Apotex Inc. v. Canada (National Health and Welfare), docket T-1237-95

     T-1237-95

BETWEEN:

     APOTEX INC.

     Applicant

     - and -

     MINISTER OF NATIONAL HEALTH AND WELFARE,

     ELI LILLY & COMPANY and ELI LILLY CANADA, INC.

     Respondents

     REASONS FOR ORDER

JEROME A.C.J.:

     This application for mandamus and declaratory relief in relation to proceedings under the Patented Medicines (Notice of Compliance) Regulations, SOR/93-133, came on for hearing at Toronto, Ontario, on February 4, 1997. At the conclusion of argument, I took the matter under reserve and indicated that these written reasons would follow.

BACKGROUND

     The Originating Notice of Motion of the applicant, filed June 12, 1995, seeks the following relief:

1.      An Order declaring that, in relation to the Notice of Allegation dated February 10, 1995 filed with the Minister of National Health and Welfare ("Minister") and served upon the Respondents on or about February 13, 1995, there is no restriction upon the Minister under the Patented Medicines (Notice of Compliance) Regulations ("Regulations") restricting the Minister from issuing Apotex a Notice of Compliance in respect of its 150 mg and 300 mg nizatidine capsules;

2.      An Order directing the Minister to process Apotex' New Drug Submission for 150 mg and 300 mg capsules of nizatidine without regard to any patent lists filed by the Respondents, Eli Lilly & Company and Eli Lilly Canada Inc. ("Lilly"), pursuant to section 4 of the Regulations;

3.      An Order declaring that an Order for prohibition issued pursuant to the Regulations applies so as to prohibit the Minister from issuing a Notice of Compliance only in relation to the particular Notice of Allegation giving rise to the proceedings under the Regulations in which the prohibition order was granted and has no application to any other Notice of Allegation;

4.      An Order declaring that the Order of Madame Justice McGillis dated February 9, 1995 does not apply to prohibit the Minister from issuing a Notice of Compliance to Apotex in respect of its 150 mg and 300 mg nizatidine capsules based upon the Notice of Allegation dated February 10, 1995 filed and served by Apotex on or about February 13, 1995, or in the alternative, an Order staying, or in the further alternative, setting side [sic], the said Order of Madame Justice McGillis.

     The applicant, Apotex Inc., is a Canadian manufacturer of prescription pharmaceutical products that are functionally equivalent formulations of active chemical ingredients first brought to market by other companies.

     The respondents, Eli Lilly & Co. and Eli Lilly Canada Inc. ("Eli Lilly") are the owners of Canadian patents no. 1,166,248 and 1,221,369, pertaining to the substance known as nizatidine, which is used in the treatment of peptic ulcers. Eli Lilly brought the first pharmaceutical preparation of nizatidine to market and was issued a Notice of Compliance ("NOC") on December 31, 1987 for the medicinal uses of nizatidine in its 150 mg and 300 mg capsule forms.

     Apotex has filed a New Drug Submission ("NDS") for a NOC in respect of its own brand of nizatidine compositions with the respondent, the Minister of National Health and Welfare. On April 28, 1993, Apotex filed a Notice of Allegation (the "First Notice") alleging that no claim for the medicine itself and no claim for the use of the medicine in the patents would be infringed as it could sell free of infringement pursuant to the terms of a license to which Novopharm Limited was a party. In response to the First Notice, Eli Lilly commenced an application for prohibition pursuant to subsection 6(1) of the Regulations.

     By Order dated February 9, 1995, Madame Justice McGillis ordered that the Minister "is prohibited from issuing a notice of compliance to Apotex Inc. until after the expiration of Canadian patents 1,166,248 and 1,221,369." The Federal Court of Appeal upheld the decision of McGillis J. by Order dated April 1, 1996 (File A-82-95: (1996) 66 C.P.R. (3d) 329). An appeal to the Supreme Court of Canada was filed, for which leave was granted on February 6, 1997. To date, the appeal has not been inscribed for hearing.

     Apotex submitted a second Notice of Allegation (the "Second Notice") which it served on Eli Lilly on February 13, 1995. The Second Notice alleged that Apotex will only use nizatidine manufactured by means of a process that is non-infringing of the processes claimed in patents 1,166,248 and 1,221,369. Eli Lilly did not apply within forty-five days for an order of prohibition pursuant to subsection 6(1) of the Regulations.

     At the time of filing, the Second Notice was based on the same NDS. The Affidavit of Jack Kay, president of Apotex Inc., sworn February 13, 1996 states:

5.      At the time that it delivered its second Notice of Allegation, Apotex was in the process of preparing its update to its New Drug Submission in keeping with the protocol dictated by the Health Protection Branch of the Ministry of National Health and Welfare. The protocol dictated by the Health Protection Branch limits updates to New Drug Submissions to a single occasion, the timing of which is dictated by the timing of review by the Health Protection Branch of a New Drug Submission. More particularly, shortly before the time the Health Protection Branch is ready to commence review of a New Drug Submission, notification is given to the manufacturer, at which time the manufacturer is entitled to update its New Drug Submission in a variety of ways, including updating the manufacturing process for the active raw material medicinal ingredient.

6.      Until the time that the Health Protection Branch permits the update to be filed as aforesaid, the manufacturer may not update its New Drug Submission without losing the position of the New Drug Submission in the review queue at the Health Protection Branch. This would mean that a submission would, with the filing of an unauthorized update, be removed from its position in the review queue and placed back to the beginning of the queue, a queue which is approximately three to four years in wait time.

7.      As a result, on February 10, 1993, Apotex was not in a position to file its update. The update was in fact filed with the non-infringing process for the manufacture of the Nizatidine raw material delineated therein on June 22, 1995 as part of the entire update package filed with the Health Protection Branch in accordance with the Health Protection Branch protocol.

     Apotex informed the Minister that the injunctive procedure available to Eli Lilly under the Regulations had not been invoked and requested confirmation that its submission for a NOC would be processed in due course. Apotex did not receive a reply from the Minister and commenced this application for declaratory relief and mandamus.

REGULATORY FRAMEWORK

     The relevant portions of the Regulations read as follows:

5.(1) Where a person files or, before the coming into force of these Regulations, has filed a submission for a notice of compliance in respect of a drug and wishes to compare that drug with, or make a reference to, a drug that has been marketed in Canada pursuant to a notice of compliance issued to a first person in respect of which a patent list has been submitted, the person shall, in the submission, with respect to each patent on the patent list,

. . .

(b) allege that

(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.

(3) Where a person makes an allegation pursuant to paragraph (1)(b) or subsection (2) the person shall

(a) provide a detailed statement of the legal and factual basis for the allegation; and

(b) serve a notice of the allegation on the first person and proof of such service on the Minister.

Right of Action

6.(1) A first person may, within 45 days after being served with a notice of allegation pursuant to paragraph 5(3)(b), apply to a court for an order prohibiting the Minister from issuing a notice of compliance until after the expiration of one or more of the patents that are the subject of an allegation.

(2) The court shall make an order pursuant to subsection (1) in respect of a patent that is the subject of one or more allegations if it finds that none of those allegations is justified.

Notice of Compliance

7.(1) The Minister shall not issue a notice of compliance to a second person before the latest of

(a) the expiration of 30 days after the coming into force of these Regulations,

(b) the day on which the second person complies with section 5,

(c) subject to subsection (3), the expiration of any patent on the patent list that is not the subject of an allegation,

(d) subject to subsection (3), the expiration of 45 days after the receipt of proof of service of a notice of any allegation pursuant to paragraph 5(3)(b) in respect of any patent on the patent list,

(e) subject to subsections (2), (3) and (4), the expiration of 30 months after the receipt of proof of the making of any application referred to in subsection 6(1), and

(f) the expiration of any patent that is the subject of an order pursuant to subsection 6(1).

