A-715-75
Gruppo Lepetit S.p.A. and Ciba-Geigy A.G.
(Appellants)
v.
ICN Canada Limited (Respondent) (Applicant)
Court of Appeal, Jackett C.J., Ryan J. and Kelly
D.J.—Toronto, February 21 and 22, 1977.
Patents — Appeal against granting of licences to respondent
pursuant to s. 41(4) of Patent Act — Whether Commissioner
erred in law in not taking into account false representations of
respondent — Quantum of royalties — Division of royalties —
Calculation of costs — Patent Act, R.S.C. 1970, c. P-4, s.
41(4) — Federal Court Rules 1108 and 1312.
The appellants claim that the Commissioner of Patents erred
in law in failing to see a good reason not to grant licences to the
respondent in respect of patents owned by appellants, said good
reason being false material representations in the applications
for the licences as to the respondent's equipment and facilities.
The appellants claim further that the Commissioner should
have fixed the royalty on a higher basis and that he should have
been guided by an agreement between them in apportioning the
total royalty to them.
Held, the appeal is dismissed. There were no false statements
express or implied, nor any intention to mislead on the part of
the respondent. In any event, material misrepresentations do
not necessarily constitute a "good reason not to grant" a licence
under section 41(4) of the Act. There was no allegation that the
Commissioner's decision was obtained by fraud and, since both
parties were given the opportunity to be heard before he made
his decision, there can be no grounds for setting it aside. Costs
in appeals such as this will be assessed pursuant to the provi
sions of Rules 1108 and 1312.
APPEAL from decision of Commissioner of
Patents.
COUNSEL:
James A. Devenny, Q. C., for appellants.
Ivor M. Hughes for respondent.
SOLICITORS:
Smart & Biggar, Ottawa, for appellants.
MacBeth & Johnson, Toronto, for respond
ent.
The following are the reasons for judgment
delivered orally in English by
JAcxErr C.J.: This is an appeal from a decision
of the Acting Commissioner of Patents, under
section 41(4) of the Patent Act', granting licences
in respect of 9 patents owned by the first appellant
and two patents owned by the second appellant, all
of which patents relate to the production of a
medicine called "Rifampin".
Section 41(4) of the Patent Act reads 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.
While the licences that are the subject of the
appeal flowed from four applications, it is common
ground that the four sets of proceedings are, for all
relevant purposes, in the same terms. 1 shall, there
fore, for the most part, discuss the appeal as if
there were only one set of proceedings.
Four attacks were made by the appellant on the
licences in question, viz:
' R.S.C. 1970, c. P-4.
(a) "the Commissioner erred in law in failing to
see a good reason not to grant the requested
compulsory licences ..., said good reason being
the false material misrepresentations in the four
applications of the Applicant for said licences"; 2
(b) the royalty should have been fixed on a
higher basis,
(c) the Commissioner should have been guided
by an agreement between the appellants as to
the basis for dividing the total royalty between
them, and
(d) an amendment should be made in certain
places in each licence by substituting a reference
to the specific medicine "Rifampin" for a more
general reference to "the products" or "such
products".
As to the last of these attacks, counsel for the
respondent made it clear, by the memorandum
filed on behalf of the respondent in this Court and
by the position taken on behalf of the respondent
during the course of the hearing in this Court, that
"it does not matter" to the respondent if the
amendments sought are made. There is, therefore,
no issue between the parties on this aspect of the
matter for decision by the Court and it would not
appear that there was any necessity to make it the
subject of an appeal to the Court. I am, therefore,
of opinion that, as far as this part of the case is
concerned, the appeal should be dismissed on the
understanding that the respondent will support an
application by the appellants to the Commissioner
to make the amendments in question to the
licences.
