Merck Frosst Canada Ltd. v. Apotex Inc.

Merck Frosst Canada Ltd. v. Apotex Inc.
Court (s) Database
Federal Court of Appeal Decisions
Date
2009-06-04
Neutral citation
2009 FCA 187
File numbers
A-571-08, A-580-08
Notes
Reported Decision
Decision Content
Federal Court of Appeal
CANADA
Cour d'appel fédérale
Date: 20090604
Dockets: A-571-08
A-580-08
Citation: 2009 FCA 187
CORAM: NOËL J.A.
LAYDEN-STEVENSON J.A.
RYER J.A.
BETWEEN:
MERCK FROSST CANADA LTD.
and MERCK FROSST CANADA & CO.
Appellants
and
APOTEX INC.
Respondent
Heard at Toronto, Ontario, on April 21 and 22, 2009.
Judgment delivered at Ottawa, Ontario, on June 4, 2009.
REASONS FOR JUDGMENT BY: NOËL J.A.
CONCURRED IN BY: LAYDEN-STEVENSON J.A.
RYER J.A.
Federal Court of Appeal
CANADA
Cour d'appel fédérale
Date: 20090604
Dockets: A-571-08
A-580-08
Citation: 2009 FCA 187
CORAM: NOËL J.A.
LAYDEN-STEVENSON J.A.
RYER J.A.
BETWEEN:
MERCK FROSST CANADA LTD.
and MERCK FROSST CANADA & CO.
Appellants
and
APOTEX INC.
Respondent
REASONS FOR JUDGMENT
NOËL J.A.
[1] Merck Frosst Canada Ltd. and Merck Frosst Canada & Co. (collectively Merck) appeal from the decision of Justice Hughes (the Federal Court Judge) (2008 FC 1185), wherein he held, inter alia, that section 8 of the Patented Medicines (Notice of Compliance) Regulations, S.O.R./93-133 as amended S.O.R./98-166 (PM(NOC) Regulations) is intra vires the Patent Act, R.S.C. 1985, c. P-4 as amended S.C. 1993, c. 2, s. 4 (Patent Act); within the competence of the Federal Court to hear and determine an action brought thereunder; and within the constitutional authority of the Parliament of Canada.
[2] Also at issue were questions relating to the remedy which the Court may order pursuant to section 8 of the PM(NOC) Regulations. Merck challenges that aspect of the decision which held that the remedy can extend to compensation for future losses. Apotex Inc. (Apotex) for its part cross-appeals the Federal Court Judge’s conclusion that it was not entitled to the disgorgement of the profits earned by Merck, but was limited to a claim for damages or its lost profits. Apotex also takes issue with the Federal Court Judge’s decision not to award costs. It contends that since it was for the most part successful, costs should have been awarded in its favour.
THE RELEVANT FACTS
[3] Merck received a Notice of Compliance (NOC) approving for sale in Canada its version of alendronate, used primarily in the treatment of osteoporosis, on February 4, 2002.
[4] Apotex filed an Abbreviated New Drug Submission (ANDS) for alendronate on February 7, 2003 and sent a Notice of Allegation (NOA) to Merck on April 14, 2003 alleging that Merck’s Canadian Patent 2,294,595 (the ’595 Patent) was invalid for a number of reasons.
[5] On May 29, 2003, Merck & Co. Inc. (a United States company) and Merck Frosst Canada & Co. commenced proceedings in the Federal Court (Court File T-884-03) to prohibit the Minister of Health (the Minister) from issuing an NOC to Apotex which otherwise would permit Apotex to sell its generic version of alendronate (Apo-alendronate) in Canada.
[6] On February 3, 2004 the Minister sent a letter to Apotex advising it that its application for the issuance of the NOC was approved but would be held in abeyance pending the outcome of the prohibition proceedings in the Federal Court.
[7] On May 26, 2005, Mosley J. of the Federal Court dismissed Merck’s prohibition application, finding that Apotex’s allegations as to invalidity, on some but not all grounds, were justified (2005 FC 755). The next day, the Minister issued an NOC to Apotex permitting it to sell its Apo-alendronate in Canada.
[8] No appeal was taken from Mosley J.’s decision.
[9] On July 5, 2005, Apotex instituted an action in the Federal Court pursuant to section 8 of the PM(NOC) Regulations claiming damages for the period from February 3, 2004 to May 27, 2005. This is the period during which the Minister was prevented from issuing the NOC to Apotex by reason of the filing by Merck of the prohibition application eventually dismissed by Mosley J.
