Scour the 2015 docket for the Federal Court of Canada and, when it comes to patents, the pharmaceutical sector continues to be a particularly litigious bunch. Four pharmaceutical patents are being contested this year versus a total of seven across all the other sectors represented.
Yet, if history is any indicator, most pharmaceutical litigants will dash out of court the minute their cases come to trial in order to hammer out a secret agreement. It’s those deals – often pay-for-delay settlements between brand-name pharmaceutical companies and the generics competitors that want to push into their profitable businesses – that have grabbed the attention of John Pecman, Canada’s new Commissioner of Competition.
Soon after becoming Commissioner in June 2013, Pecman – through speeches, white papers and workshops – signaled to Big Pharma that any life-cycle management strategies, mergers and payment settlements that potentially impede competition will be investigated. According to Anita Banicevic, a partner with Davies Ward Phillips & Vineberg LLP, the Competition Bureau has “staked out an aggressive position. They have linked the pharma issues as important to Canadians.”
Last September, in a speech made at a pharmaceutical antitrust conference in Virginia, Pecman announced that “the Bureau has taken a keen interest in reverse-payment settlements and product-hopping issues, given the possibility that they may delay generic entry.”
Both strategies allow patent holders to hang onto their monopolies for longer than they would normally be able to. In pay-for-delay (aka reverse-payment) settlements, a patent holder agrees to pay their competitor money to stay out of its market for a set period. With product-hopping, a brand-name innovator tweaks one of its existing drugs enough to secure a new patent, then suspends sales of the old drug in order to force consumers to switch to the new (often more expensive) product.
In the United States, pay-for-delay settlements between pharmaceutical competitors have become commonplace. But, since 2003, participating companies have been made to report details of such deals to antitrust agencies — thrusting them into the political and public eye. No such requirement exists in Canada. But Richard Wagner, a senior competition lawyer at Norton Rose Fulbright Canada LLP, expects that to change: “You heard it here first. Look for it in the budget amendments in February or March. It’s very pro-consumer and would make a great election campaign promise for the Conservatives.”
Pecman’s statements might be palatable to consumers, but they’re causing the pharmaceutical industry and its lawyers some “heartburn,” says Wagner. Pecman has indicated that the Bureau would not necessarily follow the 2013 US Supreme Court ruling in FTC v. Activis, which subjects pay-for-delay agreements to a legal test in order to determine whether they’re likely to result in anti-competitive harm.
Pecman, however, has suggested that in Canada any agreement between a brand-name drug maker and a generic – even one permitting a generic to enter the market with its own drug before a patent expiry – could contravene the Competition Act. That goes further than Activis and the US view that early-entry agreements are, generally, pro-competition.
Historically, Canada has used US precedents in pharmaceutical antitrust cases as benchmarks in Canada because there’s little jurisprudence or guidance here. “It’s interesting,” says Wagner, “because the Commissioner, both in a white paper and his speech the same day, said there’s no real difference between the Canadian and US system. Well, I beg to differ.”
One prime difference is Canada’s Patented Medicines Notice of Compliance (PMNOC) regulation, which allows generic manufacturers to challenge an innovator’s patent any time. If the innovator fails to defend their patent, moreover, the regulation permits a generic to seek damages for the time it’s been kept off the market. Wagner says that provision means a Canadian court should do a different analysis than a US court because a patent-holder here may be able to justify the additional financial risk of PMNOC as a reasonable factor in reaching an out-of-court pay-for-delay settlement with a generic.
Some lawyers question the impact the Bureau can even have on pharmaceutical competition. One is Melanie Aitken, Managing Principal of Bennett Jones (US) LLP in Washington, DC. Before joining Bennett Jones, Aitken preceded Pecman as Competition Commissioner. She says that, because it’s already regulated by Health Canada, the so-called regulated conduct doctrine would likely limit the Competition Bureau’s enforcement efforts activities in the pharmaceutical sector. Though not a black and white matter, “if somebody already occupies the [regulatory] field, you don’t go in,” says Aitken. The Bureau will “need a great amount of agility to evade the roadblocks [it’s] going to hit if you try to enforce the competition laws in that sector.”
Not just agility, but resources. The Competition Bureau, says Aitken, “has a serious resource question. It’s a very low-funded institution and [the Commissioner] has a number of big cases going on right now. He has a lot on his plate. Taking on Big Pharma would be a very big bite to take.”