Federal Court of Appeal Upholds Decision Allowing Taro to Plead Validity Attacks beyond Notice of Allegation

Smart & Biggar

On June 9, 2021, the Federal Court of Appeal (FCA), following grant of leave to hear Sunovion’s appeal, dismissed Sunovion’s appeal from a Federal Court (FC) decision of Furlanetto J. (2021 FC 37) granting Taro leave to amend its Statement of Defence in an action under the Patented Medicines (Notice of Compliance) Regulations (PMNOC Regulations): Sunovion Pharmaceuticals Canada Inc v Taro Pharmaceuticals Inc, 2021 FCA 113.

Taro sought to introduce allegations of invalidity that were not included in its notice of allegation (NOA) served prior to the commencement of the action. The main issue was whether the scheme of the PMNOC Regulations restricts a generic (“second person”) to issues raised in the NOA.

As noted by the FC, the PMNOC Regulations underwent significant amendments on September 21, 2017, converting the right of an innovator (“first person”) to bring a prohibition application into a right to bring an action for patent infringement. This had the effect of removing the potential for dual track litigation in which an application could be followed by a separate infringement action. Under the former regime, the second person was strictly limited to allegations of invalidity and non-infringement raised in its NOA. Under the new regime, parties are granted the right to proceed in a single action, on a full record, to obtain a decision on infringement and validity, with an effective right of appeal. The FCA agreed with Furlanetto J.’s reliance on the Regulatory Impact Assessment Statement (RIAS) in concluding that a second person in an action under the amended PMNOC Regulations is not limited to the invalidity allegations made in its NOA.

With respect to the appellants’ concern regarding the risk of liability under section 8 of the PMNOC Regulations and ambush litigation by the second person, the FCA confirmed that there are two checks in place to reduce or eliminate any incentive to hold something back from the NOA. First, subsection 8(6) of the PMNOC Regulations gives the Court discretion to consider factors that could affect the amount of liability under section 8, including whether the first person was improperly influenced to start an action because of an incomplete NOA. Second, the Court has discretion to grant or dismiss a motion to amend a pleading.

Finally, the FCA dismissed the appellants’ argument that Taro should be limited to raising its proposed amendments by way of counterclaim rather than amendment of the defence, as there is no support for such position in the text, context or purpose of the PMNOC Regulations.

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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