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Federal Court of Appeal finds that Sandoz and ratiopharm are subject to jurisdiction of PMPRB in relation to certain drug sales

As previously reported, 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 the Board had no jurisdiction to review the prices set by ratiopharm or Sandoz.

On November 6, 2015, the Federal Court of Appeal overturned Justice O’Reilly’s decisions, finding that Sandoz and ratiopharm are “patentees” within the meaning of subsection 79(1) of the Patent Act (the Act) and are therefore subject to the jurisdiction of the PMPRB: Canada (Attorney General) v Sandoz Canada Inc, 2015 FCA 249. The matters were returned to the Federal Court so that outstanding issues could be addressed.

The appeals stem from a number of PMPRB decisions relating to ratiopharm’s sale of ratio-salbutamol HFA (GlaxoSmithKline’s VENTOLIN HFA) and other drugs, and the sale of various drugs by Sandoz.


The ratio-salbutamol HFA sold by ratiopharm was manufactured and packaged by GlaxoSmithKline, which granted ratiopharm an exclusive licence to set the price of the product and sell it in Canada. Ratiopharm submitted patent lists for patents owned by GlaxoSmithKline on the basis of consent by GlaxoSmithKline, which had also consented to the issuance of ratiopharm’s notice of compliance (NOC). Ratiopharm had similar arrangements with other patent owners. None of the governing agreements granted any patent ownership rights to ratiopharm.

Sandoz was and is a wholly owned subsidiary of Novartis Canada Inc., which is a wholly owned subsidiary of Novartis Pharma AG, which in turn is wholly owned by Novartis AG (collectively Novartis). Sandoz sold medicines covered by patents owned by either Novartis AG or one of its wholly owned subsidiaries. Once other generics had entered the market for a particular Novartis medicine, Novartis would consent to the issuance of an NOC to Sandoz for that medicine. Each of the medicines at issue was obtained by way of a purchase order. No written licence agreements existed between Sandoz and Novartis relating to the sale of these medicines.

On May 27, 2011, the PMPRB found that ratiopharm had sold ratio-salbutamol HFA at excessive prices, and on June 30, 2011, it ordered ratiopharm to provide information in respect of 14 other medicines. On October 17, 2011, the Board issued an order compelling ratiopharm to pay $65,898,842.76 to offset excess revenues realized by the sale of ratio-salbutamol HFA.

On August 1, 2012, the PMPRB ordered Sandoz to provide it with information in respect of five of its medicines.

Justice O’Reilly allowed the applications for judicial review filed by ratiopharm and Sandoz in relation to the decisions, finding that it was unreasonable for the PMPRB to conclude that ratiopharm and Sandoz were patentees as neither held patents nor monopolies in relation to the drugs at issue. He referred the matter back to the PMPRB with a direction that the Board find that ratiopharm and Sandoz are not patentees.

Federal Court of Appeal decision

Reasonableness of the PMPRB’s decisions. Chief Justice Noël, writing for the Court, found that Justice O’Reilly had misapplied the standard of review by substituting his own view of the purpose of the legislative provisions enabling price review for that of the PMPRB. The PMPRB’s finding that the purpose of its enabling provision was to protect consumers from the excessive pricing of patented medicines was reasonable and ought not to have been disturbed.

The Court further found that in the context of a reasonableness review it was improper for Justice O’Reilly to consider whether the PMPRB’s interpretation of “patentee” in subsection 79(1) “might” be unconstitutional. The relevant question was whether the conclusion reached by the decision-maker met the threshold of acceptability and defensibility required in a reasonableness review. The constitutionality of the provision was a separate issue that was properly before him and could have been decided.

With respect to Justice O’Reilly’s finding that Parliament’s power over price review is “generally understood” to extend only to “factory-gate prices” charged by patentees (here, GlaxoSmithKline and Novartis) to their first purchasers, the Court found that it was reasonable for the PMPRB to have concluded that its statutory mandate required it to adapt to “different sales, distribution, commercial and marketing arrangements”. No law imposed the restriction upon which Justice O’Reilly relied. Rather, current subsection 4(5) of the Patented Medicines Regulations (Regulations) recognizes that the PMPRB can look past the first arm’s-length sale so long as the party whose prices are subject to review constitutes a “patentee” as defined in subsection 79(1) in relation to the drug in question.

