Canada: The Supreme Court Of Canada Upholds The Ban On Private Label Generic Drugs – "Katz Group Canada Inc. v Ontario (Health And Long-Term Care), 2013 SCC 64"

Last Updated: December 6 2013
Article by Lydia Wakulowsky and Ratika Gandhi

In a unanimous ruling, the Supreme Court of Canada has upheld the validity of the private label regulations ("Regulations") made under the Ontario Drug Benefit Act ("ODBA") and the Drug Interchangeability and Dispensing Fee Act ("DIDFA"), which prevent private label generic drugs from being listed in the Formulary or designated as interchangeable.

This ruling finally disposes of the challenges made to the Regulations by certain pharmacies, and essentially bans the sale of private label generic drugs in the private and public markets in Ontario.

The challenges to the Regulations were brought by the pharmacies after Sanis Health Inc., a subsidiary of Shoppers Drug Mart Corp. and a private label manufacturer, applied to the Executive Officer of the Ontario Drug Benefit Program, in early 2010, to list several generic drugs in the Formulary and have them designated as interchangeable. The Executive Officer rejected the application on the basis of the Regulations, which were then proposed but not yet in force. In the June 2010 explanatory letter from the Executive Officer to Sanis, it was stated that:

The purpose of the regulations is to prevent a pharmacy-controlled or related entity purchasing drug products from a person that actually makes the product at lower prices than the drug benefit price on the ODB Formulary without providing any price reduction to patients, insurers, employers, the Government of Ontario, or other payors.

The government's amendments to Ontario's drug regulations seek to encourage manufacturers to provide lower prices to Ontario patients. With private label products, the price reductions that Sanis presumably enjoys would not be passed onto end-payors such as government, insurers and patients. Instead, it seems that profits would be retained within pharmacy-controlled organizations without benefiting consumers. While that would not be a "rebate" as defined in the legislation, it is a similar problem that the provisions against rebates seek to prevent.

In this letter, the Executive Officer also commented on wanting to avoid the potential for a conflict of interest where Shoppers Drug Mart pharmacies could have an interest in dispensing Sanis products in preference to others.

Katz Group Canada Inc., Pharma Plus Drug Marts Ltd. and Pharmx Rexall Drug Stores Ltd., which operate the Pharma Plus and Rexall pharmacies in Ontario, similarly intended to set up their own private label manufacturer. They joined Shoppers Drug Mart in challenging the Regulations as being ultra vires (beyond the powers) on the grounds that they were inconsistent with the statutory purpose and mandate of the ODBA and DIDFA.

The pharmacies succeeded in the Divisional Court but the decision was reversed in the Court of Appeal. The Supreme Court of Canada dismissed the pharmacies' subsequent appeal, with costs.

The Supreme Court of Canada decision sets out the background of, and rationale for, the incrementally amended regulatory framework.

The pharmacies faced an uphill battle in their challenges given the applicable common law principles (described below). The pharmacies unsuccessfully argued that the Regulations are inconsistent with the statutory purpose of the ODBA and DIDFA because:

  • they neither could nor would reduce drug prices; and
  • they are under-inclusive, in that they do not prevent a pharmacy from owning a manufacturer that is also the fabricator of the drug.

Further, the pharmacies argued that the Regulations are ultra vires because they interfere with commercial rights, prohibit an activity, and discriminate between drug manufacturers, none of which is authorised by the grants of regulation-making authority in the ODBA and DIDFA.

The Court dismissed each of these arguments in turn, relying on the following established common law principles:

  • A successful challenge to the vires of regulations requires that they be shown to be inconsistent with the objective of the enabling statute or the scope of the statutory mandate.
  • Regulations benefit from a presumption of validity. This presumption places the burden on challengers to demonstrate the invalidity of regulations rather than on regulatory bodies to justify them, and it favours an interpretive approach that reconciles the regulation with its enabling statute so that, where possible, the regulation is construed in a manner that renders it intra vires.
  • Both the challenged regulation and the enabling statute should be interpreted using a broad and purposive approach.
  • The judicial review of challenged regulations does not involve assessing their policy merits to determine if they are "necessary, wise, or effective in practice". The motives for their promulgation (whether political, economic, social or partisan) are irrelevant. The challenged regulations must be "irrelevant", "extraneous" or "completely unrelated" to the statutory purpose to be found to be ultra vires on the basis of inconsistency with statutory purpose.

In effect, although it is possible to strike down regulations as ultra vires their enabling statute, it would take an egregious case to warrant such action.

The Court held that the legislative intent behind the ODBA and DIDFA was to control – and reduce – the cost of prescription drugs in Ontario without compromising safety. Moreover, the Court outlined the consistent reasoning behind the series of amendments made to the ODBA, DIDFA and their regulations over the years. The amendments, including those to eliminate rebates and professional allowances, were made to promote transparent and fair drug pricing and to ensure pharmacies make money exclusively from providing professional health care services, instead of sharing in the revenues of drug manufacturers by setting up their own private label subsidiaries. Under this rationale, the Court held that the Regulations were consistent with the objective of the enabling statutes and scope of their mandate, and were thus intra vires and valid exercises of legislative power.

On the pharmacies' other arguments, the Court held that:

  • the ODBA and DIDFA give Cabinet the authority to set the conditions that a drug must meet to be listed in the Formulary and designated as interchangeable, and that they expressly authorise interference with a manufacturer's ability to enter and remain in the market;
  • the Regulations do not prohibit manufacturers from selling generic drugs in Ontario's markets; they restrict market access only if a particular corporate structure is used. That cannot be characterized as a total or near-total ban on selling generic drugs in Ontario;
  • Regulatory distinctions must be authorised by statute, either expressly or by necessary implication. The ODBA and DIDFA expressly authorise the making of distinctions between different drug manufacturers, and thus the "discrimination" argument is without legal foundation. Further, both Acts state that any regulations made under them "may be general or particular in [their] application" and both Acts are subject to s. 82 of the Legislation Act, 2006, which expressly provides that the power to make regulations includes the power to have them apply differently to different classes.

It is now settled law that Ontario pharmacies cannot sell private label prescription drug products.

The case also stands for the broader, and perhaps more significant, proposition that challenging regulations to a broadly purposive statute with significant public policy underpinnings is a difficult – and expensive – litigation strategy. In contexts other than Charter challenges, an appellant will face the Court's resistance to interfere with regulations enacted specifically to regulate health care services and the price of health products. This is the very essence of legislative function, an area in which the courts classically tread carefully, if at all.

While challenging regulations is a difficult endeavour, it is noteworthy that the Court deferred discussion of a pharmacy-owned manufacturer/fabricator of a generic drug. It will be interesting to see what other creative corporate structures and business models pharmacies will implement, and how legislators will respond to such entrepreneurial developments.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2013 McMillan LLP

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Lydia Wakulowsky
Ratika Gandhi
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions