Merck Frosst Canada Inc. v. Canada (Minister of National Health and Welfare), [1998] 2 SCR 193

Merck Frosst Canada Inc. v. Canada (Minister of National Health and Welfare), [1998]  2 S.C.R. 193

Apotex Inc.                                                                                         Appellant

v.

Merck Frosst Canada Inc. and Merck & Co. Inc.                          Respondents

and

The Minister of National Health and Welfare and

Kyorin Pharmaceutical Co., Ltd.                                                       Respondents

Indexed as:  Merck Frosst Canada Inc. v. Canada (Minister of National Health and Welfare)

File No.:  25419.

1998:  January 21; 1998:  July 9.

Present:  L’Heureux‑Dubé, Gonthier, Cory, McLachlin, Iacobucci, Major and Bastarache JJ.

on appeal from the federal court of appeal

Patents -- Notice of allegation (NOA) -- Proper date for assessing NOA -- Patent Act, R.S.C., 1985, c. P-4 , ss. 39.11, 39.14 -- Patented Medicines (Notice of Compliance) Regulations, SOR/93-133, ss. 5(1), (3), 6, 7.

Patents ‑‑ Infringement ‑‑ Sublicensing ‑‑ Licensee agreeing to supply patented medicine to unlicensed third party ‑‑ Licence expressly prohibiting sublicensing -- Breach of licence conditions grounds for termination of licence ‑‑ Whether supply agreement between licence holder and third party a sublicence or having legal effect of creating a sublicence.

Kyorin held a Canadian patent for the antibiotic Norfloxacin.  Merck & Co. was the exclusive holder of a licence for Canada, and Merck Canada its sole sublicensee.  Apotex applied to the Commissioner of Patents for a Notice of Compliance (NOC) for the formulation and sale of 400 mg tablets of Norfloxacin.  The application did not specify where the tablets would be sold.  The Notice of Allegation (NOA) alleged that use by Apotex of the drug would not infringe Kyorin’s patent because Apotex would obtain bulk Norfloxacin from or through Novopharm under a supply agreement.  Novopharm was the holder of a compulsory licence issued before the 1993 revisions to the Patent Act  which eliminated the compulsory licence regime.

Under its compulsory licence, Novopharm was entitled to manufacture or import bulk Norfloxacin, and to combine it with other ingredients to make final-dosage forms for sale outside of Canada at any time after October 15, 1991.  However, pursuant to certain provisions of the Patent Act , it could not produce Norfloxacin for sale for consumption in Canada until July 2, 1993, or import it until July 2, 1996.  Furthermore, the compulsory licence expressly prohibited the granting of sublicences, and stipulated that any breach of the terms of the licence could justify Kyorin’s terminating the licence.

The respondents Merck Frosst Canada Inc. and Merck & Co. applied to the Federal Court--Trial Division for a prohibition order to prevent the Minister of National Health and Welfare from issuing the requested NOC to Apotex until after the expiry of Kyorin’s patent for Norfloxacin in 2001.  The application was granted because Apotex’s allegation was considered premature in that there was no non-infringing activity possible either on the date on which the NOA was served or on the first date on which a NOC could have issued under it.  The Federal Court of Appeal dismissed Apotex’s appeal, but only because it found the supply agreement to be a sublicence and consequently invalid; the prematurity issue was not considered.

At issue on this appeal were:  (1) whether the Federal Court of Appeal erred in characterizing the supply agreement as a sublicence and therefore not a valid justification for Apotex’s allegation of non-infringement; (2) if the agreement was a sublicence, whether Apotex’s allegation was limited to the acquisition of Norfloxacin from Novopharm, pursuant to the supply agreement; and (3) if the agreement was not a sublicence, whether Apotex’s allegation of non-infringement was still not justified, on the basis of prematurity, such that the prohibition order was properly granted.  This entailed two discrete sub-issues:  (a) what was the relevant date for assessing the justification for a NOA and (b) whether Apotex’s allegation of non-infringement was not justified as of the relevant date.

Held:  The appeal should be allowed.

The supply agreement was not, on its face, a sublicence.  Moreover, the evidence did not show that the agreement was implemented in such a way as to result in the conferral of  a sublicence; indeed, it had not yet been implemented at all at the time of hearing.  Prima facie, the agreement provides a valid and non-infringing way in which Apotex can obtain bulk Norfloxacin in order to produce the product described in the NOA.  Thus, the Minister should not, at least on this basis alone, have been prohibited from issuing a NOC to Apotex.  Given this conclusion, it was not necessary to decide whether the NOA provided for any way to obtain the medicine other than from Novopharm, pursuant to the supply agreement.  However, the wording of the NOA did not appear to admit of this possibility.

