With its second Galderma decision, the Federal Court of Appeal has decisively intervened to clarify the scope of the PMPRB’s jurisdiction. This decision brings welcome clarity to the law for life sciences companies whose medicines are subject (or potentially subject) to the PMPRB’s regulatory jurisdiction.
The “Merest Slender Thread” Test
For decades, the PMPRB’s jurisdiction was determined by the so-called “slender thread” test, which allowed the Board to regulate medicine prices even if there was no active patent on that medicine. For example, in the seminal ICN case, the medicine itself was not protected by a product patent. While there was a process patent, the patented process could not be used at a commercial scale, and the medicine that was actually marketed in Canada was not produced using the patented process.[1] The PMPRB nonetheless asserted jurisdiction, and its decision to do so was upheld by the Federal Court of Appeal. In so doing, the ICN court ruled that the PMPRB did not need to show that the regulated product was actually protected by a patent, as long as it was connected to a Canadian patent by the “merest slender thread.”[2]
The Federal Court of Appeal’s Decision in Galderma (No 1)
The slender thread test was put into question when the PMPRB asserted regulatory jurisdiction over the drug Differin for the years 2010-2016, even though Differin had been off-patent since 2009. The PMPRB justified its assertion of jurisdiction by pointing to another patent held by Galderma, which protected a different medicine, Differin XP. Even though Differin itself was no longer patented, the Board claimed that Differin was connected to the Differin XP patent via merest slender thread.
As we covered in past bulletins, while the PMPRB’s decision was upheld on judicial review, Galderma successfully appealed that ruling to the Federal Court of Appeal. In Galderma (No 1), the Federal Court of Appeal cautioned that the “merest slender thread” was a metaphor, not a legal test, and that the PMPRB’s jurisdiction had to respect the constraints imposed by the Patent Act.[3] The Court of Appeal found that the PMPRB’s decision did not reasonably engage with these constraints and quashed it, but ultimately declined to decide the question itself. Instead, the case was remanded back to the PMPRB for reconsideration.[4]
On remand, the PMPRB reached the same conclusion, once again asserting jurisdiction over Differin despite the absence of any active patent. This set the stage for another round of judicial reviews and appeals.
The Federal Court of Appeal’s Decision in Galderma (No 2)
Writing for a unanimous bench, Justice Stratas allowed Galderma’s appeal, holding that the PMPRB had exceeded its jurisdiction. His reasons begin with the following statement: “Quite simply, under the Constitution, the Patent Act and the jurisprudence under each, the Board does not have the power to regulate the prices of unpatented medicines during the period they are unpatented.”[5]
Expanding on that principle, Justice Stratas explained that all three of these sources impose limits on when and how the PMPRB can regulate medicine prices:
- The Constitution Act, 1867, limits federal jurisdiction over medicine prices to medicines which are protected by patent, or which fall within some other source of federal power, such as national emergencies. This is because absent an express source of federal jurisdiction, “freestanding consumer protection and general price regulation are provincial responsibilities.”[6] In particular, constitutional limitations mean that the PMPRB has no jurisdiction over unpatented medicines.[7]
- The Patent Act itself is “carefully drawn to stay within the federal constitutional power over patents” and thus does not purport to allow the PMPRB to regulate unpatented medicines.[8]
- Cases from courts of all levels have emphasized that the PMPRB’s jurisdiction is subject to these constitutional and statutory limits. Here, the Federal Court of Appeal cited several examples of its own past decisions, as well as the Quebec Court of Appeal’s landmark Merck Canada ruling (which struck down several aspects of the Patented Medicines Regulations as being beyond federal jurisdiction; the government subsequently withdrew those parts of the regulations).
In light of these authorities, Justice Stratas found that the PMPRB “crashed through the constitutional, statutory and jurisprudential guardrails” over its administrative authority.[9]
Specifically, since the Differin patent was expired, and since the Differin XP patent did not cover the medicine over which the PMPRB was asserting jurisdiction, it was impossible for the Board to take jurisdiction over the price of Differin.[10]
Justice Stratas ended his reasons by admonishing the PMPRB that it “must temper its dedication and enthusiasm with a firm and unwavering obedience to legality and the rule of law. Like all administrative decision-makers, the Board must stay within the constraints imposed by the Constitution, its governing statute (the Patent Act, interpreted reasonably in the administrative law sense), and the jurisprudence under each.”[11]
Practical Implications
The Federal Court of Appeal’s decision in Galderma (No 2) is a robust and clear decision about the limits of the PMPRB’s jurisdiction. In contrast to Galderma (No 1), the Federal Court of Appeal determined the merits of the case, rather than sending it back to the Board for a third time.
Remarkably, Galderma (No 2) does not contain a single reference to the so-called “slender thread” test, which seems to have first been demoted from a test to a metaphor, and is now considered wholly irrelevant. Instead, Galderma (No 2) holds that the PMPRB’s jurisdiction must be established by asking whether a medicine is still protected by a patent, which will likely require a formal claim construction showing that a medicine falls within the scope of a patent.
This decision may also have a material impact on the PMPRB’s ongoing Guidelines modernization project, including a potential delay to the anticipated December 19, 2024, publication.
In meantime, the decision provides much-needed clarity to an area of the law that was previously under-developed and uncertain. Subject to a successful leave-to-appeal application to the Supreme Court, patentees can now take comfort in the Federal Court of Appeal’s common-sense conclusion that: “The Board does not regulate the pricing of unpatented medicines. After all, it’s right in the Board’s name: the Board is the ‘Patented Medicine Prices Review Board’, not the ‘Patented and Unpatented Medicine Prices Review Board’ or the ‘All Medicine Prices Review Board’.”
