Wednesday, March 8, 2023

Section 8 Damages with Multiple Claimants

Apotex Inc v Sanofi-Aventis 2014 FCA 68 Sharlow JA, Pelletier JA concurring, Mainville JA dissenting, affd 2015 SCC 20 varg 2012 FC 553 Snider J

1,187,087 & others / ramipril / ALTACE / NOC

Dr Reddy’s Laboratories Ltd v Janssen Inc 2022 FC 1672 Southcott J

Apotex Inc v Janssen Inc 2022 FC 1473 Southcott J

2,661,422 / abiraterone acetate & prednisone / ZYTIGA / NOC

If a generic that is kept off the market as a result of a statutory stay under s 7(1)(d) of the PM(NOC) Regs prevails in the subsequent proceedings, it is entitled under s 8 to damages for its loss during period that it was ‘wrongly’ (in hindsight) kept off the market. The idea is broadly that the statutory stay is the equivalent of an automatic interlocutory injunction, and s 8 damages are equivalent to the undertaking in damages that is normally required of a party seeking an interlocutory injunction.

If more than one generic has been kept off the market for the same drug during the same period, there is a difficult question of how to construct the “but for” world for the purpose of assessing damages, and specifically, whether there should be a single “but for” world applicable to all the generics. This is important, because in reality, there is essentially a fixed market for generic products, and the more generics in the market in the “but for” world, the smaller the market share for the s 8 claimant. If there is in principle only one “but for” applicable to all the potential s 8 claimants, then the patentee’s total liability is capped by the size of the generic product market. But if the “but for” worlds for the different claimants are completely independent, then Generic A might get 100% of the generic market in its s 8 action on the view that Generic B would have been kept out of the market by the stay; and at the same time, Generic B might also get 100% of the market in its s 8 action on the view that Generic A would have been kept out of the market by the stay.

This question was addressed by the FCA in Ramipril 2014 FCA 68 varg 2012 FC 553 affd 2015 SCC 20, which held that the second option, with independent “but for” worlds, is the law. We now have a couple of procedural motions involving Janssen as the patentee, and Apotex, Riva and Teva as the s 8 claimants, that should flesh out the Ramipril approach. This case will be very interesting to follow; depending on how the facts play out, it might well give rise to the counter-intuitive result that Janssen will be liable to the various generics for an amount that represents two or three times the total generic market. That would make for an interesting test of the holding in Ramipril.

I blogged Ramipril on this issue when it came out, but looking back, I’m not sure my post accurately described the holding, and in any event, it was confusing even to me, so I’ll try again before turning to the cases at hand.

In Ramipril, Sanofi was the patentee and the s 8 claimant was Apotex. Two other generics, Teva and Riva had filed ANDS and served NOAs on Sanofi in respect of the same drug during the relevant period, and were also seeking s 8 damages in separate actions [FC 8], [FC 154], [FC 163]. Sanofi argued that there should be one “but for” world applicable to all the generics, arguing that if the but for worlds are all separate, then the patentee might be liable to each generic in separate s 8 actions for the entire generic market. Snider J, at first instance, rejected the “one world” approach. She held that the NOC Regs are assumed to exist and operate against all generics in the “but for” world in exactly the same way as in the real world. For Snider J, the only twist in the “but for” world is that we should assume that Sanofi did not bring an application for prohibition against the s 8 claimant, namely Apotex, in response to its NOA: [FC 6], [FC 157]. On this point she relied on Norfloxacin 2011 FCA 329 [75], a s 8 case where the FCA stated that “the Federal Court had to assess [the generic’s s 8] damages on the basis of a hypothetical question: what would have happened had [the patentee] not brought an application for prohibition?” That is a minimally counter-factual scenario that is entirely consistent with the Regs existing and operating as normal. Sanofi is assumed to resist entry by the other generics, much as it did in the real world—subject to whatever consequences flow from the fact that it did not oppose Apotex’s entry.

