Monday, April 18, 2011

Validity as a Defence to a Section 8 Action

Apotex Inc. v. Shire Canada Inc. / modafinil (NOC) 2011 FC 436 Tabib P

The modafinil litigation raises the question of whether a generic which has succeeded in an NOC proceeding can get section 8 damages even if the patent is subsequently determined to be valid and infringed in an infringement action. Shire is a licencee under the relevant patent and holds an NOC. The patent is owned by Cephalon. Apotex initiated NOC proceedings against Shire and was successful: 2008 FC 538. Apotex then brought an action against Shire for section 8 damages. In the meantime, Cephalon has filed an action for infringement against Apotex. In 2010 Shire sought to amend its statement of defence to add a defence to the effect that if Cephalon is successful in its action against Apotex, then Apotex should not be allowed to recover against Shire under section 8. It is important to note that at that time Shire did not propose to bring any evidence on the issue of validity and infringement; it wished to rely entirely on the outcome of the Cephalon action. This amendment was not permitted (2010 FC 828 affm’d 2010 FC 1001), on the basis that the Shire had not pleaded any material facts on which the court could make any direct determination. If Shire’s defence had been permitted, the outcome of the Shire action would depend entirely on the outcome of the Cephalon action, which is completely independent. In this motion, Shire sought to amend its statement of defence to plead directly that Apotex infringes. Prothonotary Tabib J dismissed this motion on the basis the Shire had not sought this amendment in a timely manner [40]. We therefore do not have any indication on the merits as to whether such a defence would be permitted. However, the modafinil litigation shows that there is no satisfactory answer.

The Court’s holding in 2010 FC 1001, that for procedural reasons Shire cannot be allowed to rely on the outcome of the Cephalon litigation, is entirely reasonable. The parties in the Shire litigation have no control over the Cephalon litigation, which might be prolonged indefinitely. But if Shire had raised the defence in a timely manner, and the amendment sought in this decision had been allowed, this would require an entirely separate determination of the validity of the modafinil patent as part of the section 8 action, in addition to the determination originally made as part of the main NOC proceeding, and also in addition to determination to be made in the Cephalon action. It is surely a waste of resources to have the same patent litigated three times against the same party.

In my discussion of the levoflaxin litigation I suggested that a subsequent finding of validity would not bar a section 8 claim in any event because of the “no reach back” rule articulated in Apotex v Syntex / naproxen (NOC) 2010 FCA 155. Whether that suggestion is correct remains to be seen. If it is, then the generic will be entitled to damages for having been kept out of a market that it had no right to enter, which is not satisfactory. If both the NOC litigation and the subsequent infringement action were between the same parties, as is often the case, then a cure for this might be to allow the patentee to claim reimbursement of the section 8 damages as part of its damages in the infringement action. Apart from any conceptual problems this might raise, the modafinil litigation shows that this is not a general solution, because the here parties are different; payment by Shire under section 8 is not a loss to Cephalon.

If this analysis is right, it is difficult to see how even an amendment to the NOC regulations could help matters. Perhaps there is some creative solution to the problem that is not apparent to me. But for now it looks as though this is another aspect of the problems caused by the separation of the statutory stay under the NOC regulations from the underlying infringement action: see here, here and here, for previous posts on this issue.

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