Docket: T-1537-15
Citation:
2016 FC 716
Toronto, Ontario, June 23, 2016
PRESENT: Prothonotary Kevin R. Aalto
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BETWEEN:
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ALEXION
PHARMACEUTICALS INC.
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Applicant
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and
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ATTORNEY
GENERAL OF CANADA
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Respondent
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ORDER AND REASONS
I.
Introduction
[1]
The Applicant, Alexion Pharmaceuticals Inc.,
(Alexion), manufactures a drug called SOLIRIS. It is used to treat two rare
life threatening medical conditions (paroxysmal nocturnal hemoglobinuria and
atypical hemolytic uremic syndrome). The Patented Medicines Prices Review
Board (the Board) has commenced proceedings against Alexion concerning the
price at which Alexion is selling or has sold SOLIRIS in Canada.
[2]
The Board is created pursuant to Section 91 of
the Patent Act, R.S.C. 1985, c. P-4. Sections 79 through to 103 of the Patent
Act provide for the mandate of the Board, the structure and appointment
process to the Board, the jurisdiction of the Board, remedies available to the
Board, enforcement of orders, production of information and the like.
[3]
Alexion, in this application, seeks declaratory
relief declaring that sections 80 through to 86 of the Patent Act and
the words “in any proceeding under section 83” in
section 87(1) (the Impugned Provisions) are ultra vires the Parliament
of Canada “in that the price regulations scheme created
by the Impugned Provisions exceeds the powers granted to Parliament under
section 91(22), or other federal power, of the Constitution Act, 1867”.
Alexion further alleges that the Impugned Provisions violate provincial jurisdiction
over property and civil rights under section 92(13) of the Constitution Act,
1867. The within application also seeks an order in the nature of
prohibition preventing the Board from proceeding with a hearing under section
83 of the Patent Act.
[4]
The Respondent, the Attorney General of Canada
(AG) brings this motion to strike the application on the ground that it is
bereft of any chance of success because there is a line of jurisprudence, the
most recent of which is Canada (Attorney General) v Sandoz Canada Inc.,
2015 FCA 249 (Sandoz), which has fully and finally determined that these
sections are in fact intra vires and constitutional. Notably, the Sandoz
case is the subject of a leave to appeal application to the Supreme Court of
Canada, which, as of the date of this decision, has not been decided.
[5]
The AG’s argument is simple: as the
constitutionality of the provisions has already been determined in prior
jurisprudence, this application is bereft of any chance of success.
[6]
In contrast, Alexion argues that while the issue
of constitutionality of these provisions has been adverted to in several cases,
the discussion has been peripheral and has not been focused on a pith and
substance analysis nor a complete and careful division of powers analysis.
Thus, none of the jurisprudence to date deals with the issue head on. For that
reason, this application is not bereft of any chance of success. The Impugned Provisions
are set out in Schedule A attached hereto.
[7]
In order to determine whether or not the Impugned
Provisions are constitutional, thus making this application bereft of any
chance of success, it is necessary to carefully consider the issues in play in
the various cases cited by the AG and particularly the recent Sandoz
case.
II.
Background
[8]
The proceeding before the Board giving rise to
this application results from a Notice of Hearing issued January 20, 2015 by
the Board notifying Alexion that the Board would “determine
whether, under section 83 and 85 of the Patent Act … [Alexion] is
selling or has sold … SOLIRIS in any market in Canada at a price that, in the
Board’s opinion, is or was excessive and if so, what order, if any, should be
made.”
[9]
It is stated in the grounds of this application
that “[t]he price of SOLIRIS in Canada has neither
increased since it was first introduced in the Canadian market in 2009, or
decreased in the countries where the product is sold outside of Canada. Further,
it is noted that in 2010 and 2011, the Board explicitly acknowledged that the
introductory price of SOLIRIS was not excessive based on international pricing
of the product.” [Paragraph 4 Notice of Application]
III.
Position of Alexion
[10]
Alexion alleges that the Notice of Hearing of
the Board directed toward pricing between 2012 and 2014 relates to exchange
rate fluctuations of the value of the Canadian dollar which in turn affects the
price of SOLIRIS in Canada.
