Generic Drug Company Licensees Avoid Patented Medicines Price Oversight

In nearly identical decisions released on May 27, 2014, Sandoz Canada Inc v Canada, 2014 FC 501 (Sandoz) and ratiopharm Inc v Canada, 2014 FC 502 (ratiopharm), the Federal Court of Canada held that some licensees of patents relating to medicines are not subject to the jurisdiction of the Patented Medicines Prices Review Board (PMPRB or Board), including its powers to regulate drug prices.  These decisions, which may be appealed to the Federal Court of Appeal, mark a retreat from the courts’ expansive views about the jurisdiction of the PMPRB.

Background

The PMPRB is the quasi-judicial body established by Parliament to monitor and control the price of patented medicines in Canada.  In 2008, it initiated a proceeding against ratiopharm, alleging that it sold an authorized generic salbutamol drug product (ratio HFA) at excessive prices. Separately, in 2010, the PMPRB started a proceeding against Sandoz, a wholly-owned subsidiary of a well-known pharmaceutical patentee (Novartis AG), on the ground that Sandoz was required to file pricing information with the Board, as if it were a patentee under section 79(1) of the Patent Act, RSC 1985, c P-4.

In both proceedings, the evidence showed that ratiopharm and Sandoz were licensees, but not owners, of relevant patents.  Ratiopharm acquired the drug products for resale.  In the words of the PMPRB, “In essence, the Agreements [with the patentee] grant to ratiopharm an exclusive licence to promote, market, and sell ratio HFA in Canada.”  As for Sandoz, the Board concluded that: “Novartis AG mandates and authorizes Sandoz to sell medicines in Canada, including medicines to which patents held directly or indirectly by Novartis AG pertain.  These sales would be actionable patent infringement but for this authorization.” On this evidence, the PMPRB concluded that both ratiopharm and Sandoz were “patentees” subject to price reporting obligations and the Board’s price control jurisdiction. 

The Decisions of the Federal Court

In Sandoz and ratiopharm, each company filed an application for judicial review of the PMPRB’s definition of “patentee” under section 79 of the Patent Act.  The relevant part of this section reads 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 [ . . . ] that other person in respect of those rights; [emphasis added] 

 

In both cases, the Federal Court concluded that the PMPRB’s definition of “patentee” was unreasonable.  Citing a Supreme Court of Canada precedent, the Federal Court emphasized that the PMPRB’s paramount responsibility was to ensure that: “the monopoly that accompanies the granting of a patent is not abused to the financial detriment of Canadian patients.”  On this basis, the Court held that: “the Board should confine its role to reviewing prices charged by patent holders, who benefit from a time-limited monopoly…” (Sandoz at para. 20; ratiopharm at para. 15).  The Court went on to reason that:

        

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 [Sandoz at para. 26; ratiopharm at para. 21] 

 

The Federal Court noted that, while Parliament can regulate patents for invention, “it has no overall jurisdiction to regulate the price of generic versions of patented medicines” (Sandoz at para. 21; ratiopharm at para. 16).  Thus, the definition of “patentee” should take into account the limits of the federal government’s constitutional jurisdiction.  In addition, the Court observed that the federal jurisdiction is confined to regulating “factory-gate” pricing (i.e., those prices charged by a patent holder to its first purchaser).  Here, the factory-gate prices were the prices paid by Sandoz and ratiopharm to acquire the drugs – not the price at which they eventually sold them to distributors, pharmacies or the general public.

Therefore, the Federal Court concluded that the mere fact that a generic company, including a patentee’s subsidiary, sells a version of a patented medicine under license is insufficient to bring it within the definition of “patentee” (Sandoz at para. 25, ratiopharm at para. 20).  Rather, the Court focused its reasoning on whether Sandoz and ratiopharm could be said to wield monopoly power.  As neither did so, the Court concluded that they were not “patentees” over whom the Board had jurisdiction.

The Sandoz and ratiopharm decisions may still be appealed.  If they stand, however, they will mark a shift in the courts’ view about the jurisdiction of the PMPRB. 

Topics:  Canada, Generic Drugs, Patents, Pharmaceutical, Pharmaceutical Patents, Prescription Drugs

Published In: Administrative Agency Updates, Civil Procedure Updates, General Business Updates, Intellectual Property Updates, Science, Computers & Technology Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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