SUBMISSIONS OF THE PARTIES

     Apotex submits that the issue before the Court in an application pursuant to subsection 6(1) of the Regulations for a prohibition order is not whether, in general terms, the generic should ever receive a NOC, but whether the allegation contained in the notice of allegation is not justified. Therefore, Apotex states that any prohibition order which is granted, such as that of McGillis J., only relates to the particular allegation or allegations which were found, on a balance of probabilities, not to be justified. Apotex argues that the Court can make no determination as to whether other allegations not placed before it would be justified. As such, it is submitted that the doctrine of res judicata does not have application as there is no final determination which is binding in all circumstances and for all time. Apotex argues that the parties are not bound by the outcome of a prohibition proceeding in respect of a particular patent and they remain free to assert their rights either by way of an action for impeachment or invalidity, or by filing a further notice of allegation. Nothing in the Regulations or in law establishes that the grant of a prohibition order in respect of one allegation renders the generic company permanently incapable of advancing a non-infringing claim on an alternate basis.

     Apotex submits that the Court should follow the decision of Mr. Justice MacKay in AB Hassle and Astra Pharma Inc. et al. v. The Minister of National Health and Welfare and Apotex Inc. (January 8, 1997) (T-1712-95; T-421-96; T-998-96).

     Apotex submits that if a Notice of Allegation is unchallenged by the first person patentee within the 45 day period prescribed by the Regulations, the Minister is entitled to immediately issue a NOC. Apotex states that the relief which it is seeking should be granted because the prohibition order of McGillis J. has no bearing on the Second Notice which remained unanswered.

     The Minister submits that the notice of compliance cannot be issued because of the prohibition order of McGillis J.. The Minister takes the position that the prohibition order is clear and unambiguous on its face.

     Eli Lilly submits that the applicant's Originating Notice of Motion should be dismissed because there is a final order of the Trial Division, which has been confirmed on appeal, prohibiting the Minister from issuing a NOC to Apotex until after the expiry of the patents. Eli Lilly states that the Minister is bound to follow this order and that the Court has no jurisdiction to amend, reconsider, or otherwise vary this order. It is further submitted that the relief sought by the applicant should not be granted because the terms of paragraphs 7(1)(b) and (f) have not been satisfied in that section 5 of the Regulations has not been complied with and in that Eli Lilly's patents have not expired and they are subject to an order under subsection 6(1). Eli Lilly states that the scheme of the Regulations is such that all issues can and should be raised by the second person at one time in order to avoid multiple proceedings. Further, to file multiple notices of allegation is said to be an abuse of the Court's process and the regulatory framework.

     Eli Lilly argues that even if the Court were permitted to go behind the Order, and even if the Minister was not restricted by subsection 7(1) from issuing a NOC, the applicant's requested relief should not be granted as the second notice is merely a duplication of the matter resolved in Eli Lilly's favour by the decision of McGillis J.. Eli Lilly states that the Second Notice is res judicata. In support of this argument, Eli Lilly points to the fact that at the time the Second Notice was filed, on February 10, 1995, and at the expiration of the 45 day period, on April 1, 1995, Apotex had not filed a new NDS nor amended its NDS. As such, the only process for preparing nizatidine included in Apotex' NDS is the one that resulted in the Order of McGillis J.. Eli Lilly submits that the Second Notice must necessarily relate to the allegation on file with the Minister as the notice of allegation is inextricably linked to the NDS. Therefore, res judicata is said to be applicable because there are no differences in the underlying facts.

     Finally, Lilly submits that the decision of MacKay J. does not resolve the issues before the Court as, although MacKay J. addressed the issue of res judicata, he only did so on a preliminary motion and did not preclude such arguments being raised at the judicial review hearing pertaining to the second notice of allegation.