[11]
Alexion argues that the Board’s mandate, in
part, is “protecting consumers” and its mission
is to ensure that prices of patented medicines are not excessive. It is argued
that these objectives of protecting consumers and ensuring that the prices of
patented medicines are not excessive, do not fall within federal powers and do
not fall within the objective of controlling patents of invention and discovery
under section 91(22) of the Constitution Act, 1867 or any other
federal power under the Constitution Act, 1867.
[12]
Alexion has served the evidence that it intends
to rely upon in support of its position on the ultimate hearing of this application.
That evidence comprises the legislative history of the Patent Act and
particularly the Impugned Provisions; an affidavit and documentary exhibits of
Lionel Bentley, the Herschel Smith Professor of Intellectual Property of the
Faculty of Law, University of Cambridge; and, the affidavit and documentary
exhibits of Jonathan Putnum, a Professor of International Economics as Applied
to Intellectual Property Law.
[13]
The legislative history is extensive and
canvasses the evolution of the Impugned Provisions and various aspects of the development
of Canada’s compulsory licensing regime. Included in the legislative history is
a legal opinion dated September 14, 1992 prepared for the Canadian Drug
Manufacturers Association by Dean James C. McPherson (as he then was) relating
to the constitutionality of the Impugned Provisions. That opinion puts into
question the constitutional validity of the Impugned Provisions.
[14]
In his affidavit, Lionel Bentley describes
himself as a specialist in intellectual property law and professor at the
University of Cambridge. His affidavit discusses at length the relationship
between patents and prices; drug price regulation; compulsory licensing; and
drug price regulation in various jurisdictions. His conclusion is that the
Canadian regime is unique and questions whether the Impugned Provisions are
really patent law provisions as patent law is not concerned with direct price
controls.
[15]
In his affidavit, Jonathan Putnam describes
himself as an expert in international economics as applied to intellectual
property. The thrust of his affidavit, inter alia, relates to the
purpose and effect of the Impugned Provisions and its economic impact within
the administrative framework of the Patent Act. He concludes that the
regulatory purpose of the Board in protecting consumers is, in effect,
antithetical to the real purpose of the Patent Act which is to provide
patent protection in the form of a monopoly to inventors. The regulatory
regime, it is opined, “depriv[es] the inventor . . . of
. . . the full enjoyment of the monopoly conferred by the patent” which
may result in a detriment to the Canadian consumer as it may discourage
inventors from developing new medicines.
[16]
The legislative history and the affidavit
evidence is argued by Alexion to provide the full record for a complete and
thorough pith and substance constitutional analysis of the Impugned
Provisions. Further, this evidence bolsters the position of Alexion that the
Impugned Provisions are ultra vires as they infringe on property and
civil rights. For this reason, as no court has yet had the benefit of such a
complete record, the determinations of the courts which have considered the
Impugned Provisions or their predecessors are open to question. Thus, argues
Alexion, this application is not bereft of any chance of success.
IV.
Position of the AG
[17]
The AG argues that as the constitutionality of
the Impugned Provisions has been considered in prior cases which have all
upheld the Impugned Provisions as constitutional this application is bereft of
any chance of success.
[18]
In order to put the constitutional issue in perspective,
it is necessary to review the line of cases upon which the AG relies to argue
that this application is bereft of any chance of success.
A.
Manitoba Society of Seniors Inc. v. Canada
(Attorney General) (1991),
77 DLR (4TH) 485 (QB), aff’d (1992), 96 DLR (4TH) 606 (CA)
[19]
This is the first case which the AG relies upon
in support of the proposition that the constitutionality of the Impugned
Provisions has been determined. It is to be noted that the Patent Act
was subsequently amended and the specific provisions in dispute in Manitoba
Seniors were repealed and were replaced in part, by the Impugned Provisions
[Patent Act Amendment Act, 1992, S.C. 1993, c. 2].
[20]
In Manitoba Seniors, the Patent Act’s
provisions in dispute were challenged on the following basis as set out in p.
