On February 20, 2026, the Federal Court of Canada in Eaton v Teva Canada Ltd et al, 2026 FC 239 refused to certify a proposed class action claiming over $5 billion against more than 80 generic pharmaceutical companies for an alleged conspiracy to fix generic drug prices and allocate in the market in violation of the Competition Act. The Court found that the plaintiff failed to plead any factual basis that would support her allegations of a conspiracy in Canada and dismissed the motion to certify without leave to amend.

The alleged price fixing and market allocation conspiracy

US price fixing investigation. The plaintiff’s claim arose from an investigation in the United States that revealed anticompetitive collusion schemes affecting more than USD$1 billion in generic drug sales. Following the investigation, certain generic pharmaceutical manufacturers and several executives admitted to charges of price fixing, bid rigging, and market allocation. Following a multi-state lawsuit brought by the US Department of Justice, other generic drug companies also entered into settlement agreements for hundreds of millions of dollars related to a coordinated effort to increase drug prices and reduce market competition.

Canadian allegations. In the Federal Court in Canada, a representative plaintiff (Kathryn Eaton) filed a class action claim on behalf of generic drug consumers against many generic drug companies said to span substantially all of the generic pharmaceutical industry in North America.

The claim relied heavily on materials from the US investigation and proceedings and alleged that the companies engaged in the same or similar price fixing and market allocation schemes in Canada. Specifically, the plaintiff alleged that the generic manufacturers conspired to fix prices in Canada at the “maximum formulary price” (generally, the formulary price is the highest price that an insurer will reimburse for the listed drug).

It is important to note that this Federal Court action was not the result of any investigation by the Competition Bureau of Canada (which has its own jurisdiction to investigate and adjudicate price fixing allegations), but rather it was a proposed class action brought by a member of the public under the private right of action provisions in the Competition Act.

The plaintiff relied on expert evidence alleging that the Canadian generic industry is highly susceptible to collusion due to factors such as public price visibility, barriers to entry, and allocation of submarkets. The plaintiff’s expert further opined that generic drug prices in Canada have been consistently higher than in comparable countries, and that normal market forces would have resulted in lower prices absent collusion.

The alleged conspiracy was said to be enforced at the retail level though “kickback” or rebate payments (which do not affect list price) to pharmacies and wholesalers and through market allocation agreements between generic pharmaceutical companies.

As the Court noted in its judgment, the focus of the claim appeared to shift over time – the initial claim (filed in 2020) alleged that the companies involved in the US price fixing scheme also did the same in Canada. Later, the claim was amended to target the allegedly illegal “kickbacks” and rebates given to pharmacies and wholesalers, although no pharmacies or wholesalers were named as defendants.

The plaintiff failed to plead any factual basis for the alleged conspiracy

Judicial findings. Justice Fothergill of the Federal Court refused to certify the class action without leave to amend, which effectively ended the proceedings. He held that the pleadings failed to disclose any factual basis for a conspiracy in Canada – indeed, the Court held that most of the allegations were bald and devoid of particulars.  

Despite the plaintiff’s argument that conspiracies are secret by nature and the relevant facts would be revealed through discovery, the Court held that, even on a generous reading of the claim, it cannot be blind to what information the pleadings “do not contain”.

In particular, the Court found that there were no particulars of any alleged price fixing agreement or communication between any of the parties. The claim only alleged that the defendant companies were in constant communication and regularly attended meetings, events, and trade shows (particularly in the US) to discuss the sale and price of drugs.

The Court emphasized that the 700-paragraph pleading did not contain any particulars of the acts of each alleged co-conspirator, nor any facts to show that any conspiracies in the US extend to Canada, to Canadian manufacturers that do not operate in the US, to foreign affiliates that do not operate in Canada, or to any foreign directives. Simply put, the Court refused to find that any possibility of a conspiracy in Canada constitutes the necessary basis in fact that a conspiracy actually occurred.

Further, as to pricing practices, the Court rejected that the asserted facts supported a conspiracy. In Canada, formulary pricing is regulated in many provinces. The judgment implies that the fact that list prices were often at the maximum formulary price was not in itself evidence of a pricing conspiracy as it is consistent with legal conduct.

