Federal Court Decisions

     T-1312-96

Between:

     MERCK FROSST CANADA INC. and

     MERCK & CO., INC.

     Applicants,

     - and -

     THE MINISTER OF NATIONAL HEALTH AND WELFARE,

     GENPHARM INC. and YAMANOUCHI PHARMACEUTICAL CO., LTD.,

     Respondents.

     REASONS FOR ORDER

Muldoon, J.

     This is an application, commenced by an originating notice of motion on June 4, 1996, under section 55.2 of the Patent Act, R.S.C. 1985, Chap.P-4 (the Act), and section 6 of the Patented Medicines (Notice of Compliance) Regulations, SOR/93-133 (the regulations) for an order prohibiting the Minister of National Health and Welfare (the Minister) from issuing the respondent Genpharm a notice of compliance (NOC) for the medicine famotidine until after the expiry of Canadian Patent No. 1,222,763 (the '763 patent).

     In support of their application, the applicants have filed the affidavits of W.H. Guy Sahed and Brian McLeod. The respondent Genpharm filed the affidavit of Calvin Davies. All were cross-examined.

     The patent at issue in this case is a re-issue of a patent issued on November 2, 1982, to Yamanouchi Pharmaceutical of Japan and will expire on November 2, 1999. Merck & Co. alleges that it is the sole licensee under the patent, and Merck Frosst Canada Inc. alleges that it is the sole sublicensee (application record, (AR), vol. I, tab 2: p. 7).

     At some time not apparent in the record, Merck Frosst filed a new drug submission (NDS) for 20mg and 40mg tablets of famotidine. An NOC was issued on October 7, 1986. After filing another NDS on March 31, 1993, Merck Frosst received an NOC for 10mg famotidine tablets on February 14, 1996. Around the time when the 10mg famotidine NDS was filed, Merck Frosst filed Form IV patent lists for 10mg, 20mg and 40mg famotidine tablets, which listed the '763 patent, pursuant to the section 4 of the regulations.

     The respondent Genpharm Inc. is a Canadian generic drug manufacturer which obtained a compulsory license (No. J2324-41(4)-944) for famotidine under subsection 39(4) of the Act on November 18, 1989. With respect to the '763 patent, the compulsory licence allows Genpharm to use the process to prepare the claimed medicine, to import a medicine prepared by this process and to sell such medicine. It also allows Genpharm to import the invention to use and prepare the medicine, and to make, use and sell the invention for medicine and for the preparation of medicine (respondent's record, (or RR), tab I; AR, vol. 1, tab 2H). Section 39.11 of the Act prohibits Genpharm from importing famotidine until 10 years after the first NOC was granted (Merck's NOC, granted on October 7, 1986) if Genpharm receives an NOC.

     Genpharm filed an NDS for 20mg and 40mg famotidine tablets on January 31, 1991. On June 22, Genpharm filed its Form V and a detailed statement, and served a notice of allegation on the applicants. No action was taken by the applicants. Genpharm received its NOC for 20mg and 40mg famotidine tablets on November 22, 1995 (RR, tab 1). Genpharm filed a supplementary NDS for a 10mg formulation of famotidine on March 13, 1996, apparently in anticipation of being able to sell it over-the-counter. Because the 10mg formulation is composed of the same compound as the 20mg and 40mg NDS, it was not necessary to complete an NDS (RR, tab 1). On April 17, 1996, the notice of allegation with detailed statement was served on the applicants. The pertinent parts of that allegation read as follows (AR, tab H):

This constitute Genpharm Inc.'s ("Genpharm") Notice of Allegations and Detailed Statement * * *

no claim for the medicine itself and no claim for the use of the medicine would be infringed by Genpharm's making, constructing, using or selling of Famotidine Tablets in the above-identified strength ("the drug")

* * *

Legal and Factual Basis for the Allegation

Canadian Patent No. 1,222,763

2)      Genpharm holds a valid and subsisting compulsory license number J2324-41(4)-944 which was granted on November 18, 1989. Canadian Patent No. 1,222,763 is covered by this compulsory license.

3)      In respect of each claim in Canadian Patent No. 1,222,763, Genpharm's aforesaid compulsory license grants Genpharm [sic: the right] to do the things specified in the license for the unexpired term of the above-identified patent.

