Judgments

Decision Information

Decision Content

A-407-86
Syntex Pharmaceuticals International Limited (Appellant)
v.
Medichem Inc. (Respondent)
INDEXED AS: SYNTEX PHARMACEUTICALS INTERNATIONAL LTD. V. MEDICHEM INC. (C.A.)
Court of Appeal, Urie, Marceau and MacGuigan JJ.A.—Toronto, November 1, 2 and 3, 1989; Ottawa, January 15, 1990.
Patents — Grant of compulsory licence respecting medicine — Jurisdiction of Commissioner of Patents to entertain application cannot be challenged on ground s. 39(4) and (5) Patent Act and Patent Rules deny patentee fair hearing — Failure to serve patentee with counterstatements in concurrent applications for licences breach of natural justice — Close relationship between corporate entities and failure to discharge licence obligations "good reason" within meaning of Act s. 39(4) to refuse licence — Evidence insufficient to justify royalty awarded.
This was an appeal from the decision of a Project Officer granting a compulsory licence to the respondent, Medichem, in respect of medicines known as "naproxen" and "naproxen sodium" under patents owned by the appellant, Syntex. The respondent also filed concurrent applications for licences for medicine produced by six other patentees. Pursuant to the instructions of the Commissioner of Patents issued in accord ance with the Patent Rules, the respondent's compulsory licence application was served on the appellant. However, none of the concurrent applications nor the patentees' counterstate- ments thereto were served on it.
The. appeal raises the following issues: (1) whether the Project Officer lacked jurisdiction and whether the proceedings were conducted in breach of the rules of natural justice; (2) whether there was "good reason" within the meaning of subsec tion 39(4) of the Act to refuse the licence; (3) whether there was sufficient evidence to justify the royalty of 4/7 of 1% of the net selling price of the medicine.
Held, the appeal should be allowed, the licence set aside and the matter referred back to the Commissioner of Patents.
(1) The submission that the Commissioner of Patents or his designee lacks jurisdiction to entertain compulsory licence applications on the ground that subsections 39(4) and (5) of the Patent Act and the Patent Rules, as written, deny the appellant its right to a fair hearing was without merit. Although factual distinctions existed, they did not affect the binding authority of the decision of this Court in American Home Products Corpo ration v. Commissioner of Patents et al. wherein it was held that neither subsection 41(4) (now subsection 39(4)) nor the rules made under subsection 41(14) (now subsection 39(15)) offend paragraph 2(e) of the Canadian Bill of Rights (right to a fair hearing).
However, there remained the question of whether there was a breach of natural justice given the fact that the Rules, read literally, do not provide for service of the concurrent applica tions or the counterstatements thereto. The failure to serve the counterstatements of the other patentees on the appellant amounted to a breach of natural justice. Fair hearing required that the appellant be made aware of the contentions in the counterstatements and given an opportunity to respond thereto since those contentions may have had some bearing on the royalty awarded to it. Furthermore, the failure to provide the appellant with the counterstatements has deprived it of the knowledge necessary to respond to the issue whether a licence should be granted.
(2) The appellant argued that the respondent was the alter ego of Apotex Inc., the real licence applicant, that the true intent of the respondent in seeking a licence was to protect its alter ego and reduce its royalty payments to absurdly low amounts, and that those facts constituted "good reason" to refuse the licence.
In determining whether the facts provide "good reason" to grant or refuse a licence, the Project Officer must act on proper principles. His finding that arguments based on the conduct of Apotex were irrelevant because it was "a separate, legally distinct company" from the respondent was a misapprehension of the law in view of the circumstances relied upon by the appellant as showing the true purpose for the respondent's incorporation and application for licence. Close relationship between two corporate entities has a bearing on the public interest in fostering competition to provide medicine at the lowest possible price consistent with the patentee's due reward for its invention. The Project Officer erred in ignoring that relationship and the apparently undisputed failure of Apotex to discharge its licence obligations to the appellant and other patentees. Furthermore, the fact of the existence of separate corporate entities is insufficient, per se, to preclude a court from lifting the "corporate veil" where allegations are made that a corporation has been created to conceal facts relevant to the determination of whether to grant a licence.
(3) The following principles are applicable to the determina tion of the amount of royalty: the Commissioner of Patents must have before him evidence from which he can fix the royalty having regard to the requirements of subsection 39(5) of the Act; it is incumbent on the patentee and on the licence applicant to provide the Commissioner with the evidence neces sary to discharge his duty; the applicant should satisfy the Commissioner that there is a reasonable possibility that an additional licence or licences are required and will be used; and, finally, the equal division of a global royalty is not invariably the proper method of exercising the duty imposed on the Commissioner where there is little or no evidence as to the process actually to be used.
Those principles were not met in the case at bar. The respondent supplied insufficient evidence and failed to indicate why it required the other six licences. In addition, the appellant
failed to discharge the burden of adducing the requisite evidence.
That the royalty award may have been inconsistent with the Project Officer's reasons was not a ground for setting aside the licence. The terms of the licence prevail, not the reasons for granting the licence and making the royalty award. The Project Officer did not err in rejecting opinion evidence that the two substances in question were different. Nor did he err in using The Merck Index or the Compendium of Pharmaceutical Specialties 1985 in finding that the substances were the same or substantially the same.
STATUTES AND REGULATIONS JUDICIALLY CONSIDERED
Canadian Bill of Rights, R.S.C., 1985, Appendix III, s. 2(e).
Patent Act, R.S.C., 1985, c. P-4, s. 39(4),(5),(15). Patent Act, R.S.C. 1970, c. P-4, s. 41(4),(5),(14).
Patent Rules, C.R.C., c. 1250, ss. 118, 119, 120, 121,
122.
CASES JUDICIALLY CONSIDERED
FOLLOWED:
American Home Products Corporation v. Commissioner
of Patents et al. (1983), 71 C.P.R. (2d) 9 (F.C.A.).
APPLIED:
Nedco Ltd. v. Clark et al. (1973), 43 D.L.R. (3d) 714; [1973] 6 W.W.R. 425 (Sask. C.A.).
