Tuesday, May 22, 2012

Award under NOC Section 8 to Be Considered in Damages in Subsequent Infringement Action

Apotex Inc v AstraZeneca Canada Inc / omeprazole (NOC) 2012 FC 559 Hughes J

The automatic stay available to the patentee under s 7(1) of the NOC Regulations is analogous to an automatic interlocutory injunction, and s 8 damages available to the generic are analogous to damages on the undertaking normally required of an applicant who obtains such an injunction: 2008 FC 1185 [54]. One important difference is that while an interlocutory injunction is brought as part of the infringement action, NOC proceedings and an infringement action are entirely separate. This gives rise to a problem of coordinating remedies if the final decision is inconsistent with the “interlocutory” stage. It is now well-established that if the generic is unsuccessful in the NOC proceedings, it cannot claim damages under s 8 if the patent is subsequently held to be invalid (Apotex v Syntex / naproxen (NOC) 2010 FCA 155). This is even though a defendant would have been able to recover such losses on the undertaking if the NOC system did not exist, and an interlocutory injunction, rather than an automatic stay, had been granted to patentee.

This decision of Hughes J is an important development in addressing the converse problem: is the generic entitled to s 8 damages even if the patent is later held to be valid and infringed by the same generic in an infringement action? If an interlocutory injunction is granted, the defendant is entitled to damages on the undertaking only if it is subsequently successful in the action itself. The separation of the NOC proceeding from the infringement action implies that in contrast, a patentee will be liable to a generic which is successful in the NOC proceedings, even if the patent is subsequently held to be valid and infringed. The difficulty with this result is that the generic would be entitled to damages for having been kept out of a market which it had no right to enter, as a holding in an NOC proceeding does not have in rem effect.

This was the problem anticipated by this case. AstraZeneca was unsuccessful in NOC proceedings against Apotex: 2004 FC 313. AstraZeneca is now suing Apotex for infringement, with the action set down to be heard in April 2014 [28]. In the s 8 action, Hughes J had issued an order that if AstraZeneca’s defences in the s 8 action respecting the effect of the infringement action are viable in law, then judgment in the s 8 action will be reserved until final disposition of the infringement action [28]. This decision in the s 8 action considers whether judgment in the s 8 action should be reserved accordingly, which requires Hughes J to determine how the infringement action should affect the s 8 claim.

In its recent lovastatin decision, 2011 FCA 364 (blogged here), the FCA suggested, without deciding, that the principle of ex turpi causa might operate to reduce or limit the damages available to the generic. More precisely, the FCA said that arguments analogous to ex turpi could be considered under the “broad discretion” granted by s 8(5), to determine “whether, and to what extent, a second person's claim for compensation should be reduced, or eliminated” [37]-[38] (emphasis added). Strictly, ex turpi causa operates as a complete defence – “no right of action arises from a base cause” – but because the FCA held that the question is ultimately one of discretion under s 8(5), arguments analogous to ex tupri causa could be used to reduce the compensation, rather than bar the action entirely.

In this omeprazole decision, Hughes J followed the very recent decision of the EWCA in Servier v Apotex [2012] EWCA Civ 593, blogged here, in holding that in the circumstances ex turpi causa does not operate as a defence: [145]-[149]. However, this does not mean that the outcome of the infringement action is irrelevant. In Servier v Apotex, an interlocutory injunction had been granted to Servier, which then lost the infringement action based on a European patent. When Apotex sought to claim damages on the undertaking, Servier argued that it was barred by ex tupri causa, because even though the sales in the UK would not have infringed the European patent, it was established that Apotex would have manufactured the product in Canada, in violation of a Canadian patent. Before the EWCA, Apotex conceded that there should be deducted from the damages awarded on the undertaking an amount equal to what the Canadian court would have ordered Apotex to pay Servier in Canada for infringement of the Canadian patent in manufacturing and exporting products for sale in the United Kingdom market had there been no interlocutory injunctions preventing sales in the UK.

Hughes J held that “[t]his solution accords with what may properly be done in the present situation. A Court hearing the pending infringement action, if it concludes that the patent is valid and has been infringed by Apotex in making the omeprazole drug that is the subject of these proceedings, can at that time craft a remedy that is appropriate, having in mind any compensation awarded in these proceedings” [148]. Presumably this means that if AstraZeneca pays out to Apotex on the s 8 action, but is subsequently successful in the infringement action, Apotex will have to repay the s 8 damages. In my view this approach is sound: as Hughes J said, “It would be unconscionable for the present proceedings to come to a halt or for this Court to refuse to award compensation simply because another action on another patent was pending” [148]. This acknowledges the basic point that NOC proceedings and infringement actions are separate. At the same time, Hughes J’s approach addresses the problem of a generic being awarded compensation for being excluded from a market that it had no right to enter.

If Hughes J’s approach stands, compensation flowing from s 8 will be asymmetric, in contrast to the situation with an interlocutory injunction, as a patentee will (ultimately) not have to compensate a generic which is successful in the NOC proceedings but unsuccessful in the infringement action, while a generic will not be compensated if it is unsuccessful at the NOC stage but the patent is held to be invalid in the infringement action. However, the NOC Regulations as a whole are not even handed; for example, a generic can appeal an adverse finding in the NOC proceedings, while a patentee, as a practical matter, cannot. Whether the Regulations as a whole strike the right balance is another matter.

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