Wednesday, March 4, 2020

Patentee That Did Not Sue in the Real World Cannot Say it Would Have Done So in the “But For” World

Pfizer Canada ULC v Pharmascience Inc 2020 FCA 55 Laskin JA: Dawson, Stratas JJA aff’g 2019 FC 1271 O’Reilly J
            2,255,652 / pregabalin / LYRICA

The first half of this decision straightforwardly affirms O’Reilly J on an essentially factual point. The second half has some comments on legal points that I find quite puzzling, though I expect this is simply because the specific arguments the FCA was responding to were not fully set out in this brief decision.

The decision arises out of Pharmascience’s action for damages under s 8 of the NOC Regulations, brought after Pfizer lost in NOC proceedings aimed at keeping Pharmascience out of the pregabalin market. Such damages are assessed using the established “but for” test for causation, under which Pharmascience’s actual sales are compared with the sales it would hypothetically have made had it not been kept off the market during the statutory stay period triggered by NOC proceedings. Pfizer responded by arguing that Pharmascience was disentitled to damages “because the hypothetical sales of PMS-pregabalin would have infringed Pfizer’s patent” [FC 2]. However, Pfizer had never actually sued Pharmascience after Pharmascience launched, and the evidence was that it would not have done so even if Pharmascience had obtained its NOC at the outset of the statutory stay period [FC 3], [3]. Invoking the principle that “the but-for world should reflect, to the extent possible, what happened in the real world,” O’Reilly J held that Pfizer’s defence was not viable [FC 5, 23]. In my view, as discussed here, O’Reilly J’s holding was correct for the reasons he gave. The FCA has now affirmed, “substantially for the reasons given by the Federal Court” [6]. This much is straightforward.

I find the remainder of the FCA decision to be less easy to understand. The FCA immediately went on to say that “in our view the Federal Court could and should have gone farther than it did, and treated as binding and dispositive the Supreme Court’s decision in Sanofi-Aventis v. Apotex Inc., 2015 SCC 20.” In that decision, the SCC affirmed from the bench the FCA decision in Apotex Inc v Sanofi-Aventis 2014 FCA 68, “substantially for the reasons of the majority of the Court of Appeal.” In effect, the FCA decision was adopted by the SCC as its own, so that the FCA decision now has the same authority as an SCC decision. In a passage expressly approved by the FCA [6], O’Reilly J [FC 21] observed that the FCA decision in Apotex v Sanofi:

stands for the proposition that the absence of obstacles to market entry in the real world should prevail in the but-for world; if a generic manufacturer could have made sales without objection from the patentee, those sales should be considered in the calculation of the generic’s losses.

I’m puzzled because I don’t exactly see what O’Reilly J could and should have done that he didn’t do. He accurately summarized the holding of principle Apotex v Sanofi and he applied it to the facts: what should he have done instead? 

My initial thought was that perhaps the FCA is suggesting that there is a rule of law that the but-for world must reflect the real world, at least in this respect. This is odd, because construction of the but-for world is usually taken to be largely a matter of fact: see Lovastatin 2015 FCA 171 [45] saying that the "but for" test for causation “is a ‘factual inquiry’ to be established on the evidence”; Venlafaxine 2016 FCA 161 [55] stating “the task of constructing the hypothetical world for the purposes of assessing compensatory damages is a factual inquiry using ‘robust common sense,’” citing Clements v Clements, 2012 SCC 32, [8], [9]. While there are some specific issues that are a matter of law, such as the end date for the damages assessment period, I don’t see any specific legal issue that the FCA has singled out in this decision. Indeed, in Apotex v Sanofi, Mainville JA at [133], for the Court on this point, in the very passage quoted by O’Reilly J at [FC 19] on the issue of whether hypothetical infringement could be taken into account, stated “In the factual circumstances of these proceedings, I do not accept Sanofi’s submissions. In the real market, Sanofi has taken no measure to enforce its HOPE patents. . . “ (my emphasis). Thus the FCA in Apotex v Sanofi considered the specific question of whether the patentee would have enforced its patent to be a question of fact rather than one of law. It isn’t possible that the FCA intended its brief comment to overrule these prior decisions, so my initial thought — that the FCA’s comment was suggesting that there is a rule of law that the but-for world must reflect the real world — must be wrong. But I don’t have any other ideas as to what the Court might have intended.