486-487:
The challenge is mounted on three fronts:
(a) That the impugned provisions are ultra
vires the Parliament of Canada in that they exceed the powers granted to
Parliament pursuant to the Constitution Act, 1867;
(b) That in both purpose and effect,
the impugned provisions establish a system for regulating, controlling and
fixing the prices of patented medicines being sold in provincial markets,
thereby infringing upon the jurisdiction of the provinces in relation to matters
of property and civil rights pursuant to s. 92(13) of the Constitution Act,
1867; and
(c) That those provisions of
the impugned legislation, lengthening the period of patent exclusivity
applicable to medicines, are so inextricably linked to those establishing a
price control system, they would not have been enacted by Parliament in the
absence of a system of price control; the exclusivity provisions are therefore
not severable, and the entire scheme created by impugned provisions is ultra
vires.
[21]
The Applicants in Manitoba Seniors argued
that Parliament exceeded its legislative authority by creating a price control
mechanism in the pharmaceutical industry which fell within the exclusive
jurisdiction of the Provinces. The Crown argued that the impugned amendments
flowed from section 91(22) of the Constitution Act, 1867, “patents and invention and discovery”.
[22]
After a brief review of the legislative history
of the sections under attack, Justice Dureault of the Manitoba Court of Queen’s
Bench made the following observations at p. 491:
On a careful review of the impugned
legislation in its totality, it does appear on a reasonable construction that
in pith and substance the legislation pertains to increased patent protection for
new inventions pertaining to medicines. Patent exclusivity is restored to an
important degree by allowing immunity from competition of any new patented
medicine for periods ranging from seven to ten years. While compulsory
licensing is retained, the amendments introduce a prohibition against
exercising any rights under the licence during the period of patent
exclusivity. That is also a significant policy change.
. . .
The price review regime is but one component
of the broader regime of patent exclusivity brought about by the impugned
provisions and is essentially a device for dealing with excessive prices
resulting from patent abuse. As indicated, the remedial actions are loss of
patent exclusivity or reintroduction of competition through compulsory licensing.
How could such actions, directing a return to the earlier regime of immediate
compulsory licensing, be considered anything but the valid exercise of patent
power. The fact that, as a last resort, the Board may seek enforcement of its
rollback orders through a superior court process does not change the
fundamental nature of the legislation from the field of patent to that of
property and civil rights, i.e., price control.
I conclude that in the pith and substance
the impugned amendments pertain to the field of patents of invention. As the
legislation re-establishes exclusivity for patented medicines to an extent not
enjoyed since 1931, Parliament also provided for a mechanism to deal with price
abuse that may incidentally occur as a result of these monopolies it created.
The Board is only empowered to deal with the excessive prices of medicines
patented under the new regime. It is not a scheme of general supervision of all
patented pharmaceutical inventions. It clearly deals with the potential abuse
flowing incidentally from the newly created patent exclusivity. Any firm not
wishing to submit to the Board’s authority can do so by renouncing its right to
obtain a patent. Thus, the legislation is targeted to patent and patent abuse.
I conclude that the impugned legislation
was validly enacted by the Parliament of Canada pursuant to its constitutional
power in the field of patents of invention. Accordingly, the application for
the declaratory relief must be denied. [emphasis
added]
[23]
On appeal, the Manitoba Court of Appeal upheld
the decision and offered the following observation:
In our opinion, there can be only one answer
to the question in this case. The impugned legislation is in pith and
substance in relation to matters within Parliament’s exclusive legislative
jurisdiction over patents. The fact that the legislation may have an effect
upon matters within provincial jurisdiction (in this case, property and civil
rights) is then of no consequence.
[24]
The conclusion of the Manitoba courts, while not
dealing with the current Impugned Provisions, is nonetheless persuasive of the
point that control of pricing through the auspices of the Patent Act is
constitutional.
B.
Smith, Kline & French Laboratories Ltd. v
Attorney General of Canada,
[1986] 1 FC 274
[25]
This case was also heavily relied upon by
counsel for the AG. This case dealt with an attack on provisions of the Patent
Act as being unconstitutional as they related to compulsory licence
provisions. In particular, the AG relies upon the following observations of
Justice Strayer (as he then was):
I therefore conclude that this subsection,
by making the grant of patent for medicine subject to compulsory licensing is
simply limiting the scope of the property right, the monopoly, which Parliament
is authorized but not obliged to grant.