Therefore, the plaintiff’s certification motion failed because it did not disclose a reasonable cause of action.

Additional grounds for dismissal. Although certification failed at the first step, the Court also would not have certified the class action because the plaintiff (1) failed to identity common issues of fact or law since the pleaded facts relate only to the US which is an entirely separate market for generic drugs; (2) did not prove that a class action would be the preferable procedure; and (3) did not provide a proper litigation plan on which the plaintiff could demonstrate that she would be a suitable representative plaintiff. The defendants conceded the issue of an identifiable class.

Notable expert evidence on generic competition and pricing in Canada

Although the Federal Court did not need to make any substantial findings on the evidence, the nature of the evidence adduced on generic drug pricing is potentially of interest for the pharmaceutical industry, and a few points are worth noting.

Market forces in Canada. Experts from both sides effectively agreed that generic drug pricing in Canada materially differed from other countries, including the US. However, the bulk of the Canadian-specific evidence was that this is a function of the way that generic drug prices are effectively regulated in Canada rather than any overarching conspiracy. The defendant drug companies’ expert evidence explained certain limitations with Canada’s generic regulatory scheme and the significant constraints on generic manufacturers’ ability to compete for sales of generic products.

Formulary pricing scheme. According to the defendants’ experts, under Canada’s formulary pricing scheme, generic manufacturers are disincentivized from competing on list price.

As noted above, generic drug prices are effectively capped at the maximum formulary price set by the pCPA, since a higher manufacturer list price would not be reimbursed (and therefore be destructive of demand). Manufacturers are naturally incentivized to list at the maximum price, unless there is competition. However, unlike most other industries, due to additional regulatory and market factors, it is a bad business decision to reduce the price of a generic drug to below a competitor’s.

A high proportion of Canadian patients are covered by drug insurance plans. Therefore, insurance pricing regulations and policies largely shape the pricing of drugs. In general, insurance plans, whether private or public, reimburse the pharmacy (not the manufacturer) based on the lowest available list price for a given interchangeable generic drug.

Market incentives. When a pharmacy sells a drug to a patient, it profits from the difference between the list price (the price that insurers will reimburse) and the retail price (a marked-up percentage of the list price). Notably, most pharmacies’ markups are a fixed percentage based on the list price and their off-invoice discounts (rebates) are also based on the list price. Thus, according to the defendants’ evidence, when a manufacturer reduces its list price, pharmacies do not typically benefit.

Additionally, since sales of generic drugs are dependent on patients having a prescription and because of the high proportion of insurance coverage, a lower list price does not materially increase sales for manufacturers or pharmacies. Reducing list price therefore does not attract more business for generic manufacturers and would not increase profits to pharmacies.

Further, since most insurers will only reimburse pharmacies for the lowest possible list price of a given generic product, if one manufacturer reduces its list price, then all pharmacies will see reduced profits, regardless of whether they stock that manufacturer’s product. This creates a situation where other manufacturers of that product will reduce their own prices to compete (since not doing so would harm pharmacies), thereby nullifying any potential competitive advantage gained from lowering the list price.

Given the forces described above, generic manufacturers were said to have no incentive to reduce list prices as a means to capture market share.

Rebates. It was further submitted by the defendants’ experts that since generic manufacturers cannot compete for sales to pharmacies through list prices, they must compete in other ways; for example, by offering favourable payment terms and volume discounts. These discounts ultimately increase profits for pharmacies, but do not reduce the prices charged to patients.

It has previously been held in Canada that off-invoice discounts (including rebates) are permitted as long as they comply with applicable provincial regulations (Spina v Shoppers Drug Mart Inc, 2023 ONSC 1086 at para 443).

However, many forms of rebates to pharmacies have been abolished by law in Ontario and Quebec (Canada’s two largest provinces). While these measures were intended to increase consumer transparency on drug pricing, they limited the scope of tools available for competition between manufacturers.

As the Competition Bureau recognized in a 2007 report, off-invoice discounts to pharmacies are a critical feature for competition in the Canadian generic drug market. Reducing list prices would make a manufacturer less competitive because it would correspondingly decrease profits without any increased sales, thereby limiting the manufacturer’s ability to offer discounts and other incentives, where allowed, to pharmacies and wholesalers.