New LCBO Subsidiary to Control Cannabis Sales in Ontario

By Randy Marusyk and Yang Wang, September ^13th, 2017

In response to the imminent legalization of recreational use of cannabis in Canada as proposed by the Parliament in Bill C-45, the Cannabis Act, the Ontario government released a detailed plan on distribution system and usage regulations of recreational marijuana in a document titled “Ontario’s Safe and Sensible Framework to Federal Cannabis Legislation” on September 8, 2017.

The centerpiece of this proposal is to create a subsidiary of the Liquor Control Board of Ontario (LCBO) to hold monopoly over cannabis retail and online sales in Ontario. This approach, as Attorney General Yasir Naqvi said, will focus on ensuring “a safe and sensible transition” to federal legalization. However, the LCBO operated subsidiary will be the single buyer of marijuana producers and the exclusive distributor to consumers. This inevitably puts it at a dominant position to make decisions on market entrance credentials, quality controls, retail prices and geographical accessibility. Private investors will not be allowed to open and operate cannabis retail stores and consumption premises in Ontario for the time being. The monopoly will also make smaller marijuana producers difficult to compete with powerhouses as Aphria Inc. (TSX: APH) and Canopy Growth (TSX: WEED), two of the country’s biggest marijuana producers.

What are the key elements of the proposed framework?

• The LCBO will establish a new subsidiary to exclusively oversee the distribution of cannabis in Ontario through retail stores physically separate from existing LCBO liquor stores and an online order service.
• Approximately 150 retail stores will be opened by 2020, including 40 in July 1, 2018 and another 80 by July 1, 2019. The stores will run similar to tobacco sales as behind-the-counter model and there will be no self-service.
• The locations of these retail stores will be determined in consultation with municipalities. The guideline is to target areas with illegal marijuana dispensaries to crush black market.
• The LCBO operated website for online orders will be available by July 1, 2018. It will make recreational marijuana accessible to residents far away from retail stores.
• Pricing and taxation decisions will come later. The anticipated profits will be modest, especially at the beginning stage with necessary infrastructure and personnel training costs.
• The use of recreational marijuana will only be permitted in private residences. The consumption of any form of recreational cannabis in public places, workplaces or when inside a motor vehicle will be prohibited.
• The Ontario Government will explore the feasibility and implications of introducing designated establishments where recreational cannabis could be consumed.
• Cannabis dispensaries currently operating in Ontario are not and will not be legal retailers. These shops will be shut down through a coordinated and proactive enforcement strategy with municipalities and police forces.
• Ontario will set the minimum age for possessing or consuming recreational cannabis at 19, same as the current alcohol restrictions. The Government of Canada in Bill C-45 proposed the age of 18. Other rules and restrictions for distribution of cannabis will be strictly in keeping with federal rules and regulations.

How will this framework affect cannabis investors, producers and consumers?

• The safety concern is legit and marijuana should still be a tightly controlled substance after its legalization. However, the proposed monopoly model may not benefit interested parties except the Ontario government, LCBO and labour unions. This framework may deter potential investors, hamper smaller producers and drive consumers to black market.
• Private-owned retail stores and cannabis lounges will not be allowed in Ontario according to the proposed framework. For investors, the investment opportunity is limited to marijuana production. Therefore, if some other provinces and territories present less stringent rules and regulations, Ontario would be less attractive to potential investors.
• For marijuana producers, the monopoly model strongly favors giant corporations who have financial resources, lobbying power and business expertise to strike a supply contract with LCBO. Smaller producers may face obstacles to put their products on the shelves of legal retail stores, same as what happened to small craft brewers in Ontario under the current alcohol distribution monopoly.
• The shut down of currentprivate-owned stores selling cannabis and business premises will make many people lose the only source of income. If the new LCBO subsidiary is not able to accommodate these people into the system, many of them may not leave cannabis business and choose to go underground. That, in return, will significantly increase the law enforcement costs and endanger the public.
• For consumers, forty stores at the beginning stage made accessibility a big concern, especially for those who are unable to travel without assistance and having difficulty to put an online order. Furthermore, if the retail prices in legal stores are significantly higher than the black market, many consumers may simply pick the cost-effective way. It is hard for the law enforcement to tell illegal marijuana products from those purchased from legal retail stores

For more information please contact:

 
Randy Marusyk, Partner

T: 613.801.1088

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Yang Wang, Summer Law Student

T: 613.801.1072

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CETA agreement and the Canadian patent landscape

By Randy Marusyk and Hyun Woo Choi, October ^16th, 2017

On September 21, 2017, The Canada-European Union (EU) Comprehensive Economic and Trade Agreement (CETA) came into force.

