Eli Lilly and Co. v. S. & U. Chemicals Ltd., [1977] 1 SCR 536

Supreme Court of Canada

Eli Lilly and Co. v. S. & U. Chemicals Ltd., [1977] 1 S.C.R. 536

Date: 1976-05-05

Eli Lilly and Company Appellant;

and

S & U Chemicals Limited Respondent.

1976: February 4; 1976: May 5.

Present: Laskin C.J. and Martland, Judson, Ritchie, Spence, Pigeon, Dickson, Beetz and de Grandpré JJ.

ON APPEAL FROM THE FEDERAL COURT OF APPEAL.

Patents—Compulsory licence—Drugs—Patented antibiotic drug—Duty of Commissioner of Patents to allow Department of Health to make representations—No duty to consider public safety—Patent Act, R.S.C. 1970, c. P-4, s. 41(4).

The respondent applied to the Commissioner of Patents for a compulsory licence to import, manufacture and sell the antibiotic Ilosone produced under the appellant’s patent. Appellant as owner of the patent objected to the grant of the licence but the Department of Health, to which notice is required to be given under the Patent Rules, did not indicate any objections. The Commissioner granted the licence. Appellant appealed unsucessfully to the Federal Court of Appeal and on further appeal urged that the Commissioner failed to give any consideration to allegations that the granting of the licence was contrary to the interests of public safety. This did not appear from the Commissioner’s reasons but appellant sought to rely on some unsigned comments handwritten in the margin of its counterstatement and affidavits which formed part of the record.

Held: The appeal should be dismissed.

Per Martland, Judson, Ritchie, Pigeon, Spence and Beetz JJ.: Even assuming that the handwritten comments formed part of the record and should be treated as reasons for the Commissioner’s decision there is no ground for allowing the appeal. The duty of the Commissioner was to give the Food and Drugs Directorate the opportunity to make submissions, it was not for the Commissioner to enquire into the adequacy of the controls on the Food and Drugs Directorate’s requirements concerning safety before licencing a patented drug-making process.

Per Laskin C.J. and Dickson and de Grandpré JJ.: The marginal notes being unsigned, with nothing to

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indicate by whom, when or under what circumstances they were made, were not part of the record and could not therefore be relied on by the appellant. Public safety is one of the matters which can and should be considered by the Commissioner in granting a licence. There is however no obligation on him to go behind such representation as he may receive and conduct independent tests.

[Frank W. Horner Ltd. v. Hoffman-La Roche Ltd. (1970), 61 C.P.R. 243, varied 64 C.P.R. 93, affirmed [1972] S.C.R. vi; Hoffman-La Roche Ltd. v. Delmar Chemicals Ltd., [1965] S.C.R. 575 referred to]

APPEAL from a judgment of the Federal Court of Appeal[1] dismissing an appeal in respect of a licence granted by the Commissioner of Patents under s. 41(4) of the Patent Act, R.S.C. 1970, c.P-4. Appeal dismissed.

Walter B. Williston, Q.C., Norman R. Shapiro, and R.W. Cosman, for the appellant.

I. Goldsmith, Q.C., and D.J. Bellehumeur, for the respondent.

D.H. Aylen, Q.C., and Claude Blanchard, for the Attorney General of Canada.

The judgment of Laskin C.J. and Dickson and de Grandpré JJ. was delivered by

DICKSON J.—I have had the opportunity of reading the reasons prepared by Mr. Justice Pigeon for delivery in this appeal and I agree with him that the appeal must fail. I wish, however, to refer briefly to two matters which arise: the first being the marginal notes which appear on the counterstatement filed by the appellant; the second the responsibility of the Commissioner of Patents for public safety.

The cryptic comments on the margin of the counterstatement are unsigned and there is nothing to indicate by whom, when, or under what circumstances they were made. The use of the first person singular might warrant attribution to the Commissioner of Patents but the comments may have been random thoughts on first reading of the statement. In my view, such inapposite notes form no part of the record. Thus the appellant cannot

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rely upon them to prove that the Commissioner, endowed with discretionary powers, has taken into account irrelevant matters or has failed in the exercise of his statutory duty. The Commissioner’s reasons for granting the application were expressed in the licence, dated August 20, 1970, and they do not show that he proceeded on any wrong principle or that his decision was manifestly wrong on the evidence.

