On May 27, 2014, Justice O’Reilly of the Federal Court released two decisions relating to the jurisdiction of the Patented Medicines Prices Review Board (PMPRB) (Sandoz Canada Inc. v. Canada (AG), 2014 FC 501 and Ratiopharm Inc. v. Canada (AG), 2014 FC 502).

The PMPRB had held that the generic company Sandoz Canada Inc. was a “patentee” under the Patent Act by virtue of the fact that Sandoz is a wholly-owned subsidiary of Novartis AG, an innovator which authorizes Sandoz to sell generic versions of Novartis’ drugs.  With respect to ratiopharm inc. (now Teva Canada Limited), the PMPRB held that ratiopharm was a “patentee” since it was an authorized generic with respect GlaxoSmithKline Inc.’s anti-asthmatic product Ventolin HFA® (salbutamol HFA). 

As a result of these findings, the PMPRB held that it had jurisdiction over both ratiopharm and Sandoz. With respect to Sandoz, the PMPRB held that it had reporting obligations for generic versions of certain drugs in respect of which Novartis owned patents.  In the case of ratiopharm, the PMPRB found that it had reporting obligations with respect to ratiopharm’s generic version of Ventolin HFA®.  It further held that ratiopharm had been charging an excessive price for its product and thus had to pay over $65 million in damages.

Both Sandoz and ratiopharm applied to the Federal Court to judicially review the PMPRB’s decisions.  The parties’ arguments in both cases were two-fold: (1) they were not subject to the PMPRB’s jurisdiction as they were not “patentees” and (2) the PMPRB’s pricing control powers were unconstitutional.

While the Court reviewed the PMPRB’s decision with respect to whether Sandoz and ratiopharm were “patentees” using the deferential standard of reasonableness, it differed from the PMPRB and held that these companies were not subject to the PMPRB’s jurisdiction.  In doing so, the Court rejected the government’s argument that these companies were “patentees” since they were entitled to the benefit of a patent and/or to exercise rights in relation to the patent.  Instead, the Court held that since generic companies were not entitled to the principle benefit of a patent monopoly (the right to exclude others), they were not “patentees”.  However, the Court noted that a generic company could be “patentee” if it owned a patent relating to a drug.

Further, the Court noted that the federal government had no jurisdiction to regulate the prices of generic versions of patented medicines; this is a provincial responsibility.  The PMPRB’s jurisdiction thus had to be tied to patents and not to protecting consumers from high drug prices.  Thus constitutionally, price control is not within the mandate of the PMPRB; its jurisdiction is limited to patents and abuse of the monopoly associated with patents.  In this regard, the Court held:

That approach suggests that the definition of “patentee” should take into account the limitations on federal jurisdiction over the pricing of medicines and, therefore, should recognize that a patentee is the holder of the exclusive rights that inure to a patent holder. To expand the definition to include generic companies who neither hold patents nor enjoy monopolies would expose the legislation to an attack on constitutional grounds. In other words, if the legislation were interpreted as applying to, and giving the Board jurisdiction over, products sold by generic pharmaceutical companies, its constitutionality would be in doubt.

Generally speaking, generic companies either help create or join a competitive marketplace, which helps keep the costs of patented medicines down. Reviewing the prices charged by generic companies who hold no patents and no monopolies, on its face, appears to be beyond the Board’s mandate.

The objectives the legislation sought to achieve do not include regulating the prices charged by companies who do not hold a monopoly. The constitutionality of the legislation depends on its close connection to patent protection and the potential undue exploitation of the concomitant monopolies. Generic companies, like Sandoz, do not generally hold monopolies and, in fact, do not normally operate in a market where any monopoly exists.

While these decisions could be read as limited in application only to generic companies, nothing in the legislation limits such application based on the type of company.  Thus it is possible that this decision could be applied to other companies that no longer enjoy a monopoly in fact because the market has been genericized, even though a patent may still “pertain” to the company’s product.

With respect to the constitutional issue, Sandoz and ratiopharm had argued that the PMPRB’s pricing control functions were ultra vires since they encroached on the provincial constitutional power over property and civil rights.  While the PMPRB’s jurisdiction had been previously found to be constitutional in the Manitoba Court of Appeal’s decisionManitoba Society of Seniors Inc v Canada (AG),[1] this was prior to the PMPRB being awarded in 1993 the power to reduce the price of patented medicines and to require patentees to pay damages to the federal government. 

The Court only briefly dealt with this issue.  Without giving substantive reasons, it held that the awarding of the new powers did not enlarge the PMPRB’s mandate or alter the basic purpose of the legislation, which had been previously held to be to: (a) increase patent protection for new medicines and (b) address the potential abuse of monopolies through excessive pricing by patent holders.  Thus, the Court held that the pricing control powers did not exceed federal jurisdiction over patents.

Sandoz Canada Inc v Canada (AG), 2014 FC 501

Ratiopharm v Canada (AG), 2014 FC 502