Monday, May 14, 2012

Relevance of Non-infringing Alternatives to Damages

Merck & Co, Inc v Apotex Inc / lovastatin 2012 FC 454 Rennie J*

This decision by Rennie J on a motion to strike is the first step in a potentially significant change in the law of damages. In the liability portion of this bifurcated action, Snider J found Apotex liable for infringement of Merck’s patent protecting a process for making lovastatin: 2012 FC 1265 (overview here). Merck sought an accounting, but was denied. This is a preliminary motion in the damages portion of the action, in which Apotex sought to amend its statement of defence to plead that it could have employed a non-infringing alternative process for producing Apo-Lovastatin. While the decision implies in places that this is raised as a complete defence, it is more precise to say that the non-infringing alternative should be considered in determining the hypothetical position that Apotex would have been in but for the infringement [12].

This plea was rejected by Prothonotary Aronovitch, in light of the decision of the House of Lords in United Horse-Shoe and Nail Co Ltd v Stewart Co (1888), 5 RPC 260 (HL), which explicitly held that the existence of a non-infringing alternative is irrelevant to the calculation of damages, and the acceptance of that decision in Domco (1986), 10 CPR (3d) 53 (FCTD) and Jay-Lor 2007 FC 358. Rennie J held that despite this authority, which was properly interpreted by the Prothonotary, Apotex’s position was an arguable claim which should be allowed to proceed to trial. He pointed out that there was some support for Apotex’s position in US law and that there were only two cases on point in Canadian law [24]. Most importantly, at [25]-[27] he accepted Apotex’s argument that the principle in United Horse Shoe was potentially subject to reassessment in light of the general principles of causation in calculation of monetary remedies stated by the SCC in Cadbury Schwepps v FBI Foods [1999] 1 SCR 142 and Canson Enterprises [1991] 3 SCR 534.

My view is that Rennie J was clearly correct in allowing this pleading to stand. As I argued in “A Remedial Benefit-Based Approach to the Innocent-User Problem in the Patenting of Higher Life Forms” (2004), 20 CIPR 79 at 93-95, the principle stated in United Horse Shoe is inconsistent with the “but for” approach to causation which has been invariably accepted by the SCC as the correct approach to all forms of monetary remedy. My article was relied on by the SCC in Monsanto Canada Inc. v. Schmeiser, 2004 SCC 34 [102] as stating the correct principle in respect of an accounting of profits, and, as I argued in the article, there is no difference in principle on this point between an accounting and damages. (I would also point out that Jay-Lor is not particularly strong authority on this point, as it was clear on the facts that the defendant could not have competed as effectively without infringing.)

*In my initial post I misidentified the judge as Zinn J, rather than Rennie J. My apologies.

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