Canada (Attorney General) v. Sandoz Canada Inc.

Canada (Attorney General) v. Sandoz Canada Inc.
Court (s) Database
Federal Court of Appeal Decisions
Date
2015-11-06
Neutral citation
2015 FCA 249
File numbers
A-302-14, A-303-14
Notes
Digest
Decision Content
Date: 20151106
Dockets: A-302-14
A-303-14
Citation: 2015 FCA 249
CORAM:
NOËL C.J.
PELLETIER J.A.
RENNIE J.A.
Docket: A-302-14
BETWEEN:
ATTORNEY GENERAL OF CANADA
Appellant
And
SANDOZ CANADA INC.
Respondent
Docket: A-303-14
AND BETWEEN:
ATTORNEY GENERAL OF CANADA
Appellant
And
RATIOPHARM INC. (NOW TEVA CANADA LIMITED)
Respondent
Heard at Ottawa, Ontario, on September 22, 2015.
Judgment delivered at Ottawa, Ontario, on November 6, 2015.
REASONS FOR JUDGMENT BY:
NOËL C.J.
CONCURRED IN BY:
PELLETIER, J.A.
RENNIE, J.A.
Date: 20151106
Dockets: A-302-14
A-303-14
Citation: 2015 FCA 249
CORAM:
NOËL C.J.
PELLETIER J.A.
RENNIE J.A.
Docket:A-302-14
BETWEEN:
ATTORNEY GENERAL OF CANADA
Appellant
And
SANDOZ CANADA INC.
Respondent
Docket:A-303-14
AND BETWEEN:
ATTORNEY GENERAL OF CANADA
Appellant
And
RATIOPHARM INC. (NOW TEVA CANADA LIMITED)
Respondent
REASONS FOR JUDGMENT
NOËL C.J.
[1] These are appeals brought by the Attorney General of Canada (the Attorney General or the appellant) from two judgments rendered by O’Reilly J. (the Federal Court judge). The first – reported at 2014 FC 501 – allowed an application for judicial review brought by Sandoz Canada Inc. (Sandoz) from a decision (PMPRB-10-D2-SANDOZ, or PMPRB Sandoz) of the Patented Medicine Prices Review Board (the Board). The second – reported at 2014 FC 502 – allowed three applications for judicial review brought by ratiopharm Inc. (ratiopharm) from two decisions of the Board (PMPRB-08-D3-ratio-Salbutamol HFA and PMPRB-08-D3-ratiopharm, or, respectively, PMPRB ratio HFA and PMPRB ratiopharm) and an order by the Board giving effect to the first of these decisions.
[2] The two appeals were heard together. The central issue in both appeals is whether the Federal Court judge properly held that Sandoz and ratiopharm (collectively the respondents) fell outside of the jurisdiction of the Board as they were not “patentees” within the meaning of subsection 79(1) of the Patent Act, R.S.C. 1985, c. P-4, as amended (the Act). The Attorney General maintains that in so holding, the Federal Court Judge did not give due deference to the Board’s elaborate reasons for concluding that the respondents came within the ambit of that provision.
[3] For the reasons which follow, I would allow both appeals.
[4] The relevant provisions of the Act and the Patented Medicines Regulations, SOR/94-688 (the Regulations) are reproduced in Annex I to these reasons.
BACKGROUND [5] At the time when these proceedings arose, both ratiopharm and Sandoz were engaged in the business of selling various medicines in Canada.
[6] Among those medicines sold by ratiopharm was an anti-asthmatic medicine called ratio-salbutamol HFA (ratio HFA). This medicine was a generic equivalent of the brand name Ventolin HFA, a patented medicine manufactured and sold in Canada by GlaxoSmithKline (GSK). Pursuant to a series of supply and licensing agreements between these two arm’s length parties, GSK sold ratio HFA to ratiopharm in final packaged and labeled form. Ratiopharm was granted an exclusive licence to set the price and sell ratio HFA in Canada without any right to sub-licence. Ownership of the patent and intellectual property rights remained with GSK.
[7] When ratiopharm applied for a Notice of Compliance (NOC) to sell ratio HFA, it listed GSK’s patent on the forms it submitted to Health Canada pursuant to the Patented Medicines (Notice of Compliance) Regulations, SOR/93-133 (the PM(NOC) Regulations), but indicated that the patent owner had consented “to the making, constructing, using, or selling of [ratio HFA] in Canada”.
