Eli Lilly and Company v. Novopharm Limited, docket T-734-96

     T-734-96

IN THE MATTER OF an application

for an Order pursuant to Section

55.2(4) of the Patent Act and Section

6 of the Patented Medicines (Notice

of Compliance) Regulations

BETWEEN:

     ELI LILLY AND COMPANY, ELI LILLY CANADA

     INC. and SHIONOGI & CO. LTD.,

     Applicants,

     - and -

     NOVOPHARM LIMITED, and

     THE MINISTER OF NATIONAL HEALTH AND WELFARE,

     Respondents.

     REASONS FOR ORDER

DUBÉ J:

     The applicants ("Eli Lilly") filed an originating notice of motion on March 29, 1996, seeking an order pursuant to subsection 6(1) of the Patented Medicines Notice of Compliance Regulations (SOR/93-133) ("the Regulations") prohibiting the Minister of National Health and Welfare ("the Minister") from issuing a Notice of Compliance ("NOC") to the respondent Novopharm Limited ("Novopharm") in connection with the drug cefaclor until after the expiration for all 18 letters patent owned by Eli Lilly and submitted by it on a patent list under subsection 4(1) of the Regulations.

     In the alternative, Eli Lilly seeks an order declaring that the Detailed Statement ("Detailed Statement") and allegations dated February 7, 1996, provided by Novopharm with respect to the same drug are void and of no effect as they were not provided in compliance with the Regulations.

     As a further alternative, Eli Lilly seeks an order permitting it to withdraw the present proceeding or to permanently stay this proceeding.

1. Analysis of the Regulations

     The Regulations came into force on March 12, 1993, and have been the subject of various decisions by this Court and the Federal Court of Appeal. However, they are somewhat complex and must be analysed so as to facilitate the comprehension of these reasons for order. The Regulations were enacted by the Governor in Council under the provisions of the Patent Amendment Act, 1992 (S.C. 1993, c. 2) which abolished the system of compulsory licensing for patented medicines and grafted it onto the regulatory controlling system established by the Food and Drug Regulations (CRC, c. 870). The purpose of these Regulations is to provide added protection for the benefit of owners of patents issued in respect of a drug that contains a medicine.

     A NOC attests to the health, safety and efficacy of drugs. It constitutes a marketing approval by the Minister for a drug. These Regulations prohibit the Minister from granting a NOC for a drug that relies upon the earlier approval of a related drug until all the relevant product and use patents pertaining to the earlier approved medicine have expired.

     The "first person" (a brand name company) is the owner of a Canadian patent who has been issued a NOC in respect of a drug that contains a "medicine". The "second person" is a generic company that files a submission for a NOC in respect of a drug that has been marketed in Canada pursuant to a NOC.

     Under subsection 4(1) of the Regulations, a first person submits to the Minister a patent list. That list must set out any Canadian patent owned by that generic company for the medicine itself or for the use of the medicine (4(2)a)); also a statement that it is the owner (4(2)b)); the date of expiry of each patent (4(2)c)) and its address in Canada (4(2)d)).

     The second person who files a new drug submission ("NDS") for a NOC under subsection 5(1) must, with respect to each patent on the patent list, either state that it accepts that a NOC will not issue until the patent expires under paragraph 5(1)a), or assert one or more of the four following allegations under paragraph 5(1)b):

(i) the statement made by the first person pursuant to paragraph 4(2)(b) is false,

(ii) the patent has expired,

(iii) the patent is not valid, or

(iv) no claim for the medicine itself and no claim for the use of the medicine would be infringed by the making, constructing, using or selling by that person of the drug for which the submission for the notice of compliance is filed.

     Under subsection 5(2) a second person shall amend its submission where the first person has amended its existing patent list.

     Under subsection 5(3) where a second person has made one of the four allegations under paragraph 5(1)b), or has amended its submission under subsection 5(2), it shall provide a Detailed Statement of the legal and factual basis for the allegation (5(3)a)), and serve a notice ("Notice of Allegation") on the first person and proof of such service on the Minister (5(3)b)).

     Within 45 days after that service, the first person may, under subsection 6(1), apply to a court for an order prohibiting the Minister from issuing a NOC until after the expiration of one or more of the patents that are the subject of an allegation.