[10] By Order of the Federal Court dated January 24, 2006 and August 14, 2008, the quantification of amounts found to be properly recoverable in the action were left to be determined at a subsequent trial. The Federal Court Judge later agreed to consider a number of preliminary issues submitted by the parties. He disposed of these issues by decision rendered on October 21, 2008. This is the decision now under appeal.
THE RELEVANT LEGAL PROVISIONS
[11] Subsections 55.2(1) and 55.2(4) of the Patent Act read as follows:
55.2 (1) It is not an infringement of a patent for any person to make, construct, use or sell the patented invention solely for uses reasonably related to the development and submission of information required under any law of Canada, a province or a country other than Canada that regulates the manufacture, construction, use or sale of any product.
…
(4) The Governor in Council may make such regulations as the Governor in Council considers necessary for preventing the infringement of a patent by any person who makes, constructs, uses or sells a patented invention in accordance with subsection (1), including, without limiting the generality of the foregoing, regulations
(a) respecting the conditions that must be fulfilled before a notice, certificate, permit or other document concerning any product to which a patent may relate may be issued to a patentee or other person under any Act of Parliament that regulates the manufacture, construction, use or sale of that product, in addition to any conditions provided for by or under that Act;
(b) respecting the earliest date on which a notice, certificate, permit or other document referred to in paragraph (a) that is issued or to be issued to a person other than the patentee may take effect and respecting the manner in which that date is to be determined;
(c) governing the resolution of disputes between a patentee or former patentee and any person who applies for a notice, certificate, permit or other document referred to in paragraph (a) as to the date on which that notice, certificate, permit or other document may be issued or take effect;
(d) conferring rights of action in any court of competent jurisdiction with respect to any disputes referred to in paragraph (c) and respecting the remedies that may be sought in the court, the procedure of the court in the matter and the decisions and orders it may make; and
(e) generally governing the issue of a notice, certificate, permit or other document referred to in paragraph (a) in circumstances where the issue of that notice, certificate, permit or other document might result directly or indirectly in the infringement of a patent.
(5) In the event of any inconsistency or conflict between (a) this section or any regulations made under this section, and (b) any Act of Parliament or any regulations made thereunder, this section or the regulations made under this section shall prevail to the extent of the inconsistency or conflict.
(6) For greater certainty, subsection (1) does not affect any exception to the exclusive property or privilege granted by a patent that exists at law in respect of acts done privately and on a non-commercial scale or for a non-commercial purpose or in respect of any use, manufacture, construction or sale of the patented invention solely for the purpose of experiments that relate to the subject-matter of the patent.
55.2 (1) Il n’y a pas contrefaçon de brevet lorsque l’utilisation, la fabrication, la construction ou la vente d’une invention brevetée se justifie dans la seule mesure nécessaire à la préparation et à la production du dossier d’information qu’oblige à fournir une loi fédérale, provinciale ou étrangère réglementant la fabrication, la construction, l’utilisation ou la vente d’un produit.
[…]
(4) Afin d’empêcher la contrefaçon d’un brevet d’invention par l’utilisateur, le fabricant, le constructeur ou le vendeur d’une invention brevetée au sens du paragraphe (1), le gouverneur en conseil peut prendre des règlements, notamment :
a) fixant des conditions complémentaires nécessaires à la délivrance, en vertu de lois fédérales régissant l’exploitation, la fabrication, la construction ou la vente de produits sur lesquels porte un brevet, d’avis, de certificats, de permis ou de tout autre titre à quiconque n’est pas le breveté;
b) concernant la première date, et la manière de la fixer, à laquelle un titre visé à l’alinéa a) peut être délivré à quelqu’un qui n’est pas le breveté et à laquelle elle peut prendre effet;
c) concernant le règlement des litiges entre le breveté, ou l’ancien titulaire du brevet, et le demandeur d’un titre visé à l’alinéa a), quant à la date à laquelle le titre en question peut être délivré ou prendre effet;
d) conférant des droits d’action devant tout tribunal compétent concernant les litiges visés à l’alinéa c), les conclusions qui peuvent être recherchées, la procédure devant ce tribunal et les décisions qui peuvent être rendues;
e) sur toute autre mesure concernant la délivrance d’un titre visé à l’alinéa a) lorsque celle-ci peut avoir pour effet la contrefaçon de brevet.