As already indicated, the sole ground upon
which the appellants based their contention that
the licences should not have been granted is that
"the Commissioner erred in law in failing to see a
good reason not to grant the . .. licences ..., said
good reason being ... false material misrepre
sentations in the ... applications ... for said
2 See paragraph 30 of the appellants' memorandum in this
Court.
licences". 3
The alleged misrepresentations in the applica
tions made by the respondent to the Commissioner
may, as I understand the appellants' memorandum
and argument in this Court, be summarized as
follows:
(1) the respondent stated that it proposed to
import certain intermediate substances to be
used in the preparation of the "bulk Rifampin"
and to be then processed by the respondent into
final dosage form;
(2) the respondent stated that, as a result of the
relationship that existed between it and certain
other companies, it was "in a position to benefit
from the experience of each of the related sub
sidiary companies and utilize their chemical and
drug facilities ..." and "utilize the employees of
such companies ...";
(3) the respondent stated that its office and
plant occupied some 100,000 square feet and
housed modern and efficient drug manufactur
ing facilities to do the things proposed if the
licence is granted and that "This facility was
previously owned by Hoffman-La Roche Limit
ed"; and
(4) the respondent stated that it proposed to do
the things for which the licences were applied
"himself' and that it did not require to obtain
any additional "buildings" or "facilities" for
that purpose.
By the "Counterstatement" that the appellants
filed with the Commissioner, the appellants sub
mitted that the above statements in the respond
ent's applications were misrepresentations and, in
support of that submission, they filed certain
affidavit material, which affidavit material is the
material upon which the appellants rely for that
contention in this Court.
3 In Part I of the appellants' memorandum there is a state
ment that the Commissioner possibly took the alleged misrepre
sentations into account when he decided to require service of
the applications on the appellants as well as when he decided to
grant the licences. This is not, however, relied on in setting out
the grounds of appeal in Part II of the memorandum and its
relevance to the relief sought by the appellants (i.e., setting
aside the granting of the licences) is not apparent to me.
In effect, the appellants' evidence with reference
to the question of misrepresentation was affidavits
of experts in the relevant field, whereby the
experts testified
(a) that the application does not show that the
respondent had, or intended to obtain, "person-
nel, equipment and facilities" needed to produce
"Rifampin",
(b) that most of the former employees of one of
the related companies referred to in the applica
tion were subsequently employed by a different
company and that there was no special relation
ship between the respondent and such former
employees, and
(c) that the building that formerly belonged to
Hoffman-La Roche Limited to which reference
is made in the application was "an empty build
ing of some 96,000 square feet" when acquired
by the respondent.
The respondent did not, by affidavit or other
wise, contradict such testimony.
In his decision, the Acting Commissioner dealt
with the contention concerning the alleged mis
representations as follows:
The final point to be dealt with here is the contention of the
Patentees that the Applicant's facilities, as detailed in its
applications, are inadequate to enable it to perform some of the
things for which it has requested licences, and that the Appli
cant has not indicated any intention of obtaining the necessary
equipment. The Patentees have characterized this as misrepre
sentation of material facts as to Applicant's facilities and
intentions, which, they submit, should be considered good
reason not to grant any licence, or, at least reason to restrict the
licences to the performance of those things which the Applicant
would be capable of doing with the equipment and facilities
listed in its applications.
I cannot see that a lack of equipment or facilities would, in
itself, be sufficient reason to refuse a licence or restrict its
scope. There is no stipulation in the Patent Act or Rules that
the granting of a licence is conditional upon the Applicant
possessing complete facilities for doing the things for which it
has sought a licence; therefore I do not consider that there has
been any misrepresentation on the Applicant's part.
By its memorandum in this Court, the appel
lants put their contentions that the alleged mis
representations were misrepresentations of fact as
follows:
(a) in relation to the first alleged misrepre
sentation, they say:
Contrary to its statement in each application that it
proposed to use certain intermediates in the preparation of
bulk Rifampin in its pharmaceutically tolerable forms, the
Applicant had no intention to carry out the necessary
processes on these intermediates as it did not have the
equipment to carry out such processes and it had no
intention to obtain any further equipment.
(b) in relation to the second alleged misrepre
sentation, they say:
Contrary to the assertion of the Applicant in each applica
tion that it is in a position to benefit from the experience
of Strong, Cobb, Amer Company of Canada Limited
because of a relationship between the two companies, the
Applicant is in fact only able to benefit from the experi
ence of less than about one-half dozen of the Strong,
Cobb, Amer people who numbered over 100 and no
special relationship exists between the Applicant and the
great majority of former Strong, Cobb, Amer employees,
this great majority now being employed by Custom Phar
maceuticals Limited.
