Court File and Parties

COURT FILE NO.: CV-17-00578978 DATE: 20240422

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

GLAXOSMITHKLINE INC., GLAXO GROUP LIMITED and GLAXOSMITHKLINE INTELLECTUAL PROPERTY (NO. 2) LIMITED Plaintiffs – and – PHARMASCIENCE INC. Defendant

Counsel: Randy Sutton, Katarina Wasielewski and Amy Grenon for the Plaintiffs, Cheryl M. Woodin, Ilan Ishai, and Julien Sicco for the Defendant

HEARD: December 14, 2023, and January 9, 2024

Papageorgiou J.

Overview

[1] In the pharmaceutical industry, there is a distinction between sales by manufacturers to wholesalers and distributors, known as ex-factory sales, and sales made by wholesalers and distributors downstream to hospitals, pharmacies, and other retailers, who in turn sell that product to patients, known as downstream sales. This dispute centers around this distinction.

[2] The plaintiffs (collectively, “GSK”) are pharmaceutical companies that conduct research and produce brand medication. Pharmascience Inc. (“Pharmascience”) is a generic manufacturer.

[3] In or around 2009, GSK and Pharmascience had a dispute over a drug developed by GSK to treat genital herpes and shingles. GSK sold this product under the brand name VALTREX and held a patent that claimed valacyclovir hydrochloride, the medicinal ingredient in VALTREX.

[4] Because of this registered patent, generic manufacturers who wished to sell valacyclovir products had to address the patent in accordance with the Patented Medicines (Notice of Compliance) Regulations (PM(NOC) Regulations) in order to receive marketing approval from Health Canada.

[5] In 2006, Pharmascience and Apotex sought approval from Health Canada to market their respective valacyclovir products.

[6] GSK brought a summary application under the PM(NOC) Regulations in respect of its patent and Apotex and Pharmascience’s valacyclovir products. Apotex and Pharmascience could not obtain approval from Health Canada until GSK’s summary application was resolved.

[7] In May 2008, the Federal Court dismissed GSK’s summary application against Pharmascience. GSK subsequently discontinued its summary application against Apotex.

[8] Also in May 2008, each of Pharmascience and Apotex received marketing approval from Health Canada for the sale of their respective valacyclovir products.

[9] Thereafter, they each began marketing their valacyclovir products in Canada.

[10] Then, from 2009 to 2010, the parties brought claims and counterclaims against each other.

[11] Both Apotex and Pharmascience claimed statutory damages pursuant to s. 8 of the PM(NOC) Regulations. Essentially, they claimed damages because their entry into the marketplace was delayed by approximately one year as a result of GSK’s summary proceedings, which were ultimately dismissed.

[12] GSK claimed damages and an accounting of profits against Pharmascience (and associated entities) and Apotex based upon patent infringement.

[13] From 2009 to 2014, the litigation proceeded.

[14] On January 10, 2014, the trial commenced, with the proceedings between GSK and Pharmascience, and GSK and Apotex, to be heard consecutively.

[15] On February 4, 2014, the parties settled their dispute pursuant to a written settlement agreement whereby Pharmascience (and associated entities) and Apotex agreed to stop selling valacyclovir (the “Settlement Agreement”). Although the Settlement Agreement makes a distinction between Pharmascience and its associated entities in some respect, for ease of reference, and because this litigation is only between Pharmascience and GSK, I will only reference Pharmascience.

[16] The Settlement Agreement required Pharmascience and Apotex to withdraw from the “Canadian market” by the defined withdrawal date, which was June 1, 2014 (the “Withdrawal Date”). However, until the Withdrawal Date, Pharmascience and Apotex could continue to make ongoing sales at a rate consistent with the monthly amount they sold the previous year.

[17] At the time of the Settlement Agreement, there were also three other generic manufacturers marketing a valacyclovir product: Cobalt Pharmaceuticals Company (“Cobalt”), Mylan Pharmaceuticals (“Mylan”) and Aura Pharma Inc. (“Aura”). GSK had brought actions against them for patent infringement.

[18] The Settlement Agreement was contingent on GSK obtaining agreements with them to “withdraw from the “Canadian market” by the Withdrawal Date and not re-enter the “Canadian market” until expiry of the patent. GSK was able to negotiate such agreements and so the condition in the Settlement Agreement was satisfied.

[19] There were also three other generic manufacturers who had received a Notice of Compliance (“NOC”) but were not known to be marketing valacyclovir yet: Teva Canada Inc. (“Teva”), Sandoz Canada Incorporated (“Sandoz”), and Sorres Pharma Inc. (“Sorres”). GSK had not taken any action against them, nor could it, until these generic manufacturers made sales.

[20] The Settlement Agreement provided that if Teva, Sandoz or Sorres “entered” the Canadian market and offered a valacyclovir product for sale, Pharmascience and Apotex would pay GSK a stipulated amount (the “Payment Clause”), subject to certain exceptions which related to the timing of when the third-party manufacturer “entered” the Canadian market and how long it “stayed” (the “Exceptions”).