(5) Une disposition réglementaire prise sous le régime du présent article prévaut sur toute disposition législative ou réglementaire fédérale divergente.
(6) Le paragraphe (1) n’a pas pour effet de porter atteinte au régime légal des exceptions au droit de propriété ou au privilège exclusif que confère un brevet en ce qui touche soit l’usage privé et sur une échelle ou dans un but non commercial, soit l’utilisation, la fabrication, la construction ou la vente d’une invention brevetée dans un but d’expérimentation.
[12] Section 8 of the PM(NOC) Regulations in the form in which that section stood at the time relevant to the action (i.e. on July 5, 2005) reads as follows:
8. (1) If an application made under subsection 6(1) is withdrawn or discontinued by the first person or is dismissed by the court hearing the application or if an order preventing the Minister from issuing a notice of compliance, made pursuant to that
subsection, is reversed on appeal, the first person is liable to the second person for any loss suffered during the
period:
(a) beginning on the date, as certified by the Minister, on which a notice of compliance would have been issued in the absence of these Regulations, unless the court is satisfied on the evidence that another date is more appropriate; and
(b) ending on the date of the withdrawal, the discontinuance, the dismissal or the reversal.
(2) A second person may, by action against a first person, apply to the court for an order requiring the first person to
compensate the second person for the loss referred to in subsection (1).
(3) The court may make an order under this section without regard to whether the first person has commenced an action for the infringement of a patent that is the subject matter of the application.
(4) The court may make such order for relief by way of damages or profits as the circumstances require in respect of any loss referred to in subsection (1).
(5) In assessing the amount of compensation the court shall take into account all matters that it considers relevant to the assessment of the amount, including any conduct of the first or second person which contributed to delay the disposition of the application under subsection 6(1).
8. (1) Si la demande présentée aux termes du paragraphe 6(1) est retirée ou fait l’objet d’un désistement par la première personne ou est rejetée par le tribunal qui en est saisi, ou si l’ordonnance interdisant au ministre de délivrer un avis de conformité, rendue aux termes de ce paragraphe, est annulée lors d’un appel, la première personne est responsable envers la seconde personne de toute perte subie au cours de la période:
a) débutant à la date, attestée par le ministre, à laquelle un avis de conformité aurait été délivré en l’absence du présent règlement, sauf si le tribunal estime d’après la preuve qu’une autre date est plus appropriée;
b) se terminant à la date du retrait, du désistement ou du rejet de la demande ou de l’annulation de l’ordonnance.
(2) La seconde personne peut, par voie d’action contre la première personne, demander au tribunal de rendre une ordonnance enjoignant à cette dernière de lui verser une indemnité pour la perte visée au paragraphe (1).
(3) Le tribunal peut rendre une ordonnance aux termes du présent article sans tenir compte du fait que la première personne a institué ou non une action pour contrefaçon du brevet visé par la demande.
(4) Le tribunal peut rendre l’ordonnance qu’il juge indiquée pour accorder réparation par recouvrement de dommages-intérêts ou de profits à l’égard de la perte visée au paragraphe (1).
(5) Pour déterminer le montant de l’indemnité à accorder, le tribunal tient compte des facteurs qu’il juge pertinents à cette fin, y compris, le cas échéant, la conduite de la première personne ou de la seconde personne qui a contribué à retarder le règlement de la demande visée au paragraphe
6(1).
[13] It is also useful to reproduce section 8 as it read when it was originally introduced in 1993:
8. (1) The first person is liable to the second person for all damage suffered by the second person where, because of the application of paragraph
7(1)(e), the Minister delays issuing a notice of compliance beyond the expiration of all patents that are subject of an order pursuant to subsection 6(1).
(2) The court may make such order for relief by way of damages or profits as the circumstances require in respect of any damage referred to in subsection (1).
8. (1) La première personne est responsable envers la seconde personne de tout préjudice subi par cette dernière lorsque, en application de l’alinéa 7(1)e), le ministre report la délivrance de l’avis de conformité au-delà de la date d’expiration de tous les brevets visés par une ordonnance rendue aux termes du paragraphe 6(1).
(2) Le tribunal peut rendre toute ordonnance de redressement par voie de dommages-intérêts ou de profits que les circonstances exigent à l’égard de tout préjudice subit du fait de l’application du paragraphe (1).
