A new battleground of innovative and generic drug manufacturers?

This Kat must admit a general ignorance of the law relating to access to government information, but Merpel insisted on knowing more after reading that the “Supreme Court opens trade secrets in Merck ruling.” While Merck did lose its appeal to the Supreme Court in Merck Frosst Canada Ltd. v Canada (Health), 2012 SCC 3, the truth, as so often, is more subtle than the headlines. The decision as a whole is not hostile to the interests of innovator pharmaceutical companies; the Supreme Court chided Health Canada for an unduly aggressive stance towards releasing information, and it reversed the Court of Appeal on some important points of law that were unfavourable to Merck. Merck lost because it had seen this as a test case, in which it hoped to establish a very broad categorical exemption for regulatory information. It did not succeed in this goal, but nonetheless, in the future, innovator companies should be able to prevent disclosure of any significant confidential information.

The old battleground

The litigation in this case concerned a request made under the Access to Information Act by one of Merck’s competitors, for access to information submitted by Merck to Health Canada as part of the regulatory approval process for Singulair®. The Canadian Access to Information Act provides that the public is presumptively entitled to access “to any record under the control of a government institution.” There are, however, exemptions from disclosure for trade secrets, confidential information, and prejudicial information supplied by a third party to the government. (What I will call prejudicial information is defined as “information the disclosure of which could reasonably be expected to result in material financial loss or gain to, or could reasonably be expected to prejudice the competitive position of, a third party”.) Procedurally, where the government intends to disclose information that might be subject to one of the exemptions, notice must be given to the third party, who then has the opportunity to make representations as to whether the information should be disclosed.

In response to the AIA request, Health Canada released some information without notice to Merck, on the basis that it clearly was not subject to any of the exemptions. It then notified Merck of its intention to release more. Merck took the position that essentially all of the information was exempt, including that which had already been disclosed. Health Canada did not agree, and the dispute then went to the courts. The decision of the reviewing judge at first instance was relatively favourable to Merck, but the Court of Appeal essentially supported Health Canada’s position. This set the stage for the appeal to the Supreme Court.

The new battleground?

As one might expect, the Supreme Court made many general statement regarding the importance of transparency and freedom of information, but the Court also acknowledged that routine disclosure of commercially sensitive information “might even ultimately discourage research and innovation.” Consequently, the Court emphasized that Health Canada had “a duty both to disclose nonexempt material and to refuse to disclose exempted material” (original emphasis) which are “equally important,” and the Court reproached Health Canada for emphasizing the former duty over the latter.

The Court ruled against Merck, holding that there is no automatic right to notice prior to any disclosure, but it also said that there is a high threshold for disclosure without notice: in effect, if there is any reason to believe that an exemption might apply, notice must be given. On the question of establishing whether an exemption might apply, the Court of Appeal, relying on a strong presumption in favour of disclosure, said that Merck bore a “heavy” burden to show that the exemption applied. The Supreme Court reversed, holding that the standard was simply the balance of probabilities.

With respect to the exemptions themselves, the third exemption for prejudicial information is in some ways of most interest, as it is potentially the broadest. Here the Supreme Court held that in order to establish that the exception would apply, the party opposing disclosure must “do more than show that such harm is simply possible,” but because ““what is at issue is risk of future harm that depends on how future uncertain events unfold,” it was not necessary for the third party (Merck in this case) to establish the likelihood of harm on the balance of probabilities, as that might be “an impossible standard of proof.”

Thus the Court’s substantive holdings were quite favourable to Merck’s position. Where Merck lost is on the evidence. The majority in the Supreme Court sought to balance disclosure against protection of confidential information by requiring that the party opposing disclosure establish on the evidence that the exemptions applied. Nor did the Court insist on a particularly stringent evidentiary burden. The problem is that Merck adopted a very aggressive strategy of seeking, in effect, a blanket exemption for everything in the file, either as a matter of law, or by establishing a very low evidentiary standard. This strategy, while understandable, did not pay off. So, in an example given by the Court, the reviewing judge at first instance had refused to allow disclosure of what was, after the redactions agreed to by Health Canada, “an essentially blank page.”

The dissent argued forcefully that even this had gone too far, partly on the basis that an appellate court owes deference to the initial finder of fact which an error here or there could not vitiate, and partly on the basis that a categorical approach is appropriate in these cases. This Kat’s view is that the dissent’s arguments are persuasive, but it is significant that the difference between the dissent and the majority was on this technical point, rather than on the principles themselves. While the dissent worried that “[a]ccess to information may be becoming the favourite battleground of innovative and generic drug manufacturers,” this decision, viewed as a whole, does not encourage the opening of this new front.

For a more detailed discussion of the holdings, see here.