2022 QCCA 240, 2022 QCCA 240

Unofficial English Translation of the Judgment of the Court Merck Canada inc. c. Procureur général du Canada 2022 QCCA 240 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No.: 500-09-029316-213 (500-17-109270-192) DATE: February 18, 2022 CORAM: THE HONOURABLE ROBERT M. MAINVILLE, J.A. BENOÎT MOORE, J.A. GUY COURNOYER, J.A. MERCK CANADA INC. JANSSEN CANADA INC. SERVIER CANADA INC. BOEHRINGER INGELHEIM (CANADA) LTD. /LTÉE BAYER INC. THERATECHNOLOGIES INC. AVIR PHARMA INC. APPELLANTS / INCIDENTAL RESPONDENTS – Plaintiffs v.

ATTORNEY GENERAL OF CANADA RESPONDENT / INCIDENTAL APPELLANT – Defendant and ATTORNEY GENERAL OF QUEBEC IMPLEADED PARTY – Impleaded Party and CANADIAN CYSTIC FIBROSIS TREATMENT SOCIETY CYSTIC FIBROSIS CANADA CANADIAN ORGANIZATION FOR RARE DISORDERS BIOTECANADA IMPLEADED PARTIES – Intervenors JUDGMENT [ 1 ] The pharmaceutical companies appeal from the judgment dated December 18, 2020 (the Honourable Sophie Picard, J.S.C., District of Montreal), the conclusions of which read as follows: [ translation ] [430] GRANTS in part the application for judicial review; [431] DECLARES valid ss. 79 to 103 of the Patent Act , R.S.C. 1985, c.

P-4 ; [432] DECLARES valid: (

i) the entire Patented Medicines Regulations , SOR/94-688 and (ii) the amendments to the Regulations published in the Canada Gazette ,

Part II, on August 21, 2019 ( Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements) : SOR/2019-298), except the new ss. 4(4)(

a) and 4(4)(b); [433] DECLARES ultra vires , invalid, null, and without effect the new ss. 4(4)(

a) and 4(4)(

b) of the amendments to the Patented Medicines Regulations , SOR/94-688 , published on August 21, 2019 ( Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements ), SOR/2019-298); [434] ORDERS the provisional execution of this judgment notwithstanding appeal, with respect to the new ss. 4(4)(

a) and 4(4)(

b) of

the amendments to the Patented Medicines Regulations , SOR/94-688 , published on August 21, 2019 ( Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements ), SOR/2019-298), the application of which will be suspended for the duration of any appeal proceedings, and the former ss. 4(4) (

a) and 4(4) (

b) of the Patented Medicines Regulations , SOR/94-688 will continue to apply during any appeal proceedings; [435] THE WHOLE , with each party paying its own legal costs. [ 2 ] The Attorney General of Canada filed an incidental appeal against the part of the judgment declaring ultra vires , invalid, null, and without effect the new paragraphs 4(4)(

a) and 4(4)(

b) introduced into the Patented Medicines Regulations , SOR/94-688 by the Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements ), SOR/2019- 298, published on August 21, 2019. [ 3 ] For the reasons of Mainville J.A., with which Moore and Cournoyer JJ.A. agree, THE COURT : [ 4 ] ALLOWS the appeal in part; [ 5 ] DISMISSES the incidental appeal; [ 6 ] REVERSES the trial judgment in part to replace paragraphs [432] and [433] with the following: [ translation ] [432] DECLARES valid: (

i) the entire Patented Medicines Regulations , SOR/94-688 and (ii) the amendments to the Regulations published in the Canada Gazette ,

Part II, on August 21, 2019 ( Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements) , SOR/2019-298), except subsection 3(4) introducing the new paragraphs 4(4)(

a) and 4(4)(

b) and

section 4 introducing the new sections 4.1 to 4.4 into the Patented Medicines Regulations , SOR/94-688 ; [433] DECLARES ultra vires , invalid, null, and without effect subsection 3(4) and

section 4 of the Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements), SOR/2019 introducing the new paragraphs 4(4) (

a) and 4(4)(

b) and the new sections 4.1 to 4.4 into the Patented Medicines Regulations , SOR/94-688 . [ 7 ] THE WHOLE , with legal costs in favour of the appellants, both at trial and on appeal. ROBERT M. MAINVILLE, J.A. BENOÎT MOORE, J.A. GUY COURNOYER, J.A.

Mtre Julie Desrosiers Mtre Marc-André Fabien Mtre Eliane Ellbogen FASKEN MARTINEAU DUMOULIN Counsel for the appellants / incidental respondents Mtre Bernard Letarte Mtre Sarom Bahk Mtre Lyne Prince DEPARTMENT OF JUSTICE CANADA Counsel for the respondent / incidental appellant Mtre Francis Demers BERNARD, ROY (JUSTICE-QUÉBEC) Counsel for the Attorney General of Quebec Mtre Audrey Boctor Mtre Miriam Clouthier IMK Counsel for the Canadian Cystic Fibrosis Treatment Society Mtre Marie-Pier Emery-Rochette Mtre Sandrine Mainville BORDEN LADNER GERVAIS Counsel for Cystic Fibrosis Canada

Mtre Nicolas Martin Rouleau NICOLAS M. ROULEAU, SOCIÉTÉ PROFESSIONNELLE Counsel for the Canadian Organization for Rare Disorders Mtre François Grondin Mtre Julien Boudreault BORDEN LADNER GERVAIS Counsel for BIOTECanada Dates of hearing: December 13, 14, and 15, 2021 REASONS OF MAINVILLE, J.A. [ 8 ] This case concerns the scope of the federal government’s jurisdiction over the regulation of the price of patented medicines sold in Canada.

Only the federal jurisdiction over “Patents of Invention and Discovery / brevets d’invention et de découverte ) set out in subsection 91(22) of the Constitution Act, 1867 is at issue. It should be noted that the central issue of the appeal is not whether .medicine prices should be regulated, but rather which level of government can act in this matter. * * * [ 9 ] The appellant pharmaceutical companies appeal from the judgment dated December 18, 2020 (the Honourable Sophie Picard, J.S.C., District of Montreal), [1] which declared constitutionally valid: (

a) sections 79 to 103 of the Patent Act [2] concerning the special regime to control excessive prices for patented medicines; (

b) the entire Patented Medicines Regulations [3] as it read before the 2019 amendments; and (

c) the Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements) [4] (the “ 2019 Regulatory Amendments ”), except subsection 3(4), which introduced the new paragraphs 4(4) (

a) and (

b) into the Patented Medicines Regulations , requiring patentees to disclose to the Patented Medicine Prices Review Board (the “Board”) the price obtained for patented medicines, taking into account the confidential rebates granted to the public prescription drug insurance plans. [ 10 ] Most aspects of the pharmaceutical companies’ appeal are supported by the impleaded parties-intervenors, who represent patients suffering from rare diseases.

The appeal is also supported by the Attorney General of Quebec, but only in regard to the constitutional invalidity of the main provisions of the 2019 Regulatory Amendments . [ 11 ] The Attorney General of Canada filed an incidental appeal against the declaration of constitutional invalidity concerning the new paragraphs 4(4) (

a) and (

b) introduced into the Patented Medicines Regulations by the 2019 Regulatory Amendments . [ 12 ] The coming into force of the 2019 Regulatory Amendments , scheduled for July 1, 2020, has been delayed a few times. [5] The coming into force of these amendments is now scheduled for July 1, 2022. [6] I - STATUTORY PROVISIONS [ 13 ] To understand the context underlying this dispute, it is appropriate to first summarily describe the legislative history of the aspects of the Patent Act relevant to this appeal. What follows is a brief description of the impugned provisions of the Patent Act and the current version of the Patented Medicines Regulations , as well as a

summary of the 2019 Regulatory Amendments . We conclude this part with a brief overview of the provincial measures concerning the price of medicines. A- Legislative history The 1869 Act [ 14 ] Parliament’s first statute concerning patents was the 1869 Act respecting Patents of Invention . [7] It contained no specific provision on medicines.