[14] The Regulatory Impact Analyses Statement (RIAS) which accompanied the change to section 8 brought in 1998 explains the purpose of the amendment as follows:
…
Specifying circumstances in which damages or costs can be Awarded: A clearer indication is given to the court as to circumstances in which damages could be awarded to a generic manufacturer to compensate for loss suffered by reason of delayed market entry of its drug, and the factors that may be taken into account in calculating damages. The court may also award costs to either a generic manufacturer or a patentee, including solicitor or client costs, as appropriate, consistent with Federal Courts Rules. The amendments reinforce the balance between providing a mechanism for the effective enforcement of patent rights and ensuring that generic drug products enter the market as soon as possible.
…
[…]
Préciser les circonstances ou des dommages-intérêts peuvent être accordés : De plus grandes précisions sont données aux tribunaux en ce qui concerne les circonstances où des dommages-intérêts pourront être accordés à un fabricant afin de le dédommager des pertes subies à cause du report de la mise en marché de son médicament générique, par ailleurs, des précisions sont aussi données sur les facteurs dont on peut tenir compte pour calculer les dommages-intérêts. Les tribunaux peuvent également accorder les dépens à l’une ou l’autre des parties (fabricant de médicaments génériques ou titulaire de brevet), y compris les honoraires professionnels, le cas échéant, conformément aux Règles de la Cour fédérale. Les modifications envisagées renforceront l’équilibre entre l’assurance d’un mécanisme qui permet de faire véritablement respecter les droits conférés par les brevets et la garantie que les médicaments génériques soient commercialisés aussitôt que possible.
[…]
[15] Finally, reference should also be made to section 20 of the Federal Courts Act:
20. (1) The Federal Court has exclusive original jurisdiction, between subject and subject as well as otherwise,
(a) in all cases of conflicting applications for any patent of invention, or for the registration of any copyright, trade-mark, industrial design or topography within the meaning of the Integrated Circuit Topography Act; and
(b) in all cases in which it is sought to impeach or annul any patent of invention or to have any entry in any register of copyrights, trade-marks, industrial designs or topographies referred to in paragraph (a) made, expunged, varied or rectified.
(2) The Federal Court has concurrent jurisdiction in all cases, other than those mentioned in subsection (1), in which a remedy is sought under the authority of an Act of Parliament or at law or in equity respecting any patent of invention, copyright, trade-mark, industrial design or topography referred to in paragraph (1)(a).
20. (1) La Cour fédérale a compétence exclusive, en première instance, dans les cas suivants opposant notamment des administrés :
a) conflit des demandes de brevet d’invention ou d’enregistrement d’un droit d’auteur, d’une marque de commerce, d’un dessin industriel ou d’une topographie au sens de la Loi sur les topographies de circuits intégrés;
b) tentative d’invalidation ou d’annulation d’un brevet d’invention, ou d’inscription, de radiation ou de modification dans un registre de droits d’auteur, de marques de commerce, de dessins industriels ou de topographies visées à l’alinéa a).
(2) Elle a compétence concurrente dans tous les autres cas de recours sous le régime d’une loi fédérale ou de toute autre règle de droit non visés par le paragraphe (1) relativement à un brevet d’invention, un droit d’auteur, une marque de commerce, un dessin industriel ou une topographie au sens de la Loi sur les topographies de circuits intégrés.
THE FEDERAL COURT DECISION
[16] The first set of issues addressed by the Federal Court Judge was whether section 8 is intra vires the Patent Act; within the constitutional authority of Parliament; and whether the Federal Court had the jurisdiction to hear the action. The second set of issues dealt with the nature and extent of the remedies which can be ordered pursuant to section 8 of the PM(NOC) Regulations.
[17] Dealing with the first set of issues, the Federal Court Judge rejected Merck’s argument that the Patent Act does not confer on the Federal Court jurisdiction to hear actions brought pursuant to section 8 of the PM(NOC) Regulations. The Federal Court Judge held that Parliament has, by statute, enacted subsection 55.2(4) of the Patent Act which in paragraph (d) gives the authority to the Governor-in-Council to make regulations “conferring rights of action in any court of competent jurisdiction”. The Federal Court Judge further noted that section 2 of the PM(NOC) Regulations defines “court” to mean “the Federal Court of Canada or any other superior court of competent jurisdiction”. According to the Federal Court Judge, this has the same effect as a grant of jurisdiction made under the Patent Act given that subsection 12(2) of the Patent Act provides that “[a]ny … regulation made by the Governor-in-Council has the same effect as if it had been enacted herein” (Reasons, paras. 63 and 64).
