Canada: Northern Exposure?

Davit Akman and John Norman suggest that a recently commenced investigation into alleged "product switching" and statements by the Interim Commissioner show that the pharmaceutical industry may now be squarely on the Canadian Competition Bureau's enforcement agenda.

In comparison to the United States, there has been little antitrust enforcement activity in the pharmaceutical industry in Canada. However, a recently disclosed investigation by the Canadian Competition Bureau into whether a temporary disruption by an innovative pharmaceutical company of the supply of an older version of one of its drugs, for which the patent was shortly to expire, violated the abuse of dominance provision in section 79 of the Canadian Competition Act, and recent statements by the Interim Commissioner of Competition, suggest that the pharmaceutical industry may now be squarely on the Bureau's enforcement agenda.

Aggressive antitrust enforcement in the US

Aggressive enforcement of US federal antitrust laws in the health-care sector has been a top priority of the Federal Trade Commission (FTC) for many years. One of the highest priorities in this area has been what the FTC terms "pay-for-delay" or "reverse payment" patent litigation settlements between innovative and generic pharmaceutical companies. The impugned settlements involve monetary payments (or other consideration) by the innovative company in return for the generic company's agreement not to enter the market until a specified date, commonly prior to the end of the relevant patent term. The FTC argues that such settlements, which it claims significantly and improperly delay generic entry and therefore harm competition, should be treated as presumptively anti-competitive and unlawfulunder section 5 of the Federal Trade Commission Act and section 1 of the Sherman Act.

However, most US appellate courts have disagreed, dismissing challenges (by both the FTC and private plaintiffs) to alleged "pay-for-delay" patent settlements, holding that such settlements are per se legal under US federal antitrust laws provided that they do not extend the life of the patent in issue or include other products not covered by the patent, and provided that the underlying patent litigation was not a sham and the patent was not obtained by fraud. The United States Supreme Court is expected to conclusively determine this issue in an appeal arising from an unsuccessful FTC challenge which was heard on 25 March 2013.

The FTC has also devoted a great deal of time and resources to so-called "product switching" or "product hopping". As described by the FTC, "product switching" or "product hopping" refers to strategies allegedly engaged in by innovative drug manufacturers to switch demand in a market from a drug for which the underlying patent(s) will soon expire (by, for example, limiting supply or raising prices for the old product) to a new product which enjoys on-going patent protection. Because under US substitution laws a generic drug must have, among other things, the same dosage and form as the reference brand product in order for pharmacists to be able to substitute it, moving demand to the new product for which there is no generic substitute may reduce demand for the generic entrant and make generic entry in respect of the old product infeasible.

The FTC contends that "product reformulations constitute an unlawful means of preserving monopoly power in violation of Section 2 of the Sherman Act". For their part, the innovative drug companies respond (rightly in the authors' view) that "[e]very manufacturer that introduces a new drug seeks to 'switch' customers to the new product. This switching is called competition". This is both an evident and an entirely understandable commercial strategy.

Notably, to date, only one "product hopping" case has survived summary dismissal at the pleadings stage, and this claim has not yet been tested on the merits.

A different approach in Canada

In Canada, by contrast, there has been no similar enforcement activity by the Competition Bureau and uncertainty as to whether the Bureau considers the Competition Act (the principal competition law statute in Canada) to be the appropriate vehicle for addressing complaints about alleged misuses of Canada's drug patent laws.

For example, in June 2003, following a complaint from the National Union of Public and General Employees, the Bureau commenced an inquiry into whether by adding new patents to the patent register for certain drugs innovative pharmaceutical companies had contravened the Competition Act. The complaint alleged that the filing of new submissions or addition of new patents, termed "evergreening" by the complainant, were unlawfully delaying generic entry, contrary to the Competition Act.

In order to market a generic version of a product, a generic drug company must obtain a Notice of Compliance (NOC) from Health Canada. To this end, the generic must demonstrate its drug's bioequivalence to the reference brand product and, pursuant to the Patented Medicines (Notice of Compliance) Regulations, SOR/93-133 (the NOC Regulations), show that its product does not infringe any valid patents associated with the reference product.

At the time of the complaint in 2003, and until 2006, the NOC Regulations required a generic drug company to address all patents on the patent register with respect to the reference drug in issue before an NOC could be issued, including any patents added after filing by the generic of its Abbreviated New Drug Submission (ANDS) purporting to demonstrate the bioequivalence of its drug to the reference brand product. Amendments to the NOC Regulations in 2006 modified that requirement, with the result that a generic now need only address patents listed on the register prior to the filing of its ANDS with Health Canada.