[8] In addition to ratio HFA, ratiopharm also sold a wider range of medicines with respect to which the patent rights were owned by other companies. In none of the agreements pursuant to which ratiopharm bought these medicines were any patent ownership rights granted to ratiopharm. In each case, ratiopharm held its own NOC obtained from Health Canada on consent from the owner of the patents in question.
[9] Sandoz was and remains a wholly owned subsidiary of Novartis Canada Inc., which is itself a wholly owned subsidiary of Novartis Pharma AG, which in turn is wholly owned by Novartis AG (Novartis). Among the medicines sold in Canada by Sandoz was a set of medicines covered by patents owned by either Novartis or one of its wholly-owned subsidiaries. The owners of these patents would generally sell their own brand name version of the medicines in question. They would also allow Sandoz to enter the market and sell a generic version of the medicines after other generics had entered the market and for that purpose, would consent to Sandoz referring to those medicines in obtaining the required NOCs. All the medicines were acquired by way of purchase orders and in no case was there any express licensing agreement linking Sandoz with the owners of the patents in question.
[10] The Board proceedings in respect of ratiopharm were initiated by the staff of the Board (the Board Staff) in July, 2008. By way of a Statement of Allegation, the Board Staff alleged that ratiopharm was selling or had sold, in a manner contrary to sections 83 and 85 of the Act, its ratio HFA product in Canada at excessive prices. A week later, the Board Staff filed an application seeking an order that ratiopharm provide the Board pursuant to sections 80, 81 and 88 of the Act certain sales and pricing information with respect to some 12 additional medicines sold by ratiopharm, as well as an order that ratiopharm provide certain supply agreement documentation pertaining to two further medicines.
[11] The proceedings in respect of Sandoz were initiated in January, 2010. The application sought an order that Sandoz provide, pursuant to sections 80, 81 and 88 of the Act, sales and pricing information with respect to six medicines sold by Sandoz, which application would later be amended to extend to only five medicines.
[12] In the PMPRB ratio HFA reasons issued May 27, 2011, the Board affirmed the allegations made by the Board Staff, holding that ratiopharm had sold ratio HFA at excessive prices. In the PMPRB ratiopharm reasons issued June 30, 2011, the Board allowed the Board Staff’s application for an order that ratiopharm provide the Board certain information with respect to 14 medicines sold by ratiopharm. On October 17, 2011, the Board gave effect to its PMPRB ratio HFA reasons, issuing an order compelling ratiopharm to pay $65,898,842.76 to offset excess revenues realized in the sale of ratio HFA.
[13] In the PMPRB Sandoz reasons issued August 1, 2012, the Board allowed the Board Staff’s application for an order that Sandoz provide the Board certain information with respect to five medicines sold by Sandoz.
THE BOARD DECISIONS [14] Among the determinations made by the Board, only two were subsequently addressed by the Federal Court judge, and I therefore restrict my summary of the Board’s reasons to those two determinations.
[15] The first was that sections 79 to 103 of the Act are constitutionally valid. The second was that a person need not own the patent over a particular medicine in order to be a “patentee” in respect of that medicine within the meaning of subsection 79(1) of the Act. In each of its three decisions, the Board found that the respondent in question was a subsection 79(1) “patentee”, despite not holding any patents over the medicine or medicines in question.
[16] With respect to the constitutional question, the Board rejected the argument that the Board’s enabling provisions including the definition of “patentee” in subsection 79(1) were ultra vires Parliament. In reaching this conclusion in the ratiopharm decisions, the Board based itself on a series of prior decisions (PMPRB ratio HFA reasons at paras. 13 and 14, citing ICN Pharmaceuticals, Inc. v. Canada (Staff of the Patented Medicine Prices Review Board), [1997] 1 F.C. 32 [ICN] approving Manitoba Society of Seniors Inc. v. Canada (Attorney General) (1991), 77 D.L.R. (4th) 485 (Man. Q.B.); aff’d (1992), 96 D.L.R. (4th) 606 (Man. C.A.) [Manitoba Society] and Teva Neuroscience G.P. – S.E.N.C. v. Canada (Attorney General), 2009 FC 1155 [Teva Neuroscience]. This analysis was adopted without reproduction in the PMPRB ratiopharm reasons at para. 29).
