Vancouver, British Columbia, November 7, 2006
PRESENT: The Honourable Madam Justice Mactavish
BETWEEN:
(sub. nom. APOTEX PHARMACHEM INC.)
and
ATTORNEY GENERAL OF CANADA
and MERCK & CO., INC.
REASONS FOR JUDGMENT AND JUDGMENT
[1] This is an appeal from a decision of the Commissioner of Patents refusing Brantford Chemicals Inc.’s application under the patent abuse provisions of the Patent Act for a compulsory licence from Merck & Co., Inc. This licence would have permitted Brantford to manufacture and sell sodium enalapril-sodium iodide complex (or “SESIC”).
[2] Brantford contends that the Commissioner erred in finding that patent abuse had not been established in this case, by misinterpreting the patent abuse provisions of the Patent Act, and by making patently unreasonable findings of fact.
[3] For the reasons that follow, I am not persuaded that the Commissioner erred as alleged by Brantford, and accordingly, the appeal will be dismissed.
The Parties
[4] Brantford (now known as Apotex Pharmachem Inc.) is a Canadian manufacturer of fine chemicals, including chemical compounds intended for use in the manufacture of pharmaceutical products. Brantford is a wholly owned subsidiary of Apotex Inc. (“Apotex”), and its President is Dr. Bernard Sherman. Dr. Sherman is also the Chairman and Chief Executive Officer of Apotex.
[5] In 1996, Brantford discovered SESIC, and a method of making it in pure form. Brantford also discovered that SESIC could be de-complexed to produce pure sodium enalapril (“SE”). SE is a salt of enalapril, which is an angiotensin converting enzyme or “ACE” inhibitor, used in the treatment of hypertension and congestive heart failure.
[6] Brantford’s invention allegedly offers advantages over previous commercial production methods for making SE and its intermediates, because of its stability, and the purity of its yield of SE. The invention is the subject matter of Canadian patent application No. 2,182,258, which issued to patent on April 13, 2001 (the “’258 patent”).
[7] Merck & Co., Inc. is the owner of Canadian patent no. 1,275,349 (the “’349 patent”), which issued on October 16, 1990, with the result that this patent is scheduled to expire in just under a year. The ’349 patent is directed at a family of compounds which are useful in the treatment of hypertension and congestive heart failure in humans. Included in this family of compounds are enalapril and its pharmaceutically acceptable salts, including the sodium salt, as well as pharmaceutical compositions containing these compounds.
[8] Merck’s Canadian licencee, Merck Frosst Canada and Co., manufactures and sells VASOTEC® brand of enalapril-based tablets in this country. To manufacture its product, Merck Frosst obtains the necessary supply of bulk enalapril maleate from Merck, or from one of its associated companies.
[9] Also involved in this matter, although not a party to this litigation, is Torpharm Inc. Torpharm was another wholly owned subsidiary of Apotex, which has since been subsumed into Apotex itself. Torpharm’s stated purpose is the manufacture and export of generic drugs to the United States.
Background
[10] Merck’s ’349 patent has been the subject of considerable litigation, including over 16 proceedings in this Court. Of particular significance is a 1994 action between Merck and Apotex, which involved allegations of infringement on the part of Merck, and an attempt by Apotex to impeach the patent.
[11] Merck’s infringement action was successful, and Apotex’s counterclaim was dismissed. As part of the relief obtained by Merck, Apotex, its related companies and their officers and directors, including Dr. Sherman, were enjoined from infringing the ’349 patent: see Merck & Co. Inc. et al. v. Apotex Inc. (1994) 59 C.P.R. (3d) 133, aff’d in part [1995] F.C.J. No. 588 (F.C.A.).
[12] This injunction remains in force to this day.
[13] On April 16, 1998, Dr. David Coffin-Beach, the then President of Torpharm, sent a letter to Brantford in which he indicated that Torpharm wished to purchase between 1,000 and 5,000 kilograms annually of SESIC for use in the manufacture of pharmaceutical products.
[14] Dr. Coffin-Beach observed that Brantford held a patent with respect to SESIC, but noted that SESIC may also fall within the scope of Merck’s ’349 patent.
[15] Dr. Coffin-Beach concluded by asking whether Brantford was in a position to sell SESIC, given Merck’s patent, and on what terms the sale could be made.
[16] That same day, Dr. Coffin-Beach also sent a letter to Merck, stating that Torpharm wished to purchase SESIC. He also inquired whether Merck was willing to sell SESIC to Torpharm and, if so, under what conditions.
[17] In the course of the hearing, Dr. Coffin-Beach acknowledged that the idea of asking Brantford to supply it with SESIC came from Dr. Sherman and counsel for Apotex, and that Torpharm’s April 16, 1998 letter to Brantford had in fact been prepared by counsel for Apotex.
[18] On April 17, 1998, that is, the day after Torpharm’s letters to Brantford and Merck, Dr. Keshava Murthy, the General Manager of Brantford, wrote to Merck advising that Brantford had received a request to supply a third party with SESIC. Noting that Merck’s ’349 patent appeared to cover the compound, Brantford requested a non-exclusive licence permitting it to manufacture and sell SESIC for use in the manufacture and sale of finished dosage forms.
