EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, April 10, 1997

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[English]

The Vice-Chairman (Mr. Walt Lastewka (St. Catharines, Lib.)): Ladies and gentlemen, I'd like to call this meeting to order.

Pursuant to Standing Order 108(2), this is a review of section 14 of the Patent Act amendment 1992, chapter 2, Statutes of Canada, 1993.

Today, ladies and gentlemen, we have a round table moderated by my assistant from Osgoode Hall Law School, Mr. David Vaver, who is a professor at Osgoode Hall Law School. We have a representative from Gowling, Strathy and Henderson, Emma Grell; and from Hazzard and Hore, Edward Hore.

Here's the procedure we'll use this morning. Professor Vaver will introduce a topic and explain parts of it. Then the two authorities will be able to make some comments on it. We're going to try to keep it under 10 minutes in each case. If there's any clarification from the members, at a point, Mr. Moderator, we'll ask for a clarification on a specific point.

Then when you are finished with the opinions, we will then go for questioning. Questions will be one from each of the parties, and we'll try to get as much of a discussion in this round table. That's why we call it a round table: we're basically here for discussion, getting questions and answers and opinions, and so forth.

So at this time, Professor, I would ask you to begin.

Professor David Vaver (Osgoode Hall Law School, Toronto): Thank you, sir.

Please look at page 2 of the document entitled ``Notice of Compliance, NOC Link Regulations, April 10, 1997''. I would propose to just go briefly through that opening part there to set the stage for the regulations we're talking about.

The Vice-Chairman (Mr. Walt Lastewka): Does everyone have the document so as to make sure we're all on track?

Mr. Edward Hore (Lawyer, Hazzard and Hore): Perhaps this would be a good time for me to make my position clear.

My name is Edward Hore. I appear for the generic industry, essentially, at this round table. The position we consistently expressed about this document when it was circulating in draft form - and in fact, we saw the document in its final form only yesterday, and we received an earlier draft at about 5 p.m. on Monday - is that it's unnecessary and in many ways misleading. We don't find it a particularly helpful way of dealing with the discussion.

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We're sympathetic to the needs of this committee, which perhaps needs a starting point of some kind, but many points in the document are stated as being essentially facts and we believe they are not facts. The misconception may be created that statements in this document are not in dispute when in fact they are.

So we have many reservations about these documents. We are also very concerned about the agenda that appears to be in the document, which appears to be that the regulations need to be tinkered with; they need only minor changes and -

The Vice-Chairman (Mr. Walt Lastewka): Mr. Hore, I appreciate your comments. You have made your point. Remember, this is a round table, and the objective of the round table is to have discussion. If there are some areas where you want to make additional comment you can do that later.

Mr. Hore: My concern, Mr. Chairman, was just to make clear that we don't accept this document. We don't think it's necessarily a fair statement of the issues - not at all.

It seems to have been done in a frantic rush. We got it yesterday, essentially mid-afternoon. We think it's just a submission to the committee by somebody. We don't even know who wrote it.

The Vice-Chairman (Mr. Walt Lastewka): All right.

Let's proceed. I think we've agreed to have a round table, and the objective of the round table is to have discussion on various things. I would ask the professor to proceed.

Prof. Vaver: I want to go through pages 2 and 3 just to set the background of the regulations, what is in contention here. Perhaps I will do that by reading the document on pages 2 and 3 as quickly as I can. Then I will pass it over to Ms Grell and Mr. Hore to comment on what has been said.

On page 2, where it speaks of regulatory approval and stockpiling exceptions to patent infringement, what follows here really is a background statement. A patent, as no doubt you all are aware, is a government grant giving the right to exclude others from making, using, or selling an invention.

Bill C-91 introduced two exceptions to patent infringement which allow a generic company to use a product, to obtain regulatory approval, and to manufacture for stockpiling purposes in the six-month period prior to patent expiry. The effect of these provisions was to remove certain rights that patentees originally had to sue for patent infringement.

The rationale for the regulations that then were attached to these introductions, I'll say immediately, may not be agreed to by everybody, but at least it's a public document and it tries to explain what the regulations seek to achieve.

The regulatory impact analysis statement, which is appended to the regulations, states that:

These regulations are needed to ensure that this new exception (the regulatory approval exception) to patent infringement is not abused by generic drug applicants seeking to sell their product in Canada during the term of their competitor's patent while nonetheless allowing generic competitors to undertake the regulatory approval work necessary to ensure they are in a position to market their product immediately after the expiry of any relevant patents.

So the regulations were put in place to prevent patent infringement by linking the issue of a notice of compliance to a generic to the patent status of a drug.

Page 3 is really just a synopsis of the regulations. I think it's quite useful to have this in mind, because the parties will comment on whether this whole process of regulation is flawed and ought to be entirely removed or it is just wrong or just inappropriate in certain parts or the jurisprudence has revealed some problems with it that can be rectified. I will just go through the outline here on page 3 for you, on how the NOC, the notice of compliance, link works.

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The regulations establish the following process:

(a) A patent-holder seeking a notice of compliance for a product may submit a patent list setting out all patents relative to the product and their expiry dates.

(b) When a generic seeks a notice of compliance for a copy of the patented product, it must indicate whether or not it accepts the patent list. So that occurs when it files its submission for a notice of compliance and finds there is a patent list relating to that product.

(c) If the generic agrees with the patent list, the notice of compliance will not be issued until the expiry of the last listed patent, and the NOC application remains confidential.

So if the generic does not agree with the patent list and claims that one or more of the patents are invalid or irrelevant, meaning that what they propose to do will not infringe the patent, it serves the patentee with a notice of allegation, a formal statement, which makes the generic's NOC application known to the patentee. The patentee then has 45 days to initiate court proceedings, typically in the Federal Court, to prevent the Minister of Health from issuing the generic's notice of compliance until the expiry of the listed patents.

Once court proceedings are initiated, the Minister of Health is prohibited from granting the generics NOC for 30 months, so that there is an automatic stay for 30 months of the grant of that notice of compliance, unless the parties reach an agreement or a court decision is rendered within that period or the patents expire. The court can extend or shorten the 30-month period if one of the parties has failed to expedite the application. That means that one of the parties will go to the court and say the other party has been delaying or has not been expeditious in some way or other, and they would ask the court to extend the application to cover the period it has been delayed. The court will then decide whether or not those grounds are made out and will extend the period or shorten it, as it thinks fit, and there have been a number of cases on that.

Last, the regulations give the court authority to award damages against a patentee to compensate the generic in certain circumstances. These, by the way, are quite narrow. There have been no applications for damages launched under this provision, and so there is no jurisprudence that tells us anything about it.

On page 4 there is a table that indicates how many cases have been commenced under the regulations since they were introduced, how many have been withdrawn, how many have gone forward, how many the patentee has won and how many the generic has won. I don't think it's necessary at this stage to go through this table of cases, as it were. It'll indicate there has been a fair amount of litigation over the past few years. There has been, apparently, some reduction in the amount of litigation, but the reasons for that are not entirely clear. It may simply be that there were a lot of applications in the pipeline at the time the regulations were passed or that there was a backlog to start of with and then there has been a natural tailing off. But I don't know quite the explanation.

That is the background of the regulations here and their procedure.

If I may, at this point I'd like to just make a very brief comment and then ask the counsel to make their statements in relation to this. Essentially, as I understand it, we will hear one of two positions. One position is that the regulations work reasonably well but that there have been revealed to be some defects in the jurisprudence. Perhaps there were originally no defects in the way in which it was thought they were drafted, but the courts have found some, as courts are prone to do, or some points may have been overlooked initially that the jurisprudence has revealed and they can be tinkered with.

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So I think you will have the position that the regulations are not necessarily perfect; they can be tinkered with to improve them in particular ways. Some of the reforms may go beyond mere tinkering to something more radical, but essentially ``keep the regulations in place, with some amendment'' would be one point of view. That seems to be one option, with some sub-options.

The questions will be what sort of tinkering is needed? Where are the defects? How radical do we need to be to change the regulations to achieve their basic purpose?

The other side of the equation is this. You will hear, I think, that the regulations have been flawed from the beginning, their initial flaws have only been magnified by the court cases that have been decided on them, and the best solution to the problems that have been raised is that the regulations should be entirely scrapped and the entire question of patent infringement should be left solely to the courts.

Then in this other side of the options you obviously can have variations. You are able to say, well, the regulations should be repealed, but perhaps we are not left then with a perfect state of the world either; we need to have some additional legislation or regulation to pick up some shortfalls that result from the fact of repeal of the regulations. We can call this either repeal the regulations or repeal the regulations plus; and there are a number of possible pluses you may want to consider.

I think that is a framework that is reasonable to work within for the purposes of the round table. It helps - at least to my mind; I'm not sure for yours - at least to set out what the two possible positions are. Both of them have variations, but those are essentially the two positions.

What I would do now, with the chair's permission, is simply to pass the microphone over toMs Grell. We tossed a coin to decide who would speak first - that was the scientific basis on which we worked - and she called heads, so I ask her to start off.

Ms Emma Grell (Partner, Gowling, Strathy and Henderson): Mr. Chairman, I thank you and your committee for this opportunity. We welcome the opportunity to have a round table with you. We appreciate the fact that it is a round table and we also appreciate that you have already had our presentations on the various issues. So I will do my best to make this truly an opening statement, with comments, bearing in mind that the main purpose is to answer your questions on any issues surrounding the system of the linkage regulations, how they work, and how they should work.

To get back to the fundamental context referred to in the introduction by the moderator, I take this opportunity to point out that we did get the agenda and the comments very late. We got the final versions at noon yesterday. But we will do our best to work with them. We do not see these documents as being put forward to us for acceptance. They are for comment, discussion, disagreement, etc.

The comments do start with the fundamental that drives everything before you: the nature of the patent, the grant the government gives to the patentee, the exclusive rights. The very nature of a patent right is the exclusivity. Section 42 of the Patent Act states that a patent, for the term for which it is granted, gives the patentee the exclusive right to make, use, and sell the invention.

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Another fundamental is that a patent that is granted after going through the patent application process of the patent office is also stated, and this is in section 43 of the Patent Act, to be presumed valid for the term of the patent, until someone else proves to the contrary.

So we have this fundamental exclusivity owned by the patentee through the hard work of coming up with an invention, and in return for disclosing to the world the nature of that patent right, a time-limited exclusivity is granted to the patentee. I think it could be quickly restated as that the right granted under a patent belongs to the patentee, and that's what the exclusivity means. The patent does not give anyone else a right to use it during its term. It gives the patentee the right to determine who can use it.

Moreover, and this is another fundamental, the patent right has to be meaningful. It is not a paper right. It is only as good as its enforcements. This is recognized not only by the Patent Act but also by the international agreements we've adhered to, the WTO - formerly GATT - the TRIPS agreement and the NAFTA agreement. They very succinctly state the fundamentals. They require that the exclusivity be granted to the patentee for a basic term of 20 years from filing, but they also recognize that without effective and appropriate means of enforcement your patent right would be meaningless. So in requiring adequate and effective protection of patent rights, they also require effective and appropriate means for enforcement, to use the language of the preamble of the TRIPS agreement; effective and expeditious remedies to prevent infringement, to use the language from another article of TRIPS; and prompt and effective provisional measures to prevent infringement, as stated in article 50, because they recognize the very nature of your exclusivity is lost if for years, maybe, prior to trial you are forced against your will to share that exclusivity with someone who appears to be infringing your patent.

NAFTA sets out in its objectives, using similar wording, adequate and effective protection and also requires that prompt, effective and expeditious remedies be given to prevent patent infringement on both a permanent and a provisional basis.

The fundamental fairness of the patent system not only protects the ingenuity of the patentee in coming up with the invention, but also requires that all the details to make that invention work be disclosed to the world. Other persons can then access all the technology to improve on it, to further progress in the science or art, or to come up with further inventions of their own.

In the meantime, the fundamental thing is that you have effective patent protection not only on paper but also in reality. If someone else, for example a generic, is allowed to enter the market during patent life along with the patentee, then that destroys the exclusivity. We have come off a system whereby up until 1993, the exclusivity of the patentee was shared with the compulsory licensee. This system is no longer applicable in Canada. Compulsory licensing for pharmaceuticals has been abolished. There are general provisions relating to compulsory licensing but not for pharmaceuticals per se.