CONSIDERED:
Magnasonic Canada Ltd. v. Anti-dumping Tribunal, [1972] F.C. 1239; (1972), 30 D.L.R. (3d) 118 (C.A.); Re Smith, Kline & French Laboratories Ltd. and Frank W. Horner Ltd. (1983), 6 D.L.R. (4th) 229; 1 C.I.P.R. 183; 52 N.R. 294 (F.C.A.); Rainham Chemical Works v. Belvedere Fish Guano Co., [1921] 2 A.C. 465 (H.L.).
REFERRED TO:
American Home Products Corp. v. ICN Can. Ltd. (No. 1) (1985), 7 C.I.P.R. 174; 5 C.P.R. (3d) 1; 61 N.R. 141 (F.C.A.); Syntex Pharmaceuticals Int. Ltd. v. Pat. Commr. (1986), 8 C.I.P.R. 18; 9 C.P.R. (3d) 249; 3 F.T.R. 60 (F.C.T.D.); affd A-245-86, Urie, Marceau and MacGuigan JJ.A., 15/1/90, not yet reported; Tunstall v. Steigmann, [1962] 2 Q.B. 593 (C.A.); Scherico Ltd. v. P.V.U. Inc. (1989), 24 C.I.P.R. 161 (F.C.A.); American Home Products Corp. v. I.C.N. Canada Ltd. (No. 2) (1988), 18 C.I.P.R. 104; 19 C.P.R. (3d) 257 (F.C.A.); American Home Products Corp. v. Novopharm Ltd. (1988), 18 C.I.P.R. 128; 19 C.P.R. (3d) 279 (F.C.A.); Takeda Chemical Industries Ltd. v. Novopharm Ltd. (1988), 19 C.P.R. (3d) 278 (F.C.A.); Re Application for
Compulsory Licence by Novopharm Ltd. (1988), 18 C.I.P.R. 121; 19 C.P.R. (3d) 274 (F.C.A.); Otsuka Pharmaceutical Co. v. Torcan Chemical Ltd. (1988), 20 C.I.P.R. 138; 20 C.P.R. (3d) 35 (F.C.A.); Re Applica tion for compulsory licence by Apotex Inc. (1987), 17 C.I.P.R. 51; 17 C.P.R. (3d) 449 (F.C.A.).
COUNSEL:
Conor McCourt for appellant.
Malcolm S. Johnston, Q.C. for respondent. Michael F. Ciavaglia for Attorney General of Canada.
SOLICITORS:
McCarthy & McCarthy, Toronto, for appel lant.
Malcolm Johnston & Associates, Toronto, for respondent.
Deputy Attorney General of Canada for Attorney General of Canada.
The following are the reasons for judgment rendered in English by
URIE J.A.: This, the first of two appeals argued consecutively before us, is an appeal from the decision of P. J. Davies, described as a Project Officer, rendered on June 6, 1986 granting a compulsory licence to the respondent, in respect of the medicines known as naproxen and naproxen sodium under nineteen Canadian patents owned by the appellant. The authority of the Project Officer to make the decision appealed was not disputed by either of the parties. The Attorney General of Canada appeared through counsel as an interve- nant who was heard on the appeal.
In its licence application, dated October 15, 1984, the respondent stated, inter alias'
Concurrently, the applicant has filed an application for licence under Patents owned by The Boots Company, P.L.C.; Montedi- son S.p.A.; Prodotti Chimici Sabbatini S.R.L.; Alfa Far- maceutici; The Upjohn Company; and Blaschim S.p.A.
Two of the patentees named—Alfa Far- maceutici and Blaschim S.p.A.—were also named
' Appeal Book, Vol. 4, p. 608.
by the respondent as manufacturers and sources of naproxen and naproxen sodium from whom the licence applicant proposed to obtain its naproxen and naproxen sodium.
Pursuant to the instructions of the Commission er of Patents dated December 3, 1984, issued in accordance with the requirements of paragraph 120(1)(b) of the Patent Rules [C.R.C., c. 1250], the respondent's compulsory licence application was served on the appellant's representative for service on December 12, 1984. None of the other six concurrent applications were so served.
Having been granted a three-month extension of the time prescribed by Rule 121 for so doing (two months after service of the application), the appel lant served its counterstatement, together with four supporting affidavits, on the respondent's rep resentative for service on May 10, 1985. The coun- terstatement, four affidavits and proof of service thereof were duly filed by the appellant on May 13, 1985.
Although permitted by the Patent Rules to do so, the respondent neither served nor filed any reply to the counterstatement nor to any of the supporting affidavits thereto.
On March 10, 1986 the Commissioner advised the appellant that the respondent had requested an interim licence and that the appellant had twenty- one days to make submissions in respect thereto. The appellant took advantage of this opportunity by making its representations in writing on April 3, 1986. In them it reiterated the objections it had raised in its counterstatement. It also placed before the Commissioner a copy of its statement of claim in a royalty recovery suit which it had instituted against Apotex Inc. in respect of com pulsory licence No. 558 and, as well, a copy of this Court's decision in American Home Products Corp. v. ICN Can. Ltd. [No. 1] . 2
On March 24, 1986, the appellant applied to the Trial Division for a writ of prohibition pursuant to section 18 of the Federal Court Act [R.S.C. 1970 (2nd Supp.), c. 10], to prohibit the Commissioner
2 (1985), 7 C.I.P.R. 174 (F.C.A.).
from considering further or deciding any aspect of the respondent's licence application, on the ground that the Commissioner lacked jurisdiction to do so. On April 8, 1986, Teitelbaum J. dismissed that application with reasons [Syntex Pharmaceuticals Int. Ltd. v. Pat. Commr. (1986), 8 C.I.P.R. 18 (F.C.T.D.)]. It is from that order that the second appeal earlier referred to has been brought [appeal dismissed, A-245-86, Urie, Marceau and Mac- Guigan JJ.A., 15/1/90, not yet reported].