[19] Dr. Murthy testified that the April 17 letter from Brantford to Merck, as well as subsequent letters sent by Brantford to Merck in relation to this matter, were prepared by counsel for Apotex.
[20] Dr. Sherman also acknowledged in his testimony that he was involved in authorizing the April, 1998 letters from Torpharm to Brantford, and from Brantford to Merck, and that he was Chairman of Apotex at the time that he did so.
[21] By letter dated July 2, 1998, Merck, through its patent counsel, sought additional information from Brantford with respect to the use that it proposed to make of the SESIC. Counsel further advised that Merck needed to have this information before it was prepared to make any decision in relation to Brantford’s request for a licence.
[22] Counsel for Merck also noted the relationship between Brantford and Apotex, observing that by virtue of that relationship, Brantford was subject to the permanent injunction issued by this Court in 1994 enjoining, amongst other things, the unlicenced manufacture and sale of SESIC.
[23] That same day, counsel for Merck also wrote to Torpharm, advising that it did not produce SESIC, and that it was not aware of anyone who did.
[24] Both Brantford and Torpharm responded by letter. On July 14, 1998, Torpharm stated that in light of a recent Supreme Court of Canada decision, it believed that it was no longer necessary for it to seek a licence from Merck.
[25] By a letter dated July 15, 1998, Brantford answered all of the questions posed by Merck, and again requested a voluntary licence from Merck to permit it to manufacture SESIC. Brantford also sought an indication of Merck’s terms for such a licence.
[26] On September 16, 1998, not having received a reply from Merck to its July 15, 1998 letter, Brantford filed an application in the Federal Court seeking an order compelling Merck to give it a licence to manufacture SESIC (“the first application”).
[27] The Acting Commissioner of Patents rejected Brantford’s application without requiring Merck to respond to it, finding that there was no evidence to suggest that demand for the patented article was not being met in Canada. The only evidence of unmet demand was Torpharm’s request that it be supplied with SESIC by Brantford. In the view of the Acting Commissioner of Patents, this was insufficient to support the granting of a compulsory licence.
[28] The Acting Commissioner also found that there had been no refusal on the part of Merck to grant Brantford a licence. Only two months had elapsed between Brantford sending its July 15, 1998 letter answering Merck’s questions, and the filing of Brantford’s application in the Federal Court. In the opinion of the Acting Commissioner, insufficient time had passed in which to allow Merck to properly consider Brantford’s request for a licence.
[29] Moreover, the Acting Commissioner noted that no terms or conditions for a proposed licence agreement were ever suggested by Brantford.
[30] A request for the reconsideration of this decision was refused on February 23, 1999, and there were no further communications between Brantford and Merck in relation to this matter.
[31] On April 30, 1999, Brantford filed a further application for a compulsory licence with the Commissioner of Patents, alleging that Merck had abused its exclusive rights as set out in paragraphs 65(2)(c) and (d) of the Patent Act (“the second application”). These were the same provisions of the Patent Act that had been invoked by Brantford in support of its first application for a compulsory license.
[32] Once again, Brantford requested that the Commissioner grant it a compulsory licence pursuant to the authority conferred on him by paragraph 66(1)(a) of the Patent Act.
[33] This application proceeded to a full hearing before the Patent Appeal Board, which took place in April of 2005. At the hearing, viva voce testimony was given by a number of the individuals involved in this matter.
[34] On September 1, 2005, the Board rendered its decision refusing to grant a compulsory licence to Brantford. This decision was subsequently adopted by the Commissioner of Patents, and forms the subject matter of this appeal.
The Commissioner’s Decision
[35] After reviewing the history between the parties, the Commissioner addressed the two provisions of section 65 of the Patent Act relied upon by Brantford in support of its application for a compulsory licence.
[36] In relation to paragraph 65(2)(c), the Commissioner observed that he was required to determine whether the “demand for the patented article in Canada was not being met to an adequate extent and on reasonable terms.”
[37] In answering this question, the Commissioner had to first identify what it was that constituted the “patented article” or articles. Brantford argued that the patented articles were SESIC and SE, whereas Merck submitted that the term “patented article” referred to “that which is patented”, observing that the ’349 patent covered a family of compounds including medicines comprised of salts of enalapril.
[38] The Commissioner found that:
The present application, however, is focused on two chemical compounds SESIC and SE. It is not contested that both of these compounds are covered by the claims of Canadian Patent 1,275,349. Accordingly I consider that they are both patented articles for the purposes of this application.
[39] The Commissioner then found that there had to be a “more generalized market demand in Canada for the patented article than the demand which [sic] created by the Torpharm letter to Brantford”, which the Commissioner found to be “an artificial demand created by one trader”.
[40] Consequently the Commissioner found that there was no unmet demand in Canada for SESIC.
[41] The Commissioner also found that there was no specific demand for SE in Canada, observing that there could be no sales of SE-based medicines in either Canada or the United States in the absence of regulatory approval. In particular, the Commissioner found that there was no evidence that Torpharm had obtained a Notice of Compliance, and that, as a result, no medicinal formulation containing SE could be sold in Canada. Furthermore, as Merck had a similar patent in the United States, Brantford was also unable to sell SE in that country.
