Date:
20151106
Dockets: A-302-14
A-303-14
Citation:
2015 FCA 249
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CORAM:
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NOËL C.J.
PELLETIER J.A.
RENNIE J.A.
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Docket:A-302-14
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BETWEEN:
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ATTORNEY
GENERAL OF CANADA
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Appellant
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And
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SANDOZ CANADA
INC.
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Respondent
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Docket:A-303-14
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AND BETWEEN:
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ATTORNEY
GENERAL OF CANADA
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Appellant
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And
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RATIOPHARM INC.
(NOW TEVA CANADA LIMITED)
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Respondent
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REASONS
FOR JUDGMENT
NOËL C.J.
[1]
These are appeals brought by the Attorney
General of Canada (the Attorney General or the appellant) from two judgments
rendered by O’Reilly J. (the Federal Court judge). The first – reported at 2014
FC 501 – allowed an application for judicial review brought by Sandoz Canada
Inc. (Sandoz) from a decision (PMPRB-10-D2-SANDOZ, or PMPRB Sandoz) of the
Patented Medicine Prices Review Board (the Board). The second – reported at 2014
FC 502 – allowed three applications for judicial review brought by ratiopharm
Inc. (ratiopharm) from two decisions of the Board (PMPRB-08-D3-ratio-Salbutamol
HFA and PMPRB-08-D3-ratiopharm, or, respectively, PMPRB ratio HFA and PMPRB ratiopharm)
and an order by the Board giving effect to the first of these decisions.
[2]
The two appeals were heard together. The central
issue in both appeals is whether the Federal Court judge properly held that
Sandoz and ratiopharm (collectively the respondents) fell outside of the
jurisdiction of the Board as they were not “patentees” within the meaning of
subsection 79(1) of the Patent Act, R.S.C. 1985, c. P-4, as amended (the
Act). The Attorney General maintains that in so holding, the Federal Court
Judge did not give due deference to the Board’s elaborate reasons for
concluding that the respondents came within the ambit of that provision.
[3]
For the reasons which follow, I would allow both
appeals.
[4]
The relevant provisions of the Act and the Patented
Medicines Regulations, SOR/94-688 (the Regulations) are reproduced in Annex
I to these reasons.
BACKGROUND
[5]
At the time when these proceedings arose, both ratiopharm
and Sandoz were engaged in the business of selling various medicines in Canada.
[6]
Among those medicines sold by ratiopharm was an
anti-asthmatic medicine called ratio-salbutamol HFA (ratio HFA). This medicine was
a generic equivalent of the brand name Ventolin HFA, a patented medicine
manufactured and sold in Canada by GlaxoSmithKline (GSK). Pursuant to a series
of supply and licensing agreements between these two arm’s length parties, GSK
sold ratio HFA to ratiopharm in final packaged and labeled form. Ratiopharm was
granted an exclusive licence to set the price and sell ratio HFA in Canada without
any right to sub-licence. Ownership of the patent and intellectual property
rights remained with GSK.
[7]
When ratiopharm applied for a Notice of
Compliance (NOC) to sell ratio HFA, it listed GSK’s patent on the forms it
submitted to Health Canada pursuant to the Patented Medicines (Notice of
Compliance) Regulations, SOR/93-133 (the PM(NOC) Regulations), but
indicated that the patent owner had consented “to the
making, constructing, using, or selling of [ratio HFA] in Canada”.
[8]
In addition to ratio HFA, ratiopharm also sold a
wider range of medicines with respect to which the patent rights were owned by
other companies. In none of the agreements pursuant to which ratiopharm bought
these medicines were any patent ownership rights granted to ratiopharm. In each
case, ratiopharm held its own NOC obtained from Health Canada on consent from
the owner of the patents in question.
[9]
Sandoz was and remains a wholly owned subsidiary
of Novartis Canada Inc., which is itself a wholly owned subsidiary of Novartis Pharma
AG, which in turn is wholly owned by Novartis AG (Novartis). Among the
medicines sold in Canada by Sandoz was a set of medicines covered by patents
owned by either Novartis or one of its wholly-owned subsidiaries. The owners of
these patents would generally sell their own brand name version of the
medicines in question. They would also allow Sandoz to enter the market and
sell a generic version of the medicines after other generics had entered the
market and for that purpose, would consent to Sandoz referring to those
medicines in obtaining the required NOCs. All the medicines were acquired by
way of purchase orders and in no case was there any express licensing agreement
linking Sandoz with the owners of the patents in question.
[10]
The Board proceedings in respect of ratiopharm
were initiated by the staff of the Board (the Board Staff) in July, 2008. By
way of a Statement of Allegation, the Board Staff alleged that ratiopharm was
selling or had sold, in a manner contrary to sections 83 and 85 of the Act, its
ratio HFA product in Canada at excessive prices. A week later, the Board Staff
filed an application seeking an order that ratiopharm provide the Board
pursuant to sections 80, 81 and 88 of the Act certain sales and pricing
information with respect to some 12 additional medicines sold by ratiopharm, as
well as an order that ratiopharm provide certain supply agreement documentation
pertaining to two further medicines.
[11]
The proceedings in respect of Sandoz were
initiated in January, 2010. The application sought an order that Sandoz provide,
pursuant to sections 80, 81 and 88 of the Act, sales and pricing information
with respect to six medicines sold by Sandoz, which application would later be
amended to extend to only five medicines.
[12]
In the PMPRB ratio HFA reasons issued May 27,
2011, the Board affirmed the allegations made by the Board Staff, holding that ratiopharm
had sold ratio HFA at excessive prices. In the PMPRB ratiopharm reasons issued
June 30, 2011, the Board allowed the Board Staff’s application for an order
that ratiopharm provide the Board certain information with respect to 14
medicines sold by ratiopharm. On October 17, 2011, the Board gave effect to its
PMPRB ratio HFA reasons, issuing an order compelling ratiopharm to pay
$65,898,842.76 to offset excess revenues realized in the sale of ratio HFA.
[13]
In the PMPRB Sandoz reasons issued August 1,
2012, the Board allowed the Board Staff’s application for an order that Sandoz
provide the Board certain information with respect to five medicines sold by
Sandoz.
THE BOARD DECISIONS
[14]
Among the determinations made by the Board, only
two were subsequently addressed by the Federal Court judge, and I therefore
restrict my summary of the Board’s reasons to those two determinations.
[15]
The first was that sections 79 to 103 of the Act
are constitutionally valid. The second was that a person need not own the
patent over a particular medicine in order to be a “patentee” in respect of
that medicine within the meaning of subsection 79(1) of the Act. In each of its
three decisions, the Board found that the respondent in question was a
subsection 79(1) “patentee”, despite not holding any patents over the medicine
or medicines in question.
[16]
With respect to the constitutional question, the
Board rejected the argument that the Board’s enabling provisions including the
definition of “patentee” in subsection 79(1) were ultra vires Parliament.
