Two major amendments to the Patented Medicines Regulations declared ultra vires and unconstitutional

12 minute read
22 February 2022

On February 18, 2022, the Court of Appeal of Québec issued its decision (2022 QCCA 240) regarding a constitutional challenge to the amendments to the Patented Medicines Regulations (the "Regulations") and struck down both the new price calculation and the new mandatory factors, while upholding the amendment changing the basket of countries used by the Patented Medicine Prices Review Board ("PMPRB") as a benchmark.

In its decision, the Court granted in part the appeal by the appellant pharmaceutical manufacturers, and rejected the cross-appeal by the Attorney General of Canada. The Court substituted its judgment for the first instance decision from the Québec Superior Court, holding:

DÉCLARE valides : (i) la totalité du Règlement sur les médicaments brevetés, DORS/94-688; et (ii) les modifications audit règlement publiées dans la Gazette du Canada, Partie II, le 21 août 2019 (Règlement modifiant le Règlement sur les médicaments brevetés (facteurs additionnels et exigences supplémentaires relatives à la  fourniture de renseignements), DORS/2019-298), sauf le paragraphe 3(4) introduisant les nouveaux alinéas 4(4)a) et 4(4)b) et l'article 4 introduisant les nouveaux articles 4.1 à 4.4 dans le Règlement sur les médicaments brevetés, DORS/94-688;

DÉCLARE ultra vires, invalides, nuls et sans effet le paragraphe 3(4) et l'article 4 du Règlement modifiant le Règlement sur les médicaments brevetés (facteurs additionnels et exigences supplémentaires relatives à la  fourniture de renseignements), DORS/2019 introduisant les nouveaux alinéas 4(4)a) et 4(4)b) et les nouveaux articles 4.1 à 4.4 dans le Règlement sur les médicaments brevetés, DORS/94-688.

DECLARING valid: (i) the entirety of the Patented Medicines Regulations, SOR/94-688; and (ii) the amendments to said 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 subsections 4(4)a) and 4(4)b) and section 4 introducing the new sections 4.1 to 4.4 to the Patented Medicines Regulations, SOR/94-688;

DECLARING ultra vires, invalid, null and of no effect subsection 3(4) and section 4 of the Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements), SOR/2019-298 introducing the new subsections 4(4)a) and 4(4)b) and the new sections 4.1 to 4.4 to the Patented Medicines Regulations, SOR/94-688.

[unofficial translation]

Brief summary of the amendments and legal challenges

First published in the Canada Gazette, Part II, in August 2019,[1] the amendments to the Regulations (the "Amendments") introduced three major changes to the PMPRB's regulatory framework:

  1. New mandatory factors: Introduced new mandatory economic factors when determining whether the price of a patented medicine is excessive (pharmacoeconomic value, market size, and gross domestic product ("GDP") and GDP per capita);[2]
  2. New basket of countries: Changed the basket of countries used by the PMPRB as a benchmark (removing Switzerland and the United States, adding Australia, Belgium, Japan, the Netherlands, Norway, and Spain); and
  3. New price calculation: Introduced a new price calculation required of patentees to calculate the sale price of a patented medicine.[3]

The Amendments were challenged in the Federal Court and the Québec Superior Court. Both Courts struck the new price calculation, and both decisions were appealed. The Federal Court of Appeal will hear the appeal from the Federal Court at the end of February 2022. The Court of Appeal of Québec has already heard the appeal from the Québec Superior Court and its decision issued on February 18, 2022.

As previously reported, the coming into force of the Amendments to the Regulations has been deferred until July 1, 2022.

Decision of the Québec Court of Appeal

In light of the questions on appeal, the Québec Court of Appeal sought to identity the "pith and substance" or "caractère véritable" of the Regulations as they stood prior to the Amendments, as well as the Regulations as they would be with the Amendments.

