Friday, January 18, 2013

Disgorgement of Profits in NOC S 8 Claim Not Available in Ontario

Apotex Inc v Abbott Laboratories Ltd / lansoprazole 2013 ONSC 356 Quigley J

The FCA has held definitively that disgorgement of the patentee’s profits is not available as a remedy in a claim under s 8 of the NOC RegulationsApotex Inc v Eli Lilly Canada Inc 2011 FCA 358 blogged here.  Apotex hoped to have better luck by bringing an action in the Ontario courts. That hope was kept alive when the Ontario courts dismissed a motion to strike Apotex’s claim is this case: Apotex v Abbott Labs / lansoprazole 2010 ONSC 6909, Whitaker J blogged here aff’d 2011 ONSC 3988 (Div. Ct.). Swinton J. But that hope has been now dashed by Quigley J’s long and thorough summary judgment decision on the merits, dismissing Apotex’s claim for disgorgement of Abbott and Takeda’s profits from the sale of lansoprazole [2], [212].

Quigley J granted summary judgment on this point for five listed reasons [115], which I would summarize as two main reasons, plus some supplementary considerations.

First, “the decision of the Federal Court of Appeal [in Eli Lilly] ought to be followed because . . . [it] is obviously a considered decision of an appellate court that has vast experience in the interpretation of the NOC Regulations,” that “plainly and conclusively determines that unjust enrichment is not an available remedy to Apotex in the circumstances of this case” [116], [117]. Quigley J recognized that Eli Lillywas not strictly binding, but he nonetheless considered it highly persuasive [130]. Quigley J went to some length to establish that the jurisdiction of the Federal Courts to grant equitable remedy was the same as that of the s 96 superior courts, so there was no reason to discount the persuasive authority of the Federal Court of Appeal on this basis [74ff]. And Apotex’s statement of claim in this case was “effectively identical” to that in Eli Lilly, so there was no basis for distinguishing the holding on the facts [121]. Like the FCA, Quigley J recognized that in circumstances where the patentees were alleged to have committed some other wrongful act, other remedies might be available [109]. So, for example (mine, not Quigley J’s), if seeking an order of prohibition under the NOC Regulations was part of a conspiracy in restraint of trade, this might be a separate wrongful act. But in this case no wrong was alleged other than the initiation of proceedings under the Regulations which were ultimately dismissed [107].

Quigley J’s second main reason for following Eli Lilly is that it was correctly decided. On this point, Quigley J did not simply follow Eli Lilly; he made an independent assessment of the arguments and came to the same conclusion as the FCA, for essentially the same reasons. Like the FCA, Quigley J emphasized the jurisprudential and legislative history of s 8, and in particular the 2006 amendment which deleted the reference to “profits” in s 8, and the accompanying RIAS which expressly stated that this was intended to foreclose the argument that a generic might obtain an accounting profits under s 8 [36], [112], [157]. But in addition, Quigley J engaged in a lengthy discussion of the argument that the legislature is presumed not to oust the common law or equitable remedies [154] - [170]. This was a point that had found favour with MacDonald J in a motion to strike in Apotex v Eli Lilly 2012 ONSC 3808, who stated that “Only explicit statutory language may take away existing rights such as causes of action” [29]. MacDonald J went on to say that Apotex’s unjust enrichment claim “appears to have a reasonable prospect of success” [35]. It is difficult to avoid the conclusion that MacDonald J held that the NOC Regulations were not a complete code because he felt that it was unjust that the generics should be denied an accounting. In response, Quigley J pointed out that it is well-established that presumption may be rebutted by necessary implication, and he thoroughly analyzed the legislative provision and its history to conclude that the equitable remedy was necessarily ousted by the enactment of s 8 as part of a comprehensive legislative scheme [170]. In this respect, Quigley J provides a strong buttressing argument on a point that was not fully developed in the FCA decision in Eli Lilly.