However, it provided that a patent, regardless of its subject, expired after three years if it was not acted upon in such a way as to permit its use at a “reasonable price”. [8] The 1923 Act [ 15 ] It was only in 1923 that the Act to Amend and Consolidate the Acts Relating to Patents of Invention [9] expressly addressed methods for making medicines, while prohibiting the patenting of medicinal substances. [10] [ 16 ] With certain exceptions, the Commissioner of Patents therefore had to grant a licence to use the patented method of making a medicine to any person who applied for it.

The conditions of such a licence and the amount of the fees to be paid to the patentee were fixed by the Commissioner, who had to consider “the desirability of making the … medicine available to the public at the lowest possible price consistent with giving to the inventor due reward for the research leading to the invention”. [11] A licence did not allow the

medicine to be imported; rather, it allowed it to be made in Canada. [12] [ 17 ] It was in fact the Canadian version of the British statute in force at the time, as explained by Commissioner Harry C. Eastman in his 1985 report of inquiry (the “Eastman Report”), to which I will return: [13] The nature of the policies specific to the pharmaceutical industry has varied by country and over time.

In response to concern about the lack of British-owned pharmaceutical firms, which was attributed to excessively broad product patent protection for foreign firms in the United Kingdom before World War I, the British Patent Act was amended in 1919 and restricted the patent protection given to food and drugs to process or product by process, not to the product itself. The amendment also introduced compulsory licensing of patents to permit the entry of new firms. This legislation was widely imitated in other parts of the British Empire.

It was introduced in Canada in 1923 in a form that required manufacture of the patented active ingredient in Canada. [ 18 ] The purpose of the compulsory licensing scheme for drug-manufacturing processes was to mitigate the effect on prices of the monopoly granted by the patent through commercial competition permitted under licence, while rewarding the research that led to the invention with royalties. Abbott J. in Hoffman-LaRoche v. Bell-Craig Pharmaceutical Division of L.D. Craig Ltd. explained the purpose of the scheme as follows: [14] In my view the purpose of s. 41 (3) is clear. Shortly stated it is this.

No absolute monopoly can be obtained in a process for the production of food or medicine. On the contrary Parliament intended that, in the public interest, there should be competition in the production and marketing of such products produced by a patented process, in order that as the

section states, they may be "available to the public at the lowest possible price consistent with giving to the inventor due reward for the research leading to the invention". [ 19 ] The 1923 Act also provided for the granting of licences when a patentee did not satisfy the reasonable requirements of the public with reference to the patent within three years, regardless of its subject. [15] This licensing system applied to all patents and is found today, in a modified form, in the provisions of the Patent Act concerning the abuse of patent rights, [16] although the term “abuse” was not expressly used in the 1923 Act . [ 20 ] According to the 1923 regime on what we now call abuse of patent, if the patentee did not satisfy the reasonable requirements of the public within three years of its issue, the Commissioner of Patents could order the patentee to supply the patented

article “at such price as may be fixed by him and in accordance with the custom of the trade to which the invention relates as to the payment and delivery”. [17] The Commissioner could also grant licences for the use of the patented invention on conditions “as may be fixed by him”. [18] [ 21 ] That being said, we must not confuse these licences related to patent abuse with those granted in connection with patented medicines, which could be obtained without regard for the concept of abuse, as the House of Lords concluded in Parke-Davis and Co., rendered in 1954, with respect to the British legislation from which the Canadian Parliament drew inspiration. [19] In this regard, Lord of Bishopstone stated the following: [20] Applications for orders under

section 41 are not, as I read that section, based on the abuse of patent rights by the patentee. In this respect

section 41, in my judgment, contrasts with

section 37, application for orders under which are based on such “abuses.” The provisions of

section 41 are based on the special position of food, medicines and surgical appliances as articles in urgent demand. The 1969 Act [ 22 ] Various federal commissions recommended legislative amendments to the patent regime for medicines and their manufacturing processes.

In 1960, the Ilsley Commission recommended authorizing patents for medicinal substances themselves, subject to the implementation of a compulsory licensing mechanism. [21] On the contrary, in 1963, the Restrictive Trade Practices Commission instead recommended the outright abolition of patents for the pharmaceutical industry. [22] [ 23 ] In 1964, the Royal Commission on Health Services recommended maintaining patents for the pharmaceutical industry in accordance with a more rational process that included standard royalties and compulsory licensing, not only to make patented medicines, but also to import them: [23] In view of the circumstances, two courses of action appear to be indicated : one is to follow the proposal made by the Restrictive Trade Practices Commission and to recommend that patents on drugs be abolished in Canada ; the other is to modify the existing patent system as it affects drugs by permitting compulsory licensing of imports and to streamline generally procedures as they relate to compulsory licensing together with an amendment of the Patent Act which would extend to provincial governments and their agencies the right to use patented inventions, a right presently extended only to the Crown in the name of the Government of Canada.

We are inclined to follow the second course which aims at making every attempt to use a modified patent system to achieve the desired objectives of bringing down drug prices in Canada while still encouraging manufacturing of drugs in this country where such undertakings are economically justifiable. [ 24 ] Following the recommendations of that Commission and of a 1966 parliamentary committee report that studied drug prices, [24] Parliament amended the Patent Act in 1969 to extend compulsory licences, still irrespective of the parallel regime of abuse of patent, to the importation of patented medicines, including the implementation of an interim licensing process for that purpose. [25] The Commissioner of Patents then set a royalty of 4% of the price at which the medicine was sold for such licences. [26] [ 25 ] The principle aspects of this legislation was thus to allow the importation of medicines into Canada by way of compulsory licences, as well as their manufacture in Canada through such licences.

The purpose of these amendments was to encourage competition to “mak[e] 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”. [27] [ 26 ] The constitutional validity of this compulsory licensing regime was confirmed by the courts on numerous occasions. [28] I will

return to this. [ 27 ] The licence had to be issued regardless of the reasonableness of the price at which the medicine was sold. Commissioner of Patents Laidlaw, citing Jackett J., stated the following in this regard in Frank W. Horner v. Hoffman-La Roche Ltd. : [29] [18] One other point of principle. It is also well settled that the Commissioner's decision to grant a licence under the subsection must not depend on whether or not the patentee's prices for its product are reasonable. Jackett, P., in Hoffmann-La Roche v.

Bell-Craig, [ 46 C.P.R. 32, [1965] 2 Ex.C.R. 266 ] stated at p. 50: "there is no duty imposed upon the Commissioner by s. 41(3) of the Patent Act , when he is considering whether there is 'good reason' to reject an application for compulsory licence, to conduct an investigation as to whether the prices at which the patentee has been selling the patented product are in fact 'reasonable'." [19] In short, compulsory licences applied for under s. 41 of the Patent Act leave little discretion to the Commissioner of Patents. These licences, in fact, amount almost to licences of right.

What the Commissioner of Patents is required to do is mandatory unless he sees good reason not to grant the licence applied for. [ 28 ] The purpose of this legislation was therefore to encourage increased competition through licences in order to mitigate the effect on prices of the monopoly granted by the patent. [30] This statutory regime in fact led to the development of a significant pharmaceutical industry for so called [ translation ] “generic” medicines in direct competition with the traditional pharmaceutical industry based on research and development, the so called [ translation ] “innovative” medicine industry. [31] The 1987 Act [ 29 ] The 1985 Eastman Report proposed significant amendments to the patent and compulsory licensing regime for medicines and their manufacturing processes, in particular to encourage pharmaceutical research and development activities and expenditures in Canada.

