T-2696-80
Smith, Kline & French Laboratories Limited,
Smith, Kline & French Canada Ltd., Graham
John Durant, John Colin Emmett and Charon
Robin Ganellin (Plaintiffs)
v.
Attorney General of Canada (Defendant)
Trial Division, Strayer J.-Ottawa, September 9,
10, 11, 12, 13, 15, 16, 17, 18, 19, 20, 23, 25, 26,
27; November 18, 1985.
Constitutional law - Distribution of powers - S. 41(4)
Patent Act providing for grant of compulsory licences in
respect of process patents for medicine - Purpose of legisla
tion to reduce drug prices through competition thereby limit
ing patentees' monopoly rights - S. 41(4) intra vires Parlia
ment as legislation in relation to "patents of invention and
discovery" - Power of Parliament to limit scope of property
right acquired under s. 41(4) - Patent Act, R.S.C. 1970, c.
P-4, s. 41(4) - Constitution Act, 1867, 30 & 31 Vict., c. 3
(U.K.) IR.S.C. 1970, Appendix II, No. 51 (as am. by Canada
Act 1982, 1982, c. 11 (U.K.), Schedule to the Constitution Act,
1982, Item 1), ss. 91(2),(22), 92(13).
Constitutional law - Charter of Rights - Equality rights
- S. 41(4) Patent Act providing for compulsory licensing
system in respect of patents for medicine - Legislation distin
guishing between patentees of medicine and other patentees
allegedly discriminatory - Twofold test: whether ends legiti
mate and whether means rationally related to achievement of
ends - Legislation neither over-obtrusive in effect nor under-
inclusive by limitation to prescription drugs - Patent Act,
R.S.C. 1970, c. P-4, s. 41(4) - Canadian Charter of Rights
and Freedoms, being Part I of the Constitution Act, 1982,
Schedule B, Canada Act 1982, 1982, c. 11 (U.K.), ss. 1, 15(1).
Constitutional law - Charter of Rights - Life, liberty and
security - S. 41(4) Patent Act providing for grant of compul
sory licences in respect of patents for medicine - Life, liberty
and security of person related to bodily well-being of natural
person - Not applicable to economic interests - Submission
property rights implicitly protected by s. 7 rejected - Patent
Act, R.S.C. 1970, c. P-4, s. 41(4) - Canadian Charter of
Rights and Freedoms, being Part I of the Constitution Act,
1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.), s. 7.
Bill of Rights - Enjoyment of property - Whether s. 41(4)
Patent Act denying holders of medical patents enjoyment of
property — Determination to grant compulsory licences
amounting to "deprivation" of property — Property right
acquired under s. 41(4) defeasible — Whether "due process"
having substantive and procedural content — Substantive
provisions of s. 41(4) not to be treated as inoperative on ground
economically unfair to patentees of medicine — "Due process"
broader than 'fair hearing" — Due process providing means
to rationally relate facts of case to criteria prescribed by
Parliament — No denial of due process — Patent Act, R.S.C.
1970, c. P-4, s. 41(4) — Canadian Bill of Rights, S.C. 1960, c.
44, ss. 1(b), 2(e).
Bill of Rights — Equality before law — S. 41(4) Patent Act
limiting monopoly rights of patentees of medicine — No
violation of s. 1(b) as legislation enacted for valid federal
objective — Patent Act, R.S.C. 1970, c. P-4, s. 41(4) —
Canadian Bill of Rights, S.C. 1960, c. 44, s. 1(b).
Patents — Action for declaration plaintiffs entitled to enjoy
benefits of inventions free from compulsory licence — S. 41(4)
of Act prescribing compulsory licensing system in respect of
patents for medicine — S. 41(4) intra vires Parliament — No
denial of due process or equality before law — Economic
interests excluded from s. 7 Charter protection — Legitimate
policy objective: to reduce prices of drugs to public through
competition — S. 41(4) procedure rationally related to
achievement of ends — Impact of s. 15(1) Charter on s. 41(4)
— Action dismissed — Patent Act, R.S.C. 1970, c. P-4, ss. 12,
41(3),(4),(11), 66, 67, 68.
This is an action for a declaration that the plaintiffs are
entitled to enjoy benefits in relation to inventions for medicine,
free of any compulsory licence under subsection 41(4) of the
Patent Act. The plaintiffs argue that subsection 41(4) (1) is
ultra vires the Parliament of Canada, (2) is inconsistent with
paragraphs 1(a) and (b) of the Canadian Bill of Rights, and
(3) denies them rights guaranteed by section 7 and subsection
15(1) of the Charter.
The facts of the case, as well as a review of the evidence,
have been summarized in the Editor's Note infra.
Held, the action should be dismissed.
(1) Distribution of powers
The plaintiffs submit that the purpose of subsection 41(4)
being the regulation of prices, the legislation is a law relating to
"property and civil rights", a matter within provincial jurisdic
tion, not a law relating to "patents of invention and discovery",
a matter assigned to Parliament. To determine the issue, it was
necessary to examine first the object of the legislation and then
its effect.
The object of the legislation is to avoid a monopoly, thereby
permitting competition and reducing the price of medicine.
Viewed as such, the courts have held the legislation to be intra
vires Parliament.
It was then considered whether the evidence in the instant
case could lead to a different conclusion. The Court found that
patentees of medicine do indeed suffer a loss of profits in
comparison with those they might have expected to make in
Canada had the patents been obtained under a law giving
exclusivity for a 17-year period. It cannot be said, however, that
in bringing about such a result, Parliament invaded provincial
jurisdiction.
Parliament is not precluded from creating or regulating
property in the course of exercising its enumerated powers. Its
authority with respect to "patents of invention and discovery"
therefore enables it to create a monopoly for one party and to
exclude other parties from the use, manufacture, sale or impor
tation of products which are the subject of a patent. If there is
an objection to such a distinction it must be found, if anywhere,
in section 15 of the Charter.
There is no common law right to a patent. The right is
created by an Act of Parliament, and in this case, Parliament
has chosen to restrict the extent of the monopoly granted to
patentees of medicine. There is nothing constitutionally
ordained that the period of exclusivity must be 17 years in the
absence of abuse as defined in the statute.
The principle that Parliament cannot, in the exercise of its
authority under subsection 91(2) of the Constitution Act, 1867
with respect to "the regulation of trade and commerce", regu
late the contracts of a particular business or trade within a
province, has no relevance in the present case. Parliament is
here exercising a power relating to patents and in so doing may
well deal with such contracts as long as the law is otherwise a
legitimate patent law. Furthermore, subsection 41(4) is not a
law in relation to prices although one of its objects is to bring
about a reduction in prices. The fact that the exercise of a
federal power affects prices does not make it invalid. Whether
the economic effects of subsection 41(4) on patentees are fair
or unfair is not relevant to the question of distribution of
powers nor is it a matter for the Court to determine.
(2) Canadian Bill of Rights, paragraph 1(a)
The plaintiffs contend that subsection 41(4) is inconsistent
with paragraph 1(a) in that it has the effect of denying them
the enjoyment of their property without due process of law.
The term "individual" in paragraph 1(a) does not include
bodies corporate. Therefore, the corporate plaintiffs have no
claim under that paragraph. The individual plaintiffs, on the
other hand, have standing to seek a declaration as to the impact
of the Bill of Rights on subsection 41(4). They are still
potential inventors and the value of their services, past and
future, is affected by this law.
The Patent Act has, since 1923, conferred on patents related
to medicine a 17-year monopoly, but one which is defeasible,
i.e. subject to the Commissioner's and the applicants' decisions
as to the obtaining and the granting of compulsory licences.
The defendant's argument that the grant of a compulsory
licence is not a "deprivation" of property is, however, rejected.
The effect of the Commissioner's determination that the condi
tions prescribed by subsection 41(4) for the issue of a compul
sory licence have been met is to permit the impairment of the
initial monopoly granted to the patentee. This determination
must be regarded as a "deprivation of property" in order to give
the Bill of Rights a liberal interpretation. To adopt the narrow
er view of the word "deprived" as it appears in paragraph 1(a)
would mean that any advantage terminable at the discretion of
an official could not result in a deprivation so as to attract the
safeguards of paragraph 1(a) of the Bill of Rights or section 7
of the Charter.
The plaintiffs contend that there is a denial of substantive
due process on the ground that subsection 41(4) precludes
adequate compensation, and of procedural due process on the
ground that the Commissioner is allowed to determine his own
procedure.
The proposition that any law which reduces the profitability
of one sector of an industry and enhances the profitability of
another is per se contrary to "due process" could not be
accepted. There is very little in the Canadian case law to
suggest that paragraph 1(a) authorizes any court to treat the
substantive provisions of subsection 41(4) as inoperative on the
ground that it is unfair in an economic sense to patentees of
medicine.
With respect to whether subsection 41(4) denies "due pro
cess" in the procedural sense, the Federal Court of Appeal has
clearly held that the subsection is not inconsistent with para
graph 2(e) of the Bill of Rights which provides for a fair
hearing "in accordance with the principles of fundamental
justice". The concept of procedural "due process" was seen by
the Court as being broader than that of a "fair hearing". Due
process requires, in addition to a fair hearing, a total process
which provides, for the making of a decision authorized by law,
a means for rationally relating the facts in the case to criteria
legally prescribed by Parliament. The Commissioner is expect
ed to apply his own knowledge as well as that gained from the
particular proceedings and is to have a wide measure of discre
tion which the courts will not interfere with unless his decision
is manifestly wrong. Given the nature of the process prescribed
by subsection 41(4), it is not possible to say that the procedure
is irrational or unsuitable for making the necessary connection
between the relevant facts and the conclusions dependent on
those facts.
(3) Canadian Bill of Rights, paragraph 1(b)
The plaintiffs argue denial of "equality before the law" on
the ground that holders of medical patents do not enjoy the
exclusivity of their invention which other patentees enjoy for a
period of 17 years. It is well established that legislation which
creates distinctions between individuals does not offend para
graph 1(b) if it has been enacted for some "valid federal
objective". The Court is satisfied that subsection 41(4) is
related to a valid federal objective.
(4) Charter, section 7
Both the corporate and individual plaintiffs are potentially
entitled to the protection of section 7 on the basis that it applies
to "everyone". However, subsection 41(4) does not involve the
"liberty" or "security of the person" of any of the plaintiffs.
The concepts of "life, liberty and security of the person" take
on a colouration by association with each other and have to do
with the bodily well-being of a natural person. As such they are
not apt to describe any rights of a corporation nor are they apt
to describe purely economic interests of a natural person. The'
terms "liberty" and "security of the person" refer to freedom
from arbitrary arrest or detention. The contention that property
rights are implicitly protected by section 7 is equally precluded
by the Court's characterization of the words "life, liberty and
security of the person".
(5) Charter, subsection 15(1)
The corporate plaintiffs do not have standing to raise the
issue of section 15 in that it applies only to "every individual".
Only the individual plaintiffs, as inventors of the drug, have a
sufficient interest to invoke section 15 since, as applied to them
now or in the future, and as applied to other inventors, subsec
tion 41(4) may be in conflict with section 15 of the Charter.
The plaintiffs submit that they are subject to legislative
distinctions which constitute discrimination on the basis that
patentees of medicine are treated less favourably than other
patentees.
The issue whether the impugned legislation prima facie
conflicts with subsection 15(1) of the Charter was determined
on the basis of the twofold test stated by McIntyre J. in
MacKay v. The Queen, [1980] 2 S.C.R. 370: the ends must be
among those broadly legitimate for a government, and the
means must be rationally related to the achievement of those
ends. The end sought to be achieved in subsection 41(4), i.e. the
reduction of drug prices, was held to be a legitimate govern
mental objective. With respect to the second test, the onus was
on the plaintiffs to demonstrate that the means were not
appropriate. The duty of the Court is to see whether the means
chosen are patently unsuited or inappropriate for the purpose;
in the negative, the choice of Parliament should be respected.
The plaintiffs contend that subsection 41(4) is not a rational
mechanism because it is over-obtrusive in its effects on paten-
tees, and under-inclusive by its limitation to prescription drugs.
