COURT OF APPEAL FOR ONTARIO
McMURTRY C.J.O., MORDEN and ROSENBERG JJ.A.
DATE: 20001214
DOCKET: C33172
BETWEEN:
APOTEX INC.
Plaintiff/
Appellant
- and -
HOFFMANN LA-ROCHE LIMITED,
GLAXO WELLCOME INC.,
PHARMACIA & UPJOHN INC. and
ALTIMED PHARMACEUTICAL
COMPANY INC.
Defendants/
Respondents
Ronald G. Slaght, Q.C. and Timothy H. Gilbert, for the appellant
William Vanveen, for the respondent Hoffmann La-Roche Limited
J. Scott Maidment and Robert Wisner, for the respondent AltiMed Pharmaceutical Company Inc.
Martin Sclisizzi, for the respondent Pharmacia & Upjohn Inc.
Robert Kwinter, for the respondent Glaxo Wellcome Inc.
Heard: June 27, 2000
On appeal from the order of Justice John R. Jennings dated October 22, 1999
ROSENBERG J.A.:
[1] This appeal from the order of Jennings J. striking out the plaintiff’s amended statement of claim without leave to amend concerns principally the interpretation of the misleading advertising provision of the Competition Act, R.S.C. 1985, c. C-34. In the amended statement of claim, the plaintiff claims various remedies, including damages, because of violations of various federal and provincial statutes. Its claim is based on a civil remedy created by the Competition Act and on the torts of conspiracy and unlawful interference with economic relations. The issue at the root of these claims is whether the marketing strategy adopted by the defendants infringes any of these statutes and is therefore unlawful. For the reasons that follow, I would allow the appeal in part.
THE FACTS
[2] The allegations in the amended statement of claim may be summarized as follows. The plaintiff company manufactures generic drug products. These generic drug products are therapeutically equivalent, but not identical, to the name-brand drug products that are manufactured by the name-brand defendants Hoffman La-Roche Limited, Glaxo Wellcome Inc., and Pharmacia & Upjohn Inc. Generic drugs are generally sold after the expiry of a patent. The name-brand defendants are holders of patents on drug products in Canada. The defendant AltiMed was a corporation originally incorporated and beneficially owned by the name-brand defendants to sell the name-brand defendants’ drug products as generic products. It was formed as a result of the amalgamation of Kenral Incorporated and Syncare Pharmaceutical Incorporated. The name-brand defendants disposed of their beneficial ownership of AltiMed in March 1999.
[3] The plaintiff’s claim centres on what it refers to as “pseudo-generic drug products”. These products are manufactured on the same production lines and are identical in composition to the name-brand drug products, save for being labelled as originating from AltiMed. They are sold at much lower prices. The plaintiff claims that the name-brand defendants make these drug products available for distribution by AltiMed under agreements that only allow the pseudo-generic product to be sold immediately before a competing generic product is about to enter the market, thereby capturing critical market share and harming competition.
[4] The plaintiff claims that the name-brand defendants mislead consumers by
(a) Marketing drug products at prices substantially in excess of identical products available in the same pharmacies across Canada; and
(b) Failing to provide physicians, pharmacists and consumers with material information about the source of their products, and thereby permitting misleading representations to be made about their products and pseudo-generic drug products such that consumers pay premiums on name-brand products without receiving any corresponding benefit.
[5] The plaintiff claims that this practice violates various federal and provincial statutes. I will deal with each in turn. In dealing with these questions I have applied the following principles as summarized by Moldaver J. in Abdool v. Anaheim Management Ltd. (1995), 1995 5597 (ON SCDC), 21 O.R. (3d) 453 (Div. Ct.) at 469:
(a) All allegations of fact, unless patently ridiculous or incapable of proof, must be accepted as proved;
(b) The defendant, in order to succeed, must show that it is plain and obvious beyond doubt that the plaintiffs could not succeed;
(c) The novelty of the cause of action will not militate against the plaintiffs; and
(d) The statement of claim must be read as generously as possible, with a view to accommodating any inadequacies in the form of the allegations due to drafting deficiencies.
[6] Section 36(1) of the Competition Act provides a civil right of action for damages caused by conduct contrary to Part VI of the Act. The plaintiff claims that the defendants’ conduct violates ss. 52 and 54 of the Act and that this conduct caused damage to them. Sections 52 and 54 are in Part VI of the Act.
Misleading Advertising, Competition Act, s. 52
[7] The relevant portions of s. 52 of the Competition Act are the following:
- (1) No person shall, for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever, knowingly or recklessly make a representation to the public that is false or misleading in a material respect.