Three areas part of the CETA agreement relating to a range of issues in Canadian patent protection are worth noting:

1. Certificate of Supplementary Protection Regulations

2. Regulations Amending the Patented Medicines (Notice of Compliance)

3. Amendments to the Patent Rules

1. Certificate of Supplementary Protection Regulations: the Certificate of Supplementary Protection Regulations (CSP Regulations) were created to provide additional protection for patent-protected pharmaceutical products. The new Certificate of Supplementary Protection (CSP) regime will provide additional period of patent-like protection for drugs containing a new medicinal ingredient or a new combination of medicinal ingredient. The CSP Regulations provide various timelines, requirements and procedures needed to carry out the regime and are defined in sections 104-134 of the Patent Act. The additional protection term under CSP can be calculated as the difference between the patent filing date and the Notice of Compliance date, reduced by 5 years, up to a maximum of 2 years (i.e. CSP term = [Notice of Compliance date – Patent filing date] – 5 years, with a cap of 2 years). The additional protection period under this regulation will take effect from the patent expiry date.

2. Regulations Amending the Patented Medicines (Notice of Compliance): These amendments were made to address a number of issues described below and to meet Canada’s obligations under CETA:

• to resolve a number of problems by replacing summary prohibition proceedings with full actions to determine patent validity and infringement;
• to expand the scope of the PMNOC Regulations to cover relevant Certificate of Supplementary Protections by providing an additional period of protection for new patented pharmaceutical products;
• to help expedite proceedings by introducing a limited number of procedural rules, while still leaving the Court broad discretion to manage proceedings;
• to address concerns about how damages arising from delayed generic drugs market entry are currently addressed; and
• to remove barriers that may prevent innovators and generics from litigating certain patents outside the PMNOC Regulations prior to generics entering the market.

3.Amendments to the Patent Rules: Based on the recent amendments, section 29 of the Patent Act is being repealed and those provisions under the Patent Rules that refer to appointment of the representative under this section of the act are also being removed. The repealed provisions under the Patent Rules are section 78, clause 94(2)(b)(ii)(I), subparagraph 94(3)(b)(vi) and paragraph 148(1)(d). As a result, information regarding appointment of a representative is no longer required for completion of a patent application or the national phase of a patent application. To reflect the change, Form 1 (Application for Reissue) and Form 3 (Petition for a Grant of Patent) are also replaced to delete references to representative appointment required under section 29 of the Patent Act.

For more information please contact:

 
Randy Marusyk, Partner

T: 613.801.1088

E: This e-mail address is being protected from spambots. You need JavaScript enabled to view it.

Hyun Woo Choi, Articling Student

T: 604.239.0274

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The Impact of Changes to Canada’s Trademarks Act on the Pharmaceutical Industry

By Erin Creber, January 29th^{, 2018}

The Canadian trademark regime is set to experience a significant overhaul once major amendments to the Trademarks Act take effect. The amendments are expected to come into force in 2019 and are designed to allow Canada to implement the Nice Agreement, the Singapore Treaty and the Madrid Protocol. While the amendments will have an impact on all Canadian trademark owners and any business seeking trademark protection, they will present unique challenges to the pharmaceutical industry specifically.

Registration Regardless of Use

One of the most significant changes to the Trademarks Act involves removing the requirement that a trademark must be used prior to registration. Under the new practice, a trademark application will automatically proceed to registration upon expiration of the opposition period. Currently, it is possible to file a trademark application on the basis of “proposed use” or “intent to use”. However, an application based on proposed use cannot proceed to registration until the applicant files a declaration attesting to use of the mark in Canada.