[18] Although he also referred to subsection 20(2) of the Federal Courts Act, the Federal Court Judge found that subsection 55.2(4) of the Patent Act and the designation of the Federal Court as a court of competent jurisdiction in section 2 of the PM(NOC) Regulations was the source of the Federal Court’s jurisdiction (Reasons. paras. 66 and 67).
[19] The Federal Court Judge also rejected Merck’s contention that section 8 of the PM(NOC) Regulations is ultra vires the Patent Act. Drawing an analogy, he emphasized that section 8 provides a disincentive for seeking what is in effect an interlocutory injunction. The liability created by section 8 acts like an undertaking for damages provided by the person seeking such an injunction. He held that paragraph 55.2(4)(d) specifically provides for regulations respecting remedies and procedures in respect of disputes under paragraph (c) as to when the NOC may issue. According to the Federal Court Judge: “[t]his includes the 24-month stay on any issuance of the NOC … and disincentives for seeking such a stay.” (Reasons, para. 74).
[20] Finally, the Federal Court Judge rejected Merck’s argument that the right of action provided pursuant to section 8 is in its pith and substance a matter respecting property and civil rights under the exclusive jurisdiction of the provinces under section 92(13) of the Constitution Act, 1867 (Reasons, para. 76). The Federal Court Judge held that section 8 is an integral part of the scheme set out in the PM(NOC) Regulations as enabled by the Patent Act. The scheme is directed to the enforcement of rights in certain types of medicinal patents including a balanced procedure respecting such enforcement (Reasons, paras. 76 and 77).
[21] Turning to the issue of remedy, the Federal Court rejected Apotex’s contention that the disgorgement of Merck’s profit could be ordered pursuant to section 8. The Federal Court Judge noted that a section 8 order may provide for “relief by way of damages or profits” as set out in subsection 8(4). He further noted that there is no mention anywhere of any remedy aimed at the profit made by the first person. The entire context of section 8 is focused on compensation for loss suffered by the generic (Reasons, para. 88).
[22] The Federal Court Judge observed that the word “profits” appears nowhere in the Patent Act and that there was considerable debate as to whether the provision for an “account” in an infringement action, meant that a court could order disgorgement of an infringer’s profits. He noted that the debate was laid to rest by the Federal Court of Appeal in Beloit Canada Ltd. v. Valmet-Dominion Inc., [1997] 3 F.C. 497, (1997) 73 C.P.R. (3d) 321 at pages 355 to 359, where it was held that the remedy of disgorgement of an infringer’s profits is authorized by paragraph 57(1)(b) of the Patent Act, when read with section 20 of the Federal Courts Act (Reasons, para. 92).
[23] However, the Federal Court Judge noted that a generic making a claim pursuant to subsection 8(4) of the PM(NOC) Regulations is not in the position of a patentee whose patent has been infringed. The reasonable interpretation of the words “damages or profits” is that the generic can seek, as a measure of its damages, in the alternative, the profits that it would have made if it had been able to market its product at an earlier time (Reasons, para. 97).
[24] Lastly, the Federal Court Judge considered Apotex’s contention that during the period from February 3, 2004 to May 26, 2005, the marketplace for its alendronate product (i.e. Apo-alendronate) became distorted because two other generics entered the marketplace in that period. More specifically, Apotex claimed that, were it not for Merck’s prohibition application, it could have been first in the marketplace or it would have at least entered the marketplace at about the same time that the other generics did and that its market share would, thereby, have been larger than it is now. Apotex argued that a lesser market share is a matter that permanently endures and that it should be entitled to damages for lost sales and lost permanent market share beyond May 26, 2005 (Reasons, para. 120).
[25] The Federal Court Judge concluded that it is appropriate for Apotex to make the claim for losses beyond May 26, 2005 provided that the marketplace did not rectify itself or Apotex could not have remedied the marketplace disadvantage before that date. The Federal Court Judge also left the matter of quantification to the later trial (Reasons, para. 122).
ALLEGED ERRORS
[26] In support of its appeal, Merck reiterates each of the arguments made before the Federal Court Judge and submits that he committed a variety of legal errors in rejecting these arguments.
[27] With respect to both the vires issue and the constitutional issue, Merck submits that section 8 is not necessary or integral to the overall scheme of the PM(NOC) Regulations. The scheme created by the PM(NOC) Regulations seeks to prevent patent infringement. Section 8 is not directed towards that end. Indeed, it undermines the statutory objective.