     If the court finds that none of the second person's allegations are justified, the court shall make an order under subsection 6(2).

     According to the Analysis Statement which accompanies the Regulations, they prohibit the Minister from granting a NOC until all the relevant product and use patents of a brand name company have expired. But the Regulations also permit the applicant (the inventor and his legal representatives) to submit the patent number and expiration date of all relevant drug patents. The Minister is required to maintain a public registry of this patent information. Where the generic drug makers file NOC applications, they must certify the status of all patents listed for the earlier approved drug. If they allege that some of the patents listed by the earlier NOC applicant are invalid or will not be infringed by them, they must give notice of these allegations to the owner of any contested patent. The patent owner will then have 45 days from this notice to file suit against the subsequent applicants to enforce its patent. If the patentee files such a suit within the 45 day-period, the granting of a NOC to a second person may be delayed up to 30 months pending resolution of the law suit.

     Presently, patentees have the right to pursue patent infringement actions in the courts and, as a general rule, judicial remedies are sufficient to address patent infringements.

     Bill C-91 and these Regulations create an exception to patent infringement allowing generic competitors to undertake any activities necessary to work up a submission to obtain regulatory approval of a product. This will allow brand name companies to enjoy full protection for the duration of the patent, while ensuring that generic competitors will be able to enter the market place immediately upon the expiry of a patented medicine.

     However, in its own analysis of these Regulations, the Federal Court of Appeal in Merck Frosst Canada Inc. v. Apotex Inc.¹ found that the order of prohibition against the Minister preventing him from allowing the generic producers from marketing an allegedly infringing product constituted an extraordinary protection for the patentees. Strayer J.A. said at p. 175 that "the Minister's authority to refuse a Notice of Compliance, originally designed to protect the personal health of Canadians, has been harnessed to protect the financial health of drug patentees".

2. The history of the "First Proceeding"

     By letter dated July 30, 1993, Novopharm provided a Notice of Allegation to Eli Lilly relating to its NDS filed with the Minister in relation to the drug cefaclor. In response to that first Notice of Allegation, Eli Lilly commenced a proceeding (the "First Proceeding") in this Court on September 15, 1993, in accordance with subsection 6(1) of the Regulations seeking an order prohibiting the Minister from issuing a NOC to Novopharm.

     In the first Notice of Allegation, Novopharm alleged that its own suppliers' process for preparing cefaclor will not infringe claims of Eli Lilly's patents. At that time, Novopharm did not raise the allegation that the patents did not contain a "claim for the medicine itself" as defined in section 2 of the Regulations.

     However, on June 28, 1994, Novopharm brought a motion for leave to amend its first Notice of Allegation to change the earlier allegation of non-infringement to the legal issue that Eli Lilly's patents do not contain "claims to the medicine itself or claims for the use of the medicine". By order of Mr. Justice Noël dated June 30, 1994, Novopharm was denied leave to amend the first Notice of Allegation. Novopharm appealed that order but did not pursue the matter and the appeal was dismissed.

     Following receipt of the first Detailed Statement, Eli Lilly filed the affidavit of its own expert, Robin D.G. Cooper, sworn to on November 28, 1995, to the effect that Novopharm's suppliers process would result in the infringement of four patents. Novopharm did not file any evidence to contradict Dr. Cooper's evidence and did not cross-examine him on his affidavit.

3. The History of the "Second Proceeding"

     On February 7, 1996, Novopharm provided Eli Lilly with a document entitled "Detailed Statement of Legal and Factual Basis". In that second statement, Novopharm makes the same allegations as in the First Proceeding, namely that "no claim for the medicine itself and no claim for the use of the medicine would be infringed by Novopharm's drug". On behalf of Eli Lilly, Dr. Cooper reconfirmed his opinion that the suppliers process will result in the infringement of four of Eli Lilly's letters patent. Novopharm did not file any evidence to dispute this conclusion. The second Detailed Statement does not allege that Novopharm's suppliers is using a non infringing process but essentially raises the grounds for which Noël J. denied an amendment, namely that the patents do not belong on Eli Lilly's patent list.

     Thus, having regard to the 45 day limitation period provided in the Regulations, Eli Lilly commenced the Second Proceeding to ensure that the Minister does not act on the second Detailed Statement.

