The Patented Medicines (Notice of Compliance) Regulations ; Litigation Procedure and Remedies

1. The Patented Medicines (Notice of Compliance) Regulations;Litigation Procedure and Remedies University of TorontoIP298HS Andy Radhakant (aradhakant@ogilvyrenault.com; 416 216 6628) March 8, 2005 © Andy Radhakant, 2005 2481-0304

2. Outline • Background: • Why special rules for pharma patentees? • Evolution of pharmaceutical patent legislation • PM(NOC) Regulations • Drug Regulation 101 • Rationale for linkage regulations • Procedure and issues; pros and cons for each side • Litigation Procedures and Remedies

3. Why special rules for pharmaceutical patentees? • Two irreconcilable goals: • Encourage invention and development of new medicines by promising a limited period of market exclusivity • Ensure that new medicines become as widely available as possible, as quickly as possible, at the lowest prices possible

4. Why special rules for pharmaceutical patentees? • Exceptionally wide gap between investment (time, money and risk) required to bring a new drug to market and ease with which it can be copied • Automatic substitution of generic drugs for brand-name drugs without regard to doctor’s instructions • Unwillingness of Canadian courts, especially Federal Court, to grant remedies to prevent patent infringement in pharma context • No interlocutory injunctions • No quia timet relief (see VIAGRA v. CIALIS, 2003 FCT 753)

5. The Evolution of Pharmaceutical Patent Legislation 1923-1969 • Impossible to obtain a patent for a medicine • Patents available for processes to make medicines • Patents available for medicines when made by the patented process (“product-by-process” claim) • Compulsory licences (to make the medicine in Canada) were available as of right • Not many companies were interested (Canadian market too small); only 22 compulsory licences issued

6. The Evolution of Pharmaceutical Patent Legislation 1969: Party Time for Generics in Canada • The Patent Actwas amended to allow the issuance of compulsory licences to import patented medicines • Between 1969 and 1985, 400 licences were granted for importation of drugs (royalty was 4% of net selling price of drug in final form) • Once a licence was granted, Courts would not interfere • Several high-profile Canadian drug research centres (especially in Quebec) shut down

7. The Evolution of Pharmaceutical Patent Legislation 1987: Bill C-22: encourage multinationals to do R&D in Canada • Patents now available for medicines, not limited to process patents or product-by-process patents • Establishment of Patented Medicine Prices Review Board to ensure prices of patented medicines are not “excessive” • Regulates the prices of patented medicines, new and existing, sold in Canada, by prescription or not • Has no authority to regulate prices of non-patented drugs (including generic drugs), price mark-ups by retailers or pharmacists’ dispensing fees

8. The Evolution of Pharmaceutical Patent Legislation 1993: Bill C-91 • All compulsory licences granted after December 20, 1991 are retroactively abolished • Generics are given the right to infringe patents for uses reasonably related to development of regulatory submissions (“early working” / “Bolar” exception) • Generics are given right to stockpile drugs for release immediately after patent expiry (repealed 2001) • Governor-in-Council is given power to make regulations linking the patent system with Health Canada’s generic drug approval system:  PM(NOC) Regulations, March 12, 1993

9. The PM(NOC) Regulations Overview • Created to prevent the infringement of patents pertaining to medicines • Minister of Health is required to maintain a register of patents (“Patent Register”, www.patentregister.ca) relating to medicines • Innovative drug companies that have submitted an application for marketing approval (a “notice of compliance” or NOC) may request that relevant patents be listed on the Patent Register

10. The PM(NOC) Regulations Overview • A generic manufacturer submits an abbreviated new drug submission comparing its drug to an innovator’s drug. If the Patent Register lists patents for that innovative drug, the generic must address those patents by • Accepting that the generic will not receive a notice of compliance until the patents expire (this almost never happens), or • Delivering a notice of allegation to the innovator stating that the patents are invalid, or would not be infringed, or both (and legal and factual basis for allegations).

