Ruling may broaden Ottawa’s reach over patents

Seven pharmaceutical companies, along with a string of intellectual property organizations and patients’ groups acting as interveners, that challenged the constitutionality of new regulations intended to lower patented drug prices were rebuffed after Quebec Superior Court found that the price control of patented drugs falls within the scope of the federal government’s powers over patents.

The long-awaited decision will likely have a substantial impact on the pharmaceutical industry in Canada, will compel Ottawa to overhaul its regulatory approach and guidelines over patented drug pricing, and may even broaden the federal government’s reach to regulate other intellectual property, according to legal experts.

“The judgment sets an important precedent about the scope of the federal Parliament’s powers to legislate regarding patents, and potentially by analogy how the federal government can exercise its powers over other forms of intellectual property,” noted Miriam Clouthier, a Montreal lawyer with IMK LLP who represented the Canadian Cystic Fibrosis Treatment Society, who were interveners in the case.

Yael Bienenstock, a Toronto litigator with Torys LLP, concurs. “Arguably, if you say that the federal government’s power to legislate patents means that it can also regulate the price of those patented products, then that can very quickly become a very broad power,” remarked Bienenstock, part of a team of Torys’ lawyers who plead the case on behalf of The Intellectual Property Owners Association, also interveners in the case.

The legal challenge surfaced after the federal government enacted in August 2019 significant amendments to the Patented Medicine Regulations, made under the Patent Act. The Patented Medicines Prices Review Board (PMPRB), a federal agency established in 1987, has a mandate of ensuring that the prices of patented medicines sold in Canada are not “excessive.” The amendments were aimed at providing the PMBRB with “tools to protect Canadians from excessive prices and make patented medicines more affordable,” according to the federal government. The amendments, which are expected to come into force on July 1, 2021 following several delays, introduced three major changes to the PMPRB’s regulatory framework. It introduced new economic factors for PMPRB to use in order to assess whether a patented medicine’s price is excessive, replaced reference countries such as Switzerland and the U.S. while adding new ones for pricing tests, and added a requirement that the selling price reported to the PMPRB take into account rebates provided by the manufacturer, be it to purchasers or third-parties. The federal government estimates that the regulatory changes will save Canadians approximately $8.8 billion over 10 years.

The seven pharmaceutical companies that challenged the existing PMPRB regime and the amendments maintained that the federal government does not have the constitutional authority to regulate the prices of medicines. They argued that the changes exceeded Parliament’s authority over patents, and was instead a matter of provincial jurisdiction over property and civil rights, over hospitals and over matters of a merely local or private nature, including health, by virtue of the Constitution Act, 1867. They also maintained, as did the Canadian Cystic Fibrosis Treatment Society, that the amendments will slow and limit Canadians’ access to new breakthrough medicines. The Intellectual Property Owners Association went further, asserting that even in the face of abuse, the federal legislator does not have the power to reduce the price of patented products.

In a hefty 113-page decision, Quebec Superior Court Justice Sophie Picard found that the price control of patented drugs does fall within the scope of the federal government’s powers over patents. Justice Picard held that the existing PMPRB regime was constitutional and that the price control of patented medicines to impede them from being sold at excessive prices has a logical, real and direct link with patents and does not unreasonably infringe on provincial powers.

In a similar vein, Justice Picard also found that the pith and substance of the amendments too lies in price control of patented medicines but through the use of additional tools such as the addition of new economic factors or the change to the list of comparator countries. Using these measures to attain lowest possible pricing or optimal pricing would however be unconstitutional, held Justice Picard in Merck Canada inc. c. Procureur générale du Canada 2020 QCCS 4541, a decision issued on December 18th.

“It would be unconstitutional to adopt pure price regulation but practically speaking drawing those lines is going to be very difficult,” said Clouthier. “We were hoping for a lot more guidance and much clearer line from the Court around what is price regulation, what does it look like, and when can the government engage in it.”

Bienenstock too maintains that Justice Picard “really did not” address the scope of the federal government’s patent power. Justice Picard found that controlling prices to prevent them from sold at excessive prices has a logical, real and direct link with patents, but Bienenstock believes that that is “not answering the question of whether in pith and substance the regime falls within the patent power. The Court says it’s related to the patent’s power, but they’re not quite the same thing,” added Bienenstock.

But in a finding that will oblige the federal government to review its regulatory approach, Justice Picard struck down the requirement for patentees to report rebates provided by the drug companies. She held that this change was an incursion into provincial jurisdiction. Only provinces, held Justice Picard, can fix prices, a finding echoed by a Federal Court decision last June. In Innovative Medicines Canada et al. v The Attorney General of Canada et al, 2020 FC 725, Federal Court Justice Michael Manson too upheld the regulations, with the exception of the rebate reporting requirements, a decision that is now under appeal before the Federal Court of Appeal.

“Justice Manson got to the same spot to a slightly different pathway,” observed Scott MacKendrick, a member of Bereskin & Parr LLP’s executive committee. “Unlike the Quebec Superior Court decision, he was looking at it more through the lens of whether it was proper regulatory making authority as enabled under the Patent Act as opposed to looking at it through the lens of provincial responsibility and whether it was an intrusion into provincial responsibility. But it ultimately gets to the same spot.”

The elimination of compelled disclosure of third-party rebates will force the federal government to go back “to the drawing board and re-think its guidelines,” said Clouthier. But MacKendrick believes that the federal government may well want to wait it out to see what transpires from the appeals.

An appeal with the Quebec Court of Appeal has already been filed.

This story was originally published in The Lawyer’s Daily.

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