In reaching this conclusion in the ratiopharm decisions, the Board based itself
on a series of prior decisions (PMPRB ratio HFA reasons at paras. 13 and 14,
citing ICN Pharmaceuticals, Inc. v. Canada (Staff of the Patented Medicine
Prices Review Board), [1997] 1 F.C. 32 [ICN] approving Manitoba
Society of Seniors Inc. v. Canada (Attorney General) (1991), 77 D.L.R.
(4th) 485 (Man. Q.B.); aff’d (1992), 96 D.L.R. (4th) 606 (Man. C.A.) [Manitoba
Society] and Teva Neuroscience G.P. – S.E.N.C. v. Canada (Attorney
General), 2009 FC 1155 [Teva Neuroscience]. This analysis was
adopted without reproduction in the PMPRB ratiopharm reasons at para. 29).
[17]
In PMPRB Sandoz, the Board upheld the
constitutionality of these provisions once again, rejecting Sandoz’s argument
that “generic” drug companies fall outside Parliament’s legislative authority
over patents. While recognizing that most pharmaceutical companies can be
broadly sorted into “name brand” or “research-based” companies that rely
heavily on patent protection and “generic” companies that do not, the Board found
that companies sometimes straddle this boundary and that generalizations are
not helpful in determining whether a particular company has brought itself
within the Parliament’s legislative authority with respect to any given patent
(PMPRB Sandoz reasons at paras. 19, 20 and 88).
[18]
In construing the scope of the term “patentee”
within the meaning of subsection 79(1) of the Act, the Board undertook to read
the words of the Act “in their entire context and in
their grammatical and ordinary sense harmoniously with the scheme of the Act,
the object of the Act, and the intention of Parliament” (PMPRB ratio HFA
reasons at para. 35, citing Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1
S.C.R. 27). The Board identified the purpose of sections 79 to 103 of the Act
as one of protecting consumers from unreasonable pricing of patented medicines
(PMPRB ratio HFA reasons at para. 38, citing Celgene Corp. v. Canada
(Attorney General), 2011 SCC 1 [Celgene]). It further observed that
the wording of subsection 79(1) did not, on its face, require ownership of a
patent nor that a person be entitled to exercise “all
rights in relation to a patent” (PMPRB ratio HFA reasons at para. 41).
Rather, Parliament cast its language in much broader terms, capturing “any other person entitled to exercise any rights in relation
to a patent” (PMPRB ratio HFA reasons at para. 41).
[19]
Following the above analysis, the Board held
that, in obtaining under the licensing agreement with GSK the right inter
alia to sell ratio HFA, ratiopharm became entitled to exercise a right in
relation to a patent within the meaning of subsection 79(1) of the Act (PMPRB
ratio HFA reasons at para. 42). Having found comparable rights with respect to
the 12 medicines identified in the Board Staff’s July 15, 2008, application,
the Board held that ratiopharm was a patentee within the meaning of subsection
79(1) in relation to these 12 medicines (PMPRB ratiopharm reasons at paras. 13,
14 and 26). With respect to the two medicines in respect of which the Board
Staff had sought further documentation, the Board took the view that a prima
facie demonstration of jurisdiction had been made out, and that the request
for further information was warranted (PMPRB ratiopharm reasons at paras. 67 to
69).
[20]
Though no express agreements linked Sandoz to
Novartis or any of its patent holding subsidiaries, the Board found that Sandoz
sold the medicines in question pursuant to what amounted to a series of implied
licences from the patent holders in question. Specifically, Sandoz was granted
the right to sell these medicines without fear of being sued for infringement
(PMPRB Sandoz reasons at paras. 48 and 49). By virtue of this right, Sandoz
was a patentee within the meaning of subsection 79(1) of the Act in relation to
the medicines in question (PMPRB Sandoz reasons at para. 52).
[21]
The Board further rejected ratiopharm’s
contention that construing subsection 79(1) in that manner had the effect of
capturing wholesalers, hospitals and pharmacies. According to the Board,
subsection 79(1) only captures persons who sell to consumer classes protected
by the Board, and wholesalers, hospitals and pharmacies do not come within that
class (PMPRB ratiopharm reasons at paras. 15 and 16).
THE FEDERAL COURT DECISIONS
[22]
Ratiopharm brought applications for judicial
review against the decisions issued against it. These applications were
consolidated by order of the Federal Court and disposed of in a single set of
reasons (ratiopharm reasons). Sandoz’s single application for judicial review
was disposed of in a separate set of reasons (Sandoz reasons).
[23]
Notices of constitutional question challenging
the validity of sections 79-103 of the Act were filed prior to the hearing in
conformity with section 57 of the Federal Courts Act, R.S.C. 1985, c.
F-7, as amended.
[24]
Because the four applications engaged the
threshold issue as to whether ratiopharm and Sandoz were subsection 79(1)
patentees and whether, if so, such a construction was constitutional, the
reasons largely overlap, often echoing each other verbatim. Given the
commonality of the reasons, the following is a joint summary drawn principally
from the ratiopharm reasons.
[25]
The Federal Court judge held that, in reviewing
the Board’s interpretation and application of subsection 79(1) of the Act, he
was required to apply the standard of reasonableness, given the Board’s familiarity
with its home statute (ratiopharm reasons at para. 10, citing Celgene at
para. 34 and Alberta (Information and Privacy Commissioner) v. Alberta
Teachers Association, 2011 SCC 61 [Alberta Teachers] at para. 34).
In reviewing the Board’s disposition of the constitutional challenge, he applied
the standard of correctness (ratiopharm reasons at para. 11).
[26]
The Federal Court judge concluded that the
Board’s construction of the word “patentee” in subsection 79(1) of the Act was
not reasonable. Because the purpose of the Act is to ensure that patent holders
cannot take undue advantage of the monopolistic positions which they hold, the
Board would be exceeding its role if it were to extend its price review powers
to those prices charged by persons who do not own patents or hold monopolies (ratiopharm
reasons at para. 15). Had the Board examined the French text of subsection
79(1), it would have seen that the definition of “patentee” is tied more
closely to the rights of the owner of the patent (ratiopharm reasons at para. 25).
[27]
The Federal Court judge drew additional support
for this proposition from the fact that the constitutionality of the Board’s
enabling provisions is rooted in Parliament’s exclusive jurisdiction over
patents (ratiopharm reasons at para. 16, citing Manitoba Society). He
held, “without addressing the constitutional argument directly”,
that where the Act is ambiguous, it should be interpreted “in a manner consistent with the federal jurisdiction over
patents” (ratiopharm reasons at para. 17). Such an interpretation can be
achieved by excluding from the subsection 79(1) definition of “patentee” those
who do not actually hold the relevant patent, i.e.: generic companies.