4. Mr. Justice Campbell's decision on the First Proceeding

     On April 4, 1997, after the Second Proceeding was launched, my colleague Campbell J. released an order dealing with the First Proceeding prohibiting the Minister from issuing the NOC applied for by Novopharm until after the expiration of the letters patent owned by Eli Lilly with reference to the drug cefaclor.

     In his reasons for order, the learned judge refers to the Novopharm's proposed amendment, to the application denied by Noël J., and to Novopharm's appeal being dismissed in the Federal Court of Appeal for want of prosecution. He held that the order of Noël J. remains in effect and presents a bar to raising the new issue. He found therefore that the issue which remains is the allegation that Novopharm will not infringe the patents in issue as its suppliers will manufacture the drugs by a different process.

     However, the materials filed by Novopharm submit that it "will be limited to the issue of whether the 18 patents identified in the originating notice of motion are properly on the patent list of the applicant". Campbell J. decided that, since Novopharm has not adduced any evidence to lead to the conclusion that the patents would not be infringed, Novopharm has not discharged its burden and therefore the prohibition against the Minister would issue. The decision is under appeal.

5. Eli Lilly's arguments

     In view of the decision of Mr. Justice Campbell aforementioned (a decision subsequent to the launching of the Second Proceeding) Eli Lilly dropped the first prong of its motion seeking a prohibition against the Minister from issuing a NOC as the Minister is now under order not to issue a NOC. However, Eli Lilly still seeks an order to the effect that the second Detailed Statement dated February 7, 1996, is void and of no effect since it was not provided in compliance with the said Regulations.

     Eli Lilly claims that a Notice of Allegation defines the issues in a prohibition proceeding, and unless a generic company raises an issue in its Notice of Allegation the issue does not form part of the proceeding. Those who fail to file an adequate Notice of Allegation must suffer the consequences. Subparagraph 5(1)(b)iv) of the Regulations clearly relates a Notice of Allegation to the existing NDS for a NOC.

     By initiating a proceeding under the Regulations, the applicant, Eli Lilly, is asking the Court to determine whether the manufacturing or marketing plans of the second person, Novopharm, which are set out in the NDS will result in the infringement of the applicant's patent rights. A Notice of Allegation and Detailed Statement are inextricably linked to a generic drug company's NDS. The Regulations contemplate one and only one Notice of Allegation, unless a patentee has amended a patent list under subsection 5(2) of the Regulations. Furthermore, it is abusive for Novopharm to attempt to circumvent a Court order by serving a second Detailed Statement on Eli Lilly.

     Section 5 permits a second person, Novopharm, to advance multiple grounds for an allegation in its Form V Declaration. Multiple grounds for each allegation may be included in the Detailed Statement, i.e. a second person may allege invalidity of a patent and provide in the Detailed Statement multiple legal and factual bases, such as anticipation and insufficiency of the disclosure. Subsection 7(1) does not contemplate any further proceeding after an order of prohibition has issued. Consequently, the scheme of the Regulations provides that all issues can and should be raised by the second person at one time to avoid multiple proceedings. Novopharm may not litigate by instalments.

     In the First Proceeding, Novopharm sought to amend its first Notice of Allegation: that was denied by the Court. It may not be allowed to circumvent Mr. Justice Noël's order by way of a second Notice of Allegation. In Schering Canada Inc. v. Nu-Pharm Inc.², a generic company sent three Notices of Allegation and the Federal Court, Trial Division, declared the second and third notices not to be valid.

     Eli Lilly also argues that the Second Proceeding is res judicata. Both Notices of Allegation in respect of cefaclor relate to sub-paragraph 5(1)(b)iv) and both allege that "no claim for the medicine itself and no claim for the use of the medicine would be infringed by the making, constructing, using or selling by that person of the drug for which the submission for the notice of compliance is filed". If Novopharm considered the decision of Noël J. to be wrong, they ought to have proceeded with its appeal. Both proceedings arise from Novopharm's NDS for cefaclor. The factual basis for the allegation has not changed and, in both applications, Eli Lilly is seeking an order prohibiting the Minister from issuing a NOC to Novopharm for cefaclor: the object of both proceedings is identical. There is identity of parties, object and cause of action: the Second Proceeding is res judicata³.