One secondary point made by Quigley J is that leave to appeal to the SCC was denied in Eli Lilly [129] He acknowledged that “There may be many reasons why the Supreme Court chooses not to grant leave to appeal in particular circumstances and particular cases,” but he said that “[n]evertheless, it seems intuitive to me that even if refusal of leave does not amount to an imprimatur, it must be regarded as the acceptance by the Supreme Court of a strong decision by the Federal Court of Appeal for what it is and for what it says, and a determination faced with that decision that leave need not or ought not to be granted. This clearly supports added weight being ascribed to the correctness of the decision” [135]. As a former SCC clerk at a time when clerks carried out an initial review of leave applications, I would hesitate to give even this much weight to a denial of leave by the SCC. The sole criterion for granting leave under s 40 of the Supreme Court Act is the public importance of the question raised with respect to the particular case. Given its limited docket space, the SCC may very well deny leave even if it is of the view that the decision below may be wrongly decided. But this is clearly a secondary consideration, as Quigley J’s main points are stand independently of the implications of leave being denied.

Quigley J’s other secondary point, as I would call it, relates to the effect of the previous Ontario decisions refusing to strike Apotex’s pleading [136]. Apotex argued these decisions on a motion to strike undermined the authority of Eli Lilly. Quigley J rejected this argument on the basis that “motions to strike pleadings that embrace different tests and sets of assumptions then those that are to apply [in a summary judgement]” [139]. To deny a motion to strike it is enough to conclude that it is possible that the cause of action is viable; a judgment, summary or otherwise, is a decision on the merits that it is not. It is absurd to suggest that a refusal of a motion to strike, which is expressly premised on the view that the question of law is unsettled, could be authority for settling that question in one way of the other.

In my view Quigley J’s reasons are thorough and unassailable. As he stated
[172] The NOC Regulations are a delicate and complicated balance of competing interests. Recognition of Apotex's claim to unjust enrichment would frustrate Parliament's policy decision to preclude the disgorgement of the innovator's profits from a claim for s. 8 damages. Section 8 is part of a "complete and comprehensive scheme that both supplies the duty and provides the necessary adjudicative machinery such that resort to the common law is duplicative in any situation where the common law applies.
There are a number of aspects of s 8 which were and remain unclear, but on this point the legislature has spoken exceedingly clearly. It would usurp the authority of Parliament for the courts to do an end-run around the legislation by allowing Apotex a cause of action in unjust enrichment, as MacDonald J appeared inclined to do.

While Quigley J granted summary judgement solely on the basis that s 8 constituted a complete code which did not allow for a disgorgement of profits, in case he had erred in this conclusion, he went on to consider whether Apotex would be entitled to its disgorgement claim on the basis of unjust enrichment. He concluded that the unjust enrichment claim would fail because Apotex could not establish that there was no juristic reason for the enrichment. (While he referred to his reasons as “summary in nature” they might be considered thorough by some standards, as they occupied 33 paragraphs.) The essential basis for his holding is that the operation of the NOC Regulations in their ordinary course, constituted a juristic reason for the enrichment. Recall that in this case, no separate wrongful act was alleged. Quigley J also pointed out that Apotex benefits in many respects from the NOC framework as a whole, and “To the extent that Apotex has already benefited from the framework, it would be contrary to that balance, in my view, to additionally permit it to claim disgorgement of the innovators' revenues or profits based on principles of unjust enrichment, at least in the absence of an independent cause of action founded on the presence of recognized elements of egregious conduct that constitute a tort” [184]. To my mind this is an important point in explaining why the ordinary operation of the Regulations should constitute a juristic reason for the enrichment. It is a the justness of the whole that must be considered, not the justness of a part taken in isolation, and on this, the legislature has spoken. Quigley J also held that a settlement agreement entered into between the parties would constitute a juristic reason for the enrichment [187]. I won’t elaborate on this aspect of the decision, as this comment is already long enough, and this aspect is unique to this particular case.

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