(c) in relation to the third alleged misrepre
sentation, they say:
Contrary to the statement by the Applicant that its facili
ty, which is previously referred to as "modern and effi
cient drug manufacturing facilities", was previously
owned by Hoffman-La Roche Limited, in actual fact the
Applicant merely purchased an empty building with no
drug manufacturing equipment formerly owned by Hoff-
man-La Roche Limited. The Applicant could have had no
other purpose other than that of falsely misleading the
Commissioner of Patents by referring to this building as a
facility rather than simply "building". The Applicant
could have had no other purpose other than to falsely
mislead the Commissioner of Patents by referring to the
fact that its building was previously owned by Hoffman-
La Roche Limited since why else would it refer to the
earlier owner of an empty building purchased by it in the
context of the present compulsory licence applications.
(d) in relation to the fourth alleged misrepre
sentation, they say:
Contrary to the assertion by the Applicant in paragraph 7
of each application that it proposes to do all of the things
specified in Clause 3 of the respective application itself,
including the use of each invention that is a process for
the preparation or production of medicine, the fact is that
the Applicant could have had no such intention since it
did not have and did not intend to acquire any necessary
equipment and facilities to carry out the indicated pro
cesses of the Appellants' patents.
At the conclusion of the argument of counsel for
the appellants on the misrepresentation question
and on the other two outstanding attacks on the
Commissioner's decision to which I have already
referred, we indicated to counsel late yesterday
that, as we saw the matter at that time, it would
not be necessary to hear counsel for the respond
ent. We have given the matter further consider
ation in the meantime and are still of the view that
it is unnecessary to hear counsel for the
respondent.
With reference to the misrepresentation aspect
of the appeal, it should be said at the outset that
counsel for the appellants made it clear that he
was not contending that the respondent had been
guilty of fraud. In addition, I must say that I have
not been persuaded that the respondent made any
false statements, express or implied, in its applica
tions under section 41(4) nor have I been persuad
ed that there was any intention on the part of the
respondent to mislead the Commissioner. 4 This
conclusion would be a sufficient basis for dismiss
ing the appeal on this branch of the matter.
However, I deem it advisable to say that I do
not accept the appellants' submission that a ma
terial misrepresentation in an application under
section 41(4) of the Patent Act is, as a matter of
law, necessarily a "good reason not to grant" the
licence applied for. It may well be that it would be
open to the Commissioner in certain circumstances
to see a particular false statement or statements in
such an application as "good reason" for not
granting a licence. 5 That is a very different thing
from the submission made on this appeal that
every such misrepresentation is, in itself, as a
4 Apparent conflicts between statements in the applications
and the affidavits filed by the appellants are capable of expla
nation by reference to the use of such words as "facilities" in
different senses and a different appreciation of what was
required by the Rules. It must also be borne in mind that there
is a difference between misrepresentation and a mere self-serv
ing painting of a picture, reprehensible as the latter may be in
some circumstances.
5 The Commissioner, for example, might be persuaded by a
completely false application that the applicant was a person
who would use a section 41(4) licence as a means of exploiting
the public rather than as a means to serve the ends contemplat
ed by the legislation. If he did, it would, I should have thought,
be a "good reason" for refusing a grant.
matter of law, such a good reason.
Apart from a judgment obtained by fraud, and
there is no suggestion that the Commissioner's
decision in this matter was obtained by fraud, I
know of no principle upon which a decision of any
tribunal, given after both sides to a controversy
have had a fair opportunity to put forward their
respective sides of the matter, can be set aside
because the person seeking the decision made
incorrect or misleading statements in his pleadings
(or the equivalent thereof) or led evidence contain
ing incorrect or misleading statements. The grant
of the patent under the Patent Act is quite a
different matter because the application therefor is
processed without persons opposed in interest
having an opportunity to be heard. (Compare sec
tion 10 of the Patent Act.) Similarly an ex parte
order is obtained without the person against whom
the order is made having an opportunity to answer
what is said against him. In such cases, there is a
higher than usual duty on the applicant to provide
the tribunal with a full, fair and honest statement
of all relevant facts. 6
What I have said constitutes my reasons for
concluding that the appeal should be dismissed in
so far as the appellants sought to have the licences
granted under section 41(4) set aside.