4)      By reason of the grant of Genpharm's aforesaid compulsory license and by operation of the provisions of the Patent Act, R.S.C. 1985, c.P-4, as amended, inter alia, by R.S.C. 1985, c.33 (3rd Supp.) (hereafter "the Act") any famotidine referenced and/or described in Genpharm's above-referenced Supplemental New Drug Submission (SNDS) which infringes any claim of Canadian Patent 1,222,763 is covered by Genpharm's above-identified license and will be duly licensed in accordance with the Act.

     The application presently before the Court was commenced by the applicants, Merck, on June 4, 1996 by an originating notice of motion.

     There are three issues before the Court. First, have the applicants failed to prove that they are the exclusive licensees/sublicensees of the '763 patent in Canada and if so, what is the effect of such failure? The second is whether the time at which the Court looks to determine if an allegation is justified is when the allegation was made or when the application is heard. The third is this: if the time as of which the Court should examine the justifiability of the allegation is the time of allegation, have the applicants established that there was no non-infringing activity possible at that date? The second and third issues are the principal issues, and they are bound up with this Court's earlier decision in Merck Frosst v. Minister of N.H.W. and Apotex, (1996) 65 C.P.R. (3d) 483.

     It is helpful at this juncture to review the regulatory scheme, briefly. Section C.008.004 of the Food and Drug Regulations, C.R.C. 1978, Chap. 8709 states that the Minister shall issue an NOC if the new drug meets the requirements under the Food and Drug Regulations. Because the NOC at issue concerns a patented medicine, reference must be made to the Patented Medicine Regulations.

     The subsection 55.2(4) of the Patent Act provides that

(4) The Governor in Council may make such regulations as the Governor in Council considers necessary for preventing the infringement of a patent by any person who makes, constructs, uses or sells a patented invention in accordance with subsection (1) or (2) including, without limiting the generality of the foregoing, regulations

(a) respecting the conditions that must be fulfilled before a notice, certificate, permit or other document concerning any product to which a patent may relate may be issued to a patentee or other person under any Act of Parliament that regulates the manufacture, construction, use or sale of that product, in addition to any conditions provided for by or under that Act;

     Section 4 of the Patented Medicine Regulations allow the owner or exclusive licensee who applies for an NOC to submit a patent list, which includes a statement of ownership or licence interests in the patents at issue. Subsection 4(1) and paragraph 2(a) read:

4.(1) A person who files, or before the coming into force of these Regulations has filed a submission for or has been issued, a notice of compliance in respect of a drug that contains a medicine may submit to the Minister a patent list

(2) A patent list submitted pursuant to subsection (1) must be certified by the person to be accurate, and must set out

(a) any Canadian patent that is owned by the person, or in respect of which the person has an exclusive licence or has obtained the consent of the owner of the patent for the inclusion of the patent on the patent list, that contains a claim for the medicine itself or a claim for the use of the medicine and that the person wishes to have included on the patent list;

(b) a statement that, in respect of each patent, the person applying for a notice of compliance is the owner, has an exclusive licence or has obtained the consent of the owner of the patent for the inclusion of the patent on the patent list;

"Exclusive licence" must be taken to include "compulsory licence".

     Section 5 of the regulations states:

5. (1) Where a person files or, before the coming into force of these Regulations, has filed a submission for a notice of compliance in respect of a drug and wishes to compare that drug with, or make a reference to, a drug that has been marketed in Canada pursuant to a notice of compliance issued to a first person in respect of which a patent list has been submitted, the person shall, in the submission, with respect to each patent on the patent list,

(a) state that the person accepts that the notice of compliance will not issue until the patent expires; or

(b) allege that

(i) the statement made by the first person pursuant to paragraph 4(2)(b) is      false,

(ii) the patent has expired,

(iii) the patent is not valid, or

(iv) no claim for the medicine itself and no claim for the use of the medicine would be infringed by the making, constructing, using or selling by that person of the drug for which the submission for the notice of compliance is filed.

(2) Where, after a second person files a submission for a notice of compliance, but before the notice of compliance is issued, a patent list is submitted or amended in respect of a patent pursuant to subsection 4(5), the second person shall amend the submission to include, in respect of that patent, the statement or allegation that is required by subsection (1).

(3) Where a person makes an allegation pursuant to paragraph (1)(b) or subsection (2) the person shall

(a) provide a detailed statement of the legal and factual basis for the allegation; and

(b) serve a notice of the allegation on the first person and proof of such service on the Minister.