It is not appropriate for a court to permit the premature grant of a NOC where the statutory conditions have not been met.  Yet, the court should not prohibit the Minister from granting a NOC if it is satisfied that the conditions have been met at the date of the hearing.  If a generic producer can accurately predict the date on which the exercise of rights under a given NOC would not infringe the relevant patents and times its application for the NOC accordingly, the application should not be rejected solely on the basis that the allegation made in its support was not justified when the NOA was issued, notwithstanding that there was no possibility that the NOC could be granted on that date. 

Similarly, the relevant date is not the first date on which the NOC can be granted if no objection is filed in the Federal Court. The Regulations do not compel the Minister to issue a NOC immediately, but even if they did, the nature of the pharmaceutical industry would make this little more than a theoretical possibility.  The Regulations provide for what is, in effect, an injunction of up to 30 months against the granting of a NOC.  This injunction commences immediately upon the filing of an objection to the NOA, without any consideration of the merits of either position. To subject generic drug producers to such a draconian regime would be manifestly unjust if they were not permitted to protect themselves and reduce the length of this presumptive injunction by initiating the NOC process as early as possible, anticipating the likelihood that objection will be taken.  An application could properly be rejected by the Federal Court as premature if the allegation made in its support is not justified at the date of hearing.  This is sufficient to discourage inappropriately premature applications.

The appropriate date for assessment of Apotex’s application for a NOC was the date of the hearing before the Federal Court--Trial Division.  As of that date, Novopharm was entitled, under its compulsory licence, to produce Norfloxacin for sale for consumption in Canada, and thus there existed a valid, non-infringing way in which Apotex could have acquired the bulk medicine required to produce the final-dosage product for which the NOC was sought.  Accordingly, it could not be said that the allegation made by Apotex was not justified.  Given this conclusion, it was not necessary to consider the possibility of non-infringing export sales by Apotex.

Cases Cited

Considered:  Merck Frosst Canada Inc. v. Canada (Minister of National Health and Welfare) (1997), 132 F.T.R. 60; Apotex Inc. v. Canada (Attorney General), [1994] 1 F.C. 742, aff’d [1994] 3 S.C.R. 1100; referred to:  Eli Lilly & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129; David Bull Laboratories (Canada) Inc. v. Pharmacia Inc., [1995] 1 F.C. 588; Smithkline Beecham Pharma Inc. v. Canada (Minister of National Health and Welfare) (1997), 138 F.T.R. 310; Glaxo Wellcome Inc. v. Canada (Minister of National Health and Welfare) (1997), 75 C.P.R. (3d) 129; Karavos v. Toronto & Gillies, [1948] 3 D.L.R. 294.

Statutes and Regulations Cited

Patent Act , R.S.C., 1985, c. P-4 , ss. 39.11 [ad. c. 33 (3rd Supp.), s. 15], 39.14 [idem].

Patented Medicines (Notice of Compliance) Regulations, SOR/93-133, ss. 5(1), (3), 6, 7.

APPEAL from a judgment of the Federal Court of Appeal (1996), 67 C.P.R. (3d) 455, 197 N.R. 294, [1996] F.C.J. No. 595 (QL), dismissing an appeal from a judgment of the Federal Court, Trial Division (1995), 65 C.P.R. (3d) 483, 106 F.T.R. 294, [1995] F.C.J. No. 1720 (QL).  Appeal allowed.

Harry B. Radomski, Richard Naiberg and David Scrimger, for the appellant.

Robert P. Charlton, J. Nelson Landry and Judith Robinson, for the respondents Merck Frosst Canada Inc. and Merck & Co. Inc.

//Iacobucci J.//

The judgment of the Court was delivered by

1                                   Iacobucci J. -- This appeal, which I shall refer to as “Apotex #2”, was heard together with  Eli Lilly & Co. v. Novopharm Ltd. (“Novopharm”), and Eli Lilly & Co. v. Apotex Inc. (“Apotex #1”), [1998] 2 S.C.R. 129, reasons in which are being released simultaneously herewith.  Because the events and proceedings leading to the present appeal are somewhat distinct from those considered in the other two appeals, I shall deal with this appeal separately.  However, because there is, nonetheless, a strong correlation among the facts of the three appeals, it will be necessary throughout these reasons to refer extensively to the companion cases.

2                                   Like Novopharm and Apotex #1, the instant appeal requires this Court to consider whether a supply agreement made by the appellant,  Apotex Inc. (“Apotex”), and a competitor, Novopharm Ltd. (“Novopharm”), constituted the conferral of sublicences by each to the other, thus justifying the termination by the respondent patentee, Kyorin Pharmaceutical Co. Ltd. (“Kyorin”), of a compulsory licence held by Novopharm for a certain medicine, Norfloxacin.  If it did not, then it is alleged by Apotex that the Federal Court of Appeal erred in finding that a notice of allegation (“NOA”) issued by Apotex in support of its request for a notice of compliance (“NOC”) for the formulation and marketing of certain final-dosage forms of Norfloxacin was not justified, and that the Minister of National Health and Welfare (the “Minister”) should not, therefore, have been prohibited from granting the requested NOC.