In so far as the attacks on the quantum and
division of royalty are concerned, the submissions
made on behalf of the appellants did not convince
6 With reference to the Commissioner's decision, at the
outset, that the application was such as to require an answer
from the patentee, which decision was, of course, made before
the patentee had an opportunity to be heard, the only analogy
that occurs to me is with a Court's decision, on the hearing of
an interlocutory application or appeal, to call on the respond
ent. Once the respondent is called on, as I understand it, the
matter must be decided on the merits. The application or
appeal is not dismissed because the applicant or appellant did
not make a full and fair presentation of the matter. There may,
of course, be special cases where, even if the opponent did have
an opportunity to be heard, an order will subsequently be
revoked for lack of full disclosure. Compare Ontario Mining v.
Seybald [1903] A.C. 73, at p. 84. In my view, the public policy
underlying compulsory licensing of drug patents would tend to
be frustrated by introducing any such implied principle as a
foundation for setting aside such licences.
me that there was any reason for interfering with
the Commissioner's decision.
In my view, therefore, the appeal should be
dismissed.
I should add that I have dealt with the appel
lants' submissions on the misrepresentation ques
tion at some length, not because I thought at any
stage of the matter that there was a fairly arguable
ground for the appeal, but because, having regard
to the history of this class of appeal, it seems to me
to be advisable that the question whether the
appellants' legal submission has any validity
should be clearly established without delay. I, of
course, realize that what seems clear to me may
well turn out to be wrong. What is, in my view,
important, is that the question be decided without
delay.
I make this latter remark because, before the
Court delivers judgment, counsel will have to be
heard on the question of costs, that matter having
been raised by the respondent's memorandum, and
I do not wish to be understood, by reason of the
length of these reasons, as having prejudged the
question as to whether this was a serious appeal.
In connection with costs, consideration will have
to be given to Rule 1312, which reads:
Rule 1312. No costs shall be payable by any party to an
appeal under this Division to another unless the Court, in its
discretion, for special reasons, so orders.
and to Rule 1108, which reads:
Rule 1108. Where, in the opinion of the Court, a proceeding
in the Court is frivolous, unwarranted or otherwise not brought
in good faith, the Court may, by its judgment disposing of the
matter, order the party by whom the proceeding was instituted
or carried on to pay to the Registry an amount in respect of the
work done and expenses incurred by the Registry in connection
with the matter under Rule 1206, Rule 1306 or Rule 1402 or
otherwise, which amount shall be fixed by the judgment.
Upon the above reasons having been read from
the Bench on Tuesday, February 22, and con
curred in by the other members of the Court,
counsel were heard on the form the judgment
should take and the question of costs.
Counsel being agreed that, with reference to the
fourth ground of appeal, it would be more conven
ient, the Court was persuaded to grant a consent
judgment making the consequential amendments
to the licences.
In addition to the question whether costs should
be granted under Rule 1312 and the question
whether an order should be made under Rule
1108, counsel spoke to an application by the
respondent for costs on a solicitor and client basis.
The Court, after considering counsel's submis
sions, decided to allow costs under Rule 1312 (for
the "special" reason, in effect, that there was no
fairly arguable question raised by the appeal) and
fixed them at $2,000.
As a result, the following judgment was
rendered:
By consent, the definition of "medicine" in each licence
granted to the respondent by the Acting Commissioner of
Patents, is amended by replacing "the products" in line 1 of
paragraph 13 of each licence with "rifampin" and replacing
"such products" in lines 3 and 4 of each licence with "rifam-
pin". Subject thereto, the appeal is dismissed with costs on a
party and party basis, which are hereby fixed at $2,000.
In doing so the Court intimated that, in future
appeals under section 41 where there appeared to
be no fairly arguable question raised, the Court
would look with more favour on an application for
costs on a solicitor and client basis and would
consider making an order under Rule 1108 more
seriously.
* * *
RYAN J. concurred.
* * *
KELLY D.J. concurred.
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.