Friday, December 11, 2015

Complete Code Bars Class Action for Recovery of Profits from to Invalid Patent

Low v Pfizer Canada Inc, 2015 BCCA 506 Garson JA: Bennett, Savage JJA rev’g 2014 BCSC 1469 Smith J (blogged here).
            2,163,446 / VIAGRA / sildenafil

In Low v Pfizer, the BCCA refused to certify a class action seeking disgorgement of the excess profits earned by Pfizer on sales of Viagra during the period when Pfizer’s market position was protected by a patent which was ultimately held to be invalid. The BCCA decision was based on three points: (1) the plaintiff was essentially seeking to create a tort of breach of statute, contrary to Saskatchewan Wheat Pool [1983] 1 SCR 205; (2) the patent regulatory regime is in any event complete code; (3) and the claims in unjust enrichment and unlawful interference with economic relations would fail on their own merits independently of the complete code argument. From a policy perspective, the BCCA was concerned about “tortifying” regulatory law and upsetting the complex balance of patent incentives that have been established by the legislature.

The background, in a nutshell, is that after much litigation, including an NOC proceeding in which Teva was ultimately successful (see Viagra 2012 SCC 60), Pfizer’s patent for Viagra (sildenafil citrate) was held to be invalid for failure to disclose the invention as required by s 27 of the Patent Act: 2014 FCA 13 (blogged here). This implies that until the patent was invalidated and the market opened to generics, the price of sildenafil was higher than it would have been had the patent never been granted. In the decision under appeal in Low v Pfizer, the plaintiff, Low, sought to certify a class action against Pfizer to recover the loss to the all British Columbia residents who purchased Viagra from the time of Teva’s NOC application to the decisions invalidating the patent [22].

Low sought disgorgement of Pfizer’s profits under three causes of action:

i. unlawful interference with economic relations;
ii. waiver of tort; and
iii. unjust enrichment.

Under s 4(1)(a) of the BC Class Proceedings Act the class will be certified unless it is “plain and obvious” the plaintiff’s claim cannot succeed under any of these causes of action [27]. As described here, Smith J at first instance held that the first and third points disclosed a cause of action for the purposes of certification, but that it is plain and obvious that a claim in waiver of tort could not succeed [72]. Pfizer appealed Smith J’s holding on the first and third points. The holding that there was no cause of action in waiver of tort was not appealed [38].

The BCCA held that the appeal should be allowed and the action dismissed. The first issue dealt with by Garson J in her decision for the court was whether the “Patent Regulatory Regime” – which includes the Patent Act, the NOC regulations and the data protection regulations [8] – constitutes a complete code [46ff]. This discussion made what I see as two distinct points. 

First, Saskatchewan Wheat Pool [1983] 1 SCR 205 held that there is no tort of breach of statute [65]. This means that in order for the class to be certified, Low would have to plead some cause of action apart from failure to comply with the Patent Act. While Low pleaded unlawful interference with economic relations and unjust enrichment, the wrongful conduct at issue which supports the “unlawful” or “unjust” aspect of those causes of action, was, at its root, Pfizer’s failure to make disclosure in accordance with s. 27 of the Patent Act. In substance then, Low was pleading a tort of breach of statute, contrary to Saskatchewan Wheat Pool [67].

Moreover, the BCCA held that the Patent Regulatory Regime is a complete code which forecloses parallel civil actions by consumers that are rooted in a breach of the Patent Act [68]. Low conceded that the regime is a complete code as regards the relationship between generic and brand name manufacturers [48], but argued that this was not true with respect to the rights of consumers. The BCCA (in part) as follows:

[69] Courts have determined that the Patent Act constitutes a complete code as between brand name and generic manufacturers. Courts have also concluded that the completeness of the Patent Regulatory Regime prevents generic drug manufacturers from claiming disgorgement of profits based on unjust enrichment. It would make no sense logically or from a policy perspective to allow consumers to claim disgorgement of profits from brand names when generics are precluded from claiming the same based on identical wrongful acts.

I’m not sure it’s entirely right to say that it would make no sense from a policy perspective to allow consumers to claim disgorgement of profits from brand names when generics cannot. There is a substantive distinction, namely that the excess profits of the brands came out of the pocket of the consumers (or at least their insurers), and not out of the pockets of the generics. That is the main reason why the ONCA in Apotex Inc v Eli Lilly & Co, 2015 ONCA 305 held that generics cannot bring an action for unjust enrichment consequent on the operation of the NOC Regulations (see here).

Nonetheless, the fact that there is a substantive distinction to be made, does not mean that the complete code argument is wrong. As the Garson J also noted, quoting the FCA, 2011 FCA 358 (blogged here):

the PM(NOC) Regulations (and s. 8 in particular) as “an attempt to strike a balance between the need for patent protection on the one hand and the timely entry of lower priced drugs on the market, on the other” (at para. 18). In my view, it is not for this Court to upset the balance that Parliament has struck by expanding the scope of available remedies. [71]

Even though the excess profits came out of the pockets of consumers, allowing the consumers to recover those profits would certainly affect the balance of incentives that have been struck by the patent regime. Even if the consumers may pay higher prices than necessary in some cases for drugs prevented by invalid patents, the consumers interests are ultimately in having an incentive to create effective new drugs, combined with timely entry of lower priced drugs, and these interests are directly reflected in the balance between the interests of patentees and generics. The view that consumers interests are reflected in the existing balance is reinforced by the price regulation scheme set up in the provisions establishing the Patented Medicines Prices Review Board [70].

The BCCA noted that “[a]ssuming that the Patent Regulatory Regime is not a complete code, Low’s claim necessarily runs afoul of the rule in Saskatchewan Wheat Pool” [67]. It seems to me that the relationship between these two arguments runs the other way; even if the Patent Regulatory Regime was not intended to be a complete code, to the extent that Low’s claim was fundamentally based on a breach of statute it would run into Saskatchewan Wheat Pool. But nothing much turns on the precise relationship between these arguments.

The BCCA also held that in any event the pleadings did not disclose a good cause of action in unlawful interference with economic relations. The BCCA held that the “unlawful means” requirement must be actionable independently of the statute itself, as when conduct that might give rise to charges under the Criminal Code, might also give rise to civil liability in assault or battery [85]. Garson J noted at [86] that this requirement was necessary to avoid “tortifying” regulatory law, which Cromwell J warned against in Bram 2014 SCC 12, [74]. To my mind, this continues the theme from the complete code argument. As we all now understand, the common law is based on a set of policy choices. These choices are generally defensible, but they must give way to the policy choices made by the legislature. A common law cause of action might be desirable in isolation, and yet undesirable when added to an existing regulatory scheme.

Finally, the BCCA also held that no cause of action had been made out unjust enrichment, on the basis that the contracts for purchase between Pfizer and the direct purchasers provided a juristic reason for the enrichment, and one one juristic reason is sufficient to defeat an unjust enrichment claim [102].

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