[28] Furthermore, Merck takes issue with the analogy drawn by the Federal Court Judge between the automatic stay which the PM(NOC) Regulations provide, and an undertaking given in the context of an infringement action in order to obtain an interlocutory injunction. According to Merck, the Governor-in-Council could have adopted the patent litigation model, but did not. Merck submits that the Federal Court Judge erred in conducting his analysis on the basis of that analogy.
[29] With respect to jurisdiction, Merck submits that, the Federal Court Judge erred in holding that paragraph 55.2(4)(d) of the Patent Act when read with the definition of “court” in section 2 of the PM(NOC) Regulations confers jurisdiction on the Federal Court. The Patent Act does not authorize the Governor-in-Council to confer jurisdiction by delegated legislation. Merck submits that the Federal Court Judge misinterpreted subsection 12(2) of the Patent Act when he held that the designation of the Federal Court in section 2 of the PM(NOC) Regulations amounts to a grant of jurisdiction which has the same force and effect as if it was found in a statute.
[30] With respect to the issue of remedy, Merck submits that the Federal Court Judge erred in concluding that Apotex is entitled to claim damages for lost sales and loss of permanent market share occurring outside of the period of liability defined in paragraph 8(1)(b) of the PM(NOC) Regulations. The language of section 8 refers to “any loss suffered during the period” in the past tense. Merck submits that this precludes recovery for losses suffered outside the period.
[31] By its cross-appeal, Apotex contends that the Federal Court Judge erred in finding that section 8 of the PM(NOC) Regulations does not allow for an award of disgorgement of profits. The ordinary and grammatical meaning of subsection 8(4) is that two forms of relief are available i.e. “damages or profits”. Apotex submits that given that the second person’s own lost profits are its damages, it must be the first person’s profits that are referred to as profits. Otherwise, the words “or profits” are surplusage.
[32] Apotex submits that the construction which it proposes is consistent with the balance which the Patent Act seeks to achieve between generics and inventors. A first person has an incentive to commence a proceeding regardless of whether there is any real possibility of infringement. Only the risk of being compelled to disgorge its own profits can remove the incentive which a first person has to commence a prohibition proceeding for the sole purpose of extending its monopoly rights.
ANALYSIS AND DECISION
[33] The first question which needs to be addressed in order to dispose of this appeal is whether section 8 of the PM(NOC) Regulations is ultra vires the Patent Act. The analysis which must be conducted in order to address this issue will assist in dealing with the constitutional challenge directed at section 8 and the attack on the jurisdiction of the Court.
The vires issue
[34] True questions of vires such as the one here in issue are to be reviewed on a standard of correctness (Dunsmuir v. New Brunswick, 2008 SCC 9, para. 59). The question before this Court is therefore whether the Federal Court Judge came to the correct conclusion when he held that section 8 was authorized by the Patent Act, and therefore validly promulgated. In my respectful view, he did.
[35] The background and the statutory authority for the PM(NOC) Regulations are comprehensively set out by Binnie J. in Bristol-Myers Squibb Co. v. Canada (Attorney General), 2005 SCC 26, [2005] 1 S.C.R. 533 (Biolyse). Reference can also usefully be made to AstraZeneca Canada Inc. v. Canada (Minister of Health), 2006 SCC 49, [2006] 2 S.C.R. 560, paras. 12 to 23 (AstraZeneca). It is sufficient for present purposes to set out paragraphs 6 to 12, 45, 46 and 50 of Biolyse:
6 Over the years, Canada has developed a major sector of “generic drug” manufacturers described as companies that generally manufacture and distribute “drugs which were researched, developed and first brought to market by ‘innovator’ companies” (Apotex Inc. v. Canada (Attorney General), [1994] 1 F.C. 742 (C.A.), at p. 751, aff’d [1994] 3 S.C.R. 1100). They produce what is sometimes known in the trade as “copy-cat” drugs.
7 The success of the generic drug manufacturers has been a source of grievance to owners of patents for pharmaceutical medicines, who view monopoly profits conferred by patents as essential to recoup the cost of their research program as well as to earn a profit on their investment. Generic drug manufacturers, who generally do not have significant research costs in relation to a drug first brought to market by an innovator company, need only turn a profit on their manufacturing and distribution facilities. Generic drugs can therefore be sold at a discount to “brand name” products in the market place, at considerable savings to the public and at considerable cost to the profits of the innovator drug companies.
