On August 30, 2012, the Supreme Court of Canada issued its decision that it would hear appeals from Shoppers Drug Mart ("Shoppers") and the Katz Group ("Katz"), who seek a reversal of the Ontario Court of Appeal's decision that certain 2010 provisions of the Regulations under the Ontario Drug Benefit Act ("ODBA") and the Drug Interchangeability and Dispensing Fee Act ("DIDFA") are intra vires the parent statutes. These provisions effectively prohibit the sale of private-label generic drugs in the public and private markets in Ontario.
Shoppers and Katz both own franchises and operate pharmacies across Ontario. Private-label generic companies are non-arm's length from the pharmacies that sell their products. Shoppers and Katz both sought to sell their own private-label generic drugs rather than sourcing these drugs from an arm's-length third party. However, the impugned provisions effectively prohibit them from doing so. Shoppers and Katz challenged the validity of the impugned provisions. In February 2011, the Ontario Divisional Court held that the impugned provisions were invalid. On December 23, 2011, the Ontario Court of Appeal reversed the Divisional Court decision and held that the impugned provisions are intra vires and remain in full force and effect. The Court of Appeal did not accept the regulation/prohibition dichotomy articulated by the Divisional Court and noted that the impugned provisions are regulation, not prohibition, as they do not preclude the pharmacies from engaging in the purchase and sale of drugs in Ontario as long as they do so in accordance with the legislative and regulatory scheme. The Court of Appeal found that the Divisional Court erred in overemphasizing the effect of the impugned provisions on profits by manufacturers and pharmacies and underemphasizing the potential of the impugned provisions to influence market dynamics, incentives and drug costs in the long term. The Court of Appeal also found that the Divisional Court failed to recognize that the regulatory regime was intended not only to reduce drug costs to consumers but to ensure that pharmacists were compensated as professional service providers and not from profit in the dispensing of drugs. It held that it was not for the Court to second-guess the Ontario government. It could be reasonably concluded that private-label generics could reduce competition in ways that would adversely affect long-term pricing. Finally, the Court of Appeal held that the impugned provisions are not an improper restraint on trade and they did not discriminate against the pharmacies.
Shoppers Drug Mart Inc v Ontario (Health and Long-Term Care), February 6, 2012 (SCC Case No. 34649).
Ontario Court of Appeal decision — 2011 ONCA 830.
Divisional Court decision — 2011 ONSC 615.