Sections 6 and 7 of the Patented Medicine Regulations allow the first person who was issued with an NOC to apply to Court to prohibit the Minister from issuing the subsequent NOC. Those sections run, thus

6. (1) A first person may, within 45 days after being served with a notice of an allegation pursuant to paragraph 5(3)(b), apply to a court for an order prohibiting the Minister from issuing a notice of compliance until after the expiration of one or more of the patents that are the subject of an allegation.

(2) The court shall make an order pursuant to subsection (1) in respect of a patent that is the subject of one or more allegations if it finds that none of those allegations is justified.

(3) The first person shall, within the 45 days referred to in subsection (1), serve the Minister with proof that an application referred to in that subsection has been made.

(4) Where the first person is not the owner of each patent that is the subject of an application referred to in subsection (1), the owner of each such patent shall be made a party to the application.

7. (1) The Minister shall not issue a notice of compliance to a second person before the latest of

(a) the expiration of 30 days after the coming into force of these Regulations,

(b) the day on which the second person complies with section 5,

(c) subject to subsection (3), the expiration of any patent on the patent list that is not the subject of an allegation,

(d) subject to subsection (3), the expiration of 45 days after the receipt of proof of service of a notice of any allegation pursuant to paragraph 5(3)(b) in respect of any patent on the patent list,

(e) subject to subsections (2), (3) and (4), the expiration of 30 months after the receipt of proof of the making of any application referred to in subsection 6(1), and

(f) the expiration of any patent that is the subject of an order pursuant to subsection 6(1).

(2) Paragraph (1)(e) does not apply if at any time, in respect of each patent that is the subject of an application pursuant to subsection 6(1),

(a) the patent has expired; or

(b) the court has declared that the patent is not valid or that no claim for the medicine itself and no claim for the use of the medicine would be infringed.

(3) Paragraphs (1)(c), (d) and (e) do not apply in respect of a patent if the owner of the patent has consented to the making, constructing, using or selling of the drug in Canada by the second person.

(4) Paragraph (1)(e) ceases to apply in respect of an application referred to in subsection 6(1) if the application is withdrawn or is finally dismissed by the court.

(5) A court may shorten or extend the time limit referred to in paragraph (1)(e) in respect of an application where the court has not yet made an order pursuant to subsection 6(1) in respect of that application and where the court finds that a party to the application failed to reasonably cooperate in expediting the application.

     To try to make sense of the foregoing, if a second person (usually a generic drug manufacturer) wants to market a new drug, it must submit to the Minister a notice of allegation and statement of the legal and factual basis for the allegation, to the effect that the patent at issue is not valid or will not be infringed. The Minister shall issue the NOC if the new drug complies with the Food and Drug Regulations. The "first person" can apply to Court to prohibit the Minister from issuing a notice of compliance. What the Court must determine is whether the generic drug manufacturer's allegations (of non-infringement) are justified (i.e. correct).

     The Federal Court of Appeal considered the nature of these proceedings in Merck Frosst Canada Inc. et al. v. Minister of National Health and Welfare et al. (1994), 55 C.P.R. (3d) 302. Mr. Justice Hugessen made the following remarks, which are particularly relevant to the disposition of this case:

As I understand the scheme of the regulations, it is the party moving under s. 6, in this case Merck, which, as the initiator of the proceedings, has the carriage of the litigation and bears the initial burden of proof. That burden, as it seems to me, is a difficult one since it must be to disprove some or all of the allegations in the notice of allegation which, if left unchallenged, would allow the Minister to issue a notice of compliance. There may, of course, be some presumptions (such as for example the statutory presumption of validity of a patent) (Patent Act, s. 43) which may help the moving party and have the effect of displacing the burden of proof. The presumption enacted by s. 55.1, however, is not one of them. The proceedings are not an action and their object is solely to prohibit the issuance of a notice of compliance under the Food and Drug Regulations. Manifestly, they do not constitute "an action for infringement of a patent": see Bayer, supra.

Furthermore, since the regulations clearly allow the Minister, absent a timely application under s. 6, to issue a notice of compliance on the basis of the allegations in the notice of allegation, it would seem that on the hearing of such an application, at least where the notice has alleged non-infringement, the court should start from the proposition that the allegations of fact in the notice of allegation are true except to the extent that the contrary has been shown by the applicant. In determining whether or not the allegations are "justified" (s. 6(2)), the court must then decide whether, on the basis of such facts as have been assumed or proven, the allegations would give rise to law to the conclusion that the patent would not be infringed by the respondent.

