The recently decided case of Les Laboratoires Servier et al. v. Apotex et al.1 is a further example of the ongoing high-stakes litigation between generic and name brand pharmaceutical companies, which has involved both patent and, increasingly, also competition law principles. The leading cases to date have included Molnlycke AB v. Kimberly-Clark of Canada Ltd.,2 (although this was not a pharmaceuticals case) and Eli Lilly and Co. v. Apotex.3 The Laboratoires Servier case continues the trend of significant disputes involving both patent and competition law issues which we have written about previously.4

The Laboratoires Servier case involved a dispute over perindopril, used to treat hypertension. Servier and its corporate affiliates owned the patent for perindopril, and sued Apotex for infringing the patent. Apotex denied the validity of the patent on various patent law grounds. It also alleged that the patent was obtained in a way thatcontravened the Competition Act.

Prior to the time the patent was issued there were conflict proceedings between the plaintiff and other name brand drug manufacturers (Hoechst and Schering) to determine who was entitled to the relevant patent. These proceedings were resolved by way of court-endorsed agreement prior to the issuance of the patent.5 Apotex alleged that the settlement of these conflict proceedings was contrary to section 45 of the Competition Act, and gave rise to the right to damages under section 36 of the Act. Alternatively, Apotex claimed that equitable relief should not be available to Servier, given the basis on which the patent was obtained.

In considering Apotex's Competition Act claims the Court noted:

Thus, the very existence of a patent lessens competition. On its face, this is in direct conflict with provisions of the Competition Act, which legislation has as its stated purpose:

The purpose of this Act is to maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy, in order to expand opportunities for Canadian participation in world markets while at the same time recognizing the role of foreign competition in Canada, in order to ensure that small- and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy and in order to provide consumers with competitive prices and product choices. [para. 464]

The Court went on to note, however, that courts have consistently held, despite the apparent conflict, that the existence of a patent is not an offence under the Competition Act. The Court noted that in this particular case Apotex did not allege that the patent itself was contrary to the Competition Act, but rather that Servier, Hoechst and Schering, by entering into the settlement agreement in the conflict proceedings, lessened competition unduly.

The Court examined the prior case law, and in particular the Molnlycke case and Eli Lilly cases. It noted that in the Molnlycke case the only impairment of competition was caused by the existence of a patent – regardless of who actually held the patent or to whom it was assigned. This, in the Court's view, was distinguishable from the Eli Lilly case, in which the conduct challenged was not merely the existence of a patent or patents, but the transfer of patents to the holder of other patents in the same field, so as to combine the market power created by both patents in the hands of one person. The court had determined in the case of Molnlycke, where the impact on competition was created by the issuance of the patent, that there could be no Competition Act challenge, whereas in the Eli Lilly case, where the impact on competition was as a result of the combination of two potentially competing patents, there was a possibility of Competition Act challenge.

The situation before the Court in the present case was different still. Here, parties competing with respect to the potential issuance of a patent or patents had resolved their conflict proceedings by way of a settlement before the court, in accordance with the Patent Act, as it then was, and the Federal Court Rules. The Court noted that regardless of whether the perindopril was in the same market as other ACE inhibitors, Laboratoires Servier could only gain as much market power as was inherent in the patent that was issued. Since there was no evidence that the market power was obtained by methods other than those authorized by the Patent Act, the Court concluded that there was nothing more to the creation of market power than the patent itself and that the principles in the Molnlycke case applied. It stated:

In summary, because [Servier] was merely exercising its right under the Patent Act to obtain patents and nothing more, I am satisfied that Apotex's claim for damages under the Competition Act must fail.6

The Court also noted that even if it were wrong on the substance of the Competition Act allegation, the Competition Act claim was barred by a limitation period. Section 36 of the Competition Act provides for a two year limitation period, and the settlement agreement challenge occurred more than six years prior to the commencement of the counterclaim.

While the Court in the Laboratoires Servier case dismissed the Competition Act challenges, this will not be the last of the drug patent cases to allege conduct contrary to the Competition Act. This is both because the stakes are so high in these matters, and because, if American antitrust law is an inspiration (as it typically is in this field), these matters are unsettled. Indeed, while the propositions articulated in the Molnlycke and Eli Lilly cases, as summarized in the Laboratoires Servier case – that a patent alone cannot give rise to a Competition Act claim, but conduct by patent holders (for instance, combining two sets of patents) could give rise to Competition Act challenges – we think are fairly settled, the Laboratoires Servier case itself we think is somewhat more complex. Once the patent was issued to Laboratoires Servier the market power, if any, that existed was created by the patent, but the question is whether it is possible that conduct – such as agreement amongst competing patent claimants – giving rise to the issuance of a patent, as was apparently the case in Laboratoires Servier, can never give rise to a Competition Act claim.

It seems to us that a conclusion that any conduct that occurred before the issuance of a patent or patents is immune from Competition Act challenge will not necessarily prove out in the long run. One can imagine a case, for instance, where two patent claimants might be in a position either to each obtain a patent to achieve the same economic outcome – in which case both would have a patent monopoly but neither would have any sort of economic monopoly – or would be in a position to defeat the other's claim for a patent, so that no patent would issue and there would be no patent or economic monopoly. In both such cases the parties, if acting rationally, would realize that, collectively, they would be better off if a patent was issued – but only one – and therefore monopoly rents could be achieved. Of course, the question would then be who gets the patent, but that issue may be satisfied by way of some sort of payment for the settlement – whether an up-front payment or some sort of stream of royalties or the like. In those circumstances, the two parties could share the monopoly rents that would not have been available if they had not cooperated in settling their patent dispute before the issuance of a patent. Since the Patent Act has now been changed to a "first to file" system, the particular issue may not arise in the future, but one might obtain a similar result by a settlement of the issue of the scope of claims covered by potentially competing patents.

We are not suggesting that the situation posited above was necessarily the one faced in the Laboratoires Servier case, but one could imagine such a case, and the reasoning in Laboratoires Servier, although quite minimalist on this issue, would seem to say that in such a case, once the patent is issued there is no possibility of a Competition Act claim. It is not obvious to us that that would or should necessarily be the result in all cases. Indeed, in the United States there is considerable debate and dispute as to antitrust challenges to patent litigation and settlements,7 and it seems to us naïve to expect that this may not spill over into Canada, in an appropriate case.