The plaintiffs have been unable to provide clear evidence as to
the impact on patentees of subsection 41(4). They have demon
strated that research and development is expensive and that the
costs are probably not recouped until several years after the
drug reaches the market. However, this does not prove that
compulsory licensing is overwhelmingly oppressive and out of
proportion to the public benefits.
One aspect of the complaint related to the fact that since
1969 the royalty has always been fixed at 4%. The courts have
generally upheld those awards and have in effect approved a
"rule of thumb" of 4%. The Commissioner has never fettered
his discretion to fix, in a proper case, a royalty at a different
rate. It would be inappropriate for this Court to declare all
previous decisions invalid simply because they all have come to
the same conclusion. The amount of royalty remains subject to
challenge with respect to each case as it arises. The plaintiffs
have failed to discharge the onus of establishing that the
legislation is so oppressive on them and others in a similar
position that it cannot be seen as a means proportional to a
legitimate governmental end.
The plaintiffs' contention, that subsection 41(4) is under-
inclusive as regulating prescription drugs only, fails. Subsection
41(4) is cast broadly enough to cover any patent for "medi-
cine". The problem sought to be addressed by Parliament was
that of high drug prices. One of the principle causes for such
prices was found to be patent protection for such drugs. The
selection of the broad category of "medicine" as covered in
subsection 41(4) cannot be seen as capricious.
CASES JUDICIALLY CONSIDERED
FOLLOWED:
Hoffmann-LaRoche Ltd. v. Bell-Craig Pharmaceuticals
Division of L. D. Craig Ltd., [1965] 2 Ex.C.R. 266,
affirmed [1966] S.C.R. 313; Lilly v. S & U Chemicals
Ltd. (1973), 9 C.P.R. (2d) 17 (F.C.A.); Minister of
Justice of Canada et al. v. Borowski, [1981] 2 S.C.R.
575; American Home Products Corporation v. Commis
sioner of Patents et al. (1983), 71 C.P.R. (2d) 9 (F.C.A);
Merck & Co. v. S. & U. Chemicals Ltd., [1974] S.C.R.
839; (1972), 4 C.P.R. (2d) 193, reversing (1971), 65
C.P.R. 99 (Ex. Ct.); Balderston v. R.; Play-All Ltd. v.
A.G. Man., [1983] 1 W.W.R. 72 (Man. Q.B.), affirmed
[1983] 6 W.W.R. 438 (Man. C.A.); R. v. Operation
Dismantle Inc., [1983] 1 F.C. 745 (C.A.); MacKay v.
The Queen, [1980] 2 S.C.R. 370.
APPLIED:
American Home Products Corp. v. Commissioner of
Patents (1970), 62 C.P.R. 155 (Ont. C.A.).
DISTINGUISHED:
Re Ontario Film and Video Appreciation Society and
Ontario Board of Censors (1983), 41 O.R. (2d) 583
(H.C.J. Div. Ct.).
CONSIDERED:
The King v. Irving Air Chute, [1949] S.C.R. 613; Singh
et al. v. Minister of Employment and Immigration,
[1985] 1 S.C.R. 177; Eli Lilly and Co. v. S. & U.
Chemicals Ltd., [1977] 1 S.C.R. 536; Hoffmann-La
Roche Ltd. v. Frank W. Horner Ltd., Attorney-General
of Canada, Intervenant (1970), 64 C.P.R. 93 (Ex. Ct.);
Curr v. The Queen, [1972] S.C.R. 889; Pfizer (Charles)
& Co. Inc. v. Novopharm Ltd. (1970), 65 C.P.R. 132
(Ex. Ct.); R. v. Big M Drug Mart Ltd. et al., [1985] 1
S.C.R. 295; 58 N.R. 81; Parke, Davis & Co. v. Fine
Chemicals of Canada Ltd., [1959] S.C.R. 219.
REFERRED TO:
American Home Products Corporation v. PCN Canada
Limited, judgment dated July 3, 1985, Federal Court,
Appeal Division, A-888-83, not yet reported; Commis
sioner of Patents v. Farbwerke Hoechst Aktiengesell-
schaft Vormals Meister Lucius & Bruning, [1964]
S.C.R. 49; (1963), 25 Fox Pat. C. 99; Latham v. Solicitor
General of Canada, [1984] 2 F.C. 734; 9 D.L.R. (4th)
393 (T.D.); Staples v. National Parole Board, [1985] 2
F.C. 438 (T.D.); R. v. Burnshine, [1975] 1 S.C.R. 693;
Prata v. Minister of Manpower & Immigration, [1976] 1
S.C.R. 376; Bliss v. Attorney General (Can.), [1979] 1
S.C.R. 183; Brar v. Minister of Employment and Immi
gration, [1985] 1 F.C. 914 (CA.); Board of Regents of
State Colleges v. Roth, 408 U.S. 564 (1972); Meyer v.
State of Nebraska, 262 U.S. 390 (1923); Le groupe des
éleveurs de volailles de l'est de l'Ontario v. Canadian
Chicken Marketing Agency, [1985] 1 F.C. 280; (1984),
14 D.L.R. (4th) 151 (T.D.); Public Service Alliance of
Canada v. The Queen, [1984] 2 F.C. 562; 11 D.L.R.
(4th) 337 (T.D.), affirmed [1984] 2 F.C. 889; 11 D.L.R.
(4th) 387 (C.A.); Re Becker and The Queen in right of
Alberta (1983), 148 D.L.R. (3d) 539 (Alta. CA.).
COUNSEL:
Gordon F. Henderson, Q.C., Robert M.
Nelson and Emma C. Hill for plaintiffs.
Derek Aylen, Q.C., Bruce Russell and Paul
Lordon for defendant.
SOLICITORS:
Gowling & Henderson, Ottawa, for plaintiffs.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
STRAYER J.: This is an action for a declaration
that the plaintiffs are entitled to enjoy their
respective benefits in relation to inventions
described in Canadian patent numbers 1,045,142
and 949,967, free and clear of any compulsory
licence under subsection 41(4) of the Patent Act,
R.S.C. 1970, c. P-4. These declarations are sought
on the basis that: the said subsection is ultra vires
the Parliament of Canada; the said subsection is
inoperative as being inconsistent with the provi
sions of the Canadian Bill of Rights, S.C. 1960, c.
44; and is null and void as being contrary to the
Canadian Charter of Rights and Freedoms [being
Part I of the Constitution Act, 1982, Schedule B],
as enacted by the Canada Act 1982 (U.K. c. 11).
The individual plaintiffs are inventors of the two
inventions covered by these patents. The plaintiff
Smith, Kline & French Laboratories Limited is a
United Kingdom company by which they are
employed and to which they assigned all their
rights in the inventions. This company owns the
Canadian patents in question. Smith, Kline &
French Canada Ltd. is a Canadian company. As
licensee it sells the medicine covered by the patent,
whose generic name is Cimetidine but which is
sold by Smith, Kline & French as Tagamet, a
prescription drug used in the treatment of stomach
ulcers. Both companies are "part of the Smith
Kline world-wide group of companies", both being
wholly-owned subsidiaries of a U.S. company
which is in turn the subsidiary of Smith Kline
Beckman Corporation, another U.S. company.
Cimetidine is now the subject of several compulso
ry licences in Canada issued pursuant to subsec
tion 41(4).
Issues
In order that the relevance of certain facts
which I will set out below may be understood, it is
necessary to consider first the principal issues
raised in this action. This in turn requires that the
provisions of subsection 41(4) of the Patent Act be
set out. These are as follows:
41....
(4) Where, in the case of any patent for an invention
intended or capable of being used for medicine or for the
preparation or production of medicine, an application is made
by any person for a licence to do one or more of the following
things as specified in the application, namely:
(a) where the invention is a process, to use the invention for
the preparation or production of medicine, import any medi
cine in the preparation or production of which the invention
has been used or sell any medicine in the preparation or
production of which the invention has been used, or
(b) where the invention is other than a process, to import,
make, use or sell the invention for medicine or for the
preparation or production of medicine,
the Commissioner shall grant to the applicant a licence to do
the things specified in the application except such, if any, of
those things in respect of which he sees good reason not to
grant such a licence; and, in settling the terms of the licence
and fixing the amount of royalty or other consideration pay
able, the Commissioner shall have regard to the desirability of
making the medicine available to the public at the lowest
possible price consistent with giving to the patentee due reward
for the research leading to the invention and for such other
factors as may be prescribed.
The validity and applicability of this subsection
are attacked on the following grounds.
Distribution of Powers—It is contended by the
plaintiffs that in pith and substance this subsection
is a law in relation to "property and civil rights", a
matter assigned to the provinces by section 92
head 13 of the Constitution Act, 1867, 30 & 31
Viet., c. 3 (U.K.) [[R.S.C. 1970, Appendix II, No.
51 (as am. by Canada Act 1982, 1982, c. 11
(U.K.), Schedule to the Constitution Act, 1982,
Item 1)], and not in relation to "patents of inven
tion and discovery", assigned to Parliament under
section 91 head 22 of that Act. The essential
contention here is that the purpose and effect of
the legislation is to regulate the price of drugs sold
in Canada and that the regulation of prices is a
provincial matter.
Canadian Bill of Rights—It is contended that
subsection 41(4) is inconsistent with either or both
of paragraphs 1(a) and 1(b) of the Canadian Bill
of Rights. These provide as follows:
1. It is hereby recognized and declared that in Canada there
have existed and shall continue to exist without discrimination
by reason of race, national origin, colour, religion or sex, the
following human rights and fundamental freedoms, namely,
(a) the right of the individual to life, liberty, security of the
person and enjoyment of property, and the right not to be
deprived thereof except by due process of law;
(b) the right of the individual to equality before the law and
the protection of the law;
It is said that subsection 41(4) takes away the
"property" of the patentee of a medical patent by
conferring the essential benefits of that patent on a
compulsory licensee; that "due process" is denied
because the procedure lacks fairness, and in sub
stance the result is confiscatory because adequate
compensation is not provided to the patentee. It is
said that holders of medical patents are denied
"equality before the law" because they are treated
differently from all other patentees by thus being
denied the exclusivity of their invention which
other patentees enjoy for a period of seventeen
years.
Canadian Charter of Rights and Freedoms—It
is contended that the plaintiffs are denied rights
guaranteed to them by section 7 and subsection
15(1) of the Charter. These provisions are as
follows:
7. Everyone has the right to life, liberty and security of the
person and the right not to be deprived thereof except in
accordance with the principles of fundamental justice.
15. (1) Every individual is equal before and under the law
and has the right to the equal protection and equal benefit of
the law without discrimination and, in particular, without
discrimination based on race, national or ethnic origin, colour,
religion, sex, age or mental or physical disability.
With respect to section 7, it is contended that the
plaintiffs have been deprived of "liberty" or
"security of the person" which are said to include
economic liberties such as freedom of contract,
this denial having occurred without regard for
principles of fundamental justice. The procedural
and substantive denials of fundamental justice are
said to be of the same nature as those involved in
the alleged denial of due process in respect of
paragraph 1(a) of the Canadian Bill of Rights.
The discrimination complained of in respect of
subsection 15(1) is similar to that complained of in
respect of paragraph 1(b) of the Canadian Bill of
Rights, although of course the language of the
Charter provision is much broader and may pros-
cribe legislative distinctions of a kind previously
upheld in respect of the Canadian Bill of Rights.
The defendant generally rejects each of the
above contentions. In particular he contends, inter
alia, that the corporate plaintiffs are not entitled
to protection under these provisions of the Canadi-
an Bill of Rights and the Canadian Charter of
Rights and Freedoms. With respect to paragraphs
1(a) and (b) of the Canadian Bill of Rights, and
subsection 15 (1) of the Charter, since these provi
sions specifically are applicable only to the
"individual", it is said that they do not protect
corporations. With respect to section 7 of the
Charter, it is contended that although that section
applies to "everyone" which may potentially
include a body corporate, the rights of "life, liberty
and security of the person" are not by their nature
rights pertaining to a corporation.
In approaching these issues it must be recog
nized that subsection 41(4), as will be noted below,
has been in effect in its present form since 1969, a
period of some sixteen years, and in an earlier
form raising most of the same issues, since 1923.