3                                   Other arguments are raised, however, that did not arise in the companion appeals.  Specifically, and in the alternative, it is alleged by Apotex that the Federal Court of Appeal erred in finding that the termination of the licence necessarily led to the non-justification of the allegation made in the NOA.  It is submitted that the NOA did not specify how the bulk Norfloxacin would be acquired, and that there existed ways to obtain the bulk medicine other than to purchase it from Novopharm if this means of purchase would have invalidated Novopharm’s licence.   In the further alternative, it is argued that the Federal Court of Appeal erred in holding that the proper date at which to assess the justification of the NOA was the date of service or the 46th day thereafter, rather than the date of hearing.  In any event, it is submitted that, even on the date of service, there existed ways in which Apotex could lawfully have manufactured and sold the product for which the NOC was requested without infringing Kyorin’s patent.

I.  Facts

4                                   The issues on this appeal arise from substantially the same factual matrix as that considered in  Novopharm and Apotex #1.  Kyorin holds a Canadian patent for the antibiotic Norfloxacin.  The patent, issued on April 12, 1984, is to expire in the year 2001.  On April 19, 1993, Apotex applied to the Commissioner of Patents, as required under the Patent Act , R.S.C., 1985, c. P-4 , and specifically, s. 5(1) of the Patented Medicines (Notice of Compliance) Regulations, SOR/93-133, for a NOC for the formulation and sale of 400 mg tablets of Norfloxacin.  The application did not specify where the tablets would be sold.

5                                   The NOA filed by Apotex in support of its application, pursuant to s. 5(3) of the Regulations, alleged that its use of the drug would not infringe the patent held by Kyorin.  The basis for this allegation was that Apotex would obtain bulk Norfloxacin from or through Novopharm, which held a valid compulsory licence for the drug.  This licence was issued before the coming into effect of substantial revisions to the law governing patented medicines in Canada, which I have described in some detail in my reasons in the companion cases, and which eliminated the compulsory licensing scheme entirely.   According to the NOA, by virtue of a supply agreement entered into by Apotex and Novopharm on November 27, 1992, Apotex was entitled to purchase bulk Norfloxacin from Novopharm, and that its acquisition of such would therefore be in a manner that would not infringe the patent.  The full text of this supply agreement is set out in my reasons in Novopharm and Apotex #1.

6                                   Pursuant to ss. 6 and 7 of the Regulations, the respondents, Merck Frosst Canada Inc. (“Merck Canada”) and Merck & Co. Inc. (“Merck & Co.”) (collectively, “Merck”), applied to the Federal Court--Trial Division for a prohibition order to prevent the Minister from issuing the requested NOC to Apotex until after the expiry of Kyorin’s patent for Norfloxacin in 2001.  Merck & Co. is the exclusive holder of a licence for the patented medicine in Canada, and Merck Canada is its sole sublicensee.  On July 2, 1986, Merck Canada had received a NOC in respect of 400 mg tablets of Norfloxacin.

7                                   Under its compulsory licence, Novopharm was entitled to manufacture or import bulk Norfloxacin and combine it with other ingredients to make final dosage forms of Norfloxacin for sale for consumption outside Canada after October 15, 1991.  However, pursuant to ss. 39.11 and 39.14 of the Patent Act , this licence was also subject to certain prohibitions.  Specifically, Novopharm was not entitled to produce Norfloxacin for sale for consumption in Canada until July 2, 1993, seven years after the issuance of the first NOC to Merck Canada, or to import Norfloxacin for sale for consumption in Canada until July 2, 1996, 10 years after the issuance of that NOC.  Moreover, the compulsory licence expressly prohibited the granting of sublicences, and stipulated that any breach of the terms of the licence could justify its termination by the patentee, Kyorin.

8                                   Merck argued that the NOA filed by Apotex was premature because, as at April 19, 1993, the date on which it was issued, there was no non-infringing activity possible for which a NOC was required; Novopharm could not, at that time, make or import Norfloxacin for consumption in Canada.  Alternatively, if the NOA was not premature, it was argued, then certain necessary details were missing, namely, specifics of the statutory restrictions on Novopharm’s licence and an undertaking to be bound by these restrictions.  Moreover, it was argued that the supply agreement was in reality a sublicence and therefore infringed the terms of Novopharm’s licence and justified its termination by Kyorin, or, alternatively, that the arrangement was in substance an agency agreement whereby Novopharm would function as Apotex’s agent and thus both would be carrying on unlicensed activities.

