Eli Lilly & Co. et al. v. Novopharm Ltd. et al., (1998) 227 N.R. 201 (SCC)

• Judge: L'Heureux-Dubé, Gonthier, Cory, McLachlin, Iacobucci, Major and Bastarache, JJ.
• Court: Supreme Court of Canada
• Case Date: January 21, 1998
• Jurisdiction: Canada (Federal)
• Citations: (1998), 227 N.R. 201 (SCC);[1998] 2 SCR 129;161 DLR (4th) 1;[1998] ACS no 59;1998 CanLII 791 (SCC);[1998] CarswellNat 1061;80 ACWS (3d) 871;227 NR 201;152 FTR 160;JE 98-1562;[1998] SCJ No 59 (QL);80 CPR (3d) 321

Eli Lilly & Co. v. Novopharm (1998), 227 N.R. 201 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [1998] N.R. TBEd. JL.002

Novopharm Limited (appellant) v. Eli Lilly and Company and Eli Lilly Canada Inc. (respondents) and The Minister of National Health and Welfare (respondent)

(25402)

Apotex Inc. (appellant) v. Eli Lilly and Company and Eli Lilly Canada Inc. (respondents) and The Minister of National Health and Welfare (respondent)

(25348)

Indexed As: Eli Lilly & Co. et al. v. Novopharm Ltd. et al.

Supreme Court of Canada

L'Heureux-Dubé, Gonthier, Cory, McLachlin, Iacobucci, Major and Bastarache, JJ.

July 9, 1998.

Summary:

Eli Lilly held patents for the medicine nizatidine and its manufacturing process. Novopharm obtained a compulsory licence under s. 39(4) of the Patent Act. The licence permitted Novopharm to use the patented process to make nizatidine for the preparation or production of medicine, and to import and/or sell medicine made by the process. Novopharm and Apotex entered into a "supply agreement" whereby each would use its licences for the other's benefit. Under the agreement Apotex could direct Novopharm to manufacture or import specified quantities of nizatidine and sell it to Apotex at cost. Apotex would pay Novopharm a 4% royalty on sales. Novopharm applied for a notice of compliance (NOC) to market nizatidine in Canada relying on its compulsory licence. Eli Lilly applied under the Patented Medicines (Notice of Compliance) Regulations to prohibit the Minister of National Health and Welfare from issuing the NOC.

The Federal Court of Canada, Trial Division, in a decision reported 91 F.T.R. 161, dismissed the application. Eli Lilly appealed.

The Federal Court of Appeal, in a decision reported 197 N.R. 291, allowed the appeal and ordered that the Minister was prohibited from issuing an NOC to Novopharm.

Apotex applied for an NOC to sell capsules of nizatidine in Canada. Apotex's notice of allegation relied on Novopharm's licence and Eli Lilly applied under the Patented Medicines (Notice of Compliance) Regulations to prohibit the Minister from issuing the NOC.

The Federal Court of Canada, Trial Division, in a decision reported 91 F.T.R. 181, allowed the application and prohibited the Minister from issuing an NOC to Apotex until after the expiration of Eli Lilly's patents. Apotex appealed.

The Federal Court of Appeal, Pratte, J.A., dissenting, in a decision reported 195 N.R. 378, dismissed the appeal. Novopharm and Apotex appealed.

The Supreme Court of Canada allowed Novopharm's and Apotex's appeals.

Agency - Topic 323

Creation of relations - Parties - Who constitutes an agent - Novopharm obtained a compulsory licence under Eli Lilly's patents for nizatidine - Novopharm was prohibited from sublicensing - Novopharm and Apotex (an arm's length company) entered into a "supply agreement" whereby each would use its licences for the other's benefit - Under the agreement Apotex could direct Novopharm to manufacture or import specified quantities of nizatidine and sell it to Apotex at cost - Apotex would pay Novopharm a 4% royalty on sales - The agreement required Novopharm to comply with its compulsory licence - Eli Lilly argued, inter alia, that the agreement ought to be treated as an illegal sublicence because, inter alia, Novopharm would be acting as Apotex's agent - The Supreme Court of Canada rejected the argument, because any contract for the supply of nizatidine would be between Novopharm and the third party supplier and would not include Apotex - See paragraphs 80, 81.