ANALYSIS

     In AB Hassle v. Canada (Minister of National Health and Welfare) (1995), 62 C.P.R. (3d) 3 at 10-11 (F.C.T.D.), Mr. Justice Richard provided a useful overview of the regulatory regime:

It is now well established that an application made pursuant to s. 6(1) of the Regulations is an application for judicial review whose object is to prohibit the issuance by the Minister of a notice of compliance under s. C.08.004 of the Food and Drug Regulations. The Patented Medicines (Notice of Compliance) Regulations were made effective March 12, 1993, pursuant to s. 55.2(4) of the Patent Act, R.S.C. 1985, c. P-4. The Regulations are themselves a mechanism to ensure compliance with the Patent Act. They are designed to prevent patent infringement. The Patented Medicines (Notice of Compliance) Regulations have been grafted onto the Food and Drug Regulations, whose sole purpose is the protection of public health and safety. A large measure of the difficulties which occur in interpreting both regulatory schemes are due to their different objectives.

. . .

The Regulations require that, where a second person (usually a generic manufacturer) files a submission for a NOC in respect of a drug and wishes to compare that drug with or make a reference to a drug that has been marketed in Canada pursuant to a NOC issued to a first person (usually the brand name manufacturer) who has previously filed a patent list, the second person shall, in the submission, with respect to each patent on the list, state that the person accepts that the NOC will not issue until the patent expires or make one or more specific allegations pertaining to the patent.

     Madame Justice McGillis, in Janssen Pharmaceutical Inc. v. Apotex Inc. (1996), 68 C.P.R. (3d) 114 at 116-117 (F.C.T.D.) stated:

Under the regulatory scheme concerning the issuance of a notice of compliance, the new drug submission, the notice of allegation and the detailed statement of the legal and factual basis for the allegation are inextricably linked (see sections 4, 5 and 6 of the Regulations). Indeed, as the Court of Appeal indicated in David Bull Laboratories (Canada) Inc. v. Pharmacia Inc., [1995] 1 F.C. 588, 58 C.P.R. (3d) 209 (F.C.A.), the prohibition proceedings contemplated by the Regulations are directed solely to a determination of whether the Minister may issue a notice of compliance. As such, the "...decision must turn on whether there are allegations by the generic company sufficiently substantiated to support a conclusion for administrative purposes (the issue of a notice of compliance) that the applicant's patent would not be infringed if the generic's product is put on the market" (supra, p. 599). The Court of Appeal also reinforced the importance of the notice of allegation in the regulatory scheme in Merck Frosst Canada Inc. v. Canada (Minister of National Health and Welfare) in the following terms (supra, page 319):

Furthermore, since the regulations clearly allow the Minister, absent a timely application under s. 6, to issue a notice of compliance on the basis of the allegations in the notice of allegation, it would seem that on the hearing of such an application, at least where the notice has alleged non-infringement, the court should start from the proposition that the allegations of fact in the notice of allegation are true except to the extent that the contrary has been shown by the applicant.

     In my opinion, the jurisprudence of this Court has recognized that multiple notices of allegation can be filed, provided that a subsequent notice of allegation is not essentially the same as one previously filed: Schering Canada Inc. v. Nu-Pharm Inc. (September 22, 1994) (T-2274-93 and T-1528-94), per Rothstein J.; AB Hassle and Astra Pharma Inc. et al. v. The Minister of National Health and Welfare and Apotex Inc., supra; Merck Frosst Canada Inc. et al. v. The Minister of National Health and Welfare et al. (May 2, 1995) (T-1306-93), per Noël J.; and Bayer AG v. Canada (Minister of National Health and Welfare) (January 20, 1995) (A-669-93), per Strayer J.A.. In Merck Frosst Canada Inc. et al., Noël J. stated at p. 3:

There is in my view no contradiction between the two notices and the undertaking which they incorporate. The notices reflect independent allegations aimed at norfloxacin made by an infringing process in the first instance, and by a noninfringing process in the second. They could in the end result both fail or succeed, or either one could succeed or fail independently of the other. Each calls for a totally different inquiry and I fail to see how the second allegation could be of relevance to the adjudication of the first.

