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Supreme Court to Rule on Private Label Drugs in Ontario

Since 2010, Ontario’s largest pharmaceutical retailers, Shoppers Drug Mart and Rexall, have been fighting the Ontario government over their regulations prohibiting private-label pharmaceuticals from being sold in Ontario. Now, the Supreme Court of Canada has granted leave to appeal to hear the dispute. Private-label drugs are drugs which are produced by non-arms length manufacturers of Ontario pharmacies. In an effort to maximize revenues, purportedly without increasing the cost of the drugs (which are regulated by the government), pharmacies vertically integrated and acquired drug manufacturers to sell generic pharmaceuticals to the pharmacy, resulting in lower costs than purchasing from arms-length manufacturers. These new regulations were imposed without the actual input of the Ontario Legislature in the form of an amendment to the legislation. Rather, the restriction was imposed as part of regulations designed at implementing the principal statute.

The pharmacies are arguing that these latest amendments have unconstitutionally restricted their ability to operate their own businesses. In particular, these regulations cannot impose such limits on them without a formal amendment to the legislation, as these new rules go beyond the implementation of the statute, but actually modify it beyond what is permitted. Moreover, the pharmacies claimed that these regulations were an improper restraint on trade, and their property and commercial rights, as the regulations served to lower the mark-up of the manufacturers without any input from the Ontario legislature.

The Ministry of Health, which won their case at the Court of Appeal, believes that these regulations are entirely within their ability to manage and regulate the pharmaceutical industry, its prices, and its conditions for the approval of generic drugs. The government maintains that private labeling is not beneficial to Ontarians, and these regulations serve to ultimately lower the cost of prescription drugs to customers.

The Supreme Court’s decision, whatever it may be, will represent more than just the future of the Ontario pharmaceutical industry. The questions at issue relate to the fundamental relationship between regulations and their enabling statutes, and to what extent regulations can interfere with commercial rights. These issues come up not only in drug regulation, but health care generally, alcohol regulation, and gambling laws. As such, not only will this decision shape the pharmaceutical industry for years to come, but will likely send ripples into numerous other regulatory areas, where similar changes and challenges could arise in the near future.

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