Monday, March 28, 2011

Disgorgement of Profits under Section 8 in the Ontario Courts

Apotex Inc. v. Abbott Laboratories, Ltd. / lansoprazole 2010 ONSC 6909, 89 CPR(4th) 141, Whitaker J

Section 8 of the PM(NOC) Regulations provides that if a patentee is unsuccessful in its application for an order of prohibition (as to what is “success” see here), the generic is entitled to compensation for having been kept out of market in consequence of the statutory stay. The generic would obviously prefer that compensation to be measured by the patentee’s profits rather than by its own loss, as the patentee’s profits with market exclusivity will be greater than the profits the generic would have made. However, the FCA has held that an accounting of profits is not available under section: Merck Frosst Canada Ltd v Apotex Inc / alendronate (NOC) 2009 FCA 187 [89] affm’g 2008 FC 1185. This was under an older version of the provision, which provided for “relief by way of damages or profits” (s 8(4)). The same conclusion presumably follows under the current provision, which omits the words “or profits.”

In Apotex v Syntex / naproxen 2005 FC 480 [22], von Finckenstein J said that the NOC Regulations are a “complete code,” which suggests there is no alternative route by which a generic can get disgorgement of the patentee’s profits. However, on appeal the FCA, while repeating that section 8 is “a complete code for the recovery of damages by a second person against a first person,” 2005 FCA 424 [9], at the same time suggested that “while strictly speaking it might be said there is no such tort as negligent breach of a statute, there nevertheless can be a claim in negligence against the Crown and proof of a statutory breach that causes damages may be evidence of such negligence” [10]. This seems to imply that while section 8 is a complete code in respect of losses flowing from the statutory stay as such, if there is some other basis for liability, section 8 may not govern. This leaves open the door to the possibility that a claim for unjust enrichment could allow the generic to claim disgorgement of profits rather than damages. However, it seems to be established that such a claim cannot be made in the Federal Court, as a claim that is not based on the Regulations would not be within the jurisdiction of the court: 2009 FC 693 [8].

In June 2009 Apotex obtained an NOC for apo-lansoprazole, and it commenced an action in the Federal Court for compensation under section 8. Just at that time, the FCA released its the alendronate decision, holding that an accounting is not available under section 8. Apotex discontinued its Federal Court action [28] and decided to try its luck in the Ontario courts, which do of course have jurisdiction over a claim in unjust enrichment. This strategy has cleared the first hurdle. In Apotex Inc. v Abbott Laboratories, Ltd. 2010 ONSC 6909 Abbott moved to strike Apotex’s claim for disgorgement of profits based on unjust enrichment. Whitaker J dismissed the motion, holding that it is not “plain and obvious” that such a claim could not succeed. This seems to me to be the correct conclusion given the stringent test on a motion to strike, but it of course remains to be seen how this claim will fare on the merits.

I suggest that the 2006 amendment of section 8(4) indicates a legislative intent to confine the generic to damages generally – if the legislature intended the generic to be able to recover the patentee’s profits, surely it would have been simplest to allow this to be done under the Regulations themselves, in the Federal Court. However, if the Ontario courts conclude that a successful generic should be entitled to a disgorgement of profits, as a matter of fairness, this argument is unlikely to be conclusive.

The question of whether the successful generic should be entitled to a disgorgement is an interesting one. A prohibition order consequent on PM(NOC) proceeding is analogous to an interlocutory injunction, and section 8 is analogous to the undertaking required of the party who obtains such an injunction: 2008 FC 1185 [54]. Such undertakings do not generally require a disgorgement of profits. I am not aware of any Canadian cases addressing the question of whether it would be appropriate to require an accounting on an undertaking the context of an interlocutory injunction, but the point has been raised in a recent UK patent case. In Wake Forest University Health Sciences v. Smith & Nephew [2009] EWHC 45 (Pat), Lewison J declined to require an undertaking of that form, saying “it is by no means clear to me that it would be just to transfer a profit made by the claimant to the enjoined defendant. If the claimant has made a profit which it would not have made but for the injunction, there may be other people to whom it would be more just that those profits should be returned, either other potential competitors with the defendant or customers who, as things turn out, may have been overcharged” [19]. It will be interesting to see whether the Ontario courts find this reasoning persuasive.

A last general point. While there is an analogy between the NOC proceedings and an interlocutory injunction, one basic distinction is that the PM(NOC) proceedings are entirely separate from any subsequent infringement action. This question of whether section 8 can give rise to a separate cause of action illustrates once again the difficulties arising from a separation of the statutory stay from the underlying cause of action. For illustrations of other problems arising from this same cause, see here and here.

PS - This blog normally comments on recent cases; while this case was released last fall, it has only come to my attention recently, which is why I am commenting on it now.

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