9                                   At trial, Simpson J. of the Federal Court--Trial Division granted Merck’s application, holding that there was no non-infringing activity possible either on the date on which the NOA was served or on the first date on which a NOC could have issued under it.  Thus, the allegation was premature and not justified, and the NOC could not be granted.  The Federal Court of Appeal dismissed Apotex’s appeal, but on different grounds.  It chose to dispose of the case on the same rationale employed in its prior decision in Apotex #1, supra: that the supply agreement was a sublicence and consequently invalid.  Therefore, the only way in which Apotex proposed to obtain the bulk medicine was itself an infringement, meaning that the NOA could not be justified as there would be no non-infringing way in which to produce the proposed product.  The issue of prematurity was not canvassed on the appeal.

II.  Relevant Statutory Provisions

10                               Patent Act , R.S.C., 1985, c. P-4 

39.11 (1)  Subject to this section but notwithstanding anything in section 39 or in any licence granted under that section, no person shall under a licence granted under that section in respect of a patent for an invention pertaining to a medicine, regardless of when the licence was granted, have or exercise any right,

(a)  where the invention is a process, to import the medicine in the preparation or production of which the invention has been used, if the medicine is for sale for consumption in Canada; or

(b) where the invention is other than a process, to import the invention for medicine or for the preparation or production of medicine, if the medicine is for sale for consumption in Canada.

(2)  The prohibition under subsection (1) expires in respect of a medicine

                                                                   . . .

(c) ten years after the date of the notice of compliance that is first issued in respect of the medicine where that notice of compliance is issued after June 27, 1986.  

39.14   (1)  Notwithstanding anything in section 39 or in any licence granted under that section, where the notice of compliance that is first issued in respect of a medicine is issued after June 27, 1986, no person shall, under a licence granted under that section in respect of a patent for an invention pertaining to the medicine, have or exercise any right,

(a) where the invention is a process, to use the invention for the preparation or production of medicine, or

(b) where the invention is other than a process, to make or use the invention for medicine or for the preparation or production of medicine

for sale for consumption in Canada, until the expiration of seven years after the date of that notice of compliance.

Patented Medicines (Notice of Compliance) Regulations, SOR/93-133

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,

(a) state that the person accepts that the notice of compliance will not issue until the patent expires; or

(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.

(2)       Where, after a second person files a submission for a notice of compliance, but before the notice of compliance is issued, a patent list is submitted or amended in respect of a patent pursuant to subsection 4(5), the second person shall amend the submission to include, in respect of that patent, the statement or allegation that is required by subsection (1).

(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.

6. (1)   A first person may, within 45 days after being served with a notice of an 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.

(3)       The first person shall, within the 45 days referred to in subsection (1), serve the Minister with proof that an application referred to in that subsection has been made.

(4)       Where the first person is not the owner of each patent that is the subject of an application referred to in subsection (1), the owner of each such patent shall be made a party to the application.

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).

(2) Paragraph (1)(e) does not apply if at any time, in respect of each patent that is the subject of an application pursuant to subsection 6(1),

(a)   the patent has expired; or

(b)   the court has declared that the patent is not valid or that no claim for the medicine itself and no claim for the use of the medicine would be infringed.

(3)  Paragraphs (1)(c), (d) and (e) do not apply in respect of a patent if the owner of the patent has consented to the making, constructing, using or selling of the drug in Canada by the second person.

(4) Paragraph (1)(e) ceases to apply in respect of an application referred to in subsection 6(1) if the application is withdrawn or is finally dismissed by the court.

(5) A court may shorten or extend the time limit referred to in paragraph (1)(e) in respect of an application where the court has not yet made an order pursuant to subsection 6(1) in respect of that application and where the court finds that a party to the application failed to reasonably cooperate in expediting the application.

III.  Judicial history

A.  Federal Court, Trial Division (1995), 65 C.P.R. (3d) 483

11                               Simpson J. began by observing that a NOA plays two roles: it serves both as an application to the Minister for a NOC and as the document which creates the cause of action if prohibition proceedings are commenced.  As such, it cannot be amended.  She also gleaned from the decision of the Federal Court of Appeal in David Bull Laboratories (Canada) Inc. v. Pharmacia Inc., [1995] 1 F.C. 588, that prohibition proceedings are not actions for determining validity or infringement, but rather whether the Minister may issue a NOC.  The issue is therefore whether the applicant’s patent would be infringed if the product for which the NOC is requested is put on the market.  Because a NOC is issued to permit marketing in Canada, Simpson J. considered that the relevant question is whether its issuance will cause infringement in the Canadian market.