[21] Following execution of the Settlement Agreement, but prior to the Withdrawal date, GSK learned that Teva had entered the Canadian market by making ex-factory sales of its valacyclovir product to wholesalers and distributors. GSK commenced an action against Teva on May 8, 2014, and entered into a settlement agreement with respect to that action on May 26, 2014 (the “Teva Settlement Agreement”).

[22] It is undisputed that Teva’s ex-factory sales began before the Withdrawal Date and that its last ex-factory sales were 576 units on the Withdrawal Date, June 1, 2014.

[23] GSK claims that Pharmascience was required to make the stipulated payment pursuant to the Payment Clause because Teva was already in the Canadian Market as of the Withdrawal date. It also argues that the Exceptions to the Payment Clause do not apply because the Teva brand of valacyclovir continued to be sold downstream by wholesalers and distributors after the Withdrawal Date for a period of approximately 13 months.

[24] Pharmascience argues that the Payment Clause has not been triggered and/or that one of the Exceptions in the Payments Clause applies because Teva’s ex-factory sales stopped within the timelines set out in that Exception.

Issues

• Issue 1: Did sales by Teva trigger the Payment Clause?
• Issue 2: Do any of the Exceptions apply?

Decision

[25] For the reasons that follow, I agree with Pharmascience. Although the Payment Clause was triggered, one of the Exceptions applies such that no payment is owed.

[26] Thus, I dismiss GSK’s case.

Analysis

[27] Before addressing the issues, I set out a summary of the procedure, the applicable contractual principles, and the surrounding circumstances.

Procedure

[28] As noted, the parties have agreed to have this matter decided by way of summary judgment and that there is no genuine issue that requires a trial. I agree that it is appropriate that this matter be decided by way of summary judgment because as noted below, contractual interpretation is essentially a search for the objective intention of the parties based upon the words they used.

[29] Although contractual interpretation involves consideration of the surrounding circumstances, there are no significant disputes with respect to the factual matrix.

[30] I am satisfied that I have been able to make the necessary findings of fact, and that proceeding in this manner is a proportionate, more expeditious, and less expensive means of achieving a just result: Hyrniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87.

Principles of Contractual Interpretation

[31] The main principles of contractual interpretation are as follows:

• Contractual interpretation involves a search for the objective intention of the parties based upon the words they used. A court cannot consider evidence of the parties’ subjective intentions: Corner Brook (City) v. Bailey, 2021 SCC 29, [2021] 2 S.C.R. 540 at para 25; Alberta Union of Provincial Employees v. Alberta Health Services, 2020 ABCA 4, at paras. 26-31.
• The court must “read the contract as a whole” in light of its “purpose and commercial context” and give the words “their ordinary grammatical meaning”: Corner Brook at para. 20, citing Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para 47; Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, at para. 64.
• The court must give meaning to all of the agreement’s terms and avoid an interpretation that renders some terms meaningless: Bellwoods Brewery Inc. v. 1896842 Ontario Limited, 2023 ONSC 2845, at para. 13.
• The court should take into account surrounding circumstances known or reasonably known to the parties or which ought reasonably to have been known at the time of the contract: Sattva at paras 56 to 61. [1]
• Where there is ambiguity, a court may have regard to the parties’ subsequent conduct: Montreal Trust Co. of Canada v. Birmingham Lodge Ltd (1995), 24 O.R. (3d) 97 (C.A.), at para. 23; Thunder Bay (City) v. Canadian National Railway Company, 2018 ONCA 517, 424 D.L.R. (4th) 588, at paras. 62-32; London Medical and Dental Building Ltd. v. Middlesex Condominium Corp. No. 83, 2016 ONSC 6141, at paras. 93-95; Newman v. Beta Maritime Ltd, 2018 BCSC 1442, at paras. 31-32; Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912, 404 D.L.R. (4th) 512.

Surrounding circumstances

[32] I begin with some surrounding circumstances which are as follows:

• Pharmascience, Apotex and all other parties referenced by the Settlement Agreement other than GSK, were all generic manufacturers that only made ex-factory sales.
• The parties could control or influence the sale of valacyclovir by generic drug manufacturers (i.e. ex-factory sales), including by GSK (a) commencing an action against the third-party generic manufacturer; and/or (b) negotiating a settlement with the manufacturer requiring their withdrawal from the market.
• The parties could not control downstream sales absent a recall.
• The downstream sale process would consist of the wholesalers and/or distributors selling their product to hospitals and pharmacies, who would then hold the product until selling their inventory through filled prescriptions.
• The parties did not know how long it would take for downstream sales of generic valacyclovir to bleed out of the system.
• The shelf life for valacyclovir is 24 months and so it could be held by hospitals and pharmacies for almost two years [2].
• There is a type of data known as IMS data that tracks sales of generic products from wholesalers to pharmacies. It is used by both Pharmascience and GSK in their day-to-day business and can be relied upon for market share and general trends, but as will be further discussed, there are limitations to its use. It can be unreliable, subject to variation and can be updated retroactively.
• Ex-factory sales of a valacyclovir product can be tracked with accuracy by using the generic manufacturer’s sales records. [3]

[33] I will reference these throughout my decision where relevant.

