Friday, December 30, 2011

No Disgorgement of Profits in Federal Court in an Action Based on Section 8

Apotex Inc v Eli Lilly Canada Inc 2011 FCA 358 Noël JA: Dawson, Trudel JJA aff’g Heneghan J (unreported) aff’g 2009 FC 693, Pr. Tabib & Milczynski Pr (unreported)

A generic that is successful in NOC proceedings is entitled to damages under section 8 of the NOC Regulations as compensation for its losses from having been kept out of the market as a consequence of the statutory stay. The question in this motion to strike paragraphs of the statement of claim is whether the generic can also obtain a disgorgement of the excess profits earned by the patentee during that period, in an action where the sole “wrongful” act alleged is invocation by the patentee of the NOC Regulations. The FCA has held unequivocally that “the answer to this question is no” [18]. Consequently, Apotex’s claim “cannot possibly succeed” [23].

The FCA based its conclusion on the legislative history of the section 8, noting that the reference to an entitlement “profits” in the previous version of the Regulations had been deleted in the 2006 amendment, and the accompanying RIAS had stated explicitly that this amendment was intended to foreclose the argument that the generic might be entitled to an accounting of the innovator’s profits [20-21]. Consequently

the matter could not be any clearer. Parliament, through the auspices of the Governor-in-Council, has considered whether generic companies should be entitled to the disgorgement of first persons’ profits in the circumstances contemplated by section 8, and has excluded this remedy. It did so in the context of the above-noted balance which is sought to be achieved by the PM(NOC) Regulations. This is a legislative policy issue with respect to which the will of Parliament is paramount. [22]

In my view, this reasoning is completely unassailable. Apotex's argument is interesting in principle, at least on the simple intuition that what is sauce for the goose is sauce for the gander. But it is not open to the courts to pursue this issue of principle; rightly or wrongly, the legislature has spoken. To hold that the generic is entitled to an accounting of the patentee’s profits under section 8 would amount to saying that legislation amounts to no more than suggestions that the courts are free to adopt or reject.

Generics have consistently been unsuccessful with this argument in the Federal Courts, but in two decisions, Apotex v Abbott Labs 2010 ONSC 6909, Whitaker J (blogged here), and Apotex v Fournier 2010 ONSC 6947 (unreported) the Ontario Superior Courts have declined to strike similar claims. In Apotex v Abbott Labs Whitaker J concluded at [52] that “there is nothing express or implied in the provisions of the PMNOCR which flag or signal such a significant step as the ousting of all common law causes of action or remedies” (my emphasis). The FCA would agree that the PM(NOC) regulations do not necessarily exclude common law causes of action. The FCA stated explicitly that it’s holding was based on “the fact that the prohibition proceedings initiated by the respondents were ultimately dismissed, as contemplated by section 8, and nothing more” [17]; see also [16]. It distinguished other cases in which some independent wrongful act was alleged [16], and left open the possibility that other remedies would be available if “a cause of action independent of the operation of section 8 is alleged” [23]. The central point of the FCA’s decision is that the NOC Regulations exclude all remedies other than those provided by section 8 when "[t]he only material fact advanced in support of the characterization of the defendant’s conduct as 'wrongful' is that the prohibition proceedings initiated by the respondents were eventually dismissed" [16].

The FCA noted that it did not have before it the statements of claim at issue in the Ontario decisions (and the precise claim that was allowed is not clear from the sole reported decision), but the FCA stated that “if as here, Apotex claimed to be entitled to the disgorgement of the first persons’ profits simply because the prohibition applications which they initiated were ultimately dismissed as contemplated by section 8, I respectfully disagree with the conclusion reached in these cases” [24]. If respect for legislative intent means anything at all, the FCA is surely right. It is to be hoped that the Ontario courts will ultimately agree.

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