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If a generic is allowed to enter the market during the life of a patent, there are no adequate remedies available to ensure that the patentee retains its exclusivity until a determination is made by the court. What you have, until the court's determination, in effect is a restoration of a compulsory licence that allows somebody to market the product along with the patentee until such time as the issue is determined by the court.

Prior to 1993, when the linkage regulations were introduced, it was recognized that the system applicable in Canada in the courts to provide provisional remedies prior to trial, the interlocutory injunction system, did not in practice provide adequate and effective protection for patent rights. In theory, one can obtain an interlocutory injunction. In practice, in patent cases, in particular in pharmaceutical patent cases, it has been practically impossible. This was recognized, hence the system of linkage was introduced.

Another reason, but only part of the reason, for linkage was that the early-work provisions were introduced at the same time to benefit the generics. As you know, this is a two-pronged provision. It allows the generic to do the early work necessary to apply for regulatory approval. It also gives the generics a very unique privilege of manufacturing the patented product during the last six months of patent life so it can be sold immediately after the patent expires.

So in recognition of the lack of any adequate effective patent protection, we have the linkage regulations. Our position is that the linkage regulations have been effective. There is room for improvement. There are some loopholes that have to be fixed, but the regulations have been effective. They've worked fairly and should be maintained.

Why is that? Not only do they provide adequate, effective patent protection, but they do so at a time that causes the least hardship to the generic and the least disruption to the marketplace. This is because they are designed to operate at the same time as the generic is in any event unable to enter the market, as it is awaiting regulatory approval from Health Canada.

This brings up a very important point about the system. Very often, and even in these materials, you will see the term ``automatic injunction'' as being what the linkage regulations give. The reality is that when a patentee applies to the court under the linkage regulations, that is not what prevents the generic from getting onto the market right away. It does not create an automatic injunction.

The Vice-Chairman (Mr. Walt Lastewka): Could you summarize, because we must keep close to our timing.

Ms Grell: Certainly. I will be very brief.

The generic at that stage cannot in any event enter the market. It must wait for however long it takes to obtain regulatory approval. The current average is 32 months. So it is not accurate to say there is an automatic injunction through the linkage system that prevents the generic from marketing, because there is a very important factor that keeps the generic off the market anyway: it cannot do so until it gets regulatory approval. It is only in a given case, such that the regulatory approval is ready but the linkage proceedings are not concluded, that it can be said the linkage system keeps the generic off the market.

The other reason why the linkage regulations are fundamentally fair is that they apply to -

The Vice-Chairman (Mr. Walt Lastewka): You've gone over your time limit now. You'll have an opportunity during the questions to make additional points.

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Ms Grell: May I just sum up in a couple of sentences on the linkage system and why we think it should be kept?

We have filed with you a series of improvements, which we will get to later on. We have now been through the learning curve on the linkage system. We've even had what is almost a mandatory challenge to their validity. We have seen how they work. We know what should be fixed. We have some options to put before you on what should be fixed.

Throughout the course of the morning and the afternoon, Mr. Chairman, we would be happy to answer further questions.

The Vice-Chairman (Mr. Walt Lastewka): Thank you very much.

Mr. Hore.

Mr. Hore: Ladies and gentlemen, thank you very much for hearing us.

I have put together a book of materials, which I think has been distributed to you all. At the very beginning of that book you will find a brief document. It's about two and a half pages long and it has bullets. It's a very quick overview of what our position is.

In that material you will find some other materials on the regulations, including a tab called ``The 55.2 Regulations for Dummies''. This is a document that, recognizing the complexity of these regulations, is an attempt to take somebody who may be unfamiliar with them and patent litigation through them so they will have an understanding of what they say. There are also various other materials I may refer to throughout the day.

Our position is simply this - and I have to quibble slightly with Mr. Vavers' summary of it. It is simply that the regulations must be repealed. They must be repealed in their entirety. What other decisions may be made about Bill C-91 we'll leave to the committee. They would include such matters as the stockpiling provisions and the early working and so on. That we would regard as a completely separate issue. The committee will deal with that as it sees fit. But the regulations must be repealed.

The reason for that is that the courts can do the job without being interfered with or told what to do. We have had patents in this country for about 150 years. There are many industries in which patents are very important. One could mention, for example, the electronics industry, the software industry, the automotive industry; and there are others, of course, where patent protection is very important.

What happens in all those other industries is that a patentee that feels its patent is being infringed goes to court. It says its patent is being infringed and the court determines whether it's right or wrong. If the court finds the patentee is correct and the patent is in fact infringed, it will award damages.

The damages can be very large. They can be all the profits the patentee would have made, which in the case of a pharmaceutical product is going to be a lot more than a generic is going to make. So it does not make sense for generic products to be infringing.

What generic companies try to do is not to infringe the patent. They develop products that do not infringe whatever the patent is or the several patents there may be on the product. That is what they do. They have chemists and people who work on that kind of project all the time. It is in the interests of the people of Canada that they do that, because if they are able to bring out a non-infringing product it means there is a cheaper product on the market, which means our health care system ultimately saves money.

So what is going on in the regulations is that they are dealing with a patent dispute. One party says the other is infringing the patent and the other says it isn't.

A patent claim has been likened by the court to the fence around the garden. The patentee can do only what is within the fence, but anybody else can come up to the fence. Anybody else can be around that fence. Anybody else can do anything as long as they don't infringe that fence. So the question is, are you in the fence or are you not? In a pharmaceutical patent case that can sometimes be a somewhat complex question.

We have a court system that deals with these cases. It deals also with when interlocutory injunctions should be granted. An interlocutory injunction is simply an order at the outset of litigation that the defending product or the defendant stay off the market while the litigation is in force; that is, while the matter is waiting to get to trial.

The case law that deals with when that is granted is very carefully balanced case law which has been developed over the decades by judges. The case law has gone up to the Supreme Court of Canada. It has been in the Federal Court of Appeal. It's substantially the same as in the United States and in the United Kingdom. It is very well balanced, well understood law, well understood by civil litigators. It is used not only in other patent disputes in other industries but in any other kind of civil litigation. So anybody who does civil litigation understands what an interlocutory injunction does.

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What these regulations do, in a nutshell, is throw the common law out. The regulations essentially say pharmaceutical patentees cannot get justice in Canada's justice system for some reason; therefore we need to tie the hands of judges, we need to tell them what to do.

Ladies and gentlemen, our message to you is that we do not need to tell them what to do. Canada's judges are competent. They are not corrupt. They are very thorough, sensible people. They are able to deal with these disputes, and they will do so in a way that will be fair to both parties. There is no reason to have regulations that hamper them in that extremely important task.

If you have regulations that make it easier for one side to get an interlocutory injunction, then by definition you are creating a system that is unfair, because you are taking away the ability of the judge to hear the parties, make their submissions to him or her, and decide what is fair and what is just. The effect of that is that you're putting the fox in charge of the chickens. You're creating a system where a pharmaceutical patentee can in effect get an interlocutory injunction at will, just by filing court papers. And that's unfair. It creates a system where they can automatically keep products off the market.

We'll talk about the damages provisions, which are inadequate, but many problems are created; and they all arise, I submit to you, ladies and gentlemen, from the same problem. The problem is that Parliament is getting involved in a civil litigation dispute process and it is therefore interfering with the fairness of that process to the advantage of one side. The effect of that is therefore obviously to be to the disadvantage of the other side; and the other side in this case is the generic drug companies.

The generic drug companies are trying to bring out non-infringing products. It's in the interest of Canadian consumers that they do it.

In every one of the 119 cases that have been commenced under these regulations the issue is this: is the patent infringed or is it not? What we say is let the courts decide that question. Let them decide it in the normal way they would use, which has been developed over the last 150 years in any other industry. Do not tie their hands. Do not force them to do something they would not ordinarily do, because if you do that you're benefiting no one. You're benefiting only the pharmaceutical patentee, but you're hurting everybody else, and you're creating a situation where products that may be non-infringing are being kept off the market.

At this time a good many products are tied up in litigation that has gone on for many months. Under this litigation the issue, the actual issue - that is, whether the patent is infringed or not, and in some cases whether the patent is valid or not - is never decided under the regulations. So you have a civil dispute process that does not decide, and in fact is incapable of deciding, the issue that is actually in dispute, and that doesn't make sense.

The Vice-Chairman (Mr. Walt Lastewka): Thank you very much.

Prof. Vaver: I suppose a number of questions may arise from that, from both parties. I will make this as a general statement and then see what the reaction of both parties is to it.

I would have thought the conditions under which a patent is granted are matters entirely for Parliament. That is to say, subject to our obligations under international agreement, Parliament and the regulating bodies are entitled to condition the patent grant in the way they wish. They can put on whatever conditions they like.

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So perhaps the question that arises out of what both counsel have been saying is, why is it that patents for medicines should be treated differently from patents for other classes of invention? I think that's quite an important question. Perhaps the comments that can be made in relation to that will help identify the issues a bit more clearly. Why is it that patents for drugs have these particular provisions whereas others do not?

The Vice-Chairman (Mr. Walt Lastewka): Mr. Brien, you have the first question, and please keep that in mind.

[Translation]

Mr. Pierre Brien (Témiscamingue, B.Q.): My question is for both witnesses, but I would like Mr. Hore to answer first.

You have stated that the link regulations should be done away with, considering they apply solely to the pharmaceutical industry. But it is surely not the only thing that is peculiar to the pharmaceutical industry. Correct me if I am wrong.

It seems to me that, in fact, three things are peculiar to this industry. You can access the data in order to copy a given product, you can go through Health Canada's approval process before the patent expires and you can even stockpile the product. I may be wrong, but do these possibilities not pertain solely to your own industry.

Logically, if you were to be put in the same situation as any other industry, should we not, in doing away with the link regulations, also modify these three things?

[English]

Mr. Hore: I think in dealing with those other considerations you have to look at whether or not there is a public policy rationale for them. If you were to create a system where any second entry drug of any kind had to submit all new clinical studies every time - and this would apply, of course, to most of the submissions to the Department of Health - you would create a system where the Department of Health's bureaucrats would be overwhelmed with irrelevant paper, which would duplicate paper that had already been filed. And that, I would submit, is not something that makes sense. You have to look at the public interest in evaluating the various components of the issues before you. It is not simply a question of tit for tat here. So getting rid of those provisions just on a public policy basis would seem not to make sense.

The stockpiling provision seems to have a utility simply to manage the transitional period into a period when the patent monopoly is ending, and it is useful for the provincial formulary schemes. But again, it is a separate question. It's either a good thing or a bad thing, and that is what this committee should decide.

But the question as to whether or not you want to have what everybody agrees is an unworkable system - everybody agrees in a sense but nobody likes it, and everybody wants to change it somehow - is, I would put to you, a separate question. I think this committee should look very carefully if it's going to decide Canada's courts don't know what they're doing and Parliament should therefore tell those courts what to do.

[Translation]

Mr. Pierre Brien: The three points that I have mentioned are also peculiar to the pharmaceutical industry. The access to data, the approval process while the patent is still valid and the stockpiling provision are peculiar to the pharmaceutical industry.

[English]

Mr. Hore: There are many things that are specific to many different industries, of course. Patents are used in many industries that vary in many ways from each other. There are components of the automotive industry that are different from the pharmaceutical industry. I litigate in a number of different industries, and every industry is different. I would certainly agree with you that the pharmaceutical industry is different from other industries in many ways, but I don't think it's fundamentally different. I don't think it's so different that Canada's courts can't deal with it. I believe very much that Canada's courts are competent and that our judges are quite capable of dealing with disputes in the patent area in the pharmaceutical industry as well as in any other industry.

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The Vice-Chairman (Mr. Walt Lastewka): Mr. Schmidt.

Mr. Werner Schmidt (Okanagan Centre, Ref.): Thank you, Mr. Chairman.

Following on in a similar vein, is the difficulty with the regulations, then, that tied into the regulations are stockpiling provisions and the access to the patent and the components of the patent to prepare an application to the health protection branch? In fact, it seems to me that the regulations provide for three things and all three are tied into one set of regulations.

Mr. Hore: No, that's not -

Mr. Werner Schmidt: Okay, so clarify that.