In February 2004, the Bureau discontinued its inquiry. In explaining this outcome, the Bureau observed, among other things, that "[t]he NOC Regulations contain specific provisions to address and balance the competitive interests of brand name pharmaceutical patent holders and generic drug manufacturers and to remedy the practice raised in the complaint" and, further, that "inquiries under the Competition Act relate to specific company behavior and do not contemplate a non-company specific review of a regulatory regime". In view of these and other circumstances, the Bureau concluded that "the Competition Act is not the appropriate vehicle to address the allegations raised in the complaint".

Position switch: The Alcon investigation

However, on 14 November 2012, the Interim Commissioner of Competition commenced an inquiry to determine whether innovative pharmaceutical company Alcon Canada Inc. has engaged in conduct contrary to the abuse of dominance provisions in sections 78 and 79 of the Competition Act. Section 79(1) prohibits dominant firms in a market from engaging in a practice of "anti-competitive acts" (a non-exhaustive list of which appears in section 78), whose purpose is an intended negative effect on a competitor that is predatory, exclusionary or disciplinary, and that has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market. Section 79(5) of the Competition Act creates an exception and states, in part: "[a]n act engaged in pursuant only to the exercise of any right or enjoyment of any interest derived under the ... Patent Act ... or any other Act of Parliament pertaining to intellectual or industrial property is not an anti-competitive act."

Alcon manufactures and sells PATANOL® and PATADAY®. Both are prescription allergy eye drops used to treat allergic conjunctivitis (sometimes referred to as "pink eye"). But PATADAY® is a "successor product" to PATANOL® and, as Alcon explains, "because of the higher concentration of olopatadine [in PATADAY®]", the new drug need only be taken once a day, rather than twice a day in the case of PATANOL®, with the result that "Pataday represents an improvement over the predecessor Patanol and is naturally preferred by many patients".

The Bureau's investigation is focused on whether Alcon abused a dominant position in the supply of prescription drugs indicated for the treatment of pink eye by seeking to switch the market from PATANOL®, whose patent term ended in November 2012, to PATADAY®, which is protected by patent until 2022. In particular, the Bureau alleges that Alcon ceased "devoting resources to Patanol", thereby disrupting the supply of that drug as of July 2012, in order to effectively prevent Apotex Inc., which was approved by Health Canada to commence selling "generic Patanol" in Canada starting on 22 November 2012, from entering the market.

According to the Bureau, the purpose of the supply disruption was to "attempt to habituate physicians, who are accustomed to writing prescriptions for Patanol, to writing prescriptions for Pataday, a drug for which there is no current or foreseeable generic substitute on the market". The Bureau contends that prescriptions for PATADAY® cannot be filled with "generic Patanol" due to the fact that the two drugs are not bioequivalent, with the result that Alcon's conduct constitutes a practice of anti-competitive acts that deters or excludes competition in prescription drugs indicated for the treatment of allergic conjunctivitis, with the effect of lessening or preventing competition substantially.

Alcon has countered, among other arguments, that "[t]he placement of [PATANOL®] on 'backorder' does not, and cannot, amount to an 'anti-competitive act'". More specifically, Alcon argues (correctly in the authors' view) that:

While the matter is still at the investigatory stage, the Alcon case could set the precedent as the first abuse of dominance case by the Competition Bureau in connection with alleged anti-competitive conduct in the pharmaceutical industry. Even if the Alcon inquiry does not make it that far, recent comments by the Interim Commissioner of Competition, John Pecman, suggest that Alcon is highly unlikely to be the Bureau's last foray into the pharmaceutical industry.

In a December 2012 speech, Mr. Pecman stated that the Bureau is "looking at incrementally increasing our level of strategic regulatory interventions" and disclosed that the Bureau was "currently working to identify the sectors for focus". In a speech two months later, the Interim Commissioner identified three sectors of interest to the Bureau, including the "health sector". While Mr. Pecman's comments were made with specific reference to increased advocacy-based interventions by the Bureau, he was quick to emphasize that "as we incrementally increase our regulatory interventions, we will not cede an inch of our enforcement mandate. I have a 29 year history at the Bureau as an enforcer and I have no intention of leading us away from the excellent job that we do enforcing the Competition Act".

Conclusion

Coupled with the Interim Commissioner's recent statements, the Bureau's investigation of Alcon suggests that the pharmaceutical industry may be facing increased antitrust risk in Canada. Both of these developments also raise important questions about the appropriate limits of competition law and policy in the face of the careful statutory balance embodied in Canada's patented medicines regime between the need for effective protection of the intellectual property rights of innovators and timely entry by generic manufacturers. They should be closely watched.

*The authors would like to thank Niklas Holmberg, an articling student at Gowling Lafeur Henderson LLP, for his invaluable assistance in the preparation of this article.

This article originally appeared in Patent Lawyer Magazine and is reprinted with permission of the publisher.

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