[28]
Elaborating on the limits of Parliament’s power
over patents, the Federal Court judge held that “federal
jurisdiction in this area is generally understood to be confined to regulating
the ‘factory-gate’ prices of patented medicines … [meaning] those charged by
patent holders [e.g. GSK or Novartis] to their first purchasers [e.g.
ratiopharm or Sandoz]” (ratiopharm reasons at para. 18, citing Pfizer
v. Canada (Attorney General), 2009 FC 719 [Pfizer] at paras. 61 to 63).
[29]
Finally, the Federal Court judge added a number
of practical observations relating to the pharmaceutical industry in support of
his view that a “generic company” cannot come within the definition of a
patentee simply because it sells a version of a medicine that is patented (ratiopharm
reasons at para. 20). These observations included the following (ratiopharm
reasons at paras. 20 to 22):
“Usually, a generic company is not entitled
to the principal benefit of a patent – an exclusive monopoly to make, use, or
sell the patented product. Nor can a generic company typically exercise rights
in relation to a patent held by another company.
…
Generally speaking, generic companies either
help create or join a competitive marketplace, which helps keep the costs of
patented medicines down.
…
If the term “patentee” is interpreted too
broadly so as to catch a company in the position of ratiopharm [or Sandoz],
there are likely few generic companies who would not be similarly placed. Most
generics enter the market by comparing their products against drugs that are
the subject of patents held by other companies. To that extent, they indirectly
enjoy the benefits of patents and, ultimately, may be regarded as having
acquired rights in relation to them”.
[30]
Having determined that subsection 79(1) of the
Act could not reasonably be construed so as to include a party holding neither
a patent nor a monopoly in respect of the medicine in question, the Federal
Court judge held that the Board erred in holding that ratiopharm and Sandoz
were “patentees” in respect of any of the medicines at issue.
[31]
Turning to the constitutional issue, the Federal
Court judge dismissed the argument that Manitoba Society was overtaken
by a subsequent set of amendments to the Act. These amendments giving the Board
the power to address the pricing of patented medicine more directly did not
alter the Act’s purpose or the Board’s mandate, and fall, when properly
interpreted, within the federal head of power over patents (ratiopharm reasons
at para. 30). When regard is had to the reservation expressed by the Federal
Court judge earlier on with respect to generic companies, the conclusion that
he reached is that the price control scheme devised by Parliament is
constitutionally valid when applied to brand name medicine, or medicine sold by
the owner “un titulaire” of the
patent pertaining to it.
[32]
The Federal Court judge disposed of the four applications
by referring the matter back to the Board with a direction that it find the
respondents not to be “patentee[s]”. Given this conclusion, the Federal Court
judge did not address the further questions whether the patents in issue
pertained to the medicine sold by the respondents and whether ratiopharm had
sold HFA at excessive prices.
POSITION OF THE PARTIES ON APPEAL
[33]
For ease of reference, I will refer to the
memoranda of fact and law pertaining to the ratiopharm appeal for arguments
that are common to both appeals. Reference will be made to the memoranda of
fact and law pertaining to the Sandoz appeal for points which only arise in
that appeal.
[34]
Before this Court, the Attorney General seeks to
have each of the judgments below set aside, and asks that in the event that its
appeal is successful, the issues which the Federal Court judge did not address
be sent back to the Federal Court for determination.
[35]
The Attorney General argues that, although the
Federal Court judge identified the correct standard of review in assessing the
Board’s construction of subsection 79(1) (i.e. reasonableness), he failed to
show the appropriate level of deference. Though the Federal Court judge found
that subsection 79(1) could not reasonably be construed so as to include those
who neither own patents nor hold monopolies, the Board’s reasons for finding
otherwise had a solid foundation in the wording and purpose of the provisions
in question, as well as the jurisprudence interpreting them.
[36]
With respect to legislative purpose, both this
Court and the Supreme Court of Canada have affirmed that the purpose of the
Board’s enabling provisions is one of consumer protection (Attorney General’s ratiopharm
memorandum of fact and law at paras. 56 and 57, citing ICN and Celgene).
It would frustrate this purpose if patent holders could avoid the application
of these provisions by merely inserting a licensee, arm’s length or otherwise,
in the supply chain between itself and the consumer. The Board’s interpretation
and application of subsection 79(1) of the Act gives effect to this purpose,
and is reasonable.
[37]
With respect to the plain language of the Act,
the definition of “patentee” in subsection 79(1) of the Act is expansive, and
says nothing about patent ownership. In both linguistic versions, the provision
expressly includes persons other than the one owning the patent in question
(Attorney General’s ratiopharm memorandum of fact and law at para. 72).
Consideration of the legislative context reinforces the breadth of this
provision’s scope, as the legislator could have simply relied on the less
expansive definition of “patentee” provided in section 2 of the Act (Attorney
General’s ratiopharm memorandum of fact and law at para. 73).
[38]
Nor does the wording of the Act require proof of
a monopoly. This makes sense, given that a factual monopoly, though relevant
to competition law, is irrelevant to the legislative purpose, which
is to limit the negative effects that result from the statutory monopoly
resulting from the grant of a patent (Attorney General’s ratiopharm memorandum
of fact and law at para. 67). That the Board is in no practical position to
assess the market power of a given party supports the view that it was
reasonable for the Board not to view the existence of a monopoly in fact as a condition
precedent for engaging the Board’s jurisdiction (Attorney General’s ratiopharm
memorandum of fact and law at para. 71, citing ICN, inter alia).
[39]
Finally, with respect to the issue of
“factory-gate prices”, the Attorney General argues that this term does not
necessarily describe the price charged by patent owners, but rather the “list
price” that certain purchasers are charged for the drug (Attorney General’s ratiopharm
memorandum of fact and law at paras. 86 and 87). In any event, this definition
is not set out by statute or regulation, and only appears in the Patentees’
Guide to Reporting (the Guide) (Attorney General’s ratiopharm memorandum of
fact and law at para. 86).
[40]
The respondents for their part seek the
dismissal of the appeals, principally on the basis that the Federal Court judge
properly held that the Board’s interpretation and application of subsection
79(1) of the Act is unreasonable. They also reiterate the constitutional
challenge put before the Board.
[41]
With respect to the standard of review, the
respondents argue that the Federal Court judge erred in law when he identified
reasonableness as the standard of review applicable to the Board’s
interpretation and application of subsection 79(1). Although the Board was
interpreting its home statute, the presumption from Albert Teachers that
such decisions must be reviewed with deference can be rebutted once the factors
from Dunsmuir v. New Brunswick, 2008 SCC 9 [Dunsmuir] are
considered (ratiopharm’s memorandum of fact and law at para. 52).
[42]
Given that the Federal Court judge applied a
more deferential standard than he should have and properly found the Board’s
interpretation of subsection 79(1) to be unreasonable, the respondents argue on
a subsidiary basis that he would have reached the same result had he selected
the correct standard, being correctness (ratiopharm’s memorandum of fact and
law at paras. 33 and 54).