Mr. Hore: Yes. I'm very glad you raised that question, Mr. Schmidt, because it's an important one. Actually, an important misconception has been floating around that there's some connection between these things. There in fact isn't. Really, it's solely a political connection, if there is one. There's no logical or legal connection between these matters.

Mr. Werner Schmidt: That's specifically the point I wanted to clarify. There is no legal connection.

Mr. Hore: Yes, that's right.

Mr. Werner Schmidt: The infringement is one thing. The stockpiling is a totally different issue.

Mr. Hore: Let me explain why it's different. Stockpiling arises in a situation where it is not in dispute that the patent is being infringed. It's simply a transitional provision that comes into play in the six months prior to the expiry of that patent. It's the same thing for the regulatory approval. There's no dispute that the patent is being infringed. It simply is a break for public policy purposes to permit a smooth transition to the period when the patent expires.

The so-called linkage regulations deal with a very different situation. It's an apple as opposed to an orange. The different situation that it deals with is where there is a dispute about whether the patent or patents, as the case may be, are infringed or not. In other words, there is a civil dispute between the parties. One party says one thing and the other says the opposite. Eessentially, we're saying we want to go to a court and the court will decide whether the generic companies are right or wrong. If infringement is found, then of course very large damages will be awarded.

The parties get to make their submission. The generics believe that their products are not infringing and they simply want to make that pitch. They want to have exactly the same right as you would have if your neighbour sued you over your garden fence: simply to appear in court and make their position. Both sides are going to have their lawyers, and in this industry they're probably going to be fairly competent. The court can decide.

Ms Grell: May I point out my fundamental disagreement with Mr. Hore on this issue. The early working provision grants the generic an exemption to what is otherwise patent infringement. So does the stockpiling provision. These would all be an infringement of the patent rights had they not been legislated as exemptions for infringement.

The net result is that the generic gains up to a five-year head start in marketing its product without infringing the patent. The five years is made up of a combination of the time it has to prepare for regulatory filing. If it had to wait until the patent expired, it could only after patent expiry start doing the studies it has to do. It would start importing the job, compounding it, testing it, and then in another two years file its application for regulatory approval and perhaps wait another three years for regulatory approval.

Similarly, without a stockpiling exemption, the generic would have to wait until the patent expired before it could have a stockpile of product to sell commercially.

So these are very important benefits given to the generics. The tie-in to these regulations is that because you are allowing them to exercise this patent right during patent life, to get ready at any time with regulatory approval, you will have a situation where before patent expiry, they will have the regulatory approval. Therefore, you have to have a concomitant system to ensure that under this regulatory approval during patent life they do not then take further advantage of this exemption to further infringe the patent by coming onto the market before the patent expires.

It is the courts that determine whether or not the generic's justification as to whether or not it infringes the patent or the patent is invalid is justified. This is a determination made by our court system after hearing both sides.

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The advantage is that this takes place at a time when the generic can't be on the market anyway. Parliament is free to remedy matters through legislation, whether they be before the courts or whether they be in any other facets of our life in Canada that cry out for remedial action. This is a very proper role for Parliament and this has been so for hundreds of years. This is what was seen through the practical inadequacies of obtaining interlocutory injunctions in Canada, coupled with then giving the generic a benefit that would equip it to come onto the market during patent life.

Mr. Werner Schmidt: May I follow that up with just one quick question.

Mr. Hore: Could I respond to that? There are a number of things in there that I disagree with.

The Vice-Chairman (Mr. Walt Lastewka): Mr. Schmidt wanted to ask a question first. Then you can conclude with your response, and we'll go on to the next one.

Mr. Werner Schmidt: It has to do with Madame Grell's statement about the approval process. It seems to me that one of the assumptions underlying the unfair advantage given to the pharmaceutical or the patentee is because of the regulatory approval by the health protection branch. On the day the patent expires, they're able to get onto the market. If they had not had that health protection branch approval, then automatically on the expiry date they'd have to start that process. As a consequence, they would be off the market for whatever time it took to get this health protection branch approval. Is that the assumption underlying your argument?

Ms Grell: My argument?

Mr. Werner Schmidt: Yes.

Ms Grell: Yes, it is. Otherwise a generic that wants to avoid patent infringement would have to do that.

Mr. Werner Schmidt: We don't have to repeat it. I want to make sure this is really the assumption underlying your argument.

Ms Grell: Can I add one more thing? By accessing the originator's data before HPB and by not having to repeat the studies on whether the generic product is safe and effective or not, the generic is also benefiting from another right belonging to the innovator. The innovator has spent years and millions of dollars in developing this information. By being allowed to access it, that is a benefit. Later on we'll come to how that should be better dealt with. It saves the generic system -

Mr. Werner Schmidt: I submit that's a different issue, Mr. Chairman.

The Vice-Chairman (Mr. Walt Lastewka): Mr. Hore.

Mr. Hore: I would agree with Mr. Schmidt. It's a very different issue. There are public policy reasons why you don't want to have our Health Canada inspectors and examiners spending years and years going over material that's already been filed. It would waste everybody's time. It would take an enormous amount of time for products to get on the market. Why have regulatory overkill? That issue should be evaluated on its merits. The question on whether we want to have this patent scheme that can automatically result in products being kept off the market would seem to me to be altogether different.

Furthermore, I want to make it clear that the regulatory approval exception in section 55.2 does not just apply to the pharmaceutical industry, it applies to any industry. There seems to be a misconception about that as well. It is something that will apply if you're applying for a pesticide, an air bag, a child's walker, whatever. It's been there for a long time. It is also arguably a common law right that has existed since the early 1970s. It's nothing new.

I'm sorry. Was there a question over there?

The Vice-Chairman (Mr. Walt Lastewka): I wanted to make sure you've concluded your time.

Mr. Hore: Yes, I have.

The Vice-Chairman (Mr. Walt Lastewka): Who is going to start here? Ms Brown.

Ms Bonnie Brown (Oakville - Milton, Lib.): Thank you, Mr. Chairman.

Before I get to the two lawyers, our moderator read through some papers, which I suppose are supposed to set the tone of what it is we're looking at. I have a couple of questions for him, if it's all right.

Mr. Vaver, Can I assume you agree with everything in these first three pages? Or did you just read them as a service to us?

For example, I'm looking at ``regulatory approval and stockpiling'' on my page 2. The last sentence says the effect of these provisions was to remove certain rights that patentees originally had to sue for patent infringement. Would you agree with that?

Prof. Vaver: I do.

Ms Bonnie Brown: Okay, thank you.

I am looking at this chart on page 4. An average reader would look at this chart and read it a certain way. Looking at the line for 1993 it says there were 24 cases in total. The patentee won 16, the generic won 8.

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Because the main issue is always patent infringement, I would immediately have assumed that to mean that the patentee won 16 cases, because the generic had infringed on the patent. The generic won eight because they could prove they didn't infringe. Now we've been told that these cases seldom address or never address the issue of patent infringement, but rather they address technical and administrative matters.

You're the expert. Which is it? Do they address technical and administrative matters or do they address patent infringement?

Prof. Vaver: That's a very good question. The short answer is that these administrative procedures do not, in effect, adjudicate either validity or infringement. They don't go as far as that. The precise -

Ms Bonnie Brown: Do you mean all this time is spent in court and we really don't get an answer out of these court cases? All this money is spent and we still don't know at the end of it whether a patent has been infringed or not. Is that correct?

Prof. Vaver: That is correct. You will not know that.

Ms Bonnie Brown: So this chart doesn't really tell me a whole lot, except there's a whole lot of action in the courts that is of questionable value to Canadians who are worried about drug prices.

Prof. Vaver: If the ultimate questions that one wants to get decided in these cases are(a) whether the patent is valid and (b) whether it is being infringed, they are not answered by the administrative process.

Ms Bonnie Brown: So this chart is not really too valuable in this particular debate, because it's more on technical and administrative matters.

Prof. Vaver: Yes. There would be an interesting additional column here, which we don't have. It would have information on whether or not these cases eventually would go to litigation and what the result would be in the patent infringement litigation or declaration of infringement cases. We don't have a column on that. A lot of them simply folded at this stage and nothing further happened. It may be that another column would not have been all that useful, but -

Mr. Hore: Perhaps I can address those points further.

Ms Bonnie Brown: No. I just wanted to hear what Dr. Vaver had to say. I don't want to use up the time of my colleague here.

Mr. Hore: All right. I just had a couple of quick points on that, Mr. Chairman.

The Vice-Chairman (Mr. Walt Lastewka): We are addressing the question, so I'm sure both of you would also want to make a comment.

Mr. Hore.

Mr. Hore: First of all, we're not sure where these numbers come from. Our numbers are different.

I actually have a summary of all the cases because we've been collecting them. By our calculations, as of last Friday, for what it's worth, our calculation is that the brand names had ``won'', theoretically, 15 and the generics had ``won'' 14. I put in quotes the word ``won'' because there's no concept of really winning or losing on anything meaningful here. That was my assessment of the cases as of Friday.

What I have beside me, if anybody is interested, is my summary of the cases.

The Vice-Chairman (Mr. Walt Lastewka): I'd ask you to table that with the clerk. Can you provide that?

Mr. Hore: All right, we'll do that. We've made multiple copies. Nothing, however, really turns on this, particularly because we don't of course get a definitive answer in these cases.

With respect to whether or not they go on to patent infringement, the answer is that you're prohibited from being on the market by order of a prohibition, so it doesn't do you any good. You'd be spending a huge amount of money on a second lawsuit and you couldn't get on the market. The other thing, of course, is that you can't collect damages under these regulations.

So what the regulations in effect do is create a system where it's actually impossible in practical terms to get to the actual issue of whether or not the patent is infringed or valid.

The Vice-Chairman (Mr. Walt Lastewka): Ms Grell, you might want to make a comment, and then I'll go back to Ms Brown for her questioning again.

Ms Bonnie Brown: I just wanted to hear the moderator's opinion of the papers he read to us. I've already heard the other opinions in their presentations. Why are they reiterating?

The Vice-Chairman (Mr. Walt Lastewka): I gave Ms Grell a short time to make her comments, to be fair, and then I'll come back to you.

Ms Grell: The committee will find that this is not a reiteration. I have some tables that I am prepared to file with the committee for its information, which I hope will answer the hon. member's question.

Just to remind the committee, we have refiled with you today a compilation of cases we have done under the linkage regulations, with a short summary. It was filed with the PMAC presentation earlier on. Insofar as they go almost to the end of January 1997, our figures gel with the figures in that table before you, with a very small difference. We have 58 cases decided, with a balance of 55 left, and 21 -

.1135

Mr. Joe Volpe (Eglinton - Lawrence, Lib.): I have a point of order, Mr. Chairman.

The Vice-Chairman (Mr. Walt Lastewka): I would ask you to table that with the clerk.

Ms Grell: This has been tabled with the clerk, sir.

The Vice-Chairman (Mr. Walt Lastewka): Mr. Volpe, what is your point of order?

Mr. Joe Volpe: We've just had some material delivered and I'm a little frustrated because some of this material is coming without any attribution. I don't know who it belongs to. It's being given to us. I gather it answers part of this question. In fairness to the witnesses and to us too, could we establish two things. First, if anybody is going to hand anything out, we would like to know where it comes from, so we can at least have an indication of who did it.

Secondly, I think the question my colleague just asked has been answered. With due respect to Madame Grell, she gave me and this committee that outline about two weeks ago. If we can go on to substance, maybe she can continue. It's obviously your decision. She can continue, but maybe after we find out who gave this out.

The Vice-Chairman (Mr. Walt Lastewka): I wanted to make sure I was fair to the two counsels, and I think I have been. They have tabled whatever they have tabled. Unfortunately it's not dated and identified, but the clerk will take care of that.

Ms Grell: Mr. Chairman, I am reminded of something that was already tabled. It does not have the kind of information that was addressed in the last question. I have a new document that specifically addresses that, and I would like to table it with you.

The Vice-Chairman (Mr. Walt Lastewka): No, Ms Grell, I'm going to stop you, please. I'm going to go back to the questioner. Obviously I've missed the point here, so -

Ms Bonnie Brown: Mr. Chairman, if I can just reiterate my point -

The Vice-Chairman (Mr. Walt Lastewka): I would like you to rephrase your question -

Ms Bonnie Brown: - I don't need an answer. I got the answer from Mr. Vaver. He was the one I wanted to answer, and he answered it.