     The doctrine of merger also applies, argues Eli Lilly. Parties to a litigation must bring forward their full case and will not be allowed to open the same subject of litigation for matters which might have been brought forward but were not because of negligence, inadvertence or even accident. There must be a finality to court decisions⁴.

6. Novopharm's arguments

     In its written arguments, Novopharm does not attempt to meet the arguments raised by Eli Lilly but limits itself to the Second Proceeding and alleges that none of Eli Lilly patents on the list contain claims to the medicine cefaclor itself. They are only process claims and do not entitle Eli Lilly to any protection.

     Quite apart from the allegations of Novopharm made in both of its Detailed Statements, it is clear from the evidence filed by Eli Lilly and Novopharm, from the cross-examination in the proceedings and from the arguments of Eli Lilly, that none of the 18 patents identified in the patent list and in the originating notice of motion contain claims to the medicine cefaclor itself or to its use: these patents contain only claims to processes or to intermediates. And some of these patents have already expired. Eli Lilly has listed no patents with claims to the medicine cefaclor itself or to its use. It is also clear from the evidence that cefaclor is not new. It was the subject of Canadian and U.S. patents that have since expired. In fact, Novopharm held a compulsory licence under a now expired Canadian patent.

     Robert G. Hirons, Novopharm's expert, reviewed all of Eli Lilly's patents on its list and also perused the affidavit of Robin D.G. Cooper, Eli Lilly's expert. He came to the conclusion that none of Eli Lilly's patents on the list contain claims to the medicine cefaclor itself. Even the evidence of Dr. Cooper establishes that Eli Lilly's patents only contain claims either to processes or to intermediates in the multi step processes.

     Consequently, Eli Lilly has not established with respect to any of its patents that it has a right of action as defined by section 6 of the Regulations. The required contents of the patent list are set out in subsection 4(2) of the Regulations. A patent list submitted by the first person, Eli Lilly, must certify it to be accurate and must set out that its patent "contains a claim for the medicine itself or a claim for the use of the medicine". It is now settled, insofar as the Trial Division⁵ of this Court is concerned, that patents which contain only process claims, or claims to an intermediate, are not properly included in a patent list, as they do not contain either in fact or in law a claim to a medicine in itself or to its use, as required by the Regulations.

     In fact, following the Federal Court of Appeal's decision in Deprenyl Research Ltd. v. Apotex Inc.⁶ Eli Lilly withdrew its patents which contained only process claims⁷.

     Where a second person files a submission for a NOC in respect of a drug, it must, with respect to each patent on the list, either state that it accepts that a NOC will not issue until the patent expires under paragraph 5(1)a) or make any of the four allegations under paragraph 5(1)b). The allegations made by Novopharm are the allegations under paragraph 5(1)(b)iv), namely that "no claim for the medicine itself and no claim for the use of the medicine would be infringed by the making, constructing, using or selling by that person of the drug for which the submission for the notice of compliance is filed". No claim for the medicine itself could be infringed as none were contained in the Eli Lilly patents on the list.

     A second person who files a Notice of Allegation must provide a Detailed Statement of the legal and factual basis for the allegation under paragraph 5(3)a) and serve it to the Minister under paragraph 5(3)b). The Regulations do not prescribe any particular format or content for a Detailed Statement and this Court has no jurisdiction over it, claims Novopharm. The interpretation or construction of a patent is a question of law. Changes to the Detailed Statement based on the interpretation of the patent are changes in the legal, not the factual, basis for the allegation.

     A brand name company may apply to a court for an order prohibiting the Minister from issuing a NOC to a generic company and the court shall comply only if it finds that none of the allegations made by the generic company are justified. Thus, the prohibition under these Regulations is an extraordinary remedy: merely by initiating it an applicant obtains what is tantamount to an interlocutory injunction for up to 30 months without having satisfied any of the criteria a court would normally require to grant an injunction. A brand name company is only entitled to commence these special prohibition proceedings if it is a first person as defined under the Regulations, that is if it has filed a list of patents containing claims to a medicine or its use. There is no evidence that Eli Lilly has obtained, or has applied for, a NOC for a drug containing cefaclor that is covered by any of the patents on the patent list.

