Supply Agreements Between Two Pharmaceutical Companies: Latest Developments



SUPPLYAGREEMENTSBETWEENTWOPHARMACEUTICALCOMPANIES:LATEST
DEVELOPMENTS

NathalieJodoin*
LEGERROBICRICHARD,L.L.P.
Lawyers,PatentandTrademarkAgents
CentreCDPCapital
1001Square-Victoria–BlocE–8thFloor
Montreal,Quebec,CanadaH2Z2B7
Tel.(514)9876242–Fax(514)8457874
www.robic.ca–info@robic.com

LastJulytheSupremeCourtofCanada,inEliLillyandCo.v.ApotexInc.and
ApotexInc.v.MerckFrosstCanadaInc.(1998),80C.P.R.(3d)321and368,ruled
thata«supplyagreement»betweentwocompetingpharmaceutical
companies,NovopharmLtd.andApotexInc.,didnotconstituteinitselfa
sublicensingagreementandhencedidnotinvalidatethecompulsorylicence
heldbyNovopharmLtd.ThislicencestipulatedthatNovopharmcouldneither
transferittoathirdpartynorgrantasublicence.
Thesupplyagreementinquestion,whichhadneveractuallybeenimplemented,
hadbeenconcludedinNovember1992inanticipationoffuturemodificationsto
thePatentActwhichweretoabolishthesystemofcompulsorylicencesfor
patentsonmedications.Themainpurposeoftheagreementwastoprovidean
arrangementbetweenNovopharmandApotexwherebywheneveronehelda
compulsorylicencethattheotherdidnot,thelicenseewouldhavetoprocure
thelicensedmedicationandsupplyittotheothercompany.
Notably,thesupplyagreementalsoprovidedthatthepartiesintendedtoshare
theirrights,thatthelicenseewoulduseitslicencepursuanttotheother
company’sinstructionsandforthelatter’sbenefit,andthatthelicenseewould
cooperatefullywiththeunlicensedpartyinordertopermitthelattertomake
useofthelicenceasifitwerethelicensee.
However,thisagreementalsostipulatedthatthelicenseewouldobserveallthe
conditionsofitslicence.Hence,althoughsomeclausesofthisagreementmay
haveleadonetobelievethatthepartiesintendedtomutuallygranteachother
sublicences,Mr.JusticeIacobuccioftheSupremeCourtconcludedthateach
clauseshouldbeinterpretedinrelationtotherestoftheagreementwhich
clearlyrevealedtheintentionofthepartiesnottocreateasublicence.Further,



















































©CIPS,1998.
*OfLEGERROBICRICHARD
,L.L.P.,amultidisciplinaryfirmoflawyers,andpatentandtrademark
agents.PublishedintheFall1998issue(Vol.2,No.4)ofourNewsletter.Publication068.016E.



Mr.JusticeIacobuccinotedthatnowhereintheagreementwasitstipulated
thattheunlicensedpartyis«entitledtotheindependentuseofanycompulsory
licence»foritsownbenefit.Theunlicensedpartyhas«norighttoobtainthese
medicinesindependently«anditisabundantlyclearthatthelicensee«isstillthe
onlypartyactuallyentitledtoact
pursuanttothelicence.»Therefore,thejudge
wrotethat:”ThearrangemententeredintobyApotexandNovopharmisnota
sublicence.RegardlessofthelevelofcontrolthatmightbeexercisedbyApotex
overarrangingandfacilitatingtheacquisitionoflicensedmaterialsforitsown
benefit,noactualacquisitionisitselfpossiblewithouttheinvolvementof
Novopharm.TheagreementdoesnotgrantApotextherighttodo
independentlyofNovopharmanythingwhichonlyNovopharmislicensedtodo,
nordoesitpurportordiscloseanycontractualintenttodoso”.
However,thecourtcautionsthatnotallagreementssimilartotheonein
questionwillnecessarilyprotectthepartiesfromallallegationsofhavingcreated
asublicence.Inthisparticularcase,thesupplyagreementhadneveractually
beenimplementedassuchbytheparties.AccordingtoMr.JusticeIacobucci,it
wouldnot«beimpossibletoimplementtheagreementinsuchamannerasto
createasublicence.»
Forexample,ifthelicensee,intheexecutionoftheagreement,weretoallow
theunlicensedpartytocontractdirectlywithathirdpartysupplierofa
medicationundercompulsorylicence,orifthethirdpartysupplierwerenone
otherthattheunlicensedcompanyitself,theninalllikelihood,thecourtswould
rulethattheimplementationofsuchanagreementeffectivelycreateda
sublicence,whichwouldthennullifythecompulsorylicenceheldbyoneofthe
co-contractors.



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