How Do the NOC Regulations Apply in the But For World of S 8 Damages?

Apotex Inc v Takeda Canada Inc / pantoprazole (NOC s 8) 2013 FC 1237 Phelan J
            PANTOLOC / pantoprazole / 2,092,694 and 2,089,748

Underling NOC decision Solvay Pharma Inc v Apotex Inc / pantoprazole (NOC), 2008 FC 308 Gauthier J

Phelan J’s Pantoprazole decision is the fourth decision on damages under s 8 of the NOC Regulations to go (almost) all the way to quantum, after the companion cases decided by Snider J, Teva-ramipril 2012 FC 552 and Apo-ramipril 2012 FC 553 (blogged here, here and here), and Hughes J’s Alendronate decision, 2012 FC 1235 (blogged here), supplementary reasons 2012 FC 1418 (blogged here). The legal questions relating to s 8 damages are well on their way to becoming established, but it is now apparent that the assessment of s 8 will require a complex and difficult factual inquiry. (The parties did not ask Phelan J to determine the quantum of damages, but only to settle some disputed issues which, it is hoped would allow the parties to arrive at a figure without the need to return to court.)

The general approach to s 8 damages set out in the cases, including Pantoprazole, is consistent with the “but for” approach to damages generally: damages are assessed as the difference between Apotex’s actual profits and the profits it would have made in the “but for” world in which it would not have been subject to the order of prohibition [14]. As discussed here, construction of the hypothetical world is almost entirely as a matter of determining what would in fact have happened but for the order of prohibition.

One established exception to this purely factual inquiry is that the FCA has held that the generic is not entitled to so-called springboard damages, on the basis that as a matter of statutory interpretation, losses incurred after the statutory period are not compensable as a matter of law even if they were in fact caused by the statutory stay: Merck Frosst Canada Ltd v Apotex Inc / alendronate (NOC) 2009 FCA 187.

A second legal question concerns the construction of the but for world. How do the NOC Regulations themselves apply in the but for world [33]? Should we assume that in the but for world the NOC Regulations do not exist at all? Should we assume that they do not exist for the s 8 claimant, but they exist for everyone else? Should we assume that they are fully operative even for the s 8 claimant, except that the statutory stay is not triggered? (That would imply that the s 8 claimant would still be required to file an NOA in the but for world.) Should we assume that the NOC Regulations do not exist for the section 8 claimant, and all other generics are prohibited from entering? All of these answers are equally consistent with the principle of “but for” compensation, because the question is how to construct the but for world itself. The Regulations do not answer this question directly. They tell us that the stay would not have been triggered in the but for world, but apart from that they do not tell us what parts of the Regulations would be effective. Section 8 states that the generic is entitled to recover “any loss suffered” during the period beginning on the date on which an NOC would have been issued “in the absence of these Regulations,” and in Teva-ramipril Teva argued that this means that in the but for world, the NOC Regulations would not exist at all. Snider J rejected this, noting that “the phrase ‘in the absence of these Regulations’ only modifies the certification date” [50]. That is, “in the absence of these Regulations” tells us when the start period is, not what the but for world is like.

Phelan J followed Snider J in holding that in the but for world, the generic does not have to file its NOA [35], [37], [Apo-ramipril [194]]. This is important to the damages calculation, because it means that the patentee will not be alerted to the possibility of generic entry by the NOA, and so will not have time to prepare to launch an AG, unless, on the facts, it would have known of the generic launch for some other reason [39].

However, while “in the hypothetical world, [the s 8 claimant] acts without the obligations and limitations of the Regulations” [40], all of the other generics are subject to the Regulations [56]: “Takeda does not enjoy the benefit of claiming that because Apotex was successful, all other generics are, for purposes of hypothetical world analysis, free to enter the market.” This is important to the damages calculation, because entry by other generics will cut the claimant’s profits. (Multiple generic entry may be bad for the patentee in the real world, but it is good for the patentee in the but for world.)

The question of how the NOC Regulations apply in the but for world is surely a question of law, and, as Phelan J noted, Apo-ramipril is under appeal, so the answer may change, but for now the answer is that the NOC Regulations are assumed not to apply to the claimant, but they do apply to all other market entrants. This seems to me to be as sensible an answer as any. As Snider J pointed out in Apo-ramipril [194], regulatory activity is generally kept confidential, so if the generic is assumed not to be subject to the stay, there is no reason for it to serve an NOA. On the other hand, the NOC Regulations cannot be assumed to be non-existent. Suppose generic A wins in its NOC proceedings, but generic B loses in its NOC proceedings relating to the same product, and so was subject to an order of prohibition. It seems wrong to suppose that generic B would have been able to enter the market for the purposes of generic A’s s 8 damages, when had tried and failed to obtain an NOC in respect of that very product. This was essentially what had happened in relation to Apotex’s entry as a second generic in Teva-ramipril, and this is why Snider J held that the other generics remained subject to the NOC Regulations [148]. The assumption that all generics except the s 8 claimant are prohibited from entry has the virtue of simplicity – the but for world will be easy to construct – but it would imply that multiple generics could get compensation from the same patentee in respect of the same drug, all on the basis that they would have been the sole generic.

It is the possibility of multiple generic entry that makes assessment of s 8 damage factually complex, as it is necessary to explore and dispute a number of possible but for worlds, in which various parties might have entered at various times. This is in contrast to a patent infringement action in which the patentee prevails; in that case, there is a single possible but for world, namely one in which everyone but the patentee is in the market. The NOC world is like a tort claim in which the defendant wrongly hit the plaintiff with a crippling blow, but we know that even in the absence of that wrong, several other, weaker, opponents would have legitimately entered the fray. We can’t make the easy assumption that but for the tort, the plaintiff would have been healthy; the question is how many other opponents he would have faced, and exactly how battered he would otherwise have been. As Phelan J and the parties acknowledged [116], [167], Apo-ramipril [128], Alendronate 2012 FC 1418 [8], the complexity of the inquiry means that, as Lord Shaw pointed out in Watson Laidlaw (1914), 31 RPC 104, 117-118, "[t]he restoration by way of compensation is therefore accomplished to a large extent by the exercise of a sound imagination and the practice of the broad axe."