[17] In PMPRB Sandoz, the Board upheld the constitutionality of these provisions once again, rejecting Sandoz’s argument that “generic” drug companies fall outside Parliament’s legislative authority over patents. While recognizing that most pharmaceutical companies can be broadly sorted into “name brand” or “research-based” companies that rely heavily on patent protection and “generic” companies that do not, the Board found that companies sometimes straddle this boundary and that generalizations are not helpful in determining whether a particular company has brought itself within the Parliament’s legislative authority with respect to any given patent (PMPRB Sandoz reasons at paras. 19, 20 and 88).
[18] In construing the scope of the term “patentee” within the meaning of subsection 79(1) of the Act, the Board undertook to read the words of the Act “in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament” (PMPRB ratio HFA reasons at para. 35, citing Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27). The Board identified the purpose of sections 79 to 103 of the Act as one of protecting consumers from unreasonable pricing of patented medicines (PMPRB ratio HFA reasons at para. 38, citing Celgene Corp. v. Canada (Attorney General), 2011 SCC 1 [Celgene]). It further observed that the wording of subsection 79(1) did not, on its face, require ownership of a patent nor that a person be entitled to exercise “all rights in relation to a patent” (PMPRB ratio HFA reasons at para. 41). Rather, Parliament cast its language in much broader terms, capturing “any other person entitled to exercise any rights in relation to a patent” (PMPRB ratio HFA reasons at para. 41).
[19] Following the above analysis, the Board held that, in obtaining under the licensing agreement with GSK the right inter alia to sell ratio HFA, ratiopharm became entitled to exercise a right in relation to a patent within the meaning of subsection 79(1) of the Act (PMPRB ratio HFA reasons at para. 42). Having found comparable rights with respect to the 12 medicines identified in the Board Staff’s July 15, 2008, application, the Board held that ratiopharm was a patentee within the meaning of subsection 79(1) in relation to these 12 medicines (PMPRB ratiopharm reasons at paras. 13, 14 and 26). With respect to the two medicines in respect of which the Board Staff had sought further documentation, the Board took the view that a prima facie demonstration of jurisdiction had been made out, and that the request for further information was warranted (PMPRB ratiopharm reasons at paras. 67 to 69).
[20] Though no express agreements linked Sandoz to Novartis or any of its patent holding subsidiaries, the Board found that Sandoz sold the medicines in question pursuant to what amounted to a series of implied licences from the patent holders in question. Specifically, Sandoz was granted the right to sell these medicines without fear of being sued for infringement (PMPRB Sandoz reasons at paras. 48 and 49). By virtue of this right, Sandoz was a patentee within the meaning of subsection 79(1) of the Act in relation to the medicines in question (PMPRB Sandoz reasons at para. 52).
[21] The Board further rejected ratiopharm’s contention that construing subsection 79(1) in that manner had the effect of capturing wholesalers, hospitals and pharmacies. According to the Board, subsection 79(1) only captures persons who sell to consumer classes protected by the Board, and wholesalers, hospitals and pharmacies do not come within that class (PMPRB ratiopharm reasons at paras. 15 and 16).
THE FEDERAL COURT DECISIONS [22] Ratiopharm brought applications for judicial review against the decisions issued against it. These applications were consolidated by order of the Federal Court and disposed of in a single set of reasons (ratiopharm reasons). Sandoz’s single application for judicial review was disposed of in a separate set of reasons (Sandoz reasons).
[23] Notices of constitutional question challenging the validity of sections 79-103 of the Act were filed prior to the hearing in conformity with section 57 of the Federal Courts Act, R.S.C. 1985, c. F-7, as amended.
[24] Because the four applications engaged the threshold issue as to whether ratiopharm and Sandoz were subsection 79(1) patentees and whether, if so, such a construction was constitutional, the reasons largely overlap, often echoing each other verbatim. Given the commonality of the reasons, the following is a joint summary drawn principally from the ratiopharm reasons.
[25] The Federal Court judge held that, in reviewing the Board’s interpretation and application of subsection 79(1) of the Act, he was required to apply the standard of reasonableness, given the Board’s familiarity with its home statute (ratiopharm reasons at para. 10, citing Celgene at para. 34 and Alberta (Information and Privacy Commissioner) v. Alberta Teachers Association, 2011 SCC 61 [Alberta Teachers] at para. 34). In reviewing the Board’s disposition of the constitutional challenge, he applied the standard of correctness (ratiopharm reasons at para. 11).