[42] In addition, the Commissioner found that Merck’s VASOTEC® brand of enalapril competed with other ACE inhibitors, fulfilling the market demand. The Commissioner rejected Brantford’s contention that its product would be directed to a substantially different group of consumers, noting that Brantford had not identified this group. It was much more likely, the Commissioner said, that if a licence were granted, “SE would enter into direct competition with the existing products, including Merck’s VASOTEC® brand of enalapril based tablets.”
[43] Insofar as Brantford’s arguments based on paragraph 65(2)(d) of the Patent Act were concerned, the Commissioner identified three elements that had to be established to prove patent abuse under this provision.
[44] Firstly, there had to be a refusal to grant a licence on reasonable terms. Secondly, there had to be prejudice to the trade or industry in Canada, or the trade of any person or class of persons trading in Canada or the establishment of any new trade or industry in Canada. Finally, it had to be in the public interest that a licence be granted.
[45] The Commissioner was not satisfied that Merck had refused to grant Brantford a licence on reasonable terms. In this regard, the Commissioner found that Brantford’s initial letter of April 17, 1998 amounted to the opening of negotiations. By its July 15, 1998, letter, Brantford had provided Merck with “sufficient basic information” as to allow it to consider whether it could voluntarily grant Brantford a licence.
[46] However, the Commissioner also found that the onus was on Brantford to suggest terms and conditions for the licence, and not just to provide Merck with basic information. Nothing of this nature had been provided by Brantford prior to the service of its second application for a compulsory licence on Merck in July of 1999.
[47] In addition, the Commissioner found that Merck had not been provided with sufficient time to consider its position prior to Brantford commencing its second application for a compulsory licence. As a consequence, the Commissioner found that there had been no “refusal” within the meaning of paragraph 65(2)(d).
[48] The Commissioner also did not accept Brantford’s argument that the fine chemical industry in Canada was being prejudiced, finding that Brantford had no existing trade in either SESIC or SE. Not only had it never manufactured these products, in addition, the sale of bulk fine chemicals or of the final dosage form in Canada was not possible, given the lack of regulatory approval.
[49] The Commissioner also found that the inference was also available that Brantford intended to export SESIC and SE as fine chemicals. In this regard, the Commissioner observed that prejudice to Brantford’s export market was irrelevant, given that paragraph 65(2)(d) is only concerned with prejudice to the Canadian market.
[50] Given that at least two other Canadian companies operated in the fine chemical industry, and that Merck’s enalapril-based ACE inhibitor faced competition in Canada from other ACE inhibitors on the market, the Commissioner found that Brantford was not proposing a new trade or industry, but the establishment of a new business in an existing trade or industry.
[51] The Commissioner was also satisfied that the refusal to grant a licence to Brantford would not cause any serious damage to its overall business. Not only was Brantford an established company, in addition, the ’349 patent would expire in 2007 with the result that there was only a limited window in which Brantford could derive any benefit from a compulsory license. Moreover, no steps had yet been undertaken by Brantford to obtain the necessary approval that would have allowed it to sell the patented articles, further limiting the time in which a compulsory license would provide any real benefit to Brantford.
[52] The Commissioner did find that the granting of a licence would have a minor negative impact on Merck and its Canadian licencee, as Brantford would take some of the market for enalapril-based medicines from VASOTEC®. Moreover, jobs created by Brantford’s production would at least be partially off-set by job losses related to the manufacture of enalapril maleate tablets by Merck.
[53] In the Commissioner’s view, however, the public would likely see no benefit, should a compulsory licence be granted to Brantford. There was no evidence that Merck was overcharging customers for its enalapril-based ACE inhibitor, nor was there evidence that there had ever been a shortage of enalapril-based medicines in Canada. Moreover, there was no evidence to suggest that the product that Brantford proposed to market would be any more effective than Merck’s product.
[54] As a result, the Commissioner concluded that “the only benefit which the public of Canada would derive would be to have available another enalapril based product at a lower price for a very short period of time before the patent expired”.
[55] At the same time, the Commissioner found that the granting of the licence to Brantford would have the negative effect of undermining the patent system to some extent.
[56] Balancing these considerations, the Commissioner concluded that the public interest was far better served by maintaining a strong and reliable patent system than it would be by granting a compulsory licence to Brantford.
[57] Having found that Brantford had failed to establish that Merck had abused its patent rights under the ’349 patent, Brantford’s application for a compulsory licence was refused.
Legislative Regime
[58] Section 65 is the primary provision of the Patent Act in issue in this appeal. The relevant portions of this section provide that:
|
65. (1) The Attorney General of Canada or any person interested may, at any time after the expiration of three years from the date of the grant of a patent, apply to the Commissioner alleging in the case of that patent that there has been an abuse of the exclusive rights hereunder and asking for relief under this Act.
(2) The exclusive rights under a patent shall be deemed to have been abused in any of the following circumstances:
[…]
(c) if the demand for the patented article in Canada is not being met to an adequate extent and on reasonable terms;
(d) if, by reason of the refusal of the patentee to grant a licence or licences on reasonable terms, the trade or industry of Canada or the trade of any person or class of persons trading in Canada, or the establishment of any new trade or industry in Canada, is prejudiced, and it is in the public interest that a licence or licences should be granted;
[…]
(5) For the purposes of this section, the expression “patented article” includes articles made by a patented process. |
65. (1) Le procureur général du Canada ou tout intéressé peut, après l’expiration de trois années à compter de la date de la concession d’un brevet, s’adresser au commissaire pour alléguer que, dans le cas de ce brevet, les droits exclusifs qui en dérivent ont donné lieu à un abus, et pour demander un recours sous l’autorité de la présente loi.