[43]
With respect to legislative purpose, the Board
framed its own statutory mandate in terms of “‘consumer protection’ at large”
(ratiopharm’s memorandum of fact and law at paras. 64). This was unreasonable,
however, as a long line of jurisprudence, running from the Board’s very own
decisions to those of the Supreme Court, affirms a narrower purpose, being the
prevention of “abuses of the monopoly power that
devolves from patent rights” [emphasis in original] (ratiopharm’s
memorandum of fact and law at para. 59, citing PMPRB-06-D1-ADDERALL XR,
Shire Biochem Inc. v. Canada (Attorney General), 2007 FC 1316, Sanofi
Pasteur Limited v. Canada (Attorney General), 2011 FC 859 and Celgene).
[44]
A textual analysis supports the view that the
Board interpreted subsection 79(1) unreasonably. First, because the French text
(« les droits d’un titulaire »), is more precise than the English text (“any
rights in relation to that patent”), the Board was required according to
the shared meaning rule to limit the definition’s content to this narrower
definition (ratiopharm’s memorandum of fact and law at para. 71). When one
reviews the authorities as to what constitute the “rights
of a patent holder”, one finds that the key right is the right to
exclude others from dealing in the patented invention (ratiopharm’s memorandum
of fact and law at paras. 74 to 76, citing Black’s Law Dictionary, 8th
ed.). It follows that only the right to exclude was contemplated.
[45]
Second, subsection 79(1) requires that a
patentee be “entitled” to exercise rights in relation to a patent. Neither
respondent, however, is “entitled” to exercise any rights of exclusion. In the
case of ratiopharm, the respondent was at most entitled to exercise certain
contractual rights to sell the medicines in question. In conflating mere
contractual rights with the rights of a patent holder, the Board reached an
unreasonable conclusion (ratiopharm’s memorandum of fact and law at para. 83).
In the case of Sandoz, despite the Board’s erroneous finding of an implied
licence, the respondent had no entitlements whatsoever (Sandoz’s memorandum of
fact and law at para. 79).
[46]
Third, when read in harmony with the original
meaning rule of statutory construction, the text of subsection 79(1) can be
seen to exclude generic companies. Specifically, this provision expressly
excludes from the definition of patentee those persons operating under a “licence continued by subsection 11(1) of the Patent Act
Amendment Act, 1992 [the PAAA]”. Subsection 11(1) expressly invoked
the “compulsory licence” provisions of the Act as it read prior to February 4,
1993. When they were available, compulsory licences were granted only to
generic companies (ratiopharm’s memorandum of fact and law at para. 88). Though
no such licences are at issue in this case, the invocation of subsection 11(1)
must be read, once its original meaning is understood, as a statutory exclusion
aimed at generic companies (ratiopharm’s memorandum of fact and law at para.
90).
[47]
Turning from the text of subsection 79(1), the
respondents argue that several contextual factors support the view that the
Board’s interpretation and application of this provision was unreasonable. First,
they argue that the Board’s reasons for construing subsection 79(1) to include
them were based on misinterpretations of the law of patents, including various
provisions of the Act. In the case of ratiopharm, the Board erroneously
concluded that ratiopharm would be entitled to bring an action under subsection
55(1) of the Act (ratiopharm’s memorandum of fact and law at para. 117, citing Signalisation
de Montréal Inc. v. Services de Béton Universels
Ltée, [1993] 1 F.C. 341).
[48]
Second, the respondents argue that the
Parliamentary debates leading to the enactment of the Board’s enabling
provisions illustrate a clear intent to target “patent
holding pharmaceutical firms” (ratiopharm’s memorandum of fact and law
at para. 99).
[49]
Third, the respondents cite the Board’s own
conduct, observing that, for many years, the Board took the view, expressed
publicly in its very own guidelines, that it had no authority to regulate
generic drugs (ratiopharm’s memorandum of fact and law at para. 104, citing ratiopharm’s
Public Appeal Book [RPAB], Vol. 1, Tab 18A).
[50]
Finally, the respondents argue that the Board
did not fairly consider their challenges to the constitutional validity of an
interpretation of subsection 79(1) that would extend the Board’s jurisdiction
to generic drugs. Rather, the Board simply dismissed their arguments summarily,
failing to follow relevant jurisprudence both from this Court and the Supreme
Court (ratiopharm’s memorandum of fact and law at paras. 121 to 126, citing Bernard
v. Canada (Attorney General), 2014 SCC 13 inter
alia). As such, the Board’s decision cannot stand.
[51]
In addition to those arguments shared by each of
the respondents, there are several arguments which they advance separately.
Sandoz, for its part, argues that the Board erred in finding that it had an
implied licence. Specifically, the Board merely asserted without any analysis
that the sales at issue would have constituted infringement of the patents in
question (Sandoz’s memorandum of fact and law at para. 85). Also, the Board
made findings that found no support in the record, such as the holding that
Novartis “instructed” Sandoz (Sandoz’s memorandum of fact and law at para.
107).
[52]
There are two arguments put forward uniquely by
ratiopharm. First, ratiopharm argues that the Federal Court has affirmed and
the Board has long-recognized that its jurisdiction extends only to
“ex-factory” or “factory gate” prices, and the Board’s own guidelines define
this price as that established for “the first sale … of
the product ‘at arm’s length’ to distributors, wholesalers, hospitals,
pharmacies, etc.” (ratiopharm’s memorandum of fact and law at paras. 108
and 109, citing the Guide and Pfizer at paras. 61 to 63). This definition
cannot sensibly capture ratiopharm. Furthermore, if it were to capture ratiopharm,
there is no principled reason it would not capture wholesalers, retailers and
pharmacies that the Attorney General now asserts would not in fact be captured
(ratiopharm’s memorandum of fact and law at paras. 84 and 85, citing the
Attorney General’s ratiopharm memorandum of fact and law at para. 88).
[53]
Ratiopharm argues that the unreasonableness of
the Board’s determination that it was a patentee can be further illustrated by
its equally unreasonable determination that GSK, despite owning the patents pertaining
to ratio HFA, was found not to be a patentee. The Board’s treatment of GSK in
respect of ratio HFA exemplifies its position with respect to all of the
products in issue (ratiopharm’s memorandum of fact and law at para. 112). To
exclude these patent holders from the definition of “patentee” simply makes no
sense.
ANALYSIS AND DISPOSITION
[54]
The first issue which must be addressed is
whether it was open to the Federal Court judge, applying the appropriate
standard of review, to set aside the Board’s conclusion that a person need not
own a patent or hold a monopoly over the medicine which it sells in order to be
a “patentee” within the meaning of subsection 79(1). To the extent that the
answer to this question is no, the Court will also have to determine whether
subsection 79(1), as it was construed by the Board, can withstand
constitutional scrutiny. A further issue, which arises in the Sandoz appeal
only, and which I propose to address immediately after the first, is whether
the Board erred in finding that Sandoz sold the medicines in question pursuant
to an implied licence.