[26] The Federal Court judge concluded that the Board’s construction of the word “patentee” in subsection 79(1) of the Act was not reasonable. Because the purpose of the Act is to ensure that patent holders cannot take undue advantage of the monopolistic positions which they hold, the Board would be exceeding its role if it were to extend its price review powers to those prices charged by persons who do not own patents or hold monopolies (ratiopharm reasons at para. 15). Had the Board examined the French text of subsection 79(1), it would have seen that the definition of “patentee” is tied more closely to the rights of the owner of the patent (ratiopharm reasons at para. 25).
[27] The Federal Court judge drew additional support for this proposition from the fact that the constitutionality of the Board’s enabling provisions is rooted in Parliament’s exclusive jurisdiction over patents (ratiopharm reasons at para. 16, citing Manitoba Society). He held, “without addressing the constitutional argument directly”, that where the Act is ambiguous, it should be interpreted “in a manner consistent with the federal jurisdiction over patents” (ratiopharm reasons at para. 17). Such an interpretation can be achieved by excluding from the subsection 79(1) definition of “patentee” those who do not actually hold the relevant patent, i.e.: generic companies.
[28] Elaborating on the limits of Parliament’s power over patents, the Federal Court judge held that “federal jurisdiction in this area is generally understood to be confined to regulating the ‘factory-gate’ prices of patented medicines … [meaning] those charged by patent holders [e.g. GSK or Novartis] to their first purchasers [e.g. ratiopharm or Sandoz]” (ratiopharm reasons at para. 18, citing Pfizer v. Canada (Attorney General), 2009 FC 719 [Pfizer] at paras. 61 to 63).
[29] Finally, the Federal Court judge added a number of practical observations relating to the pharmaceutical industry in support of his view that a “generic company” cannot come within the definition of a patentee simply because it sells a version of a medicine that is patented (ratiopharm reasons at para. 20). These observations included the following (ratiopharm reasons at paras. 20 to 22):
“Usually, a generic company is not entitled to the principal benefit of a patent – an exclusive monopoly to make, use, or sell the patented product. Nor can a generic company typically exercise rights in relation to a patent held by another company.
…
Generally speaking, generic companies either help create or join a competitive marketplace, which helps keep the costs of patented medicines down.
…
If the term “patentee” is interpreted too broadly so as to catch a company in the position of ratiopharm [or Sandoz], there are likely few generic companies who would not be similarly placed. Most generics enter the market by comparing their products against drugs that are the subject of patents held by other companies. To that extent, they indirectly enjoy the benefits of patents and, ultimately, may be regarded as having acquired rights in relation to them”.
[30] Having determined that subsection 79(1) of the Act could not reasonably be construed so as to include a party holding neither a patent nor a monopoly in respect of the medicine in question, the Federal Court judge held that the Board erred in holding that ratiopharm and Sandoz were “patentees” in respect of any of the medicines at issue.
[31] Turning to the constitutional issue, the Federal Court judge dismissed the argument that Manitoba Society was overtaken by a subsequent set of amendments to the Act. These amendments giving the Board the power to address the pricing of patented medicine more directly did not alter the Act’s purpose or the Board’s mandate, and fall, when properly interpreted, within the federal head of power over patents (ratiopharm reasons at para. 30). When regard is had to the reservation expressed by the Federal Court judge earlier on with respect to generic companies, the conclusion that he reached is that the price control scheme devised by Parliament is constitutionally valid when applied to brand name medicine, or medicine sold by the owner “un titulaire” of the patent pertaining to it.
[32] The Federal Court judge disposed of the four applications by referring the matter back to the Board with a direction that it find the respondents not to be “patentee[s]”. Given this conclusion, the Federal Court judge did not address the further questions whether the patents in issue pertained to the medicine sold by the respondents and whether ratiopharm had sold HFA at excessive prices.
POSITION OF THE PARTIES ON APPEAL [33] For ease of reference, I will refer to the memoranda of fact and law pertaining to the ratiopharm appeal for arguments that are common to both appeals. Reference will be made to the memoranda of fact and law pertaining to the Sandoz appeal for points which only arise in that appeal.
[34] Before this Court, the Attorney General seeks to have each of the judgments below set aside, and asks that in the event that its appeal is successful, the issues which the Federal Court judge did not address be sent back to the Federal Court for determination.