8 Until 1993 the Minister of Health was not directly concerned with patent issues. Indeed, Parliament’s policy since 1923 had been to favour health cost savings over the protection of intellectual property by making available to generic manufacturers a scheme of compulsory licencing of an “invention intended or capable of being used for medicine or for the preparation or production of medicine” under s. 39(4) of the Patent Act. The compulsory licencing scheme gathered momentum after 1969 when it was extended to imported drugs. A compulsory licence could invariably be obtained from the Commissioner of Patents, and a notice of compliance (“NOC”) from the Minister of Health, providing the generic manufacturer could establish pharmaceutical equivalence of its product with the innovator drug (“the Canadian reference product”). In determining the terms of the licence and amount of royalty payable, the Commissioner of Patents was required to “have regard to the desirability of making the medicine available to the public at the lowest possible price consistent with giving to the patentee due reward for the research leading to the invention and for such other factors as may be prescribed” (s. 39(5)). The royalty payable to the patent owner was generally fixed at 4 percent to 5 percent of the net selling price of the drug in posological form, or 15 percent of the net selling price of the drug in bulk (T. Orlhac, “The New Canadian Pharmaceutical Compulsory Licensing Provisions on How to Jump Out of the Frying Pan and Into the Fire” (1990), 6 C.I.P.R. 276; G. F. Takach, Patents: A Canadian compendium of law and practice (1993), at p. 119; and see Imperial Chemical Industries PLC v. Novopharm Ltd. (1991), 35 C.P.R. (3d) 137 (F.C.A.), at pp. 139-40). Linking licence fees to the cost of the “research leading to the invention” did not cover the cost of massive research programs required by the innovators to produce the few “winners” from the many false starts and failed research projects that never came to market.
9 Section 39(14) of the Patent Act simply required the Commissioner of Patents to notify the Department of National Health and Welfare of all compulsory licence applications.
10 In a reversal of policy, Parliament in 1993 repealed the compulsory licence provisions of the Patent Act by what became known as Bill C-91 (S.C. 1993, c. 2) and extinguished all compulsory licences issued on or after December 20, 1991. In part, these changes flowed from international obligations accepted by Canada under the Agreement on Trade-Related Aspects of Intellectual Property Rights, 1869 U.N.T.S. 299 (“TRIPS”). More immediately, perhaps, it was thought that Canada’s compulsory licensing system would be declared incompatible with Canada’s obligations under the North American Free Trade Agreement, Can. T.S. 1994 No. 2, in particular art. 1709(10), signed at the end of 1992.
11 However, having agreed to respect the 20-year monopoly granted by patents, Parliament wished to facilitate the entry of competition immediately thereafter. It acted to eliminate the usual regulatory lag of two years or more after expiry of a patent for the generic manufacturer to do the work necessary to obtain an NOC. Parliament did so by introducing an exemption from the owner’s patent rights under which the generic manufacturers could work the patented invention within the 20-year period (“the early working exception”) to the extent necessary to obtain an NOC at the time the patent(s) expired (s. 55.2(1)) and to “stockpile” generic product towards the end of the 20-year period to await lawful market entry (s. 55.2(2)). In order to prevent abuse of the “early working” and “stockpiling” exceptions to patent protection, the government enacted the NOC Regulations that are at issue in this appeal.
12 The patent owner’s remedies under the NOC Regulations are in addition to all of the usual remedies for patent infringement under the Patent Act.
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45 This Court has accepted the view that Parliament enacted Bill C-91 “with the intent of thwarting the possible appropriation by generic drug companies, such as Apotex, of the research and development initiatives of innovators, such as Merck” (Apotex v. Canada (Attorney General), per Robertson J.A., at p. 752 (emphasis added), whose reasons were substantially adopted by this Court at [1994] 3 S.C.R. 1100).
46 The Regulatory Impact Analysis Statement, which accompanied but did not form part of the NOC Regulations, confirms that this was the intention of the regulator. It says that following the abolition of the compulsory licensing system, the government enacted the NOC Regulations in order to protect the right of patentees by preventing generic manufacturers from marketing their products until the expiry of all relevant patents (Merck & Co. v. Canada (Attorney General) (1999), 176 F.T.R. 21, at para. 51). The relevant portion of the Regulatory Impact Analysis Statement reads:
. . . As a general rule, judicial remedies are sufficient to address patent infringement. However, with the enactment of Bill C-91 the government has created an exception to patent infringement allowing generic competitors to undertake any activities necessary to work up a submission to obtain regulatory approval of a product. This removes a patent right that may have otherwise been available to patentees to prevent generic competitors from obtaining such regulatory approval of their products.