While not all of those recommendations were accepted, Parliament carried out a major legislative reform in response to the Eastman Report by enacting the 1987 Act to amend the Patent Act and to provide for certain matters in relation thereto . [32] [ 30 ] The relevant elements of this new legislative regime were: (

a) The earlier prohibition against obtaining a patent on medicines was eliminated; [33] (

b) The compulsory licensing regime was amended to provide patentees with an exclusivity period of 7 to 10 years from the date of the notice of compliance for the medicine in question in accordance with the regulations established under the Food and Drugs Act ; [34] and (

c) The Patented Medicine Prices Review Board was established; its primary function was to manage the compulsory licensing system to ensure that patented medicines were not sold at excessive prices; [35] a new excessive price control regime was established under the Board’s direction, in addition to the compulsory licensing regime. [36] [ 31 ] Thus, while these legislative amendments substantially increased the rights of patentees, they also introduced a new regulatory price control regime.

To ensure its implementation, patentees were now required to provide the Board with information concerning the price at which the medicine was sold both in Canada and elsewhere, on revenues from sales of the medicine in Canada, and on the cost of making and marketing the medicine in Canada. [37] [ 32 ] If the Board was of the view that a medicine related to a patented invention was sold at an excessive price, it could then allow compulsory licences for the medicine to be issued or order the patentee to reduce its price “so that the maximum price at which the medicine is sold … is not, in the opinion of the Board, excessive”. [38] [ 33 ] The relevant factors allowing the Board to determine whether a medicine sold in any market in Canada is being or has been sold at an excessive price are the following: [39] (

a) the prices at which the patentee sold the medicine during the previous five years; (

b) the prices of other medicines in the same therapeutic class sold during the previous five years; (

c) the prices at which the medicine and other medicines in the same therapeutic class were sold in countries other than Canada during the previous five years; and (

d) the Consumer Price Index for Canada.

Where, after taking these factors into consideration, the Board was unable to determine whether the price was excessive, it could take into consideration the costs of making and marketing the medicine and other factors that it deemed relevant or that were prescribed by regulation. [40] [ 34 ] These are essentially the same factors as those set out in the Patent Act in its current form. [41] [ 35 ] The constitutional validity of the 1987 legislative reform was also the subject of contestation, which the Manitoba courts dismissed in Manitoba Society of Seniors . [42] I will return to this as well.

The 1993 Act [ 36 ] Another legislative reform was introduced by the Patent Act Amendment Act, 1992 , [43] assented to on February 4, 1993. The enactment of the 1993 Act coincided with Canada’s participation in several international commercial negotiations, including those surrounding the Agreement on Trade-Related Aspects of Intellectual Property Rights [44] (“TRIPS”), adopted under the auspices of the

World Trade Organization and the North American Free Trade Agreement [45] (“NAFTA”). The commercial obligations that Canada committed to in the context of these negotiations were then incompatible with the compulsory licensing regime for patented medicines. Accordingly, amendments to the Patent Act were required to terminate it. [46] [ 37 ] Further to the abolition of the compulsory licensing regime, the regime managed by the Board was now limited to controlling excessive prices for patented medicines.

To that end, the regime was enhanced to allow the Board to intervene not only in the case of existing excessive prices, [47] but also to require compensation from patentees when the price of the medicine exceeded established thresholds, [48] and to allow the introductory prices of new medicines to be monitored. [49] [ 38 ] Because the 1993 legislative amendments are the foundation of the current regime, I will address them in detail in subsection “B” below.

Last, I note at the outset that these amendments were held to be constitutionally valid by the Federal Court of Appeal in Sandoz/Ratiopharm in 2015, [50] a judgment to which I will also return. The 2017 Act [ 39 ] The Act was again amended in 2017 by the Canada–European Union Comprehensive Economic and Trade Agreement Implementation Act [51] to incorporate a supplementary protection regime for medicinal ingredients to take into account Canada’s obligations in the context of the economic and trade agreement reached with the European Union.

Let us consider this. [ 40 ] For pharmaceutical patents, the period during which the privileges attached to a patent may be exercised is often in fact shortened because any new medicine must be evaluated by the regulatory authorities to determine its effectiveness and its safety. In Canada, this evaluation process is regulated in accordance with the provisions of the Food and Drugs Act and of the Food and Drug Regulations . [52] It is not unusual for that process to span several years.

The patentee of a new medicinal ingredient must often wait a long time before being able to make, use, and sell its invention. [ 41 ] Like other countries, and in accordance with its international obligations, in 2017, Canada implemented measures to compensate for the delay in granting authorizations to market medicines containing new medicinal ingredients.

Certificates of supplementary protection were thus introduced into the Patent Act to allow patentees to obtain a supplementary protection period that could extend up to two years. [ 42 ] The special regime to control excessive prices for patented medicines was also amended at that time to expand the Board’s jurisdiction to medicines concerned by these certificates of supplementary protection.

In addition, a new compulsory licensing regime was introduced into the Patent Act , applicable in cases of abuse of patent rights referred to in a certificate of supplementary protection. [53] B- The current legislative and regulatory regime [ 43 ] Medicines may be patented if they are the result of an invention.

The patent may concern the medicine’s active ingredient, or its formulations, manufacturing methods, and uses. [ 44 ] The purpose of the patent regime is to stimulate innovation through the disclosure of patented inventions in exchange for a monopoly in favour of patentees for a specific term, which has been fixed at 20 years since October 1, 1989. [54] To this end,

section 42 of the Patent Act grants the patentee rights, that is, the exclusive privilege, for the term of the patent, to make, construct, use, and sell the invention to others. [ 45 ] This monopoly, established by law, confers an undeniable commercial privilege to the patentee. [55] That is the intended effect of the patent regime. [ 46 ] However, that monopoly is subject to abuse by the patentee, in particular when the patentee does not meet the demand for the product or the patented process. [56] The Patent Act in fact defines abuse of patent in

section 65 [57] and allows the Commissioner of Patents to remedy such abuse through various mechanisms, in particular by granting a licence to a third person on the terms the Commissioner deems expedient, [58] or by ordering the patent to be revoked, [59] as set out in

section 66 of the Act . [ 47 ] Nothing seems to prevent the application of these provisions of the Patent Act to patented medicines. In fact, as mentioned above, since 2017,

section 127 of the Patent Act explicitly provides for it with respect to medicines subject to a certificate of supplementary protection. [ 48 ] That being said, in addition to this regime related to the abuse of patent, a special regime for patented medicines is set out in sections 79 to 103 of the Patent Act . As noted in the overview of the history of the Act , this special regime developed in parallel to the other regime concerning abuse of patent. The reason for this is quite simple.

The monopolies granted on medicines by patents raise questions of public interest specific to the pharmaceutical sector, given that the health of Canadians is at issue. [60] A special regime to control abuses resulting from the monopoly granted by a pharmaceutical patent is therefore considered necessary to protect the Canadian public. [ 49 ] This special legislative regime replaced the former compulsory licensing regime that had become inoperative as a result of Canada’s international obligations.

Its purpose is to prevent patented medicines from being sold at excessive prices. [61] The Patent Act does not define an excessive price, but it can be understood from the factors set out in the Act that it is a price that, without justification, exceeds the price of other medicines in the same therapeutic class or that otherwise exceeds the price for the same medicine in countries reasonably comparable to Canada. [ 50 ] The principal elements of the regime include an obligation to disclose prices as well as control mechanisms. [ 51 ] With respect to the disclosure obligations, subsection 80(1) of the Patent Act and the Patented Medicines Regulations state that the patentee [62] must provide the Board with the information necessary to allow it to implement the regime.

In particular, such

information concerns the identity of the medicine, [63] the price at which it is sold on the Canadian markets, and the price at which it is sold on the foreign markets identified by the Regulation , that is, (for the time being) France, Germany, Italy, Sweden, Switzerland, the United Kingdom, and the United States. [64] The information on the price at which the medicine is sold in Canada and elsewhere must concern sales made by the patentee itself or, in other words, at the ex-factory price. [65] [ 52 ] As for the control mechanisms, subsection 85(1) of the Patent Act sets out the factors that the Board must take into account to determine whether a medicine is being or has been sold at an excessive price in any market in Canada.