The bottom line is this. That chart talks about wins and losses on technical and administrative matters, not on patent infringement or validity of patents, which is the question we are looking at. So that chart is irrelevant. That was the only point I wanted to make. He agreed with my analysis of it. I did not want to hear about more wins and losses, because we've now established the fact that those wins and losses haven't a whole lot to do with the price of bread, or the main issue we're talking about.

Ms Grell: Mr. Chairman, that was precisely what I wanted to answer. They do, in my opinion. I do not agree with the moderator on this.

The Vice-Chairman (Mr. Walt Lastewka): Mr. Volpe, you had a question.

Mr. Joe Volpe: Maybe we can get back on a proper footing.

In your initial presentation, Madame Grell, you gave an indication of the importance of ensuring there are effective patent rights. Do you not think the courts will provide you with effective enforcement of what is guaranteed to you in legislation?

Ms Grell: Our experience in the past with interlocutory injunctions before the courts, which are very -

Mr. Joe Volpe: Have you applied for any? Have you made applications for any?

Ms Grell: I was about to tell you about the experience in applying for interlocutory injunctions.

As part of a document that has been tabled with you there's a table that sets it out. I'll just summarize it. Till 1993 -

Mr. Hore: I wonder if I could get whatever is being referred to. I don't have copies of any of these.

Ms Grell: This is one, but another one was attached to the document by Gowling, Strathy and Henderson, a paper on interlocutory injunctions. At the very back a table sets out how many interlocutory injunction applications were applied for between 1970 and 1973.

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The Vice-Chairman (Mr. Walt Lastewka): Everybody has the copies? Ms Grell.

Ms Grell: This shows that during that period of time - this was before linkage regulations - there were 10 cases in which interlocutory injunctions were applied for involving pharmaceuticals. An interlocutory injunction was granted only in one case, which is number six on that table.

This incidentally is the case that confirmed that early working for the purposes of obtaining regulatory approval is patent infringement in Canada. That was the only case in which an interlocutory injunction was granted. It was a limited interlocutory injunction until the generics in question obtained a compulsory licence or products from a compulsory-licence source.

Consider other cases. For example, a particularly noteworthy one involved Eli Lilly, the drug Prozac, and Apotex, Interpharm, and some mail-order companies. An interlocutory injunction was applied for on the basis of patent infringement and passing off on trademark issues. The court granted it on the basis that they could not use the Prozac name or trademark. It was just on the trademark issues, and it refused an interlocutory injunction on the patent issues. This was the type of case that led to a criminal conviction in the U.S. A result of this was that one of Canada's generics companies is still under a probation order applicable in the U.S.

Mr. Joseph Volpe: Do you have confidence in the courts?

Ms Grell: It's not a question of confidence in the courts; it's that the courts have developed a certain test and a certain way of applying the test for granting interlocutory injunctions. The test is so stringent, particularly when you take into account the special circumstances of -

Mr. Joseph Volpe: We won those cases.

Ms Grell: I'm sorry?

Mr. Joseph Volpe: We won those cases. My question is still the same. My question initially was: do you have confidence in the courts to enforce the legislation passed by Parliament? What you've indicated to me in the last two examples is that yes is the answer.

If you have a different answer, please tell me. Then maybe in the next round you can explain it. But in fairness, you're telling me the court works.

Ms Grell: I seem to have misunderstood your question, sir. We have confidence in the courts to carry out legislation enacted by Parliament.

Mr. Joseph Volpe: Okay. Thank you.

Ms Grell: With every legislation enacted, there is an area for interpretation that has to be resolved over the course of time. There is a learning curve, and sometimes things get.... This is a normal process.

Mr. Joseph Volpe: But you tell me that you want to insist on adding more on your answer, so I have to insist on adding more on my question. But you're telling me yes, the court does work whether there is a learning curve or not. You're telling me you have confidence in the court. Can I be satisfied with that?

Ms Grell: Yes. We do have confidence in the court.

Mr. Joseph Volpe: Okay. Thank you.

The Vice-Chairman (Mr. Walt Lastewka): That completes that questioning. We will now go over here to Mr. Brien. We'll go for five minutes each, and then we'll conclude this section,Mr. Moderator, and go on to the next topic.

[Translation]

Mr. Pierre Brien: Mr. Hore, you were saying that the linkage regulations could delay the marketing of your products. Here again, I want to be sure I understood you correctly because we have two opposing views on this. During that 30 month period, Health Canada's regulatory approval process is going on. You would not in any case be able to market the product immediately. Say it takes 20 months to get Health Canada's approval and that you have to wait 30 months before going to court, you will have lost 10 months if you end up by winning. If the various time-frames coincide, there will be no delay in marketing the product. Is that correct?

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[English]

Mr. Hore: It's going to depend on the facts of individual cases, of course. Certainly, many of these cases have gone on longer than the date when the NOC would have been granted. The CDMA keeps fairly careful track of that.

There do seem to be a substantial number of products delayed right now. The reason for that is that the HPB, or the Department of Health, as it's now called, is making great efforts to expedite its approval process, so that the timeframes are going down. They've set themselves stringent targets, which they seem to be meeting, so that a generic application can be approved in as little as seven months now, as I understand it. That's the target, anyway.

At the other end, the 30 months can be extended. So we've had cases like, for example, the lovastatin case, where you got up to 44 or 45 months or something, and there still had never been a hearing. So if your question is, practically speaking, do these regulations in fact keep generics off the market, the answer is unequivocally yes.

[Translation]

Mr. Pierre Brien: If we brought about certain corrections in order to ensure that the time-frames do in fact coincide, the regulatory approval process for pharmaceutical products would be the same as the one for going to court. In that case, you would no longer have a problem since there would be no more delay in entering the market.

[English]

Mr. Hore: No, we would have a problem. The reason is that at the hearing, as we've said, the actual issue of whether or not the patent is infringed is not resolved. So you can actually be prohibited from entering the market on the basis of a one-day hearing on an issue that, if it went to a full trial, might take weeks to resolve. It's a very brief, one-day overview, and it is often decided on the basis of onus and entirely procedural questions. So the answer to the question is, very definitely, you cannot do that.

The only way to ensure the product gets on the market and the issue is resolved is to have the health and safety process on the one hand and to keep it completely separate from the patent litigation process on the other hand, recognizing there are two very different objectives being achieved by those two processes. On the one hand, you're trying to find out if the drug is safe and effective, and on the other, you're trying to find out if the patent is infringed, if somebody is asserting that is the case. Those things do not go well together, as the Federal Court has observed. It is not a happy union, the Federal Court of Appeal said about these regulations, because you are essentially combining two completely unrelated processes.

[Translation]

Mr. Pierre Brien: I have a question for Mrs. Grell. Say you were not in a position to obtain an injunction, or say there were no linkage regulations but that you could obtain any court injunction you thought you required, you could just end up by asking the courts to recognize that there has in fact been a patent infringement and you would then be entitled to damages. Why would that not be enough? Do you believe that being awarded damages is not compensation enough or that it would take too long? Why is this type of solution not acceptable to you, since you could have your rights recognized and be entitled to damages?

[English]

Ms Grell: Perhaps I could just mention that in the last answer by Mr. Hore, there's nothing that I agree with.

Mr. Pierre Brien: I understand that.

Ms Grell: But let me address your question. It should be noted that once the trial has taken place, in these cases the norm would be that you have further hearings on how much should be paid. You were talking about 3, 5 and 7 years and, for example, in the Diltiazen case that started in 1987,10 years, during which nothing has been paid. What happens in the meantime is a situation that is not truly or adequately compensated for by what the patentee recovers down the road. There is a loss of market share that could be devastating and might never be recovered. The products may have a limited competitive life and be overtaken by other technologies, and that's never restored. There is the lack of ongoing revenues to make new investments, to meet R and D expenditures, or to take into account the opportunities for introducing new products. There are losses to the companies per se. It may be the most important product for the company.

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Nowadays, we are getting into the situation with the new fledgling Canadian home-grown biotech industry where you're starting off one product at a time. You are initially dependent on the sales of one product. The effect can be devastating. By the time you recover damages down the road your business has suffered, your employees have been laid off, you have lost opportunities, you have lost the market for that product or you can never recoup the kind of market you had.

I haven't mentioned all the factors. There are many factors. That money, five years or ten years down the road, does not restore you to the position you would have been in had you maintained your exclusive rights under your patent during that period of time.

Mr. Hore: I'd like to respond to that. The most recent patent case to go under the normal patent process before the courts was the enalapril case, about a heart drug. That case went to trial in seven months. The generics won for the most part. It was a bit of a split decision on certain parts of the product at issue, but essentially they won.

All of the arguments that Ms Grell has raised she, as a competent counsel, would raise at the interlocutory injunction hearing. She would say to the courts that we don't think we can be compensated in damages. We don't think we can wait. If we win, we won't be able to get back what we should, for whatever reason. If the court accepts that, the court would grant the interlocutory injunction. That's the law.

What happens is that these submissions are made and they're not always accepted. Sometimes they are. Sometimes, as you'll see from Ms Grell's own summary and in our materials as well, there are a number of patent injunctions granted.

There's an opinion from the Lenczner Slaght firm that mentions patent injunctions that have been granted in the last few years. There's no doubt that sometimes they're granted and sometimes they aren't. Sometimes it's just to grant one and sometimes it isn't. It's a question that has to be decided on an individual case. Who better to decide it than a judge hearing both parties? It is not appropriate, in our view, for Parliament to unilaterally say we're going to assume that all patentees are right and we're going to assume that all generics are wrong. It's a broad brush. It's a blunt instrument. It creates unfairness and it keeps products off the market. That's not the right thing to do.

Ms Grell: May I make a brief response?

The Vice-Chairman (Mr. Walt Lastewka): I'm going to go to Mr. Schmidt now, because we've given you some liberal time.

Mr. Werner Schmidt: Thank you, Mr. Chairman.

The issue here centres around whether or not we established whether a patent was in fact infringed. That's the issue here. We've listened to all these arguments. We still have come to the conclusion that no case has been made conclusively that a patent was in fact infringed. If our court system is such that it doesn't determine the very thing that is at issue, then what on earth is going on here?

Mr. Hore: What's going on here is that there was a very successful lobbying effort while the former government was in power, because pharmaceutical patentees were saying we were right and the Supreme Court of Canada was wrong; you should believe us and not the Supreme Court of Canada; we think we're being treated unfairly. So the regulations weren't put through.

Mr. Werner Schmidt: I know the argument. What I want to know is what's wrong with the process? What's wrong with the legislation that prevents the courts from actually getting at the heart of the issue?

Mr. Hore: That's a good question, Mr. Schmidt. The answer is that it's because of the wording of the regulations. It's a judicial review application. I don't want to bog you down with legal technicalities, but essentially that is an administrative court procedure that is different from a trial - a trial being like O.J. Simpson's, where you have the judge and witnesses and what not. A judicial review is a much more abbreviated process, where there are just affidavits. That's what the regulations call for.

Why that is I don't know. The generics were never consulted on the wording of these regulations so why it works that way I couldn't imagine.

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I think the point is essentially this. I've met many of the Department of Industry people, and I have a high regard for them. But it's very difficult to recreate the wheel. It's very difficult to tear up an existing litigation system that has developed by trial and error over 150 years -

Mr. Werner Schmidt: We're just -

Mr. Hore: let me finish one more sentence - and create a new system. Understandably, errors are made. Things happen and it doesn't work out very well, because you simply cannot do that. That's the trouble with the kind of adjustments that apparently we will be talking about later in the day. You cannot play God. You cannot create a system and expect that it's going to work very well. There's going to be a problem of one sort or another, because you are explicitly taking away the ability of judges to simply hear the cases and decide what they think is fair.

The Vice-Chairman (Mr. Walt Lastewka): Ms Grell would like to comment on that, too,Mr. Schmidt.

Ms Grell: I'd like to respond to that. I'm afraid the record does not agree with what Mr. Hore says as to the disposition of the proceedings. The proceedings do decide if what the generic says as to why it does or does not infringe the patent is justified. This is a decision made by the court after getting the evidence that the generic and the patentee present. These cases are not all heard in one day. Some of them go on for three or four days at a time. I have looked at the decision -

Mr. Hore: Wait a second -

Ms Grell: Just one minute, please.