In both its earlier and present forms, it has been
the subject of much litigation as to its interpreta
tion and even as to its constitutionality. It has been
specifically acknowledged to be within the jurisdic
tion of Parliament on at least three previous occa
sions by appellate courts. While a new element has
been introduced with the advent of the Charter
and the coming into force as recently as April
1985 of section 15 thereof, and while extensive
evidence as to the purpose and effect of the subsec
tion has been introduced in this action which was
not apparently available to the courts in earlier
cases, it must be underlined that it is not a clean
slate upon which I write.
EDITOR'S NOTE
In selecting for publication the 76-page judg
ment herein, the Editor has decided that the por
tion of the reasons setting out the facts—some
25 pages—should be abridged. There follows a
summary of His Lordship's review of the
evidence.
Canadian legislation providing for the granting
of compulsory licences in respect of process
patents for medicine was first enacted in 1923.
The purposes of the relevant legislation—subsec-
tion 41(4) of the Patent Act—were to ensure that
medicine would be made "available to the public
at the lowest possible price consistent with giving
to the inventor due reward for the research lead
ing to the invention". Compulsory licences were
available only for manufacturing in Canada and
not for importation if the production process was
the subject of a Canadian patent.
The law relating to compulsory licensing had
been reviewed by various commissions during the
1960s. Their recommendations ranged from
retaining the compulsory licensing system or
extending it to importation to abolishing drug pat
ents. The Act was amended in 1969 so as to
introduce compulsory licensing for importation of
drugs patented in Canada. That amendment
greatly affected the use of compulsory licensing:
from 1923 to 1963 there were but 23 applications
but almost 700 licences have been granted since
1969.
There was evidence that few licence applica
tions are refused. Since 1969, the total royalty
has in no case been fixed at other than 4%.
There have been interlocutory proceedings in
the course of this litigation. On July 6, 1982, Addy
J. in an order held that the manner in which a law
was administered could have no relevancy on the
issue of whether it was rendered inoperative by
the Canadian Bill of Rights. He further held that
evidence was admissible to show the intent and
effect of legislation in determining its constitution
al validity. Legislative history was admissible for
that purpose but not the opinions of ministers,
other politicians or civil servants. His Lordship
also held that the evidence as to how a law is
being administered was admissible to show the
effect of the legislation. That decision is reported:
(1982), 29 C.P. C. 117.
In an order dated July 26, 1984, Strayer J. held
that evidence would be admissible only as to the
constitutional validity of subsection 41(4). Since
the plaintiffs had not pleaded that the subsection
was invalid as applied to them, their pleadings
had to be taken as an allegation that the general
effect of the subsection was beyond Parliament's
competence. That being the case, evidence as to
the effect on the industry as a whole would be
admissible while evidence as to the effects on
individual companies would be admissible but of
"marginal relevance". That decision is reported:
(1984), 1 C.P.R. (3d) 268. That order was varied,
without disturbing the basis of the reasoning, by
the Federal Court of Appeal (A-957-84, judgment
dated January 11, 1985, not yet reported).
In a recent judgment concerning the Lord's Day
Act, R. v. Big M Drug Mart Ltd. et al., [1985] 1
S.C.R. 295; 58 N.R. 81, Dickson J. (as he then
was) held that the legislation's purpose was the
initial test of constitutional validity and that effects
could be looked at once the law had survived the
purpose test. Even though a law has passed the
purpose test, a litigant could argue its effects as a
means to defeat its applicability and possibly
validity. Effects could not be relied on to save
legislation with an invalid purpose. In Big M, it was
held that the Lord's Day Act had an invalid
"object" in employing religious criteria offensive
to the Charter freedom of conscience and religion
guarantee and it was unnecessary to consider
whether the legislation's effect was secular rather
than religious. Thus, the defect in legislation may
be so obvious that evidence as to effect would be
irrelevant.
There was ample evidence that both the
apprehended and actual effect of the impugned
legislation was to reduce drug prices by promot
ing competition. A Parliamentary Committee
reported in 1967 that the profits of pharmaceuti
cal companies in Canada were about twice as
high as those of the manufacturing industry as a
whole and that Canadian drug prices "were
among the highest of certain selected countries".
That was the background of the legislation in
question. When the amendment was being debat
ed in the House, the Minister of Consumer and
Corporate Affairs provided tables of comparative
drug prices and these were recorded in Hansard.
It was obvious that these price differentials were
the motivation for the legislation.
While counsel objected to the admissibility of
statements of ministers, pointing to the authorities
referred to in the order of Addy J., that material
was admissible as to the effect rather than the
purpose of the legislation. Some of the evidence
was of little relevance and lacking in weight as
possibly self-serving. But to the extent that docu
ments contained matter of which judicial notice
might be taken, they were admissible to establish
the apprehended effect and perhaps as well the
real effect of the legislation.
Much of the evidence was of but limited proba-
tive value as relating to the effects of the legisla
tion on particular pharmaceutical companies
rather than to its general effect. Such evidence as
there was suggested that the legislation had a
negative impact on the revenues of originators of
prescription drugs and a beneficial effect on com
panies exploiting compulsory licences.
Little research and development of drugs is
done in Canada and cost recovery depends on
inter-corporate arrangements among the multi
national drug companies. These arrangements
were not revealed in evidence. While the plaintiffs
testified that the cost of research and develop
ment for any given drug cannot be calculated,
there was evidence from an expert witness that
an originator would spend on average some
twenty-one million 1976 U.S. dollars for a market
able product. That average figure included
amounts thrown away on failures. The average
product broke even as an investment with an
equivalent investment in corporate bonds in the
twenty-fourth year after research and develop
ment was begun. Another expert witness estimat
ed the average cost in 1985 of bringing a new
drug on the market as one hundred million dollars
U.S.
Evidence was given as to the losses sustained
by originators, in terms of volume and price, when
generics become available following the granting
of compulsory licences. Figures of 48% for
volume loss and 40% for price loss were suggest
ed. It was not disputed by the defendant that
patentees subjected to compulsory licensing
often suffered reduction in market share and
price.
In assessing the impact on patentees, it was
important to know the length of the period of
exclusivity which a patentee enjoys in the market
before a generic goes on sale. The best evidence
on that, given by an official with the Department
of National Health and Welfare, was that the
average period is 6.8 years. Under the Patent
Act, patentees normally enjoy exclusivity for 17
years.
While compulsory licensing had a prejudicial
effect on sales and profits of patentees, it could
not be concluded that the effect was prohibitive in
the sense of rendering unprofitable Canadian
sales of patented drugs. The Eastman Commis
sion, appointed to inquire into the current situation
in the pharmaceutical industry in Canada, report
ed in February 1985, that the `overall profitability
of firms in the pharmaceutical industry in Canada
measured by their after tax profit on capital
employed for the years 1968 to 1982 is more
stable than for most industries in Canada and
rises in the later years of the period". The report
concluded that "compulsory licensing has had no
visible effect on the profitability of the phar
maceutical industry in Canada". Nor had compul
sory licensing negatively impacted on the growth
of the pharmaceutical industry in Canada as a
whole. The multi-national pharmaceutical industry
was not in fact a high risk enterprise. While risk
was associated with the development of particular
drugs, there were sufficient "winners" that the
total enterprise was quite profitable. Smith, Kline
& French, one of the plaintiffs herein, substantially
increased its market share between 1977 and
1982, compulsory licensing notwithstanding. By
1982, none of the companies holding compulsory
licences ranked higher than 21 in total sales.
In view of the lack of evidence as to the costs
of research, development and production and as
to other significant factors—such as the percent
age of international research costs which should
be borne by Canadian sales—it was impossible to
decide whether the 4% royalty paid for compulso
ry licences was compensatory.
Conclusions
Distribution of Powers—The plaintiffs contend
that subsection 41(4) of the Patent Act is legisla
tion in relation to property and civil rights in the
province, hence is ultra vires the Parliament of
Canada being a matter assigned to the provinces
under section 92 head 13 of the Constitution Act,
1867. As I understand it, this argument has two
aspects. First, it is said that this law is essentially
one for the regulation of prices of prescription
drugs and that any regulation of prices is presump-
tively a provincial matter. It is said to be in
relation to a particular trade or business and there
fore beyond the control of Parliament: that it
interferes with contract rights by enabling the
Commissioner to dictate a contract between the
patentee and the licensee without the consent of
the former at least. It is also contended that this
involves a taking away of property of the patentee:
that by its inherent nature a patent once issued
confers a monopoly on the patentee for the dura
tion of the patent. Authority was cited to demon
strate the nature of the so-called "bargain" be
tween the state and the inventor whereby the
inventor agrees to divulge the details of his inven
tion, for the ultimate public use and benefit, and to
work his invention where appropriate, in return for
the grant of a monopoly of the exploitation of his
invention for the duration of the patent. It is said
that Parliament can attach conditions to the grant
of the patent such as those referred to in sections
66 and 67 of the Patent Act, and that in case of a
breach of condition through abuse of the patent
certain benefits may be denied. But subsection
41(4) is distinguished from true conditions
because, according to the plaintiffs, it takes away
from the patentee (whose rights have already
vested), without any proof of abuse being neces
sary, his exclusive rights to exploit the patent for
seventeen years and confers an equal right on any
licensee who wishes to exploit the patent. The
effect is greatly to reduce the value of the paten-
tee's rights because he is forced to compete with
others using his invention. In effect a share of the
finite market for prescription drugs is transferred
from the patentee without his consent and without
adequate compensation. It is said that this cannot
even be characterized as taking private property
for a public purpose because private property here
is being transferred to another private individual
or company who is the recipient of a windfall
(having few research and development or promo
tional expenses in respect of the drug) at the
expense of the patentee.
Consistently with what was said by Dickson J.
[as he then was] in the Big M case [R. v. Big M
Drug Mart Ltd. et al., [1985] 1 S.C.R. 295; 58
N.R. 81] I have examined first the object of the
legislation and then its impact. The object may be
ascertained, in my view, by examining both the
text of the legislation itself and evidence as to
surrounding facts which may elucidate the object
or apprehended effect. In assessing impact one
may look at extrinsic evidence as to the actual
effect of the legislation.
With respect to the stated purpose of the legisla
tion, it appears to me clear from the subsection
itself that Parliament's object was to deny a
monopoly with respect to inventions of medicine or
of processes for the preparation or production of
medicine where there is a willing applicant who
seeks a licence to manufacture in Canada, or
import into Canada, or sell in Canada, the same
medicine. The subsection requires that in such
circumstances the Commissioner "shall" grant a
licence unless "he sees good reason not to grant
such a licence". Thus there is a presumption creat
ed in favour of the grant of the licence. The object
of the subsection is further elucidated by its provi
sions with respect to the terms of the licence to be
settled by the Commissioner. He is directed to
"have regard to the desirability of making the
medicine available to the public at the lowest
possible price consistent with giving to the paten-
tee due reward for the research leading to the
invention and for such other factors as may be
prescribed". (Apparently no other factors have
been prescribed.) In summary, therefore, the
apparent object is to make such compulsory
licences readily available, and on terms which
emphasize a lowering of price of the drug with
some consideration of compensation for the paten-
tee with respect only to its research leading to the
particular invention.
It is my view, and counsel for the plaintiffs did
not disagree, that for the purposes of distribution
of powers there is no significant difference be
tween subsection 41(4), first adopted in its present
form in 1969, and subsection 41(3), first adopted
in substance in 1923. The main significant differ
ence between the two subsections is that subsection
41(4) permits licences for importation of medi
cines whereas subsection 41(3) authorizes compul
sory licences with respect to patented processes for
the preparation or production of food, the licence
to authorize only such preparation or production
and not importation. The presumption in favour of
granting the licence and the factors to be taken
into account by the Commissioner in fixing its
terms are identical in the two subsections.
The purpose or object of subsection 41(3), as
derived from its wording, has been stated
authoritatively several times. For example in
Hoffmann-LaRoche Ltd. v. Bell-Craig Phar
maceuticals Division of L. D. Craig Ltd., [1965] 2
Ex.C.R. 266, at page 282 Jackett P. said:
In my view, the objective of the provision is to bring about
competition. On balance, in most fields, competition is regarded
by Parliament as being in the public interest because competi
tion regulates prices in the public interest and also because
competition tends to bring about greater efficiency, better
service, and further research. The monopoly granted to an
inventor is an exception to this general principle in our law.
