Thursday, May 29, 2014

Authorized Generics Not Subject to PMPRB

Sandoz Canada Inc v Canada (Attorney General) 2014 FC 501 O’Reilly J rev’g PMPRB-10-D2-SANDOZ
Ratiopharm Inc v Canada (Attorney General) 2014 FC 502 O’Reilly J rev’g PMPRB-08-D3-ratio-Salbutamol HFA-Merits

In these companion cases O’Reilly J has held that regulation of prices set by generics, including authorized generics, is not within the jurisdiction of the Patented Medicines Prices Review Board (PMPRB).

Novartis holds patents related to a number of medicines. Sandoz is a wholly owned subsidiary of Novartis, and was selling several of these medicines with Novartis’ authorization; that is, it was an authorized generic [8]. Sandoz related to an order by the Board that Sandoz provide the Board with information related to its prices pursuant to s 80 of the Act and related provisions. Sandoz objected to providing the information on the basis that the Board did not have jurisdiction over it.

Ratiopharm was selling ratio~salbutamol HFA, which is the generic equivalent of the GlaxoSmtihKline product Ventolin HFA. Both are covered by patents held by GSK [PMPRB 21]. Ratiopharm purchased the product under contract from GSK [1], and was selling its product with the consent of GSK [PMPRB 22]; in short, it was also an authorized generic. In Ratiopharm, the Board had found that Ratiopharm was selling ratio~salbutamol HFA at an inflated price, and ordered payments of damages of almost $66 million [2]. Ratiopharm challenges this and related decisions, again on the basis that the Board does not have jurisdiction. O’Reilly J’s reasons are substantially identical except for the recitation of the differing facts, and in the remainder of this post I will refer to the Sandoz paragraph numbers.

The Board's jurisdiction turned on the definition of “patentee” in s 79(1) of the Patent Act:

the person for the time being entitled to the benefit of the patent for that invention and includes, where any other person is entitled to exercise any rights in relation to that patent other than under a licence continued by subsection 11(1) of the Patent Act Amendment Act, 1992, that other person in respect of those rights

The Board’s view was essentially that an authorized generic is a “person entitled to exercise any rights in relation to that patent” – in short, a non-compulsory licensee – because it had a right to sell, which would be an infringement but for a licence [PMPRB ratio 27]. The AGs argued that they were not licensees because “ratiopharm has no entitlement to any right or interest in the Patents, express or implied, and is not entitled to the benefit of the Patents pertaining to GSK’s ratio HFA invention other than the right to market and sell ratio HFA” [PMPRB ratio 26], and “Sandoz does not own any patents, is not the express licensee of any patents . . .it has never behaved like a patent holder or licensee in any way, including the fact that it has never sued anyone for patent infringement or alleged that anyone is infringing a Novartis patent” [PMPRB Sandoz 16]. In my view, the AGs' arguments on this point are extremely weak. The patent right includes the right of “selling.” A non-authorized generic which sold patented medicines in Canada would be an infringer, even if it imported the drug from a third party which made it outside of Canada.

O’Reilly J nonetheless held that a generic is not a patentee. On the textual point he held that:

[27] If the term “patentee” is interpreted too broadly so as to catch a company in the position of 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. If Sandoz is a patentee, so are many other generic companies and possibly other entities down the line of distribution.

But, as I understand it, the Board did not argue that any company that enjoys any benefits of a patent is thereby a patentee, and I don’t see how using a patented medicine as a comparator for NOC purposes gives any rights in the patent.

[28] I note that Sandoz cannot bring an action for infringement or seek an order of prohibition keeping another company off the market. Sandoz simply does not enjoy the special patent rights that inure to the benefit of the patent holder.

It is true that Sandoz does not enjoy all of the rights that a patent holder enjoys, but the statute provides that a person is a patentee if it enjoys “any” of those rights.

But O’Reilly J did not rely primarily on a textual argument. These points were ancillary to his preceeding purposive analysis [24]. In that, he relied primarily on two points.

One point is that:

while the federal government can regulate patents of invention, it has no overall jurisdiction to regulate the price of generic versions of patented medicines. That responsibility falls squarely on the provinces (Katz Group Canada Inc. v Ontario (Health and Long-Term Care), 2013 SCC 64, at para 3). To expand the definition to include generic companies who neither hold patents nor enjoy monopolies would expose the legislation to an attack on constitutional grounds. [22]

The difficulty with this point is that, as I understand it, the Board is not seeking to regulate the price of all generic versions of patented medicines, but only the price of authorized generics, who hold a licence from the patentee. Perhaps there is a constitutional problem even so, but if there is, it does not seem to be the problem identified by O’Reilly J.

The more important point is that the mischief aimed at by the provisions of the Act establishing the PMPRB is to prevent patent holders from taking “undue advantage of their monopolies” [20]. If there is no patent monopoly, the Board should not have jurisdiction:

[26] Generally speaking, generic companies either help create or join a competitive marketplace, which helps keep the costs of patented medicines down. Reviewing the prices charged by generic companies who hold no patents and no monopolies, on its face, appears to be beyond the Board’s mandate.

[29] Sandoz enters the market only with the authorization of Novartis AG, after Novartis AG has already lost its monopoly position – that is, once other generics are already on the market.

While it is certainly true that generics create a competitive market, and it may often be true that an authorized generic only joins the market after the patent monopoly is lost, this not necessarily true. An innovator may launch an authorized generic prior to expiry of the patent, in order to build generic market share in anticipation of full generic competition prior to expiry. The AG competes with the brand, in the sense that it is priced below the brand price, but it does not price at the fully competitive price that would emerge in a long-established generic market. While the facts are not entirely clear, this appears to have been what happened in Ratiopharm, as Ratiopharm was selling its product prior to the expiry of the relevant patents. (See also PMPRM Ratio [63]-[64], which indicates that there were other products in the salbutamol MDI category, but without indicating whether they would have been covered by GSKs patents.) In any event, whether this is what happened on the facts in Ratiopharm, it is certainly a possibility.

On a related point, it is not entirely clear to me how O’Reilly J would define a “patentee” under s 79(1). The closest to an express definition is the passage in [29], quoted above. The first phrase “Sandoz enters the market only with the authorization of Novartis AG,” includes any licensee, and so is difficult to square with s 79(1), which clearly encompasses licensees. The second phrase, “ after Novartis AG has already lost its monopoly position,” seems to be the key. Similarly, “Sandoz generally operates in a market where no one holds a monopoly, and no one can take undue advantage of a monopoly position by charging excessive prices” [29]. This suggests that O’Reilly J’s definition turns on whether in fact there is competition in the market for the drug. Nor is it entirely clear what O'Reilly J means by "monopoly." If taken in the competition law sense, that is, defined according to a relevant market which may be broader than the product covered by a particular patent, then many patentees would not themselves by "patentees" within this definition, because patents do not necessarily give market power. More plausibly, it might mean that the particular patent has expired or been held invalid. But O'Reilly J did not directly address whether the patents in question were still in effect, so if this was intended as a definition, it was not applied on the facts. Either of these would be consistent with O'Reilly J's purposive analysis, but either is difficult to square with the text of the provision, and with the facts addressed by O'Reilly J.

I understand O’ReillyJ’s concern that the PMPRB should not be regulating prices in a competitive market that has arisen post-patent. But it is not clear to me that this is what the Board was actually trying to do. And I can certainly also see the Board’s concern that if authorized generics are excluded from its jurisdiction, a patentee can avoid price regulation simply by selling its product through an AG, even a wholly owned AG.

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