Public safety, in my opinion, is one of the matters which can validly be considered, and indeed should be considered, by the Commissioner in deciding whether or not to grant a licence. As Mr. Goldsmith, counsel for the respondent, correctly observed in his factum, questions of public safety are not primarily the concern of the Commissioner of Patents. That does not mean, however, and it was not argued, that such questions are of no concern to the Commissioner. Sections 41(4) and 41(3) of the Patent Act and s. 116H of the Patent Rules, in my view, support the conclusion that Parliament intended the Commissioner to have certain responsibilities in this regard. If the Minister of National Health and Welfare files with the Commissioner representations with respect to the application, the Commissioner is obliged to consider them and in the light thereof determine whether or not to grant the application. The Commissioner’s jurisdiction, and responsibility, in respect of safety are not diminished merely because the Ministry decides against making representations.

I do not think there is any obligation resting upon the Commissioner to go behind such representations as he may receive and conduct independent tests. He may be guided by the opinion and advice of the Health Ministry. He is entitled to rely upon skilled persons in matters in which he cannot be expected to be experienced. It would be wrong, however, to confuse the reliance which the Commissioner may place upon the technical skills of Health Department officials with the judgment which he himself is bound to form on the subject of public safety in the exercise of his jurisdiction.

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The Commissioner may well consider failure to object to be a reliable indication that public safety is not in jeopardy. The Commissioner in his order in the present proceedings noted this failure to object. Thus, while the Commissioner should consider public safety, the record does not disclose that he failed in the exercise of his jurisdiction in the present instance.

I would dismiss the appeal with costs.

The judgment of Martland, Judson, Ritchie, Spence, Pigeon and Beetz JJ. was delivered by

PIGEON J.—This is an appeal from a judgment of the Federal Court of Appeal in respect of a licence granted to the respondent by the Commissioner of Patents for the use of appellant’s patents pertaining to the antibiotic drug erythromycin estolate (Ilosone). The judgment appealed from gave effect to the agreement of the parties that the licence should be amended in a certain way, but otherwise the appeal was dismissed without written reasons, Jackett C.J. saying for the Court:

With reference to the attack on the Commissioner’s decision to grant a licence under Section 41(4), in this case, we are all of the opinion that it has not been established that there is any valid ground for disturbing that decision having regard to the well established principles summarized in Hoffman La-Roche Ltd. vs. Delmar Chemical Ltd. (1965) S.C. Report 575, per Martland J. 1` dated the 31st day of March, 1970 to the Commissioner of Patents for a compulsory licence under Section 41(4) of the Patent Act as amended to import, manufacture and sell medicine as prepared or produced under Canadian patent no. 743,952;

AND WHEREAS the owner of the said patent Eli Lilly and Company has objected to the grant of such licence;

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AND WHEREAS the Department of National Health and Welfare, having been notified of the application filed by the Applicant, the counter-statement filed by the Opponent and the subsequent reply thereto filed by the Applicant, has not indicated that it objects to the granting of a licence to the Applicant;

AND WHEREAS having thoroughly considered the application received the 31st day of March, 1970, the counter-statement together with all affidavits and other voluminous material attached thereto received the 13th day of July, 1970, and the reply to the counter-statement received the 27th day of July, 1970;

AND WHEREAS the arguments raised show no good reason why the licence should not be granted;

AND WHEREAS most if not all of such arguments have been dealt with in my decision in Frank W. Horner Limited v. Hoffmann-La Roche Limited of 20th January, 1970 (C.P.O.R. March 3, 1970) and in subsequent decisions, and any other arguments I find irrelevant;

AND WHEREAS I considered the Opponent’s request in its counter-statement for an oral hearing but find that the factors raised by the Opponent do not justify the same and would only produce undue delay;

In the Horner[2] case, the Commissioner adverted to the legislative changes effected subsequent to the judgment of this Court in the Delmar case mentioned by Jackett C.J. These changes were effected by the enactment in 1969 of the Act entitled “An Act to amend the Patent Act, the Trade Marks Act and the Food and Drugs Act” 1968-69 (Can.), c. 49. With respect to this legislation, the Commissioner said (at pp. 248-249):

The basic change to s.41 was to enable the Commissioner of Patents to issue compulsory licences for the importation of medicines produced by patented processes or substances produced by patented processes used in the preparation or production of medicines, whereas prior to the new enactment the Commissioner had authority only to issue to applicants compulsory licences to manufacture under the patent affected, although there are those who consider that the new enactment merely now makes specific what the Com-

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missioner of Patents already had the authority to do. In any event the authority now is expressly stated….

In my view, and in spite of the amendments, the direction to the Commissioner of Patents relating to the fixing of the royalty or other consideration and in settling the terms of the licence has not in fact fundamentally been changed; and hence the principles determined by the Courts in the interpretation of the former s.41 (3) still remain applicable.