     These prohibition proceedings under the Regulations are judicial review proceedings. They do not contemplate a proceeding by way of action. The Regulations confer a right on the patentee to bring an application for prohibition against the Minister and this is a matter of public law, not private rights .

     As the initiator of the court proceeding, Eli Lilly has carriage of the litigation. It bears the initial burden of proof. Thus, it must first establish its right to bring the application and then it must adduce evidence challenging or tending to disprove the allegations in the Notice of Allegation. In respect to each of the patents on Eli Lilly's list, Novopharm has filed evidence to the effect that none contain claims to the medicine itself. There is no evidence to the contrary from Eli Lilly. Novopharm has alleged in its Notice of Allegation that no claims in the patent to the medicine, or to its use, would be infringed by its proposed action because none of the patents listed contain claims of that nature but only process claims.

     Thus, before granting a prohibition order under the Regulations, the Court must be satisfied that infringement of a valid patent would occur if a NOC is issued. In other words, the Court must be satisfied that infringement of claims other than process claims or intermediate claims would occur.

7. The effect of a recent Federal Court of Appeal decision

     Counsel for Eli Lilly conceded at the end of his oral arguments that should the Federal Court of Appeal confirm the decision of Jerome, A.C.J., in Apotex Inc. v. Canada (Minister of National Health and Welfare)⁸ then the fundamental basis of his arguments would collapse: "Then I lose ... The curtain would fall" (at p. 77 of transcript). In his decision the learned judge held that multiple Notices of Allegations could be filed as the first and second notices were not essentially the same and that the arguments as to res judicata were not convincing.

     On September 29, 1997, shortly after the hearing of the instant motion, the Federal Court of Appeal released its judgment⁹ confirming the decision of the Trial Judge. In his reasons for judgment, Marceau, J.A., analysed the nature and scope of the Regulations and confirmed that "it is now settled that the proceedings launched by the patented manufacturer seeking prohibition are proceedings in judicial review". He indicated that "their scope is confined to administrative purposes". He stated that the appeal essentially raised two issues, the basic one being whether the motions judge could order the Minister to proceed and grant a NOC when a prohibition order released by a first judge was still in force. He said that this was possible when the prohibition order "was clearly made in a particular context, was rendered to give effect to stated reasons, and its wording in general terms can be explained". He further expanded his views as follows (at pp. 11 and 12):

I do not think that anyone could dispute the very unique nature of the proceeding which led to the order here involved, a proceeding grafted onto the administrative process of issuing an NOC. What comes before the Court is a particular allegation and the order, which is required by the Regulations to be worded in general terms, is made with the sole view of giving effect to the finding that the allegation is unjustified. The conditions for an assessment of the scope and meaning of the order, in my opinion, are clearly there. That such an assessment is not outside the purview of a procedure of the nature of the one here involved raises no difficulty since the question is not of setting aside the order or varying the order, but of interpreting the order.

On the other hand, it does not appear to me that the legislator, in imposing this special set of rules, could have contemplated that the issuance of an order of prohibition on a finding that a particular allegation was unjustified would be absolute and would be deemed to cover any future allegation, however new and distinct it might be. That would give a summary procedure an effect that goes way beyond its meaning and object. As pleaded by counsel for Apotex: "it would be truly perverse to condemn a second person (the second manufacturer) to advance a 'once and for all' allegation of non-infringement in a single proceeding when the subject patent may have an unexpired term of 17 years or more, and newly discovered processes which contravene no patent rights are only developed after the initial allegation has been determined." I agree with the views expressed in the numerous Trial Division decisions referred to by the motions judge to the effect that successive allegations are possible and each one must be treated independently provided it is separate and distinct from the others and its bringing before the Court cannot be seen as an abuse of process.

In my judgment, the substantive argument advanced by counsel for Eli Lilly in support of the appeal fails. The motions judge was correct in determining the scope of McGillis J.'s order with regard to the context in which it was rendered and the reasons given for it. He was also correct in believing that a second allegation, if distinct from the first, as was the case here, must be treated independently of the first one.

(my emphasis)

     Consequently, it is now established that multiple Notices of Allegations may be filed and that the Minister may grant a NOC even when a prohibition order is still in effect, provided the prohibition was made in a particular context and the new allegations are separate and distinct from the previous ones.