[35] The Attorney General argues that, although the Federal Court judge identified the correct standard of review in assessing the Board’s construction of subsection 79(1) (i.e. reasonableness), he failed to show the appropriate level of deference. Though the Federal Court judge found that subsection 79(1) could not reasonably be construed so as to include those who neither own patents nor hold monopolies, the Board’s reasons for finding otherwise had a solid foundation in the wording and purpose of the provisions in question, as well as the jurisprudence interpreting them.
[36] With respect to legislative purpose, both this Court and the Supreme Court of Canada have affirmed that the purpose of the Board’s enabling provisions is one of consumer protection (Attorney General’s ratiopharm memorandum of fact and law at paras. 56 and 57, citing ICN and Celgene). It would frustrate this purpose if patent holders could avoid the application of these provisions by merely inserting a licensee, arm’s length or otherwise, in the supply chain between itself and the consumer. The Board’s interpretation and application of subsection 79(1) of the Act gives effect to this purpose, and is reasonable.
[37] With respect to the plain language of the Act, the definition of “patentee” in subsection 79(1) of the Act is expansive, and says nothing about patent ownership. In both linguistic versions, the provision expressly includes persons other than the one owning the patent in question (Attorney General’s ratiopharm memorandum of fact and law at para. 72). Consideration of the legislative context reinforces the breadth of this provision’s scope, as the legislator could have simply relied on the less expansive definition of “patentee” provided in section 2 of the Act (Attorney General’s ratiopharm memorandum of fact and law at para. 73).
[38] Nor does the wording of the Act require proof of a monopoly. This makes sense, given that a factual monopoly, though relevant to competition law, is irrelevant to the legislative purpose, which is to limit the negative effects that result from the statutory monopoly resulting from the grant of a patent (Attorney General’s ratiopharm memorandum of fact and law at para. 67). That the Board is in no practical position to assess the market power of a given party supports the view that it was reasonable for the Board not to view the existence of a monopoly in fact as a condition precedent for engaging the Board’s jurisdiction (Attorney General’s ratiopharm memorandum of fact and law at para. 71, citing ICN, inter alia).
[39] Finally, with respect to the issue of “factory-gate prices”, the Attorney General argues that this term does not necessarily describe the price charged by patent owners, but rather the “list price” that certain purchasers are charged for the drug (Attorney General’s ratiopharm memorandum of fact and law at paras. 86 and 87). In any event, this definition is not set out by statute or regulation, and only appears in the Patentees’ Guide to Reporting (the Guide) (Attorney General’s ratiopharm memorandum of fact and law at para. 86).
[40] The respondents for their part seek the dismissal of the appeals, principally on the basis that the Federal Court judge properly held that the Board’s interpretation and application of subsection 79(1) of the Act is unreasonable. They also reiterate the constitutional challenge put before the Board.
[41] With respect to the standard of review, the respondents argue that the Federal Court judge erred in law when he identified reasonableness as the standard of review applicable to the Board’s interpretation and application of subsection 79(1). Although the Board was interpreting its home statute, the presumption from Albert Teachers that such decisions must be reviewed with deference can be rebutted once the factors from Dunsmuir v. New Brunswick, 2008 SCC 9 [Dunsmuir] are considered (ratiopharm’s memorandum of fact and law at para. 52).
[42] Given that the Federal Court judge applied a more deferential standard than he should have and properly found the Board’s interpretation of subsection 79(1) to be unreasonable, the respondents argue on a subsidiary basis that he would have reached the same result had he selected the correct standard, being correctness (ratiopharm’s memorandum of fact and law at paras. 33 and 54).
[43] With respect to legislative purpose, the Board framed its own statutory mandate in terms of “‘consumer protection’ at large” (ratiopharm’s memorandum of fact and law at paras. 64). This was unreasonable, however, as a long line of jurisprudence, running from the Board’s very own decisions to those of the Supreme Court, affirms a narrower purpose, being the prevention of “abuses of the monopoly power that devolves from patent rights” [emphasis in original] (ratiopharm’s memorandum of fact and law at para. 59, citing PMPRB-06-D1-ADDERALL XR, Shire Biochem Inc. v. Canada (Attorney General), 2007 FC 1316, Sanofi Pasteur Limited v. Canada (Attorney General), 2011 FC 859 and Celgene).
