The recent decision of the Federal Court of Appeal in Attorney General of Canada v. Sandoz Canada Inc., and Attorney General of Canada v. ratiopharm Inc., 2015 FCA 249, holds that the prices of generic medicines in Canada are subject to review by the Patent Medicines Prices Review Board.
In 2008, PMPRB staff alleged that ratiopharm was selling or had sold its salbutamol HFA in Canada at excessive prices. PMPRB Staff filed an application before the PMPRB seeking an order that required ratiopharm to provide sales and pricing information in relation to ratio-HFA, a generic version of GlaxoSmithKline’s VENTOLIN HFA. GSK had granted an exclusive license to ratiopharm to sell ratio-HFA in Canada. Under the agreement with GSK, ratiopharm did not have any right to sublicense ratio-HFA, and ownership of the patent and intellectual property rights remained with GSK.
In May 2011, the PMPRB concluded that ratiopharm had sold ratio-HFA at excessive prices. The PMPRB subsequently issued an order compelling ratiopharm to pay over $65 million to offset excess revenues realized in the sale of ratio-HFA.
In the case of Sandoz, proceedings were initiated in 2010 when the PMPRB staff sought an order that Sandoz provide sales and pricing information for certain of Sandoz’ medicines. Sandoz is a wholly owned subsidiary of Novartis Canada Inc., itself a wholly owned subsidiary of Novartis Pharma AG which, in turn, was a wholly owned subsidiary of Novartis AG. In Canada, Sandoz sold medicines that were either covered by patents owned by Novartis AG or one of its subsidiaries. The patent owners would generally sell their own brand name version of the medicine, but would also allow Sandoz to enter the market and sell a generic version of the medicine after other generics had entered the market. All medicines were acquired by Sandoz pursuant to a purchase order, and in no case was there any express licensing agreement linking Sandoz with the owners of the patents.
In August 2012, the PMPRB required Sandoz to provide the Board with certain sales and pricing information with respect to medicines sold by Sandoz.
Both ratiopharm and Sandoz successfully appealed to the Federal Court (see our previous post here). The Federal Court dealt only with two issues before the PMPRB. The first issue was whether sections 79 to 103 of the Patent Act, which relate to the pricing of patented medicines, are constitutionally valid. The second issue was whether a person had to own a patent, or patent rights over a particular medicine in order to be a “patentee” within the meaning of subsection 79(1) of the Patent Act. The Federal Court held that the PMPRB had erred in holding that ratiopharm and Sandoz were “patentees” in respect of any of the medicines at issue, and that sections 79 to 103 of the Patent Act were constitutionally valid.
Court of Appeal’s decision
In granting the appeal, the Court of Appeal held that the Federal Court had erred in four principle ways. First, the Federal Court of Appeal found that the lower Court had erred in finding that the purpose of the PMPRB’s enabling provisions were to prevent patent holders from pricing their patented medicines excessively. Rather, the Court of Appeal held, that the PMPRB made a reasonable decision when it held that the purpose of its enabling provisions was to protect consumers from the excessive pricing of patented medicines.
Second, the Court of Appeal found that the Federal Court Judge erred when he relied on his concern that subsection 79(1) might be unconstitutional as a basis for substituting his interpretation for that of the Board:
 Reasonableness review does not invite the Court to prioritize all possible answers to a question and identify the best among them. Rather, the question to be answered is whether the conclusion reached by the decision-maker meets the threshold of acceptability and defensibility mentioned above. To the extent that the legislation was reasonably capable of bearing the interpretation given by the Board, the Federal Court judge was precluded from substituting his own view for that of the Board.
Third, the Federal Court also erred in finding that Parliament’s power over price review in connection with patents is “generally understood” to extend only to “factory-gate prices.” It was not unreasonable for the PMPRB to conclude that the price charged by a subsequent patentee further down the supply chain constitutes the price that is subject to review.
Lastly, the Judge below had erred in finding that the French text of section 79(1) of the Patent Act could be used to interpret to the word “patentee,” holding that when construing provisions of the Patent Act that frame the Board’s jurisdiction, the Court should prefer an interpretation which best implements the objective of the Act:
 As the Board explained at length Parliament, by including in the definition of “patentee” persons who exercise any rights in relation to a patent, recognized that persons exercising selling rights can inflict on consumers the same mischief as patent holders. In both cases, the risk that excessive prices will be charged arises from the existence of the patent pertaining to the medicine being sold and its presumptive impact on the market. Simply put, nothing turns on the fact that the patent rights – specifically the right to exclude and the right to sell – are exercised by different persons.
 As was explained in ICN, the harm which the Act seeks to prevent arises by reason of the existence of the patent pertaining to the medicine being sold (ICN at para. 76), with the result that nothing turns on the fact that the person exercising the selling rights does not hold the patent itself.
Since the words of subsection 79(1) could reasonably bear an interpretation which allowed the PMPRB to give effect to Parliament’s intent, and that there was no error in the PMPRB’s reasons.
The Court of Appeal went on to agree with the Attorney General of Canada that there was no basis for the argument that the connection with a patent ceased when the person targeted holds a license to sell a patented medicine without holding the patent itself. According to the FCA, nothing turned on the fact that the person exercising the selling rights doe not hold the patent itself. As a result, the PMPRB was correct when it held that persons who exercise selling rights under a patent within the scope of subsection 79(1) do not cause that provision to be unconstitutional.
The matter was remitted back to the Federal Court to determine the quantum of the ratiopharm price adjustment and whether the respective patents pertain to the medicines in issue.
The full decision is available here.