The Commissioner apparently having delegated his authority to decide the respondent's application to him, to the Project Officer, Mr. Davies, on June 6, 1986 granted the respondent the licence it sought under No. 754, setting the royalty at the quantum it proposed, namely, 4/7 of 1%. It is from that decision that this appeal was brought.
On the argument of the appeal, counsel for the appellant based the appeal on five grounds which I will deal with seriatim.
I THE PROCEEDINGS WERE CONDUCTED IN BREACH OF THE RULES OF NATURAL JUSTICE AND ARE VOID FOR LACK OF JURISDICTION
The attacks on the impugned decision under this head were based on three contentions which are quite intertwined:
(a) the concurrent six applications made for licences for medicines produced by six other patentees were not served on the appellant, pre sumably because the Patent Rules do not specifically require that they be served;
(b) consequently, the appellant had no opportu nity to intervene in the proceedings in the other six applications and to make submissions in respect of them, notwithstanding that such sub missions might be highly relevant in the deci sions to be made in all seven applications, again, presumably because the Rules do not specifical ly require or permit such an intervention;
(c) the failure to require service of any counter- statement in the companion applications, deprived it of the opportunity to answer or make
submissions with respect to allegations made in the companion counterstatements which might have been against the appellant's interests or
rights.
In the appellant's submission, as stated in para graph 44 of its memorandum of points of
argument,
... it is evident that subsection 41(4) of the Patent Act and its ancillary provisions have been construed or applied so as to deprive the Appellant of its right to a fair hearing in accord ance with the principles of fundamental justice for the determi nation of its rights, contrary to section 2(e) of the Canadian Bill of Rights and, accordingly, the Project Officer erred in not quashing the proceedings.
Instead of quashing the proceedings, it was argued, the Officer in fact relied on submissions made in third party counterstatements to which the appellant had no right of reply, either in respect of the grant of licence or in setting the terms and conditions of the licence.
The argument that subsections 41(4) and (5) [Patent Act, R.S.C. 1970, c. P-4] (now subsections 39(4) and (5)) 3 and the Patent Rules transgress
3 R.S.C., 1985, c. P-4 39....
(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 a licence.
(5) In settling the terms of a licence granted under subsec tion (4) and fixing the amount of royalty or other consideration payable, 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.
paragraph 2(e) 4 of the Canadian Bill of Rights [R.S.C., 1985, Appendix III] and thereby should be declared inoperative was settled, in my view, by this Court in 1983 in the case of American Home Products Corporation v. Commissioner of Patents et al. 5 Admittedly, in that case the argument that the patentee had been deprived of a fair hearing in accordance with the principles of fundamental jus tice, arose because it was argued that the rules of procedure made under subsection 41(14) (now subsection 39(15)) 6 do not guarantee to the paten- tee an oral hearing, an opportunity to cross-exam ine the deponent whose affidavit verifies the application or the right to the last word in answer to what the applicant may say in the reply which he is entitled to make under the Rules. Here, on the other hand, as has been stated, the argument, in essence, is that the Commissioner lacks jurisdic tion by virtue of paragraph 2(e) because the Rules do not permit or require service of either the application or counterstatement in companion licence proceedings on a patentee thereby depriv ing it of the right of reply to any adverse allega tions which might be made against it or to make submissions in respect of matters affecting its rights. I am of the opinion that such factual dis tinctions do not affect the binding authority of the American Home Products case on this Court on the paragraph 2(e) issue.
4 2. Every law of Canada shall, unless it is expressly declared by an Act of the Parliament of Canada that it shall operate notwithstanding the Canadian Bill of Rights, be so construed and applied as not to abrogate, abridge or infringe or to authorize the abrogation, abridgment or infringement of any of the rights or freedoms herein recognized and declared, and in particular, no law of Canada shall be construed or applied so as to
(e) deprive a person of the right to a fair hearing in accord
ance with the principles of fundamental justice for the deter
mination of his rights and obligations;
S (1983), 71 C.P.R. (2d) 9 (F.C.A.).
6 R.S.C., 1985, c. P-4.
39....
(15) The Governor in Council may make rules or regulations
(a) prescribing anything that by this section is to be prescribed;
(b) regulating the procedure to be followed on any applica tion made pursuant to subsection (3) or (4), including, without limiting the generality of the foregoing, the informa tion to be contained in the application and the making of
(Continued on next page)
At pages 10 and 11 of the report, Thurlow C.J. speaking on behalf of the Court had this to say:
It should be noted that an application under s-s. 41(4), is an administrative procedure, one that gives the commissioner au thority to make a decision on a quasi-judicial basis. In this procedure the patentee has a right to a fair hearing but he does not have all the panoply of procedural rights available to a litigant in civil proceedings in a court of justice. The rules provide the patentee with an opportunity to raise in a counter- statement whatever he may wish to put before the commission er as reasons why a licence should not be granted. That, in our view, amounts to a fair hearing. In a proceeding of this kind fairness, in our opinion, does not necessarily require that there be an oral hearing after issues have been settled by pleadings. Nor does it require that there be a right to cross-examination of deponents on their affidavits, or that the patentee be given the last opportunity to reply. We do not think that s-s. 41(4) or the rules made under s-s.41(I 4) transgress s. 2(e) of the Canadian Bill of Rights or deprive the appellant of a fair hearing within the meaning of that Act. [Emphasis added.]
The last sentence of the excerpt is clear, unam biguous and unequivocal. As I see it, it forecloses any successful argument in this Court that the Commissioner of Patents or his designee lacks jurisdiction to entertain compulsory licence applications because subsections 39(4) and (5) of the Patent Act and the Patent Rules, as written, offend paragraph 2(e) of the Canadian Bill of Rights.
That being said, there remains this question: if literal application of the valid Rules deprives the patentee of the protection afforded by the common law rules of natural justice, in that the patentee is unable to meet the submission of parties who may
(Continued from previous page)
representations to, and the adducing of evidence before, the Commissioner with respect to the application;
(c) respecting the form and manner in which an applicant or a patentee may make representations to, and adduce evi dence before, the Commissioner with respect to any applica tion or request referred to in this section;
(d) respecting the manner in which any application, request, notice or other document referred to in this section or in any regulation made under this subsection may or shall be made, served, forwarded or given;
(e) providing for the making of representations to the Com missioner on behalf of the Government of Canada with respect to any application or request referred to in subsection (14); and
(I) generally, for carrying the purposes and provisions of this section into effect.
be adverse in interest to it because the Rules, read literally, do not require service of either the con current applications for licences under the six other patents or the counterstatements thereto, is a remedy available to the patentee and if so what is the nature thereof?