In this connection, it may be noted that, while s. 7(2)(b) seems to envisage the court making a declaration of invalidity or non-infringement, it is clear to me that such declaration could not be given in the course of the s. 6 proceedings themselves. Those proceedings, after all, are instituted by the patentee and seek a prohibition against the Minister, since they take the form of a summary application for judicial review, it is impossible to conceive of them giving rise to a counterclaim by the respondent seeking such a declaration. Patent invalidity, like patent infringement, cannot be litigated in this kind of proceeding. I can only think that the draftsperson had in mind the possibility of there being parallel proceedings instituted by the second person which might give rise to such a declaration and be binding on the parties. It is in any event, evident that the declaration referred to in s. 7(2)(b) is not a precondition to the ultimate dismissal of the s.6 application, the consequences of which are separately dealt with in s. 7(4).

As a further consequence of the application under s. 6 not being an ordinary action for infringement, there is no opportunity for either party to have recourse to discovery, whether oral or documentary ... Even when there is an opportunity to cross examine, such cross-examination is far more limited in scope than examination for discovery, and apart from question going to the witness' credibility, is limited to relevant matters arising from the affidavit itself. (p. 319-320)

In essence, the prohibition proceeding under the regulations is not a patent infringement action, but a judicial review heard in a summary manner. The onus is on the applicant to prove that the allegations of non-infringement by the generic drug company can be justified. The standard of proof is whether, on a balance of probabilities, the allegation of non-infringement is justified (Eli Lilly and Company et al. v. Novopharm Ltd. et al. (1995), 60 C.P.R. (3d) 417 at p. 430; Bayer AG et al. v. Canada (1996), 107 F.T.R. 188 ).

     This brings the first issue into focus. The applicants alleged that they are the exclusive licensee (Merck & Co.) and sublicensee (Merck Frosst) of the '763 patent held by the Yamanouchi company. According to the Federal Court of Appeal, the applicants have the initial evidentiary burden. First, the applicants must prove that they have standing to bring the application. Normally, this is self-evident as the applicant is usually the "first person" and is served with the notice of allegation. The "first person" is defined in section 2 of the Act as the person referred to in subsection 4(1), that is, the "first person" to receive a notice of compliance with respect to a drug which contains a medicine. Section 6 allows the "first person" to bring the prohibition action. It follows that the applicants have standing to bring the prohibition application solely by virtue of being the "first person" under the regulations.

     What then, of the applicants' failure to prove that it is their "exclusive" licence rights which are being infringed? They have not demonstrated the existence of any licence or sublicence.

     The only evidence in the record supporting the allegation of the applicants' proprietary interest in the '763 patent are the assertions by Mr. Saheb in his affidavit filed in support of this application. Cross-examination revealed that his knowledge of any licence from Yamanouchi was sketchy at best and based on elderly hearsay.

     The licence or a true copy of it is not attached as an exhibit to the affidavit, nor is the sublicence or a true copy so exhibited.

     On cross-examination, Mr. Saheb testified that he had never seen the licence or the sublicence. Proof of a licensing agreement of any kind is not in the record before this Court. It is the only link between the applicants and any alleged justification of non-infringement.

     Where the defect becomes fatal to the applicants' case, however, is when the applicants discharge their evidentiary burden. By virtue of being a "first person", the Regulations give the applicants the opportunity to bring a prohibition application and an immediate "legislative stay" (potentially 30 months) upon commencement of the application . (The injunctive effect of the 30 months was described by Mr. Justice Strayer as a "legislative stay" in Apotex Inc. v. Merck Frosst Canada Inc. (A-843-96), February 10, 1997 at p. 6.) While being a "first person" gets the applicants into court, it does not relieve them of the burden of proving their interest in the patent. Proving this interest requires nothing more than showing the authentic licence (or at least those parts which demonstrate the existence of a licensing agreement). If this basic element were not required, the inevitable result would be the Court ordering the extraordinary remedy of prohibition - if the respondent manufacturer's allegations were not justified - against the Minister, on the mere assumption that the applicants have an interest in the patent. Even the applicants' sworn ipse dixit does not demonstrate a licence. Simply put, proof of the licence is an essential ingredient of the applicants' case. The cross-examination of Mr. Saheb clearly establishes that the applicants have not discharged their onus.