(1.1) For greater certainty, in establishing that subsection (1) was contravened, it is not necessary to prove that any person was deceived or misled.
(1.2) For greater certainty, a reference to the making of a representation, in this section or in section 52.1, 74.01 or 74.02, includes permitting a representation to be made.
(2) For the purposes of this section, a representation that is
(a) expressed on an article offered or displayed for sale or its wrapper or container,
(b) expressed on anything attached to, inserted in or accompanying an article offered or displayed for sale, its wrapper or container, or anything on which the article is mounted for display or sale,
(c) expressed on an in-store or other point-of-purchase display,
(d) made in the course of in-store, door-to-door or telephone selling to a person as ultimate user, or
(e) contained in or on anything that is sold, sent, delivered, transmitted or made available in any other manner to a member of the public,
is deemed to be made to the public by and only by the person who causes the representation to be so expressed, made or contained, subject to subsection (2.1).
(2.1) Where a person referred to in subsection (2) is outside Canada, a representation described in paragraph (2)(a), (b), (c) or (e) is, for the purposes of subsection (1), deemed to be made to the public by the person who imports into Canada the article, thing or display referred to in that paragraph.
(3) Subject to subsection (2), a person who, for the purpose of promoting, directly or indirectly, the supply or use of a product or any business interest, supplies to a wholesaler, retailer or other distributor of a product any material or thing that contains a representation of a nature referred to in subsection (1) is deemed to have made that representation to the public.
(4) In a prosecution for a contravention of this section, the general impression conveyed by a representation as well as its literal meaning shall be taken into account in determining whether or not the representation is false or misleading in a material respect.
[8] The motions judge held that the amended statement of claim did not plead a false or misleading representation within the meaning of this provision. He read the statement of claim as pleading that the law imposed a positive obligation on the defendants to make an “allegation” that the pseudo-generic product was cheaper than but identical to the brand-name product. He also held that there was no allegation that the defendants “knowingly or recklessly” made a false or misleading statement or that they made “any” statement. In the result, he held that no facts were pleaded to engage the provisions of s. 52(1).
[9] In my view, the motions judge erred in so holding. The appellant’s claim does not rest solely on a theory that the respondents were under a positive obligation to disclose that the pseudo-generic product was cheaper than but identical to the more expensive brand-name product. Rather, the core of the claim that the plaintiff says amounts to a violation of s. 52 is the positive representation that the drugs originate with AltiMed, when in fact they originate from the name-brand defendants. There are sufficient facts pleaded to support a finding that this representation is made knowingly. Further, under s. 52(1.2) making a representation includes permitting a representation to be made. The pleading, therefore, alleges that the name-brand defendants are liable because they permitted AltiMed to make the representation that the products originate with it. As well, in determining whether the representation is false, s. 52(4) of the Act directs the court to consider the “general impression” conveyed by the statement. The general impression created by the statement that the drugs originated with AltiMed is that it manufactured them; on the facts pleaded, this is false.
[10] The issues then are, whether the representation about the origin of the pseudo-generic drugs is a representation made “for the purpose of promoting, directly or indirectly, the supply or use of a product” or alternatively “for the purpose of promoting, directly or indirectly, any business interest” and whether the representation is false in a “material respect”. I will deal with each of these issues in turn.
[11] The ordinary meaning of the word “promote” is to move forward or advance, or as was said by Darling Co. Ct. J. in R. v. Garibaldi Lifts Ltd. (1977), 1977 1964 (BC SC), 35 C.C.C. (2d) 190 (B.C. Co. Ct.) at 197, “enhancing or increasing the volume of business for the company”. The representation that is said to be false in this claim is not of that character. The theory expressed in the claim is that the statement about the origin of the pseudo-generic drugs discourages consumers from purchasing the pseudo-generics, not that it promotes their use or supply.
[12] If the plaintiff were correct in its application of this aspect of s. 52 to these facts, the effect would be to stigmatize as illegal conduct what most people would not consider unlawful. It would, for example, preclude a manufacturer from marketing food products under different brand names for different prices without disclosing the fact on the label of the lower-cost product that it is identical to the other. It would, in effect, impose an obligation on the manufacturer to label its products in a manner that ensured that the consumer was aware of the very best bargain obtainable. In my view, the allegedly false representation could not reasonably be said to be made for the purpose of promoting the supply of a product within the meaning of s. 52(1).