(2) Les droits exclusifs dérivant d’un brevet sont réputés avoir donné lieu à un abus lorsque l’une ou l’autre des circonstances suivantes s’est produite :
[…]
c) il n’est pas satisfait à la demande, au Canada, de l’article breveté, dans une mesure adéquate et à des conditions équitables;
d) par défaut, de la part du breveté, d’accorder une ou des licences à des conditions équitables, le commerce ou l’industrie du Canada, ou le commerce d’une personne ou d’une classe de personnes exerçant un commerce au Canada, ou l’établissement d’un nouveau commerce ou d’une nouvelle industrie au Canada subissent quelque préjudice, et il est d’intérêt public qu’une ou des licences soient accordées;
[…]
(5) Pour l’application du présent article, « article breveté » s’entend notamment des articles fabriqués au moyen d’un procédé breveté. |
[59] When abuse of the exclusive rights granted under a patent has been established, section 66 of the Act provides broad powers to the Commissioner of Patents to remedy the abuse. Included in these powers is the power to grant a licence to an applicant on such terms as the Commissioner may think expedient. In certain circumstances, the remedial powers of the Commissioner extend to allow for the revocation of the patent.
Issues
[60] Brantford has identified the following issues as being raised by this appeal:
1. Whether the Commissioner erred in determining that patent abuse had not been established under paragraph 65(2)(c) of the Patent Act, notwithstanding the demand for a significant quantity of SESIC or SE, and in the absence of any supply, on the basis of the Commissioner’s erroneous interpretation of the “patented article”; and
2. Whether the Commissioner erred in determining that patent abuse had not been established under paragraph 65(2)(d) of the Patent Act by:
a) incorrectly interpreting paragraph 65(2)(d) by imposing on Brantford the
requirement that it have offered “reasonable terms” to Merck before abuse of patent could be established;
b) incorrectly interpreting paragraph 65(2)(d) by adopting a shifting definition
of the words “trade or industry”, resulting in the failure of the Commissioner to properly assess Brantford’s evidence of prejudice to existing and future trades and industries; and
c) finding that compulsory licences should only be granted in circumstances of
necessity, and in failing to properly weigh the factors weighing in favour of the granting of the licence.
[61] In addition, the appropriate standard of review will have to be determined with respect to each of the issues identified by Brantford. This issue will be examined first.
Standard of Review
[62] In order to ascertain the appropriate standard of review to be applied to each of the questions raised by this appeal, it is necessary to conduct a pragmatic and functional analysis.
[63] The purpose of the pragmatic and functional analysis is to ascertain Parliament’s intent as to the level of deference to be accorded to a particular decision-maker, in light of a number of factors, including the expertise of the decision-maker, and the nature of the question that the decision-maker is called upon to answer.
[64] I will return to the appropriate standard of review to be applied to each of the questions raised by this appeal in the course of my analysis of each of those questions. At this point, however, I can make the following general observations in relation to the four factors outlined by the Supreme Court of Canada in cases such as Dr. Q. v. College of Physicians and Surgeons of British Columbia, [2003] 1 S.C.R. 226, 2003 SCC 19:
i) There is no privative clause in the Patent Act. However, as the Supreme Court noted in Dr. Q., silence on the matter of a privative clause is neutral, and does not necessarily imply a high standard of scrutiny. In addition, however, the Act provides for a full right of appeal to this Court from decisions of the Commissioner and his delegates, suggesting that such decisions are to be accorded less deference;
ii) Insofar as patent matters generally are concerned, the Commissioner and his delegates undoubtedly have a high degree of specialized expertise, which is superior to that of the Court. This suggests that, to the extent that this expertise is actually engaged in relation to the specific questions in issue, these decisions should be accorded considerable deference. I will return to consider the extent to which the Commissioner’s expertise has been engaged in relation to each of the questions in issue in this appeal in the course of my analysis of each of those questions;
iii) Section 65 of the Patent Act contemplates the determination of rights as between parties, which would militate in favour of according less deference to decisions made under this section. However, the provisions of section 65 in issue in this case also require the examination of considerations that extend beyond the rights of the parties to the litigation, considerations such as the extent of the demand in Canada for a particular article, any prejudice that might accrue to a trade or industry in this country, and where the public interest lies. These considerations suggest that greater deference should be paid these decisions; and
iv) The final factor to be considered in the pragmatic and functional
analysis is the nature of the question. A number of different questions have been raised by this appeal. I will examine the nature of each of these questions in the course of my analysis of the question in issue.
[65] With this understanding of the general principles governing the standard of review to be applied to decisions of the Commissioner, I turn now to consider further the nature and purpose of the patent abuse provisions of the Patent Act.
Patent Rights and Patent Abuse
[66] The granting of a patent has often been compared to the creation of a bargain or contract between the patentee and the government (representing the public interest).
[67] That is, in exchange for the disclosure of a new and useful invention to the public, a patentee is granted the exclusive right to use the invention in Canada for a specified period of time: see, for example, Bristol-Myers Squibb Co. v. Canada (Attorney General), [2005] S.C.C. No. 26, at ¶133.
