Wednesday, June 8, 2016

Burden of Proof Respecting Alternative ‘But For’ World

Pfizer Canada Inc v Teva Canada Ltd 2016 FCA 161 Stratas JA: Ryer, Gleason JJA var’g 2014 FC 248 and 2014 FC 634 Zinn J
            1,248,540 / 2,199,778 / venlafaxine / EFFEXOR XR / NOC s 8 / Venlafaxine s8 FCA

In his Venlafaxine s8 FC decision, 2014 FC 248 (blogged here), Zinn J awarded Teva almost $125m, including interest, under s 8 of the PM(NOC) Regulations, as compensation for having wrongly been kept off the market for venlafaxine [2]. The FCA has now vacated that award because it was based on inadmissible hearsay evidence, and remitted the matter to Zinn J for redetermination [159], [174]. The decision is primarily of interest for its clarification of the “could and would” requirement for establishing causation of loss, which is discussed in this post.

Section 8 provides that a generic that is kept off the market by operation of the statutory stay under the NOC Regulations is entitled to compensation for “any loss suffered” during the relevant period, if the patentee is ultimately unsuccessful in obtaining an order of prohibition. The courts have (rightly) interpreted this as providing compensation only for loss that was caused by the statutory stay that is triggered by the patentee’s application for an order of prohibition under the Regulations [45]. The loss typically takes the form of lost sales of product that the generic would have made had it not been kept off the market [45].

The losses caused by the patentee’s triggering conduct is the difference between the sales actually made by the generic (zero), and the sales that the generic would have made in the hypothetical world where the patentee’s impugned conduct did not take place [47]. Some issues, in particular the start and end dates to the compensable period, are specific to the NOC context, but the causation inquiry is the same as for patent infringement, in that “in both types of claims the court’s task is the same: to assess a hypothetical world where the defendant’s impugned conduct did not take place” [47]. Consequently, the FCA in this case looked to its prior damages decision in Lovastatin 2015 FCA 171 (blogged here and here) as setting out the relevant principles.

The key issue in this appeal was whether Teva would have been able to supply the market with venlafaxine in the hypothetical world in which it had received its NOC. In Lovastatin, the key issue was whether the generic (Apotex), would have been able to compete in the market with a non-infringing alternative in the hypothetical world in which it did not infringe. In Lovastatin the FCA held that to establish causation, the defendant generic would have to show that in the hypothetical world it “would have and could have” had access to sufficient quantities of non-infringing product [49]. By the same token, in this case Teva had to establish that it “would and could” have supplied the market with venlafaxine if the NOC had been granted [53].

The first issue dealt with by the FCA concerned the burden of proof. The FCA held that Teva, as the claimant, had the burden of proof concerning what would and could have happened had its product not been kept off the market, on the general principle that the plaintiff must prove its loss [53]-[55]. Specifically, Teva had argued that it would and could have obtained venlafaxine from its supplier, Alembic, and Teva therefore bore the burden of proof on that issue.

That much was straightforward. But the FCA also noted a caveat. “Suppose Pfizer took the position that [Teva] would not have tried to obtain venlafaxine from Alembic but instead would have given up and pursued another business objective, such as getting another generic drug to market” [65]. In that case, the burden would lie with Pfizer to prove that alternative hypothetical [63]:

a defendant that sets up a new issue bears the burden of proving it. The plaintiff, having proved its version of the hypothetical world, does not have to disprove other speculative hypotheses.

The point is important one because it introduces a significant caveat on the holding in Lovastatin, in which, in discussing the “would” branch of the causation requirement, the FCA at [94] held that even though

Apotex had capacity to make the non-infringing lovastatin and that Apotex would have made an accounting profit by producing the non-infringing tablets, Apotex has not established that it would have pursued that alternative in the "but for" world. Specifically, Apotex did not point to evidence that demonstrated the profits that it would have made through the non-infringing alternative would have been greater than value lost in any of the identified scenarios (for example, the research and development activities foregone by repurposing the Winnipeg facility). As such, notwithstanding whether it had the capacity to produce the non-infringing alternative, Apotex has not satisfied its persuasive burden to demonstrate on the facts that it would have produced the non-infringing lovastatin.

The first part of this paragraph evidently says that Apotex had established its version of the hypothetical world, namely that it would (or at least could) have supplied the market with a non-infringing alternative, while the second part of the paragraph seems to say that Apotex also bore the burden of proving that it would not have pursued a different business objective, namely exiting the lovastatin market in favour of some other opportunity (see here for a more detailed discussion). This holding in Lovastatin is very difficult to reconcile with the holding in Venlafaxine s8 FCA that “Teva would not have borne the burden of proving that it would not have pursued a different business objective” [65]. Indeed, this statement from Venlafaxine s8 is so directly on point that it almost seems to be specifically targeted at this particular holding from Lovastatin.

The point was strictly obiter, because Pfizer did not in fact make any such argument; it simply contested the very hypothetical relied on by Teva, with the result that the burden remained with Teva [66]. However, the issue was fully considered, including reliance on the SCC decision in Rainbow Caterers [1991] 3 SCR 3, and the remark regarding Pfizer’s burden to prove an alternative hypothetical was made in the context of explaining why the burden remained with Teva in the context of the arguments made in this case [58]-[66]. The point was certainly more fully reasoned than the brief and somewhat cryptic discussion of this issue in Lovastatin [93]-[95]. Moreover it was expressly stated as a general principle of law, rather than, as in Lovastatin, a finding on the facts. It would seem to follow that this statement from Venlafaxine s8 FCA now represents the law on this point. 

In my view the approach taken in Venlafaxine s8 is preferable to that taken in Lovastatin, for policy reasons discussed here, for the practical reason that it is unduly burdensome to require a plaintiff not only to prove one hypothetical world, but also to disprove all other potential hypothetical worlds, and for the legal reason that the SCC in Hamilton v Open Window Bakery Ltd 2004 SCC 9, held that it is open to the a party to adopt the hypothetical world that is “least burthensome” to it [11]. It will be interesting to see how this issue plays out in future cases.

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