Section 41(3) was passed because, in the field to which it
applies, "the specific public interest in free competition" was
deemed to be more important than the maintenance of the
patentee's monopoly rights.
On appeal it was held by Abbott J. on behalf of
the Supreme Court of Canada, [ 1966] S.C.R. 313,
at page 319 as follows:
In my view the purpose of s. 41 (3) is clear. Shortly stated it
is this. No absolute monopoly can be obtained in a process for
the production of food or medicine. On the contrary Parliament
intended that, in the public interest, there should be competi
tion in the production and marketing of such products produced
by a patented process, in order that as the section states, they
may be "available to the public at the lowest possible price
consistent with giving to the inventor due reward for the
research leading to the invention".
Similarly, in Eli Lilly and Co. v. S. & U. Chemi
cals Ltd., [1977] 1 S.C.R. 536, at page 545, a case
involving subsection 41(4), Pigeon J. writing for a
majority of the Court referred to
... the legislative policy behind compulsory licencing namely,
to avoid any practical monopoly of the manufacture of drugs by
patented processes and to foster competition.
On the face of the legislation, as interpreted by
the courts, its object then is clearly to avoid a
monopoly in the sale of medicines, thereby permit-
ting competition which, it was anticipated, would
cause a reduction in the price of medicines.
Viewed as such, this legislation has been upheld
as intra vires Parliament by several courts. In
American Home Products Corp. v. Commissioner
of Patents (1970), 62 C.P.R. 155, at pages 160
and 161, both the Supreme Court of Ontario and
the Ontario Court of Appeal held that subsection
41(4) was valid as being a law in relation to
patents and not in relation to property and civil
rights. Not long after that the Federal Court of
Appeal in Lilly v. S & U Chemicals Ltd. (1973), 9
C.P.R. (2d) 17, at page 18, similarly held subsec
tion 41(4) to be valid saying that:
... we are satisfied that that provision is an integral part of an
act that is a "law" in relation to "patents of invention and
discovery" and is, therefore, a valid exercise of Parliament's
legislative authority under s. 91(21) [sic] of the British North
America Act, 1867.
An appeal from this decision was dismissed by the
Supreme Court of Canada, although the constitu
tional issue was not argued there: see [ 1977] 1
S.C.R. 536. This is the position which has been
accepted by the courts heretofore. Very recently
the Federal Court of Appeal, in the case of Ameri-
can Home Products Corporation v. ICN Canada
Limited (A-888-83, July 3, 1985, as yet unreport-
ed) declined to hear argument to the effect that
subsection 41(4), is ultra vires, taking the position
that the two cases referred to above determined
the matter.
I accept, nevertheless, the submission of counsel
for the plaintiffs that it might remain open to this
Court to distinguish these previous decisions if the
evidence in this case disclosed an object or effect
that was not apparent at the time of those other
decisions. It appears that there was no extrinsic
evidence presented in those cases with respect to
the object or effect of the Act. I must therefore
consider whether the evidence in this case is such
as to lead to a different conclusion at this time.
It is true that the evidence reveals that patentees
of medicine normally incur very substantial
expenses in research, development, and prepara-
tion for marketing of those medicines. It also
reveals that the market, particularly in the area of
prescription medicines, is inelastic and that when
compulsory licensees, with minimal preparatory
costs, enter the market with generic products there
is commonly a substantial loss of market by the
patentee companies to the generic companies.
Whether this loss of market and, sometimes, of
price, renders the development and introduction of
the drug unprofitable for the patentee in any
meaningful way, it appears to me to be impossible
to say. Nevertheless there is a loss suffered by the
patentee of profits which it might have expected to
make in Canada had its patent been obtained
under a law which provided normal exclusivity for
17 years in the absence of abuse of the patent.
This much is clear. But does it mean that in
bringing about such a result Parliament has
exceeded its authority under section 91 head 22
with respect to "patents of invention and discov
ery" and invaded provincial jurisdiction under sec
tion 92 head 13 with respect to "property and civil
rights"? I think not.
It appears to me that under its authority with
respect to patents of invention and discovery, Par
liament is entitled to regulate patents in a variety
of ways. Essentially, this power enables it to create
a monopoly for one party and to exclude other
parties from the use, manufacture, sale, or impor
tation of products which are the subject of a
patent. The granting of such a patent, according to
the jurisprudence, confers an intangible property
right on the patentee. It is probably true that in
the absence of this specific assignment of authority
to Parliament with respect to "patents" they would
have fallen under provincial jurisdiction with
respect to property and civil rights. But Parliament
is not precluded from creating or regulating prop
erty in the course of exercising its enumerated
powers. And I can find no constitutional impera
tive that Parliament must exercise its authority
over patents of invention and discovery in one way
only, namely to grant the typical or conventional
type of patent exclusivity to the patentee of any
product whatsoever. I can see no reason why Par-
liament's authority under section 91 head 22 does
not equally extend to granting full or typical
patent rights on patentees of one kind of product
but limiting the kind of patent rights conferred on
the patentees of another kind of product. If there is
an objection to such distinctions it must be found,
if anywhere, in section 15 of the Canadian Charter
of Rights and Freedoms.
•
There is no common law right to a patent:
Commissioner of Patents v. Farbwerke Hoechst
Aktiengesellschaft Vormals Meister Lucius &
Bruning, [1964] S.C.R. 49; (1963), 25 Fox Pat. C.
99, at page 57 S.C.R.; 107 Fox Pat. C. The right is
created by an Act of Parliament. What Parliament
has done in this case is to restrict the extent of the
monopoly granted to patentees of medicines. It
was so explained by Thurlow J. [as he then was] in
Hoffmann-La Roche Ltd. v. Frank W. Horner
Ltd., Attorney-General of Canada, Intervenant
(1970), 64 C.P.R. 93 (Ex. Ct.), at page 107:
What a patentee has, therefore, from the time of issue of his
patent is not an unassailable, complete monopoly right. His
patent does indeed purport to give a monopoly of his invention
but it is a monopoly which, because of s. 41, is subject to the
right of anyone who can comply with the section to obtain the
right to use the invention notwithstanding the patent. Such a
monopoly is therefore not capable of affording a foundation
upon which a massive commercial enterprise, not by itself
capable of being monopolized, may be built and afforded
monopoly protection.
The authority which Parliament is given by
section 91 head 22 it to create monopolies by
means of patents and thereby to prevent competi
tion for a certain period of time. It appears to me
that there is nothing constitutionally ordained that
the period of exclusivity must be 17 years in the
absence of abuse as defined in the statute. I do not
accept that the authority granted to the Parlia
ment of Canada with respect to patents can only
be exercised in the way it has been exercised by
the Parliament of the United Kingdom: indeed, it
is clear that from the first Patent Act adopted by
the Dominion of Canada after Confederation, in
1869 [S.C. 1869, c. 11], Canadian law has in
many respects differed from British law: see, e.g.,
Fox, The Canadian Law and Practice Relating to
Letters Patent for Inventions (4th ed., 1969), at
pages 4-5, 541.
I therefore conclude that this subsection, by
making the grant of a patent for medicine subject
to compulsory licensing is simply limiting the
scope of the property right, the monopoly, which
Parliament is authorized but not obliged to grant.
Nor do I think it can otherwise be characterized
in any way in pith and substance a law in relation
to property and civil rights. It is true that the grant
of a compulsory licence affects incidentally,
though in important ways, contractual and prop
erty rights of the patentee as well as those of the
licensee. But subsection 41(4) is not a law in
relation to "prices" as contended by the plaintiffs.
It does not purport to fix prices. One of its princi
pal objects is, obviously, to bring about a reduction
in prices through competition, but the prices are to
be fixed by the vendors of drugs. Merely because
the exercise of a federal power affects prices does
not make it invalid. For example, the exercise of
the federal taxation power in respect of excise
taxes or tariffs affects in a much more precise way
the prices paid by Canadians for many goods. The
exercise of the federal jurisdiction over "interest"
and "banking" affects the price of borrowing
money. One can multiply the examples.
If one takes the approach of the plaintiffs, one
could equally argue that the whole Patent Act is
invalid because the normal effect of granting a
patent and creating a monopoly in the patentee is
to give the patentee nearly carte blanche with
respect to price because he is protected from any
competition for 17 years. That is clearly untenable.
Similarly, it is not tenable to argue that by limit
ing the patentee's monopoly under subsection
41(4), thus creating competition and forcing the
patentee to share the market, Parliament has
passed a law in relation to property. No doubt the
value of his patent is less than it would be if he
were to enjoy the normal 17-year period of
exclusivity, but the property right which he
acquires when he obtains a patent with respect to
medicine consists of a limited monopoly which is
subject to compulsory licensing at any time in the
future. It is not a matter of him receiving an
absolute grant which is then partially revoked. The
original grant is of a limited character.
It was also argued at several points that subsec
tion 41(4) is legislation in relation to the "con-
tracts of a particular business or trade" within a
province and therefore beyond the competence of
Parliament. There are several cases holding that
Parliament cannot in the exercise of its authority
under section 91 head 2 of the Constitution Act,
1867 with respect to "the regulation of trade and
commerce" regulate the contracts of a particular
business or trade within a province. While the
utility of this principle is in any event somewhat
limited by the fact that it leaves for purely subjec
tive judgment what is a "particular business or
trade", it has no relevance to the present case.
Here Parliament is not exercising the trade and
commerce power but another enumerated power,
that with respect to patents, and in doing so may
very well deal with the contracts of a particular
business or trade as long as the law is otherwise a
legitimate patent law. Again, there are many enu
merated powers of Parliament which could not be
exercised if Parliament were always precluded
from regulating the contracts of a particular busi
ness or trade: for example its powers with respect
to banking, interest, works declared for the general
advantage of Canada, etc.
Finally, it was contended that subsection 41(4)
is somehow rendered invalid because it is inconsist
ent with other parts of the Patent Act. It was
contended for example that because sections 67
and 68 of the Act provide for the grant of a
compulsory licence after the patent has been in
effect for 3 years or more, where there has been
abuse as defined in section 67, that implies that
there can be no other situation where a compulsory
licence can be granted. I am unable to find any
constitutional principle that limits Parliament to
the adoption of amendments which are in all
respects consistent or harmonious with existing
law, nor can I find any basis for holding that the
concept of a "patent of invention and discovery",
with respect to which Parliament may make laws,
is that which was found in the Patent Act prior
either to the 1969 amendment or to the 1923
amendment where compulsory licences for food
and medicine were first introduced.
I therefore conclude that it is open to Parlia
ment in the exercise of its jurisdiction under sec
tion 91 head 22 to so limit certain patent rights as
to bring about the economic effects on patentees
which the evidence has established here. Whether
the result is fair or unfair, wise or unwise, is not
relevant to a question of distribution of powers nor
is it a matter for the Court to determine.
I therefore find subsection 41(4) of the Patent
Act to be intra vires the Parliament of Canada.
Canadian Bill of Rights, paragraph 1(a)—This
paragraph recognizes and declares the following
rights:
1....
(a) the right of the individual to life, liberty, security of the
person and enjoyment of property and the right not to be
deprived thereof except by due process of law;
The plaintiffs contend that subsection 41(4) of
the Patent Act is inconsistent with paragraph (a)
in that it has the effect of denying individuals the
enjoyment of property without due process of law.
This gives rise to three separate issues: whether the
plaintiffs are "individuals", whether the enjoyment
of property is affected, and whether subsection
41(4) authorizes a denial of due process of law.
It should first be noted again that Addy J. in his
interlocutory order in this matter, held that the
manner in which the law is administered can have
no relevancy to the determination of whether it is
rendered inoperative by reason of the Bill of
Rights, this being a pure question of law deter
mined by interpreting the texts of the Patent Act
and the Canadian Bill of Rights. See (1982), 29
C.P.C. 117, at page 120.