On appeal, Sharlow JA for the majority, largely agreed with Snider J’s approach [159]. The key question on appeal was whether Snider J was right to reject Sanofi’s “one world” approach. Sharlow JA unequivocally affirmed Snider J on this point, holding that the NOC Regs should be assumed to be effective against the other generics [159], [161], [171]. Consequently, “the behaviour of competing generic drug manufacturers must be determined on the basis that the NOC Regulations exist, and each generic drug manufacturer will conduct itself accordingly” [162]. In general, this means that so far as the other generics are concerned, the NOC process will proceed in the “but for” world in the same way as it proceeded in the actual world: “it seems to me that Riva and Teva would have behaved in the hypothetical world just as they did in the real world, which was to seek summary dismissal as soon as they considered they had a fair chance of success” [187]. This assumption holds unless there is some specific legal basis in the “but for” world that would support an earlier entry date [182].

The difficulty with Sharlow JA’s approach (and Snider J’s approach) is that is may lead to the patentee being liable for damages that are greater than the size of the market. Mainville JA, dissenting, gave the example where there are two generics that each served an NOA and were each subject to the stay in the real world. In the subsequent s 8 action, each would be entitled to 100% of the generic market (less any authorized generic), during the two years of the stay [108]. Sharlow JA did not disagree with this assessment: “that inconsistency is inherent in the scheme of section 8 of the NOC Regulations. If that is a problem that requires a remedy, the remedy lies with Parliament or the Governor-in-Council, not this Court” [164]. (Snider J suggested that in an egregious case, an adjustment might be made pursuant to s 8(5): [FC 138].)

One point puzzles me about Ramipril. In the real world, Apotex, Riva and Teva all served NOAs on Sanofi, and Sanofi brought prohibition applications against all of them [FC 34]. The application against Apotex was heard first and dismissed. The applications against Riva and Teva were then also dismissed as being an abuse of process, as was established law under the Regs at the time, so that Riva and Teva piggy-backed off Apotex’s success [181]. In the s 8 action, Apotex argued that if no application for prohibition was brought against Apotex in the “but for” world, that non-existent application could not have been dismissed, and Riva and Teva could not have piggy-backed off that dismissal. That means that in the “but for” world, Riva and Teva would have entered later than in the actual world. Snider J accepted this argument in principle, though she held that it didn’t make any difference on the facts (for reasons I don’t entirely understand) [159]. Sharlow JA reversed on this point, saying “it appears to me that in the hypothetical world as well as in the real world, the prohibition applications against Apotex would have been dismissed just as they were in the real world” [186].

Here is the puzzle: if the prohibition application was dismissed in the hypothetical world, that means it must have been brought in the hypothetical world. But if the prohibition application was brought in the hypothetical world, what exactly is the difference between the hypothetical world and the real world? What is the counter-factual premise for constructing the “but for” world? So far as I can see, Sharlow JA simply doesn’t address this question at all; her decision is focused on the effect of the Regs against the other generics and whether Snider J was right to reject the “one world” approach. But given that Sharlow JA expressly held that the prohibition applications against Apotex, the s 8 claimant, were dismissed in the hypothetical world, they must first have been brought in the hypothetical world. The idea seems to be that in the “but for” world, Apotex would not have been subject to the statutory stay, but everything else is the same. That doesn’t really make sense to me – if the stay doesn’t operate, Apotex has its NOC, and the prohibition application is moot. Further, I don’t really see how to reconcile this with the Norfloxacin FCA decision that Snider J relied on: it was not mentioned at all by either Sharlow JA or Mainville JA in his dissent. In any event, that’s the puzzle; I don’t have a solution.

Ramipril was decided under the old NOC Regs, but the same puzzle arises, with a twist. The proceeding is now an action. If Generic A serves the NOA and the patentee responds by bringing an action, and Generic A is successful and the patent is declared invalid, then all other generics on patent hold can enter the market, even if they had not served an NOA: s 7(5)(a). If, in a s 8 action under the new Regs, we follow the logic of Snider J and Norfloxacin, and assume that the patentee never served the NOA, and the action never happened, then all the other generics will be assumed to be kept off the market until the expiry of the patent, even though we know it’s invalid. On the other hand, if we follow the logic of Sharlow JA, and assume that the patent was declared invalid, then it seems to me that we have to assume that all the other generics would enter the market immediately (subject to normal lead times). Presumably this will all be sorted out when the cases at hand go to trial.