These are essentially the same factors established since the Board’s creation in 1987: [66] (

a) the prices at which the medicine has been sold in the relevant market; (

b) the prices at which other medicines in the same therapeutic class have been sold in the relevant market; (

c) the prices at which the medicine and other medicines in the same therapeutic class have been sold in countries other than Canada; (

d) changes in the Consumer Price Index; and (

e) the other factors specified by regulation, it being noted that no additional regulatory factor was established before the 2019 Regulatory Amendments . [ 53 ] Where, after taking these factors into consideration, the Board is unable to determine whether the medicine is being or has been sold at an excessive price, the Board may take into consideration the costs of making and marketing the medicine. [67] Note that the Board cannot take into consideration research costs other than the Canadian portion of the world costs of the research that led to the invention, development, or commercialization of the medicine, calculated in proportion to the ratio of sales by the rights holder in Canada to total world sales. [68] [ 54 ] Applying these factors, where the Board finds that a patentee is selling the medicine in any market in Canada at an excessive price, the Board may direct the patentee to cause the maximum price at which the patentee sells the medicine in that market to be reduced to a specified level that the Board considers not to be excessive. [69] [ 55 ] Moreover, when the excessive price is related to past sales, the Board may also direct the patentee to adopt compensatory measures, including: (

a) reducing the price at which the patentee sells the medicine in question in any market in Canada, to the extent and for the period that are specified in the order; (

b) reducing the price at which the patentee sells, in any market in Canada, any other medicine to which a patented invention of the patentee pertains, to the extent and for the period that are specified in the order; and (

c) paying the Government of Canada a compensatory amount that is specified in the order. [70] [ 56 ] In addition, if the Board is of the opinion that the patentee has engaged in a policy of selling the medicine at an excessive price, it may direct the patentee to do one or more things to offset up to twice the amount of excess revenues derived from the sale at an excessive price. [71] [ 57 ] The terms of application of the regime are set out in the Board’s guidelines adopted in accordance with subsections 96(4) and (5) of the Patent Act .

Although these guidelines are not formally binding, they are in fact the core of the excessive price control regime implemented by the Board.

The importance of these guidelines for the purpose of the special regime established by the Patent Act is reflected in the Board’s statutory duty, before it issues any guidelines, to consult with the federal minister responsible, all provincial ministers responsible for health, and such representatives of consumer groups and representatives of the pharmaceutical industry as the federal minister may designate for that purpose. [72] These are the same extensive consultation mechanisms as those that must be undertaken prior to the enactment of regulations by the Governor in Council in accordance with paragraphs 101(1) (d), (f), (h), and (

j) of the Patent Act . [73] [ 58 ] Since its creation, the regime administered by the Board is based largely on the application of the guidelines. This is achieved mainly through notices to patentees regarding the suggested introductory price of a patented medicine established on the basis of the guidelines and the voluntary compliance undertakings subscribed to by the pharmaceutical companies when the guidelines indicate that the price of a medicine is excessive. The Board’s intervention by means of an order following a hearing is thus rather rare.

The regime is essentially based on the principle that the pharmaceutical companies will voluntarily comply with the prices established in accordance with the formulas set out in the Board’s guidelines. [74] [ 59 ] In the guidelines in force before the 2019 Regulatory Amendments [75] (the “current guidelines”), the Board states that it “determines the Maximum Average Potential Price and the Non-Excessive Average Prices at which these medicines can be sold in Canada”. [76] The methodology established in the current guidelines to determine these prices is rather complex.

It consists of precise calculations that are largely based on convoluted formulas and tests, applied mechanically. [ 60 ] For our purposes, it is sufficient to note that the Board conducts a review to determine the therapeutic improvement of a new medicine compared to existing drug products. The level of therapeutic improvement of a patented drug product is used to determine the maximum average potential price . The levels of therapeutic improvement are classified as either breakthrough, substantial improvement, moderate improvement, or slight or no improvement.

Various tests are applied according to the level of therapeutic improvement to determine the m aximum average potential price at which a new patented medicine may be sold and to determine whether or not the existing price may be considered excessive. [ 61 ] In any event, the maximum average price of a new medicine must not exceed the price obtained using the international price comparison test established by the Board by comparing prices with the countries listed in the Regulation , that is, France, Germany, Italy, Sweden, Switzerland, the United Kingdom, and the United States. [77] [ 62 ] The price of an existing medicine will be presumed to be excessive if the national average transaction price exceeds the change in the Consumer Price Index after the application of an adjustment methodology, or, as the case may be, if it exceeds the threshold of the

international price comparison test. [ 63 ] The Regulatory Impact Analysis Statement appended to the 2019 Regulatory Amendments briefly describes the current process followed by the Board: [78] Under the [Board’s] current practices, new patented medicines are assessed for the degree of therapeutic benefit they provide relative to existing medicines on the market.

Depending on the outcome of that process, patentees are expected to set their prices with regard to a price ceiling for new patented medicines that is based either on the price of that same medicine in the PMPRB7 countries [France, Germany, Italy, Sweden, Switzerland, the United Kingdom, and the United States], the price of medicines in Canada in the same therapeutic class, or some combination of the two.

Once a patentee sets a medicine’s introductory price in relation to that ceiling and it enters the market, the patentee may increase its price but subject to limitations based on changes in the Consumer Price Index. [ 64 ] To provide a concrete illustration of the application of the regime applicable prior to the 2019 Regulatory Amendments , it is useful to refer to the simplified example of the process described in the affidavit dated March 13, 2020, provided by a senior officer of the Board, Guillaume Couillard, Director, Regulatory Affairs & Outreach: [79] [ translation ] 62.

In this [simplified] example, the staff is assessing the fictional medicine MED. The patentee PatCo filed the prescribed information regarding MED shortly after making its first sale of MED in Canada. It did so because it holds a patent for an invention pertaining to a medicine. 63. First, the medicine is subject to scientific review by the advisory panel (HDAP) so that it may be assigned a level of therapeutic improvement and to identify other medicines that may be considered therapeutically comparable.

The HDAP reviews the scientific information pertaining to the medicine and may consult other experts on the medicine. It may also obtain data from PatCo and from the staff. 64. For this example, we will assume that, on the basis of all the relevant available information, the HDAP found that MED is a moderate improvement and MEDCompA and MEDCompB are the only therapeutically comparable medicines (the therapeutic comparators). I note that these findings are often the subject of significant debate and that they affect the way the staff then reviews the price of the medicine under the current guidelines.

I will set out the difference between the possible results below. 65. In this example, we will also assume the following in regard to MED: a. MED is sold in five (5) of the seven (7) countries on which PatCo must report (i.e., the “PMPRB7”) at the following gross prices (public list) (in CAN$): United States, $20; Switzerland, $15; Germany, $10; United Kingdom, $8; France, $5. b. MED’s therapeutic comparators, MEDCompA and MEDCompB, are sold in Canada for an equivalent therapeutic treatment at a gross price of $7.00 and $8.00, respectively. 66.

Once the scientific review has been completed, the staff will review MED’s introductory price (that is, the price of its first sales). Because the level of improvement of MED’s price is moderate, the staff will compare the price of MED in Canada to the price of MED elsewhere in the world (that is, the international prices available for MED in the PMPRB7) and the price in Canada of medicines therapeutically comparable to MED. 67.

This comparison is conducted using MED’s net Canadian price, that is, its price after deducting any rebates, discounts, or other reductions listed in subsection 4(4) of the current Regulations . However, gross prices are used for MED internationally and for its Canadian therapeutic comparators. PatCo’s lowest net price will therefore be compared to higher gross prices. 68. According to the current guidelines, in view of MED’s moderate therapeutic improvement, the staff will find that MED’s price may be considered excessive if its average net price exceeds the highest of the following two amounts: a.

