Wednesday, July 25, 2012

Bifurcation Refused When Patentee Gave up Right to Damages

Apotex Inc. v. H. Lundbeck A/S / escitalopram 2012 FC 414 Tabib P

I don’t usually comment on procedural issues but this decision, in which Lundbeck successfully opposed Apotex’s motion to bifurcate by giving up its right to damages, provides a clear explanation of the rationale for bifurcation and raises some fundamental questions of principle.

Strictly, the burden is on the party seeking bifurcation to establish it is warranted, but in practice "bifurcation tends to be the rule rather than the exception in intellectual property matters."

[T]his is so not merely because actions in intellectual property tend to be complex, because the scientific and financial issues are often discrete and because parties are generally loathe to share sensitive commercial or financial information with potential competitors until their liability to do so has been established, but mostly because of the nature of the remedies available and sought in infringement actions. A successful plaintiff in an infringement action is entitled to the damages it has suffered as a result of the infringement, but may also be entitled to opt instead for an accounting of the profits realized by the defendant. Because the right to elect an accounting of profits is discretionary, parties would not, in an un-bifurcated action, know whether the option is available to the plaintiff until the final judgment has been rendered. As such, without bifurcation, both parties will necessarily conduct and be subject to discoveries, and trial time will be necessarily be spent in leading evidence as to both parties’ revenues and expenses, even though only one side’s losses or profits can ever form the basis of an actual award. It is that inherent inefficiency that, in my view, most often justifies a bifurcation order. [38]

In order to oppose Apotex’s motion for bifurcation, “Lundbeck has made the bold decision to forego its entitlement to damages in the event Apotex and Pharmachem are found to infringe its patent, and claim only their profits, taking the risk that Apotex and Pharmachem could successfully oppose its entitlement to that type of remedy” [39]. This concession was “determinative” in Tabib P’s reasons for refusing to order bifurcation [39, 40].

On the facts of the case, Tabib P was satisfied that the calculation of profits would be relatively simple so the additional inquiry into Apotex’s profits could reasonably be made within the existing timeframe for litigation. She concluded that

Lundbeck's abandonment of its right to claim damages results in a greater certainty of savings of time and effort for the parties and for the Court. Without it, the prospect of Lundbeck being successful in its infringement action, including the right to elect an accounting of profits, and thereafter having discovery of Apotex and Pharmachem's profits, electing for its damages, subjecting itself to discovery of same by Apotex and Pharmachem, and then proceeding to a second trial on quantification, remain real possibilities [41].

Even if she had concluded that some delay would be needed, she would have dismissed the motion for bifurcation “on the basis that the benefits of Lundbeck's concession, both in terms of the allocation of judicial resources and of savings of costs and expenses to both parties, outweigh the prejudice that might be caused to the Court and to Apotex from delaying the trial by six months or even a year” [42].

I accept that Lundbeck’s decision to forego its damages claim weighs against bifurcation, but I’m not entirely convinced by Tabib P’s reasoning. She identifies three reasons for bifurcation:

- the scientific and financial issues are often discrete
- parties are generally loathe to share sensitive commercial or financial information with potential competitors
- uncertainty to as remedy would require duplicative discovery

Tabib P stated that the latter reason was the most important reason for ordering bifurcation, and that may be so, but it is not clear to me why the other two are not sufficient.

The net benefit of refusing bifurcation is avoiding that extra burden in the event that Lundbeck is successful on both liability and its request for an accounting. On the other hand, the net advantage of bifurcation is that the entire burden of discovery and litigation related to quantification will be avoided if Lundbeck is unsuccessful either on liability or in its request for an accounting. So, obviously, the benefit of bifurcation is less as the patentee’s chance of success increases. But if the entire burden related to quantification is high relative to the extra burden, then the probability that the patentee will be unsuccessful need not be particularly high for bifurcation to be efficient.

If liability and quantification are related, it is proper to refuse bifurcation (see Garford v Dywidag 2010 FC 581) as the extra burden of a separate trial will be high because of duplication. But if liability and quantification issues are entirely discrete, then presumably the additional burden of a second trial on quantification is relatively small. If the discovery is entirely separate, there is no additional burden in that respect, and so long as the same counsel are involved, there should be little extra burden in getting up to speed, so the extra burden would rest primarily on duplication of procedural steps.

It is true that Lundbeck's decision to forego damages reduces the entire burden related to quantification. This weighs against bifurcation because the ratio of the entire burden to the extra burden will be reduced. But if the issues are discrete so that the extra burden is small, the size of the entire burden relative to the extra burden may still be substantial.

Probability of success is also relevant in theory. While an accounting is discretionary and in practice it is not always granted, it is reasonable to take the likelihood of Lundback being granted an accounting as being relatively high. Lundbeck was also successful in the NOC proceedings, which suggests that its likelihood of success in the infringement action is also reasonably high. Both of these factors suggest that Lundbeck’s likelihood of success in proceeding to the quantification stage is relatively high, and this weighs against a bifurcation. With that said, I’m not sure it would be a good idea in practice to take probability of success into account in a bifurcation motion, since this would almost involve a mini-trial within a mini-trial.

Another consideration is that parties on both sides “are generally loathe to share sensitive commercial or financial information with potential competitors.” This strikes me as a legitimate concern and I don’t see why it shouldn’t be a reason to take into account in deciding whether to order bifurcation. This factor will weigh in favour of bifurcation. While Tabib P acknowledged this issue, she did not explicitly take it into account in deciding whether bifurcation is desirable.

In the end, while Lundback’s concession regarding damages does properly weigh against bifurcation, I am still not sure refusing bifurcation is efficient if the liability and financial issues are discrete. While the degree to which these issues are discrete was not explicitly discussed by Tabib P, her discussion of the quantification evidence suggests that they are quite discrete in this case. I am not a litigator, and I don’t have a good sense of how great the additional burden of birfucation would be. Perhaps it is substantial even in a case in which the liability and quantification are discrete. But I would have liked to see some discussion of how that extra burden compares to the entire burden that would be avoided by bifurcation if Lundbeck is unsuccessful.

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