Issue 1: Did sales by Teva trigger the Payment Clause?

[34] Analysis of this issue is straight-forward. I agree with GSK that sales by Teva triggered the Payments Clause.

[35] Section 12 of the Settlement Agreement provided that if “Teva, Sandoz or Sorres enter[ed] the Canadian market and offer[ed] a valacyclovir product for sale prior to the expiry of the Patent on October 13, 2015, then … [Pharmascience] shall pay to GSK the amounts set out in Schedule ‘A’”.

[36] Section 1a of Schedule “A” sets out the following amount, of which Pharmascience would be liable for 2/3: a. $12,000,000 CA if entry occurs within three months of the Withdrawal Date or if Teva, Sandoz or Sorres are already in the Market at the Withdrawal Date. [4]

[37] I have defined s. 12 and s. 1 of Schedule A collectively to be the Payment Clause.

[38] Pharmascience argues that no payment is required pursuant to the Payment Clause because Teva made no further sales after June 1, 2014.

[39] I disagree.

[40] Section 1a references two periods where a payment would be owed. The first is if entry occurred after the Withdrawal Date, or after June 1, 2014.

[41] The second is where Teva is already in the market as of the Withdrawal Date, June 1, 2014.

[42] The plain meaning of being in the market at the Withdrawal Date clearly includes making sales on June 1, 2014, which Teva did.

[43] Therefore, Pharmascience owes a payment pursuant to the Payment Clause unless one of the Exceptions applies.

Issue 2: Do any of the Exceptions apply?

[44] Analysis of this issue is more complex.

[45] Section 2(a) sets out the following Exception that Pharmascience relies upon: (a) In the event that one or more of Teva, Sorres, or Sandoz either are in the market as of the Withdrawal Date or enter the Canadian market after the Withdrawal Date within the first of the three periods upon which payment is due (i.e. within 3 months of the Withdrawal Date), and stay(s) in the market for no more than a 60 day period, determined by the dates of the first and last sale of its valacyclovir product in the Canadian market, then the payment in paragraph 1 above is not owing;

[46] There are two operative parts of s. 2(a). The first part relates to whether Teva “[is] in”, or “enter[s]” and then “stays(s)” in the Canadian market after the Withdrawal Date for no more than 60 days.

[47] The second operative part of s. 2(a) is the formula by which it is determined whether Teva has done so and involves consideration of the dates of “the first and last sale of its [Teva’s] product in the Canadian market.”

Pharmascience’s Position

[48] Pharmascience focuses on the first operative part.

[49] It says the words “are (in)”, “enter” and “stay” are all verbs that require Teva to act and/or reference Teva’s conduct.

[50] It argues that since Teva only made ex-factory sales, the plain and ordinary meaning of Teva “[being] in”, or “[entering]” and “[staying]” in the Canadian market means by Teva making ex-factory sales.

[51] Thus, as long as Teva did not make ex-factory sales for longer than 60 days after the Withdrawal Date, the Exception in s. 2(a) applies.

GSK’s Position

[52] GSK focuses on the second operative clause. It says that the formula “determined by the dates of the first and last sale of its valacyclovir product in the Canadian market”, does not require any action by Teva.

[53] GSK says that the plain and ordinary meaning of these words is all sales of the Teva brand of valacyclovir, whether they are made ex-factory or downstream and irrespective of who makes the sale.

[54] Thus, it says that for Teva to fall within the Exception set out in section 2(a), all sales of any Teva valacyclovir must have stopped within 60 days of June 1, 2014, including downstream sales by wholesalers and distributors. Since downstream sales of the Teva brand of valacyclovir continued for thirteen months, the Exception does not apply.

[55] GSK points out that the parties did use the term “ex-factory sales” in s. 15(a) which directed that upon request, Pharmascience would have to provide GSK with details of all of its ex-factory sales beginning January 1, 2013. GSK argues that since the parties specifically used these words in s. 15(a), the phrase “first and last sale of its valacyclovir product in the Canadian market” in s. 2(a), must mean all sales in the distribution chain, including “ex-factory sales” and “downstream sales.” Otherwise, the parties would have used the words “ex-factory sales” in the Exception.

[56] I note here that s. 15(a) was the precursor to s. 15(b), which limited sales that Pharmascience could make until the Withdrawal Date based upon the average monthly sales Pharmascience made the prior year. As such, s. 15(a) was a mechanism for GSK to obtain information about Pharmascience’s past sales to ensure that Pharmascience was complying with the quantum of valacyclovir that it was permitted to sell up to the Withdrawal Date. While it is certainly relevant that the term “ex-factory sales” was specifically used in this section, given its context, other words and phrases in the Settlement Agreement, and surrounding circumstances in this case, in my view, the use of the word “ex-factory sales” here is not determinative.