The relevant portions of the applicable Patent Rules are as follows:
118. (I) An application shall be made in duplicate in Form 21 of Schedule I and shall
(a) be made only in respect of one or more patents
(i) that, according to the records of the Office, are in the name of the same patentee, and
(ii) that are for inventions that relate to or that may be used in the preparation or production of the same or substantially the same substance or thing, and
(b) specify, for each patent in respect of which the applica tion is made,
(i) the thing or things referred to in subsection 41(4) [R.S.C., 1985, subs. 39(4)] of the Act that the applicant seeks a licence to do, and
(ii) which of the things, if any, specified pursuant to subparagraph (i) in respect of the patent will be done, in whole or in part, on the applicant's behalf by another person;
119. An application shall be executed by the applicant and shall be supported by affidavit evidence of the material facts alleged in the application.
120. (1) Upon receipt of an application that, in his opinion, complies satisfactorily with sections 118 and 119, the Commis sioner shall examine the application as soon as possible and
(a) if he sees good reasons why the applicant should not be granted any licence, reject the application and notify the applicant, the patentee and the Department of National Health and Welfare of his decision and the reasons therefor; or
(b) in any other case, instruct the applicant to serve a copy of the application on the patentee in the manner prescribed by subsection (2) and to file with the Commissioner proof satisfactory to him of such service.
121. The patentee may, within two months after service of the application on him or within such further period not exceeding three months as the Commissioner may, on applica tion made to him by the patentee within those two months, allow, file with the Commissioner in duplicate
(a) a counter statement in Form 23 of Schedule I, executed by the patentee and supported by affidavit evidence of the material facts alleged in the counter statement, or
(b) a statement, executed by the patentee, that he does not intend to file any counter statement,
and, where a counter statement is filed with the Commissioner pursuant to paragraph (a), the patentee shall
(c) serve on the applicant, within such two months or such further period, a copy of the counter statement and of any affidavit filed with the Commissioner pursuant to that para graph, and
(d) file with the Commissioner evidence satisfactory to the Commissioner of such service.
122. Within one month after a counter statement is served on the applicant or within such further period not exceeding two months as the Commissioner may, on application made to him by the applicant within that month, allow, the applicant may file with the Commissioner in duplicate a statement, executed by the applicant,
(a) in reply to any matter raised in the counter statement and supported by affidavit evidence of the material facts alleged in such statement in reply, or
(b) that he does not intend to make any reply to the counter statement,
and the applicant shall
(c) serve on the patentee, within such month or such further period, a copy of such statement and of any affidavit filed with the Commissioner pursuant to paragraph (a), and
(d) file with the Commissioner evidence satisfactory to the Commissioner of such service.
Counsel for the appellant advanced his natural justice argument in his client's counterstatement. The Project Officer dealt with it in the following fashion:
The Patentee has argued that since the Commissioner of Pat ents did not direct service on the Patentee of the six companion applications referred to above these proceedings before the Commissioner are in breach of the Canadian Charter of Rights and Freedoms [sic] and the rules of natural justice, and the application is a nullity. These arguments were rejected by Teitelbaum J. in Syntex Pharmaceuticals International Lim ited v. The Commissioner of Patents and Medichem Inc. (April 8, 1986 Court Number T-618-86, as yet unreported), I am bound by that decision. A further submission in this regard has been that the Patentee has no right to be heard with respect to these companion applications, I do not agree, all applications for compulsory licence under Section 41(4) of the Act are open for public inspection at the Patent Office and any submissions made in a counterstatement regarding companion applications are considered when making a decision on whether to grant a licence and in setting the terms and conditions of such a licence. [Emphasis added.]
It is the underlined portion of the last sentence to which the appellant takes particular exception. Counsel agrees that the other applications were open to both public and his inspection and that he did, in fact, examine them prior to filing his counterstatement. However, the counterstatements of other patentees were not available either to him or to the public in general. Moreover, from a practical point of view, they could not have been if each patentee waited until close to the expiry of either the two-month limitation date or the extend ed period granted by the Commissioner, to file their respective counterstatements. Any or all could contain comments, submissions or state ments which might affect the Commissioner's decision in this application either on the grant of licence or the quantum of royalty awarded. It was in respect of these, that, in his view, his client was denied the fair hearing which the rules of natural justice require of a tribunal mandated to act in a quasi-judicial manner as is the Commissioner in patent licensing matters.' In his view, the last five lines in the quoted excerpt demonstrated that the Project Officer utilized the applications and the counterstatements of all seven companion applica tions in reaching his decision without allowing his client an opportunity to make submissions in reply. In so doing, he saw a flagrant breach of the rules of natural justice.
Counsel for the intervenant Attorney General of Canada argued forcefully that appellant's counsel had misinterpreted the passage. He submitted that when the Project Officer stated that
... any submissions ... in a counterstatement regarding com panion applications are considered when making a decision ... [Emphasis added.]
he was referring to the appellant's counterstate- ment only and the submissions therein made regarding companion applications. I do not agree. The phrase "a counterstatement" can and, I strongly suspect, does refer to the counterstate-
' American Home Products Corporation v. Commissioner of Patents et al., supra.
ments in each of the seven applications. I find support for this view elsewhere in the decision. At page 5 of the decision, 8 for example, admittedly in a different factual context, the Project Officer stated:
I have considered all seven companion applications together, including all the representations made by all the parties, and I am satisfied ... [Emphasis added.]