… But subsection 41(4) is not a law in
relation to “prices” as contended by the plaintiffs. It does not purport to fix
prices. One of its principal objects is, obviously, to bring about a reduction
in prices through competition, but the prices are to be fixed by the vendors of
drugs. Merely because the exercise of a federal power affects prices does
not make it invalid. For example, the exercise of the federal taxation
power in respect of excise taxes and tariffs affects in a much more precise way
the prices paid by Canadians for many goods. The exercise of the federal
jurisdiction over “interest” and “banking” affects the price of borrowing money. One can multiply the
examples. [emphasis added]
[26]
It is also interesting to note that Justice
Strayer commented on the previous line of authority upholding various
provisions of the Patent Act as follows:
I accept, nevertheless, the submission of
counsel for the plaintiffs that it might remain open to this Court to
distinguish these previous decisions if the evidence in this case disclosed an
object or effect that was not apparent at the time of those other decisions. It
appears that there was no extrinsic evidence presented in those cases with
respect to the object or effect of the Act. I must therefore consider whether
the evidence in this case is such as to lead to a different conclusion at this
time.
[27]
This latter observation of Justice Strayer is
relied upon by Alexion to support its argument that no proper evidentiary record
has been put forward to deal with the constitutionality of the Impugned
Provisions.
C.
Sandoz - Canada (Attorney General) v Sandoz
Canada Inc., 2015 FCA
249
[28]
This is a decision of the Federal Court of
Appeal. This case engages the Impugned Provisions. There were two appeals
heard together: one involving ratiopharm Inc. (ratiopharm) and one involving
Sandoz Canada Inc. (Sandoz).
[29]
The case involving ratiopharm related to the
supply and licensing of a patented drug owned by GlaxoSmithKline (GSK) to
ratiopharm. As part of the arrangement ratiopharm was granted the exclusive
licence to set the price of the drug. ratiopharm applied for a Notice of
Compliance (NOC) and listed GSK’s patent with the proviso that the patent owner
had consented “to the making, constructing, using or
selling of [the drug] in Canada”. ratiopharm received its NOC.
[30]
Sandoz also sold various drugs as a licensee
from a patent owner. The patent owner consented to Sandoz obtaining NOC’s for
its generic drugs and allowed Sandoz to market and sell generic versions of the
drugs after other generics had entered the market.
[31]
The Board commenced proceedings against
ratiopharm alleging that a drug sold by ratiopharm was sold at excessive
prices. The Board also sought information about the sales and pricing of the
drug and also sought supply agreements relating to other drugs. As against
Sandoz, the proceedings brought by the Board related to seeking sales and
pricing information on a number of drugs.
[32]
Orders were made by the Board against both ratiopharm
and Sandoz. In the case of ratiopharm an order was made requiring ratiopharm
to pay over $65 million to offset excess revenues realized by ratiopharm
relating to the drug in issue. The Board also required ratiopharm to provide
additional information relating to other drugs.
[33]
As against Sandoz, the Board ordered Sandoz to
provide information relating to five drugs.
[34]
The two orders of the Board were judicially
reviewed. The judicial review applications were both heard by the Honourable
Mr. Justice James O’Reilly, one shortly after the other. Reasons for decision
overturning the orders of the Board were issued simultaneously.
[35]
Justice O’Reilly found in both cases that
neither Sandoz nor ratiopharm were “patentees”
within the meaning of the Patent Act and therefore the Board had no
jurisdiction over them. The applications for judicial review were both allowed
with costs and a direction was made that the Board find they were not
patentees. Justice O’Reilly also made a determination of the constitutional
issue and found the Impugned Provisions to be constitutional. He observed as
follows:
[28] Even though the relevant
provisions of the Act have already been found to be constitutional (Manitoba
Society of Seniors Inc.), ratiopharm argues that subsequent amendments to
the Act relating to the Board’s powers now place those provisions beyond
federal jurisdiction over patents, encroaching on provincial jurisdiction over
Property and Civil Rights.
[29] Those amendments “strengthened the Board’s remedial and punitive powers”
to offset the effect of abolishing the prior scheme of compulsory. Their
purpose was to enable the Board “to influence the pricing
of patented medicines to much the same extent that the competition fostered by
compulsory licensing used to influence it” licensing (ICN Pharmaceuticals, Inc v Canada (Patented Medicines Prices Review
Board), [1997] 1 FC 32 (CA) at para 12).
