Ontario Superior Court strikes down prohibition of 'private label' generic drugs
February 4, 2011

Summary

On February 3, 2011, the Ontario Superior Court of Justice (Divisional Court) allowed two applications for judicial review brought by the Katz Group Canada Inc. and Shoppers Drug Mart and held that the private label generic prohibitions contained in the regulations under the Ontario Drug Benefit Act (ODBA) and the Drug Interchangeability and Dispensing Fee Act (DIDFA) (the Regulations) were ultra vires and of no force and effect.

The Applicants, Shoppers Drug Mart Inc. and the Katz Group et al., “own or control companies that manufacture generic drugs, or plan to do so.” The Applicants seek to use their own private label generic drugs, rather than purchasing those generic drugs from arm's length third parties, in situations in which substitution of generic drugs for brand name drugs is permitted by law. Private label generics are “identical to the other generic drugs, and identical in formula to the brand-name drug.” However, in Spring 2010, the Government of Ontario adopted Regulations preventing private label generic drug products from being designated as interchangeable or reimbursable under the Ontario Public Drug Programs. The practical effect of the prohibition was that private label generic drug products could “not be sold in either the public or private market in Ontario”.

The Applicants sought judicial review of the private label prohibitions in the Regulations. In reasons delivered by Molloy J., the Court held unanimously that the private label drug ban is: (1) beyond the scope of the regulation-making power in ODBA and DIDFA, as it is prohibitory rather than regulatory; (2) extraneous to the object and purpose of the ODBA and DIDFA; and (3) interferes with the right to trade and commercial freedom, without any specific authority to do so. The Court held that any one of these defects is sufficient to render the Regulations invalid. In combination, Molloy J. held, the defects are “even more overwhelming”.

The Court held that the Regulations were beyond the scope of the regulation-making authority in ODBA and DIDFA. The enabling legislation only authorized the Lieutenant Governor in Council to make regulations to “prescribe conditions to be met” in respect of interchangeability (DIDFA) and benefit status (ODBA). The Court held that the ban on private label drugs in the Regulations exceeded the scope of the enabling legislation, as it imposed an absolute prohibition rather than imposing specific conditions to be met. Given that the legislation did not confer the power to prohibit the supply of generic drugs in the public or private market, the Regulations were ultra vires.

The Court also held that the private label prohibitions in the Regulations are not consistent with the object and purpose of the ODBA and DIDFA, as they do not seek to “control the costs of prescription drugs in Ontario without compromising safety.” Rather Molloy J. held that “private label drug products will be sold to the public and to the government for precisely the same price as other equivalent generic drugs supplied under different labels by other manufacturers.” The Court held that the “controlling the profitability” of corporations that manufacture and sell drugs is “not a legitimate object or purpose of the ODBA or DIDFA.” Hence, the Regulations do not fall within the object and purpose of the enabling statutes and were held to be ultra vires on this basis also.

Finally, the Court held that the prohibitions in the Regulations were a significant interference with commercial freedom and the right to trade, as restricting the profits that can be earned by a corporation in the pharmacy business is beyond the scope of the enabling legislation. The Regulations were invalid on this basis also.

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Link to decision

The decision will be published as Shoppers Drug Mart v. Ontario, 2011 ONSC 615.

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