[57] To understand what the Payment Clause and Exception objectively mean, it is important to understand the objective purpose of the Settlement Agreement and the Payment Clause and Exception, the way the parties used the various terms in the Settlement Agreement in other parts of the Settlement Agreement, the commercial reality, and the way in which the Settlement Agreement as a whole worked.

[58] I reject GSK’s interpretation because:

• It focuses too narrowly on particular words used in the second operative part of s. 2(a) “determined by the first and last sale of its valacyclovir product in the Canadian market” instead of reading that clause in the context of s. 2(a) as a whole, and the Settlement Agreement as a whole.
• It fails to take into account the way in which the parties used the words and phrases “sale” “of its valacyclovir product” “in the Canadian market” or the way in which the parties used similar words and phrases in other provisions of the Settlement Agreement. In these other provisions, these words and phrases objectively meant ex-factory sales.
• It does not take into account the relevant surrounding circumstances objectively known to the parties.
• It leads to a result which is not commercially reasonable.
• It renders the Exception in the Payment Clause meaningless.
• It is inconsistent with the purpose of the Settlement Agreement the Payment Clause and the Exception.

[59] I add that there is some ambiguity because the words or phrasing “sale” “of its valacyclovir product” “in the Canadian market” used in the Exception, are not defined. These words could mean all sales in the distribution chain regardless of whether they are ex-factory or downstream. These words could mean only ex-factory sales since as will be seen; the parties were principally concerned with ex-factory sales and were only ever involved in ex-factory sales. These words could simply be a reference to the geographic area to which the Settlement Agreement applies.

[60] To the extent that there is any ambiguity, the definition proposed by GSK is also inconsistent with GSK’s own subsequent conduct.

The way the words and phrasing “sale” “of its valacyclovir product” “in the Canadian market” or words and phrases quite similar, are used in the Settlement Agreement.

[61] The words and phrasing “sale” “of its valacyclovir product” “in the Canadian market” found in the Exception, or words and phrasing quite similar, are used in other places in the Settlement Agreement. They must mean the same thing every time.

[62] Section 1 provides: Apotex and [Pharmascience] undertake and covenant to withdraw from the Canadian market by ceasing marketing, offering for sale and selling their valacyclovir hydrochloride products… in or for the Canadian market no later than June 1, 2014…

[63] Notably here, the word “their” in s. 1 is the plural of “its” which is used in the Exception. And so, s. 1 essentially uses almost the exact same language as the Exception which uses the wording “first and last sale of its valacyclovir product in the Canadian market.”

[64] Sections 2 & 3 provide: 2. Apotex undertakes and covenants not to re-enter directly or indirectly the Canadian market after the Withdrawal Date for valacyclovir hydrocholoride nor will it market, offer for sale or sell valacyclovir products in or for the Canadian market prior to the expiry of the Patent on October 13, 2015. 3.…[Pharmascience undertakes and covenants] not to re-enter directly or indirectly the Canadian market after the Withdrawal Date and will not market, offer for sale or sell valacyclovir hydrochloride in or for the Canadian market ..[for one member of the Pharmascience Group until October 2, 2015 and for the rest until the expiry of the patent on October 13, 2015.]

[65] Since the factual matrix of the Settlement Agreement includes the parties’ knowledge that Pharmascience and Apotex only made ex-factory sales, as well as the fact that they could not control downstream sales, or know when downstream sales would bleed out, the prohibition against their making or resuming sales in the Canadian market meant that they could not make or resume ex-factory sales, but that downstream sales of their valacyclovir product would not be prohibited. (As a matter of fact, GSK did not even deny this before me.)

[66] If there is any ambiguity in this respect, the parties’ subsequent conduct makes this plain.

[67] Pharmascience sent GSK an email on April 3, 2014, confirming their understanding that if a Pharmascience customer received an inquiry from a customer, it could advise the customer that Pharmascience would not supply the market after June 1, 2014, but that the customer could sell off its inventory. GSK agreed.

[68] Pharmascience then issued a trade notification on May 2, 2014, as provided for in s. 15(g) and (h) of the Settlement Agreement, stating that it would “no longer be marketing or selling this product effective June 1, 2014” but that its “product [would] continue to be available from wholesalers and distributors.” Pursuant to s. 15(g) this communication had to be mutually acceptable and there is no complaint that it was not.

[69] Although the Court in Shewchuk, at para 46, cautioned that subsequent conduct has potential to undermine contractual certainty in contractual interpretation and override the meaning of a contract’s written language”, none of the concerns expressed in that case arise here. This is not the kind of conduct that could be self-serving as it is GSK’s own subsequent conduct in approving a communication mandated by the Settlement Agreement itself.

[70] Again, these communications demonstrate that when the parties referenced “sales” “in the Canadian market”, of “their” (or “its” in singular) valacyclovir product, they meant ex-factory sales even though they did not expressly provide that definition.