[44] A textual analysis supports the view that the Board interpreted subsection 79(1) unreasonably. First, because the French text (« les droits d’un titulaire »), is more precise than the English text (“any rights in relation to that patent”), the Board was required according to the shared meaning rule to limit the definition’s content to this narrower definition (ratiopharm’s memorandum of fact and law at para. 71). When one reviews the authorities as to what constitute the “rights of a patent holder”, one finds that the key right is the right to exclude others from dealing in the patented invention (ratiopharm’s memorandum of fact and law at paras. 74 to 76, citing Black’s Law Dictionary, 8th ed.). It follows that only the right to exclude was contemplated.
[45] Second, subsection 79(1) requires that a patentee be “entitled” to exercise rights in relation to a patent. Neither respondent, however, is “entitled” to exercise any rights of exclusion. In the case of ratiopharm, the respondent was at most entitled to exercise certain contractual rights to sell the medicines in question. In conflating mere contractual rights with the rights of a patent holder, the Board reached an unreasonable conclusion (ratiopharm’s memorandum of fact and law at para. 83). In the case of Sandoz, despite the Board’s erroneous finding of an implied licence, the respondent had no entitlements whatsoever (Sandoz’s memorandum of fact and law at para. 79).
[46] Third, when read in harmony with the original meaning rule of statutory construction, the text of subsection 79(1) can be seen to exclude generic companies. Specifically, this provision expressly excludes from the definition of patentee those persons operating under a “licence continued by subsection 11(1) of the Patent Act Amendment Act, 1992 [the PAAA]”. Subsection 11(1) expressly invoked the “compulsory licence” provisions of the Act as it read prior to February 4, 1993. When they were available, compulsory licences were granted only to generic companies (ratiopharm’s memorandum of fact and law at para. 88). Though no such licences are at issue in this case, the invocation of subsection 11(1) must be read, once its original meaning is understood, as a statutory exclusion aimed at generic companies (ratiopharm’s memorandum of fact and law at para. 90).
[47] Turning from the text of subsection 79(1), the respondents argue that several contextual factors support the view that the Board’s interpretation and application of this provision was unreasonable. First, they argue that the Board’s reasons for construing subsection 79(1) to include them were based on misinterpretations of the law of patents, including various provisions of the Act. In the case of ratiopharm, the Board erroneously concluded that ratiopharm would be entitled to bring an action under subsection 55(1) of the Act (ratiopharm’s memorandum of fact and law at para. 117, citing Signalisation de Montréal Inc. v. Services de Béton Universels Ltée, [1993] 1 F.C. 341).
[48] Second, the respondents argue that the Parliamentary debates leading to the enactment of the Board’s enabling provisions illustrate a clear intent to target “patent holding pharmaceutical firms” (ratiopharm’s memorandum of fact and law at para. 99).
[49] Third, the respondents cite the Board’s own conduct, observing that, for many years, the Board took the view, expressed publicly in its very own guidelines, that it had no authority to regulate generic drugs (ratiopharm’s memorandum of fact and law at para. 104, citing ratiopharm’s Public Appeal Book [RPAB], Vol. 1, Tab 18A).
[50] Finally, the respondents argue that the Board did not fairly consider their challenges to the constitutional validity of an interpretation of subsection 79(1) that would extend the Board’s jurisdiction to generic drugs. Rather, the Board simply dismissed their arguments summarily, failing to follow relevant jurisprudence both from this Court and the Supreme Court (ratiopharm’s memorandum of fact and law at paras. 121 to 126, citing Bernard v. Canada (Attorney General), 2014 SCC 13 inter alia). As such, the Board’s decision cannot stand.
[51] In addition to those arguments shared by each of the respondents, there are several arguments which they advance separately. Sandoz, for its part, argues that the Board erred in finding that it had an implied licence. Specifically, the Board merely asserted without any analysis that the sales at issue would have constituted infringement of the patents in question (Sandoz’s memorandum of fact and law at para. 85). Also, the Board made findings that found no support in the record, such as the holding that Novartis “instructed” Sandoz (Sandoz’s memorandum of fact and law at para. 107).
