In response to high drug prices, the Canadian government amended the country's patent act in 1969 to allow for compulsory licensing to import pharmaceuticals. As a result of the legislation, by 1983 drug costs in Canada were over $200 million lower than they would otherwise have been. The multinational drug industry was strongly opposed to compulsory licensing, despite any evidence that its economic position had been harmed. Restoration of patent protection for drugs was one of the key U.S. demands during free-trade negotiations between Canada and the United States in 1985-1987. The result was Bill C-22, which gave new drugs protection from compulsory licensing for seven to ten years. This article analyzes the impact of Bill C-22 on the generic industry, the creation of jobs in research and development, drug prices, and research and development expenditures. It concludes with an examination of future demands from the pharmaceutical industry.