[71] Section 9 addresses the marketing and sale of the generic manufacturers Cobalt, Mylan, and Aura. It provides as follows: This agreement and the obligations of GSK, Apotex and [Pharmascience] are contingent and depend upon GSK, within ten (10) days of the date hereof, obtaining a settlement of the cases with each of Mylan, Cobalt and Auro, which settlements shall include an undertaking to withdraw their valacyclovir hydrocholoride products from the Canadian market on or before the Withdrawal Date and an undertaking to not re-enter the Canadian market until the expiry of the Patent…

[72] Given the parties’ knowledge that Mylan, Cobalt and Auro were generic manufactures who only made ex-factory sales, the settlements with Mylan, Cobalt and Auro, upon which the Settlement Agreement was contingent, objectively meant agreements that they would stop making ex-factory sales in Canada. I note here that “their” (the plural of “its”) meant these generic manufacturers’ valacyclovir product made by them ex-factory and did not include the sale of their valacyclovir brand no matter who made the sale inclusive of downstream sales.

[73] If there is any ambiguity in this regard, GSK’s subsequent conduct makes this plain. It proceeded to negotiate agreements with Cobalt, Mylan, and Aura that required them to stop making “sales” “in the Canadian market” as of the Withdrawal date. [5]

[74] Like the Settlement Agreement, the agreements with Cobalt, Mylan and Aura expressly permitted them to continue making sales to wholesalers and distributors at a normal rate or declining rate up until the Withdrawal Date. These agreements did not require these generic manufacturers to recall any of their product from wholesalers and distributors, who would then be able to sell their valacyclovir product downstream after the Withdrawal Date. These agreements did not prohibit the downstream sales of their generic product.

[75] These agreements repeat the terms “Canadian market” and “sale” throughout, with reference to Cobalt, Mylan, and Aura, who were never making anything but ex-factory sales. [6] These agreements are similar to the Settlement Agreement. GSK concedes that ongoing downstream sales of these generic products were permitted pursuant to GSK’s agreements with Cobalt, Mylan, and Aura.

[76] These agreements are also subsequent conduct by GSK which show that when the parties used the words “sales” “in the Canadian market” they objectively meant ex-factory sales.

[77] Similarly, the Teva Settlement Agreement, which is also GSK’s own subsequent conduct, supports this conclusion.

[78] Section 1 provides:

1. Teva undertakes and covenant to withdraw from the Canadian market no later than June 1, 2014 (the “Withdrawal Date) by ceasing marketing, offering for sale and selling its Teva valacyclovir Products in the Canadian market”)

[79] Again, I point out that this wording is almost exactly the same as the wording in the Payment Clause which references “the first and last sale of its valacyclovir product in the Canadian market.”

[80] Section 2 provides: Teva undertakes and covenants not to re-enter directly or indirectly the Canadian market for valacyclovir hydrocholoride nor will it manufacture, market, offer for sale or sell valacyclovir hydrochloride products in or for the Canadian market prior to the expiry of the Patent on October 13, 2015.

[81] Furthermore, the Teva Settlement Agreement expressly permitted Teva’s valacyclovir product to remain in the distribution chain after the Withdrawal Date, without any restriction, pursuant to s. 10 which provided that Teva would: (e) Undertake to communicate to the public the resolution of this matter and the withdrawal of the Teva-valacyclovir Products as of the Agreement Date, in the following terms: By reason of the recent resolution of the Canadian patent litigation involving GlaxosmithKline Inc. and Teva Canada Limited recognizing the validity of the Canadian patent no. 1,340,083 for valacyclovir hydrochloride, which patent expires on October 13, 2015, Teva will no longer be marketing or selling this product effective June 1, 2014. Product will continue to be available from wholesalers and distributors. [Emphasis added.]

[82] Then, as per the Teva Settlement Agreement, on May 29, 2014, GSK and Teva released a public communication that specifically stated that “Teva will no longer be marketing or selling this [valacyclovir] product effective June 1, 2014. Product will continue to be available from wholesalers and distributors.”

[83] Thus, the way in which the words “sales” of “its” valacyclovir product “in the Canadian market” are used in the Teva Settlement Agreement objectively meant ex-factory sales even though the word ex-factory is not expressly used.

[84] While there is no allegation of bad faith made by Pharmascience, it does argue that GSK cannot advance the argument that it negotiated an agreement with Teva that specifically permitted unrestricted downstream sales of Teva’s valacyclovir, and then argue that this would trigger a payment pursuant to the Payment Clause.

[85] I find this argument persuasive.

Commercial Reasonableness: GSK’s interpretation renders the Exception in s. 2(a) meaningless.

[86] GSK’s proposed interpretation is also not commercially reasonable.

[87] It would mean that the parties agreed to trigger a sizable payment of liquidated damages based upon the conduct of parties that they could not control—wholesalers, pharmacies, and hospitals.

[88] Here, the additional surrounding circumstance of how long it would take for generic product to bleed through the system is also relevant.

