Tuesday, April 8, 2014

Causation of Loss in Determination of Compensable Period for s 8 Damages

Teva Canada Ltd v Pfizer Canada Inc 2014 FC 248 Zinn J
            1,248,540 / 2,199,778 / venlafaxine / EFFEXOR XR

Under s 8 of the PM(NOC) Regulations, a generic that successfully contests an order for prohibition is entitled to recover its losses due to having been improperly kept out of the market by the statutory stay which is triggered by the patentee’s application for the prohibition order. Section 8 cases now seem to be arriving in a flood. The leading cases to date have been Snider J’s decisions in Teva s8 ramipril FC 2012 FC 552, Apotex s8 ramipril FC 2012 FC 553 (here, here and here) and the very recent FCA decisions on appeal in those cases, Teva s 8 ramipril FCA 2014 FCA 67 and Apotex s 8 ramipril FCA 2014 FCA 68 (here, here and here). Zinn J’s decision in Teva s8 venlafaxine is another important contribution to this case law. It was released to the parties on 14 March 2014, the same date as the FCA decisions were released. This means that Zinn J did not have the benefit of the FCA decision in writing his reasons, and one of the questions is the extent to which his reasons are consistent with those of the FCA.

Zinn J summarized the general framework for assessing s 8 damages as follows [27]:

1. Determine the period of liability [the Relevant Period];

2. Determine the overall size of the market for the relevant pharmaceutical [the Relevant Pharmaceutical Market] during the Relevant Period;

3. Determine the portion of the Relevant Pharmaceutical Market that would have been held by generic manufacturers during the Relevant Period [The Generic Market];

4. Determine the portion of the Generic Market that would have been held by the plaintiff [the Plaintiff’s Lost Volume]; and

5. Quantify the damages that would have been suffered by the plaintiff in respect of the Plaintiff’s Lost Volume [the Plaintiff’s Net Lost Profit].

This post discusses the first issue. Establishing the relevant period turns on two distinct subsidiary questions, namely the start date and the end date. Note that Pfizer is the corporate successor to Wyeth, and in 2010, Novopharm changed its name to Teva, and Teva and Ratiopharm amalgamated. Because the events in issue took place in the 2005 to 2007 period, to avoid confusion, Zinn J referred to the relevant pharmaceutical companies as Ratiopharm, Novopharm and Wyeth [3]

Relevant Period: Start Date
S 8(1) provides that the liability presumptively begins on the patent hold date, “(ii) unless the court concludes that a date other than the certified date is more appropriate.” The patent hold date was December 7, 2005 [15], but in its ANDS and NOA challenging the 778 patent, Ratiopharm had agreed to wait for the expiry of the 540 patent, January 10, 2006, before launching. In Teva s 8 ramipril FCA a similar situation had arisen, and the FCA, affirming Snider J on this point, held that the appropriate start date was the expiry of the later patent, not the patent hold date. Though it did not have the benefit of the FCA decision, in this case, Ratiopharm nonetheless accepted that the appropriate start date should be the expiry date of the 540 patent, rather than the patent hold date. Zinn J accepted Ratiopharm’s submission on this point.

Wyeth argued that the start date should be February 13, 2006, “the date the Minister would have issued a NOC to Ratiopharm if it had served Wyeth with a NOA relating to the 778 Patent and Wyeth had not commenced a Prohibition Application within the 45 day period permitted by the PMNOC Regulations” [48]. That is, if I understand correctly, Wyeth’s position is that we should assume that the Regulations were completely effective, and the start date for the relevant period should be determined on the assumption that rather than applying for an order of prohibition on receiving Ratiopharm’s NOA, Wyeth would have done nothing, so that the NOC would have been issued at the end of the 45 period after service of the NOA.