There was really no attack directed at the views thus expressed. The appeal was essentially based on some provisions added to the Patent Rules by P.C. 1969-1318 SOR/69-331 of June 27, 1969, the date on which the amending Act was assented to and came into force. These provisions entitled “Proceedings under Section 41 of the Act” include the following:

116H. (1) As soon as possible after an application, counter statement, statement in reply or other statement referred to in section 116E or 116F is filed with the Commissioner, he shall furnish a copy thereof to the Minister of National Health and Welfare.

(2) At any time after a copy of an application has been furnished to the Minister of National Health and Welfare, but not later than two weeks after the first day on which no further steps may be taken with respect to the application by the applicant or patentee pursuant to sections 116C to 116F, the Minister of National Health and Welfare may give written notice to the Commissioner of his intention to make representations with respect to the application.

(3) Where the Minister of National Health and Welfare gives written notice to the Commissioner pursuant to subsection (2), he shall, within two months after the day on which the notice is given,

(a) file with the Commissioner in writing any representations that he desires to make with respect to the application;

(b) serve on the applicant and patentee a copy of any such written representations; and

(c) file with the Commissioner evidence satisfactory to the Commissioner of service of the representations referred to in paragraph (b).

(4) Where written representations are served on an applicant and patentee pursuant to subsection (3), the

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applicant and patentee may each file with the Commissioner, within one month after the day of such service on the applicant, or patentee, as the case may be, a reply in writing with respect to any matter raised in the written representations.

In the present case, the Minister of National Health and Welfare, although duly notified, did not give notice of an intention to make representations with respect to the application. This is mentioned by the Commissioner in the licence as appears from the above-quoted extract. What is urged by the appellant is, in substance, that the Commissioner failed to give any consideration to allegations that, if the licence was granted, the licensee would import the drug in bulk and the Food and Drugs Directorate of the Department of National Health and Welfare would not then make, or require to be made, adequate tests of the substance and of the drugs in dosage form made with it. This does not appear from the reasons stated in the licence but appellant relies on some unsigned comments written in the margin of its counterstatement and of some affidavits filed with it. It is far from clear that those comments form part of the record and should be treated as reasons for the Commissioner’s decision. However, even on that assumption, I cannot find any ground for allowing the appeal.

Sub-para. (A) of para. 2 of appellant’s Counter-statement is as follows:

(A) There is good reason not to grant the applicant a licence to do any of the things specified in the application because to do so in respect of the particular drug applied for would create a serious danger to the public. A drug which is chemically equivalent is not necessarily biologically or clinically equivalent. At the present time, the Food and Drug Directorate does not test for bioequivalency or clinical (also known as therapeutic) equivalency. The Opponent provides a system of quality control and testing in the manufacture of the drug which assures such equivalencies. The drug which is the subject of this application is an antibiotic often used in cases where a person is critically ill. Any variation in the effect of such drug on a patient could cause further complications or even death.

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The comment in the margin reads: “This is a matter for F&D Directorate”. In my view, this comment is fully justified. Section 5 of the amending act is in the following terms:

5. Section 24 of the Food and Drugs Act is amended by adding thereto, immediately after subsection (1) thereof, the following subsection:

“(la) Without limiting or restricting the authority conferred by any other provisions of this Act or any Part thereof for carrying into effect the purposes and provisions of this Act or any Part thereof, the Governor in Council may make such regulations governing, regulating or prohibiting

(a) the importation into Canada of any drug or class of drugs manufactured outside Canada, or

(b) the distribution or sale in Canada, or the offering, exposing or having in possession for sale in Canada, of any drug or class of drugs manufactured outside Canada,

as the Governor in Council deems necessary for the protection of the public in relation to the safety and quality of any such drug or class of drugs.”

It is clear from this enactment that Parliament did not overlook the problem of safety and quality controls when making provision for the compulsory licencing of the use of drug patents by importation of drugs manufactured by the patented process in another country. Provision was made for safety and quality controls by regulations under the Food and Drugs Act. While this did not limit any authority otherwise conferred, the only relevant provision added to the Rules under the Patent Act decreed, in effect, that the Commissioner’s duty would be to give to the Food and Drugs Directorate the opportunity to make submissions. In such a situation, it was not for the Commissioner to enquire into the adequacy of the controls then adopted or prescribed by the Food and Drugs Directorate. That this was precisely what the appellant required the Commissioner to do is clear from sub-para. (C) of para. 2 of the Counterstatement:

If, after considering all of the evidence set forth in the attached Affidavits, the Commissioner is not satisfied that there is good reason not to grant the applicant a

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licence, then because of the public interest in the safety of any drug and the possible dangers to the public in relation to this particular drug as set forth in the attached Affidavits, no licence should be granted until a hearing is conducted before the Commissioner in order to determine the question of safety.

