Federal Court Strikes Down Drug Pricing Amendment

In Innovative Medicines Canada v The Attorney General (Canada), the Applicants sought judicial review of the General in Council’s decision to promulgate three amendments to the Patented Medicines Regulations under the Patent Act. The amendments at issue were:

1. Section 4 which requires the Patented Medicine Review Board to consider three new mandatory economic factors in determining whether the price of a patented medicine is “excessive” under subsection 85(1) of the Patent Act;
2. Section 6 which updates the price comparator countries listed in the schedule to the Regulations; and
3. Subsection 3(4) which changes how patentees report prices and revenues to the Board. 

The Federal Court held sections 4 and 6 were intra vires because the Applicants failed to show that the amendments were irrelevant, extraneous, or completely unrelated to the statutory purpose of the Patent Act.

However, the Court found subsection 3(4) was ultra vires because the General in Council exceeded the scope of her regulation-making authority under the Patent Act in making the regulation.

Subsection 3(4) of the amendments was intended to change the way in which patentees calculate the price and sales revenues of their patented medicines by requiring patentees to account for “any adjustments made by any party that directly or indirectly purchases the medicine or reimburses for the purchase of the medicine and any reduction given to any party.” This would require patentees to look beyond their direct purchasers and consider reimbursements made to third parties down the supply chain in order to report the actual price paid for their medicine.

While the Governor in Council is authorized under subsection 101(1) of the Patent Act to make regulations specifying what information patentees must provide to the Board under subsection 80(1), the objective of the new regulations must be harmonious with those of the Patent Act.

The Court found the new requirements for calculating the price of a medicine under section 3(4) of the amendments was inconsistent with subparagraph 4(1)(f)(i) which requires patentees to disclose “the price at which a medicine was sold by the patentee… to each class of customer.” The new requirements extended the calculation for a medicine’s price beyond patentees’ sales transactions at the first point of sale, otherwise known as the “factory-gate.” In other words, the amended calculation required patentees to calculate the price of their medicine beyond their customer.

Justice Manson adopted Justice Mactavish’s interpretation of the term “sale” (or “sold”) in Pfizer, determining that it would “do violence to the ordinary meaning of the term” to “encompass the relationship between patentees and third parties who do not purchase or take the title of the medicine from patentees.”

The Court therefore concluded subsection 3(4) of the amendments exceeded the scope of the Governor in Council’s statutory mandate because it required patentees to adjust their reported medicine price to the Board with adjustments made by third parties down the supply chain. The proposed amendment was inconsistent with subparagraph 4(1)(f)(i) of the Patent Act and was thus not harmonious with the Act.

A copy of the Federal Court’s decision can be found here