This position was rejected by Zinn J. Before turning to Zinn J’s reasons, I note that his holding appears to be consistent with that of the FCA in Apotex s8 ramipril FCA. The basic difficulty with Wyeth’s position, in my view, is that it assumes the start date is to be determined as a matter of the construction of the “but for” world used to assess the loss suffered by the generic. If that were the case, then the question of exactly how the "but for" world is to be constructed – whether we should assume that the generic has served an NOA and wait out the reply period, or whether we should assume that the Regulations simply don’t apply at all – would be relevant. However, the “but for” world is relevant to the assessment of the loss, not to the determination of the start date, which is governed directly by s 8(1)(a). As Sharlow J noted in Apotex s8 ramipril FCA says that “the NOC Regulations are to be disregarded in determining the beginning of the section 8 liability period, as long as neither of the stated exceptions applies” [170].

In Teva s8 ramipril FC Snider J had held that as a matter of law, "the liability period cannot predate the statutory stay" [60]. The FCA reversed Snider J on this point [79], though, as noted, it affirmed Snider J in holding that the appropriate date was the later expiry of the later patent. In this case Wyeth also argued that the start date cannot predate the statutory stay. Zinn J rejected this position, consistently with the FCA holding [51].

The most interesting part of Zinn J’s reasons on this point was his very strong emphasis on the need for a causal link between failed NOC proceedings and the claimed loss:

the damages are those that the plaintiff generic suffered “by reason of the delayed market entry of its drug” as stated in the Regulatory Impact Analysis Statement [RIAS] [57]

The question for the Court is whether there is a causal connection between the failed PMNOC proceedings and the loss claimed as damages and if so when did that loss first arise. . . . [T]he damages claimed in an action under section 8 must be causally connected to the Prohibition Application” [61].

See similarly [44] in the context of discussing the end date. In Teva s8 ramipril FC Snider J had made a similar causation argument. As discussed here, the FCA indicated that it was not persuased by the causation point, saying that recovery is governed by s 8, which must prevail over general principles [78]. While that is no doubt true, I suggested that general principles, especially fundamental principles such as causation, should apply unless inconsistent with the Regulations, and I noted that the FCA did not say that causation should never be a consideration under s 8. In my view, Zinn J’s emphasis on causation is entirely sound, and is not inconsistent with the FCA decision in Teva s8 ramipril FCA. It will be interesting to see whether the addition of Zinn J’s voice to that of Snider J will persuade the FCA in future cases. My guess is that even if the FCA never holds that causation of loss is a necessary condition for recovery under s 8 as a matter of law, causation will be such a strong factor that it will be a de facto strict requirement.

Zinn J also noted that in unusual circumstances, the start date might be earlier than the patent hold date, so long as the losses arising prior to the patent hold date were caused by the improper delay [60].

It will be not uncommon that a generic will have agreed to wait for the expiry of a particular patent in its NOA, and will have been put on patent hold long before that expiry date. Between the ramipril decisions and this Venlafaxine decision, it now appears that in such circumstances, the patent expiry date will normally be the appropriate start date for the compensable period.

Relevant Period: End Date
Section 8(1)(b) provides that the relevant period ends “on the date of the withdrawal, the discontinuance, the dismissal or the reversal” of the application for a prohibition order. This contrasts with 8(1)(a)(ii) which explicitly allows the court to choose another more appropriate date. In Apotex s8 ramipril FC Snider J held that the court nonetheless has some discretion to choose a more appropriate end date as well, and this view was affirmed by the FCA. While this is not a live issue in this case, Zinn J disagreed with Justice Snider on this point, and held that the court has no discretion to choose a more appropriate date [44]. However, Zinn J would apparently have come to the same conclusion as Snider J on the facts before her, on the view that the compensable loss ended before the end date of the compensable period [44]. That is, rather than couching the issue as one of when the relevant period ends, he would have framed essentially the same issue as one of when the losses are no longer caused by the delay. This way of arriving at the same conclusion is attractive in that it is formally more consistent with the Regulations. The two approaches are not equivalent, however. Because of the Alendronate 2009 FCA 187 rule that s 8 does not allow for compensation for losses suffered outside the s 8 liability period, the two approaches are equivalent only when the last losses caused by the delay are incurred before the end date. In any event, none of this was a live issue, and on the facts the end date was August 1, 2007, the date on which the FCA dismissed Wyeth's application for an order of prohibition.

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