12                               Simpson J. accepted the position of Merck that the NOA was premature because, on the 46th day after its service, the first date on which the NOC theoretically could have been issued in accordance with the Regulations, there was no non-infringing activity possible, owing to the statutory restrictions on Novopharm’s compulsory licence, supra.   Apotex submitted that, while not required, a NOC would nonetheless be useful for export sales because foreign governments are more willing to permit the importation of drugs which have been approved for marketing in Canada.  However, Simpson J. was unwilling to accept that allegations of non-infringement could be justified solely on the basis of non-infringing activities for which a NOC would be commercially useful but not strictly required.  In her view, infringement was to be considered only in respect of activities for which the NOC would be necessary, that is, Canadian sales of Norfloxacin.

13                               Apotex also submitted that the requested remedy, a prohibition order, was unduly harsh given that it would apply for the remaining life of the patent, which at the time of the trial was six years.  By contrast, the prohibition against the production of the drug for consumption in Canada under the licence would have expired only one month after the first date on which the NOC could have issued.  However, Simpson J. was not persuaded to take a “prospective” approach to the NOA, refusing to deny the prohibition order on the basis that the allegation, while premature, was “nearly” justified.  She also declined to apply the trial decision in Apotex #1, supra, where McGillis J. did not conclude that the NOA was premature even though Canadian sales were precluded by statute at the time the NOC could have issued.  Simpson J. found that McGillis J. was not required or invited to deal with this issue.

14                               Accordingly, Simpson J. allowed the application on the basis of the prematurity of the allegation.  While the remaining issues were therefore not necessary to decide, Simpson J. proceeded to consider them in obiter.  She indicated that she would not have rejected the NOA only on the basis that it failed to mention the statutory restrictions on Novopharm’s compulsory licence, given that they were, in effect, disclosed in the NOA when it advised that the licence had not been cancelled.  Further, she viewed Apotex’s undertaking in the NOA to purchase Norfloxacin only under the licence as sufficient to constitute an undertaking to be bound by the restrictions thereon.  She also indicated that she would have followed the decision of McGillis J. in Apotex #1, supra, to find that the supply agreement was not a sublicence.  Finally, she would have found that there was no agency agreement in place whereby Novopharm was the agent of Apotex.  In her view, at p. 489, Novopharm “remains the principal when it contracts under the Agreement with a third party for the manufacture of a licensed drug”.

B.  Federal Court of Appeal (1996), 67 C.P.R. (3d) 455

15                               In oral reasons delivered from the bench, Strayer J.A.(Décary and McDonald JJ.A. concurring) dismissed the appeal on the same rationale as in Apotex #1, supra, and Novopharm, supra, namely that the supply agreement between Apotex and Novopharm constituted a sublicence which violated the terms of Novopharm’s compulsory licence and justified its termination by Kyorin.  Therefore, the agreement was found to be invalid.  The court was not satisfied with the arguments advanced by Apotex as to why those decisions should not be applied, and held that it could not treat the agreement as being valid for the purpose of supporting the allegation of Apotex of its “mutual understanding” with Novopharm as the non-infringing way by which it proposed to obtain bulk Norfloxacin. 

16                               Strayer J.A. rejected the suggestion that the NOA implied other ways in which the medication could be obtained from Novopharm independently of the agreement, given that the allegation detailed the existence of the agreement and Apotex’s informing Novopharm of its intent to obtain the Norfloxacin through it, and then quoted (at p. 457) from the NOA: “Accordingly, Apotex Inc. will not  . . . obtain, use, or sell any such norfloxacin other than as obtained from Novopharm Limited . . . until such time as the patent expires.”  In the view of Strayer J.A., the use of the word “[a]ccordingly” linked that undertaking with the supply agreement, and thus the supply agreement was the only alleged way in which the medication could be obtained.  Thus, because the agreement was invalid, the appeal was dismissed on these grounds alone.  The other issues raised at trial were not canvassed.

IV.  Issues  

17                               The issues raised on this appeal can properly be reduced to three:

(1)               Did the Federal Court of Appeal err in characterizing the supply agreement as a sublicence and therefore not a valid justification for Apotex’s allegation of non-infringement?

(2)               If the answer to (1) is “no”, did the Federal Court of Appeal further err in holding that Apotex’s allegation was limited to the acquisition of Norfloxacin from Novopharm and pursuant to the supply agreement?

(3)               If the answer to (1) is “yes”, was Apotex’s allegation of non-infringement still not justified, on the basis of prematurity, such that the prohibition order was properly granted by the trial judge?  This entails two discrete sub-issues:

(a)       What is the relevant date for assessing the justification for a NOA?

(b)       Did the respondents successfully establish that Apotex’s allegation of non-infringement was not justified as of the relevant date?