Mr. Hore: - my friend is entitled to different points of view, but surely not to say things that are simply not true. That is not the case.

The Vice-Chairman (Mr. Walt Lastewka): I want to give Ms Grell a chance to respond.

Ms Grell: You've had your opportunity, and I am trying to respond to that.

The Vice-Chairman (Mr. Walt Lastewka): I'm going to ask you to be brief, because you are taking more time.

Ms Grell: I will try to be very brief, sir.

For example, look at the decided cases and what was the basis of the decision. For example, take number 17 on the list of cases we've given you. It involved Eli Lilly in a case against Nu-Pharm for infringement of Prozac. Nu-Pharm alleged to the court that it did not infringe because the process it used has these differences. The court examined the patent, examined Nu-Pharm's process, listened to the expert evidence, assessed it and came to the conclusion that Nu-Pharm does infringe the patent.

You have the case of Bayer and Apotex regarding the drug Cipro. The decision is -

The Vice-Chairman (Mr. Walt Lastewka): I want you to make your point and to not continue to read all the cases. I have to live with these people later on.

Ms Grell: Okay. In 17 of 22 cases where prohibition was granted, the decisions were all made on the basis of whether or not what the generic said about it not infringing the patent was true. An assessment was made. In the other seven cases you had issues as to what was the nature of the patent.

Mr. Chairman, I will be brief, but it is important to get before you the facts. I'm afraid sometimes the facts do take a little longer to get before you than just sweeping allegations as to what things are and what they're not. When you do examine the facts, you can see that things are not what they are alleged to be.

So decisions are made. Some have been decided on the basis that certain patents are not within the regulations. We have not yet had any cases where the decision before the courts - and these are just facts - is whether or not the patent is invalid as the generic alleges. But that will happen. And that is what is decided. It is not just an ``administrative'' decision. Real issues are decided.

I would like to quickly make one other point.

The Vice-Chairman (Mr. Walt Lastewka): No, Ms Grell. I've been very patient, and I've given you a lot of extra time. I'm going to go to Mr. Hore for a comment, and then I'll go to -

Mr. Hore: I'll be very brief.

I'm sorry, did you have a question? I didn't mean to cut you off.

I'll just make a one-sentence comment, if I may. With great respect, my friend, that's simply not correct. The Federal Court of Appeal has said very clearly that you cannot determine the issue of infringement in these proceedings. I can cite the cases to the committee, if you want. Why? Because it's a judicial review application, and there's not enough information before the court.

.1200

The Vice-Chairman (Mr. Walt Lastewka): Thank you very much.

I'm going to go to questioning. I understand you're going to split the five minutes. Who's going to start? Mr. Murray.

Mr. Ian Murray (Lanark - Carleton, Lib.): Thank you, Mr. Chairman.

Mr. Hore, I want to go back to this whole question of the difficulty in obtaining interlocutory injunctions. I'm not clear if you agree, first of all, that it is as difficult as we've been told it is. Would you agree or disagree with that?

Mr. Hore: That's an interesting question. I've argued patent injunctions. In fact, I've argued one of the ones that's on Ms Grell's list. It is probably difficult to get an interlocutory injunction. It's certainly not impossible in a patent case. They certainly are granted in some cases, and in our materials you'll find, I think, four or five different cases mentioned in the Lenczner Slaght materials, where patent injunctions were obtained at the interlocutory stage.

But what I think is important to concentrate on is why that is. It's not because judges somehow get up in the morning and decide they're going to be mean to patentees or that they're somehow biased against the pharmaceutical industry. It's because they are dealing with an extraordinary remedy, namely, that one party is essentially kicked off the market before it has been determined if in fact the product is infringing and which side is right. Going back to the British House of Lords and the Supreme Court of Canada in the RJR case, the cases have said that the courts should proceed with great caution in doing that for the simple reason that you do not know who is right.

I'm not sure if this is the time. We will, as I understand it, be getting later to the test for an interlocutory injunction, and I would very much like to discuss that.

In fact, I have some of the leading cases in my materials, which I don't want to get bogged down in, but I'd simply like to say this is a finely balanced test. It recognizes the fact that you have two parties before the courts, and they have a disagreement. Should you order one of the parties, namely the defendant, off the market for the time it might take to get to trial? The judges will consider what they think is fair in the circumstances, and they will do a careful balancing that is very well thought out and very well understood by litigation lawyers.

Mr. Ian Murray: I don't mean to interrupt, but I believe we've already used up a good chunk of the time. I'm sharing my time, so I'll hand it over to my colleague and we'll come back to this later.

The Vice-Chairman (Mr. Walt Lastewka): Mr. Volpe, you have three minutes.

Mr. Joseph Volpe: I'm not going to take up all three minutes, I hope. I just want to try to get back on track. I think what we were going to do is take a look at some of the options that are part of this document.

With all due regard to people who are going to represent their own interests, I still want to take advantage of Mr. Vaver's expertise. He is a moderator, and I hope he'll be unbiased in his particular position. I just want to ask you, sir, if you would agree with the comments of the judge in a recent court case involving two of the principals that are represented here today where he indicated - and I paraphrase him - that as unbelievable as it might seem to the average citizen, the regulations take precedence over the Federal Court of Appeal and, in fact, the decisions of the Supreme Court.

Prof. Vaver: That's a very difficult question to answer.

Mr. Joseph Volpe: But it's important for the deliberations we're going to have later on. We have two positions here: one that says, yes, we believe in the court system, and the other one that insists we rely on the court. Some of the options before us have to do with regulations and how they fit into this court system and litigation. If the regulations take precedence over court decisions, it gives me a different appreciation for why there's insistence on regulatory reform or position.

Prof. Vaver: I think the answer has to be a little bit more subtle. I'm not going to evade your question because I have no reason to do it. We can have faith in the court system. We can also disagree with the results of some of the court decisions.

Mr. Joseph Volpe: That's why you go to court.

Prof. Vaver: Exactly. So it may be that in some situations courts go off track in the view of people who make laws. You're lawmakers, and within your constitutional powers you can tell courts what they should be doing if you think they've gone off track.

Some of the arguments that have been made are exactly along those lines. One argument you'll hear is that the courts have gone off track in interlocutory injunction cases in these situations. Therefore, there is a good reason why we have a regulation there that does something that the courts are not very good at doing in these cases. That would be one way of looking at it.

.1205

Just to answer your question in the abstract, we can believe in courts but we can sometimes equally believe they go wrong. When they go wrong within a Parliament's constitutional jurisdiction, Parliament can say, we don't think you have it right; we have something better; try it this way.

Mr. Joe Volpe: Talking in the abstract and therefore on legislation.... On the specifics, the regulations that emanate from that legislation are administered by and interpreted by people in the appropriate departments who may or may not have the training and the expertise that goes with the legal training and balance required by judges who have, as I understand it, the depth and collective wisdom of whatever.

We want to provide a framework for the courts to interpret the will of the legislators. I accept that. What I asked initially, and I know you're not evading it, is whether the regulations that emanate from them should take precedence over the interpretation of a court system that we've put in place to interpret our will and our intent.

Prof. Vaver: I don't think they do that. It's always up to the courts to interpret the regulations. You may think that the court gets it wrong. The regulations meant perhaps that people thought they were doing X, and the courts say, no, you weren't doing X; you may have thought you were doing X, but in fact you did Y.

The interesting thing, of course, about regulations is that they can be amended rather more easily than statutes - theoretically, anyway. It's less a bureaucratic administrative process than a legislative process.

I don't believe there can be a right constitutionally. The regulations cannot take precedence over the courts. Courts will always interpret regulations. They would try to do what the regulations tell them to do. If the regulations are within the powers that Parliament has entrusted the bureaucracy, the courts will dutifully follow what the regulations tell them to do. They will not say, I don't like this regulation; I won't follow it. They can't do that if it's within the power.

Mr. Joe Volpe: Thank you.

The Vice-Chairman (Mr. Walt Lastewka): Thank you very much. This concludes this session. We will suspend until 12:15 p.m. I would ask that the members and the witnesses be prepared to go on to the next topic at 12:15 p.m.

.1208

.1220

The Vice-Chairman (Mr. Walt Lastewka): Ladies and gentlemen, we are resuming proceedings on the order of the day, which is pursuant to Standing Order 108(2), a review of section 14 of the Patent Act amendment, 1992; chapter 2, Statutes of Canada, 1993.

We will proceed with the second topic. I'd like to remind you that we will give you ten minutes each to make your case. I'll give you a one-minute warning, because we must stick to the time allowed. I will then go around the table for questions, allowing ten minutes for each member, and if possible, we will then have a five-minute round.

Professor Vaver, please proceed.

Prof. Vaver: Thank you, Mr. Chair. The second topic is mentioned on page 5 of the papers I was reading from previously. This is the document labelled ``Notice of Compliance, NOC Link Regulations, April 10, 1997''.

The second topic that was indicated there as a possible thing to look at is the question of the interlocutory injunction. I think it comes from this point. If one does away with the regulatory scheme we've just been talking about, how will the patent holder be able to act to stop infringement or alleged infringement from occurring?

We've already had an inkling of that in some of what has been said. A patent holder who believes they have a valid patent because it has been granted by the patent office after an examination and that somebody is infringing or about to infringe may bring a proceeding against that person and go to court and ask for an interlocutory injunction. This means essentially they're asking a court to say, stop these people infringing as we say they are. We don't have to prove fully they are doing so. All we're asking you to do in the meantime is to look at the case we produce, which suggests we have a valid patent. There is a serious case to be made that the defendant is infringing, that we will be caused irreparable harm if the defendant continues doing what they do, which we say is infringement, and that the balance of convenience, that is the general equities between the parties, favours us over whatever equities or hardship the defendant can produce to stop an injunction.

If a court agrees there is a serious case to be tried, that it is not a frivolous action, that the patent is there, that it is valid, that there is a serious case to be argued that there is an infringement, that the plaintiff is going to be irreparably harmed and that the balance of convenience favours it, it will grant an interlocutory injunction, which means the defendant is going to have to stop now doing what it is doing or proposes to do, which is alleged to be an infringement. We'll continue in that stage until there is a trial on the merits, if there ever is one. Often there is not. The questions you are being asked to consider are whether or not this remedy is a fair and adequate one for patent holders if the regulatory scheme is abandoned, and whether or not it is fair, adequate and just for people who are alleged to be infringing.

.1225

I should stop there, because I think counsel will have their own view points on those matters.

The Vice-Chairman (Mr. Walt Lastewka): Ms Grell.

Ms Grell: Thank you.

The real issue relating to interlocutory injunctions in pharmaceutical cases and patent cases generally is not that they are, in theory, not available in Canada. It is the reality and the practice, particularly as applied to the pharmaceutical industry.

You have heard about the three-pronged test, the serious issue to be tried, which means the court does not make a pre-adjudication of the issues. That's not a problem in this context, because we will have an infringer - and particularly a generic infringer - who, through its application to the health protection branch, states what it is doing: I want to sell exactly what it is that you, the patentee, are selling, with the same active ingredient for the same purpose, same dosage form, and so on. The test is there.

We then get to the second prong of the test, and that is where theory and reality part company. While the three-pronged test is the same on paper here as it is in certain other common-law countries, that test is judge-made law that goes back to the House of Lords, the Supreme Court of Canada, and so on. The courts have come up with a set of rules as to how one proves irreparable harm, and as to what must be proved. As a result, it is simply practically impossible to ever meet that test.

I think I can do no better than to quote very quickly some brief extracts from recent decisions of the courts on the tests for proven interlocutory harm. The courts have said:

The use of the tentative expression ``is likely'' was not correct in view of the Court's earlier jurisprudence.

-this was in a 1994 case -

It was necessary for the evidence to support a finding that the applicant would suffer irreparable harm.

It went on to say:

The jurisprudence in this court establishes that the evidence as to irreparable harm must be clear and non-speculative.

Thus you are asking the courts to prevent something from happening, but in effect, you are being asked to prove - by evidence that the court says must not be speculative, although it is something that will happen in the future - exactly what it is that you want to prevent. The courts require that you show not just that what you are seeking to prevent is likely to cause irreparable harm, but that it would cause irreparable harm. That is a test that not only is impossible to meet but also flies against the clear language of the NAFTA provision that relates to provisional measures. The test set out there uses exactly the so-called tentative expression that the report condemns. It says ``is likely to cause irreparable harm''.

