Canadian Court Nixes Class Action for Patent Abuse
The British Columbia Court of Appeal (BCCA), in Low v. Pfizer Canada Inc., has held that Canada’s Patent Act provides a complete code that forecloses civil actions by consumers centred on breaches of the statute.
The decision relates to an application to certify a proposed class action, commenced by a representative plaintiff, Britton Low, against various Pfizer companies, alleging that Pfizer unlawfully abused the patent system with the result that purchasers of the drug VIAGRA were overcharged. The proposed class consists of B.C. purchasers of VIAGRA during the period of January 1, 2006 to November 30, 2012.
Mr. Low relied on the fact that Pfizer’s patent for VIAGRA had been held to be invalid for insufficiency by the Supreme Court of Canada and the Federal Court. He therefore alleged that Pfizer’s actions in enforcing its patent so as to prevent generic versions of VIAGRA from being marketed prior to the declaration of invalidity of the Pfizer patent constituted actionable torts.
More particularly, Mr. Low pleaded that Pfizer’s actions constituted unlawful interference with economic relations and unjust enrichment.
Mr. Low sought certification of the class action in the British Columbia Supreme Court and was initially successful. The chambers judge held that it was not plain and obvious that the Patent Act barred the plaintiff’s action. The judge held that a third proposed cause of action, waiver of tort, had no chance of success and so did not allow that part of the claim to proceed.
Pfizer appealed the lower court’s certification of the class action to the British Columbia Court of Appeal. Pfizer argued that the Patent Act and certain regulations enacted pursuant to the Act provide a complete code that excludes common law remedies for a breach of the legislation. Pfizer further argued that Mr. Low’s claim did not disclose a cause of action in either unlawful interference with economic relations or unjust enrichment.
PATENT REGULATORY REGIME
The Patent Act establishes, among other things: (1) the circumstances under which a patent may be granted for an invention, (2) the grounds for invalidating a patent and (3) the remedies for patent infringement. The Act also contains provisions allowing the Commissioner of Patents to exercise certain powers (such as patent revocation or the granting of a compulsory licence) in enumerated circumstances of patent abuse.
The Patented Medicines (Notice of Compliance) Regulations (NOC Regulations), enacted pursuant to the Act, together with the Food and Drugs Act and associated regulations, govern the circumstances under which a generic manufacturer can obtain approval to market a generic version of a patented drug. The NOC Regulations provide a cause of action to a generic manufacturer in certain circumstances. More particularly, the Regulations allow a generic manufacturer to recover the profits that it lost as a result of its generic version of a patented drug being kept off the market during the pendency of an unsuccessful court proceeding commenced by the patentee under the NOC Regulations.
A further level of regulation over patented drugs is provided by the Patented Medicine Prices Review Board, which regulates the prices at which patented drugs may be sold in Canada.
None of the above statutes or regulations provides a cause of action to other persons in the channels of trade for a drug such as consumers, pharmacists, distributors or insurers.
COMPLETE CODE ARGUMENT
The first issue before the appellate court was whether the combination of these statutes and regulations (referred to as the Patent Regulatory Regime) constitute a complete legislative code as to the rights and remedies of patent holders and generic drug makers. Pfizer argued that the Canadian Parliament, having provided a limited cause of action to generic manufacturers under the NOC Regulations, must be presumed to have chosen not to create a right of action for consumers arising directly out of a breach of the Patent Act.
Mr. Low, in response, argued that his claim was based entirely on common law and so the “complete code” argument did not apply. He further argued that because the Patent Regulatory Regime is silent as to consumer rights and remedies for breach of the Patent Act, it cannot be a complete code. The relevant question is therefore not whether Parliament intended to create a consumer right of action but rather whether it intended to oust such a right.
The BCCA began its analysis by noting that the Patent Regulatory Regime did not confer a direct benefit, right or protection on a consumer. The situation before the court was therefore distinguishable from previous cases where legislation created a right but did not provide an enforcement mechanism. In such cases, the absence of an enforcement mechanism could be taken as implying a common law private cause of action by a consumer.