There is a second puzzle. The FCA went on to say:

[8] We also do not accept that this Court’s decision in Apotex Inc. v. Eli Lilly and Company, 2018 FCA 217, was overlooked by the Federal Court, or calls for a different disposition of this appeal. Though the Federal Court did not refer to this case in its reasons, counsel agree that the parties addressed it in argument, and we cannot assume that it was not considered. In any event, this Court cautioned in that case (at paragraph 4) that its facts were “so unusual that it would be unwise to use them as a backdrop for stating general principles of law.” There is, moreover, no indication in the reasons that the Court intended to question the authority of Apotex v. Sanofi, by which it was bound.

Apotex v Lilly [Cefaclor damages] 2018 FCA 217, was the damages portion of a bifurcated action. As discussed here, Apotex had argued that in the but-for world it would have used the “Lupin 2" process as an alternative that would not have infringed the patent in suit. Lilly responded that the Lupin 2 process could not be used as an NIA because it would have infringed a different patent held by Lilly (the 646 patent). The FCA accepted Lilly’s argument:

[55] It goes without saying that to be a real alternative, an NIA must be lawful, that is to say, non-infringing. This applies to more than just the patent(s) in suit in the proceedings.

Assuming that the patent raised by Pfizer in motion in this decision was the same as the patent in suit in the underlying s 8 proceeding, then there is clearly no conflict between the decisions, and it is unsurprising that O’Reilly J did not mention Cefaclor damages. Unfortunately, it is not clear, at least to me, whether the same patent was at issue. In its summary of the facts in this case, the FCA said that Pfizer pleaded that Pharmascience was not entitled to damages for any sales of pregabalin “that would have infringed another of Pfizer’s patents” [2, my emphasis]. This seems to say that it was not the patent in suit that was being raised by Pfizer in this case, but a different patent. This wasn't apparent from O’Reilly J's decision; he consistently referred to “its” patent or “Pfizer’s patent,” which I took to mean the patent in suit. (Unfortunately, neither the FCA decision nor O’Reilly J’s decision referred to specific patent numbers.) Presumably both the FC and FCA, and everyone involved in the litigation, would know whether Pfizer was relying on the same patent or a different patent.

[Update: the discussion in the paragraph is premised on an incorrect premise regarding the facts in Cefaclor. See below for a revised discussion.] In any event, if Pfizer was relying on a different patent, then there is a potential conflict with Cefaclor damages. If that is so, the FCA decision in this case might be taken to either be confining Cefaclor damages to its facts (the penultimate sentence in the paragraph quoted above), or suggesting that it was wrongly decided as being contrary to Apotex v Sanofi (the final sentence in the above paragraph). If that’s what the FCA intended, it did not explain why, and I don’t see any obvious basis for either suggestion. It seems to me both that Cefaclor damages was correctly decided on its facts, and that it is clearly consistent with Apotex v Sanofi, as the question of whether the patent being raised is the patent in suit or a different patent is a principled distinction. On a factual approach, with the principle that what happened in the real world is the best guide to the but-for world, then if the generic launched with a product that potentially infringed the patent in suit, and the patentee chose not to assert that patent in the real world, that is good evidence that the patentee would not have asserted that patent in the but-for world where the generic had launched the same product two years earlier. But in Cefaclor damages the reason that Lilly had never asserted the 646 patent against Apotex in the real world, is that Apotex had never launched a product that potentially infringed the 646 patent in the real world. The point only arose as a response to a hypothetical launch of a different product by Apotex, that had never happened in the real world. Given that Lilly had never had the opportunity to assert the 646 patent in the real world, we cannot draw the conclusion that it would not have asserted that patent in the but-for world if Apotex had launched an infringing product.