V.  Analysis

(1)   The nature of the supply agreement

18                               The supply agreement entered into by Apotex and Novopharm has been discussed in detail in my reasons in Apotex #1 and Novopharm.  There, I expressed the view that the supply agreement was not on its face a sublicence, but rather, in essence, an agreement to agree; that is, an arrangement pursuant to which one party could later compel the other to enter into an agreement of purchase and sale of a particular patented medicine.  Specifically, the essential feature of a sublicence, the transfer of licensed rights from the licensee/sublicensor to the third-party/sublicensee, is absent.

19                               After considering both the text of the agreement and the facts of each individual case, I concluded in both Novopharm and Apotex #1 not only that the parties intended to create a supply agreement and not a sublicence, but also that they succeeded in doing so: that the legal effect of the supply agreement was inconsistent with the conferral of a sublicence.  On the other hand, I did stipulate that, while the agreement was not on its face a sublicence, the possibility remained that something in its implementation by the parties could, on the facts, result in the de facto conferral of a sublicence.  However, the agreement had not yet been implemented at all in those appeals, and therefore there was no basis on which to conclude that any sublicence had been granted in that fashion either.

20                                Similarly, the evidence in this appeal does not show, and it was not alleged by the respondents, that the agreement has been implemented here in such a way as to result in a sublicence.  Indeed, the only step taken towards implementation appears to have been Apotex’s notifying Novopharm of its future intention to request that a quantity of Norfloxacin be supplied under the supply agreement, but that no details of the arrangement can be finalized until the requested NOC is issued.  There has been no suggestion, either in the NOA or otherwise, that Apotex either has contracted or intends to contract with any supplier of Norfloxacin, independently of Novopharm. Rather, the NOA makes clear that Novopharm is to sell the Norfloxacin to Apotex, presumably after first purchasing it from a designated supplier, as its compulsory licence entitles it to do. 

21                               Thus, the facts of this appeal do not differ materially from the facts of the companion cases, and neither, in my view, does the result.  I conclude, therefore, that the Federal Court of Appeal erred in finding the supply agreement to be invalid by reason of its actually being a sublicence.  Prima facie, the agreement does provide a valid and non-infringing way in which Apotex is able to obtain bulk Norfloxacin in order to produce the product described in the NOA.  Thus, the Minister should not, at least on this basis alone, be prohibited from issuing a NOC to Apotex.

(2)   Acquisition other than under the supply agreement

22                               Before the Federal Court of Appeal, Apotex argued that its NOA did not limit it to acquiring the needed Norfloxacin only from Novopharm and pursuant to the supply agreement, and that, even if the agreement was a sublicence and therefore invalid, other, non-infringing means existed in which the medicine could be acquired. This argument does not appear to have been pursued seriously on the appeal to this Court, and it is not necessary to decide, in any event, given my conclusion that the supply agreement was not a sublicence.  However, I would nonetheless indicate my agreement with the Federal Court of Appeal on this issue.  Nothing in the NOA can be taken as indicative of any real possibility that the Norfloxacin would be obtained other than pursuant to the supply agreement.  Indeed, I agree with Strayer J.A. that the wording of the allegation, especially the use of the word “[a]ccordingly”, as the transition between the description of the supply agreement and the undertaking not to obtain Norfloxacin other than from Novopharm and pursuant to its compulsory licence leads inexorably to the opposite conclusion.

(3)   Was the notice of allegation premature?

23                               Having determined that the Federal Court of Appeal erred in finding Apotex’s NOA not to be justified, on the basis of its erroneous characterization of the supply agreement, I must now consider the reasons given by Simpson J. for her findings at trial.  She determined that the relevant date for assessing the justification of the allegation was either the date on which the allegation is made, that is, on which the NOA was issued, or on the 46th day thereafter, which, pursuant to s. 7(1) of the Regulations, was the first date on which the Minister theoretically could have issued a NOC, provided that neither the patentee nor the holder of a prior NOC (referred to in the Regulations as a “first person”) had applied for a prohibition order.  In the view of Simpson J., Apotex’s allegation was not justified on either of these two dates, given that it was made on April 19, 1993, whereas Novopharm’s compulsory licence did not permit it to produce or import Norfloxacin for consumption in Canada until July 2, 1993.

24                               Apotex contends that Simpson J. erred in two ways: first, by finding that the relevant date for assessing the allegation was other than the date of the hearing of the application for a prohibition order; and, second, by assuming that Apotex’s intention was to sell the Norfloxacin tablets for consumption in Canada when the NOA made no such representation and Apotex legally could have exported the tablets even at the time the allegation was issued.  I shall consider each of these submissions in turn.

(a)  Date of assessment

25                               As I have already noted, Simpson J. found at trial that the relevant date for assessing the justification of an allegation was either the date on which it was made or the 46th day thereafter.  Accordingly, because she found that, as at either of these dates, no non-infringing activity was possible under the NOC, she granted the requested order of prohibition.  However, she offered no specific reasons in support of her conclusion as to the relevant date.