The BCCA next cited the principle that there is no common law tort of breach of statute. Accordingly, there could be no tort of breach of the legislation forming the Patent Regulatory Regime.
The problem with Mr. Low’s argument that his claim rested on a footing outside of the Patent Regulatory Regime, namely in the common law of unlawful interference with economic relations and in unjust enrichment, was that his pleading asserted that Pfizer’s wrongful conduct was its failure to make disclosure of its invention as required by the Patent Act. As such, Mr. Low’s claim was clearly a claim for breach of statute and his entitlement was alleged to arise out of abuse of the patent system.
The BCCA then went on to conclude that the completeness of the Patent Regulatory Regime forecloses civil actions by consumers that are rooted in a breach of the Patent Act. The BCCA noted that prior decisions had held that the completeness of the Patent Regulatory Regime prevented generic drug manufacturers from claiming disgorgement of profits based on unjust enrichment. It would be illogical to allow consumers to claim disgorgement of profits from brand manufacturers when generic manufacturers are themselves precluded from claiming the same recovery based on the identical allegedly wrongful acts.
The BCCA also noted that there was evidence that Parliament had considered the interests of consumers when creating the Patent Regulatory Regime. For example, the Patented Medicine Prices Review Board was given the power to reduce the prices of medicines where it deemed such prices to be excessive. Therefore, an inference could not be drawn that Parliament, in enacting the Patent Regulatory Regime, did not intend to oust consumer remedies.
UNLAWFUL INTERFERENCE WITH ECONOMIC RELATIONS
The court’s ruling that the Patent Regulatory Regime constituted a complete code defeated Mr. Low’s claim. The BCCA went on, however, to hold that even if it had not ruled that the Patent Regulatory Regime constituted a complete code, it would nevertheless have not allowed certification of the claim in unlawful interference with economic relations.
The tort of unlawful interference with economic relations has three elements, namely:
- An unlawful act committed against a third party
- Intended to cause economic harm to the plaintiff
- Resulting in economic harm to the plaintiff.
As such, this tort is sometimes described as creating a kind of “parasitic” liability since the plaintiff’s claim is based on (or parasitic upon) the defendant’s unlawful act against the third party.
Mr. Low had argued that Pfizer, through its breach of the Patent Act, had committed an unlawful act against generic manufacturers which was intended to and, in fact, caused economic harm to VIAGRA purchasers. “Unlawful” conduct is conduct that would be actionable by the third party or would have been actionable if the third party had suffered loss as a result of it.
The BCCA, noting that a generic manufacturer has no actionable claim against a patentee for unjust enrichment or disgorgement of profits, held that the tort of unlawful interference, which is based on a parasitic claim, could not possibly succeed.
The BCCA next considered the tort of unjust enrichment in the event that its ruling that the Patent Regulatory Regime constituted a complete code was, on further appeal, held to be incorrect.
The tort of unjust enrichment has three elements:
- An enrichment of the defendant
- A corresponding deprivation of the plaintiff
- An absence of juristic reasons for the enrichment.
Pfizer argued that its contracts with direct purchasers such as distributors and pharmacies constituted a juristic reason for the alleged enrichment. More particularly, the alleged overcharge (i.e., the price increase attributable to the existence and enforcement of the patent for VIAGRA) was passed on to the ultimate consumers through these contracts between Pfizer and the direct purchasers. Therefore, unless these contracts could be shown to be illegal or based on a common mistake, there was no basis to conclude the absence of a juristic reason.
In reviewing the chambers judge’s reasons, the BCCA concluded that the judge had held that Pfizer’s contracts with its direct purchasers constituted a juristic reason. Accordingly, the chambers judge should have found that this cause of action had no prospect of success.
The BCCA therefore held that the appeal should be allowed.
The BCCA’s decision in Low v. Pfizer is certain to be influential in other cases involving allegations of patent abuse, whether in class action proceedings or otherwise.
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