Further support of my view is found in the fact, with which I will deal more fully later in my reasons, that in fixing the royalty payable to the appellant, the Project Officer awarded a total royalty of 4% which, he said, was proposed by the licence applicant, divided by the total number of applications, viz., seven, so that each patentee was to receive a royalty of four sevenths of 1%. It is obvious that such a decision could not, on its face, have been reached without considering all seven applications together since each proposed a four sevenths of 1% royalty, no mention having been made in any application of an overall 4% total.
There is no question that the appellant here protested the quantum of the proposed royalty in its counterstatement. It is likely that the other patentees did so too but the reasons for their opposition or their support for the proposal, if such existed, were known only to the Project Officer. In my view, natural justice and a fair hearing required that before the decision had been made the Appellant should, at a minimum, have been made aware of the contentions in the counterstate- ments of patentees in the six companion applica tions since they may have had, it seems reasonable to infer, some bearing on the royalty awarded to the appellant, which it had argued was much too low, and should also have been given an opportu nity to respond thereto. I confine myself to that observation at this point since, as earlier stated, I will be dealing with the quantum of the award more fully in my discussion of the royalty issue raised by the appellant as part of its appeal. That breach alone is sufficient to enable the appellant to succeed on the appeal but other issues raised
8 Appeal Book, Vol. 5, p. 642.
during the appeal should and will be dealt with shortly.
Further, I should say, that while failure to accord natural justice on the royalty issue is the most flagrant of the alleged natural justice viola tions, it is my view that the failure to provide to the appellant the counterstatements filed in the other six applications may well have deprived it of the knowledge necessary to enable it to respond in its counterstatement even to the issue of whether, in the circumstances, there should be a grant of licence or not and conditions and provisions which the Commissioner might be persuaded to be appro priate for inclusion therein.
In reaching these conclusions I am not unmind ful of the difficulties which the time constraints imposed by the rules for filing and serving counter- statements, inflicts on the Commissioner or his designee in ensuring that the parties are assured of a fair hearing within the rules of natural justice. However, I am confident that it is not beyond the ingenuity of the Commissioner, who is the master of the procedures in the matters before him, to devise procedures to enable justice to be done. One of the more obvious methods, of course, would be to require oral hearings more frequently or per haps invariably, in multiple licence applications. Other practices may well have to be adopted to achieve the required fairness in the proceedings. As was said by this Court in another context in Magnasonic Canada Ltd. v. Anti-dumping Tribunal: 9
Parliament has imposed a timetable on the Tribunal and the Tribunal must therefore operate on a timetable which implies a limit on the time that can be afforded to the parties to make out their respective cases. It does not, however, negative the requirement that they be given an opportunity to be heard that
9 [1972] F.C. 1239 (C.A.), at p. 1249.
is necessarily implied by the other provisions of the statute. [Emphasis added.]
To the last sentence might be added the additional phrase, "or by the requirements of natural justice".
I am of the opinion, therefore, that the appellant should succeed on this branch of the appeal.
II THE ALTER EGO SUBMISSION
The appellant in its counterstatement asserted that the respondent was the alter ego of Apotex Inc. ("Apotex") and tendered certain evidence to substantiate its contention, inter alia, that two of the respondents were officers and directors of Apotex; that both entities have the same corporate address; that the respondent intended to use the warehousing and quality control facilities of Apotex; that the bulk medicine to be imported by the respondent pursuant to the licence would be manufactured into tablets by Apotex; that the proposed prices for the medicine in dosage form were to be the same as Apotex' prices, and that the royalty proposed treated Apotex' sales as its sales.
The respondent in its memorandum of points for argument denied the relevance of this evidence although it did not file with the Project Officer any reply to the appellant's counterstatement.
Apotex had been granted compulsory licence No. 558 in June 1982 for the appellant's naproxen patents, including 960,668. The appellant adduced evidence that Apotex had been in breach of the terms of its licence by failing to make sales reports and to pay royalties pursuant to the licence and that it had had to institute an action in the Ontario High Court to endeavour to recover unpaid royal ties. The respondent in its memorandum denied the allegations as characterized although it did acknowledge that there was a dispute as to wheth er any breach of the licence had occurred. It did not reply to the allegations in the counterstate- ment.
The Project Officer dealt with the various sub missions in the following fashion in page 6 of his reasons: 10
The Patentee has contended that the Applicant is unqualified and disentitled to be granted a licence because of the conduct of, to use the Patentee's expression, the alter ego of the Applicant, Apotex Inc. It is apparent from the application that the Applicant is closely related to the company Apotex Inc., however, the evidence adduced by the Patentee clearly shows that the Applicant is a separate, legally distinct company incorporated in Ontario on March 30, 1981. Therefore I con sider any arguments based on the conduct of Apotex Inc. to be irrelevant in my decision as to whether or not a licence should be granted to the Applicant or as to what the terms and royalty provisions should be. [Emphasis added.]
In this Court, the counsel for the appellant argued:
(a) that the respondent is the alter ego of Apotex which is, therefore, the real applicant for licence;
(b) that Apotex historically disregarded its obli gations not only to the appellant as a patentee, but also those it had incurred to other patentees from whom it had obtained licences;
(c) that the true intent and purpose of the respondent in seeking a licence was to protect its alter ego from the consequences of its breaches of licence No. 558 and to reduce its royalty payments to absurdly low amounts; and
(d) that such a consistent practice constitutes "good reason" for refusing the licence in this case within the meaning of that phrase in sub section 39(4) of the Act.
In Re Smith, Kline & French Laboratories Ltd. and Frank W. Horner Ltd.," Mahoney J.A., in this Court, had this to say about subsection 41(4) (now subsection 39(4)):
As to the substantive grounds, s. 41 (4) has been the subject of considerable judicial consideration. In Parke, Davis & Co. v. Fine Chemicals of Canada Ltd. (1959), 17 D.L.R. (2d) 153 at p. 160, 30 C.P.R. 59 at p. 67, [1959] S.C.R. 219 at p. 228, the Supreme Court of Canada, per Martland J., said:
10 Appeal Book, Vol. 5, p. 643.
" (1983), 6 D.L.R. (4th) 229 (F.C.A.), at pp. 231-233.