     The Federal Court of Appeal in Eli Lilly Inc. v. Apotex Inc., (1997), 69 C.P.R. (3d) 455, wrote a decision of some assistance. Mr. Justice Décary wrote, at pp. 457-58, passages requiring an applicant such as the 2 Mercks to "prove that the loss would be theirs and irreparable to them" because of proved licensing contracts.

     It is this Court's opinion that material interest should not be merely inferred, especially when the evidence of the interest must be within the possession of the applicants' possession.

     This issue became clear to the Court during preparations for the hearing on May 15, 1997. It could have been a significant one, but the respondent's counsel declined to press it, and that ended the matter in this case.

     With regard to the second issue, it arises thus. Because it has a compulsory licence, Genpharm would be nay, was able to import famotidine made from a non-infringing process as of October 7, 1996 upon receiving an NOC. Whether the NOC will issue depends on two decisions: whether the Department of National Health and Welfare decides that Genpharm's supplementary NDS warrants the issuance of an NOC; and whether this Court rejects the applicants' prohibition application. Is Genpharm's supplementary NDS premature because when it filed its notice of allegation on April 17, 1996, no non-infringing activity was possible on the basis of compulsory license until October 7, 1996?

     The applicants rely heavily on the judgment of this Court in Merck Frosst v. Minister of National Health and Welfare (1996), 65 C.P.R. (3d) 483. The facts in that case are only passably similar to those presently before the Court. There, Merck and Merck Frosst claimed they were the exclusive licence/sublicence holders in a patent for norfloxacin. Apotex, the generic respondent, served its notice of allegation on April 19, 1993. Its allegation of non-infringement was that it would be purchasing bulk norfloxacin through Novopharm, with its compulsory licence, which entitled Novopharm to import norfloxacin after July 2, 1996 and to produce norfloxacin after July 2, 1993. At the date of the notice of allegation, Novopharm could still import bulk norfloxacin for formulation and export without an NOC. Further, Novopharm could manufacture norfloxacin for export sales without an NOC.

     The first of a number of issues was whether Apotex's notice of allegation was premature. The judge found that it was. She wrote at pp. 487-88:

*** Because a NOC is issued to permit marketing in Canada, it seems clear to me that what is relevant is the question of whether its issuance will cause infringement in the Canadian market.

The applicants allege that the Notice was premature because, on the 46th day after the service of the Notice, when the NOC could theoretically have been issued, there was no non-infringing activity possible under the NOC due to the Prohibitions [in the compulsory licence]. I accept this submission. At the time the NOC was requested and could have been issued, all purposes for which the NOC was required were prohibited.

However, [Mr.] Sherman testified that, although not required, a NOC is helpful for export sales because foreign governments are more willing to import a drug which has been approved for marketing in Canada. The question, therefore, becomes whether the allegation of non-infringement made by Apotex is justified when there are non-infringing activities, such as export sales, for which a NOC would be commercially useful, but no non-infringing activities for which it is required.

I have concluded that the allegation of non-infringement is not justified. In my view, because a NOC is at issue, infringement is to be considered only in respect of activities for which the NOC is required. Those activities are Canadian sales of Norfloxacin and, as they were prohibited both at the date of the Notice and at the date a NOC could have issued under the Notice, the allegations of non-infringement were premature.

That decision was affirmed on May 8, 1996 by the Federal Court of Appeal (reported at (1996), 67 C.P.R. (3d) 455) on another point. The appellate Court made it clear that the ground on which they ruled was not prematurity. Mr. Justice Strayer stated that "there is no purpose in considering the other issues raised by this appeal, on which we make no determination." (p. 457 ). The Court upheld the decision under appeal only on the ground that Novopharm purported to accord an illegal sublicence to Apotex.

     If the earlier Trial Division opinion is correct in all other particulars, then prohibition must issue because the applicants will have established that Genpharm was and is not able, or that it even had plans, to manufacture bulk famotidine at the time of the allegation, April 17, 1996. (AR, vol. I, tab 4: pp. 85-86) Nor did Genpharm have the intention to buy bulk famotidine from Canadian manufacturers (AR, vol. I, tab 4: p. 87). (The Court notes that this evidence is probably sufficient to dispose of the third issue, if necessary.) So the only possible source from which Genpharm could obtain famotidine was from outside the country, and the conditions of the Patent Act and compulsory licence prohibited this until after October 7, 1996.

     Genpharm's evidence is that its source of famotidine is Gedeon Richter (a Hungarian company) and Uquifa, and that Gedeon and Genpharm have an agreement under which Gedeon supplies Genpharm with famotidine for the 20mg and 40mg tablets (RR, tab 1; RR, tab 2: p. 22) And, as noted above, Genpharm already has an NOC for 20mg and 40mg famotidine tablets. There is no evidence that the Gedeon source of famotidine will infringe the '763 patent when imported by Genpharm into Canada, because of the latter's compulsory licence.

     With respect to the judge's reasoning in this earlier Merck and Apotex case, this Court finds that the time for determining the justification of the allegation is the time of the hearing. The judge based her reasons on the fact that Apotex's NOC could have theoretically issued on the 46th day after service of the notice and on that date Apotex's allegations could not be justified. This was the cornerstone of her decision. If the date when the NOC could theoretically issue is the key factor in assessing a respondent's allegations, then the issue should be analyzed as follows.

     In the absence of the Patented Medicine (Notice of Compliance) Regulations, an NOC could theoretically issue upon receipt of an NDS. The regulations, however, wed the Patent Act to the Food and Drug Regulations, C.R.C. 1978, Chap. 8709. The result is that when an NDS is made, a notice of allegation must be filed in accordance with the Patented Medicine (Notice of Compliance) Regulations. At this juncture, as that judge noted, these regulations provide that an NOC theoretically cannot issue until the 46th day after the allegation is made. Once a first person makes an application of prohibition as provided by the regulations, a legislative stay of a maximum of thirty months (or longer, if extended by order of the Court) arises pursuant to section 7 of the regulations. The NOC cannot issue until the prohibition application is heard or the 30-month legislative stay expires.

     In terms of the better administration of the pertinent law of Canada, what is the need or compulsion to require that the non-infringement asserted in the notice of allegations be already factual as of the date "of the Notice and at the date a NOC could have issued under the Notice"? It is noted that after notices of allegation are dated and served the hearings of prohibition cases do not come on with vertiginous alacrity. No NOC can issue to the generic until the matter of prohibition be disposed or until the 30-month statutory stay (and any legal extension) will have elapsed. Surely such known and predictable delays can be considered under the rubric of allegations which are justified. Then, again, the Minister is not a robot. If one qualify for an NOC why must it issue immediately, even when it would be otherwise unlawful to exploit it, as when there are subsisting restrictions against current marketing under a compulsory licence? When that is the case, why can the Minister not desist from issuing an NOC to a generic until a date (hopefully in the not-too-distant future) specified by the generic? All this would be in compliance with the law and with good sense. After all the proceedings in these matters ought not to be conducted by this Court in a manner akin to a game of tag.

     It is pertinent to note that Genpharm has already obtained notices of compliance for famotidine. At the end of January, 1991, Genpharm filed an NDS for approval to market 20mg and 40mg tablets of that drug in Canada. Neither of the Merck applicants sought to prohibit the Minister from issuing an NOC for such tablets. The NOC for the 20mg and 40mg tablets was issued to Genpharm on November 22, 1995, some 4 years and 10 months after the NDS was filed. Why then the all-fired urgency - purportedly in law - to have the right to manufacture or import, and sell, the drug produced pursuant to the patent at the date of dating or serving the notice or declaration of allegations as enunciated by the judge in Merck Frosst v. Minister of N.H. & W. and Apotex above mentioned? Mr. Justice Hugessen in the 1994 Merck Frosst Canada Inc. v. Minister of N.H. & W. case, referring clearly to the context of a prohibition hearing in Court, spoke of "some or all of the allegations in the notice of allegation which, if left unchallenged, would allow the Minister to issue a notice of compliance." He did not contemplate any allegations aborted because the right sought could not be accorded as of the notice's date or service on the Minister. He surely meant "if left unchallenged" in the prohibition hearing before the Court.