It is clear that the term "individual" does not
include bodies corporate. Therefore the corporate
plaintiffs have no claim under paragraph 1(a) of
the Canadian Bill of Rights. The three plaintiffs
who are "individuals" are Graham John Durant,
John Colin Emmett, and Charon Robin Ganellin
who are the inventors of Cimetidine. While evi
dence indicated that none of them has a direct
interest any more in these patents, their rights
having been assigned to their employer Smith,
Kline & French Laboratories Limited by the
terms of their employment, they are still potential
inventors and the value of their services, past and
future, is affected by this law. Having regard to
the decision of the Supreme Court of Canada in
Minister of Justice of Canada et al. v. Borowski,
[1981] 2 S.C.R. 575 that the plaintiff there had
standing to seek a declaration as to alleged conflict
between the Criminal Code [R.S.C. 1970, c. C-34]
and the Canadian Bill of Rights, it would appear
that the individual plaintiffs here have standing to
seek a declaration as to alleged conflict between
the Patent Act and the Canadian Bill of Rights.
Indeed, in the Borowski case there was nothing to
suggest that Mr. Borowski had been or could ever
be personally affected by the abortion sections of
the Criminal Code. In the present case it appears
to me that the interests of the three individual
plaintiffs in having a declaration as to the impact
of the Canadian Bill of Rights on subsection 41(4)
of the Patent Act is much more direct. To the
extent that the Borowski decision and earlier deci
sions of the Supreme Court of Canada upon which
it was based require that it be unlikely that a
constitutional or quasi-constitutional issue can
otherwise be raised if the plaintiff is not entitled to
seek a declaration, that requirement is met in the
present case in my view. As the only rights protect
ed by paragraphs 1(a) and (b) of the Canadian
Bill of Rights are those of individuals, it seems to
me unlikely that there will be individual inventors
of medicines with a more direct interest in attack
ing subsection 41(4) than those employed in a
multi-national pharmaceutical business such as the
individual plaintiffs here.
A further question then arises as to whether
subsection 41(4) amounts to a deprivation of
"property". For reasons explained above in con
nection with the distribution of powers question, I
do not think the effect of subsection 41(4) is to
take away from a patentee an absolute vested right
to a monopoly for 17 years. No one has at common
law an automatic right to a patent carrying with it
a 17-year monopoly: see Hoechst case, supra. As
for patents in relation to medicines, the Patent Act
has since 1923 conferred a 17-year monopoly, but
one which is defeasible. When a compulsory
licence is issued, it does not amount to a taking
away of a monopoly as the monopoly created by
the patent was always a limited one subject to such
decisions taken by applicants and the Commission
er with respect to the obtaining and granting of a
compulsory licence. In this respect the property
rights granted by a patent in respect to medicines
are rather like a title to land in fee simple which is
subject to the right-of-way of a neighbour passing
over that land. If the neighbour does not use the
right-of-way for 5 years and then starts to use it,
his use does not amount to a taking of the property
of the owner in fee simple: the owner's right was
always subject to the possible inconvenience of use
of the right-of-way arising out of a unilateral
decision taken by the neighbour.
The defendant contends that, as the monopoly
granted under section 41 is defeasible, the grant of
a licence is not a "deprivation" of property as
referred to in paragraph 1(a) of the Bill of Rights.
I have concluded, however, that the process of the
grant of a compulsory licence and the fixing of its
terms do have the effect of determining when and
under what conditions the exclusivity initially
granted by a medical patent is to be terminated.
This involves the definition or scope of one of the
bundle of rights involved in the grant of a patent
and is therefore a decision about property rights.
The effect of a determination that the conditions
prescribed by subsection 41(4) for the issue of a
compulsory licence have been met is to thereby
permit the impairment of the initial monopoly. To
give the Canadian Bill of Rights the liberal inter
pretation advocated by the plaintiffs, and which I
think is correct, it is appropriate to regard this as a
"deprivation of property". If one were to adopt the
narrower view of "deprived" as it appears in para
graph 1(a), it would mean that any advantage
which is terminable at the discretion of an official
cannot result in a deprivation so as to attract the
safeguards of paragraph 1(a) of the Bill of Rights
or section 7 of the Charter. This would mean, for
example, that as parole is a privilege revocable by
the Parole Board, its refusal or revocation is not a
deprivation of "liberty" and can be effected with
out regard to these provisions. I have rejected this
proposition elsewhere: see Latham v. Solicitor
General of Canada, [1984] 2 F.C. 734; 9 D.L.R.
(4th) 393 (T.D.); Staples v. National Parole
Board, [1985] 2 F.C. 438 (T.D.).
The further question then remains as to whether
subsection 41(4) is in accordance with "due pro
cess of law". The plaintiffs contend that "due
process" has both a substantive and a procedural
content. They further contend that substantive due
process is denied because the effect of subsection
41(4) is to give the benefits of the property of A to
B without adequate compensation. It is said that
subsection 41(4) by its very structure precludes
adequate compensation in directing the Commis
sioner to have regard to making the drug available
"at the lowest possible price consistent with giving
to the patentee due reward for the research leading
to the invention" (emphasis added). By confining
consideration only to the research leading to the
invention, it is said, the Commissioner cannot
order a royalty which is compensatory because this
excludes the costs of all the research leading to
inventions which are unsuccessful and which must
be retrieved from profits of successful inventions,
and it excludes post-research costs necessarily
incurred to reach the stage of marketing. Further,
it is argued that subsection 41(4) as it has been
interpreted by the courts denies procedural due
process because it allows the Commissioner to
determine his own procedure which is arbitrary
and to fix royalties without regard to pertinent
information.
This argument raises the difficult question as to
whether "due process" as referred to in paragraph
1(a) of the Canadian Bill of Rights has a substan
tive content. This question has never been clearly
and determinatively answered by the higher courts
but such authority as there is militates against
"due process" being given a substantive content.
The issue was addressed at length by the
Supreme Court of Canada in Curr v. The Queen,
[1972] S.C.R. 889 where it was argued that man
datory breath tests prescribed under the Criminal
Code for persons suspected of drunken or impaired
driving involved a denial of "due process" under
the Canadian Bill of Rights. The Supreme Court
of Canada rejected this contention. Laskin J. [as
he then was] writing for the majority, while leav
ing open the possibility that "due process" might
some day be given a substantive content, in his
reasoning gave ample indication that such a step
would be highly questionable. In particular he
emphasized that the Canadian Bill of Rights is
only a statutory guide to the interpretation of
federal legislation and not a constitutional direc
tive. He also emphasized the difficulties which
courts would have, in the absence of established
criteria for substantive due process, in passing
judgment on the propriety of legislation. At pages
899-900 he said:
Assuming that "except by due processs of law" provides a
means of controlling substantive federal legislation—a point
that did not directly arise in Regina v. Drybones—compelling
reasons ought to be advanced to justify the Court in this case to
employ a statutory (as contrasted with a constitutional) juris
diction to deny operative effect to a substantive measure duly
enacted by a Parliament constitutionally competent to do so,
and exercising its powers in accordance with the tenets of
responsible government, which underlie the discharge of legisla
tive authority under the British North America Act. Those
reasons must relate to objective and manageable standards by
which a Court should be guided if scope is to be found in s. 1(a)
due process to silence otherwise competent federal legislation.
Neither reasons nor underlying standards were offered here.
For myself, I am not prepared in this case to surmise what they
might be.
And at pages 902-903 he said:
Certainly, in the present case, a holding that the enactment of
s. 223 has infringed the appellant's right to the security of his
person without due process of law must be grounded on more
than a substitution of a personal judgment for that of Parlia
ment. There is nothing in the record, by way of evidence or
admissible extrinsic material, upon which such a holding could
be supported. I am, moreover, of the opinion that it is within
the scope of judicial notice to recognize that Parliament has
acted in a matter that is of great social concern, that is the
human and economic cost of highway accidents arising from
drunk driving, in enacting s. 223 and related provisions of the
Criminal Code. Even where this Court is asked to pass on the
constitutional validity of legislation, it knows that it must resist
making the wisdom of impugned legislation the test of its
constitutionality. A fortiori is this so where it is measuring
legislation by a statutory standard, the result of which may
make federal enactments inoperative.
While a more recent pronouncement by three
Judges of the Supreme Court (see Singh et al. v.
Minister of Employment and Immigration, [1985]
1 S.C.R. 177, at page 224) appears to attribute
some constitutional character to the Canadian Bill
of Rights, the lack of any standard in the Bill for
judicial determination of the substantive propriety
of legislation as referred to by Laskin J. is still
very pertinent. I have found as a matter of fact
that subsection 41(4) does reduce the profitability
of medical patentees in Canada where they are
subjected to competition from compulsory licen
sees. But I am unable to accept the proposition
that any law which reduces the profitability of one
sector of an industry and enhances the profitability
of another sector is per se contrary to "due proc
ess". Conceivably it could be argued, for example,
that a law which makes it prohibitory for an
enterprise otherwise lawful to be continued denies
substantive "due process". Even if this were so,
and I do not presume to hold that it is so, the
evidence does not establish that that is the effect of
subsection 41(4). What other criteria should I
apply in deciding, as the plaintiffs invite me to do,
that Parliament has violated due process in enact
ing subsection 41(4)? As Laskin J. pointed out, the
U.S. courts have largely abandoned "economic due
process" for the precise reason that the judgments
required to apply such a concept are essentially
arbitrary social and economic decisions which are
normally the proper preserve of elected legisla
tures.
It was also argued, on the basis of Re Ontario
Film and Video Appreciation Society and Ontario
Board of Censors (1983), 41 O.R. (2d) 583
(H.C.J. Div. Ct.) that as subsection 41(4) provides
no adequate criteria for denial of exclusivity of
patent rights, it denies due process. It should be
noted that the case cited dealt with the question of
what is a "limit [...] prescribed by law" in
section 1 of the Charter, not what is "due process"
under the Bill. Moreover, in the impugned legisla
tion there were no criteria prescribed for censor
ship. Here subsection 41(4) does direct the atten
tion of the Commissioner to questions of price and
cost of research.
Although greatly aided by counsel through the
examination of Magna Carta and cases from the
courts of Ireland, I must in the final analysis
interpret the Canadian Bill of Rights in the light
of Canadian jurisprudence. There is very little in
that jurisprudence to suggest to me that paragraph
1(a) authorizes any court to treat the substantive
provisions of subsection 41(4) of the Patent Act as
inoperative on the ground that it is unfair in an
economic sense to patentees of medicines.
It remains to consider, however, whether subsec
tion 41(4) denies "due process" in the procedural
sense. It should be noted that the Federal Court of
Appeal has clearly held that the subsection is not
inconsistent with paragraph 2(e) of the Canadian
Bill of Rights which says that no law shall be
construed or applied so as to
2....
(e) deprive a person of the right to a fair hearing in accord
ance with the principles of fundamental justice for the deter
mination of his rights and obligations;
In American Home Products Corporation v. Com
missioner of Patents et al. (1983), 71 C.P.R. (2d)
9 the Court of Appeal, while seemingly accepting
that a determination by the Commissioner under
subsection 41(4) is a determination of "rights and
obligations", held that it complied with the
requirements of paragraph 2(e). The Court said
that the Commissioner is authorized to make the
decision on a quasi-judicial basis but this did not
require that the patentee be entitled either to
cross-examine on the applicant's affidavit or to
have an oral hearing before the Commissioner. It
was sufficient that, as the Rules provide, the
patentee be able to file a counter-statement in
opposition to the application.
Mr. Henderson argued on behalf of the plain
tiffs here that the recognition of the right not to be
deprived of property except "by due process of
law" in paragraph 1(a) of the Canadian Bill of
Rights must have a meaning wider than or differ
ent from the "fair hearing" requirement of para
graph 2(e) or the two requirements would not both
have been included in the Bill of Rights. I am
prepared to accept that the concept of procedural
"due process" is broader than that of a "fair
hearing" and it therefore remains to determine
whether there are aspects of the operation of sub-
section 41(4) of the Patent Act which were not
before the Federal Court of Appeal in the Ameri-
can Home Products case, supra, and which may
give rise to questions of "due process".