As to whether he should have seen "good reason to the contrary" regarding the application for this licence, it would seem that this is a matter for the judgment of the Commis sioner of Patents. The wording in question is "the Commis sioner shall, unless he sees good reasons to the contrary, grant to any person applying for the same ..." In this case the Commissioner did not see such good reason. The decision is his to make and it cannot be said, on the evidence, that his decision was manifestly wrong, bearing in mind that one of the main considerations before him is that of the public interest.
After quoting that passage, Thurlow J., as he then was, in Hoffman-LaRoche Ltd. v. Delmar Chemicals Ltd. (1964), 46 D.L.R. (2d) 140 at p. 144, 43 C.P.R. 93 at pp. 98-9, [1965] 1 Ex. C.R. 611 at p. 616, observed:
The authority of the Court to determine whether the judg ment of the Commissioner is "manifestly wrong" in my opinion necessarily involves authority to determine when necessary what sort of reason may or may not be treated as good reason within the meaning of the statute, but as Parlia ment has seen fit to leave the Commissioner's discretion unfettered it would not in my opinion be desirable for this Court on an appeal to lay down principles for its exercise beyond what is necessary for the particular case.
The appeal from Mr. Justice Thurlow's decision was dismissed by the Supreme Court of Canada (50 D.L.R. (2d) 607, 45 C.P.R. 235, [1965] S.C.R. 575), which did not find it necessary to comment on that observation. The Supreme Court of Canada has found the purpose of s. 41(4) to be clear. In Hoffman-LaRoche Ltd. v. Bell-Craig Pharmaceuticals Divi sion of L.D. Craig Ltd. (1966), 56 D.L.R. (2d) 97 at p. 102, 48 C.P.R. 137 at p. 144, [1966] S.C.R. 313 at p. 319, Abbott J. said:
In my view, the purpose of s. 41(3) is clear. Shortly stated it is this. No. absolute monopoly can be obtained in a process for the production of food or medicine. On the contrary, Parliament intended that, in the public interest, there should be competition in the production and marketing of such products produced by a patented process, in order that as the section states, they may be "available to the public at the lowest possible price consistent with giving to the inventor due reward for the research leading to the invention.
What was then s. 41(3) is now s. 41(4). It was amended (by 1968-69, c. 49, s. 1) to provide licences for the purpose of importation as well as preparation or production. That the amendment has no material bearing on the earlier authorities is clear: Eli Lilly & Co. v. S & U Chemicals Ltd. (1976), 67 D.L.R. (3d) 342, 26 C.P.R. (2d) 141, [1977] 1 S.C.R. 536. In summary, as stated by Abbott J., in Hoffman-LaRoche Ltd. v. L.D. Craig Ltd., supra:
... it is well established that the appellant could succeed on its appeal only if it were able to establish that the Commis sioner acted on a wrong principle, or that on the evidence his decision was manifestly wrong.
While the court has authority to determine the sort of reason the commissioner may treat as a good reason for refusing a
licence, it seems clear that such good reason, whether founded in the public interest or not, must relate to the clear purpose of s. 41(4). He cannot be said to have acted on a wrong principle if he rejects as irrelevant a public interest consideration not bearing on the introduction of competition into the making available of the particular medicine to the Canadian public so that it may be available at the lowest possible price consistent with the patentee's due reward for the research that led to its invention.
The Project Officer in this case rejected as irrelevant "any arguments based on the conduct of Apotex Inc." solely on the basis that "the evidence adduced by the Patentee clearly shows that the Applicant is a separate, legally distinct company". In so finding, as I see it, he erred in two ways: first, such a finding infers that the close relation ship of two corporate entities has no bearing on the public interest in fostering competition to make the medicine available at the lowest possible price consistent with the patentee's due reward for the research that led to its invention. That clearly is an error given the admitted close corporate relation ship between the applicant and Apotex and the apparently undisputed fact of the deplorable record of the latter in discharging earlier licence obligations to, among others, the appellant herein. Those facts may have a real bearing on not only on the grant of licence at all but also on the terms imposed upon a licensee in respect of its royalty payments.
To ignore them completely creates an error in principle, as I see it, since they may constitute "good reason" for the rejection of the licence application.
Secondly, the fact of the existence of separate corporate entities is insufficient, per se, to preclude a court from lifting the "corporate veil" where, as here, allegations are made that a corporation has been created to conceal facts relevant to the deter mination which must, in this case be made under the provisions of subsection 39(4) of the Patent Act. Culliton C.J.S. in the Saskatchewan Court of Appeal case of Nedco Ltd. v. Clark et al. 12 put
12 (1973), 43 D.L.R. (3d) 714 (Sask. C.A.).
this view of the law in this fashion [at pages 719-720]:
Notwithstanding that since the judgment of the House of Lords in Salomon v. A. Salomon & Co., Ltd., [1897] A.C. 22, the autonomous and independent existence of the corporate entity has generally been accepted as a fundamental feature of both English and Canadian law, there have been occasions when the Courts have found it both possible and necessary to pierce the corporate veil. The Court has done so when one company is in fact the agent of the other; or, where one company is being used as a cloak for the actions of the other; or, for the just and equitable enforcement of a tax law. The Court has also done so when it has concluded that while the corporations are separate in law, one may be under the control of the other to such an extent that together they constitute one common unit. [Emphasis added.]
Quoting from Tunstall v. Steigmann, [1962] 2 Q.B. 593 (C.A.), Chief Justice Culliton said [at page 721]:
If there has been any departure from a strict observance of the principle of Salomon v. Salomon & Co. Ltd., [ 1897] A.C. 22 it has only been made to deal with special circumstances where a limited company might well be a facade concealing the real facts.
He then went on to find at pages 721 and 722 of the report that:
In a number of Canadian cases involving labour disputes, Courts have looked beyond the corporate veil: see Lescar Construction Co. Ltd. v. Wigman (1969), 7 D.L.R. (3d) 210, [1969] 2 O.R. 846, and Refrigeration Supplies Co. Ltd. v. Ellis et al. (1970), 14 D.L.R. (3d) 682, [1971] 1 O.R. 190. These cases, however, while recognizing the right to pierce the corporate veil, do not establish any broad principle upon which the right to do so is founded. They do, however, make it clear that each case must be decided in the light of its particular facts.
