At a conference held last November in Delhi, India, the bureau submitted a paper highlighting the huge significance of the Canadian health care system to the national economy and to residents’ well-being.
The paper added: “However, some pharmaceutical companies employ strategies throughout various international markets that aim to maintain their existing market shares and frustrate competition from generic substitutes.”
A workshop was also held by the bureau earlier that month called “Antitrust Issues in the Pharmaceutical Sector.” At the time of writing, no materials from the workshop had been made public, though one of the main items on the Nov. 13 meeting’s agenda was “pay-for-delay” settlements, also known as “reverse payment” settlements.
These come about when a branded pharmaceutical company involved in patent infringement proceedings pays a generic company a sum of money on the condition the generic product’s market entry is delayed for a period of time.
Not everyone sees the settlements as nefarious or inherently anti-competitive. Gowling Lafleur Henderson LLP partner William Vanveen, who attended the November workshop, says: “It’s a matter of public policy in this country that litigators are entitled to settle their dispute. That’s all that’s going on here.
“Patent holders have a right to exclude others, because that’s what a patent gives you.”
But across the border, the Federal Trade Commission sees things differently, strongly opposing large pay-for-delay settlements on the basis that branded drug manufacturers only offer them when they are likely to lose a patent case. Without the payment, the public would have access to a competitor generic drug, it is argued; why would such large sums be offered otherwise? The FTC is less concerned about modest payments aimed at bridging the gap between parties’ assessment of risk.
Last June, the U.S. Supreme Court concluded patent settlements should be reviewed wherever there are large reverse payments made to generic drug manufacturers.
FTC v. Actavis Inc. found the payments were not “presumptively unlawful,” but could be challenged by governments and private parties.
The case is widely seen as having piqued the Competition Bureau’s interest here in Canada. But there are significant regulatory and legal differences between the two countries.
For example, in the U.S., generic drug manufacturers cannot claim s. 8 damages. “In our system, the innovator faces the risk that if they lose they have to pay money.
It could be very significant [amounts of] money,” says Vanveen. This is an important distinction, he argues, as the exposure to potential damages creates more of a legitimate rationale for some payment from a patentee to a generic.
Lenczner Slaght Royce Smith Griffin LLP partner Andrew Skodyn, who focuses on patent litigation, agrees.
“There’s a much greater incentive to be ahead, and maybe to settle [in the U.S.],” he says. In any case, there are fewer pay-for-delay settlements in Canada than in the U.S., he adds.
Another practice the bureau is already looking into is “product switching.” This is where a branded pharmaceutical company — faced with the prospect of a generic entering the market — produces a newer version of the drug that will be covered by a long-term patent. The branded drugs company may try to “habituate” doctors and patients towards the newer product.
Pharmacists are generally required to substitute branded drugs with a generic product where available. As a result, some critics claim “product switching” is more about generating prescriptions for a medicine that has no generic equivalent than putting out a genuinely innovative new drug.
The practice is also feared to lead to supply interruptions of pharmaceutical drugs.
The bureau investigated allegations that Alcon Canada Inc. abused its market dominant position in the supply of eye drops used to treat allergic conjunctivitis.
In 2012, Alcon allegedly put an older version of the eye drops on back order, while encouraging doctors and pharmacists to switch to a newer type. The bureau looked into whether Alcon disrupted the supply of the older drug in the face of competition from Apotex Inc., which had received approval to start selling a generic version. On May 13 the bureau announced it had discontinued its investigation of alleged anti-competitive conduct by Alcon related to the supply of its prescription anti-allergy drug, Patanol.
Vanveen argues strongly that product switching can be a valid business strategy. “The generics could go out to doctors and spend money on marketing their products. But they don’t want to do that. They have a lazy marketing system,” he states.
Norton Rose Fulbright Canada LLP partner Kevin Ackhurst agrees companies “should be able to develop new products and be allowed to switch people over to the new product,” though not necessarily if this involves “intentionally disrupting the supply chain.”
Vanveen also questions whether it is the bureau’s role to fight to support the generic drugs companies’ business models. He says: “If you really care about competition, shouldn’t the answer be the generics should go out there and compete [and] make the argument that the old variety is as good as the new variety?”
Instead of creating an entirely new product, pharmaceutical companies may decide to vary the dosage, strength, or delivery method of a drug, and obtain additional patents to cover the changes.
Generics wishing to enter the market would need to address these additional patents. Some have complained that endless tweaks to drugs are made simply to exclude competitors from the market, giving rise to the phrase “evergreening.”
The bureau may choose to look into evergreening, though an inquiry into the practice in 2003-04 concluded the Competition Act was “not the appropriate vehicle” for resolving “what amounts to a patent dispute between two firms.”
One change widely thought to be in the cards is a revision of intellectual property enforcement guidelines, which help the bureau to interpret patent rights. On April 2 the bureau released a draft update of its guidelines for public consultation.
IPEGs are being modernized in two phases. The first phase will involve administrative and technical changes to the 2000 IPEG to ensure they comply with 2009 legislative amendments and enforcement guidelines. The second phase will assess whether further changes are required.
But, in general, Skodyn thinks the bureau’s previous work makes it unlikely its current focus will have a significant impact on the pharmaceutical sector. “I think it’s safe to say that the regulations in place have been seen to be sufficient to protect the interests of the Canadian public,” he says.
Even if the bureau is inclined to delve into particular pay-for-delay settlements, it may face hurdles in obtaining sufficient information. Ackhurst highlights that pharmaceutical companies in the U.S. must disclose the payments, but no such obligation exists in Canada.
However, the bureau appears determined to ramp up its activities in this area, says Ackhurst. “The previous commissioner [said] that reviewing the intellectual property and competition relationship, while important, just wasn’t a priority. Now it’s pretty clear that it is a priority.”
That same former commissioner, Melanie Aitken — who moved to Bennett Jones LLP last year — doesn’t predict sea change under her successor John Pecman.
She expresses confusion at a recent media report that used the bureau’s decision to resurrect the s. 11 subpoena powers of the Competition Act as evidence of a tougher enforcement regime.
Aitken calls the s. 11 decision “a perfectly sensible thing to do” but suggests it could “draw the commissioner” into interlocutory challenges.
“It will be interesting to see whether it helps or hinders the commissioner to get information,” she says, adding: “I struggle to see the other indicators of a change to more enforcement.”
An FTC-style stance seems unlikely in Canada when one considers recent decisions by the bureau. Take its approach in March regarding the acquisition of Shoppers Drug Mart Corp. by Loblaw Companies Ltd. The deal was approved on the condition that Loblaws divested 18 stores. This could be the right number, but does not suggest an aggressive resolution, says Aitken.
Regarding the bureau’s investigations into the areas of health care and pay-for-delay settlements, she says: “I think we can expect a bit more exploring and not so much enforcement.”
“In many respects they’re right to simply study and consider, and watch what’s going on around the world . . . we live in a fairly borderless world,” says Aitken.
The bureau is considering whether to release documents from its November antitrust workshop, which may shine further light on its likely approach. However, attendees do not appear to have come away with a strong sense the bureau is likely to take a radical or bullish approach. “The bureau was doing it to listen, not setting out its views or positions,” says Vanveen.
Nevertheless, the pharmaceutical sector is well aware it is on the bureau’s “radar,” and is watching and waiting with interest, says Ackhurst.
Story updated May 27