March 20, 2012

Apotex Sues U.S. Government Under NAFTA, Again

by Howard E. Rosenberg, Ph.D.

NAFTA.bmpApotex, Canada's largest generic drug manufacturer, claims that as a consequence of action taken by FDA with respect to two Canadian facilities operated by Apotex-Canada, Apotex-U.S. incurred a loss of income exceeding $520 million. Apparently these two facilities produce about 80 percent of the products sold by Apotex-U.S. and an FDA-imposed import alert raised in August 2009 prevented Apotex-U.S. from receiving any drugs produced by these two facilities until the import alert was fully lifted at the end of July 2011.

Apotex alleged that during the relevant time period, FDA accorded more favorable treatment to other U.S. investors and U.S.-owned investments having issues similar to Apotex, in that these other investors were not subjected to a measure as severe as the import alert imposed on the Apotex companies. The problems began for Apotex when their two manufacturing facilities were inspected by FDA that uncovered quality system problems. These issues and the resolution of the issues by a FDA re-inspection were far more protracted to resolve than say those by Teva who, according to Apotex, appeared to have similar or analogous problems. Teva's re-inspection by FDA and the resolution of their quality failures proved to be far quicker than that for Apotex.

According to Apotex, the import alert violated North American Free Trade Agreement ("NAFTA") Article 1102 (National Treatment), Article 1103 (Most-Favored-Nation Treatment) and Article 1105 (Minimum Standard of Treatment). Article 1102 provides, in part, that each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments. Apotex claim that the Import Alert put Apotex Holdings and Apotex-Canada at a clear disadvantage compared to U.S. investors in like circumstances, who were not prevented from applying for authorization of new generic drugs or from benefiting from sales thereof.
Article 1103 extends 1102 by referring to the treatment afforded to third-country investors in like circumstances. Here Apotex pointed to the apparent favorable treatment given to Teva being in stark contrast to what they themselves received. Article 1105 provides that each Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security.

This is not the first time that Apotex has used the NAFTA agreement to bring a case against the U.S. Government. In June 2009, Apotex Inc. alleged that the U.S. courts and administrative agencies committed errors in interpreting federal law, and that such errors are in violation of NAFTA Article 1102 (national treatment) and Article 1105 (minimum standard of treatment under international law). According to Apotex, these decisions expropriated Apotex's investments under NAFTA Article 1110.

That case concerns two different generic drugs, sertraline, and pravastatin, and according to Mary McLeod, the Principal Deputy Legal Adviser at the United States Department of State, was about "Apotex's failure to deprive other companies of an exclusive marketing period for their generic drug products," by "unsuccessful attempts through litigation to deprive the 180 days of market exclusivity to those other companies that did first challenge the patents." In this suit, Apotex requested $16 million in damages.

The U.S. Government began by stating that "Apotex Inc., a Canadian manufacturer of generic drugs that never had an investment in the United States, that lost no property rights through adverse U.S. Government action, that brought its NAFTA claims late, and that failed to exhaust its domestic judicial remedies . . ."

Reportedly, the U.S. Government has so far not lost a NAFTA case. So is Apotex using what it has been learning from its 2009 case to craft its most recent NAFTA case?