In the present case Nedco Ltd. is a wholly-owned subsidiary of Northern Electric Company Limited. It was organized and incorporated to take over what was formerly a division of Northern Electric Company Limited. As such wholly-owned subsidiary, it is controlled, directed and dominated by Northern Electric Company Limited. Thus, viewing it from a realistic standpoint, rather than its legal form, I am of the opinion that it constitutes an integral component of Northern Electric Com pany Limited in the carrying on of its business. [Emphasis added.]
Lord Buckmaster in the House of Lords put the principle in this way in the oft-quoted case of
Rainham Chemical Works v. Belvedere Fish Guano Co."
A company, therefore, which is duly incorporated, cannot be disregarded on the ground that it is a sham, although it may be established by evidence that in its operations it does not act on its own behalf as an independent trading unit, but simply for and on behalf of the people by whom it has been called into existence.
As will be seen, rather than a piercing of the corporate veil concept, Lord Buckmaster sees that it is something akin to a principal/agency relation ship which must be found.
The foregoing authorities are but a few among many which show that the pronouncement of the Project Officer that arguments based on the con duct of Apotex were irrelevant because it was "a separate, legally distinct company" from the respondent was a misapprehension of the law in the circumstances relied upon by the appellant as showing the true purpose for the respondent's incorporation and application for licence. The determination of whether the facts disclosed did or did not provide "good reason" for not granting the licence was solely his to make but in making that determination he must have acted on proper prin ciples which, for both reasons given, he did not do.
The appellant should, therefore, also succeed on this branch of its appeal.
III PROCESS ROYALTY SUBMISSION
The argument advanced under this head, as I understand it, is that pursuant to clauses 1(a),(b),(c) and (d) of the licence, a royalty of 4/7 of 1% is payable on sales of medicine. "Medicine" is defined in paragraph 14 of the licence as:
NAPROXEN/NAPROXEN SODIUM, when produced by any pro cess or from any intermediate covered by the patent herein mentioned.
Counsel for the appellant argued that the Project Officer's reasons make it abundantly clear that he assumed that the royalty would be paid regardless of whether the respondent used any of the licensed processes of the appellant or not. But
13 [1921] 2 A.C. 465 (H.L.), at p. 475.
the reference to "sales of medicine" in light of the definition of the latter term, demonstrates that the assumption was incorrect. As a result, it was said that the Project Officer misdirected himself in that his royalty award cannot be reconciled with his reasons.
The short answer to this submission is that it is the terms of the licence which must prevail not the reasons for granting the licence and making the royalty award. Assuming, for purposes of this branch of the argument, that the Project Officer was entitled in law to make the royalty award that he did, the fact that such award may be inconsist ent with what he said in his reasons, does not, at least in the circumstances relied upon by the appellant in this case, provide a basis for setting aside the licence. If, on the other hand, what the appellant alleged was that the Project Officer mis apprehended what he was required to decide, it is an allegation which we cannot accept.
The appellant must, therefore, fail on this branch of its appeal.
IV THE MULTIPLE DRUG SUBMISSION
Counsel for the appellant argued that the licence is contrary to Rule 118(1)(a)(ii) of the Patent Rules in that it is directed towards two different substances, viz. NAPROXEN and NAPROX- EN SODIUM
Rule 118(1)(a)(ii) reads as follows:
118. (1) An application shall be made in duplicate in Form
21 of Schedule I and shall
(a) be made only in respect of one or more patents
(ii) that are for inventions that relate to or that may be used in the preparation or production of the same or substantially the same substance or thing, and
In making this submission he relied on the affidavit evidence of Andrew G. Korey, the Associate Director of Scientific Affairs of Syntex Inc. who, in essence stated that since the Health Protection Branch of the Department of National Health and Welfare had held that the two drugs are totally different, having issued separate notices
of compliance for each and having assigned two different drug identification numbers for them, the Project Officer erred in reaching the following conclusion:
... I do not accept the proposition that NAPROXEN and NAPROXEN SODIUM are different substances for the following reasons. Firstly, NAPROXEN is the d-isomer of 2-(6-methoxy-2- naphthyl) propionic acid while NAPROXEN SODIUM is merely the sodium salt of this acid, the chemical equivalency of the two is well illustrated in "The Merck Index" 10th Edition, Merck and Co. Inc. 1983 where the entry under monograph 6269 entitled "Naproxen" lists the sodium salt as a derivative of the title compound, also, in the Patentee's patent number 960,668, for example, the acid and the salt are considered the same, the latter is a pharmaceutically acceptable salt of the former. Secondly, I have compared the entries under ANAPROX (the Patentee's brand of NAPROXEN SODIUM) and NAPROSYN (the Patentee's brand of NAPROXEN) in the "Compendium of Phar maceutical Specialties 1985" 20th Edition Canadian Phar maceutical Association 1985 which publication reproduces monographs on drugs based on information supplied by the Health Protection Branch and manufacturers. I find that whereas the indications duplicate those affirmed by Dr. Korey the pharmacology listed for both is essentially the same this is verified by the titles adopted i.e. "Analgesic-Anti-Inflammato ry" and "Anti-Inflammatory-Analgesic" respectively. Thirdly, Rule I18(1)(a)(ii) of the Patent Rules provides for an applica tion in respect of one or more patents that are for inventions that relate to or that may be used in the preparation or production of the same or substantially the same substance or thing. I have no difficulty in finding that NAPROXEN and NAPROXEN SODIUM are the same or substantially the same substance.
The appellant's counsel argued that the Project Officer ought not to have rejected the expert evi dence of Dr. Korey. The simple answer to that submission is that the Project Officer was not bound to accept the opinion evidence given by the appellant's witness." He chose not to and made no error in principle in so choosing.
I am further of the opinion that, contrary to the submission of counsel, the Project Officer did not err in his use of The Merck Index or the Compen dium of Pharmaceutical Specialties 1985 in reaching his conclusion.
