Authorized Generics Are Subject to PMPRB After All

Canada (Attorney General) v Sandoz Canada Inc 2015 FCA 249 Noël CJ: Pelletier, Rennie JJA rev’g 2014 FC 501, 2014 FC 502 O’Reilly J partially aff’g PMPRB-10-D2, PMPRB-08-D3

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 [6]. 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 [9].

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 [63], the FCA upheld as reasonable both the Board's understanding of the purpose of the provisions [67], and its determination that both ratiopharm and Sandoz, as licensees, were "patentees" within the meaning of s 79(1) [91]. The FCA also re-affirmed the constitutionality of the relevant provisions, essentially on the basis of well-established precedent [116], 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 [108].

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) [122]. 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 [103]. 

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 [79]. 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" [79].

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 [10]), 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 [21], 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.

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

2,125,665 / 2,125,667

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.

PMPRB “subverting the will of Parliament”

Teva v Canada (AG) 2013 FC 448 Zinn J (Copaxone II) quashing In re Copaxone PMPRB-2010-D3-Copaxone additional reasons at 2013 FC 500

            PMPRB / Copaxone Syringe

This is the second trip by Teva to the FC appealing a decision of the Patented Medicine Prices Review Board that Teva has sold its Copaxone Syringe at an “excessive” price. In the first decision, 2009 FC 1155 (Copaxone I), Hughes J quashed the decision of the Board for having failed to consider the statutorily mandated factors. Hughes J returned the question to the Board for redetermination. A differently constituted panel of the Board heard the matter, and once again determined that the price was excessive. Zinn J has now held that the decision of the second Board was defective, in exactly the same way as the decision of the first Board, and once again sent the matter back for reconsideration.

Section 85(1) of the Patent Act provides that “the Board shall take into consideration the following factors, to the extent that information on the factors is available to the Board:”

(a) the prices at which the medicine has been sold in the relevant market;

(b) the prices at which other medicines in the same therapeutic class have been sold in the relevant market;

(c) the prices at which the medicine and other medicines in the same therapeutic class have been sold in countries other than Canada;

(d) changes in the Consumer Price Index; and

(e) such other factors as may be specified in any regulations made for the purposes of this subsection.

Copaxone Syringe was introduced by Teva in 2003 at $36 per daily dose. Teva subsequently increased its price to $43.20, a 20% increase, which was in excess of the CPI for the relevant period.* However, during the entire period, Copaxone Syringe was the lowest priced drug in its class domestically, and it was also consistently sold at a lower price in Canada than in any of the other comparator nations specified by regulation [8]. In Copaxone I, Hughes J found that in finding the price increase excessive, “the Board focused only on the [Consumer Price Index] essentially to the exclusion of the other factors set out in section 85(1). Lip service only was given to these other factors” [49]. He therefore quashed the decision and sent it back for redetermination, “preferably by a different panel” [76].

A different panel was duly constituted, and the Board again concluded that Copaxone Syringe was excessively priced. On appeal, Zinn J, like Hughes J, held that “the Board’s decision must be set aside because it again paid no more than lip service to the factors favouring the conclusion that the medicine was not excessively priced, namely paragraphs 85(1)(b) and (c), and again treated paragraph 85(1)(d), CPI, as a conclusive factor” [38]. The second panel’s attempts to explain why the low domestic and international price should not be given any weight were not persuasive enough to constitute a reasoned decision. For example, with respect to the international comparison, the Board argued that “the comparator drugs’ prices are not from Canada and as such might be affected by exogenous factors such as a different regulatory regime, different income levels, and different health and other socio-economic factors.” But as Zinn J pointed out, “Having enacted this provision, Parliament is presumed to be aware of the difficulties in comparing the price of medicines across borders; despite this, it saw fit to include ‘the prices at which the medicine and other medicines in the same therapeutic class have been sold in countries other than Canada’ as a factor to be considered when determining whether a drug is being sold at an ‘excessive’ price in Canada. What the Board appears to be saying is that this factor is inherently unreliable and should be given little if not no weight. The Board appears therefore to be subverting the will of Parliament, which clearly saw this as a relevant factor to be accorded weight” [41].

Its difficulties with the Board are no doubt frustrating for Teva, but the bigger question is why the Board appears to be not just “subverting the will of Parliament,” but doing so systematically. The problem is not just that the Board decided unreasonably; one erroneous decision, or even an unreasonable decision, is readily explained as an aberration. But we now have two different Federal Court judges independently concluding that two differently constituted panels have ignored their statutory obligation. This points to a deeper problem.

* Copaxone I at [7], [33], [34], [35], based on the first Board decision, states that the price increase took place all at once on July 1, 2004, while Copaxone II at [7], [15], [18], [21], based on the decision of the second panel, states that the price increase took place over a period of several years, with substantial increases in 2004 and 2005, no increase in 2006-07, and smaller increases in 2008-08. I have no explanation for the discrepancy, but it is not crucial to the reasons of either panel, or to those of the Federal Court.