Contracts - Topic 7400

Interpretation - General principles - The Supreme Court of Canada stated that "[t]he contractual intent of the parties is to be determined by reference to the words they used in drafting the document, possibly read in light of the surrounding circumstances which were prevalent at the time. Evidence of one party's subjective intention has no independent place in this determination. ... When there is no ambiguity in the wording of the document, the notion in Consolidated-Bathurst [S.C.C.] that the interpretation which produces a 'fair result' or a 'sensible commercial result' should be adopted is not determinative. Admittedly, it would be absurd to adopt an interpretation which is clearly inconsistent with the commercial interests of the parties, if the goal is to ascertain their true contractual intent. However, to interpret a plainly worded document in accordance with the true contractual intent of the parties is not difficult, if it is presumed that the parties intended the legal consequences of their words." - See paragraphs 54, 56.

Contracts - Topic 7401

Interpretation - General principles - Intention of parties - Novopharm obtained a compulsory licence under Eli Lilly's patents for nizatidine - Novopharm and Apotex entered an agreement whereby each would use its licences for the benefit of the other - Eli Lilly raised the issue of the nature of the agreement - The president of Novopharm filed an affidavit concerning his intentions as to the nature of the agreement - Eli Lilly claimed that the affidavit was inadmissible on the basis of the parol evidence rule - The trial judge admitted the affidavit - The Supreme Court of Canada held that the evidence was inadmissible under the parol evidence rule because the agreement was not ambiguous - See paragraphs 54 to 60.

Contracts - Topic 7401

Interpretation - General principles - Intention of parties - [See Contracts - Topic 7400 ].

Contracts - Topic 7404

Interpretation - General principles - Ordinary meaning (golden rule) - [See Contracts - Topic 7400 ].

Contracts - Topic 7416

Interpretation - General principles - Most commercially reasonable interpretation - [See Contracts - Topic 7400 ].

Contracts - Topic 7430

Interpretation - Ambiguity - Admissibility of extrinsic evidence - [see Contracts - Topic 7400 ].

Contracts - Topic 7433

Interpretation - Ambiguity - Contra proferentum rule - The Supreme Court of Canada stated that "[c]ontra proferentem operates to protect one party to a contract from deviously ambiguous or confusing drafting on the part of the other party, by interpreting any ambiguity against the drafting party. When both parties are in agreement as to the proper interpretation of the contract, however, it is not open to a third party to assert that contra proferentem should be applied to interpret the contract against both contracting parties. Indeed, a third party has no basis at all upon which to rely upon contra proferentem" - See paragraph 53.

Evidence - Topic 6204

Parol evidence rule - Evidence offered to explain written agreement - [See first Contracts - Topic 7401 ].

Food and Drug Control - Topic 1105

Drugs - New drugs - Notice of compliance - Intervention on application for - Notice of allegation - Novopharm obtained a compulsory licence under Eli Lilly's patents for nizatidine - The licence prohibited Novopharm from importing any nizatidine until December 31, 1997 (10 years after Eli Lilly's notice of compliance was issued) - However, the licence provided that Novopharm could manufacture nizatidine itself or through a Canadian agent after seven years (ie., December 31, 1994) - On July 30, 1993, Novopharm issued a notice of allegation (NOA) in support of an application for a notice of compliance - The application was heard January 30, 1995 - Eli Lilly argued that Novopharm's NOA was premature - The Supreme Court of Canada, noted that "the appropriate date for assessment of a NOA, where a prohibition order is sought by a patentee, is the date of the hearing and not the date on which the NOA was issued" - The NOA was not premature - See paragraphs 87 to 92.

Food and Drug Control - Topic 1105

Drugs - New drugs - Notice of compliance - Intervention on application for - Novopharm obtained a compulsory licence under Eli Lilly's patents for nizatidine - Novopharm and Apotex entered a supply agreement whereby each would use its licences for the benefit of the other - Novopharm applied for a notice of compliance (NOC) for capsules of nizatidine, relying on its licence as the basis for its alleged non-infringement of Eli Lilly's patents - Eli Lilly applied to prohibit the Minister from issuing the NOC - The trial judge dismissed Eli Lilly's application - The Federal Court of Appeal allowed Eli Lilly's appeal, holding that Novopharm breached the compulsory licence - Novopharm appealed, seeking a declaration that, inter alia, the supply agreement did not constitute a sublicence or a transfer of the compulsory licence - The Supreme Court of Canada held that it would be inappropriate to make a conclusive declaration given the limited nature of the judicial review proceedings - See paragraphs 95 to 97.

