Tuesday, July 19, 2011

Evergreening and Accounting of Profits

Harris v Glaxosmithkline Inc, 2010 ONSC 2326 affm’d 2010 ONCA 872 leave to appeal to SCC dismissed 14-Jul-11

If a brand pharmaceutical company obtains a stay under the NOC proceedings on the basis of a patent that is ultimately found to be not-infringed or invalid in those proceedings, the generic seeking the NOC is entitled to damages for the period that it was kept off the market. However, the generic is not entitled to an accounting of the brand’s profits in the Federal Court: 2009 FCA 187. Apart from the text of the NOC Regulations, a problem with the generic seeking those profits is that the profits were not made at the generic’s expense. As Lewison J said in Wake Forest University Health Sciences v Smith & Nephew [2009] EWHC 45 (Pat), at [19] “it is by no means clear to me that it would be just to transfer a profit made by the claimant [brand] to the enjoined defendant [generic]. 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.” Harris v Glaxosmithkline Inc establishes that the customers who may have been overcharged cannot get those profits back from the brand pharmaceutical company. (There is still a question as to whether the generic may be able to get an accounting in a court of inherent jurisdiction on the basis of unjust enrichment: see my earlier post, noting that this route will also face the hurdle identified by Lewison J.)

GSK’s base patent for Paxil was for paroxetine hydrochloride in the anhydrate form. This patent expired in 1995 [ONSC 13]. GSK obtained various patents for hemihydrate paroxetine and listed them on the Patent Register against Paxil. Various generics were ultimately successful in obtaining NOC’s for paroxetine hydrochloride on the basis that they would be selling the anhydrate, and allegations based on invalidity or non-infringinement of the hemihydrate were not unjustified. Nonetheless, in consequence of the statutory stay flowing from the NOC proceedings, generic paroxetine was kept of the market for about four years [ONSC 7]. Harris v Glaxosmithkline Inc was a class action of Paxil (paroxetine) users seeking compensation from GSK for higher paroxetine prices during this four-year period. In other words, the plaintiff alleged that this was a classic case of “evergreening” and that GSK should be liable for the higher prices that resulted.

The ONSC dismissed the action on the basis that it was plain and obvious that the action could not succeed. The ONCA agreed, and leave to appeal to the SCC was dismissed last Thursday. The plaintiff had argued for liability based on conspiracy, abuse of process, and waiver of tort. The abuse of process argument was in effect that listing the hemihydrate patents was an abuse of the PM(NOC) Regulations. This argument was dismissed on the basis that the tort of abuse of process is not available to a person who is not party to the litigation in which the abuse is alleged to have occurred [ONCA 33], and, more fundamentally, using the NOC process in a perfectly regular manner cannot be said to be an abuse of the NOC process, even if the listed patents are ultimately not sufficient to prevent the NOC from issuing. The plaintiff’s “lynchpin” [ONSC 105] argument on this point was that the whole process was a “sham” – in effect, that it was obvious that the listing of the hemihydrate patents against Paxil was inappropriate, and that it was done only in order to trigger the statutory stay. Perell J at first instance considered the substance of the NOC litigation and concluded it was not a sham; the ONCA held that it was unnecessary to consider this argument [ONCA 56]. This implies that the intent of a brand in listing a patent on the Register is irrelevant; the safeguards against abuse of the NOC process lie in that process itself. The conspiracy claims were dismissed on the similar ground that an intent to maximize its own profits cannot sustain the tort of conspiracy to injure the plaintiff.

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