[13] I take a different view, however, of whether the conduct pleaded amounts to the alternative means of committing the offence, namely, “for the purpose of promoting, directly or indirectly, any business interest”. This court has held that this phrase must be given a very wide meaning and can include any business interest, not necessarily an interest with the persons who might be misled by the representation. Thus, in R. v. Birchcliff Lincoln Mercury Sales Ltd. (1987), 1987 4164 (ON CA), 36 C.C.C. (3d) 1 (Ont. C.A.) the accused was convicted for posting a sign concerning the manner in which it charged for repairs. The company posted the sign to promote its business interests with the vehicle manufacturer, not with the public at large. Goodman J.A. held as follows at p. 7:
It is clear from these remarks that the summary conviction appeal court judge was of the view that the Crown must prove not only that the respondent made a representation to the public at large but that the representation was made for the purpose of promoting the respondent's business interest with the public at large. In my opinion she was wrong in thus interpreting the provisions of s. 36(1)(a) [now s. 52(1)]. The words "any business interest" are not restricted in any such manner by the provisions of s. 36(1) (a).
[14] In my view, the term “any business interest” must be the business interests of the person or persons making the representation. That is what is pleaded in this case. The appellant claims that the brand-name manufacturers falsely represent the origin of the pseudo-generic drugs to promote their business interests, namely to promote the sale of the brand-name drugs. This is exactly what is pleaded in, for example, the following paragraphs of the amended statement of claim:
At a point unknown to the plaintiff, but known to the defendants, the Name Brand Defendants decided to incorporate subsidiary companies to market the Name Brand Defendants’ products under generic labeling.
This allowed the Name Brand Defendants to continue selling name brand products at higher prices to uninformed consumers, while selling the same product at lower prices under generic labeling.
For example, the defendant Upjohn incorporated the subsidiary Kenral as part of a strategy designed to artificially maintain the price of its name brand products coming off patent protection by introducing generic versions of the same products. These two versions are sold at different prices. The name brand prices are significantly higher and any loss in their sales are off-set by returns received from the pseudo-generic version.
[15] In my view, the allegations, which must be taken as true at this stage of the proceedings, can support a finding that the false statement of origin was made to promote a business interest.
[16] It is also necessary to consider whether the representation is false or misleading in a “material” respect. A representation is material for the purposes of s. 52(1) if it is so pertinent, germane or essential that it could affect the decision to purchase. See for example R. v. Kenitex Canada Ltd. et al. (1980), 1980 4577 (ON SC), 51 C.P.R. (2d) 103 (Ont. Co. Ct.) (rev’d in part on other grounds 1981 1949 (ON CA), 59 C.P.R. (2d) 34 (C.A.), sub nom. R. v. Fell. The appellant has pleaded facts that, read generously, support that allegation. In particular, they allege the following:
- The majority of consumers are unaware that pseudo-generics exist and are identical to name brand products, and would choose the lower-priced version of a prescription drug if presented with the informed choice between two identical brands.
[17] Finally, the plaintiff claims that it has lost sales that it would have made throughout Canada if the name-brand defendants, “through the instrumentality of AltiMed were not able to sell identical products at two price points”. It thus claims it has suffered loss or damage giving it the right to sue under s. 36 of the Act.
[18] Although I have some doubt that Parliament intended to prohibit the type of conduct alleged in this case, and appreciate that the causal connection between the false representation and loss or damage to the plaintiff is weak, I cannot say that it is plain and obvious that the plaintiff’s claim will fail given the broad wording of s. 52, and the strict test to be applied in striking out a claim. Accordingly, in my view, the motions judge erred in striking out the statement of claim as it related to a breach of s. 52 of the Competition Act.
Double ticketing: Competition Act, s. 54
[19] Section 54(1) of the Competition Act creates the offence of double ticketing as follows:
- (1) No person shall supply a product at a price that exceeds the lowest of two or more prices clearly expressed by him or on his behalf, in respect of the product in the quantity in which it is so supplied and at the time at which it is so supplied,
(a) on the product, its wrapper or container;
(b) on anything attached to, inserted in or accompanying the product, its wrapper or container or anything on which the product is mounted for display or sale; or
(c) on an in-store or other point-of-purchase display or advertisement.
[20] The motions judge held that s. 54 had no application on the facts pleaded. I agree. The offence in s. 54 is directed at the practice of selling goods at the higher of two different prices that have been placed on the product or in anything attached to or accompanying the product. There is no allegation in the amended statement of claim that the pseudo-generic drugs supplied to the public had more than one price. That part of the claim was properly struck out.