[30] As I see it, the amendments giving
the Board the power to address the pricing of patented medicines more directly
through monetary remedies and penalties did not alter the basic purpose of the
legislation or expand the Board’s mandate. Therefore, I see no basis for
departing from the conclusion reached in Manitoba
Society of Seniors Inc., that the provisions of the
Patent Act dealing with
patented medicines, properly interpreted, fall within federal jurisdiction over
patents of invention; they are constitutional.
[36]
The AG appealed both decisions. Both the issue
of whether Sandoz and ratiopharm were “patentees”
and whether the Impugned Provisions were constitutional were in play in the
appeals. However, the central issue as defined by Chief Justice Marc Noël was “whether the Federal Court Judge properly held that Sandoz
and ratiopharm (collectively the Respondents) fell outside the jurisdiction of
the Board as they were not “patentees” within
the meaning of section 79(1). . . ” [para 2].
[37]
While much of the decision of the Federal Court
of Appeal addresses this issue, Justice Noël, in fact, devoted some 5 pages to a discussion of the constitutional arguments. Justice Noël
summarized the arguments as follows:
[110] The gist of the respondents’
constitutional argument before the Board was that the regulation of prices
under sections 79-103 of the Act, and the related filing requirements, are an
unconstitutional extension of Parliament’s authority over patents, at least
insofar as generic pharmaceutical products are concerned (Sandoz written
submissions before the Board, Sandoz’s Confidential Appeal Book, Vol. 11, Tab
27 at para. 201). Ratiopharm made the identical arguments but without this
reservation (ratiopharm written submissions before the Board, ratiopharm’s
Confidential Appeal Book, Vol. 5, Tab 10 at para. 383; Transcripts of hearing
before the Board, RPAB, Vol. 8, Tab 44 at p. 2210). However the notice of
constitutional question which it filed before the Federal Court and before this
Court uses the same language.
[111] It is apparent that the respondents
used that language because their argument, if accepted, could result in the
entire scheme devised by Parliament being struck down. The Federal Court judge
refused to declare the scheme unconstitutional insofar as patent holders are
concerned (ratiopharm reasons at paras. 28 to 30; Sandoz reasons at paras. 35
to 37), but his decision leaves open the question whether the scheme might be
unconstitutional with respect to persons who exercise the right to sell
patented medicine without owing it.
[112] The theory behind the respondents’
constitutional attack before the Board was that the current regime is one of
pure price regulation which intrudes into the sphere of property and civil
rights. Specifically, when Manitoba Society was decided, the Board had the
remedial power to “lift” the protection granted to an inventor by a patent
(reference is made to paragraph 41.15(2)(d) of the Act as it then read).
According to the respondents this provision, which has since been repealed, was
at the heart of the decision of the Manitoba Queen’s Bench in Manitoba Society
upholding the constitutional validity of the scheme.
[38]
After referring to the Manitoba Court of Appeal
decision in Manitoba Seniors, Chief Justice Noël held as follows:
[116] In my view, the Federal Court judge
and the Board before him correctly held that the control of prices charged for
patented medicines comes within the jurisdiction conferred on Parliament over
patents under subsection 91(22) of the Constitution Act 1867 when
applied to a patent holder or owner. The respondents recognize as much when
they state that the Federal Court judge’s interpretation of “patentee”
maintained the connection to the federal head of power, such that the reasoning
in Manitoba Society remained intact (respondents’ respective replies to the
response by the Attorney General of Canada to the Notice of Constitutional
Question (respondents’ replies) at para. 46).
[39]
In my view, the Federal Court of Appeal has
determined explicitly that the Impugned Provisions are constitutional. This
decision is binding on this Court. It may very well be, that as Alexion argues,
none of these cases have conducted a proper pith and substance analysis nor has
there been before those courts a full record which would include its
legislative history and the impact of the Impugned Provisions. Alexion
endeavoured to distinguish both Manitoba Seniors and Sandoz with
other inventive arguments. Notwithstanding these efforts to distinguish those
cases, in my view, having carefully reviewed all of them, as far as this
application is concerned, the Federal Court of Appeal’s conclusion on
constitutionality prevails. Thus, this application is bereft of any chance of
success and the motion of the AG should be granted.