11. The PM(NOC) Regulations Overview • Service of an NOA on an innovator gives the innovator the right to apply (within 45 days) to Federal Court for an order prohibiting the Minister of Health from granting an NOC to the generic until the patents expire. • While this application is underway, the Minister of Health is prohibited from granting an NOC to the generic for up to two years. • If innovator wins, Court orders that Minister of Health is prohibited from issuing the NOC until the patents expire.

12. The PM(NOC) Regulations Overview • The scheme “links” private patent rights with a public health protection system (generic drug approval system at Health Canada) • Why linkage? • U.S.: Hatch-Waxman Act (Drug Price Competition and Patent Term Restoration Act, 1984)

13. The PM(NOC) Regulations Overview • “In this appeal this Court is again called upon to struggle with the difficult task of interpreting the newly adopted Patented Medicines (Notice of Compliance) Regulations. In large measure, the difficulty is due to the fact that those regulations, whose clear intention is to facilitate the protection of private commercial patent rights, have been grafted onto a regulatory scheme, the Food and Drug Regulations, whose sole purpose is the protection of public health and safety. The union is not a happy one.” (Hugessen J.A.)

14. The PM(NOC) Regulations Pros & Cons for Innovators Pros • Automatic deferral of generic NOC for up to 24 months while court application is underway • Possibility of multiple consecutive 24-month deferrals of generic NOC by appropriate timing of listing of patents on the Patent Register • Even if innovator loses, it retains right to commence patent infringement action

15. The PM(NOC) Regulations Pros & Cons for Innovators Cons (Compare to Hatch-Waxman) • No right of appeal for innovators (generics retain full rights of appeal) • Innovator is applicant and bears the burden of disproving generic’s allegations as stated in an unsworn NOA • No right of discovery (leads to shadow-boxing on infringement issues if Court declines to order generic to produce samples) • Section 8: possibility of requirement to disgorge worldwide profits

16. The PM(NOC) Regulations Pros & Cons for Generics Pros • Can attack patents on multiple grounds in a summary way in an unsworn notice of allegation that is presumed to be true • Generic is respondent; can “wait and see” what evidence innovator comes up with regarding validity and infringement • Full rights of appeal (no right of appeal for innovators) • Section 8: Possibility of winning disgorgement of innovators’ worldwide profits during period generic was wrongfully kept off the market • Generics retain right to commence action for patent impeachment if they lose PM(NOC) application

17. The PM(NOC) Regulations Pros & Cons for Generics Cons • Loss of business confidentiality • patentees informed when generic has filed an abbreviated new drug submission (generic must send NOA to patentee) • entire world (i.e, other generics) is informed of generic’s NOA when innovator launches court proceeding • Automatic deferral of generic NOC for up to 24 months • Possibility of multiple, sequential 24-month deferrals as a result of strategic timing of listing of patents on the Patent Register

18. The PM(NOC) Regulations The Way Forward Canada Gazette, Part I, December 11, 2004 • Proposed amendments to PM(NOC) Regulations, if brought into force in their current form, will make the Regulations significantly more generic-friendly • Amendments are intended to reduce scope for multiple, sequential 24-month automatic deferrals of generic NOCs • Comment period expired February 24, 2005

19. Litigation Procedures and Remedies Where? Federal Court (considered to have IP expertise) • A statutory court with only the jurisdiction given to it by statute (in this context, see Patent Act and Federal Courts Act) • Exclusive jurisdiction to impeach a patent (Federal Courts Act, para. 20(1)(b) • Exclusive jurisdiction in case of patent “conflicts” (Federal Courts Act, para. 20(1)(a) • Exclusive jurisdiction over appeals from a refusal of the Commissioner of Patents to grant a patent (Patent Act, s. 41)

20. Litigation Procedures and Remedies Actions (infringement, impeachment) • Pleadings  motions (strike pleadings; provide particulars; Anton Piller order) • Discovery of documents  motions (confidentiality; better affidavit of documents; documents from parents/subsidiaries/affiliates or third parties) • Examination for discovery (including examination of inventors as “assignors”)  motions (undertakings, refusals, questions taken “under advisement”; examination for discovery of third parties; summary judgment) • Trial

21. Litigation Procedures and Remedies Actions (infringement, impeachment) • Patent actions will often turn on experiments • Experiments to show claimed processes or compounds won’t work • Experiments to show that a skilled person following the prior art inevitably produces something within the claim • Experiments to show infringer’s supposedly non-infringing process doesn’t work • Notice required? Notice not required? Other side to be invited?

