The Patented Medicine Prices Review Board (PMPRB) recently released its decision in a proceeding against Sandoz Canada, Inc. (PMPRB-10-D2-SANDOZ). With the Sandoz decision, the PMPRB continues its recent trend of extending the scope of its oversight to cover generic drug manufacturers.

In the Sandoz case, the PMPRB held that it could exercise its jurisdiction over Sandoz - a generic manufacturer affiliated with Novartis Canada and Novartis AG – so as to require Sandoz to report on its sales of patented medicines in Canada. The PMPRB considered a similar issue in the ratio-Salbutamol (PMPRB-08-D3-ratio-Salbutamol) and ratiopharm (PMPRB-08-D3-ratiopharm) decisions last year. In those decisions, the PMPRB concluded that generic manufacturers who sell patented medicines under a licence from the patent-holder fall under the definition of “patentee” found in section 79(1) of the Patent Act (the Act).

Is Sandoz a Patentee?

The PMPRB derives its jurisdiction over prices of patented medicines sold in Canada through the operation of sections 79 to 103 of the Act. Pursuant to these sections, the PMPRB exercises its jurisdiction over “patentees.” The term, “patentee” is defined in section 79(1) of the Act as follows:

“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.

There was no issue in this case as to whether any of the medicines sold by Sandoz had been excessively priced. The issue was simply whether Sandoz was a “patentee” with respect to certain medicines and, as such, obligated to submit certain sales reports to the PMPRB. These reports would enable Board Staff to monitor the prices of these medicines and, if necessary, use the information to initiate proceedings against Sandoz.

Sandoz does not hold the patent for the medicines in question. Unlike the circumstances in the ratiopharm cases, there was no evidence here that Sandoz sells these medicines pursuant to an agreement with the patent-holder. Rather, the PMPRB’s conclusion that Sandoz satisfied the definition of “patentee” was based on the business relationship between Sandoz and its parent companies, Novartis Canada Inc. and Novartis AG.

Sandoz is a wholly-owned subsidiary of Novartis Canada Inc., which, in turn, is a wholly-owned subsidiary of Novartis AG. It is Novartis AG, either directly or through a subsidiary, which holds patents on the medicines in question.

Sandoz argued that Novartis AG has expressly licensed its patents to Novartis Canada Inc. and that this contradicts the proposition that the relationship between Sandoz and Novartis AG makes Sandoz a patentee within the meaning of section 79(1). Sandoz noted that it has never behaved like a patent-holder: specifically, that it has never sued anyone for patent infringement.  Sandoz also argued that it received medicines in finished form from Novartis and on the same terms as those medicines were supplied to other, arms-length parties.

The PMPRB disagreed and concluded that, while Sandoz was not entitled to the benefit of Novartis AG’s patents merely by virtue of its status as a subsidiary company, the relationship between Novartis AG and Sandoz was such that Sandoz was entitled to exercise rights in relation to the patents, namely the right to “sell the medicine without being sued for infringement.”

The PMPRB’s conclusion on the status of Sandoz as a patentee was partially premised on the PMPRB’s conception of its consumer protection mandate. As it did in the ratiopharm decisions, the PMPRB again raised the spectre of unscrupulous manufacturers using corporate structure as a way of avoiding the jurisdiction of the PMPRB.

The PMPRB considered the corporate arrangement between Sandoz and Novartis to create “effectively an implied licence” for Sandoz to sell the medicines in question. It is interesting to note that the PMPRB did not “pierce the corporate veil” to see the sales of medicine by Sandoz to be actually sales of Novartis. The PMPRB mentioned this approach and did not purport to preclude the argument, but chose to rely on arguments based on corporate control and implied licence.

The most detrimental piece of evidence for Sandoz came from Novartis AG’s own SEC filings, where, in a discussion of the Sandoz division, Novartis AG stated, “wherever possible, our generic products are protected by our own patents.”

“Merest Slender Thread” Test Re-Affirmed

Sandoz also challenged Board Staff’s assertion that the patents in question actually pertained to the medicine in question. The PMPRB continued its reliance on the decision of the Federal Court of Appeal in ICN Pharmaceuticals Inc. v. Canada (Patented Medicine Prices Review Board, [1997] 1 F.C. 32 (CA),and the test that requires only the “merest slender thread” of pertinence between a patent and the medicine in question to ground the PMPRB’s jurisdiction.

Interestingly, the PMPRB concluded that, although it welcomes expert evidence on whether a patent “pertains,” it does not require this evidence and can draw its own conclusions form documentary evidence such as product monographs and the patents themselves.

Conclusion

The conclusions reached in this decision continue the trend that the PMPRB established in the ratiopharm decisions of extending its jurisdiction to cover generic drug manufacturers.  Sandoz has since sought judicial review of this decision at the Federal Court. 

The decision may be found at: http://www.pmprb-cepmb.gc.ca/english/View.asp?x=1640&mp=254