Companies seeking to protect a proposed drug name not only have to comply with the trademark registration process, but also have to seek the approval of any proposed drug name from Health Canada as part of drug approval process, in accordance with the Food and Drug Regulations. Health Canada’s assessment of a drug name is performed from a health and safety perspective. Factors considered by Health Canada include the similarity of existing and discontinued drug names and the potential to mistake one drug name for another, resulting in medication errors. There is no guarantee that a drug name used and allowed internationally will be approved for use in Canada.

The Health Canada approval process can be lengthy and there can be no sale of the product - and consequently no use of the drug name - while approval is pending. This means that pharmaceutical applicants are often forced to request multiple extensions of time to file declarations attesting to use of a mark, and may even lose their applications if there is no use of a mark prior to the final deadline to file the declaration.

The new trademark laws will allow owners of pharmaceutical trademarks to obtain registered trademark protection prior to the completion of the drug approval process, thereby eliminating the need to file (or request extensions of time to file) declarations attesting to use. The result is a more rapid and streamlined trademark registration process.

That said, use will remain an important consideration for trademark owners since a registration will be susceptible to a non-use cancellation proceeding beginning three years after the date of registration. If there is no use, and an owner cannot establish “special circumstances” justifying the lack of use, the registration will be cancelled. However, it is possible that non-use due to pending Health Canada approval may be considered a “special circumstance” sufficient to justify maintaining the registration despite no use of the mark in Canada.

Non-Traditional Trademarks

Current Canadian trademark law permits registration of a limited number of non-traditional trademarks such as colour, shape and sound. The amendments to the Trademarks Act will allow applicants to seek trademark protection for a wider variety of non-traditional trademarks including holograms, scents, tastes and textures. However, with the changes will come an additional level of scrutiny as it will be necessary to show distinctiveness of a trademark at the date of filing if the Canadian Trademarks Office does not consider the mark to be inherently distinctive. At present, there is no requirement to prove distinctiveness of marks consisting of colour, shape or sound.

To prove distinctiveness of a mark, an applicant will have to file affidavit evidence and/or survey evidence establishing the reputation and distinctiveness of its trademark across Canada. If proof of distinctiveness is only demonstrated in parts of Canada, the resulting registration will be restricted to those provinces and/or territories in which distinctiveness has been established.

Pharmaceutical companies have historically faced unique challenges when seeking registered trademark protection of colour, shape and sound marks. The recent case Canadian Generic Pharmaceutical Association v Boehringer Ingelheim Pharma Gmbh & Co. KG (2017 TMOB 47) confirms the additional hurdles faced by the pharmaceutical industry in proving distinctiveness of a product having a particular shape and colour. Not only must it be shown that an ordinary consumer associates the trademark (without markings) with a single source of manufacture to a significant degree, but that association must be established for a substantial body of consumers which, for pharmaceutical products, consists of physicians, pharmacists and patients.

Given that there is presently no requirement for proving distinctiveness of colour, shape and sound marks, it is advisable for trademark owners to consider seeking protection now, while the more lenient trademark regime remains in effect.

International Registration of Trademarks

Finally, the amendments to the Trademarks Act will allow Canada to adhere to the Madrid Protocol, an international trademark registration system. The Madrid Protocol simplifies the filing of corresponding trademark applications in foreign countries once an applicant has a home country application or registration.

Currently, Canadian companies seeking to obtain registered trademark protection in various countries outside of Canada must file trademark applications in each jurisdiction. With the implementation of the Madrid Protocol, it will be possible to file corresponding trademark applications in multiple foreign jurisdictions and countries through a single “international” application. Similarly, foreign applicants seeking international trademark protection will have the opportunity to designate Canada under the Madrid Protocol.

Canada’s adoption of the Madrid Protocol will permit trademark owners, including those in the pharmaceutical industry, to realize the advantages of this simplified international filing system. Not only will applicants have easier access to trademark protection in foreign jurisdictions but the more efficient, centralized application process will result in financial savings.

Summary

The upcoming changes to Canadian trademark law, including the implementation of the international treaties, will help to modernize Canada’s trademark system and bring the country in-line with international standards. Trademark owners should ensure that they understand the implications of the new legislation and adjust their trademark protection strategies accordingly. For more information please contact: