Canada: BC Court Of Appeal Overturns Class Certification In Patents Case, Finding Patent Regime To Be Complete Code In Respect Of Remedies

Last Updated: June 3 2016
Article by Steven T.C. Warnett and Michelle Maniago

Most Read Contributor in Canada, September 2016

In Low v. Pfizer Canada Inc., a unanimous decision of the Court of Appeal for British Columbia restricted the ability of consumers to make claims based on alleged unlawful acts under the Patent Act, R.S.C. 1985, c. P-4, and associated regulations. In so doing, the Court of Appeal reversed the certification of the Low class proceeding by the trial court and dismissed the action.

This result continues the development of a line of authority that will be important to inventors and manufacturers using the patent system, as any remedies in respect of invalid patents will be limited to those set out in the statutes and regulations. No rights at common law are available to consumers in respect of breach of the Patent Act.

Patent Regulatory Regime in Canada

Patent rights are a creature of statute; there is no right to patents at common law. The patent system provides to the inventor the benefit of a monopoly on a new invention for a limited time period. In exchange, information must be disclosed regarding the product, such that a reasonably informed artisan can create the item in question and make it publicly available at the expiry of the monopoly.

The validity of patents may be challenged through special proceedings. If the patent is successfully challenged by a generic manufacturer and the patent is found to be invalid, the generic manufacturer will then obtain rights under the patent system to market their drug. The generic manufacturer is also provided with a right to claim compensation from the unsuccessful manufacturer for loss suffered by reason of delayed market entry.

There is no remedy in the patent system available to consumers for conduct alleged to have breached the Patent Act or the regulations.

Background of the Low Case

Pfizer obtained a patent for its drug Viagra. The active ingredient is sildenafil citrate. After obtaining the patent for the use of sildenafil citrate, as well as "about 260 quintillion" other compounds, in the treatment of erectile dysfunction, Pfizer had a monopoly on the sale of sildenafil in Canada and prevented generic manufacturers from introducing a generic version until the patent expired or was invalidated.

Generic manufacturers challenged the patent and proceedings were commenced in respect of the patent. Ultimately, the Supreme Court of Canada determined in 2012 that Pfizer's patent was invalid, and generic drug manufacturers then entered the market, selling generic versions of Viagra at lower prices.

The plaintiff Low commenced a claim, alleging that Pfizer had unlawfully abused the patent system to obtain a monopoly over sildenafil citrate, and as a result, overcharged the purchasers of Viagra. Low alleged that the difference between the revenue Pfizer collected by charging the actual price of Viagra, and the revenue it would have collected in the presence of generic competition represents "ill-gotten gains". Low framed his claim under the tort of unlawful interference with economic relations and in unjust enrichment. Low sought to certify his action as a class action in the Supreme Court of British Columba

Supreme Court of British Columbia Certifies Claim

In 2014, the certification judge found that Low's claim disclosed valid causes of action (2014 BCSC 1469).

Pfizer argued that the patent system, which included several statutes and regulations, completely governed the marketing of patented drugs and included within it all rights and remedies. In the absence of a cause of action for individual consumers, Pfizer argued Low's claim could not succeed.

The certification judge reviewed the recent consumer remedy class action law in British Columbia, focusing on Koubi v. Mazda Canada Inc., 2012 BCCA 310, Wakelam v. Wyeth Consumer Healthcare/Wyeth Soins de santé Inc., 2014 BCCA 36, and Macaraeg v. E Care Contact Centres Ltd., 2008 BCCA 182. The certification judge held that these cases stood for the proposition that statutory remedies available to the plaintiffs replaced and excluded remedies the plaintiffs might otherwise have at common law. On this basis, he distinguished them from the statutes governing the patent system, which were silent as to consumer remedies.

The certification judge held that because Parliament created no right of action for consumers arising directly out of a breach of the Patent Act, there was no bar to an action by consumers if the conduct in breach of statute was also relevant to a cause of action. Finding that the Patent Act was not a complete bar to a consumer remedy, the chambers judge then analyzed the alleged tort of unlawful interference with economic relations. He concluded that if a generic manufacturer could obtain compensation as a result of an invalid patent, that could satisfy the "unlawful means" element of the tort. He concluded that the unlawful interference with economic relations claim was not bound to fail.

The certification judge also considered whether the claim in unjust enrichment was bound to fail. On this point, the analysis turned on whether Pfizer could establish that any enrichment it may have received was due to a juristic reason. Pfizer argued that it had marketed Viagra pursuant to statutory rights. The court held while activity pursuant to statutory rights may be a juristic reason, that is not always the case. Accordingly, it was not certain that the cause of action was bound to fail for this juristic reason. The court went on to hold that contracts between direct purchasers and Pfizer for the sale and purchase of the drug were not illegal or void for mutual mistake. There were no pleaded facts suggesting that the price was a fundamental fact on which the contracts were based, or that the plaintiff or other class members would have refused to pay had they known of the patent's possible invalidity. Despite these findings, he concluded that the claim in unjust enrichment was not bound to fail.

Court of Appeal Reverses Certification, Finding

That the Patent System is a Complete Code Pfizer argued on appeal that because Low's claims are entirely derived from the Patent Act, Low must look to the statute for a remedy, which does not exist. Low submitted that his claim is based in the common law, and the complete code argument does not apply.

Low did concede that the patent statutory regime is a complete code as regards the relationship between generic and brand name manufacturers. Low argued, however, that because the Patent-related statutes and regulations are silent as to consumer rights and remedies for breach of the Patent Act, it cannot be a complete code. The proper question to ask, he submitted, was whether the legislature intend to "oust" consumer rights of action, not whether it intended to create them.

The Court of Appeal did not agree that silence in the legislation must be taken as an indication that a right to civil action should be inferred. The Court of Appeal relied on the decision in R. v. Saskatchewan Wheat Pool, [1983] 1 S.C.R. 205, which is authority for the proposition that there is no common law tort of breach of statute. The Court of Appeal held that Low's claim is fundamentally a claim for breach of statute as his right to recovery is said to arise out of "abuse of the Patent system".

The Court of Appeal concluded that the Patent system is a complete code and forecloses parallel civil actions by consumers rooted in breach of the Patent Act. Importantly, patent rights are a construct of statute and, as such, patent rights do not exist at common law. The Court held that in circumstances such as these, where Parliament has comprehensively legislated a particular area of the law, the reasonable inference is that it did not intend to extend rights of recovery beyond those embodied in the regime. The Court held that this is a complete bar to Low's claim.

The Court of Appeal then continued, in the alternative, to consider whether the certification judge was correct in his analysis of the causes of action. It found that he was not, specifically erring in his analysis of "unlawful means" and "juristic reason". First, the certification judge should have considered whether there was actionable conduct to support the tort claim. The Court of Appeal found that there was no actionable claim outside the statutory regime, so the parasitic claim in tort could not succeed. Second, the Court held that the contracts between Pfizer and the direct consumers were juristic reasons that barred the claim in unjust enrichment. The claim, therefore, had no prospect of success, notwithstanding any uncertainty concerning whether the Patent system provides a juristic reason.

The Court of Appeal reaffirmed its earlier decisions in Koubi and Wakelam, and held that Wakelam, in particular, stands as authority that complete statutory codes exclude equitable claims in unjust enrichment.

Impact on Inventors and Manufacturers

Critically, the Court of Appeal decision restricts the ability of plaintiffs to bring equitable and tort claims based on breach of the Patent Act. This decision, along with the Court of Appeal's decisions in Koubi and Wakelam, is of significance to any manufacturer who may face claims from direct consumers. Expect statutory regimes to be more carefully scrutinized on a summary basis without the need of a full trial.

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