[55]
The other questions that were raised in the
judicial review application before the Federal Court judge but not addressed by
him – i.e. the propriety of $65,898,842.76 pricing adjustment directed against
ratiopharm to offset excess revenues realized on the sale of ratio HFA and the
question in each case whether the respective patents pertain to the medicines
in issue – will be referred back to the Federal Court at the joint request of the
parties.
Standard of Review
[56]
When this Court hears an appeal from a decision
of the Federal Court disposing of an application for judicial review, it is the
role of this Court to determine “whether the court
below identified the appropriate standard of review and applied it correctly”
(Agraira v. Canada (Public Safety and Emergency Preparedness), 2013 SCC
36 at para. 45, citing Canada Revenue Agency v. Telfer, 2009 FCA 23 at
para. 18).
[57]
There is no dispute that the decision of the
Board, insofar as it asserts that its reading of subsection 79(1) is
constitutionally valid, must be reviewed for correctness. The parties disagree,
however, on the standard of review applicable to the Board’s interpretation of
subsection 79(1) of the Act.
[58]
Although the respondents accept that the Board
is interpreting its home statute, and is therefore presumptively subject to
review on a reasonableness standard (Alberta Teachers), they argue that
this presumption is rebutted once the Dunsmuir factors are considered. I
cannot agree.
[59]
Under the test set out in Dunsmuir, one
must consider the existence of a privative clause, the nature of the
administrative regime in question, the expertise of the decision-maker and the
nature of the question.
[60]
Though the respondents correctly observe that
the Board’s decisions are not protected by any privative clause, the other
factors weigh in favour of deference.
[61]
Under sections 79-103 of the Act, Parliament has
provided for a discrete pricing regime applicable to patented medicines, the
administration of which is left to the Board. Within this statutory context,
the Supreme Court has recognized that the Board is a specialized tribunal which
is entitled to deference (Celgene at para. 34). Even if this observation
was offered by way of obiter, as the respondents point out, it carries
authoritative force, appearing as it does in a passage intended to cast doubt
on the appropriateness of reviewing the Board’s interpretation of its enabling
statute on a standard of correctness (R. v. Henry, 2005 SCC 76 at para.
57).
[62]
I should add that although the meaning of
patentee pursuant to subsection 79(1) gives rise to a question of law, it can
hardly be considered of “central importance to the legal system”. Indeed, this
definition is arguably of no central importance to the Act itself, which relies
on the more general definition of “patentee” provided in section 2. Subsection
79(1) ousts this general definition for the sole purposes of applying the
discrete pricing regime applicable to patented medicines. The question whether
a person is “entitled to exercise any right in relation
to a patent” is highly fact dependant, informed by the Board’s
appreciation of the pharmaceutical industry and the complex relationship
between innovators and generics.
[63]
As the presumption of deference from Alberta
Teachers is not rebutted, the Federal Court judge properly concluded that
the Board’s interpretation of subsection 79(1) of the Act was to be reviewed on
a standard of reasonableness.
[64]
Finally, the Board’s determination that Sandoz was
granted an implied licence to sell the medicine by the patent holders within
the Novartis group gives rise to a question of mixed fact and law with respect
to which the Board is also owed deference.
The Board’s Interpretation of Subsection 79(1) of the Act
Legislative Purpose
[65]
The Board determined that the purpose of its
enabling provisions was to protect consumers from the excessive pricing of
patented medicines (PMPRB Sandoz reasons at para. 37). The Federal Court judge
preferred a narrower characterization, however, holding that the purpose was to
prevent patent holders from pricing their patented medicines excessively
(ratiopharm reasons at para. 15). That is one of the four principal reasons
relied upon by the Federal Court judge in order to justify his intervention and
overturn the Board’s interpretation of subsection 79(1)
of the Act (ratiopharm reasons at paras. 14 and 15).
[66]
In so doing, the Federal Court judge substituted
his own view of the legislation’s purpose without considering whether the Board’s
characterization met the threshold of acceptability and defensibility that
separates unreasonable decisions from reasonable ones. As such, he misapplied
the standard of reasonableness. Had he turned his mind to the Board’s reasons,
it would have been apparent that the Board’s determination was based on a
defensible interpretation of the Act as construed to date by the case law.
[67]
Both the Federal Court judge and the Board
agreed that the mischief targeted by these provisions was the excessive pricing
of patented medicines. However, while the Board’s construction focused on the
persons in need of protection from such mischief, i.e. consumers, the Federal
Court judge focused on those in a position to cause the mischief. In losing
sight of the ultimate goal of the provisions in question, he failed to
appreciate that the mischief sought to be prevented could be caused without the
patent owner itself charging excessive prices.
Interpretation in Favour of Constitutional Validity
[68]
The second basis on which the Federal Court
judge overturned the Board’s interpretation of
subsection 79(1) was his concern that this
interpretation might be unconstitutional. This reasoning once again
ignores the standard of review which governed the question before him.
[69]
The Federal Court judge appeared to be of the
view that an ambiguity could be said to exist in subsection 79(1), suggesting
that it might be capable of more than one interpretation (ratiopharm reasons at
para. 17). Specifically, the definition of patentee might be limited to patent
owners or it might not be. Though the second interpretation was the one adopted
by the Board, this interpretation could, in the Federal Court judge’s view,
“expose” the legislation to a constitutional challenge (Sandoz reasons at para.
22; ratiopharm reasons at para. 17). He therefore preferred the first
interpretation.
[70]
Reasonableness review does not invite the Court
to prioritize all possible answers to a question and identify the best among
them. Rather, the question to be answered is whether the conclusion reached by
the decision-maker meets the threshold of acceptability and defensibility
mentioned above. To the extent that the legislation was reasonably capable of
bearing the interpretation given by the Board, the Federal Court judge was precluded
from substituting his own view for that of the Board.
[71]
I should add that regardless of the foregoing, it
was not open to the Federal Court Judge to construe subsection 79(1) narrowly
on the basis that the construction adopted by the Board might be unconstitutional
since a Notice of Constitutional Question had been filed and the constitutional
validity of subsection 79(1), as construed by the Board, was for him to decide
(contrast Canada (Fisheries and Oceans) v. MiningWatch Canada, 2008 FCA
166 at para. 4).
“Ex-factory price” Issue
[72]
The third basis on which the Federal Court judge
overturned the Board’s interpretation of subsection
79(1) was that Parliament’s power over price review in
connection with patents is “generally understood”
to extend only to “factory-gate prices” (ratiopharm
reasons at para. 18, citing Pfizer at paras. 61 to 63).