[40]
Notably, the Sandoz case is being appealed
to the Supreme Court of Canada. No decision has been rendered yet by the Supreme
Court on the leave to appeal application. However, in that leave application,
the Appellants (Sandoz and ratiopharm) open their factum with the following
statement:
1. This case raises questions of
national importance in constitutional, administrative, and patent law. It
presents an opportunity for this Court to address, for the first time, the
scope of the federal power over “Patents of Invention and Discovery”
under s. 91(22) of the Constitution Act, 1867. Specifically,
this Court’s guidance is needed to define the extent to which, if at all, this
power authorizes federal price regulation of generic drugs and to identify when
such regulation exceeds federal jurisdiction and encroaches impermissibly upon
the exclusive provincial jurisdiction over “Property and Civil Rights” under s.
92(13) of the Constitution Act, 1867.
[41]
This issue is repeated at paras. 18 and 19 as
follows:
18. This case raises significant
issues about the scope of the federal power over Patents of Invention and
Discovery under
s. 91(22) of the Constitution Act, 1867 and, more precisely, the
boundaries between this federal power and the provincial power over Property
and Civil Rights under s. 92(13) of the Constitution Act, 1867 –
matters that have yet to be addressed by this Court. Ratiopharm and Sandoz,
respectfully submit that price regulation of generic drugs sold by companies
who are not patent holders and do not exercise monopolies is not in pith and
substance related to matters within Parliament’s s. 91(22) power, nor can it be
held intra vires through the application of the ancillary powers
doctrine.
19. To begin, there is no general power
authorizing the federal government to regulate prices in a particular trade or
industry, such as the generic pharmaceutical industry. Thus federal regulation
under the “trade and commence” power must be concerned with “trade as a whole rather than with a particular industry”. In the absence of a national emergency or reliance on some other
head of power, the federal government and its agencies do not have the
authority to engage in pure price regulations. In this case, if federal
authority existed, it would have to be grounded upon the head of power over
Patents of Invention and Discovery.
[42]
While Sandoz is focused on whether or not
a generic manufacturer is captured by the definition of “patentee” in the Patent Act and thereby is
subject to the jurisdiction of the Board, should the Supreme Court of Canada
grant leave to appeal, the issue of the constitutionality of the price control
regime and the jurisdiction of the Board as contained in the Impugned
Provisions would be open for consideration by the Supreme Court. However, that
is for the Supreme Court to decide.
V.
Conclusion
[43]
The test to be applied on a motion to strike, as
noted, is whether the proceeding is bereft of any chance of success. It is a
high burden. [see, Hunt v. Carey Canada Inc., [1990] 2
S.C.R. 959; David Bull Laboratories (Canada) Inc. v. Pharmacia Inc., [1995] 1 FC 588 (C.A.)]. In my
view, that burden has been met.
[44]
At first instance, the precedent set by Sandoz
in the Federal Court of Appeal is sufficient to dispose of this motion. The
conclusion of that Court is definitive and notwithstanding the very able
arguments of counsel for Alexion, the doctrine of stare decisis applies.
[45]
During the course of the argument of this
motion, counsel were asked whether this matter should be stayed pending the
outcome of the leave to appeal application. Neither party supported holding this
motion to strike in abeyance pending the outcome of the Notice of Application
for Leave. The AG argued, in effect, if leave were denied then the law would
clearly be settled and if leave is granted this application becomes
unnecessary. Alexion, for its part, argued that while the issue may be raised
in the Sandoz case, it is not raised on a full and complete record in
the manner which Alexion argues has been put together in support of this
application and therefore this application should proceed in any event.
[46]
In the end result, as no stay has been sought,
the motion of the AG is granted and this application is struck with costs. If
the parties are unable to agree on costs they may file written submissions
limited to three single spaced pages. The AG shall file their written
representations within 15 days of the date of this order and Alexion shall file
their responding submission within 15 days thereafter.
[47]
The Court is grateful to counsel for the
excellent argument of this motion.
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