' 4 See Scherico Ltd. v. P.V.U. Inc. (1989), 24 C.I.P.R. 161 (F.C.A.).
For these reasons, the appellant ought not to succeed on this branch of its appeal.
V ROYALTY SUBMISSION
The appellant attacked the royalty awarded in the compulsory licence of 4/7 of 1% of the net selling price of the medicine in final dosage form on three bases:
(1) The Project Officer had insufficient evi dence before him to fix the royalty at any figure.
(2) Even if he had some evidence before him, the quantum awarded was absurdly low and did not comply thereby with the statutory mandate of giving the patentee due reward for its research.
(3) The simple arithmetic exercise of dividing a global royalty fixed at the rule of thumb quan tum of 4%, equally between the various paten- tees of the patents alleged by the applicant for licence to be required, is contrary to the direc tions given by this Court in the recent case of American Home Products Corp. v. I.C.N. Canada Ltd. (No. 2). 15
Jurisprudence has emanated from this Court in recent years in a number of cases including, inter alia, in addition to the above American Home Products case, the following: American Home Products Corp. v. ICN Can. Ltd. (No. 1); 16 American Home Products Corp. v. Novopharm Ltd.;" Takeda Chemical Industries Ltd. v. Novopharm Ltd.; '8 Re Application for Compulso ry Licence by. Novopharm Ltd.; 19 Otsuka Phar maceutical Co. v. Torcan Chemical Ltd.; 20 Re Application for compulsory licence by Apotex Inc. 21
15 (1988), 18 C.I.P.R. 104 (F.C.A.).
16 (1985), 7 C.I.P.R. 174 (F.C.A.). " (1988), 18 C.I.P.R. 128 (F.C.A.). 1$ (1988), 19 C.P.R. (3d) 278 (F.C.A.). " (1988), 18 C.I.P.R. 121 (F.C.A.).
20 (1988), 20 C.I.P.R. 138 (F.C.A.).
21 (1987), 17 C.I.P.R. 51 (F.C.A.).
No useful purpose would be served in reviewing those cases or the jurisprudence cited in them. They speak for themselves. Suffice it to say that, in essence, they stand for the propositions that:
(a) in fixing the royalty to be paid by a licensee to a patentee the Commissioner must have before him evidence from which he can fix the royalty rate having regard to the desirability of making the medicine available to the public at the lowest possible price consistent with giving to the paten- tee due reward for the research leading to the invention as required by subsection 41(5) (now subsection 39(5)) of the Act;
(b) that it is incumbent on both parties, viz. the patentee, who has most of the knowledge of the research time and cost involved and the applicant for licence, to provide the Commissioner with the evidence necessary to discharge his function;
(c) it is not sufficient for the applicant for licence merely to state that it requires other licences. Since the effect of licensing more than one patent has been, as the practice has evolved, to reduce the royalty otherwise payable to a single patentee, it should satisfy the Commissioner that there is a reasonable possibility that such additional licence or licences are required and will be used. If he is so satisfied, then the royalty to be awarded each patentee is solely his decision to make;
(d) where there is little or no evidence as to the process actually to be used, a fact which is within the exclusive knowledge of the licensee, it is at least doubtful that the simple equal division of a global royalty is invariably the proper exercise of the statutory duty imposed on the Commissioner.
I can find little difference between the evidence supplied by the applicant for licence in respect of the royalty in this case (the respondent) and that presented in support of the application for licence in the American Home Products Corp. (No. 2) and other cases, supra. In those cases the evidence was found to be insufficient and, in each case, they were referred back to the Commissioner to have
the royalty fixed on the basis required by subsec tion 41(5) of the statute (now subsection 39(5)). In addition, as pointed out in the second American Home Products case, the appellant failed to dis charge the burden on it of adducing the requisite evidence to establish the basis upon which it claimed that the royalty recommended by the applicant for licence was insufficient in that it did not accord it due reward for its research leading up to the discovery of the invention in so far as it applied in Canada. The same paucity of evidence by the patentee in the American Home Products cases and others referred to above, prevails in this case.
The respondent in this case, just as the applicant for licence in the American Home Products case failed to do, did not indicate in any way why it required the other six licences, particularly since it stated that it would make its bulk purchases of the two products from only two suppliers. I seriously doubt that licences would. be required from those two suppliers. It is self-evident, as has been stated in previous cases, that a prudent licensee naturally will seek to protect itself from possible patent infringement suits when it cannot be sure that its supplier is not itself infringing other patents. But, as stated in American Home Products (No. 2) [(1988), 18 C.I.P.R. 104, at page 120], it "should ... satisfy the Commissioner that there is a reasonable possibility that such additional licences are required" (emphasis added), because, if there is not such a reasonable possibility, then one or more of the patentees may be vitally affected by a reduction in the royalty which they might other wise have been entitled to receive for their compul sory licences. By the same token, of course, the licensee should not be required to pay combined royalties to the licensors whose patents they might reasonably be expected to need, the effect of which might not make the medicine available to the public at the lowest possible price. In summary, what the Commissioner is required to do in multi ple licence applications is to have all relevant evidence before him to enable him to make an informed, balanced decision on the reasonable possibility that multiple licences may be required by a licensee, which patents they are and a proper division of an overall royalty among such paten- tees. Perhaps the only way such a decision could be
properly reached is by holding oral hearings, recognizing, of course, that the decision as to granting a hearing is solely within the discretion of the Commissioner.
Accordingly, the appellant must succeed on this branch of its appeal.
VI THE DISPOSITION OF THE APPEAL
For the foregoing reasons, the appeal should be allowed. The licence granted by the Project Offi cer on June 6, 1986 should be set aside and the matter should be referred back to the Commission er of Patents to reprocess the application himself or by some person properly designated by him, other than the Project Officer who granted the original licence, conducted and decided in a manner not inconsistent with these reasons for judgment, and thereafter to fix the royalty proper ly payable having 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. Since no special reasons have been shown for granting costs, the usual rule should prevail and there should be no costs of the appeal.
MARCEAU J.A.: I agree. MACGUIGAN J.A.: I agree.
 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.