If the FCA had ended its decision with the first sentence of paragraph 6, this would have been a very straightforward decision. I find everything afterwards to be quite confusing. I suspect that the Court’s remarks would be easier to understand if the Court has elaborated a bit more on the specific arguments to which it was responding. Perhaps we will have some clarification in the future. In the meantime, my working assumption is that the "but for" test for causation is a factual inquiry to be established on the evidence, per Lovastatin and Venlafaxine; and that Cefaclor damages remains good law.

UPDATE: It has come to my attention that my statement in the penultimate paragraph that Lupin 2 cefaclor was not launched in the real world is incorrect. (That’s what I get for relying on my own blog post, which skimmed over some details, instead of re-reading the Cefaclor Damages decision.) In fact, Apotex started importing Lupin 2 cefaclor in June 1998: Cefaclor Damages FCA [16]. In the liability portion of the action, Cefaclor Liability 2009 FC 991 aff’d 2010 FCA 240, four Lilly process patents were at issue (007, 536, 728, 468): Cefaclor Liability FC [3, 228]. In the real world, Lilly asserted these patents against the Lupin 2 cefaclor in the liability phase, but failed to prove infringement: Cefaclor Damages FCA [17] [229]. The reason that Lilly did not assert the 646 patent in the real world— which is to say, in the liability phase— is that it did not believe that the 646 patent was infringed. This is because Lilly believed that the only commercially viable process was that covered by the four Lilly process patents in suit: [36-37], [44o], [62]. This belief was entirely reasonable: Apotex lost money in the real world selling the Lupin 2 cefaclor [44r], and the FCA held that there was not sufficient evidence to allow it to conclude that the Lupin 2 cefaclor was commercially viable: [81]. It was only after the trial decision in Cefaclor Liability held that infringement of the Lilly process patents had not been established that Lilly considered the possibility that a different process was used, thus giving rise to the possibility that the 646 patent had been infringed.

Lilly did technically have the opportunity to assert the 646 patent against Apotex in the real world, in the sense that the Lupin 2 cefaclor was on the market sometime in the summer or fall of 1988. But at that time there was no reason for Lilly to have done so, as Lilly did not believe that the Lupin 2 cefaclor infringed the 646 patent. As Gauthier JA explanied in Cefaclor Damages FCA:

[70] Before concluding on this issue, I ought to close the loop by noting that no inference could, in my view, be made from the fact that Lilly never sued Apotex over the 646 Patent. By the time the Liability Decision was issued, more than six years had elapsed since the Lupin 2 cefaclor was imported and used by Apotex. Before that date, Lilly believed – and probably still does – that the Lupin 2 process was not used as Apotex had alleged.

In the damages phase, Apotex had argued that the Lupin 2 product was an NIA for the purpose of assessing damages, because in the but-world, it would have launched with the Lupin 2 cefaclor earlier than it actually did in the real world [38]. The FCA rejected this argument, holding that the Lupin 2 cefaclor was not a legitimate NIA, both because it would have infringed the 646 patent [69], and because it would not have been economically viable [81].

None of this changes the point I originally made in my post. The fact that Lilly did not assert the 646 patent against Apotex in the real world does not allow us to infer that it would not have done so in the but-for world, because in the real world Lilly did not believe that the Lupin 2 cefaclor infringed that patent, as Gauthier JA noted at [70].

It is of course true that the conclusion turned on the unusual facts of Cefaclor, as emphasized by the FCA in this decision, and by the FCA in Cefaclor Damages itself. But if the FCA in this case was merely saying that the facts in Cefaclor Damages were unusual, I still have difficulty seeing how O’Reilly J erred, since correctly applied the test to the admittedly less unusual facts. Alternatively, to the extent that the FCA in this case was suggesting that Cefaclor Damages was wrongly decided, I don’t see why: the reasoning I’ve outlined above seems entirely sound to me. To the extent that the FCA in this case was suggesting that there is a rule of law that a patent cannot be asserted in the but-for world if it was not in fact asserted in the real world, it seems to me that Cefaclor Damages provides an excellent illustration of why such a rule would be unsound.

At the end of the day, I still don’t understand what the FCA was getting in the part of the decision following the first sentence of paragraph 6, but it seems clear that these cryptic remarks cannot be taken to have displaced the clear and considered holdings in Cefaclor Damages, Lovastatin and Venlafaxine.

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