Eli Lilly is seeking $500 million in damages through an arbitration claim filed against Canada under the North American Free Trade Agreement saying Canadian courts invalidated patents on two of the company’s drugs in violation of the NAFTA treaty.

Courts invalidated the patents under the country’s “promise utility doctrine” questioning whether the drugs do what their patents promise they will do.

The case escalates the fight between the pharmaceutical industry and governments seeking to exert greater pressure on drug patents in an effort to combat the high cost of healthcare. There is speculation that other drugmakers facing the loss of patents in Canada under similar grounds may follow Lilly’s lead. But Public Citizen, a group critical of Lilly’s action, warns the case could have broad ramifications if allowed to proceed because it would empower corporations to privately enforce intellectual property issues covered in treaties between sovereign governments.

The complaint relates to Canadian courts invalidating patents for Lilly’s attention deficit hyperactivity disorder drug Strattera and its schizophrenia drug Zyprexa. Lilly says under NAFTA, Canada, along with Mexico and the United States, are required to create a common baseline of “substantive patent protection.” It also notes under NAFTA, Canada may only revoke a patent on grounds that would have justified a refusal to grant the patent in the first place.

“The outcome of Eli Lilly’s investor-state attack under NAFTA is critical for those seeking to safeguard countries’ ability to determine their own patent standards,” essential to prevent additional patent extensions and ensure access to affordable medicines, the consumer advocacy group Public Citizen said on its website. “It is critical not just to protect Canada’s right to not grant patents unlikely to deliver promised results, but to avoid instilling other governments with fear of investor-state reprisal for similar patent policies.”

Under the Canadian Patent Act, patents are granted to inventions that are new, nonobvious, and useful. But the Canadian Federal Court created a common law doctrine to assess whether an invention met the utility criterion after Lilly’s patents were awarded in Canada, its drugs were widely used, and the NAFTA agreement was approved.

Lilly argues that under the doctrine, courts make a subjective assessment against the “promise” the courts see in the patent specification. The company says this created a heightened evidentiary standard for proof and heightened disclosure requirements on the part of the patent holder.

In its filing, Lilly notes the doctrine has had a disproportionate effect on the pharmaceutical industry. While many drug patents have fallen under the doctrine, it says other industries have been virtually untouched. Since 2005 and the advent of the doctrine, the company notes 18 pharmaceutical patents have been invalidated for lack of utility. In the prior 25 years, the company notes, Canadian courts invalidated just two pharmaceutical patents for lack of utility.