To do this, it is necessary to review briefly the
jurisprudence interpreting subsection 41(4). As
noted previously, the case has proceeded on the
basis of Addy J.'s decision that in determining
whether the subsection is inoperative because of
the Bill of Rights, one must look only at the texts
of the two statutes. This examination must, of
necessity, include the legal interpretations put on
the two sections.
As subsection 41(4) is, for all purposes relevant
to due process, identical with former subsection
41(3), one may equally look at pre-1969 jurispru
dence as to the proper interpretation of that
subsection.
In Parke, Davis & Co. v. Fine Chemicals of
Canada Ltd., [1959] S.C.R. 219, at page 228 the
Supreme Court of Canada said with respect to the
royalty to be fixed under subsection 41(3) that it
should "be commensurate with the maintenance of
research incentive and the importance of both
process and substance". In Hoffmann-LaRoche
Ltd. v. Bell-Craig Pharmaceuticals Division of L.
D. Craig Ltd., [1965] 2 Ex.C.R. 266, at pages
289-290, Jackett P. said that the royalty should be
something less than the price that would be paid
for such a licence in a free market by a willing
licensee to a willing licensor (the test adopted by
the Supreme Court of Canada in The King v.
Irving Air Chute, [1949] S.C.R. 613 in fixing
royalties under section 19 of the Patent Act pay
able by the Crown in respect of compulsory
licences taken by it), but at least as much as would
be required by the test laid down in the Parke,
Davis case supra. He held, inter alia, that the
inventor or patentee was not entitled to insist on
having the royalty set at that percentage which the
patentee's current research and development costs
were of its current total sales. This latter proposi
tion was also rejected by Thurlow J. in Hoffmann-
La Roche Ltd. v. Frank W. Horner Ltd., Attor-
ney-General of Canada, Intervenant (1970), 64
C.P.R. 93 (Ex. Ct.) with respect to the royalty
payable under subsection 41(4). It was further
said in that case that the Commissioner could look
at all the evidence before him and could also apply
his own general knowledge. It was held at page
107 that the compensation to be fixed under sub
section 41(4) is not to be equated to damages for
infringement nor to the profits which the licensee
might make through the use of the invention. Nor
is it equated to compensation for interference with
the business of the patentee. At page 114 a distinc
tion was drawn between the Canadian and United
Kingdom compulsory licensing provisions: the
compensation payable under the latter was said to
be intended more closely to equal damages that
might be payable for infringement.
It appears that even by 1970 the pattern had
emerged of the royalty being fixed under subsec
tion 41(4) at 4%. In another decision of that year
Thurlow J. in Pfizer (Charles) & Co. Inc. v.
Novopharm Ltd. (1970), 65 C.P.R. 132 (Ex. Ct.),
at page 146 upheld such a practice as follows:
What impressed me much more from the argument was the
fact that notwithstanding such obvious differences as existed
between the cases, as for example, differences in the drugs with
which the inventions were concerned and in the patents in
respect of which licences were sought, differences as well in the
classes of drugs to which the inventions applied and differences
in the levels of prices and proposed prices therefor, the result
reached by the Commissioner in all cases was 4% of the selling
price in final dosage forms. This suggests to me that in fact the
Commissioner, having reached a rough and ready conclusion as
to a fair percentage of the selling price in final dosage form as
representing an appropriate royalty in the first of the cases
which he dealt with under the amended section, adopted that
percentage and formula as a starting point applicable to other
cases as well except in so far as the facts put before him might
serve to persuade him to increase or decrease the percentage.
While I think it is incumbent on the Commissioner to deal with
the matter on the facts of the particular case, I do not think
there is any sound objection to his approaching a problem of
this nature, the solution of which depends to a considerable
extent on the application of the "broad axe" principle, by the
initial application of such a rule of thumb approach, provided
that due consideration is thereafter given to how far the facts of
the particular case indicate that an alteration should be made
in the percentage which the rule of thumb suggests. There is, as
I see it, nothing uncommon about such an approach in valuing
more than one type of property and it frequently serves as a
guide to a reasonable conclusion. Here, as I see it, there was
nothing in the material before the Commissioner that could
have been expected to alter the result which the rule of thumb
itself suggested.
While there is a right of appeal with respect to
decisions taken under section 41 with respect to
compulsory licences (except as to the grant of
interim licences) it is well established in the juris
prudence that the decision is one which the Com
missioner must make and his decision should not
be set aside unless it is based on some wrong
principle or unless it is manifestly wrong (i.e., so
wrong that it could not have been based on the
evidence or the law). If such a defect should be
found, then the Court should set aside the decision
and refer the matter back to the Commissioner for
reconsideration. See, e.g., Merck & Co. v. S. & U.
Chemicals Ltd., [1974] S.C.R. 839; (1972), 4
C.P.R. (2d) 193 (with respect to fixing royalties).
The same applies with respect to a determination
by the Commissioner as to whether there is "good
reason" for not granting a licence: see Parke,
Davis case, supra. The deference shown to the
Commissioner's decision as to royalties is well
illustrated in the Merck & Co. case where the
applicant had proposed paying a royalty of 15% of
the net value for import of the drug imported in
bulk. The patentee opposed the licence and reject
ed the royalty. The applicant then changed his
proposal to a royalty of 4% of the net retail price
of the drug in its finished dosage form. The Com
missioner fixed the royalty at 4% of the net selling
price. An appeal was heard in the Exchequer
Court by Thurlow J. [(1971), 65 C.P.R. 99] who
referred the royalty question back to the Commis
sioner, primarily on the basis that there was noth
ing in the material to indicate a basis for the
conclusion that the lower royalty was to be pre
ferred over the one first offered by the applicant.
On appeal to the Supreme Court the latter
reversed the decision of Thurlow J. and confirmed
the decision of the Commissioner on the grounds
that there was nothing in the record before the
Supreme Court to indicate that the Commissioner
had not performed his duty or that he had acted on
the wrong principle or that the decision was mani
festly wrong. In other words, in the absence of
some indication as to the basis for the decision, it
was to be presumed to be right.
Does the subsection, as so interpreted, deny
procedural due process in some sense other than
the requirement of a fair hearing (which, as noted
above, the Court of Appeal has already found to
be satisfied by the subsection)? In my view due
process requires, in addition to a fair hearing, a
total process which provides, for the making of a
decision authorized by law, a means for rationally
relating the facts in the case to criteria legally
prescribed, as in this case, by Parliament. The
nearness with which the two have to be related will
depend on the precision with which Parliament has
prescribed the criteria and the degree of discretion
which it has left to the decision-maker to decide
whether result B should necessarily flow from fact
A.
It is apparent from the authoritative interpreta
tions to which I have referred that in settling the
terms of compulsory licences, where the Commis
sioner is required by law to have regard
... to the desirability of making the medicine available to the
public at the lowest possible price consistent with giving to the
patentee due reward for the research leading to the
invention ....
he is obliged to keep the royalty below what a
freely negotiated rate would be. But in having
regard to "due reward for the research" he is not
obliged by Parliament to ascertain the precise
costs of research of the drug in question. It is also
apparent from the judicial interpretations that he
is expected to apply his own knowledge as well as
that gained from the particular proceedings and
that he is to have a wide measure of discretion
which the courts will not interfere with unless he
has clearly gone wrong in principle. The Supreme
Court, in considering the analogous function of the
Commissioner under section 19 of the Act with
respect to fixing compensation for patents used by
the Government of Canada, and in considering the
right of appeal of that decision to this Court
similar to the right of appeal provided in subsec
tion 41(11), has regarded the Commissioner's
function as that of an arbitrator and for this
reason has limited drastically the grounds upon
which the Court can interfere with his decision.
See the Irving Air Chute case supra at page 621.
This suggests that Parliament has conferred a wide
discretion on the Commissioner and as an arbitra
tor his decisions may be somewhat arbitrary. As
long as they are within a wide range permitted by
the subsection they cannot be challenged.
Given the nature of the process prescribed by
subsection 41(4), as interpreted in a number of
decisions binding on me, I am unable to say that
the procedure authorized by the section is irration
al or unsuitable for making the necessary connec
tion between such facts as are relevant and such
conclusions as depend on those facts. I therefore
conclude that as written and interpreted, subsec
tion 41(4) does not deny due process of law.
The evidence indicated that since the 1969
amendment, virtually all applications which have
not been withdrawn have been granted and that in
virtually all cases the royalty has been fixed at 4%.
The fact that all applications have been granted is
perhaps not too surprising as the subsection says
that when such an application is made the Com
missioner "shall grant .. . a licence to do the
things specified in the application except such, if
any, of those things in respect of which he sees
good reason not to grant such a licence". The
Supreme Court said in relation to the similar
language of subsection 41(3) that a decision of the
Commissioner as to "good reason" was final unless
it could be said that it proceeded on the basis of
some wrong principle: see Parke, Davis case supra.
It is more surprising that the royalty has always
turned out to be 4%. It is difficult to believe that
circumstances would not have indicated a some
what different rate among the several hundred
licences which have been granted since 1969. I am
precluded from addressing this question, however,
in the context of compliance with the Canadian
Bill of Rights because of the decision of Addy J.
referred to above that the question of possible
inconsistency with the Canadian Bill of Rights is a
pure question of law to which the facts as to how
the law is administered can have no relevance.
That decision not having been appealed, I am
bound by it in my determination as the whole
process of discovery and trial has proceeded on this
basis.
Canadian Bill of Rights, paragraph 1(b)—This
paragraph recognizes and declares the following
rights:
1....
(b) the right of the individual to equality before the law and
the protection of the law;
With respect to the plaintiffs' contention that
subsection 41(4) is inconsistent with the right of
the individual to equality before the law as pro
vided in paragraph 1(b) of the Canadian Bill of
Rights, I do not think it necessary to deal with this
proposition at length. The Supreme Court of
Canada has held in a number of cases that legisla
tion which creates distinctions between individuals
does not offend paragraph 1(b) of the Canadian
Bill of Rights if it has been enacted for some
"valid federal objective": see R. v. Burnshine,
[1975] 1 S.C.R. 693; Prata v. Minister of Man
power & Immigration, [1976] 1 S.C.R. 376; Bliss
v. Attorney General (Can.), [ 1979] 1 S.C.R. 183;
and MacKay v. The Queen, [1980] 2 S.C.R. 370.
This principle has recently been applied by the
Federal Court of Appeal in Brar v. Minister of
Employment and Immigration, [1985] 1 F.C. 914
(C.A.). In the MacKay case McIntyre J., writing
for himself and Dickson J. [as he then was],
elaborated at page 406 on this principle:
The question which must be resolved in each case is whether
such inequality as may be created by legislation affecting a
special class—here the military—is arbitrary, capricious or
unnecessary, or whether it is rationally based and acceptable as
a necessary variation from the general principle of universal
application of law to meet special conditions and to attain a
necessary and desirable social objective.
For the reasons discussed in connection with the
distribution of powers issue I am satisfied that
subsection 41(4) is related to a valid federal objec
tive. Even though I am confined here to deriving
that objective from the text of the legislation itself,
and not from extrinsic evidence, it is apparent
from the words of the subsection that the objective
is to limit monopoly rights with respect to medi
cine in order to achieve lower prices through com
petition. It is a valid federal objective to create a
monopoly through patent rights in order to restrict
competition and thereby benefit patentees: it is an
equally valid federal objective to limit in respect of
a certain category of patentees the monopoly
granted and thus reduce the negative impact on
competition so as to benefit members of the public
who must purchase medicine. Both kinds of legis
lation involve what is believed to be a furthering of
the public interest though striking different bal
ances between the rights of patentees and those of
consumers. I am unable to say from the language
of the statute that either in its substance or in its
procedure it is not genuinely designed to that end.
Again, in the absence of evidence there is no basis
upon which I could conclude that Parliament's
apparent belief that consumers needed special pro
tection in the area of medicines was not a legiti
mate belief.