[73]
While the Act makes no mention of factory gate
prices, the term “ex-factory price” does appear in the Regulations, where
paragraphs 4(1)(f), 4(1)(g) and subsection 4(10) use the term to
specify the types of prices contemplated in paragraphs 80(1)(b) and
80(2)(b) of the Act. The term is not defined as such by the Regulations,
but has been defined in part in the Guide as follows (PMPRB ratio HFA reasons
at para. 31):
The price established for the first sale …
of the product “at arm’s length” to distributors, wholesalers, hospitals,
pharmacies, etc… The ex-factory price is generally the “list price” for
medicines …
[74]
Ratiopharm argues that this definition excludes
sales between it and its suppliers, as it operates at arm’s length from the
patent holders from whom it bought the medicines in issue. As the Federal Court
judge held, it is the price paid by ratiopharm to these companies that attracts
the review jurisdiction of the Board, not the price subsequently charged by ratiopharm
to its customers.
[75]
In my view, this argument must be rejected for
two reasons. First, it has been recognized that the Board’s guidelines do not
constitute binding law, and that to the extent that they conflict with the Act
or the Regulations, the latter must prevail (Teva Neuroscience at paras.
21 to 25). The Board noted that its statutory mandate may require it to adapt
to “different sales, distribution, commercial and
marketing arrangements” (PMPRB ratio HFA reasons at para. 32). Indeed,
the Guide describes a mode of operation in which the first arm’s length sale of
a patented medicine will generally be the sale at the list price. However, that
is not the only mode of operation and the Board merely adapted the definition
to a scenario where the list price is charged in a sale subsequent to the first
arm’s length sale (PMPRB ratiopharm reasons at paras. 15 and 16). Despite the
respondents’ claim to the contrary, I do not find this conclusion to be unreasonable.
[76]
Second, current subsection 4(5) of the
Regulations (formerly subsection 4(6)) recognizes that the Board can look past
the first arm’s length sale, provided the party whose prices would be subject
to review also constitutes a subsection 79(1) “patentee” with respect to the
medicine in question. As the Board concluded, in such a situation, the focus
shifts to the price charged by the patentee further down the supply chain
(PMPRB ratio HFA reasons at para. 47). It is not unreasonable to conclude that
the price charged by this subsequent patentee constitutes the ex-factory price
in these particular situations.
[77]
Sandoz, for its part, did not advance any
argument on the basis of the ex-factory price as set out in the Guide. However,
because the Federal Court judge relied on this argument in disposing of the
Sandoz appeal, it should also be addressed in that context.
[78]
As Sandoz does not operate at arm’s length from
Novartis, the prices which it charges do not fall outside the definition of
ex-factory prices provided by the Guide. Though it might be argued that,
pursuant to current subsection 4(6) of the Regulations (formerly subsection
4(7)), it is Novartis who should have been reporting the prices charged by
Sandoz, this would only apply where the non-arm’s length party reselling the
drug is not “entitled” to do so, and thus “not required to provide information”
under section 80 of the Act, which only applies to patentees. However, nothing
turns on this in the present case given the Board’s finding that Sandoz is also
a patentee based on the implied licence pursuant to which it sold the medicines
in issue.
[79]
There is no basis for ratiopharm’s related
argument that the Board’s proposed definition of “patentee” is unwieldy to the
point that it could capture wholesalers, retailers and pharmacies (ratiopharm’s
memorandum of fact and law at paras. 84 and 85). The fact that the respondents
operate under a licence to sell the patented medicine whereas wholesalers, retailers
and pharmacies derive their right qua owners of the products which they purchase
for re-sale provides a principled basis for the distinct treatment (compare Eli
Lilly & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129 at paras. 48 to 51,
68 to 71 and 99 to 100).
The French Text of Subsection 79(1) of the Act
[80]
The Federal Court judge considered the impact of
the French text of subsection 79(1) in the part of his judgment relating to
“supporting factors,” which I address later in these reasons. However, because
the outcome of these appeals turns on the construction of this provision, it is
preferable to deal with this question now, together with the other main reasons
advanced by the Federal Court judge in support of his intervention.
[81]
In determining the meaning to be given to the
word “patentee”, the Federal Court judge contrasted the phrase “les droits d’un titulaire” in the French text with “any rights in
relation to that patent” in the English text. According to him, the
French text “ties the definition of ‘patentee’ more
closely to the rights of the patent holder” than does the English text
and should be preferred on that account (Sandoz reasons at para. 31).
[82]
The difficulty with this reasoning is that the
definition so construed would add nothing to the one found in section 2 of the
Act, i.e.: “the person for the time being entitled to
the benefit of the patent”, thereby imposing a redundancy that offends
the presumption that Parliament does not speak in vain (Canada (Attorney
General) v. JTI-Macdonald Corp., 2007 SCC 30 at para. 110).
[83]
Beyond this, it is worth noting that the history
of this provision shows that while the words “any
rights of the patentee” have remained constant in the English text over
the years, the French text previously used the more indeterminate phrase “quiconque exerce des droits d’un breveté” thereby providing for a reading that is wholly consistent with the
English text (these texts are reproduced in annex II to these reasons). That
the words “any rights” in the English text have remained throughout suggests
that a slip might have occurred in the drafting of the French text in 1992,
when the word “les” was inserted
instead of the word “des”. As
an aside, it is useful to add that for the purpose of identifying the “rights”
– “les droits” – that are
contemplated by subsection 79(1), the use of the plural is not to be construed
as excluding the singular (subsection 33(2) of the Interpretation Act, R.S.C.
1985, c. I-21).
[84]
The respondents advance a more extensive
justification for relying on the French text in order to confine its meaning to
patent holders. The entry point for the analysis which they propose is the
invocation of the shared meaning rule of statutory interpretation. Because the
English text leaves open the question of what constitutes a “right in relation
to” a patent, argue the respondents, reference to the French text is required
to clarify the matter. When one considers how “the rights of a patent holder”
(the respondents’ translation of the phrase “les droits
d’un titulaire” in the French text) are defined by the
case law and the doctrine, one finds that the essential feature is the right to
exclude, a right which only a patent holder can have.
[85]
I first note that this argument would require
that subsection 79(1) be construed without regard to the respective rights of a
patentee as these are set out in the Act itself (section 42), a most unlikely
solution. This argument also assumes that there is discordance between the
French and English text as to whether a right to exclude is a necessary
component of the definition since recourse to the shared meaning can only be
had if this discordance actually exists (R. v. Daoust, 2004 SCC 6 at
para. 27).
[86]
Turning to this point, the argument advanced by
the respondents is that “les droits d’un titulaire” cannot extend to someone who has a right to sell a patented
medicine without also having a right to exclude. However, one need not look
beyond the French text to see that its scope cannot be so narrow. Indeed, just
as in the English text, the rights at issue are clarified in the French text by
the exclusion of compulsory licences continued under the PAAA. Such licences
did not entitle their holders to exclude others, but did entitle them to sell
the patented products or process without the consent of the patent owner. The
fact that Parliament provided for this exclusion indicates that, absent the
exclusion, the rights granted under these compulsory licences would have
constituted “rights of the patent holder”.
[87]
The respondents attempted to obviate the effect
of this exclusion arguing that it was inserted for greater certainty. However,
the more plausible explanation is that the exclusion was inserted in order to insure
that those who held the right to sell patented medicine under compulsory licences
which remained in effect when the 1992 amendments were enacted, did not come
within the definition of “patentee”.