[52] There are two arguments put forward uniquely by ratiopharm. First, ratiopharm argues that the Federal Court has affirmed and the Board has long-recognized that its jurisdiction extends only to “ex-factory” or “factory gate” prices, and the Board’s own guidelines define this price as that established for “the first sale … of the product ‘at arm’s length’ to distributors, wholesalers, hospitals, pharmacies, etc.” (ratiopharm’s memorandum of fact and law at paras. 108 and 109, citing the Guide and Pfizer at paras. 61 to 63). This definition cannot sensibly capture ratiopharm. Furthermore, if it were to capture ratiopharm, there is no principled reason it would not capture wholesalers, retailers and pharmacies that the Attorney General now asserts would not in fact be captured (ratiopharm’s memorandum of fact and law at paras. 84 and 85, citing the Attorney General’s ratiopharm memorandum of fact and law at para. 88).
[53] Ratiopharm argues that the unreasonableness of the Board’s determination that it was a patentee can be further illustrated by its equally unreasonable determination that GSK, despite owning the patents pertaining to ratio HFA, was found not to be a patentee. The Board’s treatment of GSK in respect of ratio HFA exemplifies its position with respect to all of the products in issue (ratiopharm’s memorandum of fact and law at para. 112). To exclude these patent holders from the definition of “patentee” simply makes no sense.
ANALYSIS AND DISPOSITION [54] The first issue which must be addressed is whether it was open to the Federal Court judge, applying the appropriate standard of review, to set aside the Board’s conclusion that a person need not own a patent or hold a monopoly over the medicine which it sells in order to be a “patentee” within the meaning of subsection 79(1). To the extent that the answer to this question is no, the Court will also have to determine whether subsection 79(1), as it was construed by the Board, can withstand constitutional scrutiny. A further issue, which arises in the Sandoz appeal only, and which I propose to address immediately after the first, is whether the Board erred in finding that Sandoz sold the medicines in question pursuant to an implied licence.
[55] The other questions that were raised in the judicial review application before the Federal Court judge but not addressed by him – i.e. the propriety of $65,898,842.76 pricing adjustment directed against ratiopharm to offset excess revenues realized on the sale of ratio HFA and the question in each case whether the respective patents pertain to the medicines in issue – will be referred back to the Federal Court at the joint request of the parties.
Standard of Review [56] When this Court hears an appeal from a decision of the Federal Court disposing of an application for judicial review, it is the role of this Court to determine “whether the court below identified the appropriate standard of review and applied it correctly” (Agraira v. Canada (Public Safety and Emergency Preparedness), 2013 SCC 36 at para. 45, citing Canada Revenue Agency v. Telfer, 2009 FCA 23 at para. 18).
[57] There is no dispute that the decision of the Board, insofar as it asserts that its reading of subsection 79(1) is constitutionally valid, must be reviewed for correctness. The parties disagree, however, on the standard of review applicable to the Board’s interpretation of subsection 79(1) of the Act.
[58] Although the respondents accept that the Board is interpreting its home statute, and is therefore presumptively subject to review on a reasonableness standard (Alberta Teachers), they argue that this presumption is rebutted once the Dunsmuir factors are considered. I cannot agree.
[59] Under the test set out in Dunsmuir, one must consider the existence of a privative clause, the nature of the administrative regime in question, the expertise of the decision-maker and the nature of the question.
[60] Though the respondents correctly observe that the Board’s decisions are not protected by any privative clause, the other factors weigh in favour of deference.
[61] Under sections 79-103 of the Act, Parliament has provided for a discrete pricing regime applicable to patented medicines, the administration of which is left to the Board. Within this statutory context, the Supreme Court has recognized that the Board is a specialized tribunal which is entitled to deference (Celgene at para. 34). Even if this observation was offered by way of obiter, as the respondents point out, it carries authoritative force, appearing as it does in a passage intended to cast doubt on the appropriateness of reviewing the Board’s interpretation of its enabling statute on a standard of correctness (R. v. Henry, 2005 SCC 76 at para. 57).
[62] I should add that although the meaning of patentee pursuant to subsection 79(1) gives rise to a question of law, it can hardly be considered of “central importance to the legal system”. Indeed, this definition is arguably of no central importance to the Act itself, which relies on the more general definition of “patentee” provided in section 2. Subsection 79(1) ousts this general definition for the sole purposes of applying the discrete pricing regime applicable to patented medicines. The question whether a person is “entitled to exercise any right in relation to a patent” is highly fact dependant, informed by the Board’s appreciation of the pharmaceutical industry and the complex relationship between innovators and generics.
