NAFTA Arbitration Panel Rejects $1.5 Billion Claim By Apotex Arising From US Import Ban

On August 25, 2014, a three-member arbitral tribunal (the “tribunal”) rejected claims brought by Canadian generic pharmaceutical manufacturer Apotex Inc. (“Apotex”) where Apotex sought up to $1.5 billion in damages against the US under the North American Free Trade Agreement (NAFTA). Apotex alleged that an “Import Alert” issued against Apotex products in 2009 by the US Food and Drug Administration (FDA) violated investor-state protection provisions provided in NAFTA Chapter 11 (specifically, Article 1102 – National Treatment, Article 1103 – Most Favoured Nation Treatment, and Article 1105 – Minimum Standard of Treatment). The Import Alert was issued following inspection of two Ontario Apotex production facilities in 2008 and 2009, where the FDA logged significant deviations from current good manufacturing practices (cGMP). The subsequent Import Alert issued by the FDA meant that Apotex drugs produced at these facilities were considered adulterated and could be detained at the border without physical examination. The Import Alert was lifted in 2011. Apotex alleged that the FDA provided a more favorable treatment to competing US investors and US-owned investments, violating NAFTA Articles 1102, 1103 and 1105. Apotex argued that Health Canada and regulatory agencies from several other jurisdictions had inspected Apotex facilities and found them compliant with cGMPs, though some noted areas where improvement was required. The tribunal unanimously rejected Apotex’s claims, finding that the Import Alert was lawful and did not violate the investor-state protection provisions in NAFTA Chapter 11. The tribunal ordered Apotex to reimburse the US government its full legal costs and to pay 75% of the cost of the arbitration process. Reasons for the decision are forthcoming. Follow these links for press releases on the decision by the US Department of State and Apotex, and to access the submissions made by the parties in the arbitration. Summary by: Sumaiya Sharmeen