     In the case at bar, Genpharm continues to hold a compulsory licence for famotidine permitting it to use the process claimed in the '763 patent i) to prepare a medicine by the process, ii) to import a medicine so prepared, and iii) to sell a medicine produced by such process; and to use the invention as distinct from the process i) to import the invention for use as a medicine, ii) to import the invention for the preparation of medicine, and iii) to make, use and sell the invention for, and for the preparation of, medicine. Genpharm, however, was prohibited from importing famotidine until October 7, 1996. After that date Genpharm was entitled to import and sell famotidine, made by the patented process into and within Canada, so long as it acquired the requisite NOC. Counsel for Genpharm noted that had that generic drug purveyor simply waited until October 8,1996, to apply for its NOC, it might very well have acquired that NOC before the date of the hearing. Thus it appears that there is no justifiable reason for prohibiting the Minister from issuing an NOC to Genpharm just because Genpharm's notice of allegations was dated more than 46 days prior to the earliest date upon which an NOC could have issued.

     The reasons for finding the notice of allegation to be "premature" in Merck Frosst v. Minister of N.H. & W. and Apotex, supra, appears to be somewhat narrow and, one might suggest, but with utmost respect, somewhat detached from the realities. Here is what the learned judge wrote:

The applicants allege that the Notice was premature because, on the 46th day after the service of the Notice, when the NOC could theoretically have been issued, there was no non-infringing activity possible under the NOC due to the Prohibitions. I accept this submission. At the time the NOC was requested and could have been issued, all purposes for which the NOC was required were prohibited.

However, Sherman testified that, although not required, a NOC is helpful for export sales because foreign governments are more willing to import a drug which has been approved for marketing in Canada. The question, therefore, becomes whether the allegation of non-infringement made by Apotex is justified when there are non-infringing activities, such as export sales, for which a NOC would be commercially useful, but no non-infringing activities for which it is required.

I have concluded that the allegation of non-infringement is not justified. In my view, because a NOC is at issue, infringement is to be considered only in respect of activities for which the NOC is required. Those activities are Canadian sales of Norfloxacin and, as they were prohibited both at the date of the Notice and at the date of NOC could have issued under the Notice, the allegations of non-infringement were premature.

I should note that I am aware that a prohibition order will apply for the life of the Patent which, in this case, means for six more years. Apotex argued that this result is unduly harsh given that the prohibition against the production of Norfloxacin for consumption in Canada under the Licence expired only one month after the day on which the NOC could have issued. Apotex submitted that the allegations were "close" to being justified at the time of the Notice and that I should take a "prospective" approach to the Notice. However, I am not persuaded that I should refuse to grant a prohibition order on the basis that the allegations, although premature, were "nearly" justified.

Apotex further submitted that, in Eli Lilly and Co. v. Novopharm Ltd. (1995), 60 C.P.R. (3d) 181, 91 F.T.R. 161, 53 A.C.W.S. (3d) 850 ("Lilly"), Madam Justice McGillis dealt with prohibitions attached to the Novopharm licence for Nizatidine. They precluded Canadian sales at the time the NOC could have issued but Justice McGillis did not conclude that the Apotex NOC was premature. However, I am satisfied from reading her reasons at p. 203, that Madam Justice McGillis was not asked to consider the issue which is now before me. She was not confronted with whether a NOC, which is only required for marketing in Canada, should issue when, at the time of the Notice, there was no Canadian marketing possible.

In conclusion on this issue, I am of the view that the allegations of non-infringement made by Apotex in the Notice were not justified.

     The Notice of Compliance regulation's meaning is founded squarely within the Court's proceedings and within or on nothing extraneous to them:

6.(2) The court shall make an order pursuant to subsection (1) in respect of a patent that is the subject of one or more allegations if it finds that none of those allegations is justified.

When does or can the Court make such a finding? Not earlier than the hearing of the motion for prohibition, is when. It is noteworthy that the regulation does not provide: "* * * it finds that none of those allegations was justified", i.e. "both at the date of the Notice and at the date a NOC could have issued under the Notice" (Merck v. Minister and Apotex, at p. 487, line h). Clearly, if time be the critical consideration, however, the time of the allegations "prematurity" or "ripeness" is the time at which the Court "finds that none of those allegations is justified", which at earliest is the hearing of the prohibition motion and at latest is the date of the Court's order and reasons for order, if reasons there be. After all, is that not precisely the time regulation 6(2) provides in so many words, and not some earlier? As above illustrated regulation 6(2) could easily have exacted what the learned judge found about "prematurity", but it does not exact that.