With that review of Ramipril in mind, we can turn to the cases at hand. Both arise out of the same facts. Apotex, Dr. Reddy’s and Pharmascience all sought to launch a generic version of Janssen’s abiraterone acetate product. The parties agreed to have the subsequent NOC action (under the new Regs) heard at a common trial [6], with the result that the 422 patent was held to be invalid: Janssen v Apotex 2021 FC 7 affd 2022 FCA 184 (blogged here and here). The three generics then brought separate actions for s 8 damages.

In Dr Reddy’s v Janssen 2022 FC 1672, Dr Reddy’s brought a motion to determine a question of law prior to trial, pursuant to Rule 220(1)(a). Relying on Ramipril, Dr Reddy’s argued that, since, in the real world, Janssen brought an action in response to Apotex’s NOA, and Apotex was therefore kept out of the market by a statutory stay, Janssen cannot turn around and say that Apotex would also have entered the market in the “but for” world when Janssen is defending against Dr Reddy’s s 8 claim [21], [23]. Janssen acknowledged that “there is a legal presumption in a section 8 proceeding that a patentee would have taken the same steps in the but-for world that it did in the real world, it is open to the patentee (or any party) to lead evidence that events in the but-for world would have unfolded differently than they did in the real world” [25]. My reading of Ramipril is that Janssen is right, though it will be interesting to see exactly what kinds of arguments along these lines might be successful. With the “one world” rule shot down in Ramipril, patentees will now focus on trying to establish specific counter-factuals to show that particular generics would have entered, despite the NOC hurdles.

In the result, Southcott J declined to answer the question, on the view that this is an important question, likely to have a considerable impact on damages [47], and “the Court could benefit from the full factual context provided by a trial in considering the parties’ legal arguments surrounding a question that may have an impact upon not only this litigation but also related and future litigation” [50]. That strikes me as a sound position. As Sharlow JA essentially acknowledged, the Ramipril holding sets up some potentially paradoxical scenarios. It’s not clear at this point what kind of arguments will be ruled out as a matter of law, and which will just fail (or succeed) on the facts, so it does seem better to address the issue in a fully developed factual context.

In the other decision at hand, Apotex v Janssen 2022 FC 1473, Janssen sought to have four common issues heard together under Rule 105(a). The issues all relate to the nature of the “but for” world, namely the size of the market, whether the plaintiff generics would enter the market, whether the non-party generics would enter the market, and how Janssen would market its products [8]. [26]. The last point goes to the idea that Janssen would reduce its marketing of ZYTIGA and promote an alternative product, which is presumably still patented [26].

An initial issue on the motion was the test for consolidation under Rule 105(a). The purpose of Rule 105(a) is “to avoid a multiplicity of proceedings and promote an expeditious and inexpensive determination of those proceedings” [12]. One issue is of course whether the issues actually are common. It was also uncontroversial that prejudice to responding parties weighs against granting the motion. The contentious issue was whether the moving party, Janssen, also has to show it would be prejudiced. That is, is it enough that the trial of common issues would promote an expeditious and inexpensive determination and that no responding party would be unduly prejudiced, or is it additionally necessary to show that the moving party would be prejudiced without a trial of common issues?

In Ramipril 2009 FC 1285 [11] Snider J held that the moving party must show it would be prejudiced, relying on Apotex v Wellcome (1993) 51 CPR(3d) 480 (FCTD); Mon-Oil (1989) 26 CPR(3d) 379 (FCTD) and Fruit of the Loom (1984), 79 CPR(2d) 274. There was some dispute over whether the FCA decision in Bayer 2020 FCA 86 had indirectly signalled a departure from these principles: Southcott J held it had not, in my view correctly [22]. (That’s not to say that Bayer affirmed this view of the test, but only that it did not address the question directly enough to disturb the prior caselaw.)