The second factor that makes the interlocutory injunctions practically impossible in the pharmaceutical industry is the nature of the industry itself, and getting the courts to accept that in a context of automatic substitution of the generic product at the market level, what happens to the patentee is irreparable, and that damages five and seven years down the road will compensate for that harm.

.1230

Even in the papers that Mr. Hore has referred to as being presented on behalf of the CDMA, it is admitted that interlocutory injunctions are hardly ever granted in pharmaceutical cases. There was one 1994 case referred to in that paper as an example in which an injunction was granted. The same patentee went back before the court in 1996 against another infringer, and the interlocutory injunction was refused.

I have already mentioned the situation in the pharmaceutical industry prior to the linkage regulations. There were ten applications for interlocutory injunctions, and only one was granted. Since 1993, the linkage regulations have been in place and they've been working. As a result, you have not seen applications for interlocutory injunctions in pharmaceutical cases, but there have been applications in other patent cases. A survey of these cases shows that in 1996 there were three applications for interlocutory injunctions in patent cases, but none were granted. In 1995, three applications were made for interlocutory injunctions in patent cases, but none were granted. In 1994, there were three applications, and two were granted. So the test is very difficult to meet for the reasons that I've mentioned to you.

There is another part to the traditional problem with the way in which the test is being applied in patent cases in Canada. This stringent test on irreparable harm is applied in the context in which the courts continue to stress that interlocutory injunctions are an exceptional remedy and are - and I quote - ``seldom granted for patent infringement cases''. This for example was repeated in a very recent case. Interlocutory injunction ``is an exceptional remedy. Exceptional circumstances must exist before the grant may be justified. This is especially so in patent matters.'' That was the comment of the Federal Court of Appeal in Cutter v. Baxter.

So we're dealing with a species of judge-made law, and one part of the test has been refined in such a way that it has no real practical effect. Thus, in 1993, when you left a system whereby a generic manufacturer could automatically be on the market by virtue of a compulsory licence, and went into a system in which there are no compulsory licences, you had to bear in mind the reality that there is no real redress through the courts to enable you to ensure that the exclusive rights of the patentees are preserved until a trial that may take place years down the road.

One of the arguments that has been made to the courts in the past, both during the days of compulsory licensing and since - for example, in the Merck & Co. v. Apotex Inc. case relating to enalapril - is that if you do not stop an infringer from staying on the market until trial, the court is in effect allowing that infringer a compulsory licence to compete with you until trial. In other cases prior to 1993, the courts had said this was fine, because compulsory licensing was part of the law in Canada and sooner or later somebody would get a compulsory licence under this patent. After 1993, without compulsory licences, if you had a situation in which all the patentee could rely on was the system of interlocutory injunctions - which the generics advocate, since they know they are virtually guaranteed because of the way in which the tests are applied - they will not be granted. You're effectively saying, here's a compulsory licence, so stay on the market until the trial takes place.

As for damages way down the road being any sort of adequate remedy at all, just take the example of the Merck enalapril case mentioned by Mr. Hore earlier on. Yes, the trial was held seven months from the date when the court refused to grant an interlocutory injunction. The trial was held in April 1994. The decision was not issued by trial division until December 1994, very close to Christmas. The matter went before the Court of Appeal in April, 1995, and the court said that part of what Apotex was doing was infringing, the other part was not. Today, in April 1997, the court process to determine how much Apotex should pay for that portion of its sales that was infringing is still ongoing. It may be another year before that is decided. So we have a situation in which a generic got onto the market in late September 1993, and it may be 1998 before a decision can be made as to how the generic should pay for a patent infringement that was decided in late 1994 and late 1995.

.1235

Thank you, sir.

The Vice-Chairman (Mr. Walt Lastewka): Mr. Hore.

Mr. Hore: As I said earlier, ladies and gentlemen, the test for an interlocutory injunction is something that's been very well established for a long time. It's not something I want to dwell on for a really long time, but I would ask you to turn to tab 7 of our material. I'll just refer to the fact that it is the RJR case from the Supreme Court of Canada. It is the most recent case, and now probably the most definitive one, on the test for an interlocutory injunction. For your interest, the test is set out at page 334 and the pages that follow. There's discussion of the question of irreparable harm, the balance of convenience, and these sorts of questions.

At tab 8, there's another decision called Turbo Resources. In it, there are the famous six factors referred to at page 473, and those factors restate that test to some degree.

I remember reading the American Cyanamid decision in my first year of law school. All law students go through it because it's a very fundamental sort of case. It's referred to in the Turbo Resources case.

Without going into the details of it all, the situation is simply this. The court is faced with a situation in which it doesn't know who's right and who's wrong at this stage. One party is saying it is going to really hurt if the other is not kept off the market, and the other side says it's allowed to be on the market. So the court's in a bind and has to decide what to do. In order to carry out that job, the courts around the world have essentially developed a kind of common-sense test that is very discretionary. It's in the hands of the judge to decide what is fair.

First of all, the judges look at whether or not there is a prima facie case, sometimes referred to as a substantial issue to be tried. In other words, is there some kind of an issue here? That's a very low threshold.

The judges then get into the question of irreparable harm. In other words, if the defendant wins the trial, is the defendant going to be able to collect damages? If it looks as if the answer is yes, the injunction will probably not be granted, since it would be unfair to the other side because the defendants are ultimately going to win. If the defendants are going to win, they're going to get their money, that's okay, don't disadvantage the other guys. If the court thinks that's not the case, it won't grant the injunction.

There's also the question of an undertaking as to damages. In other words, the plaintiff in such a case has to say it is going to make an undertaking to the court. This is a very solemn matter and is typically in the affidavit. It is a sworn statement to the court that it will pay any damages that the defendant suffers if it turns out that it should not have been enjoined. In other words, if it turns out the defendant ultimately wins at trial, there's this undertaking that the plaintiff will put that defendant right. So the court does this careful sort of balancing of interests.

The arguments my friend has raised in the particular cases are arguments that can be put before the court, and the court will decide. The reason the court is not often going to grant patent injunction cases - they do grant them, but not often - is that in the view of the courts, a patent is a quantifiable right for the most part. In other words, you look at how much profit was made. You have sophisticated companies that keep good records, and you're able to assess how much money there is at the end of the day.

The enalapril case that Ms Grell referred to is exactly a classic example of why you should not have the regulations. In that case, the generic won on most of the product that was at issue. If there had been regulations, that product would have been kept off the market. It was a very large and sizeable product, so it would have meant that Canada's health care system would have paid an awful lot of money for products that it shouldn't have been paying those inflated prices for.

.1240

The tests have been well known for a long time. I guess you can't always win. That's the way it goes.

You go to trial. Nobody wins all of the cases all of the time. There's no point in having an automatic system where you automatically impose some kind of a remedy on the defendants just because they're defendants. That obviously creates inequity.

For example, one of the cases on her list is a case that I argued. It's in the toy industry. The injunction was denied. In that case, it would have been completely and grossly wrong to have granted an injunction, for a number of reasons that I won't really bore you with, but there's a situation where I happen to know about what was going on and what the facts were. And the fact is that it wouldn't have made any sense. The judge was Associate Chief Justice Jerome of the Federal Court, former Speaker of the House of Commons, a very capable man. He listened to both sides. The other side was represented by Ron Dimock, who is one of the most well-known and capable patent counsels. We both put our arguments to the court, and Justice Jerome ultimately decided that the injunction shouldn't be granted.

It's very hard, I submit to you, for Ms Grell or for the PMAC to argue that they know better than generations of judges - that's essentially what it boils down to - and that this committee, and Parliament ultimately, should make a broad-brush rule that applies to all cases all the time automatically because Ms Grell's clients do not always agree with what kinds of decisions are made in interlocutory injunctions. I'd like the Leafs to win all of their games all the time, but unfortunately they don't.

The Vice-Chairman (Mr. Walt Lastewka): Thank you very much.

We'll now go to Mr. Brien for ten minutes.

[Translation]

Mr. Pierre Brien: I do not think we shall be able to reach a consensus on this point, but I nevertheless have a couple of questions to ask. I am not a lawyer. You will therefore have to explain to me the good points and the bad. In case we have to make do with the preliminary injunction process and other court procedures to establish whether or not there has been a patent infringement, is there any way of making sure that that process can go forward speedily?

I can understand the concerns of the people who invest in the pharmaceutical industry. It may well be that no money will come in during the research phase or during the period of possible patent infringement. That type of investment is therefore very risky. Everyone is aware of that. Is there any way of insuring that the legal process involved in establishing whether or not there has been a patent infringement could go forward speedily?

[English]

Mr. Hore: It's an excellent question. Yes, you can get an expedited trial in the Federal Court, and the Federal Court is actually getting much better at scheduling its trials. Major efforts are being made in that regard. As I said, the enalapril case, which was very complicated case, was heard in seven months, I believe, after the case started, although Ms Grell says it was after the injunction hearing and perhaps she's right. At any rate, it was a pretty rapid timeframe.

One of the obstacles to achieving early trial dates, because that's really what I think you're asking about, getting the parties in court, having a judge and getting the thing resolved and decided....one of the obstacles is that the Federal Court, where most of these cases are heard, has an enormous administrative backlog of these cases under the regulations and you have only a limited number of judges and so on. I suggest that the time, energy and money and so on that goes into these cases would be much better spent in exactly what you're talking about, namely, expedited trials.

The Federal Court is trying very hard to do that and I would suspect - I can't speak, of course, for the court administrators - that they'd be able to do that a lot better if they didn't have 118 cases and all the other ones that are connected to it going on all the time. All of these cases go up to the Federal Court of Appeal repeatedly. There tends to be numerous appearances on cases. I argued a case last week that was about the interpretation of the regulations. That went up to the Court of Appeal. We were in the trial division the week before that.

The amount of litigation...if these regulations stay, let me put it this way: Ms Grell and I will get rich because we're lawyers and we do this stuff, and that's great for us. But it's not very good for anybody else.

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What I think would be good for everybody else would be to have the courts deal with the trial exactly as you say: get to the issue and get it resolved.

Ms Grell: The courts are getting to the issue and they are getting the results. You have the statistics before you as to the number of cases that have been resolved before the courts. Fifty-eight of them have been resolved one way or the other, many by discontinuances on consent where the parties have resolved them. Twenty-one of those cases were decided on the basis that what the generic was doing would infringe the patent. What the generic said was simply not justified as to non-infringement.

Were you to take away the linkage regulations tomorrow Mr. Hore would get rich, because every one of the cases that is now before the courts on the linkage regulations would become an immediate patent infringement trial where you would be going to litigate the issues at a time when the generic may have got its NOC - because that's when you will find out - at a time when you can cause market disruption. That perhaps is why the generic industry is so keen on interlocutory injunctions at this time: because of the way the test has developed in the courts and has been applied, they virtually know that the chances are very strongly in their favour - 99% - that there will not be an interlocutory injunction.

On the other hand, the linkage regulation just moves the timing of litigation up, litigation that you will inevitably have. It moves it up at a time that causes no unfairness to the generic, no disruption to the market and no disruption to consumers, because all of this is determined at the time the generic by-law cannot get onto the market. It must await regulatory approval. What better time is there for resolving those very same issues?

Mr. Hore: May I respond to that?

[Translation]

Mr. Pierre Brien: I understand. Let me say that I have no worries concerning your personal future. I do not think either of you have to worry about your future.

If we modified the rules governing the deliverance of preliminary injunctions in order to introduce a greater degree of flexibility - we could discuss the various ways of doing so - would your position, Mrs. Grell, remain the same? If it were easier to obtain a preliminary injunction, would you be more agreeable to the legal process that enables one to determine whether or not there has been a patent infringement?

I would also like to hear what Mr. Hore has to say on this point.

[English]

Ms Grell: We now have a process that we know works and that has been tested in the courts. In theory, it is possible to legislate further tests on the granting of interlocutory injunctions. The issue would be to come up with a legislative test that would work and then, of course, wait to see how that legislative test gets interpreted in the courts. The issue also would be to see whether in those circumstances interlocutory injunctions would more readily be granted or would be granted as the norm and not granted as the exception.

