The federal government will have to overhaul its regulatory approach and guidelines over patented drug pricing after the Quebec Court of Appeal found a couple of provisions to be unconstitutional and outside the scope of federal jurisdiction over patents, according to a legal expert.
The Appeal Court ruling, expected to have a significant impact on the pharmaceutical industry in Canada, upheld the constitutionality of the legislative framework of the Patented Medicines Prices Review Board (PMPRB) and it current regulations. In a unanimous decision, the Appeal found that controlling abusive pricing of medicines resulting from a monopoly conferred by a patent has a logical, real and direct connection with federal jurisdiction over patents and does not constitutionally encroach on provincial jurisdiction.
But the Appeal Court struck down two provisions of the 2019 proposed amendments to the federal patented medicines pricing regime because it went beyond its jurisdiction on patents and infringed provincial jurisdiction to regulate pricing.
“The decision is important because it gives pretty clear guidance to the federal Parliament about the limits of its powers to legislate in relation to patents,” said Miriam Clouthier, a Montreal lawyer with IMK who represented the Canadian Cystic Fibrosis Treatment Society who were interveners in the case. “The Appeal Court clearly states that the federal Parliament is allowed to legislate in respect of excessive or abusive prices charged for patented medicines. But that the federal government is not allowed to introduce legislation, the main thrust of which is to lower prices across the board or to lower prices in a whole market or industry.”Read More
The legal challenge by seven pharmaceutical companies, and patients’ groups acting as interveners, emerged after the federal government enacted in August 2019 major changes 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 to ensure that 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, set to come into force on July 1, 2022 following several delays, introduced three major changes to the PMPRB’s regulatory framework. It updated the reference countries used by the PMPRB for international price comparisons and introduced three new economic factors — including the pharmaeconomic value of the drug, the market size of the drug in Canada and the gross domestic product per capita in Canada — for the PMPRB to use to determine whether a patented medicine’s price is excessive. The new amendments also required patentees to divulge rebates provided to third parties such as public or private insurers. The federal government estimates that the regulatory changes will save Canadians approximately $8.8 billion over 10 years, while the pharmaceutical industry pegged their losses at over $26 billion.
The drug makers challenged the constitutional validity of the entire PMPRB regime, asserting that it exceeded Parliament’s legislative authority over patents. They maintained that federal patent power does not allow it to regulate drug prices, unless there is patent abuse. Only provincial governments are constitutionally empowered to regulate prices, they added. The pharmaceutical companies and patients’ groups also asserted that the 2019 amendments will slow and limit Canadians’ access to new breakthrough medicines.
Quebec Superior Court, while it found that the price control of patented drugs falls within the scope of the federal government’s powers over patents, struck down the requirement for patentees to report rebates as this is an incursion into provincial jurisdiction.
The Quebec Appeal Court upheld these findings, and went further. It upheld the constitutionality of the pre-2019 regulatory regime and its current regulations. The pith and substance of the provisions of the Patent Act and the regulations — to control “excessive” prices to mitigate the effects of patent monopolies on prices – has always been recognized by case law as falling under federal jurisdiction over patents, and the case law should not be set aside, found Appeal Court Justice Robert Mainville in Merck Canada inc. c. Procureur général du Canada, 2022 QCCA 240, a decision issued on Feb 18th. Both Justices Benoît Moore and Guy Cournoyer concurred with the reasons.
As with the lower court, Justice Mainville held that controlling “excessive” prices for a patented medicine resulting from the monopoly conferred by a patent has a rational, real and direct connection to federal jurisdiction over patents and does not constitutionally encroach on provincial jurisdiction.
The federal jurisdiction to regulate prices are however bound by parameters, added Justice Mainville. It covers only patented medicines. Neither can it extend extend beyond the “ex factory” price (or the price that the patentee sells the drug at first instance) of patented medicines. On top of that, the federal price control of patented medicines is constitutionally valid to the extent that its pith and substance is to “avoid the adverse effect” on prices due to patent monopolies. The requirement to report third-party rebates goes beyond this scope as do the three new economic factors, held the Appeal Court.
“In short, under the guise of its jurisdiction over patents, the Government of Canada seeks to purely and simply regulate the prices of patented drugs in order to impose significant price reductions by introducing new factors that have little or nothing to do with the monopoly conferred by patents,” concluded Justice Mainville.
According to Clouthier, the decision will be a “helpful” and important precedent as it “states limits and contours of Parliament’s constitutional powers in relation to patents that haven’t been stated by courts before.”
The Appeal Court also deemed PMPRB’s new guidelines, which explain in detail how the new economic factors will apply, as critical evidence that must be examined to determine the pith and substance of legislation. “It would, in my view, be unacceptable for a regulatory regime to escape constitutional review on the grounds that a court could not take into account guidelines which are required by statute to be adopted and which, in fact, are determinative of the application of the regime as a whole,” held Justice Mainville.
Clouthier believes that’s another aspect of the judgment that sets an important precedent. “There was not much case law before this judgment recognizing that guidelines and administrative practice are very useful evidence for the Court in determining the pith and substance of legislation,” said Clouthier.
Counsel for the pharmaceutical companies and other patients’ groups declined to comment.
This story was originally published in The Lawyer’s Daily.