[89] GSK’s affiant Ms. Gravelle, its general counsel at the time, gave evidence that she has significant knowledge of how pharmaceutical products are distributed in Canada as well as how such sales are tracked through IMS Data, which provides details on downstream sales. She repeatedly stated in her affidavit that it would take a “few months” for generic product held by wholesalers and pharmacists to bleed out. She stated that if a generic sold a product to a wholesaler, it would take a “few months” for that wholesaler to sell to a pharmacy. Mr. Dutton, on behalf of Pharmascience, also gave evidence that in general it would take a “few months” for a wholesaler to sell a product to a pharmacy. “Few” is by definition more than one and typically means more than two. There are 30 days in a month on average.

[90] Thus, if GSK’s interpretation is correct, the Exception in s. 2(a) would never apply because it would take longer than 60 days for a generic product to go from manufacturer to wholesaler.

[91] Thereafter, the product would still have to be sold by the pharmacy to a customer, and as noted above, the parties understood that it had a 24-month shelf life.

[92] In other words, it would be impossible for the generic manufacturer to “stay” in the market, on GSK’s interpretation of the phrase, for less than 60 days.

[93] Interpreting the Exception in section 2(a) in the manner GSK advocates renders it meaningless taking into account the surrounding circumstances.

[94] It would also mean that if Teva sold just one unit of its product into the market after the Withdrawal Date and then immediately withdrew (by ceasing to make any ex-factory sales), and it took two months or 60 days for that one unit to make its way from the wholesaler to a customer, then that one sale would trigger a $12 million windfall to GSK ($8 million of which would have to be paid by Pharmascience.)

[95] Further, GSK’s interpretation also does not take into account the surrounding circumstance that Teva’s ex-factory sales could be tracked with accuracy using their detailed records, which would then enable an accurate determination of whether the Payment Clause was triggered based upon its first and last ex-factory sale.

[96] Determining when downstream sales are made is not as clear cut. Although IMS data tracks sales of a product from wholesalers to pharmacies, this data can be unreliable, subject to variation and updated retroactively. It provides no specific dates of sales, but only estimated sales per month. This would have made the determination of “the dates of first and last sale of [Teva’s] valacyclovir product in the Canadian market” downstream difficult to determine. The limitations of IMS data are also a surrounding circumstance of which the parties were aware at the time of the Settlement Agreement.

The Objective Purpose of the Settlement Agreement, Payment Clause, and Exception

[97] Thus, I reject GSK’s argument that the objective purpose of the Settlement Agreement was to give GSK a “monopoly” over the sale of valacyclovir or “market exclusivity” from the Withdrawal Date up until its patent expired.

[98] The provisions set out above demonstrate that the Settlement Agreement permitted Pharmascience and Apotex to make ex-factory sales at their regular rates all the way up to the Withdrawal Date, and then did not prohibit downstream sales at any point. The Settlement Agreement was also contingent on GSK making similar agreements with other generic manufacturers that it knew were in the market. As noted, these agreements were made and permitted downstream sales without restriction as did the Teva Settlement Agreement.

[99] Therefore, there was never any guarantee or expectation that the Settlement Agreement would result in GSK having a monopoly or market exclusivity.

[100] Reading the agreement as a whole, the objective purpose of the Settlement Agreement was to provide GSK with the exclusive right to be the only manufacturer selling valacyclovir ex-factory into the Canadian market after the Withdrawal Date without competition from any generic manufacturers.

[101] The objective purpose of the Payment Clause was to provide a stipulated payment to GSK in respect of new generic manufacturers who entered the Canadian market and who would not stop making ex-factory sales within 60 days, thus undermining the objective purpose of the Settlement Agreement which was for GSK to be the only manufacturer selling ex-factory into the Canadian market after the Withdrawal Date.

[102] The Exception in s. 2(a) was designed to eliminate the payment if GSK was able to quickly negotiate an agreement with any new entrant who was in, or who entered and then stayed in the market for less than 60 days because in that instance, the impact on the objective purpose of the Settlement Agreement would be significantly less. The 60-day period is nothing more than a negotiated time period that reflects the allocation of risk that the parties made.

[103] Although the words “first and last sale of its valacyclovir product in the [Canadian] market” are passive and do not involve any action by Teva, they must be interpreted in light of the preceding words in s. 2(a) which reference the generic being in, entering or staying in the market for less than 60 days, something that the generic would only do by making ex-factory sales. These words must also be interpreted in accordance with the purpose of the Settlement Agreement, Payment Clause and Exception, and the way in which the parties used the words and phrasing “sales” of “its” valacyclovir product “in the Canadian market” (or similar phrasing) in other provisions with reference to ex-factory sales only.

[104] In all the circumstances, taking into account the surrounding circumstances and commercial efficacy, the meaning of the formula “first and last sale of its valacyclovir product in the Canadian market” is objectively not the sale of the brand of Teva valacyclovir, no matter who makes the sale. Rather, these words objectively mean a sale of valacyclovir product made by Teva ex-factory.