There are other things that would have to be put in place, like getting to the court at the time that the linkage regulations kick in, i.e., at the time when you cause least prejudice to the generic. Even considering something like that in the abstract, you would also have to ensure there is some kind of notice to the patentee so he could get to the court at the time when the generic has to wait to get on to the market anyway. So you can go on a threatened basis.

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Now you are talking about legislating tests for the court in substitution of the test that they now apply, and we would have to see whether or not those get interpreted in a way that makes the process work most of the time, or hardly work at all.

The current test started off with the best intentions in the world. The House of Lords decision was meant to relax the test as far as getting an interlocutory injunction is concerned. But it all depends on various circumstances and how the interpretation of legislation builds up around a certain subject, and we've seen how it builds up just around the definition of ``irreparable harm''. That is not to say that one does not have confidence in the courts. You do, but there is always room for different interpretations that parties disagree with, that even courts of appeal disagree with, which is why we have two levels of appeal beyond the trial division in this country.

Mr. Hore: I think your question was: could we change the system to make it more flexible, in other words, the way of granting interlocutory injunctions? What you suggest, as I understand it, is regulations. Those, of course, would not make it more flexible. They would have precisely the opposite result.

The beauty of the current system is that it is flexible. The judge listens to the parties, and the court ultimately makes a discretionary decision on the basis of what is fair. If you pass a regulation on high that says the test shall be this, then what you essentially do is tie that judge's hands. You tell him what to do, on the view, apparently, that you don't trust him to do the thing that's just, I suppose.

It would seem to me there's no reason for that. Also, it will lead to exactly the kind of situation we have now, where we have hundreds of cases that are going on because if you can get an interlocutory injunction automatically, then of course you're going to start the court applications.

That's what's going on now. Since the mere filing of court papers results in effecting an interlocutory injunction for two and a half years, it's done and it's done frequently. It's done all the time. Every single opportunity is taken to do it, and you can't blame the patentees for doing that. They're simply taking advantage of the legal opportunity that is given to them.

So any kind of system that permits parties to do that is going to be taken advantage of, and it's going to result in inequities because, by definition, you're taking away the rights of the judges to simply look at cases and make a just decision on the basis of the facts.

Ms Grell: May I quickly correct the record about the ``every opportunity'' aspect?

[Translation]

Mr. Pierre Brien: Mr. Hore, I would like to follow up on that, but injunctions are more easily obtained today. If we brought about certain modifications, if the patent holder was wrong, it would be easier to obtain an injunction and you would have a right to damages. Therefore, even if it were easier to obtain an injunction, that procedure would not be automatically resorted to, since they would also have to pay damages.

[English]

Mr. Hore: Obviously it would depend on how it was drafted. I think you would have the problem we've had with these regulations. They were drafted perhaps with good intentions, but ultimately they have created an unfairness, which is why we have so many cases and we have so many products that are tied up in them. There doesn't seem to be any good reason for that. The people of Canada have a right, surely, to get low-cost products if they can.

Ultimately, it's true that there may be provision for damages paid to the generic, I suppose, depending on how it was drafted, but what about the people of Canada? The people of Canada are paying more for a drug, and it may turn out years down the line that in fact that drug was a non-infringing product. The generic conceivably, I suppose, would get damages, depending on how the situation worked, but it wouldn't deal with the fact that all of the provincial formularies would have been paying more over the time. Nobody's going to be handing money over to them, so in effect what it does is transfer the risk to the public rather than putting it on the defendant, which is where it should be.

The Vice-Chairman (Mr. Walt Lastewka): Does anyone have a comment?

Ms Grell: On the last point first, we have to be careful that we do not say that there should be infringements because it benefits the public; the infringing product is always cheaper. For example, one could say the same thing if you get an infringing copy of a computer program or an infringing copy of anything else. Yes, it is going to save money at large, but is that the issue?

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The issue is also protection of intellectual property, the benefits of research and development, and the benefits of having new drugs on the market, and you have already heard all about that from other aspects.

It is not accurate to say that the patentees go off to court on every occasion under the linkage regulations. In the course of the proceedings that have so far been unsuccessful challenging the validity of these regulations, some interesting facts have come out. Those are only as of 1994 and so are not complete, but the generic industry admitted that although at the time there were a limited number of applications before the court under the linkage regulation 60, there were over200 applications for generic notices of compliance pending before the government. Not everything ends up before the courts, always bearing in mind that the generic chooses whether or not it's going to make a challenge. That's what initiates the process.

Also, the evidence was that up until that time, October 1994, on a survey of PMAC members who had received notices of allegation, there were 23 cases where the PMAC member had received a notice of allegation and took no steps in the courts. That was not in fact a totally complete survey, so we may have missed some. I know from personal experience of many cases since, where notices of allegation have been served and no proceedings have been started before the courts.

We have before you recommendations, which we'll get to later on, for increasing the level of information given, with protections for confidentiality, with the potential for making earlier and better assessments of whether or not any cases should be started.

The Vice-Chairman (Mr. Walt Lastewka): Thank you very much.

I'll now go to Mr. Schmidt.

Mr. Werner Schmidt: Thank you, Mr. Chairman. There are a couple of points I'd like to raise. I believe our moderator, Mr. Vaver, indicated that the primary considerations here are: is it fair; is it just; is it adequate?

Is the legislation, as it exists, fair, adequate and just? Are the regulations that are proposed, that are now operating fair, adequate and just?

I believe earlier we had Counsel Grell tell us that there is confidence in the courts and that, yes, we do support them. I believe she then referred to the three tests that are used in terms of granting or not granting interlocutory injunctions where a judge made laws. Then I think she referred to a point that perhaps if there was a legislated test, this might be better.

I wonder what is going on here now? We either have confidence in the courts or in the judges or we don't. We either have legislated tests or we don't. Who ultimately determines fairness, adequacy and justice? Is this to be done by respective counsel? Is this to be done by the patent holder or the person who wishes to copy a drug or a product, whatever the case might be?

It's obvious, it seems to me, that fairness and justice are defined very differently by the respective counsels. It seems to me that both fairness and justice ought to have some sort of absolute reference to some kind of a standard that is not determined either by the generics or by the pharmaceuticals, in either case.

So, Mr. Chairman, I would like to ask either the moderator or each of the respective counsels: just what is justice, adequacy and fairness, not in terms of their respective prior interests in terms of the companies they represent, but rather in terms of the more abstract and more complete thing that we, as legislators, have to deal with?

The Vice-Chairman (Mr. Walt Lastewka): Professor Vaver.

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Prof. Vaver: It takes you back to Pontius Pilate, doesn't it, or earlier years, whatever you prefer: what is justice, said Pilate, jesting, and stayed not for an answer.

It's a very difficult question you've put. Ultimately it's going to come down to your view of the objectives you're -

Mr. Werner Schmidt: That was going to be my next question.

Prof. Vaver: Let me put it in a slightly different way. Obviously these regulations are not perfect from anybody's viewpoint. It really becomes a question of whether you think they are doing a good job that could be done better and, if it could be done better, whether it is more appropriate to change the regulations or take them away completely and leave it to the courts. You're not going to get perfect answers either way. Perfection is not something that is readily obtainable in any sphere of life.

One of the problems here is if you do decide the regulations are not working well, so badly they ought to be taken away, it is an obvious question to ask, well, what is to take their place; what is the more just thing that will take their place?

It's true there is a standard that courts are applying in the case of interlocutory injunctions. The interesting thing about it, of course, is that they are applying the standard across the board. They are applying it to every sort of case there is, from constitutional cases to patent cases, to trespass, to land cases, to all sorts of cases. I guess the argument being made here is that the courts, by looking at the method generally, are not taking into account sufficiently something special about patents and, as one counsel might say, about drug patents in particular.

I think it's right to say the law is judge-made law. I think it's equally right to say it hasn't stood still. The judges have been developing it and there are now nuances in the case law that favour one line of decision rather than another.

For example, you may think it has become more difficult - this is now a question of your judgment - to get an interlocutory injunction in a patent case than you might think is desirable. Equally, you might say, look, these cases are extremely difficult cases; we are dealing with a patent we don't know is valid, for sure; it has been granted, but we don't know for sure it's valid, we don't know for sure the defendant is infringing; let the judge look at all the facts of the case and decide, because after all, that's what they're there for. You cannot legislate down to the level of case by case. That becomes impossible. Yet that's what courts want.

One option discussed in the paper you have is a relaxation of the interlocutory injunction standard in one aspect, the suggestion that perhaps instead of irreparable harm as the second threshold test there be a change to something more modest, substantial material harm instead, and it should try to refocus the courts on the balance of convenience, the respective hardships to either party of granting or not granting an injunction. That is a possible option for you to consider; but only if you think, first, the regulations are not doing the job well enough and they need to be scrapped. Then you have to consider, well, should we just leave it for the courts or should we try to give them a little more direction than they have been showing in these cases? Have they been doing a good job in the patent cases and the drug patent cases generally? I think that's a more difficult question.

I'm sorry I can't put it more precisely than that. I'm trying to put it as neutrally as I can while at the same time trying to answer you.

Mr. Hore: I wonder if I could make a comment. I know there's a tight timeframe here.

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The Vice-Chairman (Mr. Walt Lastewka): You may make a comment. Keep it to around one minute to one minute and a half. Ms Grell will do the same thing. I'm sure Mr. Schmidt understands he's slowly running out of time.

Mr. Werner Schmidt: Okay. It's being usurped.

Mr. Hore: The hypothesis is that the courts can't deal fairly with pharmaceutical patentees. That's essentially the proposition we're debating. But we haven't really tried just using the courts in the normal way, because prior to 1993 we had compulsory licensing, so you had a very limited number of patent cases. There were some but not very many, because there was compulsory licensing, so it didn't come up much. Since 1993 we've had the regulations, which seem to be bedevilled with problems.

We can get rid of the regulations. They are regulations and easy to get rid of. We can try to experiment by letting the courts deal with it.

If, in the opinion of Mr. Vaver or some other colleague of his who might be an academic or somebody, we can reach a conclusion that our courts are not able to deal fairly with pharmaceutical patentees a few years after we've tried this experiment - I would find that, first of all, very unlikely - then presumably at that point we could identify what the problem was and address it in some way, through regulations or whatever. But to not even attempt the experiment of using the courts does not seem to be very sensible, because it simply means you are a priori accepting the proposition that they can't do it.

The Vice-Chairman (Mr. Walt Lastewka): Ms Grell.

Ms Grell: Using the courts on interlocutory injunction cases has been tried. Even during the days of compulsory licensing there were ten applications between 1970 and 1993 in which every head of irreparable harm was put before the courts and did not meet the test.

It is not a question of not trusting the judges. Otherwise, any legislation could be perceived as such. You would never be able to change anything. What we have is whether or not the current situation, in the context of the pharmaceutical industry, which has special facts applicable to it, meets the objective, which is adequate and effective patent protection.

Let me very briefly mention some of the special circumstances in the pharmaceutical industry that factor into the difficulty of getting adequate, effective protection and the lack of interlocutory injunctions.

You have an industry with a long development process and a short market exclusivity, because sometimes ten years of its patent life are used up in the development and regulatory process.

Mr. Werner Schmidt: Mr. Chairman.

Ms Grell: I'll be very brief.

Mr. Werner Schmidt: It seems to me we've heard all this before.

Ms Grell: I'm just putting it in the context of what we are talking about.

Mr. Werner Schmidt: We can do that ourselves.

The Vice-Chairman (Mr. Walt Lastewka): Make your point on what the moderator had said or what Mr. Hore said. Then we'll carry on to the next question.

Ms Grell: You have a product that's very easy to copy. You have a situation where the compulsory substitution laws in the provinces lead to an automatic loss of market even if, as in the case of enalapril, the generic starts off selling just 10% less than the patentee and then goes down to 20%.

Just compare this very quickly to any other industry product, such as cameras or telephones. If an infringer comes onto the market during the patent life, one salient difference is that no one will compel substitution of the infringer's product for yours. The infringer will have to go out there, market its infringing product, and convince the public that its product should be paid for instead of the originator's product.

The Vice-Chairman (Mr. Walt Lastewka): Thank you.

I've been trying to keep the questions around ten minutes. Obviously we're using twelve to fourteen minutes for each.

