Canada (Attorney General) v Sandoz Canada Inc, 2015 FCA 249

The Canadian patent system includes a pricing regulation system for patented pharmaceuticals which aims to protect Canadians from excessive pharmaceutical pricing. The pricing regulations are included in Canada’s Patent Act, and are administered and enforced by the Patented Medicine Prices Review Board (“the Board”). In this decision, the Federal Court of Appeal (“FCA”) clearly stated that the price regulation provisions apply not only to literal patent holders, but also to exclusive licensees of patents. This means that it is not only the patent-holding innovator pharmaceutical companies who can have its pricing regulated, but any pharmaceutical company which finds itself enjoying a patent monopoly, such as, as in this case, a generic pharmaceutical company which has obtained an exclusive license to sell a drug.

Facts and Parties

There were two pharmaceutical companies involved in this decision. First, we have Ratiopharm Inc. (now Teva). Ratiopharm negotiated an exclusive license from an arm’s length party, GlaxoSmithKline, to sell a generic version of GSK’s patented drug, ratio-salbutamol HFA. [6] Ratiopharm relied on GSK’s consent to sell the patented drug to obtain regulatory approval to sell the drug in Canada. [7]

Second, we have Sandoz Canada Inc. Sandoz’s business mainly involved selling generic pharmaceuticals until it was acquired by the innovator Novartis Canada Inc. Sandoz sold a number of drugs that were generic versions of patented Novartis drugs without explicitly negotiating a license. The Board had actually found that there was only an implied license between Sandoz and Novartis. [13] Sandoz relied on this consent in order to obtain regulatory approval to sell the drugs in Canada. [9]

The Patented Medicines Prices Review Board made Ratiopharm pay for excessive pricing of ratio-salbutamol HFA, [12] ordered Sandoz to provide further information regarding its sales of the at-issue medicines. [13]

Ratiopharm and Sandoz appealed the Board decision, which was reversed in the Federal Court, [26] but has now been mostly reinstated by the FCA.

The Issue: is an exclusive licensee a “patentee” for the purpose of pharmaceutical price regulation?

The critical issue, both in the lower court decisions and on appeal, was whether or not an exclusive licensee, who does not hold a patent, be considered a “patentee” for the purpose of pharmaceutical price regulation. Ratiopharm and Sandoz argued that they could not. They argued that it is the patent itself from which the monopoly is granted, and from which excessive pricing could result, that should be the focus of the Board and the price regulating provisions. [43-45]

The Board and the FCA, however, took the somewhat more nuanced approach and held that the focus on the Board and the price regulating provisions is on consumer protection from excessive pricing in general, which would involve regulating not only patent owners, but other parties benefiting from a patent monopoly. [67] Indeed, as the Attorney General for Canada argued, it would frustrate this purpose if patent holders could avoid the application of these provisions by merely inserting a licensee, arm’s length or otherwise, in the supply chain between itself and the consumer. [36]

The definition of “patentee” for the purpose of the price regulating provisions, found under section 79(1) of the Patent Act, is different from the more broadly used definition of “patentee” used in the rest of the Patent Act, found under section 2. [62] A comparison of the two definitions is provided:

and,

After a discussion of the intent behind the differing definitions, [120] comparing the French and English version of the definition, [86] and noting the exclusion of subsection 11(1) licensees (which clearly shows that Parliament contemplated that these licensees, who are not patent owners, would otherwise be captured by the definition), [87] the FCA found that the FC erred when it did not refer to the Board’s interpretation of “patentee” on the standard of reasonableness. [66] The focus of the price regulating provisions, as the Board thought, should be directed toward mischief against consumers, which could be caused not only be the patentee but also by an exclusive licensee. [67]

Having found that Sandoz and Ratiopharm were patentees, the FCA remitted the remaining issues facing each party back to the Federal Court. [123]

The FCA also rejected a constitutional argument put forth by the companies.  The companies argued that the legislation, which is part of federal legislation on patents, intrudes into the provincial domain of property and civil rights. [112]The FCA disagreed, holding that the price control regime is properly within federal jurisdiction when it comes to patent owners and parties exercising patent rights, such as licensees. [116, 120]

Commentary

The FCA made several comments in this decision that the distinction between a “generic” and an “innovator” pharmaceutical company is eroding, [17, 62] and stated that any such label is irrelevant to the question of whether the company is acting as a “patentee” for the price regulating provisions. [94, 96] With the distinction beginning to blur, this decision closes the loophole whereby a “generic” pharmaceutical company could enjoy an effective patent monopoly, through an exclusive license, without being regulated by the Board.

As an academic side-note: the FCA made a few comments that could serve as fodder for later cases arguing about exactly what rights a patent affords. The FCA stated that “[s]imply put, nothing turns on the fact that the patent rights – specifically the right to exclude and the right to sell – are exercised by different persons.” But a patent right is not a right to sell. It is only a right to exclude. Technically speaking, it is very possible to own a patent on an invention that you cannot practice because some part of your invention is already patented by someone else. This slight misstep should not compromise the FCA’s reasoning in this case, however, because the FCA did not need to hold that a patent right includes the right to sell to decide the case. The FCA’s reasoning that an exclusive licensee should be considered a patentee because it can set excessive prices based on a patent-derived monopoly still holds.