[105] An objective reasonable bystander would conclude that since Teva did not make ex-factory sales for longer than 60 days after June 1, 2014, the Exception in s. 2(a) of the Payment Clause applies such that no payment is required.

Conclusion

[106] Therefore, Pharmascience’s motion is granted, and the action is dismissed.

[107] I strongly encourage the parties to settle costs. If they cannot then they may make submissions as follows: Pharmascience within 7 days and GSK within 7 days thereafter, such submissions to be no longer than 4 pages.

ADDENDUM

[108] I released this decision on April 22, 2024. There had been a confidentiality Order made by Associate Judge McAfee dated September 3, 2019, which Order was amended to include the third parties, Teva, Mylan, Cobalt, and Aura. Associate Judge McAfee did not give any reasons for the confidentiality order which sealed all aspects of this case.

[109] After I released my decision, I requested submissions on the parties’ position regarding the confidentiality of the Judgement. GSK had sought to redact so much of the decision that it would have been virtually unintelligible. Pharmascience sought to limit the redactions to any aspect of the decision that referenced agreements with Teva, Mylan, Cobalt, and Aura.

[110] In my view, there is no basis for any confidentiality to any aspect of this decision.

[111] Court proceedings are presumptively open to the public—a principle that is a “hallmark of a democratic society” and that ensures that justice is administered in accordance with the rule of law: Sherman Estate v. Donovan, 2021 SCC 25 at paras 37 & 30. The presumption of court openness is strong.

[112] The Court can only impose discretionary limits on court openness—including by imposing redactions—in exceptional circumstances. A person seeking limitations on this principle must establish that: a) Court openness poses a serious risk to an important public interest; b) The order sought is necessary to prevent this serious risk to the identified interest because reasonably alternative measures will not prevent the risk; and c) As a matter of proportionality, the benefits of the order outweigh the negative effects: Sherman Estate at para 38.

[113] To meet the first stage of the Sherman test, a party seeking a publication ban must establish through direct evidence or logical inference that there is a serious risk to an important public interest. Such public interest can include protecting contractual obligations of confidentiality, settlement privilege and commercial interests of public importance: Sherman at para 41.

[114] GSK has failed to meet the evidentiary requirement of establishing a “serious risk” to a public interest for the following reasons:

[115] Although the Settlement Agreement stated that it was confidential, the terms of the Settlement Agreement referenced in this Judgement applied only until the expiry of GSK’s patent on October 13, 2015. The relevant patent has expired and a variety of valacyclovir products from different manufacturers have been available for many years. The details in the Settlement Agreement that the parties sought to protect are no longer commercially sensitive and as such, the standard term in the Settlement Agreement that it be kept confidential cannot meet the high bar of public interest. GSK has failed to establish that public disclosure would cause any harm in these circumstances, let alone harm that poses a “serious risk” to a public interest.

[116] The same can be said of the terms of the provisions of the agreements cited in the Judgment related to Apotex, Teva, Mylan, Cobalt and Auro. Notably, much of what these parties actually agreed to do reflected in the portions of the agreements cited in the decision, by withdrawing their valacyclovir products for a time, was publicly known based upon their conduct and their public statements. It is difficult to comprehend how the provisions of the agreements, that directed this conduct, are somehow harmful to anyone in these circumstances. Indeed, there is a public interest in the public knowing why generic valacyclovir was removed from the marketplace for a time.

[117] I note that Apotex took no position on the confidentiality of this decision and that GSK wrote to Mylan, Cobalt and Auro who provided no substantive responses to GSK’s submissions on this issue.

[118] I agree with Pharmascience that if GSK’s position is correct, virtually every commercial or settlement agreement would give rise to a sealing order regardless of whether the agreement continued to be operative.

[119] There is also no public interest in protecting settlement privilege because the terms of the Settlement Agreement are not covered by settlement privilege, which is concerned with the communications and negotiations undertaken to arrive at a settlement, rather than the agreement arising out of those negotiations: Union Carbide Canada Inc. v. Bombardier, 2014 SCC 35 at paras 31 & 34. As the Supreme Court has held “once the parties have agreed on a settlement, the general interest of promoting settlements requires that they be able to prove the terms of their agreement”—as the reason for disclosure (to prove the terms agreed upon by the parties) furthers the policy of promoting settlements rather than undermines it”: at para 35.

[120] Additionally, the discovery plan between Pharmascience and GSK, dated November 8, 2019, expressly waived settlement privilege over “documents relating to the Parties’ discussions and negotiations that culminated in the Settlement Agreement” for the purpose of the litigation.

[121] Finally, even if GSK could establish any serious risk to a public interest, it would not satisfy the proportionality requirement. That is, it has failed to establish that the benefits of disclosure of the sought redactions outweigh the harmful effects taking into account the centrality of the information to be protected and the degree to which the redactions would affect the public’s right to know the facts of the case and the decision’s intelligibility: Pl v XYZ School, 2022 ONCA 571 at paras 36; Corus Entertainment Inc. v. Canada (Attorney General), 2020 FC 1064 & para 71; Apotex Inc. v. Janssen Inc., 2022 FC 1476; MBH v. CKI, 2023 ABKB 284 at paras 42-44; 7299362 Canada Inc. (Alexa Translations) v. Amazon.com Inc., 2024 FC 695 at para 48.