     In the instant case, Campbell J. prohibited the Minister from issuing a NOC on the ground that Novopharm adduced no evidence that the patents would not be infringed and because of a previous order of Noël J. excluding the legal issue that Eli Lilly's patents do not contain claims to the medicine itself. But, Noël J. did not say that the legal issue could not be revived by way of another Notice of Allegation. It is precisely what Novopharm has now done. And the evidence is overwhelming and undisputed that the patents on Eli Lilly's list have either expired or do not contain any claim to the medicine cefaclor, but only to preparation processes. Obviously, it is not proper to keep a generic manufacturer off the market by listing patents that do not belong to the list.

     The decision of the Federal Court of Appeal also disposes of the res judicata issue. Jerome ACJ ruled that the res judicata argument was not convincing and his judgment was confirmed by the Federal Court of Appeal. Moreover, the Notice of Allegation is not the equivalent of a Statement of Claim which would initiate an action or an originating Notice of Motion leading to a judicial review: it is merely a "piece of evidence"¹⁰ that provides the patentee with a cause of action. The document which starts the proceedings is the Originating Notice of Motion launched by the patentee seeking an order prohibiting the Minister from issuing a NOC to a second person, the generic company. Because the Notice of Allegation is merely a statement of evidence, the principle of res judicata does not apply.

     Consequently, in light of the Federal Court of Appeal judgment, Novopharm was entitled to serve a second Notice of Allegation because the second allegation is different from the first one. The first dealt with non-infringement by Novopharm, whereas the second alleges that the patents on Eli Lilly's list could not be infringed as they have either expired or are process patents, patents that do not belong to the list. These new allegations were not challenged by Eli Lilly and the latter failed to adduce any evidence establishing that its patents on the list contain claims for the medicine itself. Thus, Eli Lilly is not a first person entitled to apply for prohibition under section 6 of the Regulations.

8. Disposition

     The application is dismissed with costs.

O T T A W A

October 15, 1997

    

     Judge

__________________

¹      (1997), 72 C.P.R. (3d) 170 (F.C.A.).

²      (1994), 58 C.P.R. (3d) 14 (F.C.T.D.).

³      Diamond v. Western Realty Co., [1924] 2 D.L.R. 922 at 929 (S.C.C.); Rocois Construction v. Québec Ready Mix, [1990] 2 S.C.R. 440 at 451.

⁴[1976] 2 S.C.R. 621">      Grandview v. Doering, [1976] 2 S.C.R. 621 at 634, 636; Vautour v. Attorney General of New Brunswick (1985), 62 N.B.R. (2d) 162 at 165 (N.B.C.A.); General Foods Ltd. v. Struthers Scientific Corp. (1971), 4 C.P.R. (2d) 97 at 105 (S.C.C.); Midway Mfg. Co. v. Bernstein (1988), 23 C.P.R. (3d) 272 at 274 (F.C.T.D.); Labrie v. Uniformes Town & Country Inc. (1992), 141 N.R. 159 at 160 (F.C.A.); Metodieva v. M.E.I (1991), 132 N.R. 38 at 39-43 (F.C.A.) and Saywack v Canada (M.E.I.), [1986] 3 F.C. 189 at 201 (F.C.A.).

⁵      Deprenyl Research Ltd. v. Apotex Inc. (1994), 55 C.P.R. (3d) 171 (F.C.T.D.).

⁶      (1995), 60 C.P.R. (3d) 501 (F.C.A.).

⁷      See Eli Lilly and Co. v. Apotex Inc. (1995), 63 C.P.R. (3d) 245 at 246 (F.C.T.D.).

⁸      (1997), 72 C.P.R. (3d) 421 (F.C.T.D.).

⁹      Eli Lilly et al. and Apotex Inc. and Minister of National Health and Welfare, A-339-97 (F.C.A.).

¹⁰      See Pharmacia Inc. v. Canada (Minister of National Health and Welfare), A-410-94, October 18, 1994, as referred to in Bayer AG v. Canada (Minister of National Health and Welfare) (1995), 60 C.P.R. (3d) 129 (F.C.A.), at 133.