Canada’s Intellectual Property Firm

Federal Court finds PMPRB not to have jurisdiction over ratiopharm and Sandoz

by Junyi Chen

On May 27, 2014, Justice O’Reilly of the Federal Court overturned decisions of the Patented Medicine Prices Review Board (PMPRB or the “Board”) finding that in both cases, the Board has no jurisdiction to review the prices set by the generic manufacturer.

In each of Sandoz Canada Inc v Canada (Attorney General), 2014 FC 501 (Sandoz) and ratiopharm Inc v Canada (Attorney General), 2014 FC 502 (ratiopharm), the Board had concluded that the generic was a “patentee” because it sold patented medicines.

In Sandoz, Sandoz held no patents, but was a subsidiary of Novartis AG, the patent holder. The Board looked beyond the fact that Sandoz was a generic company. It found that Sandoz’s position as a subsidiary gave it the benefit of Novartis AG’s patents and the power to exercise rights in relation to these patents. As such, the Board determined that Sandoz was in effect an implied licensee of its parent and thus fell within the definition of “patentee” (PMPRB-10-D2-SANDOZ-Merits Reasons and Order). Sandoz sought judicial review of this decision (reported in the November 2013 edition of Rx IP Update).

In ratiopharm, ratiopharm sold ratio-salbutamol HFA, a generic equivalent of VENTOLIN HFA manufactured by GlaxoSmithKline (GSK), after having purchased it under contract from GSK. Under the contract, GSK retained all patent rights to its product. The Board found that by virtue of its contract with GSK, ratiopharm was a “patentee” and therefore, subject to the jurisdiction of the PMPRB (PMPRB-08-D3-ratio-Salbutamol HFA-Merits). The Board went on to find that ratiopharm was obliged to provide the Board with pricing information (Board Order), and that ratiopharm was selling its products at an excessive price (Order). ratiopharm sought judicial review of all three decisions (reported in the October 2013 edition of Rx IP Update) and all three applications were heard together. ratiopharm also sought judicial review of another Board decision regarding 12 different medicines (reported in the September 2011 edition of Rx IP Update; Board decision and Order).

In each of Sandoz and ratiopharm, Justice O’Reilly addressed three issues:

  1. the standard of review applicable to the Board’s decision;
  2. whether the generic was a “patentee”;and
  3. whether the legislation concerning the PMPRB was constitutional.

Standard of Review

Regarding the standard of review, Justice O’Reilly held in both cases that a reasonableness standard applies to the jurisdiction question (whether the generic is a “patentee”), but a correctness standard applies to constitutional questions.

Whether the generic was a “patentee”

With respect to the issue of whether the generic was a “patentee,” Justice O’Reilly answered in the negative in each case taking into account the federal provincial division of powers and interpreting the scope of the Patent Act provisions accordingly. In particular, Justice O’Reilly held that “[i]t is clear that the relevant provisions of the Act were enacted out of concern that patent holders could take undue advantage of their monopolies to the detriment of Canadian consumers. ... Accordingly, the Board [sic] should confine its role to reviewing prices charged by patent holders, who benefit a time-limited monopoly, to determine whether those prices are excessive.” He also held that the federal government has no overall jurisdiction to regulate the price of generic versions of patented medicines and that responsibility falls on the provinces. He further noted that federal jurisdiction is generally confined to regulating the “factory-gate” prices of patented medicines which are charged by patent holders to their first purchasers, which were Sandoz and ratiopharm in the cases at hand. He commented in Sandoz that “[w]hile the Board began by correctly identifying the purpose of the legislation and the leading cases on the issue (ICN Pharmaceuticals, Inc and Celgene), in my view, it placed too much emphasis on the ‘consumer protection purpose’ of the legislation. That purpose is served solely by reviewing the prices at which patent holders sell patented medicines to determine whether, by virtue of their monopolies, those prices are too high. The legislation is not aimed at protecting consumers from high drug prices generally, and the Board’s role certainly does not extend that far.”

Specifically in Sandoz, Justice O’Reilly held that “the mere fact that a subsidiary generic company sells a version of a patented medicine is insufficient to bring it within the definition of a patentee”.

Whether the legislation was constitutional

In respect of the issue of constitutionality, Justice O’Reilly held in both cases that the provisions of the Patent Act relating to the Board’s remedial and punitive powers, and its ability to impose monetary remedies and penalties did not alter the basic purpose of the legislation. He therefore found that the relevant provisions of the Patent Act, properly interpreted, fall within federal jurisdiction over patents of inventions and are constitutional.

In each case, Justice O’Reilly ordered the matter referred back to the Board with a direction that it find that the generic is not a “patentee.”

The preceding is intended as a timely update on Canadian intellectual property and technology law. The content is informational only and does not constitute legal or professional advice. To obtain such advice, please communicate with our offices directly.