26                               In Merck Frosst Canada Inc. v. Canada (Minister of National Health and Welfare) (1997), 132 F.T.R. 60, Muldoon J. specifically rejected the reasoning of Simpson J., holding instead that the appropriate date for assessing the justification of a NOA is the date of hearing.  In reaching this conclusion, Muldoon J. disputed the relevancy of the 46th day after the issuance of the NOA, given that, in most cases, no NOC can issue until either the application for a prohibition order is disposed of or the 30-month “statutory stay” occasioned by such an application has elapsed.  In his view, at p. 71, such “known and predictable delays” should be considered in assessing the sufficiency of an allegation.  Further, he questioned whether, even if no application for prohibition were filed, the Minister would in fact be obliged to issue the requested NOC on the 46th day after the issuance of the NOA, even if it would be unlawful for the applicant to exploit the NOC at that time.  In his view, at p. 71, “the Minister is not a robot” and has the discretion, under the Regulations, not to issue the NOC immediately.

27                               Muldoon J. noted at p. 73 that, by s. 6(2) of the Regulations, the court is required to make an order of prohibition “if it finds that none of those allegations [i.e., those contained in the NOA] is justified” (emphasis added).  In his words, at p. 73:

When does or can the court make such a finding?  Not earlier than the hearing of the motion for prohibition, is when.  It is noteworthy that the regulation does not provide:  “. . . it finds that none of those allegations was justified”, i.e. “both at the date of the Notice and at the date a NOC could have issued under the Notice”. . . .  Clearly, if time be the critical consideration, however, the time of the allegations’ “prematurity” or “ripeness” is the time at which the court “finds that none of those allegations is justified”, which at earliest is the hearing of the prohibition motion and at latest is the date of the court’s order and reasons for order, if reasons there be.  After all, is that not precisely the time reg. 6(2) provides in so many words, and not some earlier?  As above illustrated reg. 6(2) could easily have exacted what the learned judge found about “prematurity”, but it does not exact that. [Emphasis in original.]

This approach was adopted in Smithkline Beecham Pharma Inc. v. Canada (Minister of National Health and Welfare) (1997), 138 F.T.R. 310, and in Glaxo Wellcome Inc. v. Canada (Minister of National Health and Welfare) (1997), 75 C.P.R. (3d) 129 (F.C.T.D.).  In my view, it is a correct statement of the law.

28                               In support of its argument to this effect, Apotex also relied on the decision of the Federal Court of Appeal, affirmed by this Court, in Apotex Inc. v. Canada  (Attorney General), [1994] 1 F.C. 742, aff’d [1994] 3 S.C.R. 1100, in which Robertson J.A. wrote at pp. 771-72:

As a general proposition, it is not difficult to accept a rule which seeks to eliminate premature applications for mandamus.  It is certainly open to a respondent to pursue dismissal of an application where the duty to perform has yet to arise.  However, unless compelling reasons are offered, an application for an order in the nature of mandamus should not be defeated on the ground that it was initiated prematurely.  Provided that the conditions precedent to the exercise of the duty have been satisfied at the time of the hearing, the application should be assessed on its merits.

29                               Apotex v. Canada (Attorney General) was concerned with a proceeding of a character somewhat different from the instant appeal.  In that case, Apotex sought an order in the nature of mandamus to compel the Minister to issue a NOC. Here, the opposite order, one prohibiting the Minister from issuing a NOC, is sought.  As is evident just from a cursory reading of the above-quoted passage and as is well-established in the law, specific considerations animate the granting of an order in the nature of mandamus; for example, it must be established that the public official whose action is sought to be compelled in fact owes a duty to the applicant which is due at the time the relief is sought: see Karavos v. Toronto & Gillies, [1948] 3 D.L.R. 294 (Ont. C.A.).  Therefore, it would be incorrect to argue that this statement gives rise to any general rule concerning the date of assessment in all matters of judicial review.

30                               However, the logic underlying the holding does provide some guidance.  In my view, the matter comes down to a question of common sense.  Certainly, it would not be appropriate for this or any court to permit the premature grant of a NOC where the statutory conditions have not been met.  On the other hand, I have great difficulty with the notion that where, at the date of hearing, the court is satisfied that the conditions have been met, it should nonetheless prohibit the Minister from granting a NOC.  The purpose of the Regulations is simply to prevent patent infringement by delaying the issuance of NOCs until such time as their implementation would not result in such infringement.  They are not, in my view, intended to punish generic drug producers for asserting their rights prematurely.  If a generic producer can accurately predict the date on which the exercise of rights under a given NOC would not infringe the relevant patents, and times its application for the NOC accordingly, I can see no reason why the application should be rejected solely on the basis that the allegation made in its support was not justified when the NOA was issued, notwithstanding that there was no possibility that the NOC could be granted on that date. 