The Court rejected Justice O’Reilly’s analysis relating to the French definition of “patentee”. Justice O’Reilly preferred the definition of patentee afforded by the French text, which refers to “les droits d’un titulaire”. He concluded that this definition was narrower than that of the English text, which refers to “any rights in relation to that patent”. The Court noted that Justice O’Reilly’s interpretation created a redundancy with section 2 of the Act, thereby offending the presumption that Parliament does not speak in vain. Additionally, the history of the provision suggested that the French version of the definition may have been subject to a drafting error that accidentally replaced “des droits” with “les droits”. An interpretative argument based on the shared meaning rule, which was advanced by the respondents on appeal, was also rejected: there was no inconsistency between the French and English texts as to whether a person must have a right to exclude to be a “patentee”.

The Court explained that by including persons who exercise any rights in relation to a patent in the definition of “patentee,” Parliament “recognized that persons exercising selling rights can inflict on consumers the same mischief as patent holders”, noting that in either case “the risk that excessive prices will be charged arises from the existence of the patent pertaining to the medicine being sold and its presumptive impact on the market… nothing turns on the fact that the patent rights – specifically the right to exclude and the right to sell – are exercised by different persons.”

Justice O’Reilly’s reliance on the general practices of “generic companies” was dismissed as unhelpful. The colloquial distinction between “generic” and “innovator” companies based on the typical practices of each had no legal implications in relation to whether a particular company was acting as a patentee within the meaning of subsection 79(1) of the Act in relation to particular sales.

Whether Sandoz holds an implied licence. The Court affirmed the PMPRB’s finding that Sandoz held an implied licence with respect to the relevant patents as it was supported by the evidence. In particular, Sandoz was entitled to sell the medicines without being sued for infringement. The Court of Appeal rejected Sandoz’s argument that the Board’s “infringement” assertion reflected a “clear misapprehension of the facts”, including on the basis that whether the medicine was covered by a patent was irrelevant to the question of whether Sandoz would be able to rely on its right to sell if ever sued for infringement.

The Court concluded by noting that “reference need only be made to the consent given by the patent holders in order to allow Sandoz to cross-reference their medicine and obtain the required NOCs, in order to find such support.”

The Constitutional challenge. Lastly, the Court rejected the respondents’ argument that the regulation of prices under sections 79 to 103 of the Act is an unconstitutional extension of Parliament’s authority over patents insofar as those sections apply to generic pharmaceutical products.

The constitutionality of the provisions as they relate to patentees was addressed in Manitoba Society of Seniors Inc v Canada (Attorney General) (1991), 77 DLR (4th) 485 (Man QB); aff’d (1992), 96 DLR (4th) 606 (Man CA). The Court found that the reasoning in that case still held, notwithstanding the subsequent repeal of provisions enabling the PMPRB to “lift” a patent monopoly. Although price control represents an intrusion into the provinces’ power over property and civil rights, it remains an integral part of the scheme implemented by Parliament. The Court found that this reasoning was equally applicable to non-patent owners or holders: “there is no basis for the argument that the connection with the patent ceases to be sufficient to meet the constitutional imperative when the person targeted holds a licence to sell a patented medicine without holding the patent.”

This decision marks only the third time that the Federal Court of Appeal has spoken on the jurisdiction of the PMPRB. In ICN Pharmaceuticals Inc v Canada (Staff of the Patented Medicine Prices Review Board), [1997] 1 FC 32, the Court found that the connection between the patent in question and the medicine need only be the “merest slender thread” to invoke the PMPRB’s jurisdiction. In Canada (Attorney General) v Celgene Corporation, 2009 FCA 378, aff’d 2011 SCC 1, the Court found that the PMPRB had jurisdiction over sales made under the Special Access Programme to a Canadian physician, even though according to commercial principles those sales had been made in New Jersey.

The constitutionality of the price review regime is being challenged in a further case. As previously reported, Alexion Pharmaceuticals Inc. has filed a notice of application challenging the constitutionality of the PMPRB’s price review regime.

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