The highest therapeutic comparator, which would be MEDCompB at $8.00; and b. The midpoint between the price identified at point (

a) and MED’s median international gross price. The median price is the price in Germany of $10.00. The midpoint is therefore $9.00 (that is, the midpoint between $8.00 and $10.00). 69. The staff will therefore find that MED’s net introductory price in Canada may be considered excessive if it is greater than $9. The review of the introductory price ensures that subsequent reviews do not use a potentially excessive price as a starting point. 70.

As noted above, the level of therapeutic improvement assigned to MED will have an impact on the price that the staff will consider excessive; in other words, the higher the level of therapeutic improvement, the higher the applicable price ceiling. In this example, in light of the tests established in the current guidelines for the other levels of therapeutic improvement, the staff would find that MED’s introductory price may be considered excessive if it is greater than: $10 for a breakthrough; $10 for a substantial improvement; and $8 for slight or no improvement. 71.

After conducting this preliminary assessment, the staff will re-examine MED’s price every year. This annual review is the same for all medicines, regardless of the level of therapeutic improvement attributed. The staff will compare the variations in the medicine’s average net price in Canada with the Consumer Price Index (CPI). For example, and greatly simplifying the assessment based on the CPI, if it is 3% each year, the staff would find that MED’s average net price could not be considered excessive if it does not increase more than 3% every year.

In other words, MED’s average price could increase to $9.27 after the first year, to $9.55 after the second year, to $9.84 after the third year, etc. However, these possible increases are limited by MED’s highest international price, which is $20 (i.e., MED’s price in the United States).

72. Except for the scientific review, a large part of this assessment is conducted automatically by computers on the basis of data submitted electronically by PatCo. The staff’s involvement in reviewing the price of medicines will increase if and when factors triggering an investigation are present. The same tests described above will be applied in the investigation, but the review will be more thorough.

C - The new regulatory framework established by the 2019 Regulatory Amendments [ 65 ] The 2019 Regulatory Amendments introduced significant changes to the regime. [ 66 ] The new Regulations add additional factors to those established under subsection 85(1) of the Patent Act to determine whether the price of a medicine sold in any Canadian market is excessive, that is: [80] (

a) the medicine’s pharmacoeconomic value in Canada; (

b) the size of the market for the medicine in Canada; and (

c) the gross domestic product in Canada and the gross domestic product per capita in Canada. [ 67 ] These new factors will result in a significant reduction in the price of patented medicines in Canada, which the Government of Canada estimates at $3.8 billion over 10 years. [81] As we will see, these significant price reductions will result from the application of arbitrary price reductions ranging from 20% to 50% for certain medicines in accordance with their pharmacoeconomic value and from 0% to 35% for others, depending on the size of their market in Canada. [ 68 ] The list of foreign countries used to compare the price of the medicine was also amended to exclude the United States and Switzerland – countries that have a large innovative pharmaceutical industry and pricing policies that are favourable to it – and to add Australia, Belgium, Spain, Japan, Norway, and the Netherlands, [82] countries with pricing policies that are often perceived – rightly or wrongly – as not being favorable to this industry.

The practical impact of this new list will also be to reduce the price of patented medicines, this time by $2.8 billion according to the Government of Canada. [83] [ 69 ] New information requirements are also provided.

These are intended not only to inform the Board so that it can take these new factors into account, but also to considerably modify the Board’s application of factors already provided in the legislation. [ 70 ] Thus, with respect to the price at which the medicine is sold in Canada, subsection 4(4) of the Patented Medicines Regulations was amended to include the obligation for patentees to disclose to the Board the prices and amount of revenues obtained for a medicine “taking into account any adjustments that are made by the patentee or any party that directly or indirectly purchases the medicine or reimburses for the purchase of the medicine”. [84] This is so that the Board can determine the prices and the revenues obtained by patentees taking into account confidential rebates negotiated with public insurers (the provinces) and more rarely with large private insurers, in view of the considerable quantity of medicines for which they provide total or partial reimbursement to their insureds.

According to the Government of Canada, requiring patentees to report on prices and revenues that take into account these negotiated rebates should lower drug expenditures by $2 billion over 10 years. [85] [ 71 ] As for the information related to the new factor based on the medicine’s pharmacoeconomic value in Canada, the new Regulations require patentees to provide the Board with every cost-utility analysis prepared by a publicly funded Canadian organization, if published and communicated to the patentee, for which the outcomes are expressed as the cost per quality-adjusted life year, commonly referred to as “QALY”, [86] for each indication that is the subject of analysis, including any redacted portions of the analysis. [87] These consist mainly of the analyses of the Canadian Agency for Drugs and Technologies in Health, and in Quebec, the Institut national d’excellence en santé et services sociaux (“INESSS”). [ 72 ] These analyses are intended to help the provinces assess the therapeutic effectiveness of a new medicine in relation to its price and to other medicines and treatments available for the same disease.

These analyses may then be taken into consideration by the provinces when deciding whether to add a new medicine to the list of those that may be reimbursed and to establish the reimbursement levels of the medicines in question. [ 73 ] These analyses will now be provided to the Board if the cost for the medicine as identified in the analysis is, when calculated based on the medicine’s 12-month cost of use, is greater than or equal to 50% of the gross domestic product per capita in Canada at the time of publication of the analysis. [88] These analyses will be used to establish price reduction caps of 20% to 50% for the medicines in question depending on the pharmacoeconomic value they are attributed. [ 74 ] Patentees will also have to provide the Board with information related to the new factor based on the size of the market in Canada by means of the estimated maximum use of the medicine. [89] This information will also be used to determine the percentage of the price reduction, from 0% to 35% depending on the size of the market. [ 75 ] The manner in which the Board will apply these new price factors and use this new information is set out in the Board’s new guidelines.

Once again, using highly complex formulas and tests, the application of which is essentially mechanical, the Board will use the new factor of pharmaceutical value to impose downward price adjustments ranging from 20% to 50% for medicines whose individual 12-month cost of use is greater than or equal to 50% of the gross domestic product per capita in Canada. [90] The Board will also impose significant downward price adjustments of up to 25% and even 35% for medicines whose market size exceeds $50 million or $100 million annually. [91] These downward adjustments are in addition to those arising from the new list of comparator countries and the consideration of confidential rebates negotiated with the provinces. [ 76 ] There is no doubt that this new regulatory regime will lead to impressive reductions in the prices of medicines in Canada.

It will also have a considerable financial and commercial impact on the innovative pharmaceutical industry. In the Regulatory Impact Analysis Statement, it is estimated that the industry will lose $8.8 billion in revenues over 10 years. [92] Industry representatives estimate that lost revenues will be much higher and even claim that this new regulatory regime could lead to refusals to introduce or sell certain new

medicines in Canada. According to studies, lost revenues in the industry could exceed $26 billion over 10 years. [93] [ 77 ] The issues are such that there is concern that some innovative medicines may become unavailable in Canada, with serious consequences for the health and quality of life of certain patients. There is also concern that pharmaceutical research and development in Canada will decrease considerably. I will return to these impacts in the analysis of the trial judge’s findings of fact. [ 78 ] The issues are therefore significant, which all the parties to the appeal acknowledge.

D - Medicine price control by the provinces [ 79 ] The provinces have implemented mechanisms to control the price of medicines reimbursed by the public drug insurance plans or required by the public hospital care system. In particular, these consist of listing agreements permitting patented and non-patented medicines to be added to the list of medicines reimbursed by a province’s insurance plan or acquired by a province’s hospitals. [ 80 ] These negotiations are usually held with the pan-Canadian Pharmaceutical Alliance, which represents the provinces. Each province can pursue its own negotiations.

Before reaching an agreement, the health care technology assessment agencies make recommendations regarding the price of a medicine on the basis of studies permitting an assessment of its therapeutic value, the reasonableness of its price in relation to its cost-effectiveness, and the budgetary impact on the province. As noted above, in Quebec, the INESSS is mandated to make such recommendations. [ 81 ] To use the example of Quebec, the INESSS first assesses the therapeutic value of the medicine.