[68] The inclusion of patent abuse provisions in the Patent Act stems from the notion that having been granted a monopoly, a patentee should be under a positive obligation to work his or her invention. The failure to do so, either directly, or through the granting of licences, amounts to an abuse of the patent: see Harold Fox, The Canadian Law and Practice Relating to Letters Patent for Invention, Toronto: Carswell, 1969, 4th Ed., at p. 541. See also Gordon Johnson Co. v. Callwood, [1960] Ex. C.R. 466, at ¶ 17.
[69] That is, a patentee may not hold his or her patent, unworked, for the simple purpose of blocking trade: see Fox, above, at p. 544.
[70] With this understanding of the nature and purpose of the patent abuse provisions of the Patent Act, I turn now to consider the issues raised by Brantford on this appeal.
Paragraph 65(2)(c) of the Patent Act
[71] The first provision of section 65 of the Patent Act relied upon by Brantford in support of its application for a compulsory license is paragraph 65(2)(c), and I will start by considering Brantford’s arguments in relation to this provision.
[72] Paragraph 65(2)(c) of the Patent Act requires a determination of whether the “demand for the patented article in Canada” was being met “to an adequate extent and on reasonable terms”. Thus, in assessing Brantford’s application for a compulsory license, the first task for the Commissioner was to identify what it was that constituted the patented article or articles in issue in this case.
[73] In this regard, the Commissioner accepted Brantford’s submission that SESIC and SE were the relevant patented articles for the purposes of Brantford’s application.
[74] Brantford submits that having correctly identified SESIC and SE as the “patented articles”, the Commissioner then fell into error by treating SESIC and SE as patented articles, amongst others. That is, in assessing the extent to which the demand for SESIC and SE in Canada was being satisfied, the Commissioner erred by essentially ‘comparing apples to oranges’ in finding that the demand for SESIC and SE was being satisfied by other patented articles.
[75] In other words, instead of examining the extent to which the demand for SESIC and SE was being met, the Commissioner considered the extent to which the demand for any article capable of falling within the ’349 patent was being satisfied.
[76] According to Brantford, this resulted in the Commissioner considering whether there was a more generalized market demand for articles coming within the scope of the ’349 patent (i.e.: enalapril sodium tablets), and by considering whether there was a supply for other patented articles, namely enalapril maleate tablets.
[77] By effectively confusing the phrase “patented article” with “patented invention”, Brantford says that the Commissioner erred in law.
[78] It should be noted, however, that Brantford’s argument is predicated on the assumption that a genuine demand in Canada for SESIC and SE has, in fact, been established.
[79] That is, paragraph 65(2)(c) of the Patent Act provides that after identifying the relevant patented article or articles, the next task for the Commissioner is to consider whether there is a demand in Canada for those articles. On the plain reading of the provision, it is only once a demand in Canada for the patented article or articles has been established that the Commissioner will be called upon to assess whether that demand is being met to an adequate extent and on reasonable terms.
[80] As a result, before considering Brantford’s arguments with respect to the errors allegedly committed by the Commissioner in assessing the extent to which the demand in Canada for the patented articles was being satisfied, it must first be established that there was indeed such a demand. This issue will be considered next.
The Demand for SESIC
[81] The Commissioner was not persuaded that there was a genuine demand for SESIC in Canada. Based upon the evidence, the Commissioner found as a fact that the “demand” for SESIC asserted by Brantford was in reality an “artificial demand created by one trader”.
[82] Brantford has not squarely challenged this finding, arguing that the appeal really involves the interpretation and application of legal principles to largely undisputed facts. Not only did Brantford not make any oral submissions on this point, its memorandum of fact and law simply observes, in passing, that there was no evidence whatsoever that would support a finding that there was any artifice in Torpharm’s request for SESIC from Brantford. According to Brantford, it simply wanted to market an unmarketed and independently patented product to a third party in the ordinary course of its business.
[83] I do not accept Brantford’s contention that this case involved largely undisputed facts. It is clear that there was a live issue before the Commissioner as to the genuineness of the market demand being asserted by Brantford. It is equally clear that having considered the evidence before it, the Commissioner made a factual finding that the demand being asserted by Brantford was an artificial one.
[84] Although the identification and assessment of market demand for a product or products may not be squarely within the Commissioner’s expertise, his finding that the “demand” for SESIC asserted by Brantford was in reality an “artificial demand created by one trader” is a finding of fact. As such, it is entitled to deference.
[85] Moreover, to the extent that this finding is indirectly in issue in this application, I need not determine whether it should be reviewed against the standard of reasonableness or that of patent unreasonableness, as I am satisfied that the finding was one that was entirely reasonable in light of the evidence that was before the Commissioner, and that it can withstand a somewhat probing examination.
[86] Although the jurisprudence on patent abuse is limited, what case law there is teaches us that the “demand” referred to in paragraph 65(2)(c) of the Patent Act is the demand of the marketplace. That is, it is the demand of the public at large, and not that of a single trader: In the Matter of a Petition by the Robin Electric Company Ltd., 32 R.P.C. 202, at p. 213-214. See also In the Matter of Applications by James Lomax Cathro (1934), 51 R.P.C. 75, at 82-82.