In any event, it appears to me that if the plain
tiffs have any legal complaints based on discrimi
nation these are better raised, as they have been,
under section 15 of the Canadian Charter of
Rights and Freedoms: the forms of equality guar
anteed by that section are much broader than the
mere "equality before the law" guaranteed by the
Canadian Bill of Rights; and section 15 being a
constitutional provision, extrinsic evidence as to
the administration of the Patent Act will be rele
vant and admissible in its application. I will there
fore return to this question in relation to
section 15.
Canadian Charter of Rights and Freedoms,
section 7—This section provides as follows:
7. Everyone has the right to life, liberty and security of the
person and the right not to be deprived thereof except in
accordance with the principles of fundamental justice.
The plaintiffs contend that subsection 41(4)
deprives them of "liberty" or "security of the
person" in a manner not in accordance with the
principles of fundamental justice.
I accept that both the corporate plaintiffs and
the individual plaintiffs are potentially entitled to
the protection of section 7 because it applies to
"everyone". It has been held in Balderstone v. R.;
Play-All Ltd. v. A.G. Man., [1983] 1 W.W.R. 72
(Man. Q.B., affirmed on other grounds by Man.
C.A. [[1983] 6 W.W.R. 438]) that "everyone" in
this section includes a corporation. I respectfully
agree.
I do not accept, however, that subsection 41(4)
of the Patent Act involves the "liberty" or "securi-
ty of the person" of any or all of the plaintiffs
here. In my view the concepts of "life, liberty and
security of the person" take on a colouration by
association with each other and have to do with
the bodily well-being of a natural person. As such
they are not apt to describe any rights of a corpo
ration nor are they apt to describe purely economic
interests of a natural person. I have not been
referred to any authority which requires me to
hold otherwise.
It is true that in Singh et al. v. Minister of
Employment and Immigration, [1985] 1 S.C.R.
177, at page 205, Wilson J., Dickson C.J. and
Lamer J. concurring, said that:
... the concepts of the right to life, the right to liberty, and the
right to security of the person are capable of a broad range of
meaning.
She then goes on to refer to the Fourteenth
Amendment of the United States Constitution
which provides that no state shall "deprive any
person of life, liberty, or property, without due
process of law". She cites a statement by Stewart
J. in Board of Regents of State Colleges v. Roth,
408 U.S. 564 (1972), at page 572 who was actual
ly quoting the passage cited from a 1923 decision
the Supreme Court of the United States in Meyer
v. State of Nebraska, 262 U.S. 390 (1923). In the
1923 case it was said [at page 399] that "liberty"
... denotes not merely freedom from bodily restraint but also
the right of the individual to contract, to engage in any of the
common occupations of life, to acquire useful knowledge, to
marry, establish a home and bring up children ....
I do not understand this proposition now to have
become part of the law of Canada. It appears to
me that Wilson J., writing on behalf of herself and
two other Judges, was only observing that such a
term as "liberty" is capable of broad meaning.
This is undoubtedly true. But she does not adopt as
the considered view of three Judges of the
Supreme Court of Canada that it has such a broad
meaning within the context of section 7 of the
Charter. Nor, of course, was it necessary for her to
do so in the Singh case which potentially involved
freedom from bodily detention and deportation.
Reference to the jurisprudence of 1923 of the
United States Supreme Court on the subject of
"liberty" must also be viewed with caution. The
concept of "liberty of contract", originally founded
on the Fourteenth Amendment, scarcely survived
the Great Depression in the United States: see
Tribe, American Constitutional Law (1978), at
pages 427-455. Admittedly, economic liberty has
more recently enjoyed a mild revival in Fourteenth
Amendment cases. But it must be kept in mind
that the historical background and social and eco
nomic context of the Fourteenth Amendment are
distinctly American. Further it must be noted that
in the Fourteenth Amendment "liberty" is com
bined with "property" which gives a different
colouration to the former through the introduction
of economic values as well as personal values. This
is not the case in section 7 of the Canadian
Charter of Rights and Freedoms.
In so construing "liberty" and "security of the
person" I adopt the view expressed by Pratte J. in
R. v. Operation Dismantle Inc., [1983] 1 F.C. 745
(C.A.), at page 752 to the effect that these terms
refer to freedom from arbitrary arrest or deten
tion, which views I also similarly adopted in my
decision in Le groupe des éleveurs de volailles de
l'est de l'Ontario v. Canadian Chicken Marketing
Agency, [1985] 1 F.C. 280; (1984), 14 D.L.R.
(4th) 151 (T.D.), at page 323 F.C.; 181 D.L.R.
See also, to the same effect, Public Service
Alliance of Canada v. The Queen, [ 1984] 2 F.C.
562; 11 D.L.R. (4th) 337 (T.D.) (affirmed [1984]
2 F.C. 889; 11 D.L.R. (4th) 387 (C.A.), without
reference to this point); Re Becker and The Queen
in right of Alberta (1983), 148 D.L.R. (3d) 539
(Alta. C.A.), at pages 544-545.
With respect to the contention that property
rights are implicitly protected by section 7, this
possibility is equally precluded by my characteri
zation of the words "life, liberty and security of
the person". While there may be some situations in
which section 7 would protect, incidentally, the
property of an individual, I can see no way in
which the patent rights of an inventor or multi
national corporate patentee could be said to be
incidentally involved in the protection of the bodily
integrity of anyone. Further, it is well known that
an amendment specifically to include "property"
in the protection of section 7 was withdrawn
during the consideration of the Charter by the
Joint Parliamentary Committee on the Constitu
tion. This indicates that at least in its origins
section 7 was not understood to provide protection
for property.
As I have concluded that no interest protected
by section 7 is relevant to the claim of the plain
tiffs here I need not consider whether there has
been a denial of the principles of fundamental
justice.
Subsection 15(1) of the Canadian Charter of
Rights and Freedoms—Subsection 15(1) provides
as follows:
15. (1) Every individual is equal before and under the law
and has the right to the equal protection and equal benefit of
the law without discrimination and, in particular, without
discrimination based on race, national or ethnic origin, colour,
religion, sex, age or mental or physical disability.
For the same reasons as noted above in connec
tion with paragraph 1(a) of the Canadian Bill of
Rights, the corporate plaintiffs are not potentially
within the protection of section 15 because it
applies only to "every individual". For reasons also
noted before, however, I believe that the individual
plaintiffs, as inventors of Cimetidine, have a suffi
cient interest to invoke section 15 and to challenge
subsection 41(4) of the Patent Act on the basis
that, as applied to them now or in the future, and
as applied to other inventors, it is in conflict with
section 15 of the Charter. I do not accept the
contention by the plaintiffs that by virtue of the
decision of the Supreme Court of Canada in R. v.
Big M Drug Mart Ltd. et al., [ 1985] 1 S.C.R. 295;
58 N.R. 81, at pages 313-314 S.C.R.; 95 N.R. the
corporate plaintiffs have standing to raise the issue
of section 15 in a declaratory action. The Big M
decision is distinguishable because in that case the
corporation was being prosecuted and there could
be no question of its standing, as an accused, to
raise any defence available to it including the
invalidity of the Lord's Day Act [R.S.C. 1970, c.
L-13] under which it was charged. This was so
even if the basis for invalidity was unlawful inter
ference with the freedom of conscience of individu
als. In the present case the remedy being sought is
a declaration and here the corporations which
allege invalidity are plaintiffs which must establish
their standing to seek the remedy in question. The
judicial policy which militates against unlimited
standing to raise constitutional issues is based in
part on concerns as to potential burdens on the
courts of officious litigation by persons having no
real direct grievance, and in part on concerns
about lack of a specific factual context where the
would-be plaintiff is not actually in a position to
complain of a specific denial of his rights. While
the latter concern in a situation such as the present
is not really relevant and might form the basis for
the exercise of discretion by a court in favour of
granting standing to the corporate plaintiffs where
no other possibility existed for judicial review, in
the present case the better view appears to me to
be that the individual plaintiffs should be recog
nized as having standing because only they have
rights that are potentially violated under section
15. As this provides a means for judicial review in
the constitutional sense I need not consider wheth
er I should exercise a discretion in favour of the
corporate plaintiffs in order to insure judicial
review, as was done in Borowski supra.
As I understand it, the plaintiffs complain essen
tially of the violation of their rights to equality
before the law and the equal protection of the law
on the basis that the inventors and patentees of
medical patents are treated less favourably, by
virtue of subsection 41(4), than other inventors
and patentees.
This is, of course, an allegation of discrimination
which is not predicated on any of the forms of
discrimination specifically referred to in subsection
15(1) of the Charter. The defendant took no objec
tion on this basis and I think none can be taken. It
appears that the subsection is broad enough to
cover all forms of discrimination, whether or not it
is based on one of the grounds specifically men
tioned in the subsection such as race, national or
ethnic origin, colour, etc.
Nor was any objection raised by the defendant
to the fact that section 15 of the Charter was not
in effect when this action was commenced. I am
satisfied that the plaintiffs' complaints against
subsection 41(4) are of an ongoing nature because
they relate to compulsory licences respecting
Cimetidine which are of a continuing nature.
Therefore there could be no objection to the
application of section 15 of the Charter so as to
affect any rights arising under compulsory licences
subsequent to April 17, 1985, the date when sec
tion 15 came into effect.
A threshold problem in the application of sub
section 15(1) is to ascertain its relationship to
section 1 of the Charter. Section 1 reads as
follows:
1. The Canadian Charter of Rights and Freedoms guaran
tees the rights and freedoms set out in it subject only to such
reasonable limits prescribed by law as can be demonstrably
justified in a free and democratic society.
If an impugned legislative provision is not found to
contravene the requirements of subsection 15(1),
then the question of the application of section 1
does not arise. If, on the other hand, a legislative
provision is found prima facie to contravene sub
section 15(1), then the government or any one else
attempting to uphold the legislative provision, if it
or he is to invoke section 1, has the onus of
demonstrating that the restriction in question is
reasonable, is clearly prescribed by law and is
"justified in a free and democratic society". Thus,
it can be of critical importance to know whether
the impugned legislation prima facie conflicts with
subsection 15(1). If it does not, that is the end of
the matter. But if it does, and if as in the present
case the defendant seeking to uphold the legisla
tion does not invoke section 1 by way of evidence
or argument, then the legislative provision must be
found invalid. This makes extremely important the
breadth of section 15's prohibitions against any
legislation which draws distinctions among citi
zens.
It appears to me that by its express references to
certain forms of discrimination, namely "race, na
tional or ethnic origin, colour, religion, sex, age or
mental or physical disability", subsection 15(1) is
clearly intended to proscribe any distinctions based
on those grounds. Any such distinctions, if they are
to be defended, must be justified under section 1.
It may be that distinctions based on certain
grounds such as age may be more readily justified
under section 1 but the onus must be on the
defender of such a distinction even then.
With respect to other kinds of distinctions which
may be made by legislation, it appears to me that
no such presumption arises of discrimination and
that it is necessary to analyze such distinctions
more closely to determine whether they can be
regarded as in conflict with subsection 15(1). I do
not think it could have been the intention that
every distinction drawn by legislation between citi
zens or classes of citizens should automatically be
regarded as "discrimination" within subsection
15(1) and thus immediately cause a shift in onus
to a defender of the legislation to justify it under
section 1. It is the business of legislatures to make
distinctions for a myriad of reasons and it is
inconceivable that every one of these should place
on the government, or on any one else relying on
such legislation, the onus of showing that it is
"justified in a free and democratic society". This
would shift to the courts a decisional right and
burden which would be unacceptable both to them
and the legislatures.
One must therefore seek criteria to aid in deter
mining whether a legislative distinction creates an
inequality which is discriminatory, taking "dis-
crimination" to mean the kind of distinction pro
hibited by subsection 15(1). It would not, I think,
be appropriate to rely solely on tests commonly
used with respect to the interpretation of para
graph 1(b) of the Canadian Bill of Rights, having
regard to the more narrow scope of that provision
and the statutory nature of the instrument in
which it was found. I would, however, with respect
adopt the language of McIntyre J. with whom
Dickson J. concurred in MacKay v. The Queen
supra, at page 406 (also quoted supra [at pages
311-312]):
The question which must be resolved in each case is whether
such inequality as may be created by legislation affecting a
special class—here the military—is arbitrary, capricious or
unnecessary, or whether it is rationally based and acceptable as
a necessary variation from the general principle of universal
application of law to meet special conditions and to attain a
necessary and desirable social objective.