If it considers that its value has been demonstrated, it then assesses the reasonableness of the price, the cost-effectiveness ratio of the medication, the impact that entering the medication of the list of insured medications will have on the other components of the health system, and the advisability of entering the medication on the list. [94] The provincial health minister decides whether to enter the medication on the list, taking into account the recommendation of the INESSS. [ 82 ] For its medication to be accredited, the manufacturer must also comply with the requirements of the Regulation respecting the conditions governing the accreditation of manufacturers and wholesalers of medications . [95] The Regulation provides that the manufacturer must undertake to respect the guaranteed selling price, which must not be higher than any selling price granted by the manufacturer for the same drug under other provincial drug insurance programs. [ 83 ] The Quebec Minister of Health may also, before entering a medication on the list, make a listing agreement with its manufacturer.

The purpose of such an agreement may be to provide for the payment of a rebate according to the volume of sales.

That being said, the price of the medication indicated on the list does not take into account the rebates paid pursuant to the agreement, which is confidential. [96] [ 84 ] Further to her analysis of the evidence, the trial judge found that these mechanisms are effective means of ensuring that that the prices of medicines covered by the public plans are reasonable. [97] II - JUDICIAL PROCEEDINGS [ 85 ] In response to the 2019 Regulatory Amendments, on August 22, 2019, the appellant pharmaceutical companies brought legal proceedings before the Quebec Superior Court seeking to have not only those amendments declared unconstitutional, but also sections 73 to 103 of the Patent Act concerning the special regime for patented medicines and the entire Patented Medicine Regulations . [98] [ 86 ] They submit that the federal jurisdiction over patents does not permit the federal government to fix a maximum price at which a good is sold when one of its components is patented and it is sold in the context of a private transaction.

They argue that the federal jurisdiction is limited to the conditions for obtaining a patent, to defining the resulting rights, within the limits arising from Canada’s international obligations, to the sanctions in the case of abuse, to the fees for maintaining the patent, and to the remedies for patent infringement.

Moreover, in the event of abuse, the intervention of the federal government is limited to measures directly related to patents, such as the revocation of a patent or the granting of a compulsory licence, not the product itself. [ 87 ] They add that since the Board’s creation in 1987, it has been controlling the price of medicines under the pretext of preventing the sale of patented medicines at an excessive price. However, they claim that it has no constitutional jurisdiction to do so. Only abuse of patent falls within federal jurisdiction.

Otherwise, it is the provinces that can regulate the price of medicines, patented or not, under their general jurisdiction over property and civil rights, hospitals, and health. In fact, the provinces already tightly control the price of patented medicines through various mechanisms, in particular though their purchasing policies. [ 88 ] The appellant pharmaceutical companies submit that the Board is simply regulating the price of patented medicines, irrespective of any notion of abuse of patent or even excessive prices. They state the following in their originating application: [99] [ translation ] (

a) In the decisions rendered by the Board, when a medicine is sold in Canada at a price that is higher than other medicines of the same class or when its price is higher than the median of the group of reference countries, the Board finds that the price is “excessive” and fixes a maximum [ translation ] “non-excessive” price that the patentee may not exceed; (

b) In all decisions rendered by the Board, the only consideration analyzed is the price of the medicine in relation to thresholds set out in the guidelines and nothing else. The Board conducts no analysis to verify whether the patentee abused its patent or if, in the presence of other conditions, the price is truly “excessive” to the point that it is akin equivalent to an abuse of patent; (

c) Once the patentee increases its price in excess of the annual increase in the Consumer Price Index in one year, the Board finds that the price is “excessive”, without verifying whether there is any economic justification for such increase;

(

d) The Board does not even analyze the factors relevant to determining the price of a product from an economic perspective, such as the costs of development or the exchange rate that could explain an increase in price beyond the median for a specific year.

Nor does it consider the reasons that might explain why a price is lower in other markets or in the group of reference countries. [ 89 ] The appellant pharmaceutical companies add that the 2019 Regulatory Amendments reinforce the unconstitutionality of the Board’s mandate because they simply seek to impose a substantial reduction in the price of the patented medicines sold in Canada, a function that has no rational connection with the federal jurisdiction over patents. [ 90 ] Several groups, including patient associations, intervened before the Superior Court to support the pharmaceutical companies’ applications, that is, the Canadian Cystic Fibrosis Treatment Society, The Intellectual Property Owners Association, Cystic Fibrosis Canada, Canadian Organization for Rare Disorders, and BIOTECanada.

The Attorney General of Quebec was also an intervenor in the proceeding. [ 91 ] Abundant documentary evidence was adduced at trial, including numerous expert reports. Hearings limited to the representations and arguments of counsel were held before the Superior Court from September 28 to October 2, 2020, and from November 17 to 20, 2020. The trial judgment was rendered on December 18, 2020. III - THE TRIAL JUDGMENT [ 92 ] The judge first analyzed the abundant evidence submitted before her. It is not necessary to repeat that analysis on appeal because it is sufficient to refer to the

summary of the evidence set out in the trial judgment, which is consistent with the factual record submitted by the parties. In fact, none of the parties contests the judge’s

summary of the evidence. [ 93 ] To identify the pith and substance of the impugned provisions, the judge followed a two-step process.

First, she characterized sections 79 to 103 of the Patent Act and the Patented Medicines Regulations as it read before the 2019 Regulatory Amendments – which she called Regime 1 – and then characterized the new regime arising from these amendments – which she called Regime 2. [ 94 ] Addressing the wording of the existing regime (Regime 1), the judge found, referring extensively to the Board’s current guidelines, she found that its purpose was to regulate the price of patented medicines so as to ensure that they are not excessive.

She stated the following: [100] [ translation ] [239] Parliament did not define the expression “excessive price” but instead left it up to the Board to determine whether such “excess” existed, in particular through a comparative study of the prices of the medicines in question and those of the same therapeutic class, in Canada and in seven other countries. [240] In addition, as the process of reporting information by patentees and the review of prices by the Board is relatively complex, the Board established non-binding Guidelines under s. 96(4) of the Act to aid in understanding the application of certain relevant provisions of the Act and the Regulations. [241] The Guidelines currently in force related to Regime 1 show that in several circumstances, the median price for a medicine (or medicines of the same class) in the seven comparator countries provided in the

schedule to the Regulations is used to calculate the maximum price above which a price will be considered excessive. Therefore, the price in Canada must necessarily be lower than in three (of the seven) countries in which the prices are the highest. [242] Consequently, in light of the wording of ss. 79 to 101 of the Act and the wording of the Regulations , the purpose of Regime 1 is to regulate the price of patented medicines so as to ensure that they are not excessive, or in other words, that they are acceptable and reasonable. The Guidelines confirm this

interpretation [Citations omitted.] [ 95 ] In her analysis of the evidence, the judge found that the impact of the regime might be inconsistent with the legislative and regulatory wording.

The evidence shows that the Board establishes the thresholds of prices deemed “excessive” almost mechanically, irrespective of the commercial realities of the markets in question, which – according to the judge – leads it to find that prices are “excessive” in arguable cases, such as in situations where the price in Canada exceeds the international median by as little as 0.0008% or when the price increase is wholly attributable to fluctuations in the exchange rate of the Canadian dollar. [101] [ 96 ] However, because the pharmaceutical companies generally chose not to contest the Board’s arguable or problematic decisions regarding excessive prices, but instead chose to abide by their voluntary compliance undertakings in such situations, the judge was of the view that they could not complain about it now. [ 97 ] The judge therefore found that the pith and substance of the current regime was that set out in the wording of the Act and the Regulations and is thus to control prices of patented medicines to ensure that they were below a threshold that the Board deems excessive.