[88]
In the end, there is no indication that the
English and French texts give discordant answers to the question whether a
person must have a right to exclude in order to be a “patentee”.
[89]
When construing provisions of the Act that frame
the Board’s jurisdiction, the Court should prefer the interpretation which best
implements the objectives of the Act. In Celgene, Abella J. stressed the
need for the Board to discharge its mandate “[taking]
into paramount account its responsibility for ensuring that the monopoly that
accompanies the granting of a patent is not abused to the detriment of Canadian
patients and their insurers” (Celgene at para. 29).
[90]
As the Board explained at length Parliament, by
including in the definition of “patentee” persons who exercise any rights in
relation to a patent, recognized that persons exercising selling rights can
inflict on consumers the same mischief as patent holders. In both cases, the
risk that excessive prices will be charged arises from the existence of the
patent pertaining to the medicine being sold and its presumptive impact on the
market (PMPRB Sandoz reasons at paras. 72 to 78; PMPRB ratiopharm reasons at
para. 19). Simply put, nothing turns on the fact that the patent rights –
specifically the right to exclude and the right to sell – are exercised by
different persons.
[91]
As the Board further explained, its capacity to fulfill
its mandate would be greatly diminished if the narrow reading proposed by the
respondents was to prevail. Having found that the words of subsection 79(1) can
reasonably bear an interpretation which allows it to give effect to
Parliament’s intent, the Board proceeded to adopt it (PMPRB Sandoz reasons at
paras. 35 to 40, 56 and 57). I can detect no error in this regard.
Supporting Factors
[92]
The Federal Court judge also highlighted a
number of secondary points which he referred to as “factors”, in support of his
conclusion that the respondents are not patentees within the meaning of
subsection 79(1) of the Act.
“Generic Companies”
[93]
Beyond his reading of the French text of
subsection 79(1) which I have already addressed, the main factor spoken to by
the Federal Court judge is, broadly speaking, the general practices of “generic
companies” in the pharmaceutical industry. He held, for instance, that generic
companies “generally … either help create or join a
competitive marketplace” and are “usually...not
entitled to the principal benefit of a patent” (ratiopharm reasons at
paras. 20 and 21). With respect, I find this line of analysis to be unhelpful.
[94]
The term “generic company” appears nowhere in
the Act or the Regulations. Such terms as “innovator” or “generic” are, in some
contexts, used as a shorthand way for identifying legal categories that are relevant
to the scheme at hand, such as, respectively, “first person” and “second
person” within the meaning of the PM(NOC) Regulations. However, their use in
connection with a statute that makes no reference to these distinctions only serves
to create confusion.
[95]
In its reasons, the Board rejected this approach
explaining that (PMPRB ratiopharm reasons at para. 81):
… the generic pharmaceutical industry is not
a defined entity, in either the legal or practical sense. There are some
obvious divisions between the generic and brand name pharmaceutical industries
and rough lines can be drawn. However, this is not conductive to defining legal
rights in the sense argued for by ratiopharm. Indeed, some generic companies
could hold more patents than some brand name companies, or be entitled to
rights in relation to more patents than some brand name companies.
[96]
This is a reasonable holding. Put simply, the extent
to which a given company relies on patent protection in its overall business
model as innovator companies typically do and generic companies typically do
not, is irrelevant to the question whether, with respect to a particular
medicine being sold, it is acting as a patentee within the meaning of
subsection 79(1) of the Act.
The Board’s Finding of an Implied Licence
[97]
The Federal Court judge did not consider the
question whether Sandoz had an implied licence with respect to the patents in
question. His decision was reached on the more general basis that Sandoz did
not own the patents in question or hold a monopoly, and therefore was not a
patentee within the meaning of subsection 79(1) of the Act (Sandoz reasons at
para. 41). This conclusion is confirmed by the fact that, in the ratiopharm
reasons, the Federal Court judge relied on the same reasoning to issue substantially
the same order notwithstanding the existence of express agreements between ratiopharm
and the patent holders (ratiopharm reasons at para. 34).
[98]
It remains that the absence of an implied
licence, if this be the case, would provide a basis for upholding the order of
the Federal Court judge.
[99]
The core of the Board’s holding on the question
of implied licences was that, with respect to each of the medicines in
question, Sandoz was entitled to sell that medicine without being sued for
infringement by the owners of patents for inventions pertaining to those
medicines (PMPRB Sandoz reasons at para. 48). By virtue of this entitlement,
Sandoz was a person entitled to exercise a right in relation to the patent in
question, and therefore a patentee within the meaning of subsection 79(1) of
the Act.
[100] Sandoz’s most direct challenge on this point is that the Board
asserted without analysis that the sales at issue would have constituted
infringement of the patents in question (Sandoz’s memorandum of fact and law at para. 85). In reality, claims
Sandoz, most of the patents were not actually used in the medicines sold by
Sandoz. The Board’s “infringement” assertion
reflected a “clear misapprehension of the facts”
(Sandoz’s memorandum of fact
and law at para. 85).
[101] There are two fundamental flaws with this argument. The first is
that the Board never in fact concluded that the sales in question would have
amounted to infringement. Though the Board does state at one point that “[t]hese sales would be actionable patent infringement but
for this authorization”, it does so in a paragraph expressly dedicated
to summarizing the position taken by the Board Staff (PMPRB Sandoz reasons at
para. 10).
[102] The second flaw with this argument is its premise that the Board’s
conclusion could not have been reached unless the sales in question amounted to
infringement. This premise is wrong.
[103] The entitlement identified by the Board was a right, arising out of
an implied contract, to sell the medicine purchased from the licensing party even
if doing so would, absent this right, constitute an infringement of
a patent owned by the licensing party. In the Board’s view, the legal force of
this right could be illustrated by the fact that, were Sandoz ever sued for
patent infringement by any of these parties, it could rely upon this right in
defending against the suit (PMPRB Sandoz reasons at para. 50). Whether the
party bringing suit in such a scenario could demonstrate that the medicine was
covered by its patent is irrelevant to the question whether Sandoz would be
able to rely on this right in the event of such a suit (i.e. able to show its
entitlement to sell the medicine). Indeed, this first question goes to the
strength of the connection between a particular invention and a particular
medicine as opposed to the existence of any legal rights or claims that the
party selling the medicine in question may have in relation to the patent for
the invention in question.
[104] As was held by this Court in ICN, the Board’s jurisdiction to
review a given set of prices requires the existence of a rational connection
between a patented invention and the medicine being sold in Canada (ICN
at para. 46). Subsection 79(2) of the Act defines the parameters of such a
connection in providing for when an invention will “pertain” to a given
medicine for the purposes of applying subsection 79(1). Given the broad
language in subsection 79(2), the connection can be one of “the merest slender thread” (ICN at para. 46).