Food and Drug Control - Topic 1106

Drugs - New drugs - Notice of compliance - Issuance of - Novopharm obtained a compulsory licence under Eli Lilly's patents for nizatidine - Novopharm and Apotex entered an agreement whereby each would use its licences for the benefit of the other - Novopharm applied for a notice of compliance for capsules of nizatidine, relying on its licence as the basis for its alleged non-infringement of Eli Lilly's patents - Eli Lilly applied to prohibit the Minister from issuing a notice of compliance, submitting that Novopharm's licence had been terminated because it had granted a sublicence to Apotex in breach of the terms of its licence - The trial judge dismissed Eli Lilly's application - The Supreme Court of Canada affirmed the trial judge's decision.

Food and Drug Control - Topic 1106

Drugs - New drugs - Notice of compliance - Issuance of - Novopharm obtained a compulsory licence under Eli Lilly's patents for nizatidine - Novopharm and Apotex entered an agreement whereby each party would use its licences for the benefit of the other unlicensed party - Apotex sought a notice of compliance (NOC) for the reformulation of Nizatidine that it purchased from Novopharm into capsules - Eli Lilly applied to prohibit the issuance of the NOC, claiming that the reformulation would infringe its patents - The Supreme Court of Canada dismissed Eli Lilly's application - The right to reformulate was premised on the inherent right of an owner of property to deal with that property - The reformulation into capsules would not have the effect of creating a new article, but was akin to repackaging and, therefore, did not constitute a patent infringement - See paragraphs 98 to 109.

Patents of Invention - Topic 2926

Infringement of patent - Acts not constituting an infringement - Of particular patents - [See second Food and Drug Control - Topic 1106 ].

Patents of Invention - Topic 2943

Infringement of patent - Chemical products and substances intended for food and medicine - Reformulation - [See second Food and Drug Control - Topic 1106 ].

Patents of Invention - Topic 5629

New substances licences (incl. compulsory licences) - Licences - Transfer or sharing of rights - Sublicensing - Novopharm obtained a compulsory licence under Eli Lilly's patents for nizatidine - Novopharm was prohibited from sublicensing - Novopharm and Apotex (an arm's length company) entered into a "supply agreement" whereby each would use its licences for the other's benefit - Under the agreement Apotex could direct Novopharm to manufacture or import specified quantities of nizatidine and sell it to Apotex at cost - Apotex would pay Novopharm a 4% royalty on sales - The agreement required Novopharm to comply with its compulsory licence - Eli Lilly argued that the agreement was an illegal sublicence - The Supreme Court of Canada held that the agreement was not a sublicence - No licensed rights were transferred by Novopharm to Apotex and Apotex could not acquire nizatidine without Novopharm's involvement - See paragraphs 61 to 84.

Patents of Invention - Topic 5631

New substances licences (incl. compulsory licences) - Licences - Breach of - [See Patents of Invention - Topic 5629 ].

Cases Noticed:

Merck Frosst Canada Inc. et al. v. Canada (Minister of National Health and Welfare) et al., [1998] 227 N.R. 299 (S.C.C.), folld. [para. 1].

Glaxo Wellcome Inc. et al. v. Canada (Minister of National Health and Welfare) and Apotex Inc. (1997), 134 F.T.R. 220; 75 C.P.R.(3d) 129 (T.D.), refd to. [para. 9].

Bull (David) Laboratories (Canada) Inc. v. Pharmacia Inc. et al., [1995] 1 F.C. 588; 176 N.R. 48 (F.C.A.), refd to. [para. 24].

Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888; 32 N.R. 488, refd to. [para. 26].

Merck & Co. et al. v. Apotex Inc. (1994), 88 F.T.R. 260; 59 C.P.R.(3d) 133 (T.D.), refd to. [para. 35].

E.I. du Pont de Nemours & Co. v. Shell Oil Co. (1985), 227 U.S.P.Q. 233 (Del. Sup. Ct.), dist. [para. 39].