The objective is to prevent overly high prices due to the abolition of the patented medicines compulsory licensing regime. [102] [ 98 ] As for the pith and substance of the 2019 Regulatory Amendments , the judge had no hesitation in finding that [ translation ] “Parliament’s objective is to significantly reduce the price of patented medicines”, [103] because in light of the evidence, [ translation ] “the objective of lowering the price of patented medicines could not be clearer”. [104] The federal government is of the view that the cost of patented medicines, especially medicines sold at high prices, has continuously increased and that it is necessary to take steps to significantly reduce those prices. [105] [ 99 ] While the proposed amendments will significantly reduce the price of patented medicines in Canada, the judge also found that

the evidence showed that several foreseeable, adverse effects would result from these regulatory amendments, in particular the abandonment or decrease of policies granting confidential rebates to the provincial drug insurance plans, a significant decrease in clinical studies conducted in Canada, and the delay, sometimes indefinite, in introducing certain new medicines in Canada, with deplorable consequences on several categories of patients suffering from rare diseases, a decrease in the activities and even the possible closure of several small innovative pharmaceutical companies.

It is worth reproducing the trial judge’s conclusions in this regard: [106] [translation ] [279] In addition, the requirement set out in the Amendments to disclose to the Board the net prices after deducting the confidential rebates granted to the provincial drug insurance plans means that the applicants will no longer be in a position to offer such rebates (because of the impact of the disclosure on prices in the Canadian private insurance market and markets outside Canada). These rebates often represent an average reduction of 25% to 30% of the prices indicated on the provincial forms (Lists).

They are not considered in the price reimbursed by public insurance plans, but are instead claimed by them from the manufacturers further to sales made. … [282] Moreover, according to expert Palmer, the Amendments have already caused a significant reduction of clinical trials being conducted in Canada . The drop in the annual number of such trials conducted from 2013 to 2018 and the corresponding number from February 2019 to February 2020 is significant and a direct result of the anticipated concerns of the innovative pharmaceutical industry regarding the impact of the Amendments.

The same is true with respect to the availability of new medicines in Canada; a marked reduction in 2019 is noted. [283] According to the applicants’ sworn statements, which are based on the 2019 draft Guidelines, the Amendments will result in very significant price reductions. In certain cases, the expected reductions will be so drastic that the introduction of some medicines in Canada will be delayed, sometimes indefinitely.

The decision to obtain Canadian patents could even be questioned in some instances . [284] The sworn statements of the representatives of EMD Serono, Avir, and Theratechnologies speak volumes as to the even greater effect of the Amendments (if applied on the basis of the 2019 draft Guidelines) on smaller firms or those that develop medicines to treat rare diseases. They are disappointed to have to abandon their plans to introduce certain new medicines in Canada due to the planned reduction of “excessive” prices.

Avir’s representative even fears for the firm’s survival . [285] Finally, the evidence filed by the intervenor Canadian Cystic Fibrosis Treatment Society also describes the patients’ perspective of the deplorable consequences that the Amendments have on access in Canada to medicines to treat rare diseases . [286] Thus, it seems that the expected price reductions have already had a negative effect in Canada on the quantity of clinical research being conducted and on the availability of particularly costly medicines to treat rare disease s. [Emphasis added; citations omitted.] [ 100 ] However, the judge said that the wisdom and efficacy of the new regulatory regime were not relevant to the constitutional analysis and thus found that the pith and substance of the proposed regulatory amendments is essentially the same as that of the current regime, that is, to control the excessive prices of patented medicines.

She stated: [107] [ translation ] [287] In light of all the evidence, the pith and substance of the Amendments is increased control of the price of patented medicines through additional tools to ensure the reasonableness of prices, especially the prices of a certain category of medicines sold at very high prices.

These additional tools hinge on an amended list of comparator countries, additional factors to consider (pharmacoeconomic value of the medicine, size of the market for the medicine in Canada, gross domestic product in Canada, and gross domestic product per capita in Canada), and new data to provide to the Board regarding sales, taking into account the confidential rebates granted to the provincial prescription drug insurance plans.

These factors are still intended to determine the threshold above which the price of a medicine will be excessive (there is no distinction between Regime 2 and Regime 1 in regard to this requirement set out in ss. 83(1) and 85(1) and (2) of the Act ). [Emphasis added.] [ 101 ] Having established the pith and substance of the impugned provisions, the judge proceeded to classify them constitutionally.

After an extensive review of the relevant case law, she stated that the real issue related to that classification was whether the Board was engaging in an exercise of fixing the prices of patented medicines – which is not a matter of federal jurisdiction – or rather an exercise of controlling excessive prices of these medicines that is akin to abuse of patent. [108] [ 102 ] The judge found that the sale of patented medicines at excessive prices is a form of abuse of patent. [109] Controlling abuse of patent has always been a part of the federal jurisdiction over patents, as the courts have confirmed on several occasions.

The judge found that, at the very least, the current regime (which she called Regime 1) falls within the federal jurisdiction.

She found this to be the case despite the fact that the Board’s application of this regime may raise serious questions. [110] [ 103 ] However, the judge noted that the same could not clearly be said with respect to the 2019 Regulatory Amendments . [111] That being so, she found that the amendments still concern excessive prices: [112] [ translation ] [391] Indeed, the Regulatory Impact Analysis, under the heading “Canada’s changing market and rising medicine costs”, informs us that the prices of an increasing number of medicines in Canada have reached significant peaks in that more and more higher-cost medicines are being developed (biologics, genetic therapies targeted to smaller patient populations, medicines prescribed for rare

diseases), and the risk of excessive pricing is often greater for these products since they have few, if any, substitutes, and thus little competition. Remarkably, between 2007 and 2017, the number of medicines in Canada with annual per-patient treatment costs of at least $10,000 swelled from 20 to 135.

In addition, the prices of medicines in Canada are comparatively high as, among the OECD countries, only the United States, Switzerland, and Japan spend more per capita for medicines than Canada. [392] The concerns of the Canadian government with respect to the risk of excessive prices of certain patented medicines are real and sincere, and the Amendments seek to respond to that situation, which does not appear speculative and has a direct connection with patents. [393] It is hard not to see a real and rational connection between such significant prices and the existence of patents (conferring a statutory monopoly), even if patents are of course only one component (added to, inter alia , production and marketing costs, the size of the market, and part of the sums invested in R&

D) in the establishment of prices by manufacturers. [394] Further to the government’s observation that the price of certain patented medicines is excessive (in the sense of unacceptable and unreasonable) and where it appears logical to conclude that the existence of patents is the cause, there is reason to infer that the Amendments are genuinely connected to patents and fall within that federal jurisdiction. [395] Indeed, in the Court’s view, the addition of pharmacoeconomic value factors (which is public information), market size, gross domestic product, and gross domestic product per capita seems relevant in that these factors may further inform and more firmly anchor the analysis the Board must perform to determine whether the prices of medicines are excessive (in particular for the higher-cost medicines to which the Regulatory Impact Analysis refers).

The same is true with respect to the change in the list of comparator countries, which is not static and may certainly evolve to more accurately reflect the Canadian situation. [ 104 ] To draw this conclusion, the judge decided not to consider the Board’s new guidelines.

She instead proceeded to harshly criticize the guidelines and the Board by warning it not to use the new factors for the purpose of fixing [ translation ] “an ideal price or the lowest possible price, because the analysis would then be clearly constitutionally invalid, having no significant connection to patents”. [113] [ 105 ] In this respect, the judge directly criticized the Board’s new guidelines and even invited the Federal Court to quash the Board’s decisions made pursuant to their application: [114] [ translation] [400] The same concern arises from the drastic price reductions expected by the applicants and their experts in light of the explanations set out in the 2019 and 2020 draft Guidelines.

Because of their significance, these reductions are likely to cause problems with access to certain medicines and for the survival of certain firms, as well as call into question the need for patents in certain cases. These consequences raise concerns that in implementing the Amendments, the Board is moving away from the control of excessive prices to embrace the outright control of prices (a power it does not have) .