MacKay J. stated in AB Hassle and Astra Pharma Inc. et al. v. The Minister of National Health and Welfare and Apotex Inc. at 10-14:

The Regulations are silent about whether more than one notice of allegation may be given by a generic producer seeking to compare its drug with one already approved for sale in Canada under an NOC. ... In my view, the weight or significance to be attached to the second notice of allegation must await determination when the merits of the applicants' second originating motion for prohibition is heard with full argument.

     In this case, the First Notice and the Second Notice are not essentially the same. The First Notice was based on the existence of a license. The Second Notice claimed that a non-infringing process would be utilized. The Second Notice, however, will not be made the subject of a prohibition order application as Eli Lilly did not commence an application within the time limit set out in section 6.

     I now turn to a consideration of the impact of McGillis J.'s prohibition order on the Second Notice. I do not find the principle of res judicata to be applicable. On this issue, I adopt the comments of MacKay J. in AB Hassle and Astra Pharma Inc. et al. v. The Minister of National Health and Welfare and Apotex Inc. at pp. 16 and 21:

It is urged by the applicants that the principle of res judicata is here applicable and that it is an abuse of the Court's process to permit the proceedings to continue at this stage, pending the result of the appeals initiated. Among other factors the applicants urge that the same issue as raised in these proceeding[s], that is, whether an order of prohibition should issue to preclude granting of an NOC in relation to the omeprazole, or other drug relevant in the other applications, has already been determined. I am persuaded by the argument on behalf of Apotex, however, that the issue before the Court in the original application, as in this one, is whether the particular notice of allegation in evidence before the Court is justified. If the court is not satisfied that it is, then an order of prohibition, directed to the Minister, is the relief the court is bound to issue.

Thus the principle of res judicata in its narrow sense, that is, that the issue has already been determined by the court, could only be applicable if essentially the same notice of allegation is before the Court as has already been determined not to be justified.

. . .

It is urged that by the principle of res judicata, in its broad application, Apotex is estopped from raising in a second proceeding issues or grounds that it might have raised in the first proceedings which resulted in orders prohibiting issue of NOCs in the cases concerning the three drugs in issue. I am not prepared to apply that principle in circumstances where Apotex' notices of allegation are not a pleading before this Court, but rather are statements submitted to the Minister and to the holder of an NOC. The notices are not without legal significance, as has been noted elsewhere, but they come before this Court as a matter of evidence which the Court is to weigh in accord with the Regulations when the application for judicial review, seeking an order of prohibition, is heard.

     I do not find the arguments of Eli Lilly with regard to the contents of the NDS and the issue of res judicata to be convincing. The contents of the NDS and its evaluation is part of a parallel process pursuant to the Food and Drug Regulations and is related to health and safety concerns. The contents of the NDS are not before the Court directly. The Court's focus in dealing with the Patented Medicines (Notice of Compliance) Regulations is the notice of allegation and whether the issuance of a NOC should be prohibited. The Court's task is to determine whether the notice of allegation is justified.

     Further, it would be extraordinary to interpret the Order of McGillis J. as dealing with anything more than that which was before her for hearing. McGillis J. was not able to rule prospectively in respect of issues and evidence of which she was not seized. McGillis J. only determined whether the allegation advanced in the First Notice was sufficiently justified to allow the Minister to issue a NOC. Thus, the scope of any prohibition order issued in proceedings brought under subsection 6(1) must be confined to the specific allegations advanced in those proceedings. To find otherwise would be inconsistent with the jurisprudence of this Court that multiple notices of allegation may be filed by the second party. It was open to Eli Lilly to file an originating notice of motion seeking an order prohibiting the Minister from issuing a NOC. Had this been done, a judicial review hearing would have been held to determine whether the allegation of production by a non-infringing process was justified. As Eli Lilly did not commence an application for a prohibition order, I find that the Minister, upon the expiry of the 45 days, was under no restriction to issue a NOC to Apotex in respect of its 150 mg and 300 mg nizatidine capsules.

     For these reasons, the relief sought by the applicant is granted. There are no special circumstances which would justify an award of costs.

O T T A W A

April 25, 1997                      "James A. Jerome"

                             A.C.J.