[122] This dispute involved a contractual dispute resolved primarily by analyzing the words used in agreements. The terms are central to the decision and without these terms, the decision will be completely unintelligible.

Papageorgiou J.

APPENDIX A

Evidence of Negotiations

[123] As part of the materials before me, the parties submitted substantial evidence of their pre-contractual negotiations, including communications between Pharmascience and Apotex about Pharmascience’s exposure in the underlying litigation that resulted in the Settlement Agreement, the fact that it was Pharmascience and Apotex who approached GSK seeking a settlement, options they considered as part of these negotiations, drafts they exchanged, specific provisions they proposed and how they developed, and specific evidence concerning their intentions and how they interpreted the Settlement Agreement. This is a very common practice in many cases involving the interpretation of contracts.

[124] I referred the parties to the case of Goodlife Fitness Centres Inc. v. Rock Developments Inc., 2019 ONCA 58, at para. 15, where the Court of Appeal observed that it has “repeatedly cautioned against looking to negotiations to interpret a contract.” Quoting its decision in Primo Poloniato Grandchildren's Trust (Trustee of) v. Browne, 2012 ONCA 862, 115 O.R. (3d) 287, it affirmed that “[w]hile the scope of the factual matrix is broad, it excludes evidence of negotiations, except perhaps in the most general terms”. In that case, it determined that the application judge’s reference to email exchanges during negotiations to make findings of fact about the meaning of a commercial contract was an error.

[125] I also referred them to cases where courts have admitted some limited evidence of negotiations, where those negotiations set out objective facts of which the parties were aware, or where they demonstrated the objective purpose of the agreement: Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, [2021] 1 S.C.R. 32; Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60, [2019] 4 S.C.R. 394; Corner Brook, at para. 56; and Canada (Attorney General) v. Fontaine, 2017 SCC 47, [2017] 2 S.C.R. 205.

[126] I add that in this case there is an entire agreement clause that precludes the admission of “prior oral or written communication between the Parties.” This further supports the conclusion that the parties’ negotiations and any alleged representations that they may have made to each other about what they intended or what the negotiated terms meant is not admissible. This kind of evidence has the potential to be self-serving after the fact and undermines one of the main goals of contract law, which is certainty.

[127] The parties considered these cases and agreed that the evidence of their negotiations could not be admitted so as to show their subjective intentions, but that there could be evidence of objective facts which were revealed through the negotiations. I have not taken into account any evidence that could be considered evidence of their subjective intentions. But there are some surrounding circumstances that I have gleaned from this evidence and which I reference where relevant.

Released: April 22, 2024

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

GLAXOSMITHKLINE INC., GLAXO GROUP LIMITED and GLAXOSMITHKLINE INTELLECTUAL PROPERTY (NO. 2) LIMITED Plaintiffs – and – PHARMASCIENCE INC. Defendant

REASONS FOR JUDGMENT

Papageorgiou J.

Released: April 22, 2024

[1] In the materials, the parties made extensive reference to precontractual negotiations. I referred them to caselaw set out in Appendix A which precludes evidence of precontractual negotiations for the purpose of establishing the parties’ subjective contractual intentions. I have not taken this evidence into account for the purpose of establishing contractual intention but have taken it into account to the extent that it set out objective facts of which the parties were aware at the time of the Settlement Agreement.

[2] Obviously, they would not be able to hold it for the full 24 months since some of the shelf life would have expired by the time such hospital or pharmacy received it.

[3] I requested that the parties submit a list of surrounding circumstances together with particulars of whether these are admitted or contradicted. I have accepted most of the proposed surrounding circumstances except where I have concluded it had little relevance or where what was proposed as a surrounding circumstance was in effect evidence of the parties’ subjective intentions. For example, GSK’s proposed list contained the following which I have not accepted: i) The Settlement Agreement was intended to provide GSK with the exclusive right to sell valacyclovir into the Canadian market until expiry of the patent; ii) A recall of the product in the Canadian market was not contemplated.

[4] Other subsections provided lesser payments as time went on as follows but these are inapplicable: b. $8,000,000 CA if entry occurs during the fourth, fifth or sixth month following the Withdrawal Date; and c. $4,000,000 CA if entry occurs within the seventh, eighth or ninth month following the Withdrawal Date.

[5] The Withdrawal Date for Cobalt was June 1, 2014. The Withdrawal Date for Mylan was May 16, 2014. The Withdrawal Date for Mylan was May 31, 2014. These different dates are not relevant to the issues before me and there is no evidence as to why different dates were chosen.

[6] For the Cobalt agreement, see ss. 1 & 2. For Mylan see ss. 1, 2 & 3. For Aura see s. 1.