Wednesday, April 12, 2017

Section 8 Damages Law is Mature

Teva Canada Limited v Pfizer Canada Inc 2017 FC 332 Phelan J
            pregabalin / LYRICA / NOC s 8

It seems that the law related to s 8 damages is now mature. Phelan J’s decision in Pregabalin s 8 runs to 78 pages, without raising any new points of law. This had to happen eventually, as s 8 damages are based on the same basic principle of ‘but for’ causation that is applicable to monetary remedies generally, in which the actual world is compared with a “but for” world (“BFW” to adopt Phelan J’s abbreviation). There were a number of legal issues peculiar to the s 8, because the statutory provisions limit ‘but for’ causation in some ways (in particular with respect to the compensable period), and raise some unique puzzles (ie should it be assumed that the NOC Regulations would not exist at all in the ‘but for’ world), but those issues have largely been hammered out, most importantly in the Apotex s 8 Damages FCA 2014 FCA 68 aff’d 2015 SCC 20 (blogged here, here, and here) aff’d 2015 SCC 20, and the companion case Teva s 8 Damages FCA 2014 FCA 67. No doubt narrow legal issues raised by unusual fact patterns will continue to arise, as in any area of law, but the main issues are settled.

Following Apotex s 8 Damages FC 8) 2012 FC 553 [11], Phelan J noted that there are five steps in assessing s 8 damages [8]

• determine the duration of the period of liability [the Liability Period];
• determine the overall size of the Pregabalin market during the Liability Period;
• determine the portion of the Pregabalin market that would have been held by Teva and any other generic manufacturers during the Liability Period – the generic market;
• determine the portion of the generic market that would have been held by Teva – its lost volumes; and
• quantify the damages that would have been suffered by Teva in respect of its lost volumes (net lost profits).

I won’t go through the details of each determination, which all turned on their facts. I do have just a couple of general observations.

First, Phelan J stated that [13], [14]:

The real world plays a significant role in the construction of the BFW [‘but for’ world]. The BFW is to mirror, as much as possible, the real world experiences and circumstances – to use history as the basis for assessing the assumptions advanced in the BFW scenarios.

So for example, Ratiopharm (now Teva) had failed to follow up promptly on the patent hold letter in the real world, and that failure to act expeditiously in the real world undermined Teva’s argument that it would have acted expeditiously to obtain an NOC in the ‘but for’ world [147]. With that said, Phelan J did not hesitate to find that the BFW would have differed from the real world when the facts so established. For example, Pfizer argued that it in the BFW it would have entered with its own generic, GenMed, as it did on genericization of the market in the real world [220], but the evidence established that GenMed was not a part of Pfizer’s “toolbox” in 2010 [223].

There is also one factual issue that has more general ramifications for s 8 actions. The more generics that would have entered the market in the ‘but for’ world, the lower Teva’s market share and therefore the lower Pfizer’s s 8 liability. This meant that Pfizer wanted to prove that other generics would have entered. This meant that Pfizer had to elicit evidence that would ultimately be helpful to Pfizer from generic drug company executives. That is easier said than done. Phelan J noted that [95, [96]:

Pfizer called six generic drug companies who competed with Teva in the Pregabalin market. All appeared under subpoena and only one agreed to meet with counsel beforehand. Some of the evidence was confidential because of the competitive circumstances. The Court recognizes the difficulty faced by counsel trying, in direct examination, to elicit positive evidence from competitors, even where such examination is skillfully and artfully done as in this case.”

The evidence given was ultimately unhelpful in establishing potential generic entry [98]. Despite the rivalry between innovators and generics, there is no suggestion that the witnesses were trying to undermine Pfizer’s case; rather, “[f]or most it was an exercise too remote from what they did in real life – too theoretical for their comfort” [97]. This illustrates a difficulty than any patentee will face in making its case in s 8 proceedings. With that said, I can’t be too sympathetic to Pfizer’s dilemma; the argument is that but for the statutory stay, the patentee would have lost market share to some generic, just not to the particular generic that had filed the NOA and triggered the NOC proceedings. But the other generics that would have entered in the BFW would not be able to claim damages because they had not actually filed an NOA in the real world. So in arguing that other generics would have entered, the patentee is trying to avoid being held liable for loss it actually caused, albeit not to the particular party in s 8 action. Put another way, the legal rule that entry by other generics must be considered is in itself favourable to the patentee, so patentees can’t complain too much about difficulties of proof they might face in establishing the point on the facts.

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