So, the law is reasonably well settled. Is it sound? As a matter of principle, if a consolidation can secure a just result at less cost, without any prejudice to a responding party, it would seem that the interest in an expeditious and inexpensive determination of the matter is a good reason for ordering a consolidation, even if there is no specific prejudice to the moving party. The argument to the contrary is that “a genuine onus rests on an applicant seeking to interfere with a plaintiff’s right to pursue a lawful cause of action”: Fruit of the Loom 278. Against that, it might be said that in the absence of any prejudice to the responding party, the desirability of conserving the resources of the justice system should be a good answer to that concern. A consolidated trial doesn’t just affect the parties; by freeing up judicial resources it benefits litigants in entirely unrelated matters.

As a practical matter, I’m not sure it really matters that much whether the moving party has to show it will be prejudiced. If the responding parties are opposing the motion, they have some reason that can normally be characterized as prejudice. If the responding parties are prejudiced, then the ultimate question will be whether that prejudice is outweighed by the efficiencies of a common trial. So, in this case, while Soutcott J held that Janssen had to show prejudice, it was not determinative: he would have refused the motion under either test [24]. The same seems to be true of several of the other cited cases (though I didn’t review them all in detail).

To my mind, the more important question is not whether the moving party has to show prejudice, but as to what kinds of prejudice to the responding parties are cognizable. In particular, a key question is whether the litigation advantages that the responding parties might gain through separate trials–what Janssen referred to as “tactical” advantages—should be weighed against efficiency benefits to the judicial system. Southcott J held that such litigation advantages are indeed cognizable, so that their loss constitutes a prejudce to the responding party: [50]. For example, in this case, Southcott J gave significant weight to Apotex’s position that “Apotex does not wish to have non-party lawyers cross-examining adverse witnesses in Apotex’s s.8 damages case” [44]. So long as these kinds of advantages are cognizable, the responding parties will normally be able to show some kind of prejudice, and I doubt the issue of prejudice to the moving party will often play a major role.

I’m torn on the question of whether litigation advantages should be cognizable. On the one hand, our adversarial justice system depends on the parties being able to run their own case. As Southcott J put it,

[50] A party’s interest in planning and controlling its approach to litigation in which it is involved, and therefore avoiding an adverse impact upon that approach caused by others who would not normally be party to that litigation, strikes me as engaging an aspect of the administration of justice more fundamental than a mere tactical advantage.

On the other hand, our system does ultimately aim to find the truth, and the idea that there might be different truths about the same world in different trials is problematic. Under the old NOC proceedings, the courts regularly expressed embarrassment about the prospect of different result re validity or infringement in the NOC proceeding and the subsequent action. This never struck me as such a problem, given the summary nature of the old NOC proceedings; there’s no reason for embarrassment if a prima facie view of the merits in an interlocutory injunction application turns out differently from the result in the subsequent trial. It seems to me that the embarrassment would be significantly greater in a case in which separate actions could mean that four different trials would find that four different generics would have had a majority of the market in the same but for world. But as just noted, in Ramipril the FCA effectively embraced that inconsistency, as being inherent in the s 8. Under the “one world” approach, in which the same but-for world would be used for all the s 8 claimants, a trial of common issues would have considerable appeal in order to avoid inconsistent results. But given that the FCA held, in effect, that there is no common truth, as a matter of law, there is nothing left to the argument that we need a common trial to discover a common truth. With nothing to balance against it, it is really just a matter of weighing any efficiencies against the desirability of allowing each party to control its own case.

On the facts, Southcott J gave significant weight to a variety of litigation concerns raised by the generics [44]–[45]; he also noted that because witnesses would have to testify to different but-for worlds in the common trial, the efficiencies in adjudication would not be as great as if the there was a truly common factual issue [51]; and, moreover, one of the generics, namely Pharmascience, would suffer a more uncontroversial kind of prejudice because its trial date was 17 months later than the other two: [55]. Consequently, he refused to order the consolidation.

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