[87] A review of the exchange of letters between Torpharm, Brantford and Merck leading up to Brantford’s section 65 applications, coupled with the evidence as to the circumstances surrounding the generation of these letters demonstrates that the so-called “market demand” for SESIC was nothing more that a self-generated demand emanating from various branches of the Apotex organization.
[88] It is true that companies, even related companies, are separate legal entities, and will ordinarily be treated as such. However, in this case, it is clear from the evidence of Doctors Murthy and Coffin-Beech that Torpharm’s letters to Merck and Brantford expressing interest in acquiring large quantities of SESIC, and Brantford’s letters to Merck indicating that it had received a request to supply SESIC and seeking a licence permitting it to manufacture the compound, were all part of a carefully orchestrated scheme on the part of the most senior management of Apotex to try to create an artificial demand for the product, presumably in the hope of triggering the patent abuse provisions of the Patent Act.
[89] In the absence of there being a genuine market demand in Canada for SESIC, it is therefore unnecessary to consider Brantford’s arguments relating to the alleged errors in the Commissioner’s assessment as to the extent to which that demand may or may not have been met.
The Demand for SE
[90] Insofar as SE is concerned, the central finding by the Commissioner was that there was no specific demand in Canada for SE. In this regard, the Commissioner observed that Torpharm’s letter to Brantford only referred to Torpharm’s interest in purchasing SESIC, and made no reference to any interest that Torpharm may have had in the acquisition of SE.
[91] Moreover, the Commissioner noted that there could be no sales of medicinal formulations containing SE, either in Canada or in the United States, in the absence of the requisite regulatory approval.
[92] The Commissioner then observed that to the extent that there was a more generalized market demand in Canada for ACE inhibitors, that demand was satisfied by Merck’s VASOTEC® brand of enalapril, as well as by the other available ACE inhibitors.
[93] The question then arises as to whether the “demand” referred to in paragraph 65(2)(c) of the Patent Act has to be an existing demand, or could be an anticipated demand. This issue was not explicitly addressed by the Commissioner, but it is implicit in his decision that it found that the demand had to be one that was in existence at the time of the application for a compulsory license.
[94] The proper interpretation of paragraph 65(2)(c) of the Patent Act is a question of law. While I have accepted that the Commissioner has a general expertise in patent matters, I am not persuaded that he has significant expertise in statutory interpretation, particularly as it relates to questions that do not involve the technicalities of patents. For this reason, I am satisfied that the Commissioner’s interpretation of this provision should be reviewed against the standard of correctness.
[95] In deciding whether the Commissioner’s interpretation was correct, I am guided by the admonition of the Supreme Court of Canada in Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at ¶ 21, that when approaching questions of statutory interpretation, the words of an Act are to be read in their entire context, in their grammatical and ordinary sense, harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.
[96] In this case, reading the words of paragraph 65(2)(c) of the Patent Act in their grammatical and ordinary sense, it is clear that the provision is concerned with the existing demands of the market in this country, and the extent to which those demands are being met.
[97] In this regard, I note that the provision refers to “the demand” and does not use language such as “the anticipated demand”, “the future demand” or “the potential demand”, thereby suggesting that the demand must be one that actually exists.
[98] Moreover, the provision also requires a determination of whether the demand in question “is being met”, indicating that an evaluation must be carried out as to the extent to which the demand is currently being met – not whether it would be met at some future date. This further confirms that the demand in issue must be one that actually exists.
[99] Brantford submits that paragraph 65(2)(c) of the Patent Act could not reasonably be interpreted in the manner that I have suggested, as it would be impossible for it to demonstrate an existing consumer demand for an SE-based medicine, given that no such formulation could have been put on the market because of the existence of the ’349 patent.
[100] This may be so, but it would be open to a company in Brantford’s position to demonstrate the presence of an existing market demand for, by way of example, a more effective or faster-acting ACE inhibitor, or one with greater bio-availability or fewer side-effects, such as the one that the applicant for the compulsory license proposed to market.
[101] In this case, there was no evidence before the Commissioner that SE-based medicines have different therapeutic attributes than do the ACE inhibitors currently on the market in Canada, or that there was any existing market demand for medicines with the unique attributes of SE.
[102] The evidence adduced by Brantford in this case does suggest that its SE-based products would be cheaper than the ACE inhibitors currently available in Canada. This may well be true, but what this indicates is that Brantford’s products could potentially satisfy a market demand for cheaper ACE inhibitors. It does not demonstrate an existing Canadian market demand for medicinal formulations containing SE.
[103] Moreover, the “demand” for a patented article does not include a potential demand for a cheaper version of the article being sold: see Brownie Wireless Co., (1929) 46 R.P.C. 457.
[104] As a consequence, I am not persuaded that the Commissioner erred in making his factual finding that there was no demand in Canada for SE. The absence of any such demand is sufficient to put an end to the Commissioner’s inquiry under the provisions of paragraph 65(2)(c) of the Patent Act.
[105] That is, in the absence of an established demand in Canada for the SE patented article, the Commissioner was not required to proceed to the next step, and to evaluate the extent to which that demand was being met.
[106] That said, to the extent that the Commissioner did go on to address the issues of market demand and satisfaction, he did not, as Brantford would have me find, compare apples to oranges, in finding that the market demand that does exist in this country is being adequately satisfied by Merck’s VASOTEC® product.