These Regulations are needed to ensure this new exception to patent infringement is not abused by generic drug applicants seeking to sell their product in Canada during the term of their competitor’s patent while nonetheless allowing generic competitors to undertake the regulatory approval work necessary to ensure they are in a position to market their products immediately after the expiry of any relevant patents. [Emphasis added.]
(Regulatory Impact Analysis Statement, SOR/93-133, Canada Gazette, Part II, vol. 127, No. 6, at p. 1388)
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50 Recognizing that the “early working” and “stockpiling” exceptions could be abused, Parliament balanced creation of these exceptions with creation of a summary procedure designed to strengthen the hand of patent owners against generic competitors within the 20-year patent period. This carrot and stick combination is found in s. 55.2 of the Patent Act (quote of s. 55.2 omitted):
[Emphasis in the original throughout the above quote]
[36] It is also useful to briefly consider what was decided by the Supreme Court in Biolyse and later in AstraZeneca. The issue in Biolyse was whether a “submission” for an NOC by a person who did not rely (i.e. piggy back) on a first person’s drug came within the ambit of the PM(NOC) Regulations. Binnie J., writing for the majority, recognized that the word “submission” in subsection 5(1.1) was on the face of it unambiguous and all inclusive (Biolyse, para. 43). However, the PM(NOC) Regulations had to be construed having regard to the Patent Act read as a whole and the balance which it seeks to create between the effective enforcement of patent rights through the use of the PM(NOC) Regulations (subsection 55.2(4)) and the timely entry of lower price generic drugs through the use of the “early working” exception (subsection 55.2(1)) (Biolyse, supra, para. 50).
[37] Viewed in that light, it became apparent that the word “submission” must be confined to situations where a manufacturer in fact copies from an innovator company (Biolyse, supra, paras. 65 and 69). Giving the word “submission” a wider ambit would overshoot the limited purpose for which regulations may be made and upset the balance which the Patent Act seeks to create.
[38] Soon after Biolyse was released, the Supreme Court was again called upon to apply the rationale developed in that case. In AstraZeneca, the issue was whether the PM(NOC) Regulations applied in respect of listed patents from which the second person had not derived any advantage in making use of the “early working” exception.
[39] Binnie J., writing for a unanimous Court this time, noted that subsection 4(1) of the PM(NOC) Regulations allows the Minister to identify the precise patents relevant to the “early working” of a copy-cat drug (AstraZeneca, supra, para. 22). In order to limit the application of the PM(NOC) Regulations to the stated statutory objective, subsection 5(1) must be construed as requiring a patent-specific analysis restricted to the patents relevant to the comparator drug (AstraZeneca, supra, para. 39). Thus, the “other drug” referred to in subsection 5(1) can only refer to the drug to which a reference is made by second persons “for the purpose of demonstrating bioequivalence”. Again, to construe these words more broadly would allow the PM(NOC) Regulations to apply when the prevention of infringement is not in issue and would upset the balance which the Patent Act seeks to create (AstraZeneca, supra, paras. 15, 38 and 39).
[40] Against this background, I now turn to the specific language of subsection 55.2(4) of the Patent Act. It provides for a broad grant of authority for the making of such regulations as the Governor-in-Council “considers necessary for preventing the infringement of a patent” by any person who makes use of the “early working” exception. The specific authority outlined in paragraphs (a) to (e) is said not to limit the generality of the initial grant. The only limitation lies in the limited purpose for which regulations may be made.
[41] Paragraph (a), although drafted in much broader terms, authorizes the Governor-in-Council to impose conditions for the issuance of NOCs which, in addition to those usually imposed pursuant to the Food and Drugs Act, R.S.C. 1985, c. F-27 and the Food and Drug Regulations, C.R.C. 1978, c. 870, are aimed at the prevention of infringement. Paragraph (b) specifies that this authority to impose further conditions extends to setting the date on which NOCs can be issued.
[42] Paragraph (c) provides authority for resolving disputes as to when NOCs may be issued. For that purpose, paragraph (d) authorizes the Governor-in-Council to “confer rights of action in any court of competent jurisdiction” and to provide for the “remedies” that may be sought and the “orders” that may be made.
[43] Paragraph (e) provides the Governor-in-Council with the authority to provide for other measures in the event that the issuance of an NOC might result directly or indirectly in the infringement of a patent.
[44] I also note subsection 55.2(5) which provid