On Nov. 6, 2015, the Federal Court of Appeal issued a rare decision relating to Canada’s pricing control regime for patented medicines administered by the Patented Medicine Prices Review Board (“PMPRB”). The Court of Appeal’s decision sheds light on the scope of the PMPRB’s jurisdiction over non-patent owners, such as generic drug companies, and addresses the constitutional validity of section 79(1) of the Patent Act.

The appeal arose from two decisions of Justice O’Reilly in the Federal Court1, where the court allowed two applications for judicial review and set aside two decisions of the PMPRB.

One case concerns the generic company ratiopharm (now Teva) and its anti-asthmatic drug ratio HFA, a generic version of GlaxoSmithKline’s (“GSK’s”) Ventolin HFA®. ratiopharm sold ratio HFA pursuant to an exclusive license from GSK, which allowed ratiopharm to set the price of the drug in Canada.

The other case concerns the generic company Sandoz, a wholly-owned subsidiary of Novartis. Novartis authorized Sandoz to sell generic versions of certain Novartis drugs, although no written license agreement between Novartis and Sandoz governed these sales.

While the PMPRB addressed a variety of issues in each case, the Federal Court and Federal Court of Appeal decisions were limited to two issues: (1) whether non-patent owners, and in particular generic drug companies such as ratiopharm and Sandoz, can be “patentees” under section 79(1) of the Patent Act; and (2) whether the legislation governing the PMPRB (i.e., sections 79-103 of the Patent Act)is constitutionally valid. Notably, the decisions did not address the question of the scope of the PMPRB’s jurisdiction based on the interpretation of whether a patent “pertains to” a medicine.

“Patentee” under section 79(1) of the Patent Act can include non-patent owners

The PMPRB held that both ratiopharm and Sandoz were “patentees” and therefore fell within the jurisdiction of the PMPRB. This finding was based on the broad definition of “patentee”: “the person for the time being entitled to the benefit of the patent for that invention.”

According to the PMPRB, ratiopharm was considered a “patentee” of ratio HFA because it had the right to sell the medicine pursuant to the license agreement with GSK. Sandoz was considered a “patentee” because it had an implied license from Novartis to sell the medicines at issue.

The Federal Court found these decisions to be unreasonable and instead limited the PMPRB’s jurisdiction to patent owners. A primary focus of the Federal Court’s decision was its view that the constitutional validity of the PMPRB was rooted in Parliament’s exclusive jurisdiction over patents. Accordingly, extending the PMPRB’s jurisdiction to non-patent owners would put the constitutional validity of the PMPRB into question. Notably, the Federal Court did not expressly find that the PMPRB would be unconstitutional if its jurisdiction were extended in this manner. The constitutional validity of the PMPRB was merely put into question.

The Federal Court of Appeal disagreed with the Federal Court’s analysis. The errors included a failure to give sufficient deference to the PMPRB’s decision. While both Courts found that the standard of review in dispute was reasonableness, the Federal Court substituted its own view for that of the PMPRB.

The Federal Court of Appeal stated that a reasonableness review requires the Court to consider whether the decision under review meets the threshold of acceptability and defensibility and the lower court erred in failing to do so.

In finding that non-patent holding generics can be considered to be “patentees” for PMPRB purposes, the Federal Court of Appeal concluded that:

the extent to which a given company relies on patent protection in its overall business model as innovator companies typically do and generic companies typically do not, is irrelevant to the question whether, with respect to a particular medicine being sold, it is acting as a patentee within the meaning of subsection 79(1) of the Act.

The PMPRB is constitutionally valid

Both ratiopharm and Sandoz argued that the PMPRB is unconstitutional at least to the extent that the PMPRB retains jurisdiction over generic pharmaceutical products. According to this argument, the current regime is one of pure price regulation, which intrudes into the Province’s constitutional jurisdiction over property and civil rights.

The PMPRB, the Federal Court, and the Federal Court of Appeal all agreed that the PMPRB was constitutionally valid at least to the extent that it has jurisdiction over patented medicines sold by patent owners.

However, the Federal Court questioned the constitutional validity of the PMPRB as it relates to non-patent owners. The Federal Court did not make any conclusions in this regard, since the Court found that the PMPRB’s jurisdiction does not extend this far.

The Federal Court of Appeal, on the other hand, took its analysis a step further and found that the PMPRB is constitutionally valid as it relates to non-patent owners. According to the Court of Appeal, there is no basis to undercut the integral connection between the PMPRB and patents when the drug company targeted holds a licence to sell a patented medicine without owning the patent. The court found that the PMPRB seeks to prevent the harm arising by reason of the existence of the patent pertaining to the medicine being sold. Therefore, nothing turns on the fact that the person exercising the selling rights does not hold the patent itself.

The disputes between the PMPRB and both ratiopharm and Sandoz, which began in 2008 and 2010, respectively, are not finished. The Federal Court of Appeal remitted the matter back to a different judge of the Federal Court to decide (1) the propriety of the $65,898,842.76 pricing adjustment directed against ratiopharm to offset excess revenues realized on the sale of ratio HFA; and (2) whether the respective patents in each case pertain to the medicines in issue. The Federal Court’s decision, and subsequent appeal decisions, on these issues may have a larger impact for the drug industry as they have the potential to rule on both the criteria for what is excessive pricing as well as the scope of the PMPRB’s jurisdiction over patented medicines under the phrase a “patent pertaining to a medicine.”