The marginal comment is “I don’t decide safety”.

That appellant’s ground of objection really is an attack against the adequacy of testing procedures adopted by the Food and Drugs Directorate also appears from the following paragraph of the affidavit of one Marvin Darrach filed in support of the Counterstatement:

8. From my knowledge of the present practice and procedures of the Federal Food and Drug Directorate in Ottawa, they do not determine the bio-equivalency and clinical equivalency of a drug which might purport to be the equivalent of ILOSONE. I have reached my opinion with respect to the difficulty of approximating bio-equivalency and clinical equivalency because the governmental regulations relate only to chemical and biological assays—but not in vivo specifications. Furthermore, the chemical specifications and biological assay are inadequate for bio-equivalency control. The bioassay method, hydrolyses the salt and therefore only assays the erythromycin base. There is therefore no control over the estolate salt, especially in a formulation.

The marginal comment reads: “A matter for F & D”.

Reference must also, I think, be made to another affidavit namely, that given by Marcel Ferron, Associate Medical Director of Eli Lilly and Company (Canada) Limited. Paragraph 10 reads:

10. It has been my experience in practice that the larger companies who are the originators of new drugs and who have research laboratories and perform clinical work are the most reliable companies from which to obtain drugs. I have not relied on the smaller drug companies who make copies of the larger companies’ drugs because the smaller companies, in my experience, do not possess or are inadequate with respect to research laboratories, clinical testing and medical services.

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The marginal comment is: “almost every Doctor takes this view”.

The Commissioner was quite correct in disregarding such objections which, I should say, were directly contrary to the legislative policy behind compulsory licencing namely, to avoid any practical monopoly of the manufacture of drugs by patented processes and to foster competition.

As previously noted, it is apparent that when legislation was enacted for the purpose of compulsorily licencing not only manufacture in Canada, but also the importation of drugs manufactured elsewhere, problems of quality control were not overlooked. However, the legislative policy was obviously not to let this stand in the way of licencing but to provide for such degree of supervision as the Government would judge necessary to have the Food and Drugs Directorate exercise. In my view, it would be as completely outside the scope of the duty of the Commissioner to enquire into the adequacy of the Food and Drugs Directorate requirements in licencing a patented drug making process, as it would be for him to enquire into the same agency’s requirements concerning the safety of the drug itself before issuing the patent.

Counsel for appellant did not contend that before issuing a patent for a new drug making process the Commissioner had a duty to enquire into the safety of the drug for its intended use. However, the essence of his submission was that, before issuing a licence for the use of the patent he had to enquire into the quality controls over the applicant’s product because, in such case, the Food and Drugs Directorate would not require the same extensive tests as it would before first approving the patentee’s new drug. It was not contended that the applicant’s product would not be good, only that the tests required were not adequate to give conclusive proof of quality. In my view the Commissioner was correct in refusing to order a hearing on such submissions. I consider it significant that under Patent rule 116J (1) the Commissioner is required to give notice of such hearing to the Minister of National Health and Welfare only “if

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he has given written notice to the Commissioner pursuant to subs. (2) of s. 116H.”

I therefore conclude that the appeal should be dismissed. I see no reason for disallowing costs to the respondent although this indulgence was extended in the Federal Court.

At the hearing in this Court, the Attorney General of Canada was represented by counsel who asked to be heard without being able to say on what basis. In s.73 of the Patent Act (R.S.C., c. P-4 as amended) providing for an appeal to the Federal Court from orders and decisions of the Commissioner under ss. 67 to 72 it is enacted that “on any such appeal, the Attorney General of Canada or such counsel as he may appoint is entitled to appear and be heard”. There are no such words in s. 41(11) under which the appeal to the Federal Court was taken in this case. However, an appearance was filed before the Federal Court on behalf of the Attorney General and was not objected to. The appeal to this Court was taken as of right with an affidavit that the value of the matter in controversy exceeded $10,000 and notice was given to the Attorney General. Seeing that the provision under which the appeal to this Court was instituted has now been repealed, it appears unnecessary to decide whether the Attorney General was properly made a party. No difficulty arises in this case on that account, counsel for the Attorney General was content to adopt the submissions made by the respondent who relied on the judgment below.

Appeal dismissed with costs.

Solicitor for the appellant: Norman M. Shapiro, Ottawa.

Solicitors for the respondent: Goldsmith & Caswell, Toronto.

Solicitor for the Attorney General of Canada: D.H. Aylen, Ottawa.