     This Court's interpretation of regulation 6(2) is not in the least inconsistent with Mr. Justice Strayer's words quoted by the learned judge in the case of Merck Frosst v. Minister of N.H. & W. v. Apotex. The quotation was drawn from the decision of the Court of Appeal in David Bull Laboratories v. Pharmacia Inc. and Minister of N.W. & W. [1995] 1 F.C. 588 at 599, (1994) 58 C.P.R. (3d) 209 at 216, 176 N.R. 48:

* * * these proceedings are not actions for determining validity or infringement: rather they are proceedings to determine whether the Minister may issue a notice of compliance. That decision must turn on whether there are allegations by the generic company sufficiently substantiated to support a conclusion for administrative purposes (the issue of a notice of compliance) that the applicant's patent would not be infringed if the generic's product is put on the market.

After much anxious consideration and with the utmost respect, this Court cannot glean from this quotation, or the judgment from which it is drawn any requirement for holding that an allegation was "premature", because on the 46th day after service of the NOA, when the NOC could theoretically have issued, there was no non-infringing activity possible, due to existing prohibitions or restrictions against the generic's being permitted to act on its notice of allegations. If one places that date of "prematurity" at the time of the prohibition hearing (or the date of issuance of the Court's consequent order) there would be much good sense to such interpretation because of the evident meaning of regulation 6(2), above recited, when the Court must make a finding as to whether any or none of the allegations is justified. The Federal Court of Appeal nowhere appears to repudiate the interpretation that the crucial time for finding justification, or not, is the time of the Court's opportunity to find, or not, "that none of those allegations is justified", that is, upon the hearing or upon issuance of the Court's consequent order if reasons and order be reserved.

     In this present case, this Court finds that all of Genpharm's allegations are justified and that, therefore the NOA is not in the least deficient.

     During the course of the hearing Merck's counsel asserted that she had no "sympathy" for Genpharm, as if her clients, the Merck applicants merited some sympathy from the Court! Sympathy does just not enter into these deliberations and debates. Fairness is surely not sympathy. The legislative purpose of the subject regulations was stated to the Court to be the due protection of patentees from unwarranted NOCs under which patent infringements could be effected. That is probably so. However, this judge well remembers the legislative purpose of compulsory licences. It was and remains to permit, upon payment of a royalty to the patentee, the profitable marketing and sale to the public by the licensee of reasonably priced pharmaceutical drugs.

     So, while protecting the patentee from infringement, or while ensuring that a royalty is paid under a compulsory licence which wipes away infringement, it would be wrong of this Court to enforce a narrow, unlegislated notion of prematurity in order to nullify a compulsory licence. So be it in this case. The generic Genpharm, with its compulsory licence, has long been permitted to manufacture the 10mg tablets of famotidine in Canada, and, since mid-October, 1996, it has been lawfully permitted to import that drug from a non-infringing source abroad. No order of prohibition against the Minister should be given so as to thwart Genpharm from the lawful exercise of its compulsory licence.

     Prohibition is an extraordinary remedy which stops someone from doing something. If there be nothing to prohibit, the foundation of the remedy evaporates. In order to determine if the foundation of the prohibition application exists, the Court must be aware of the status of respondent's allegations at the time of the hearing. It would be strange indeed for the Court to prohibit a party from doing that which the party is legally entitled to do. That is to say, the foundation of the prohibition application is moot. The Supreme Court of Canada addressed mootness in Borowski v. Canada (A.G.), [1989] 1 S.C.R. 342. Mr. Justice Sopinka, for the Court, wrote at p. 353 that:

The approach in recent cases involves a two-step analysis. First it is necessary to determine whether the required tangible and concrete dispute has disappeared and the issues have become academic. Second, if the response to the first question is affirmative, it is necessary to decide if the court should exercise its discretion to hear the case.

Borowski clearly states that if at the time the Court is hearing the issue the raison d'être for the action no longer exists, it is up to the Court to exercise its discretion to hear the case, or not.

     It follows that a Court hearing a prohibition application must assess the respondent's allegations of non-infringing activity at the time it is hearing the application. The justification for the allegations is not frozen in time. This Court cannot be blind to the fact that in this case Genpharm would have already been able to act on its compulsory licence and legally import famotidine as of October 7, 1996 but for the present prohibition application.

     On every rational basis, the application for prohibition by the Merck applicants must be dismissed so as not to thwart Genpharm's exercise of its publicly useful rights pursuant to its compulsory licence.

    

Judge

Ottawa, Ontario

May 27, 1997