For the Regulations as they stood prior to the Amendments, the Court of Appeal concluded that the intention was to avoid excessive pricing for patented medicines. It noted that the Regulations did not contemplate any factor in addition to those contained in section 85(1) of the Patent Act, with sections 83 to 85 having the stated intention to avoid that the exclusivity conferred by a patent be used to charge excessive prices for patented medicines.[4]

On this basis, the Court of Appeal found that no error was committed by the lower Court in concluding that the pre-2019 regulatory regime fell within the federal jurisdiction with respect to patents of invention and discovery.[5] The Court of Appeal adopted the lower Court's conclusion that controlling excessive prices for medicines that results from the exclusivity conferred by a patent has a logical, real, and direct link to the federal jurisdiction on patents of invention and discovery, and does not encroach upon provincial jurisdiction in an unconstitutional manner.[6]

Turning to the Amendments, the Court of Appeal found them to have a double objective: (a) to "improve" the existing regulatory regime, with an objective of reducing prices by modifying the list of comparator countries and by taking into account confidential discounts negotiated with insurers; and (b) to impose additional significant and arbitrary price reductions so that patented medicines would be more affordable.[7] Reviewing the Regulatory Impact Analysis Statement ("RIAS") accompanying the Amendments, the Court noted that "As we can easily see, we are well away from controlling the effects on prices of the exclusivity conferred by a patent [unofficial translation]".[8]

In assessing the pith and substance of the Amendments, the Court of Appeal found that the lower Court had erred in not considering in its analysis the objectives of the Amendments or the new PMPRB Guidelines[9] for applying the amended Regulations. Considering these objectives and the PMPRB Guidelines led the Court of Appeal to a different conclusion as to the pith and substance of the Amendments.[10]

Relying in part of section 83(1) of the Patent Act, the Court of Appeal concluded that federal jurisdiction cannot extend beyond ex-factory pricing ("prix de départ usine") of patented medicines.[11] The new subsections 4(4)(a) and 4(4)(b) of the Regulations, introducing the new price calculation, exceed federal jurisdiction as they seek to look into commercial contracts, commercialization, and sales of consumer goods, which are matters of provincial jurisdiction. As such, the new subsections are ultra vires.[12]

With respect to the list of comparator countries to use in the analysis, the Court of Appeal concluded that the Federal Government has a right to establish the list. From a constitutional point of view, nothing precludes the Federal Government from excluding a country as a comparator. The fact that modifying the list of comparator countries might result in price reductions is not relevant in the analysis.[13] Consequently, the Court of Appeal rejected the argument that amending the list of comparator countries was unconstitutional.[14]

As for the new mandatory factors for the PMPRB to consider (new sections 4.1 to 4.4), as introduced by the Amendments, the Court found that the Federal Government sought to go beyond its jurisdiction with respect to patents of invention and discovery, and into provincial jurisdiction to regulate the pricing overall.[15] The Court noted, repeatedly, that these additional mandatory factors would lead to significant price reductions for medicines where the price would have already been determined to be not excessive.[16]

Consequently, the Court declared subsection 3(4) and section 4 of the Regulations Amending the Patented Medicines Regulations (Additional Factors and Information Reporting Requirements), SOR/2019 introducing new paragraphs 4(4)(a) and 4(4)(b) and new sections 4.1 to 4.4 to the Patented Medicines Regulations to be ultra vires, invalid, null and without effect.

Should you have any specific questions about this article or would like to discuss it further, you can contact the authors or a member of our Life Sciences Group.

 

[2] Section 4, introducing new sections 4.1-4.4 in the Patented Medicines Regulations

[3] Subsection 3(4), introducing new subsections 4(4)(a) and 4(4)(b) in the Patented Medicines Regulations

[4] [143-145]

[5] [179]

[6] [189]

[7] [190], see also [152-154]

[8] [155-156]

[10] [165]

[11] [197-198]

[12] [203-204]

[13] [222]

[14] [225]

[15] [244]

[16] [227]


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