It is true that these drafts were replaced by the 2021 Guidelines that are to come into force on January 1, 2021, which contain several relaxations favourable to patentees compared with the two initial drafts.

However, the core concerns with respect to the 2019 and 2020 draft Guidelines, summarized on page 9 of Report P-230 prepared by expert Palmer, are essentially unchanged in the 2021 Guidelines, as counsel for the AGC confirmed in reply to a question from the Court: essentially, (1) the ceiling price of patented medicines whose market size in Canada is greater than $50,000,000 per year will be reduced by 20% to 50% depending on the therapeutic level, and (2) the ceiling price of medicines whose annual cost per person is more than $90,000 will be reduced by the same percentages, and the concept of QALY will apply to that analysis. [401] The Amendments do not dictate the manner in which the factors lead to the conclusion that a price is or is not excessive; the weight attributed to each factor falls within the expertise and discretion of the Board, guided by its statutory mandate to ensure that patentees do not use their patents to sell their medicines at excessive prices.

Thus, the Board cannot use the Guidelines, which allow it to analyze the new factors and the prices in the 11 comparator countries, for any purpose other than to determine the amount at which the price of a patented medicine becomes excessive in Canada (ceiling price). If the implementation of this analysis becomes a disguised way of engaging in the outright control of prices or fixing the lowest prices possible, regardless of whether excessive prices existed, it would be unacceptable, because there would be no significant connection with the jurisdiction over patents.

In such case, the Board’s decision could be quashed in judicial review proceedings before the Federal Court . [402] The concerns of the applicants and the intervenors appears to arise from the risk , in view of the draft Guidelines and the final 2021 version, that despite the use of the expression “excessive price” in the Act, the new regulatory factors prescribed by the Amendments perniciously distort this expression in practice and replace it with price fixing .

Counsel for the applicants refer to the Trojan horse in describing this phenomenon. [Emphasis added; citation omitted.] [ 106 ] Nevertheless, the judge refused to consider the Board’s new guidelines in her constitutional analysis because she considered them distinct and detached from the Patent Act , the Patented Medicines Regulations , and the 2019 Regulatory Amendments .

In the judge’s view, it will be up to the Federal Court to set aside these guidelines, if need be: [115] [ translation ] [403] It is not up to the Court, at this stage, to rule on the constitutionality of the 2021 Guidelines or the 2019 and 2020 draft Guidelines. Indeed, the analysis of the constitutional validity of the Amendments can be distinguished from their implementation through the non-binding Guidelines , which the Board is not required to make or apply, and which, strictly speaking, are not rules of law.

To the extent that the Amendments may be applied in a constitutional manner, that is, to prevent prices that are excessive in the sense of unacceptable and unreasonable (by determining price ceilings), rather than for the purpose of fixing prices (so that they are as low and as affordable as possible), their constitutional validity must be recognized independently of what the 2021 Guidelines (which are foreign to Parliament and up the Board to implement) may provide .

… [406] During an application for judicial review of a Board decision, the Federal Court (or possibly the Superior Court) could consider the administrative implementation of the Amendments and rule on the appropriateness of applying the 2021 Guidelines in a specific situation to determine whether recourse to the Guidelines exceeds the control of excessive prices and is therefore unconstitutional. [Emphasis added.] [ 107 ] However, she decided to declare unconstitutional the new paragraphs 4(4)(

a) and (

b) introduced into the Patented Medicines Regulations by the 2019 Regulatory Amendments and concerning the Board’s consideration of the confidential rebates granted to the public drug insurance plans.

According to the judge, the Board’s role would be [ translation ] “superfluous” in the case of medicines reimbursed by the provincial public plans. [116] [ 108 ] Contrary to her previous conclusion in this regard, the judge acknowledged that in the case of requests for information concerning the confidential rebates, the purpose of the new regulatory regime is to fix prices so as to significantly reduce prices, rather than to control excessive prices: [ translation ] [420] It is unreasonable for the Board, whose role is limited to preventing excessive prices (which remains useful with respect to medicines reimbursed by private insurance companies or paid for by Canadians (1.8%) who pay for the cost of their medicines themselves), to have access to information concerning the confidential rebates negotiated between manufacturers and public prescription drug insurance plans, knowing that it will have a negative impact on the provinces’ ability to fix [emphasis in original] the lowest possible prices through significant rebates.

The Board is encroaching on the price-fixing process established by the provinces. While the federal government has jurisdiction to ensure medicines are not sold at excessive prices it cannot, in so doing, hinder the provinces’ power to fix (for the purpose of public prescription drug insurance plans) [ translation ] “particularly advantageous” prices due to the confidentiality of the rebates negotiated .

Indeed, in practice, the disclosure to the Board of the confidential rebates and the resulting substantial reductions in prices on the private market would have the perverse effect of limiting the scope of the rebates that the provincial prescription drug insurance plans could obtain. This market reality adduced into evidence by the applicants was not contradicted . [421] The Court is of the view that such disclosure would cause the Board’s role to shift from the control of excessive prices to the fixing of prices.

These two concepts , which differ significantly in terms of the amount to gauge, are also distinguishable with respect to the constitutional division of powers (the first being directly related to patents while the second is foreign thereto, because it completely disregards the statutory monopoly) . [Emphasis added, except where indicated otherwise.] [ 109 ] The judge therefore declared the entire impugned regime constitutional, including the 2019 Regulatory Amendments , except the new paragraphs 4(4) (

a) and (

b) of the Patented Medicines Regulations , which she declared ultra vires . She also ordered the provisional execution of the declaration of invalidity. IV - THE ARGUMENTS OF THE PARTIES A - The appellant pharmaceutical companies [ 110 ] The appellant pharmaceutical companies submit that the special regime concerning patented or protected medicines set out in sections 79 to 103 of the Patent Act and the Patented Medicines Regulations , in its present form, in intended to control of the price of patented medicines.

They add that the 2019 Regulatory Amendments simply reinforce that control by imposing significant reductions on the price of patented medicines. [ 111 ] According to the appellants, controlling the price of medicines falls within provincial jurisdiction over property and civil rights, matters of a merely local or private nature, and the establishment, maintenance, and management of hospitals.

They acknowledge that the federal government does indeed have jurisdiction to control the abuse of patent, but submit that its jurisdiction to remedy such abuse is limited to revoking the patent or granting a licence to a third person, not to directly regulate the product. They submit that the current regime and the 2019 Regulatory Amendments are therefore unconstitutional as a whole.

During the appeal hearing, their counsel drew an analogy with the federal jurisdiction over copyright, which permits the regulation of such rights and even the establishment of tariffs in connection with the exercise of such rights, but which does not, however, permit the federal government to regulate or fix the market prices of books (for example, dictionaries), paintings, or concert halls, which falls within provincial jurisdiction.

B - The Attorney General of Canada [ 112 ] The Attorney General of Canada submits, on the contrary, that federal jurisdiction over patents extends to the control of [ translation ] “all the negative consequences that may arise from the grant of a patent”. [117] Thus, whether the existing regime or its amendments are characterized as concerning the control of abuse of patent, the control of excessive prices, or simply the control of the price of patented medicines, it falls within the federal jurisdiction over patents of invention and discovery to the extent that it seeks to control the negative consequences that may arise from the grant of a patent.

The control of excessive prices thus includes the determination of a reasonable price, which are two sides of the same coin that make up the federal jurisdiction over patents. [ 113 ] Regardless of its ultimate characterization, the regime thus falls within the federal jurisdiction over patents in view of the fact that the appellants may avoid it by renouncing their existing Canadian patents or by not patenting in Canada a medicine that they wish to sell here.

In addition, if the federal government can revoke a patent, it necessarily has the lesser, included jurisdiction to control the price of patented medicines. There is therefore a direct connection between the patent granted and the federal regime regulating the price of patented medicines, as [ translation ] “price control is the consideration required for the benefit of patent protection”. [118]

[ 114 ] It is further a

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