Friday, August 28, 2015

Deduction for Fixed Costs in an Accounting Denied

ADIR v Apotex 2015 FC 721 Gagné J
            1,341,196 / perindopril / COVERSYL

I wrote two posts (here and here) on Gagné J’s Perindopril Accounting decision several weeks ago, but there is one more point from the decision worth mentioning. As discussed in my blog post on Harrington J’s Escitalopram decision 2013 FC 192, there is a difficult question as to whether to allow an infringer to deduct some part of its fixed costs (such as general overhead or rent) from the profits to be disgorged. On the one hand, fixed costs would have been incurred in any event and so are not costs caused by the infringement, but on the other hand a business cannot run profitably without covering its fixed costs. If the business produced 20 different products, all of which infringed patents held by different patentees, and deduction of fixed costs was not permitted, the infringer would be required to account for far more profit than it actually made. In Escitalopram Harrington J held that fixed costs should not be deducted. In Perindopril Accounting Gagné J [68]-[77] followed that decision without providing significant additional analysis. Nonetheless, her decision reinforces the trend against allowing deduction of fixed costs, which now appears quite well established at the FC level. Even so, there is a real issue as to whether refusing to allow deduction of any fixed costs is consistent with “but for” causation. This is a question that at some point should be addressed at the FCA level.

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