In this decision the FCA has held that authorized generics fall within the jurisdiction of the Patented Medicine Prices Review Board, reversing O’Reilly J’s decision (blogged here). The FCA also reaffirmed the constitutionality of the provisions of the Patent Act setting up the PMPRB and giving it the authority to regulation prices of patented medicines, affirming O’Reilly J on this point. While the FCA’s ultimate holding is important, the argument turned on points specific to the relevant statutory provisions.
Two appeals were heard together. In the first case, ratiopharm sold an anti-asthmatic medicine called ratio-salbutamol HFA, which is the generic equivalent of the Ventolin HFA, a patented medicine manufactured and sold in Canada by GlaxoSmithKline (GSK). GSK sold ratio HFA to ratiopharm and granted ratiopharm an exclusive licence to set the price and sell ratio HFA in Canada without any right to sub-licence . The second case involved Sandoz, a wholly owned subsidiary of Novartis. Sandoz sold medicines covered by patents owned by Novartis, which allowed Sandoz to sell the generic version and to refer to those medicines in obtaining the required NOCs. There was, however, no express licensing agreement .
The Board requested information from both ratiopharm and Sandoz pursuant to ss 80, 81 and 88 of the Act, which require a “patentee” to provide pricing information. The Board also held that ratiopharm had sold ratio HFA at excessive prices, contrary to s 83 of the Act which applies to a “patentee.” Sandoz and ratiopharm appealed the Board decisions, primarily on the basis that they were not “patentees” within the meaning of the provisions. The constitutionality of the provisions was also challenged, as trenching on provincial jurisdiction over property and civil rights, and Sandoz also argued that the Board erred in finding that it had an implied licence.
The main question turned on the definition of “patentee” in s 79(1), which applies to the relevant sections (my emphasis):
“patentee”, in respect of an invention pertaining to a medicine, means 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 noted that the definition does not on its face require ownership, and in light of the purpose of the provisions, which is to protect consumers from unreasonable pricing, the definition should be interpreted to include licensees. Applying a deferential standard of review of the Board’s interpretation of its home statute , the FCA upheld as reasonable both the Board's understanding of the purpose of the provisions , and its determination that both ratiopharm and Sandoz, as licensees, were "patentees" within the meaning of s 79(1) . The FCA also re-affirmed the constitutionality of the relevant provisions, essentially on the basis of well-established precedent , and affirmed the Board’s finding that Sandoz was an implied licensee as being a factual determination which was supported by evidence and therefore entitled to deference .
In the result, it is clear that authorized generics will fall under the jurisdiction of the Board. However, neither the Board nor the FCA provided an explicit definition of the scope of the provision. The Board’s key reasoning in ratiopharm [08-D3, 42] is as follows:
The Agreements gave ratiopharm the exclusive right to set the price of and to sell ratio HFA and to obtain the necessary regulatory approvals to do so. Absent the licence granted, these acts would have violated rights held exclusively by GSK pursuant to section 42 of the Act.
In Sandoz, after reviewing the facts, the Board concluded [10-D2, 57], that “Sandoz is a patentee, within the meaning of subsection 79(1) of the Act, of any patent owned directly or indirectly by Novartis AG, where that patent is for an invention pertaining to a medicine that Sandoz is authorized by its parents to sell in Canada.” The FCA concluded that the Board correctly held that including persons "who exercise selling rights under a patent" is within the ambit of subsection 79(1) . The FCA also made it clear that in order to be a licensee it is not necessary that a party’s products would actually infringe the patent but for the licence; it is enough that a licence agreement exists which would protect the party if infringement were alleged .
The parties raised a variety of arguments as to why a narrower interpretation was warranted. I will not review these arguments in detail, as most were not particularly powerful, in my view. The most interesting was that the Board's definition would capture wholesalers, retailers and pharmacies . This argument was rejected by the Board, on the basis that “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.”* The FCA affirmed this point as well, saying "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" .
Thus even though a patent confers an exclusive right to make, sell and use the invention (s 42), the "benefit of the patent" in s 79(1) encompasses only a restricted subset of those rights, namely the right to sell to persons selling to consumer classes protected by the Board. It does not encompass the right to use, or even the right to sell to the public generally. This is certainly an awkward distinction to draw on the basis of the text of the provision, as "benefit" is prima facie a broad term, as the Board emphasized. I am not really persuaded by the FCA's reasoning that there is a principled distinction between a licensee and a party having rights as an owner of the tangible embodiment of the patented invention, as ownership of the tangible embodiment does not in itself give any rights under the patent, unless by express licence, implied licence or exhaustion. With that said, the distinction is sound on a purposive interpretation of the provision, and given that a purposive analysis informs and can even dominate the textual analysis (Canada Trustco 2005 SCC 54 ), I do agree that the distinction is sound. This is a case in which text itself is not ideally drafted, but the interpretation given by the Board and FCA best accords with the purpose of the provision.
I must say that I am very skeptical of the basic mandate of the PMPRB, which strikes me as antithetical to the purpose of the patent system. But the legislature was evidently of a different view, as the provisions setting up the Board are in the Patent Act itself. And if we accept that policy decision, as we must (at least for the purposes of statutory interpretation), it seems to me that the FCA decision is clearly correct.
* The FCA cited the Board’s decision [08-D3, 15, 16] as stating that , but the cited paragraphs are not to that effect, and while that position is certainly consistent with the Board’s reasoning, I was unable to find any express statement to that effect in the Board decision.