Unlawful Interference with Economic Relations and Conspiracy
[21] The motions judge held that while allegations of unlawful conduct are made in the amended statement of claim “no factual underpinning is pleaded” to sustain the tort of unlawful interference with economic relations. Similarly, with respect to conspiracy, he held that the pleading is “devoid of facts supporting an allegation of unlawful purpose”. With respect, I do not agree. It is open to the appellant to rely upon breach of s. 52 of the Competition Act as supplying the element of unlawful means for both unlawful interference with economic interests and conspiracy. See Westfair Foods Ltd. v. Lippens Inc. et al. (1989), 1989 5257 (MB CA), 64 D.L.R. (4th) 335 (Man. C.A.) at 338. I have already set out the factual basis for that allegation.
[22] With respect to conspiracy, the motions judge also held that the elements necessary to support the claim as required in Pindoff Record Sales Ltd. v. CBS Music Products Ltd. (1989), 1989 10305 (ON SC), 44 C.P.C. (2d) 308 (Ont. H.C.J.) were not pleaded. He did not identify the elements that were not pleaded. In Pindoff, at p. 313, Montgomery J. adopted the following statement of the requirements of a pleading alleging conspiracy:
Pleading. The statement of claim should describe who the several parties are and their relationship with each other. It should allege the agreement between the defendants to conspire, and state precisely what the purpose or what were the objects of the alleged conspiracy, and it must then proceed to set forth, with clarity and precision, the overt acts which are alleged to have been done by each of the alleged conspirators in furtherance of the conspiracy; and lastly, it must allege the injury and damage occasioned to the plaintiff thereby.
[23] The amended statement of claim contains all of those elements. In my view, the motions judge erred in striking out the claim as it related to conspiracy.
Business Practices Act and Food and Drugs Act
[24] The appellant also seeks to support the torts of conspiracy and unlawful interference with economic relations on the basis of alleged violations of the Business Practices Act, R.S.O. 1990, c. B.18 and s. 9 of the Food and Drugs Act, R.S.C. 1985, c. C-34.
[25] The basis for the former claim turns on the definition of “unfair practices” which includes the following:
For the purposes of this Act, the following shall be deemed to be unfair practices:
A false, misleading or deceptive consumer representation including, but without limiting the generality of the foregoing,
xiii a representation using exaggeration, innuendo or ambiguity as to a material fact or failing to state a material fact if such use or failure deceives or tends to deceive, [Emphasis added.]
[26] The appellant alleges in the statement of claim that the failure to state on the pseudo-generic drugs that they are identical in every way to the more expensive brand-name version constitutes the failure to state a material fact within clause (xiii). However, this Act only applies to deceptive “consumer” representations. “Consumer” is defined in s. 1 of the Act as a natural person “not … acting in the course of carrying on business”. As the respondents point out, this legislation is directed primarily at transactions involving individual consumers. The amended statement of claim makes it clear that the representations by the defendants are not made to consumers but to physicians and pharmacists.
[27] The motions judge held that, “No facts are pleaded to support an allegation that any of the defendants made the required representation. Facts pleaded state the defendants sell to physicians and pharmacists, who do not fall within the definition of consumer.” I agree. That portion of the amended statement of claim referring to the Business Practices Act was properly struck out.
[28] With respect to the Food and Drugs Act, the appellant relies upon s. 9, as follows:
- (1) No person shall label, package, treat, process, sell or advertise any drug in a manner that is false, misleading or deceptive or is likely to create an erroneous impression regarding its character, value, quantity, composition, merit or safety.
[29] The amended statement of claim may fairly be read as alleging a violation of this section by AltiMed in that the pseudo-generic drugs are labeled as having originated with (i.e. manufactured by) AltiMed. The appellant argues that this labeling is misleading since the brand-name defendants manufacture the drugs. The appellant also argues that the labeling creates an erroneous impression as to the character of the drug because there is no disclosure that the AltiMed drugs are identical in all respects to the brand-name drugs.
[30] The motions judge held as follows:
The evil to be prevented [by s. 9] is the purchase of something different than that which was bargained for. No facts were pleaded as to the making of a false or misleading representation, or to suggest the drugs purchased were different from the drugs intended to be purchased.”
[31] In my view, the motions judge is probably correct as to the purpose of s. 9. However, it is not plain and obvious that with regard to AltiMed the allegations in the amended statement of claim do not fall within the very broad wording of s. 9.
DISPOSITION
[32] Accordingly, I would allow the appeal, set aside the order of Jennings J., and, in its place, make an order striking out only those allegations relating to the Business Practices Act and s. 54 of the Competition Act. The appellant has achieved substantial success on this appeal and is entitled to its costs of the appeal and of the motions.
(signed) “M. Rosenberg J.A.”
(signed) “I agree R. McMurtry C.J.O.”
(signed) “I agree J. W. Morden J.A.”
RELEASED: December 14, 2000 “RMc.”