Thursday, October 19, 2017

Does an NIA Need to Be Proven on the Balance of Probabilities

AstraZeneca Canada Inc v Apotex Inc 2017 FC 726 Barnes J [Omeprazole Accounting]
            1,292,693 / omeprazole formulation / LOSEC

Yesterday’s post provided an overview this decision, and dealt with the non-infringing alternatives developed for litigation. Apotex also proposed that it could have sourced non-infringing product from two third parties, Estevé and Kudco.

Kudco presents an important issue. Kudco held the US rights a non-infringing omeprazole formulation under license from a French company. Kudco executives testified that they would have had the authority to supply product to Apotex for sale in Canada [174], and that they would have been willing to do so if a deal could be reached [177]. Nonetheless, Barnes J did not accept this as an available alternative, primarily because, on the facts, he held that it was more likely than not that a deal would not have been reached between the parties, because Kudco would have asked more than Dr. Sherman would have been willing to pay [191].1 Barnes J therefore held (my emphasis):

[192] I am not, therefore, satisfied that Apotex is more likely than not to have entered into some form of licensing agreement with Kudco during the infringing period. If I am wrong about the standard of proof that applies such that the test in Athey v Leonati, [1996] 3 SCR 458, 140 DLR (4th) 235, is applicable, I would fix the possibility of reaching an agreement with Kudco to supply the Canadian market by the beginning of the infringing period at 15% and at a royalty rate of 35% on Apotex’s net sales.

In both Lovastatin [74] and Venlafaxine 2016 FCA 161 [56], the FCA held that the burden lies on the defendant to establish the factual relevance of a non-infringing alternative on the balance of probabilities. In both cases the FCA cited as authority Rainbow Caterers [1991] 3 SCR 3, 14, which does indeed say that. The problem, as I have discussed, is that Athey v Leonati [1996] 3 SCR 458, [27] says “Hypothetical events . . . need not be proven on a balance of probabilities. Instead, they are simply given weight according to their relative likelihood” (my emphasis). It is not clear to me whether these two holdings can be reconciled. Moreover, the point was thinly reasoned in Rainbow Caterers, and fully reasoned in Athey v Leonati, and the relative likelihood approach appears to be accepted and routinely applied in most other areas of law, eg personal injury.

Because Barnes J made a specific finding as to the relative likelihood of the hypothetical event for the Kudco NIA, and because Apotex failed in respect of all the other NIAs, if there is an appeal, this squarely raises the question of whether the FCA should revisit this question in light of the broader SCC jurisprudence. I am not criticizing the FCA for having followed Rainbow Caterers in the first place. It is SCC authority which does stand for that proposition on this point, and moreover, the point was conceded by Apotex in oral argument: Lovastatin [74]. But on fuller consideration, Rainbow Caterers may not be the best authority.

It seems the issue really only arises in respect of the Kudco NIA. On the relative likelihood approach, a hypothetical possibility “will be taken into consideration as long as it is a real and substantial possibility and not mere speculation”: Athey [27]. It is clear that the sourcing the product from Estevé would not meet this threshold. Barnes J held that the Estevé product was not an available NIA because Estevé had entered into an exclusive North American licence with Mylan, and Mylan would have had to waive its rights for Estevé to supply Apotex. On the facts. Barnes J held that “[t]he likelihood that Mylan would have waived its Canadian rights in favour of a significant competitor seems very remote” [169]. With respect to the post-infringement alternatives developed for litigation, Barnes J expressly applied on the balance of probabilities test, but my sense from his discussion is that those alternatives did not rise beyond speculation.

1 It is contrary to economic logic to suppose that the parties would have left money on the table by failing to make a deal, and Barnes J remarked that “Evidence in the form of an economic model would have been more persuasive than this kind of hypothetical anecdotalism" [192].

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