31                               However, that does not completely dispose of the matter.  What of the alternative conclusion by Simpson J. that the relevant date is the 46th day after the issuance of the NOA, the first date on which the NOC can, pursuant to s. 7(1)(d) of the Regulations, be granted if no objection is filed in the Federal Court?  To begin with, I agree both with Apotex and with Muldoon J. in Merck Frosst Canada Inc., supra, that there is nothing in the Regulations to compel the Minister to issue a NOC immediately upon the expiration of 45 days after the filing of the NOA.  Rather, s. 7(1) provides that the Minister “shall not issue” a NOC before this date; it imposes no mandatory obligation to issue the NOC on this precise date.  To hold otherwise would be to read into the Regulations a limitation which they do not contain.

32                               Even if there were such a requirement, however, I would not find that the date of assessment is properly the 46th day following the issuance of the NOA. Considering the nature of the pharmaceutical industry, this seems an unduly restrictive approach, somewhat out of step with commercial reality.  As Muldoon J. astutely observed in Merck Frosst Canada Inc., supra, the notion that a NOC might be granted on the 46th day after the issuance of a NOA is indeed, as Simpson J. described it, little more than “theoretical”.  The Regulations provide for what is, in effect, a statutory prohibition on, or injunction against, the granting of a NOC, commencing immediately upon the filing by a “first person” of an application for a court-imposed prohibition order and concluding only upon the earlier of the judicial determination of the application or the passage of 30 months.  This prohibition takes effect automatically, without any consideration of the merits of the application; not even the ordinary requirements for an interlocutory injunction must be complied with.  Under these conditions, and absent some prior indication to the contrary, I think it would be permissible for a generic producer to predict that either the patentee, the holder of a prior NOC, or both, is likely to attempt to protect or prolong their as-yet exclusive rights for as long as possible by taking advantage of the procedure set out in the Regulations.

33                               There may be good policy reasons for the operation of the regulatory scheme in this fashion.  However, it would be manifestly unjust to subject generic drug producers to such a draconian regime without at least permitting them to protect themselves and reduce the length of the presumptive injunction by initiating the NOC process as early as possible.  As I have already said, this is not inconsistent with s. 6(2) of the Regulations, which provides only that the court shall make an order of prohibition “if it finds that none of those allegations is justified” a finding which can only be made, at the earliest, on the date of hearing.  Thus, an application could properly be rejected by the Federal Court as premature if the allegation made in its support is not justified at that time.  This is sufficient, in my view, to discourage inappropriately premature applications.  On the other hand, to interpret the Regulations in the manner urged by the respondents would effectively be to require generic drug producers to satisfy all requirements in s. 5 and then to wait up to an additional 30 months before marketing the desired product.  This cannot be what was intended by the Regulations.

34                               Therefore, I conclude that the appropriate date for assessment of Apotex’s application for a NOC was the date of the hearing before the Federal Court--Trial Division: November 14, 1995.  As of that date, Novopharm was entitled, under its compulsory licence, to produce Norfloxacin for sale for consumption in Canada, and thus there existed a valid, non-infringing way in which Apotex could have acquired the bulk medicine required to produce the final-dosage product for which the NOC was sought.  Accordingly, it cannot be said that the allegation made by Apotex was not justified.

(b)  Non-infringing export sales

35                               Apotex submits, in the alternative, that, even if the justification of the NOA were to be assessed as at the date on which it was issued rather than the date of hearing, Novopharm was entitled to import or manufacture bulk Norfloxacin for sale for consumption outside Canada as early as October 15, 1993. While Apotex could have purchased this medicine and reformulated it for export sales even without a NOC, it is submitted that certain requirements related to exportation would have been alleviated if the NOC had been granted.  Therefore, it is argued that the NOA was justified, at least vis-à-vis export sales, even at the date it was issued. 

36                               However, in light of my conclusion that the date of hearing was the proper date at which to assess the justification of the NOA, it is not necessary to consider this issue.  As at that date, there was certainly ample justification for the allegation of non-infringement, even without considering the possibility of exportation.

VI.  Disposition

37                               In the result, I would allow the appeal, set aside the judgment of the Federal Court of Appeal, and dismiss the application for a prohibition order preventing the Minister from issuing the requested NOC to Apotex.  The Minister is under no restriction from granting the NOC as requested.  The appellant shall have its costs throughout.

Appeal allowed with costs.

Solicitors for the appellant:  Goodman, Phillips & Vineberg, Toronto.

Solicitors for the respondents Merck Frosst Canada Inc. and Merck & Co. Inc.:  Ogilvy Renault, Montreal.