Thursday, June 7, 2012

Resolution on Section 8 Claims re Valid Patents

Apotex Inc v. Merck & Co., Inc. / lovastatin (NOC) 2012 FC 620 Snider J on remand from 2011 FCA 364 (blogged here)

What happens if a generic is successful in NOC proceedings, but unsuccessful in a subsequent infringement action? Can the generic claim s 8 damages for being kept out of the market by the statutory stay, on the principle that the NOC proceedings and the infringement proceedings are independent? Or is the generic barred from claiming s 8 damages, on the principle that it would have been infringing a valid patent by entering the market? We appear to finally have resolution on this question as Snider J’s lovastatin decision and Hughes J’s omeprazole decision, blogged here, give consistent answers to this question.

In 1993 Apotex applied for an NOC in respect of lovastatin. Merck responded with an application for an order of prohibition. The proceedings were delayed, and consequently the statutory stay expired and the NOC was issued without the NOC proceeding having been heard on the merits. Apotex then entered the market. In subsequent infringement proceedings Snider J held that the patent was valid and infringed by some of Apotex’s production. (Merck’s patent was for a process and product-by-process for lovastatin when produced by a particular micro-organism. Some of the lovastatin sold by Apotex was produced by an infringing process, known as the “AFI-1" process, and some was produced with a non-infringing process using a different micro-organism.)

After its success in the NOC proceedings, Apotex brought an action for s 8 damages. At first instance Snider J held that Apotex was not entitled to s 8 damages in the circumstances, but the FCA reversed on this point. At the same time, the FCA also held that the fact that some of Apotex’s production was infringing was a factor that could be taken into account in assessing compensation under the broad discretion granted to the court by s 8(5). However, the FCA did not provide any guidance as to whether s 8 damages should be reduced in the circumstances of the case. The FCA simply remanded the matter to Snider J for consideration of this point as part of her assessment of s 8 damages.

This led to the present decision on remand. On this central point, Snider J held that

[26] In my view, Apotex should not be able to recover damages for the hypothetical sale of any lovastatin that, more probably than not, would have been produced and sold illegally. Quite simply, the doctrine of ex turpi causa provides that a plaintiff should not profit from an illegal or wrongful act (see e.g. Hall v Hebert, [1993] 2 SCR 159, [1993] SCJ No 51). If it can be shown that Apotex would have likely used the infringing AFI-1 process during the Relevant Period, Merck’s ex turpi causa defence will succeed and I will exercise my discretion under s. 8(5) of the Regulations to disallow recovery by Apotex of those amounts.

In my view this approach is the best resolution possible of the conflicting principles identified at the outset of this post. Snider J’s holding is also consistent with Hughes J’s omeprazole decision (blogged here), which dealt with the relationship between a s 8 claim and an on-going infringement action. While we will have to hear from the FCA before the point can be considered entirely settled, after the strong hint given in its decision remanding this question to Snider J, it would be surprising if the FCA held that Snider J had exercised her discretion improperly in this regard.

There is a caveat to Snider J’s holding. In the prior paragraph [25], she had stated that

It is important to remember that, on the unusual facts before me, there was never any determination of the merits of Merck’s prohibition application. Even without the Regulations, Apotex could not, as a simple matter of patent law, have had the right to use the AFI-1 process to produce and sell lovastatin. Stated differently, in the complete absence of the Regulations, Apotex would have been infringing the '380 Patent if it were to manufacture and sell Apo-lovastatin made with the AFI-1 process.

Snider J’s emphasis on the “unusual facts” in the first sentence of this paragraph could be taken to imply that her statement in paragraph [26] applies only on these facts. (See also [7].) This leaves the door open to the possibility that if there had been a determination on the merits of the prohibition application, and Apotex had been successful, then ex turpi causa would not apply, and Apotex would be able to recover s 8 damages, even if it would have infringed the patent to produce the product that would have been sold in the “but for” world.

In my view, the fact that there was no determination of the NOC proceeding on the merits should not be relevant. All of the rest of Snider J’s reasoning applies equally, even if there had been a determination on the merits. A finding of “invalidity” in an NOC proceeding does not have any in rem effect. Even if Apotex had prevailed in the NOC proceedings, it would still be true that “Apotex would have been infringing the '380 Patent if it were to manufacture and sell Apo-lovastatin made with the AFI-1 process.” It is simply that the NOC procedure would not have vindicated the patentee’s right. It is now well established that a patentee cannot complain if it becomes liable for s 8 damages because it triggered a statutory stay by seeking an order of prohibition under the NOC Regulations; there is nothing wrong with the patentee invoking the Regulations to seek an order of prohibition, but it must take the consequences, for better or for worse. Similarly, a generic is entitled to launch after success in the NOC proceedings and receiving an NOC, but it too must bear the consequences if the patent is ultimately determined to be valid.

On the facts of the case, Snider J assessed damages by considering the hypothetical question: “What would have happened if Merck had not brought an application for prohibition? Put differently, I must determine what actions Apotex would have hypothetically taken in this “but for” world” [3]. This is consistent with the general principles of causation in damages, and with her holding in the recent ramipril decisions. Construction of the “but for” world was complicated by the fact that Apotex used two processes, one infringing and one non-infringing, in its production of lovastatin, so that it was not possible to simply assume that all of Apotex’s production in the “but for” world would have infringed. After a detailed factual inquiry into Apotex’s business strategy and manufacturing capabilities, Snider J determined that Apotex would have used an infringing process for all but the last month of the ten month compensable period. Apotex was therefore entitled to s 8 damges only for the amount it would have sold during that last month. This illustrates the power of the ex turpi causa doctrine in barring a s 8 claim. It also illustrates that success by a patentee in an infringement action does not automatically bar a s 8 action; whether the generic would have infringed a valid patent in the “but for” world is a question to be decided on the facts of the case.

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