[63] As the presumption of deference from Alberta Teachers is not rebutted, the Federal Court judge properly concluded that the Board’s interpretation of subsection 79(1) of the Act was to be reviewed on a standard of reasonableness.
[64] Finally, the Board’s determination that Sandoz was granted an implied licence to sell the medicine by the patent holders within the Novartis group gives rise to a question of mixed fact and law with respect to which the Board is also owed deference.
The Board’s Interpretation of Subsection 79(1) of the Act Legislative Purpose [65] The Board determined that the purpose of its enabling provisions was to protect consumers from the excessive pricing of patented medicines (PMPRB Sandoz reasons at para. 37). The Federal Court judge preferred a narrower characterization, however, holding that the purpose was to prevent patent holders from pricing their patented medicines excessively (ratiopharm reasons at para. 15). That is one of the four principal reasons relied upon by the Federal Court judge in order to justify his intervention and overturn the Board’s interpretation of subsection 79(1) of the Act (ratiopharm reasons at paras. 14 and 15).
[66] In so doing, the Federal Court judge substituted his own view of the legislation’s purpose without considering whether the Board’s characterization met the threshold of acceptability and defensibility that separates unreasonable decisions from reasonable ones. As such, he misapplied the standard of reasonableness. Had he turned his mind to the Board’s reasons, it would have been apparent that the Board’s determination was based on a defensible interpretation of the Act as construed to date by the case law.
[67] Both the Federal Court judge and the Board agreed that the mischief targeted by these provisions was the excessive pricing of patented medicines. However, while the Board’s construction focused on the persons in need of protection from such mischief, i.e. consumers, the Federal Court judge focused on those in a position to cause the mischief. In losing sight of the ultimate goal of the provisions in question, he failed to appreciate that the mischief sought to be prevented could be caused without the patent owner itself charging excessive prices.
Interpretation in Favour of Constitutional Validity [68] The second basis on which the Federal Court judge overturned the Board’s interpretation of subsection 79(1) was his concern that this interpretation might be unconstitutional. This reasoning once again ignores the standard of review which governed the question before him.
[69] The Federal Court judge appeared to be of the view that an ambiguity could be said to exist in subsection 79(1), suggesting that it might be capable of more than one interpretation (ratiopharm reasons at para. 17). Specifically, the definition of patentee might be limited to patent owners or it might not be. Though the second interpretation was the one adopted by the Board, this interpretation could, in the Federal Court judge’s view, “expose” the legislation to a constitutional challenge (Sandoz reasons at para. 22; ratiopharm reasons at para. 17). He therefore preferred the first interpretation.
[70] 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.
[71] I should add that regardless of the foregoing, it was not open to the Federal Court Judge to construe subsection 79(1) narrowly on the basis that the construction adopted by the Board might be unconstitutional since a Notice of Constitutional Question had been filed and the constitutional validity of subsection 79(1), as construed by the Board, was for him to decide (contrast Canada (Fisheries and Oceans) v. MiningWatch Canada, 2008 FCA 166 at para. 4).
“Ex-factory price” Issue [72] The third basis on which the Federal Court judge overturned the Board’s interpretation of subsection 79(1) was that Parliament’s power over price review in connection with patents is “generally understood” to extend only to “factory-gate prices” (ratiopharm reasons at para. 18, citing Pfizer at paras. 61 to 63).
[73] While the Act makes no mention of factory gate prices, the term “ex-factory price” does appear in the Regulations, where paragraphs 4(1)(f), 4(1)(g) and subsection 4(10) use the term to specify the types of prices contemplated in paragraphs 80(1)(b) and 80(2)(b) of the Act. The term is not defined as such by the Regulations, but has been defined in part in the Guide as follows (PMPRB ratio HFA reasons at para. 31):
The price established for the first sale … of the product “at arm’s length” to distributors, wholesalers, hospitals, pharmacies, etc… The ex-factory price is generally the “list price” for medicines …
[74] Ratiopharm argues that this definition excludes sales between it and its suppliers, as it operates at arm’s length from the patent holders from whom it bought the medicines in issue. As the Federal Court judge held, it is the price paid by ratiopharm to these companies that attracts the review jurisdiction of the Board, not the price subsequently charged by ratiopharm to its customers.
[75] In my view, this argument must be rejected for two reasons. First, it has been recognized that the Board’s guidelines do not constitute binding law, and that to the extent that they conflict with the Act or the Regulations, the latter must prev