[107] Rather, what the Commissioner found was that to the extent that the existing Canadian market demand was for enalapril-based medicines, this demand was being adequately satisfied by Merck’s VASOTEC® product. I see no error in this conclusion.
[108] As a consequence, I am satisfied that the Commissioner’s factual finding that there was no existing market demand for SE-based medicines was one that was reasonably open to him on the evidence, and should not be disturbed.
[109] Having failed to demonstrate any reviewable error on the part of the Commissioner in relation to its consideration of Brantford’s application under paragraph 65(2)(c) of the Patent Act, it remains to be determined whether the Commissioner erred in his assessment of the application under the provisions of paragraph 65(2)(d) of the Act. This will be considered next.
Paragraph 65(2)(d) of the Patent Act
[110] For ease of reference, paragraph 65(2)(d) of the Patent Act is reproduced again here. It provides that:
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65. (2) The exclusive rights under a patent shall be deemed to have been abused in any of the following circumstances:
[…]
(d) if, by reason of the refusal of the patentee to grant a licence or licences on reasonable terms, the trade or industry of Canada or the trade of any person or class of persons trading in Canada, or the establishment of any new trade or industry in Canada, is prejudiced, and it is in the public interest that a licence or licences should be granted …
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65. (2) Les droits exclusifs dérivant d’un brevet sont réputés avoir donné lieu à un abus lorsque l’une ou l’autre des circonstances suivantes s’est produite :
[…]
d) par défaut, de la part du breveté, d’accorder une ou des licences à des conditions équitables, le commerce ou l’industrie du Canada, ou le commerce d’une personne ou d’une classe de personnes exerçant un commerce au Canada, ou l’établissement d’un nouveau commerce ou d’une nouvelle industrie au Canada subissent quelque préjudice, et il est d’intérêt public qu’une ou des licences soient accordées … |
[111] As the Commissioner observed, there are three things that must be established in order to find patent abuse under this provision. First, there must be a refusal by the patentee to grant a licence on reasonable terms. Second, there has to be prejudice to the trade or industry in Canada, or the trade of any person or class of persons trading in Canada or the establishment of any new trade or industry in Canada. Finally, it has to be in the public interest that the licence be granted.
[112] It should also be noted that this list is conjunctive, meaning that an applicant for a compulsory license has to satisfy all three elements of the test in order to be entitled to relief.
[113] The first question, then, is whether there had been a refusal on the part of Merck to grant a licence to Brantford on reasonable terms.
[114] After a careful review of the exchange of correspondence between Brantford and Merck, the Commissioner found Brantford’s initial letter of April 17, 1998 amounted to the opening of negotiations. By its July 15, 1998, letter, Brantford had provided Merck with “sufficient basic information” as to allow it to consider whether it could voluntarily grant Brantford a licence.
[115] The Commissioner then went on to observe that paragraph 65(2)(d) of the Patent Act requires a refusal to grant a licence on reasonable terms. The next question, then, was whether Merck had refused to grant a licence to Brantford on reasonable terms.
[116] In this regard, the Commissioner noted that that Brantford never offered Merck any specific terms for a possible licence, prior to bringing its first application for a compulsory license on September 16, 1998.
[117] The Commissioner found that the onus was on Brantford to suggest terms and conditions for the licence, and not just to provide Merck with basic information. The first time that possible terms for a licence were proposed by Brantford was in its September 16, 1998 application for a compulsory license. However, the Acting Commissioner of Patents had declined to direct Brantford to serve this application on Merck. As a consequence, the Commissioner found as a fact that the first time that Brantford actually communicated its suggested terms for a licence to Merck was when Brantford’s second application for a compulsory license was served on Merck in July of 1999.
[118] Finally, the Commissioner considered whether Brantford had provided Merck with enough time to consider its request for a licence, noting that Brantford’s July 15 letter has asked for a response from Merck “within the next few days”.
[119] After examining the sequence of events, the Commissioner found that Merck had not been provided with sufficient time by Brantford to consider its position with respect to the granting of a voluntary licence prior to Brantford commencing its first application for a compulsory licence on September 16, 1998.
[120] Moreover, the Commissioner found that once Brantford had commenced its initial application for a compulsory license, it was unreasonable to expect Merck to continue discussions regarding a voluntary licence, when Brantford was alleging that Merck was abusing its patent rights by refusing to grant Brantford a voluntary licence.
[121] As a result, the Commissioner found that the relevant time frame to consider in assessing whether sufficient time had been provided to Merck to make a decision with respect to Brantford’s request for a licence was the period between July 15, 1998, by which time Brantford had provided Merck with “sufficient basic information” as to allow it to consider whether it could voluntarily grant Brantford a licence, and September 16, 1998, when Brantford commenced its first application for a compulsory license.
[122] In all of the circumstances, the Commissioner was not persuaded that there had indeed been a refusal by Merck to grant a licence to Brantford on reasonable terms, prior to Brantford having commenced its initial application for a compulsory license.
[123] Brantford submits that having found as a fact that by July 15, 1998, it had provided Merck with “sufficient basic information” as to allow Merck to consider whether it could voluntarily grant Brantford a licence, the Commissioner erred in law by imposing on Brantford the additional requirement that it have offered “reasonable terms” to Merck before patent abuse could be established.