Mr. Hore: I wonder if I could respond -

The Vice-Chairman (Mr. Walt Lastewka): No, we must carry on.

Mr. Hore: It's just that Ms Grell seems to be getting into general hypothesis about the pros and cons of the industry.

The Vice-Chairman (Mr. Walt Lastewka): I'm sure the members will stroke that out.

Mr. Hore: We have views on that too.

The Vice-Chairman (Mr. Walt Lastewka): Mrs. Parrish will be splitting her time withMs Brown. You each have about seven minutes.

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Mrs. Carolyn Parrish (Mississauga West, Lib.): Thank you. I may not need seven minutes.

I'm a fairly simple person, so I would like some simple answers, and I tend to learn from history, so I would like to go at this question of interlocutory injunctions from a U.S. and U.K. perspective, because they have obviously been involved in this a lot longer than we have. My understanding of Bill C-91 is that it was first brought in to prepare for full participation in NAFTA so our patents would match the patents of all these big partners we were getting in with. But in the meantime we put in the three exceptions, access to processing, stockpiling, and regulatory testing, so we could have a healthy generic industry in this country. So far the history proves the generics are well and they are doing just fine.

So Bill C-91 is unique in that it has things that are not in place in other countries which are our trade partners. In those countries, though, they must have gone through this process long before we did.

Do you have any experience, any of the three of you, or all three of you, which can cite U.K. and U.S. examples showing us how they've done it before and it seems to be working better, it doesn't work as well, or it's as complicated as this sounds?

Ms Grell: If I can start with the U.S., which since 1984 has had a linkage system very similar to ours - and that's the very part of the history you're interested in - one for the same thirty-month system and so on, one salient difference is that a patent infringement trial takes place within the thirty months. It also has what appears to be the strongest system of granting interlocutory injunctions concurrently with that system.

The courts there apply, interestingly enough, the same three-pronged test. But when it comes to determining what is irreparable harm in the context of a pharmaceutical patent, once your patent is shown to be something that appears to be valid they take into account that it's irreparable to start with that you're taking away the exclusivity of the patentee, because that's the very nature of the patent right. You are destroying that. They look at factors that have been ruled out here, such as potential market diversion, that the generic or the infringer takes advantage of the research informational activities performed by the innovator. They take into account loss of market share as irreparable, and loss of reputation, goodwill, and changes in technology that could overcome your product.

So they have both those systems, and they have a pretty strong system of interlocutory injunctions. They also have a system of data package protection that is far stronger than ours, because the generic cannot access the innovator's data, in that it cannot file an abbreviated new drug submission until at least five years have gone by from the innovator's equivalent of the NOC.

In the U.K., for example, interlocutory injunctions do not seem to be given as readily as in the U.S., but it appears to be known that they are given. When you look at the cases, there's very little litigation between the pharmaceutical and the generic industry. If you look at other patent cases in which interlocutory injunctions have been given, one of the bases the courts there consider a head of irreparable harm is what they call the ``springboard effect''. If you let the infringer onto the market just before your patent expires, the infringer gets ready, gets a springboard, to compete with you even better when the patent expires.

Compare Canada. We have legislated that away. Our courts didn't accept it before as a head of irreparable harm and now it's moot, because by legislation we now have an exception that you can stockpile six months before the patent expires anyway. The U.K., in conjunction with a system where the generic knows there is a decent chance that an interlocutory injunction might be ordered against it, has a ten-year data package protection rule for new products, as a result of which the generic cannot file for regulatory approval that relies on the innovator's data until ten years have expired. Both countries also have patent restoration.

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So we all refer to the same tests, the same cases. Mr. Hore and I have the same cases. So at the end of the day it is how the same theoretical test is applied in each country as to the result you get, together with other factors.

The Vice-Chairman (Mr. Walt Lastewka): Mr. Hore.

Mr. Hore: We have in our materials an opinion from the Lenczner Slaght firm, and you met Mr. Slaght on Tuesday, I think it was. What they say is they've examined the tests for an interlocutory injunction in the U.K., the U.S. and Canada and concluded they're substantially the same. They cite some cases, and they say they don't seem to be granted very often in the U.K., although they might be granted in an appropriate case. They say essentially the same thing about the U.S. There's no doubt that sometimes they'll be granted, but not always.

Of course, the same thing would be true here. We haven't had that many cases because we've had compulsory licensing and the NOC regulations since that. So we've had a fairly limited experience really on which to build up the hypothesis.

But there would seem to be no reason for concluding that the test for an interlocutory injunction is different. We should keep in mind, of course, Dr. Vaver's point that we're talking about a test that applies to the entire litigation system. I think it's essentially the same, because it's based on common sense. When you get right down to it, that's really what it is.

Ms Grell referred to the U.S. system. They do have a kind of linkage system they've had since 1984, so that's 13 years. No other country in the world has picked up that system because it's very unwieldy, and everybody down there, as far as I understand, is unhappy with it for various reasons. It was created in 1984 during the first term of Ronald Reagan's presidency as a result of one of these very complex congressional deals, which result in legislation down there, where there's very complicated deal-making among various parties. The situation in which it was created was very different from the one we are in now or that we were in in 1993.

A number of its provisions, which we don't have here, were designed to be favourable to generics. For example, if you get a patent declared invalid - in other words, you attack a patent - you get six months exclusivity on the market as the generic. That's recognition of the fact that there's a public interest in what is sometimes called ``busting'' patents, in other words, getting patents declared invalid because you end the market monopoly and that helps everybody. It's a rather different system in a number of ways. It's operating in a very different context, and people don't seem to be very happy about it.

I would suggest what we should do here is look at our system for deciding these issues and decide ultimately, because we're adults, whether it's a good system or a bad system. That is really what should guide us more than anything else.

Mrs. Carolyn Parrish: Mr. Chairman, could I have a very brief synopsis from Dr. Vaver? I'd like his opinion.

The Vice-Chairman (Mr. Walt Lastewka): Yes. We have a very short amount of time left.

Prof. Vaver: Firstly, I think it's correct that the interlocutory injunction test as administered is not very much different among the three jurisdictions. I think there are some little differences in wording and emphasis. But it's very difficult to make the case there is a higher rate of grant of interlocutory injunctions in patent infringement cases in one jurisdiction than in another. It's difficult to get the data because a lot of these cases are unreported as well. That's point number one.

The other point I would make is, going back to apples and oranges, it's difficult to make a direct comparison because the British system has the data protection package in place, and the American system is one where as soon as you file an NOC, that's called a technical act of infringement, and the patentee has to decide immediately whether or not to go to court. You can say in interlocutory injunctions the test is the same, but you have to look at the context in which the test is being administered. When you do that, then we have three different situations, and I think it's very difficult to make a comparison.

Mrs. Carolyn Parrish: It seems to me as if we have the worst of all worlds, though.

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Prof. Vaver: I wouldn't prejudge that one. That's for you to think.

Mrs. Carolyn Parrish: Thank you.

The Vice-Chairman (Mr. Walt Lastewka): Ms Brown.

Ms Bonnie Brown: Thank you, Mr. Chairman.

I note almost everybody agrees judges do not easily grant these injunctions for patents, but I have a feeling that with all the years of jurisprudence in the history of the court system, these judges probably have a pretty good reason for hesitating to grant injunctions in patent cases. So I do not find that an argument as to why we should have a special set of regulations around pharmaceuticals.

Now, Ms Grell, you said that the test of irreparable harm is difficult to meet, and I accept that. But is it not equally difficult to meet for all companies in all industries where patents are involved?

Secondly, you say damages are hard to get and they're slow to come by. Are they not equally hard to get and slow to come by for all companies in all industries that have something to do with patents?

Two or three times in your explanations you have used the phrase ``especially in the pharmaceutical industry''. I have not yet heard one piece of evidence that suggests to me why the pharmaceutical industry is different in its defence of its patents or why it's more important for them. One reason you give is that according to the drug lists in the provinces, there can be mandatory replacement of one for another. To me, that is in the public interest and has nothing to do with drug patent law.

Professor Vaver, perhaps you could just jump in at the end and answer this question. You said, if you take the regulations away, what will you have to replace them? That implies we'd have to have something to replace them. I would say that other industries don't have them, they never had them and they're not asking for them. Once again, I have this big question in my mind. There is a very good industrial base in my riding. It is varied, and it is very strong because of that variety. I sit here wondering why I should have a special set of rules for one company in my town when everybody else has to struggle along with what you describe as such an inadequate system in the courts.

Thanks, Mr. Chairman.

Ms Grell: There's a historical aspect to this that may answer part of your question as to why this industry, and it all ends up with us being here today. There's one industry here today wanting to reinstate compulsory licensing and so on, and that is the special, highly developed, generic pharmaceutical industry. It's unique to pharmaceuticals. What else is unique to pharmaceuticals is that it was born and bred and developed and became what it is through a special regime of compulsory licensing that applied just to it. So it is an industry that developed on the basis of almost a philosophy, a right to be on the market competing head on with the patentee during patent life. Your other industries do not have that kind of generic culture or philosophy, for want of a better term.

There is the provincial substitution law. I'm not questioning their public interest. But the effect they do have, compared to other industries, is that immediate, drastic loss of market share because there is something else that mandates use of the generic product, and that again is what makes the industry stand out. So all industries are involved in patent, yes, but they do not have that particular culture and philosophy surrounding the use of generics.

The generic industries by definition are industries that come onto the market after patent expiry. We are seeing a trend in the courts, and I submit it is because of the way the irreparable harm aspect of the test has developed in Canada over the years, where there is equal difficulty in getting interlocutory injunctions in other areas of patents.

There is also equal difficulty developing in copyrights and trademarks. Since that case in 1994 and even with Turbo Resources and RJR, the courts no longer look at the fact that somebody is breaching a trademark, for example. The courts will no longer consider that the loss of exclusivity to your trademark is a form of irreparable harm. They no longer look at blatant copyright infringement and say, that's good enough for us, we will grant an interlocutory injunction. Yes, the test has toughened up dramatically over the last three years, in particular because of the case of Center Ice v. National Hockey League. And the Senators are almost in the play-offs.

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The Vice-Chairman (Mr. Walt Lastewka): Ms Brown, you still have time.

I just want to alert everybody that it's a 15-minute bell. We will be meeting this afternoon in the other room, room 237, so we'll have to move our books and papers. Members, if you put all your papers in one pile, they will be moved to the other room for you, and the room will be locked until it's time to restart our session at 3:30 this afternoon.

Ms Bonnie Brown: Professor Vaver hasn't had a chance to answer yet.

Prof. Waver: It is true it's the same test that is applied for all intellectual property, not just patents. Trademarks and copyrights and all the rest are subject to the same test. It is quite difficult to get an interlocutory injunction.

I think you also put your finger on a point that judges over a period of time have by experience decided it is right that it be difficult to get this because you are making a prejudgment without having heard all the evidence in the way that you would develop the evidence at trial. We're very aware, even sitting in a committee like this, about making judgments on insufficient evidence. Judges proceed on that basis in those cases.

Is there something special about drug cases? Historically, as Ms Grell has said, there obviously has been. Whether or not the history justifies differential treatment now from other businesses is, I think, a question that is very well worth asking. Is this industry with its patents now so different from every other that it ought to be treated differently? There is one difference, and that is the fact that this industry is highly regulated in the sense that it can't put a drug on market without going through a procedure. That is equally true for generics, so that there is an ability for generics to have access to data and to come onto the market with their product and copy it in that way. You really have to ask yourself if that's enough of a difference from the other industries to justify anything special.

Ms Bonnie Brown: Actually, the regulations they have to go through for safety, etc., could be compared to regulations for other kinds of products that have safety implications, so I don't think that alone makes them special. If in fact it's the only industry here today, as Ms Grell said, that is because it is the only industry that has its own bill, and that's the bill we're discussing, Bill C-91. We aren't discussing the Patent Act. If the Patent Act were on the table, Mr. Chairman, many people from many different industries would be here. The reason only the drug people are here today is because this bill applies only to that industry.

The Vice-Chairman (Mr. Walt Lastewka): That is the end of this session. I want to thank the witnesses. I'm sure you'll have a nice two-hour break before we return this afternoon.

The members have about four minutes to get to the House, if they want to vote.

We will adjourn until 3:30 p.m.

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