Carey v. United States (1964), 326 F.2d 975 (Ct. Cl.), refd to. [para. 39].

Howard and Bullough Ltd. v. Tweedales and Smalley (1895), 12 R.P.C. 519, refd to. [para. 50].

Lampson v. Québec (City) (1920), 54 D.L.R. 344 (P.C.), refd to. [para. 55].

Joy Oil Co. v. R., [1951] S.C.R. 624, refd to. [para. 56].

Indian Molybdenum Ltd. v. R., [1951] 3 D.L.R. 497 (S.C.C.), refd to. [para. 58].

Badische Anilin und Soda Fabrik v. Isler, [1906] 1 Ch. 605, refd to. [para. 69].

Gillette v. Rea (1909), 1 O.W.N. 448 (Ch.), refd to. [para. 69].

Betts v. Willmott (1871), L.R. 6 Ch. 245, refd to. [para. 69].

Intel Corp. v. ULSI System Technology Inc. (1993), 995 F.2d 1566 (Fed. Cir.), refd to. [para. 70].

Cyrix Corp. v. Intel Corp. (1996), 77 F.3d 1381 (Fed. Cir.), refd to. [para. 75].

Merck Frosst Canada Inc. et al. v. Canada (Minister of National Health and Welfare) et al. (1994), 169 N.R. 342; 55 C.P.R.(3d) 302 (F.C.A.), folld. [para. 95].

National Phonograph Co. of Australia Ltd. v. Menck, [1911] A.C. 336 (P.C.), refd to. [para. 100].

Merck & Co. et al. v. Apotex Inc., [1995] 2 F.C. 723; 180 N.R. 373 (F.C.A.), reving. in part (1994), 88 F.T.R. 260; 59 C.P.R.(3d) 133 (T.D.), folld. [para. 103].

Libbey-Owens-Ford Glass Co. v. Ford Motor Co. of Canada Ltd., [1970] S.C.R. 833, affing. [1969] 1 Ex. C.R. 529, refd to. [para. 103].

Rucker Co. v. Gavel's Vulcanizing Ltd. (1985), 7 C.P.R.(3d) 294 (F.C.T.D.), refd to. [para. 108].

Statutes Noticed:

Patent Act, R.S.C. 1985, c. P-4, sect. 39(4)(a), sect. 39(4)(b) [para. 3]; sect. 39.11(1), sect. 39.11(2)(c), sect. 39.14(1) [para. 23].

Patent Act Regulations (Can.), Patented Medicines (Notice of Compliance) Regulations, sect. 5, sect. 6, sect. 7 [para. 23].

Patented Medicines (Notice of Compliance) Regulations - see Patent Act Regulations (Can.).

Authors and Works Noticed:

Fox, Harold G., Canadian Law and Practice relating to Letters Patent for Inventions (4th Ed. 1969), p. 285 [para. 49].

Fridman, G.H.L., The Law of Contract in Canada (3rd Ed. 1994), p. 471 [para. 53].

Melville, Leslie W., Forms and Agreements on Intellectual Property and International Licensing (3rd Ed.) (1997 Looseleaf), vol. 1, § 3.18 [para. 48].

Counsel:

Harry B. Radomsky, Richard Naiberg and David Scrimger, for the appellant, Apotex Inc.;

Donald N. Plumley, Q.C., Mark Mitchell and Stephanie Chong, for the appellant, Novopharm Ltd.;

Anthony G. Creber and David Watson, Q.C., for the respondents, Eli Lilly and Co. and Eli Lilly Canada Inc.

Solicitors of Record:

Goodman, Phillips & Vineberg, Toronto, Ontario, for the appellant, Apotex Inc.;

Ridout & Maybee, Toronto, Ontario, for the appellant, Novopharm Ltd.;

Gowling, Strathy & Henderson, Ottawa, Ontario, for the respondents, Eli Lilly and Co. and Eli Lilly Canada Inc.

This appeal was heard on January 21, 1998, before L'Heureux-Dubé, Gonthier, Cory, McLachlin, Iacobucci, Major and Bastarache, JJ., of the Supreme Court of Canada. The following decision was delivered by Iacobucci, J., in both official languages on July 9, 1998.