation always follows the money,” said Raffoul. “If companies want to continue down this road and there is infringement, you can be sure litigation will be contemplated.” She noted that the new Patent Act exemptions will eventually end—the powers sunset at the end of September, while authorizations granted under them expire after a year. And companies could also sue over assets not covered by the changes, such as copyright, design rights or trade secrets.

Raffoul said Canada has a poor track record of protecting its inventions, pointing to a report she co-authored for the Ontario government, which found that foreign companies eventually end up owning much of the IP created here. There’s a risk that Canada continues to be dependent on licensing other countries’ technologies instead of “helping our businesses [become] successful companies that can actually deliver health products that can get us through these crises,” she said, citing Ottawa-based Spartan Bioscience, whose portable COVID-19 testing device Health Canada approved this week and the federal government is procuring.

But other lawyers said IP holders are likely to recognize the public relations risk of suing a company that’s seen as helping in a public health emergency. “Companies will try to figure out a way to maximize profit, but in a way that is seen as something that won’t spark backlash,” said Lipkus, citing the example of U.S. pharmaceutical giant Gilead Sciences, which last month asked the Food and Drug Administration to rescind its seven-year marketing exclusivity on the drug remdesivir, which is being tested to fight COVID-19.

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“In the current climate, any self-respecting company would try to find some way to appear humanitarian as well as look after the balance sheet,” said Stephen Beney, a partner at Bereskin & Parr. That doesn’t mean giving up all their rights. Beney noted that firms that open up their patents, like Tesla did in 2014, do impose conditions and reserve the option to sue if competitors “abuse the intention of these offers.”

Danby is “not in the business of trying to become a medical-devices company,” said Estill. “I am trying to solve a current problem.” He forecasts Canada will end up with too many ventilators once the pandemic is over, since so many firms are making them to fill the current shortage. And he wasn’t concerned about exposing himself to IP litigation when he picked a model to manufacture, in part because he’d spoken to Medtronic about its motivations for making its design available. 

“I want to meet the person that wants to sue because we’re saving lives,” he said.