SUPPLY AGREEMENTS BETWEEN TWO

SUPPLY AGREEMENTS BETWEEN TWO PHARMACEUTICAL COMPANIES: LATEST
DEVELOPMENTS
Nathalie Jodoin*
LEGER ROBIC RICHARD, L.L.P.
Lawyers, Patent and Trademark Agents
Centre CDP Capital
1001 Square-Victoria – Bloc E – 8th Floor
Montreal, Quebec, Canada H2Z 2B7
Tel. (514) 987 6242 – Fax (514) 845 7874
www.robic.ca – [email protected]
Last July the Supreme Court of Canada, in Eli Lilly and Co. v. Apotex Inc. and
Apotex Inc. v. Merck Frosst Canada Inc. (1998), 80 C.P.R. (3d) 321 and 368, ruled
that a «supply agreement» between two competing pharmaceutical
companies, Novopharm Ltd. and Apotex Inc., did not constitute in itself a
sublicensing agreement and hence did not invalidate the compulsory licence
held by Novopharm Ltd. This licence stipulated that Novopharm could neither
transfer it to a third party nor grant a sublicence.
The supply agreement in question, which had never actually been implemented,
had been concluded in November 1992 in anticipation of future modifications to
the Patent Act which were to abolish the system of compulsory licences for
patents on medications. The main purpose of the agreement was to provide an
arrangement between Novopharm and Apotex whereby whenever one held a
compulsory licence that the other did not, the licensee would have to procure
the licensed medication and supply it to the other company.
Notably, the supply agreement also provided that the parties intended to share
their rights, that the licensee would use its licence pursuant to the other
company’s instructions and for the latter’s benefit, and that the licensee would
cooperate fully with the unlicensed party in order to permit the latter to make
use of the licence as if it were the licensee.
However, this agreement also stipulated that the licensee would observe all the
conditions of its licence. Hence, although some clauses of this agreement may
have lead one to believe that the parties intended to mutually grant each other
sublicences, Mr. Justice Iacobucci of the Supreme Court concluded that each
clause should be interpreted in relation to the rest of the agreement which
clearly revealed the intention of the parties not to create a sublicence. Further,
© CIPS, 1998.
* Of LEGER ROBIC RICHARD, L.L.P., a multidisciplinary firm of lawyers, and patent and trademark
agents. Published in the Fall 1998 issue (Vol. 2, No. 4) of our Newsletter. Publication 068.016E.
Mr. Justice Iacobucci noted that nowhere in the agreement was it stipulated
that the unlicensed party is «entitled to the independent use of any compulsory
licence» for its own benefit. The unlicensed party has «no right to obtain these
medicines independently « and it is abundantly clear that the licensee «is still the
only party actually entitled to act pursuant to the licence.» Therefore, the judge
wrote that: "The arrangement entered into by Apotex and Novopharm is not a
sublicence. Regardless of the level of control that might be exercised by Apotex
over arranging and facilitating the acquisition of licensed materials for its own
benefit, no actual acquisition is itself possible without the involvement of
Novopharm. The agreement does not grant Apotex the right to do
independently of Novopharm anything which only Novopharm is licensed to do,
nor does it purport or disclose any contractual intent to do so".
However, the court cautions that not all agreements similar to the one in
question will necessarily protect the parties from all allegations of having created
a sublicence. In this particular case, the supply agreement had never actually
been implemented as such by the parties. According to Mr. Justice Iacobucci, it
would not «be impossible to implement the agreement in such a manner as to
create a sublicence.»
For example, if the licensee, in the execution of the agreement, were to allow
the unlicensed party to contract directly with a third party supplier of a
medication under compulsory licence, or if the third party supplier were none
other that the unlicensed company itself, then in all likelihood, the courts would
rule that the implementation of such an agreement effectively created a
sublicence, which would then nullify the compulsory licence held by one of the
co-contractors.
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