[124] According to Brantford, a refusal to grant a licence on any terms, or a refusal to even discuss terms, must necessarily amount to “the refusal of the patentee to grant a licence or licences on reasonable terms”.
[125] Moreover, Brantford points to the fact that its initial letter to Merck inquired as to Merck’s royalty rate, and that its July 15, 1998 letter inquired as to the terms that Merck would find acceptable for a licence. Brantford submits that Merck’s silence between the time that it received Brantford’s July 15, 1998 letter and the time that Brantford’s second application was served on Merck in July of 1999 clearly amounted to a refusal on Merck’s part to even discuss reasonable terms for a licence, and suffices to establish patent abuse.
[126] Brantford’s submissions raise two questions: one is whether the Commissioner erred in law in putting the onus on Brantford to propose terms for a licence. The second is whether the facts and circumstances surrounding the communications between the parties can support the Commissioner’s finding that there was no refusal by Merck to grant a licence to Brantford.
[127] I do not need to address Brantford’s first question, as the answer to the second question is determinative of this aspect of Brantford’s appeal.
[128] That is, while the Commissioner found that Merck had enough basic information to consider Brantford’s request for a licence by the time that it received Brantford’s July 15, 1998 letter, the Commissioner’s decision ultimately turned on the finding that Brantford did not give Merck enough time to consider its position prior to Brantford commencing proceedings under the patent abuse provisions of the Patent Act.
[129] The question, then, is whether the facts and circumstances surrounding the communications between the parties can support the Commissioner’s finding that there was in fact no refusal by Merck to grant a licence to Brantford.
[130] The Commissioner’s finding is clearly a finding of fact, and as such, it is entitled to deference. Here once again, however, I need not determine whether this finding should be reviewed against the standard of reasonableness or that of patent unreasonableness, as I am satisfied that the finding was one that was entirely reasonable in light of the evidence that was before the Commissioner, and that it can withstand a somewhat probing examination.
[131] In coming to this conclusion I note that Brantford’s initial request was for a significant amount of SESIC, and that later correspondence also raised the possibility of the potential manufacture of SE by Brantford and/or Torpharm as well.
[132] This request undoubtedly required careful consideration by Merck, insofar as its commercial implications for Merck. Moreover, consideration would surely also have to have been given to the implications of Brantford’s request in light of the outstanding 1994 Federal Court injunction enjoining Apotex, its related companies and their officers and directors, including Dr. Sherman, from infringing the ’349 patent. No doubt legal advice would have had to be sought in this regard. All of this would have taken time.
[133] Having allowed Merck a mere 60 days to consider its request, and without attempting any further follow up with Merck, or putting Merck on notice of its intention to allege patent abuse, Brantford then commenced its first section 65 application.
[134] The Commissioner found as a fact that not enough time had been afforded to Merck by Brantford to consider Brantford’s request, and that, in the circumstances, Merck’s silence during the intervening 60 day period could not be construed as a refusal. In my view, in all of the circumstances, this finding is entirely reasonable.
[135] It appears that Merck did in fact become aware of Brantford’s pending application in October of 1998, through a routine “sweep” of the Patent Office. While it would have been open to Merck to continue its discussions with Brantford in the face of Brantford’s pending application, I cannot say that the Commissioner’s finding that it was unreasonable to expect it to do so in the face of Brantford’s allegations of patent abuse was one that was not reasonably available to him on the evidence.
[136] As was noted above, quite independent of any question as to who had the burden of proposing terms for the licence, the Commissioner’s decision ultimately turned on the finding that Brantford did not give Merck enough time to consider its position prior to commencing proceedings under the patent abuse provisions of the Patent Act. Given that I have concluded that this finding was one that was reasonably open to the Commissioner, I do not need to address Brantford’s arguments in relation to the question of onus.
[137] Moreover, there is no need to address Brantford’s arguments relating to the issues of prejudice to trade or industry, and where the public interest might lie, as these considerations are only engaged once it is established that there has been a refusal to grant a licence.
Conclusion
[138] For these reasons, Brantford’s appeal is dismissed, with costs.
JUDGMENT
THIS COURT ORDERS AND ADJUDGES that the appeal is dismissed, with costs.
FEDERAL COURT
NAME OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-1651-05
STYLE OF CAUSE: BRANTFORD CHEMICALS INC. (sub. Nom. APOTEX PHARMACHEM INC.) v.
COMMISSIONER OF PATENTS, ATTORNEY GENERAL OF CANADA and MERCK & CO., INC.
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: September 6, 2006
APPEARANCES:
H.B. Radomski
Miles Hastie FOR THE APPELLANT
G. Alexander Macklin, Q.C.
Jane Clark FOR THE RESPONDENT -
MERCK & CO., LTD.
SOLICITORS OF RECORD:
GOODMANS LLP
Barristers & Solicitors
Toronto, Ontario FOR THE APPELLANT
GOWLING LAFLEUR HENDERSON LLP
Barristers & Solicitors
Ottawa, Ontario FOR THE RESPONDENT -
MERCK & CO., LTD.
John H. Sims, Q.C.
Deputy Attorney General of Canada FOR THE RESPONDENTS –
COMMISSIONER OF PATENTS & ATTORNEY GENERAL OF CANADA