I would respectfully observe that in my view there
is no magic in the concept of a "class": it has no
definition, provides no standard, but is merely a
subjective concept. It can therefore not, by itself,
be a basis for determining, when a "class" is
somehow created or divided legislatively, that dis
crimination exists. It appears to me that this was
not the sense in which McIntyre J. made reference
to a "special class" and all I understand him to be
saying is that if a certain number of people in
society are treated differently there should be a
rational basis for distinguishing between them and
the rest of society.
It will be seen that this test is twofold: the ends
must be among those broadly legitimate for a
government, and the means must be rationally
related to the achievement of those ends. The
proper test for legitimacy of ends may, in my view,
be no higher than that the essential purpose of the
legislation must not be to disadvantage any par
ticular person or group of persons, even if it may
have that consequence. In the present case there
was really no dispute that the end sought to be
achieved by the impugned legislation is the reduc
tion in price of a number of medicines thought to
be important to the well-being of the public. I have
already held this to be within the powers of Parlia
ment in terms of the distribution of powers, and I
have no difficulty in finding that it is a legitimate
governmental objective. The question then remains
as to whether the means are rationally related to
the achievement of that objective.
In deciding this issue it is necessary first to
make two observations. Since section 1 of the
Charter is not in issue here, the presumption of
validity of the legislation still applies which means
that the onus is on the plaintiffs to demonstrate
that the means are not appropriate. Further, in
judging that question it is not for the courts to
weigh the evidence finely to ascertain if the means
chosen are perfect or even the best available. The
choice among various possible means is and should
remain a political choice: all the Court should do is
to see whether the means chosen are patently
unsuited or inappropriate for the purpose, and if
not then the choice of the legislature should be
respected.
As I understand the plaintiffs' submissions, they
contend that subsection 41(4) is not a rational
mechanism for achieving the goal of price reduc
tion for important medical substances because it is
over-obtrusive in its effects on patentees, and it is
under-inclusive by its limitation, in effect, to pre
scription drugs.
It is said that subsection 41(4) denies a fair
profit to patentees who incur virtually all the costs
of research and development, not only for success
ful drugs but also for unsuccessful drugs whose
costs must also be borne from the profits of the
successful drugs. It is said that the structure of the
subsection itself, as interpreted, dictates such a
result because it directs the Commissioner, in
fixing the amount of royalty, to have regard only
to "due reward for the research leading to the
invention" which, even if effectively implemented,
would ignore other costs such as that of unsuccess
ful research and of promotion. Unfortunately for
the plaintiffs, they have been unable to provide
clear evidence as to the impact on patentees of
subsection 41(4). As I have noted earlier, they
have demonstrated that research and development
is expensive (at least in absolute terms); that for
an average drug, viewing the international phar
maceutical industry as a whole, costs are probably
(the evidence here being very hypothetical) not
recouped until several years after the drug reaches
the market; and that the existence of compulsory
licensing in Canada reduces the net present value
of a new drug to a Canadian patentee. But all this
proves is that patentees would be better off with
out compulsory licensing. It does not prove that
compulsory licensing is overwhelmingly oppressive
and out of proportion to the public benefits. Those
public benefits appear to be substantial. For exam
ple, as noted above, one study put in as evidence by
the plaintiffs (Exhibit P-102, document 64) con
cluded that in 1975 the average prices of compul-
sory-licensed drugs were 28.6% below what they
would have been without compulsory licensing.
The Eastman Commission, reporting in 1985 con
cluded that in 1983 "the prices of generic drugs
was 51 per cent of the prices of the patent-holding
firms for substitutable brands", and that savings of
some 211 million dollars in the price of compulso-
ry-licensed drugs were achieved that year. So it is
not possible to say that the section has been inef
fective. Nor do I find any criteria for determining
that it has been disproportionately oppressive on
the patentees. It has not been demonstrated, for
example, what portion of the worldwide research
and development costs ought to be borne by
Canadian drug sales, although the evidence did
show that Canadian sales amount to only about
2% of the international market relevant to the
western world; nor was there any precise informa
tion to demonstrate that compulsory licensing was
denying either the multi-national companies nor
their Canadian subsidiaries a reasonable return on
their investment. There was certainly evidence that
sales had been lost and profits had been reduced.
There was even evidence of operating losses in
certain companies. Apart from the fact that I have
no way of knowing whether this is typical, I would
have to know a good deal more as to the cause of
these operating losses than the plaintiffs have been
willing or able to prove. For example, a financial
statement of one Canadian company shows that it
suffered a loss in a recent year although of course
the statement does not demonstrate how that was
related to compulsory licensing of its parent com-
pany's drug. At the same time, an analysis by an
expert witness demonstrated that if this company
in the immediately preceding years had been
paying the international market price for supplies
of this drug rather than a higher price to a related
corporation, its operating profits then would have
been almost three times as much. As there was no
evidence to indicate that the company's source or
cost of the drug was changed in the year of loss in
question, one could readily speculate that the com
pany would still have been in a profitable position
had it decided not to purchase the more expensive
drug from its sister subsidiary. While I am per
suaded that patentees who make the major contri
bution in terms of research and development and
the establishment of the drug in the market ought
to have a reward sufficient to compensate them for
their investment, I have no basis for judging that
that reward, in respect of the Canadian industry, is
grossly inadequate even if less than the industry
might prefer. The evidence indicates that patentees
do enjoy a substantial period of exclusivity (the
best evidence, as noted above being an average of
6.8 years). How does one relate this to the esti
mates of Dr. Joglekar, the expert called by the
plaintiffs, that on a worldwide basis the costs
attributable to a new drug are not recovered by the
average new product until ten years after market
ing begins and that the investment involved does
not pay a better return than would a bond until
some fourteen years after marketing begins?
Apart from the very hypothetical basis of Dr.
Joglekar's estimates, what do they prove as to the
period of exclusivity required in Canada where
drug prices may be relatively higher? Presumably
companies selling patented drugs in Canada,
knowing that they are potentially subject to com
pulsory licensing, may take that fact into account
in fixing the price of their products while they are
in a monopoly position. A number of witnesses on
behalf of the plaintiffs also emphasized the great
advantages conferred on the generic companies by
subsection 41(4) in comparison to the great harm
done to the patentees. Again, no firm evidence was
presented as to the nature of the benefits conferred
on generics other than the fact that with respect to
many licensed drugs the generics had succeeded in
taking over a substantial part of the market. There
was evidence, however, that where two or more
generics hold licences with respect to the same
drug, they tend to be very competitive. The evi
dence also indicated that generics do sell for sub
stantially less than do patentees. While it is recog
nized that this is because they do not have the
same initial costs of research and development and
promotion as do the patentees, it also suggests that
they reflect this fact in lower prices rather than
higher profits.
A particular aspect of the complaint of over-
obtrusiveness is that subsection 41(4), as interpret
ed by the courts, is not constructed in such a way
as to produce results with even the degree of
fairness intended by Parliament. This complaint
has to do with the fact that although the Commis
sioner is, in fixing the royalty, to
... have regard to the desirability of making the medicine
available to the public at the lowest possible price consistent
with giving to the patentee due reward for the research leading
to the invention ....
the royalty fixed since 1969 has always been 4%.
As noted above, while there is a right of appeal
from such decisions the courts have generally
upheld these awards and have in effect approved a
"rule of thumb" of 4%. At first blush, the plain
tiffs' arguments here appear to be compelling. It is
hard to imagine that a rational consideration of
the factors set out in subsection 41(4) would
always lead to the conclusion that the royalty
should be 4%. In reviewing a number of the
appealed decisions, however, it appears that this
Court and the Supreme Court of Canada have
recognized the difficulty, if not the impossibility,
of the Commissioner applying these criteria with
any particularity. Among other things, it emerges
that patentees do not normally provide, nor does
the Commissioner otherwise have, any precise
information as to the cost of the "research leading
to the invention". Indeed it appears to be the
firmly-held belief of the industry that such infor
mation cannot be provided. Further, though we
have seen that according to judicial interpretation
the royalty must be set lower than the market
would dictate under a voluntary licence, there is
normally no evidence as to what the market rate
would be because there is no such market. What
this suggests is that Parliament has assigned to the
Commissioner a task which is almost impossible to
perform literally, and he has been put in the
position of an arbitrator who must bring his own
experience and judgment to bear on fixing a royal-
ty. He has never fettered his discretion to fix, in a
proper case, a royalty at a different rate and it is
always open to this Court on appeal to decide that
he has applied the wrong principle. Having regard
to all these factors, it would be inappropriate for
me in a declaratory action to declare all these
decisions invalid simply because they have all
come to the same conclusion. The amount of the
royalty remains subject to challenge with respect
to each case as it arises. In particular, the plain
tiffs have not demonstrated with respect to the
very licences granted for Cimetidine which are the
subject of this action that, in these particular
circumstances, the 4% royalty was incorrect, irra
tional, oppressive, or otherwise did not demon
strate a rational means to achieving a legitimate
governmental end.
I therefore conclude that the plaintiffs have not
discharged the onus placed on them of establishing
that this law is so oppressive on them and those
similarly placed that it cannot be seen as a means
proportional to a legitimate governmental end.
The plaintiffs have also contended that subsec
tion 41(4) is under-inclusive, in the sense that,
according to them, it only regulates prescription
drugs. In the first place it must be noted that the
subsection is cast broadly enough to cover any
patent for "medicine". If it has only been used to
obtain compulsory licences for prescription drugs,
that is not the intention of the subsection as
framed. Apart from this, however, the plaintiffs
point out that if the purpose of subsection 41(4)
was to make medically-essential or medically-
important materials available to the public at a
lower cost, then the subsection is irrationally lim
ited to medicines. It does not cover devices such as
pacemakers, diagnostic materials, etc. It appears
to me that the definition of its target which Parlia
ment has selected is well within its range of choice.
It is apparent from the material before the Harley
Committee in 1967 and before Parliament in 1969
that the problem which was perceived was that of
high drug prices. One of the principal causes for
high drug prices was found, on the evidence avail
able at that time, to be patent protection for such
drugs. I do not think that the selection of the
broad category of "medicine" as covered in sub
section 41(4) can be seen as capricious. A legisla
ture surely does not have to solve all problems at
the same time and if it sees one subject-matter as
the source of the most serious problem, it may
direct its legislation to that subject. I would also
note that, in a federal state, in considering whether
there were better options which the legislature
might have adopted, it is necessary to keep in mind
the constitutional limitations on that legislature
prescribed by the distribution of powers. It may
also be noted that certain other steps were taken
by the Government of Canada at the same time to
reduce drug prices, such as the reduction of sales
taxes and tariffs on drugs.
I therefore have concluded that there is no basis
upon which I can make the declarations requested.
In so concluding, I must observe that this case
provides a salient example of necessary limitations
on the judicial role in assessing the reasonability,
both as to ends and as to means, of legislation
impugned under section 15 of the Charter. Any
legislation sufficiently important to become the
subject of such litigation is almost certain to have
positive effects for some sectors of society and
negative effects for other sectors. If the imbalance
is so great that the legislation is patently not a
rational device for achieving a legitimate end then
a court may properly intercede. But where compet
ing interests are much closer to being balanced a
court must be cautious indeed in striking down the
choices made by the legislature. In the present
case, the 1969 amendment was preceded by
recommendations in support of some such provi
sion from two Royal Commissions, the Restrictive
Trade Practices Commission, and the unanimous
report of a Parliamentary Committee. Each of
these bodies had far more opportunity to assess the
social and economic implications than have I,
given the exigencies of the law of evidence and the
rules of court. Since the legislation was adopted,
its effects have been reviewed as recently as in the
report of the Eastman Commission submitted in
February of this year. That Commission also
found compulsory licensing to be socially and
economically justified, although recommending
some important changes of detail. While no such
body can, of course, determine whether such legis
lation is constitutionally permissible, I have been
unable to find any constitutional imperative which
in this case would require or permit me to overrule
the judgment of Parliament.
The action is therefore dismissed. The defendant
will be entitled to his costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.