22. Litigation Procedures and Remedies Actions (infringement, impeachment) • Patent actions will turn on expert evidence • Selection criteria: • Expertise (strong credentials; independence; experience in the trenches) • Good teacher • Experience/inexperience as a witness (danger of coming across as a “professional witness” reduced for professionals like accountants)

23. Litigation Procedures and Remedies Remedies • Permanent injunction • Delivery up and destruction of infringing articles • Damages or accounting of profits

24. Litigation Procedures and Remedies Damages • If patentee sells articles, measure of damages will be profits lost on sales patentee would have made if the infringer had acted properly. Factors to be considered (expert evidence – economists, marketing experts): • Presence of competing products • Advantages of patented product over competitors • Market positions of patentee and infringer • Market shares before/after entry of infringer

25. Litigation Procedures and Remedies Damages • Other contributors to damages: • “Springboard” advantage (accelerated market entry) accruing to infringer • Convoyed sales (patented article is merely a component of a more complex article, or is sold in association with other articles) • Profits lost due to price reduction forced by competition with infringer • Loss of economies of scale

26. Litigation Procedures and Remedies Damages • If patentee doesn’t sell articles but allows others to use the invention in exchange for royalty, measure of damages is reasonable royalty. Factors to be considered (expert evidence – economists, marketing experts): • Royalty rate in actual prior licences • Novelty of the invention • Royalty negotiated in other trades • Profitability of the invention

27. Litigation Procedures and Remedies Accounting of Profits • Goal: to deprive infringer of benefit accruing from the infringement • Rarely used for almost a century until 1982 (Teledyne v. Lido)

28. Litigation Procedures and Remedies Accounting of Profits • Equitable remedy (cf. damages, which are a legal remedy)  equitable factors may disentitle you from asking for profits • Delay (in commencing or prosecuting proceedings) • Misconduct (unclean hands) • Failure to work the patented invention in Canada • Big advantage for patentee: infringer has to throw open its books in an accounting of profits (infringer has burden to justify every deduction that would reduce profits)

29. Litigation Procedures and Remedies Accounting of Profits • Profit = revenue – expenses, but devil is in the details • “The litigation is enormous, the expense is great, and the time consumed is out of all proportion to the advantage ultimately obtained; so much so that in partnership cases I confess I never knew of an account in that form worked out with satisfaction to anybody. I believe that in almost every case people get tired of it and get disgusted.” Siddell v. Vickers (1892)

30. Litigation Procedures and Remedies Accounting of Profits • Devil is in the details (profit = revenues – expenses) • Which revenues arise from the infringement? (Beware: Monsanto v. Schmeiser, [2004] 1 S.C.R. 902: patentee only entitled to the portion infringer’s profits which is causally attributable to the invention, i.e., nothing) • Combination products: which profits arise from the patented part of the final combination? • Which expenses are allowed? (not legal costs, nor expenses which would have been incurred had infringing operation not taken place) • GAAP not designed for this kind of inquiry (isolating the contribution of a single product)

31. Litigation Procedures and Remedies Bifurcation • Patentee will normally find it attractive to defer damages/profits inquiry until after trial on liability • Federal Courts Rules, Rule 107: trial of an issue/order that issues be separately determined • Possibly a trend away from automatically separating quantum issues from liability issues where parties do not consent to bifurcation

32. The Patented Medicines (Notice of Compliance) Regulations;Litigation Procedures and Remedies University of TorontoIP298HS Andy Radhakant (aradhakant@ogilvyrenault.com; 416 216 6628) March 8, 2005 © Andy Radhakant, 2005 2481-0304