In giving effect to the language of subsection 79(2), this Court expressly
rejected the idea that the Board need construe the claims of the patent, let
alone determine that the sales in question would amount to patent infringement,
holding that the existence of the required connection is to be assessed without
going beyond the face of the patent (ICN at para. 46).
[105] The Board understood that, pursuant to the rule set out in ICN,
it was not required to go beyond the face of the patent (PMPRB Sandoz reasons
at paras. 72 and 75). It also understood that the question whether there exists
any entitlement within the meaning of subsection 79(1) is distinct from the
question whether an invention pertains to a medicine within the meaning of
subsection 79(2), having addressed these questions sequentially in separate
sections of its reasons (see PMPRB Sandoz reasons at paras. 31 and 58).
[106] Sandoz argued before the Board with respect to the interpretation of
this latter provision that ICN should be distinguished or had been
overtaken by subsequent jurisprudence (PMPRB Sandoz reasons at para. 73).
Although the Federal Court judge did not consider this question (Sandoz reasons
at para. 5), the Board addressed it extensively (PMPRB Sandoz at paras. 73 to
80). As was found in ICN and reiterated by the Board, the purpose of
subsection 79(2) would be frustrated if a more extensive connection between the
patent and the medicine in question was required.
[107] The remaining arguments advanced by Sandoz with respect to the
implied licence issue must also be rejected. Sandoz argues that the Board erred
in finding that “instructions” were received from the patent holders (Sandoz’s
memorandum of fact and law at paras. 80 and 107). It adds that the finding of
an implied licence is based on a misapprehension of the evidence without however
pointing to the evidence that was allegedly misapprehended.
[108] The only question which needs be answered in order to dispose of these
arguments is whether the Board’s conclusion as to the existence of an implied
licence finds support in the evidence. In my view, reference need only be made
to the consent given by the patent holders in order to allow Sandoz to
cross-reference their medicine and obtain the required NOCs, in order to find such
support.
The Constitutional Challenge
[109] The respondents contend that the Board improperly dismissed on a
summary basis their constitutional challenge of the Act’s enabling provisions.
They argue that the Board did not consider their arguments or dispose of them
fairly. They refer to the arguments which they made before the Board and ask
that they be given the attention which they deserve (ratiopharm memorandum at
paras. 122 to 126).
[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.
[113] The respondents argued that the removal of this provision when the Patent
Act Amendment Act, 1992 was introduced renders the Act unconstitutional.
Specifically, the scheme is no longer directed at patents but at the pricing of
medicine and therefore intrudes upon the provinces’ jurisdiction over property
and civil rights.
[114] The respondents further argued, citing the test set out in General
Motors v. City National Leasing, [1989] 1 S.C.R. 641, that the relevant
provisions of the Act are not sufficiently integrated into the federal scheme
to justify this intrusion. In contrast with the situation confronting the
Supreme Court in Kirkbi AG v. Ritvik Holdings Inc., 2005 SCC 65, the
incursion into provincial jurisdiction is highly intrusive and therefore
invites a stricter test. Only a demonstration that these provisions are
necessary or integral to the federal scheme can save the constitutional
validity of these provisions, and such demonstration has not been made.
[115] This contention insofar as it is aimed at patent owners was
summarily dismissed by both the Federal Court judge and the Board. The Board
found that the power to address excessive prices is an integral part of the
scheme implemented by Parliament. Indeed, the Court of Queen’s Bench noted in Manitoba
Society that increasing patent protection for pharmaceutical firms brought
with it the risk that excessive pricing might result and Parliament dealt with
that concern by creating the Board and granting it monitoring and review powers
over prices (Manitoba Society at para. 20). The capacity of the Board to
cap prices was always part of the scheme and while the power to “lift” patent protection did not give rise to an
intrusion into matters of provincial jurisdiction, and price control did, this
was of no consequence as price control was and remains an integral part of the
scheme. In the words of the Manitoba Court of Appeal which dismissed the appeal
from the decision of the Manitoba Queen’s Bench (Manitoba Society (Man. C.A.)
at para. 4):
… 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.
[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).
[117] The remaining question is whether this price control scheme retains its
constitutional validity when applied to non-patent owners or holders.
[118] The argument advanced by the respondents is that including such
persons severs the connection set out in Manitoba Society, and taken up
in ICN (respondents’ replies at para. 19). Specifically, they maintain
that the constitutional soundness of the Board’s jurisdiction is imperiled when
persons who do not hold a patent over the medicine being sold are included in
the definition of “patentee” (respondents’ replies at para. 30).
[119] I cannot agree. At issue in Manitoba Society was the
constitutional validity of section 15 of An Act to amend the Patent Act and
to provide for certain matters in relation thereto, S.C. 1987, c. 41 (Patent
Act Amendment Act, 1987). At the time the case was decided, the impugned
provisions of the former Act included section 39.1, which defined the
term patentee as follows:
|
39.1 (1) In section 39.11 to 39.25,
…
“patentee”, in
respect of an invention pertaining to a medicine, includes, where a person is
exercising any rights of the patentee other than under a licence under
section 39, that other person in respect of those rights.
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39.1 (1) Les définitions qui suivent s’appliquent aux articles 39.11 à
39.25.
[…]
«breveté» ou
«titulaire de brevet» lui est assimilé quiconque exerce des droits d’un
breveté sur une invention liée à un médicament autres qu’une licence visée à
l’article 39.
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[120] As noted earlier, this prior definition, in both official languages,
gave rise to no conceivable ambiguity as to Parliament’s intent to include both
patent holders and persons who, without holding a patent, exercise rights under
it. Thus, it cannot be said that in upholding the constitutional validity of
the pricing regime established by section 15 of the Patent Act Amendment
Act, 1987, the Manitoba Court of Queen’s Bench and the Manitoba Court of
Appeal in Manitoba Society did not sanction the constitutional validity
of the pricing regime insofar as it applied to non-patent holders.
[121] Beyond this, there is no basis for the argument that the connection with
the patent ceases to be sufficient to meet the constitutional imperative when the
person targeted holds a licence to sell a patented medicine without holding the
patent. As was explained in ICN, the harm which the Act seeks to prevent
arises by reason of the existence of the patent pertaining to the medicine
being sold (ICN at para. 76), with the result that nothing turns on the
fact that the person exercising the selling rights does not hold the patent
itself.
[122] I therefore conclude that the Board correctly held that including persons
who exercise selling rights under a patent within the ambit of subsection 79(1)
does not bring that provision outside the scope of subsection 91(22) of the Constitution
Act.
[123]
For these reasons, I would allow the appeals
with costs in both instances, and refer the matter back to the Federal Court
judge or another judge of that Court designated by the Chief Justice so that
the two outstanding issues identified at paragraph 55 of these reasons may be
addressed.
“Marc Noël”
“I agree
J.D. Denis Pelletier J.A.”
“I agree
Donald J. Rennie
J.A.”
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