ONCA Affirms that PM(NOC) Statutory Stay Damages Regime is a Complete Code

Apotex Inc v Eli Lilly Canada Inc 2022 ONCA 587 affg Apotex v Eli Lilly 2021 ONSC 1588

2,041,113 / olanzapine / ZYPREXA

Under the patent linkage system established by the PM(NOC) Regulations, a patent that is ultimately held to be invalid can keep competitors off the market for two years by operation of the statutory stay pursuant to s 7(1)(d). If the generic prevails, s 8 provides a remedy in the form of damages for the losses suffered from having been kept off the market by the statutory stay. One well-established limitation to s 8 damages is that if the generic is unsuccessful in the NOC proceeding, it cannot claim s 8 damages, even if the patent is subsequently held invalid in an infringement action: 2013 FCA 282 (here). So, Lilly had prevailed in NOC proceedings against Apotex based on the 113 patent (2007 FC 455 affd 2008 FCA 44), but that patent was subsequently declared invalid in separate proceedings (2011 FC 1288 affd 2012 FCA 232). Because Apotex lost in the NOC proceedings, it was not entitled to s 8 damages. In this action, Apotex sought to recover damages for having been kept off the market on the basis of three other causes of action: breach of the Ontario Statute of Monopolies; s 7(a) of the Trademarks Act; and common law conspiracy in restraint of trade [34]–[36]. As discussed here, Schabas J, at first instance, dismissed the action on a motion for summary judgment, holding that none of these causes of action raised a genuine issue for trial. The ONCA has now affirmed, essentially holding that Schabas J was correct on all points. I won’t go through the decision in detail. Instead, I’ll summarize and point out some highlights.

The first point is that the NOC Regulations are a “complete code.” Well, they’re not actually a complete code, as Apotex pointed out [36], but the real point of Schabas J’s decision is that the Regulations are “a complete code” for the purposes of determining whether damages were available to Apotex for having been kept off the market as a result of the operation of the Regulations; and for that purpose, they are a complete code [37], [39].

Second, Schabas J held that Lilly cannot be made liable for exercising its statutory rights [ONSC 113]–[118]. The ONCA agreed:

[42] Eli Lilly is not liable for actions that it was authorized by law to take and for harms that were caused by the operation of the patent regime that Apotex invoked. Absent abuse of process, which was not alleged or found here, Eli Lilly was entitled to pursue the legal process provided for under the PM(NOC) Regulations.

This is probably the most significant general holding of law in this decision. As I noted in my post on Schabas J’s decision, it is broadly similar to the US Noerr–Pennington doctrine. The Noerr–Pennington doctrine has found application in a variety of contexts in US law: see Gugliuzza, Patent Trolls and Preemption, (2015) 101 Va L Rev 1579, 1611–12. It will be interesting to see if this holding takes on a life of its own in the Canadian context.

The Statute of Monopolies point turned on Apotex’s argument that the Statute of Monopolies only exempts valid patents from actions for damages [44]. But, on its face, the Statute “does not distinguish between valid and subsequently invalidated patents” [47]. The ONCA further explained that:

Parliament passed the Statute of Monopolies in an attempt to limit abuses by the Crown in granting “letters patent”, not “patents of invention”. The Statute was passed in response to the Crown granting letters patent to operate or regulate industries, or to have others act as agents of the Crown in operating monopolies for trade and industry, independent of merit or invention.

The ONCA did not cite any authorities on this point. It is more confident than I might be as to the purpose of the Statute, and of course patents of invention are, or at least were at the time, letters patent, so that distinction is a bit strained. But that doesn’t really make any difference given the basic point that the Statute does not distinguish between valid and invalid patents.

The Trademark claim turned on the notion that Form IV filed by Lilly to list the 113 patent on the register was misleading because the 113 patent was invalid. However, all statements made by Lilly were true at the time it made them [51].

The conspiracy claim was struck because Lilly committed no unlawful acts; Lilly was entitled to seek and obtain a patent and list it on the Register: [53].

The ONCA also affirmed a very substantial cost award in Lilly’s favour on a deferential standard of review, after taking the opportunity to review the relevant principles of costs awards. The discussion might be useful to lawyers more familiar with Federal Court practice who are involved in litigation in the Ontario courts.

NOC s 8 Regime is Still a Complete Code

Apotex Inc v Pfizer Ireland Pharmaceuticals 2021 ONSC 6345 Diamond J

            2,163,446 / sildenafil / VIAGRA

This decision is one more short chapter in the saga of Apotex’s attempts to avoid the limitation on recovery of damages under s 8 of the NOC regulations. Bigger news will be coming in the new year, with the appeal of Schabas J’s decision in Apotex v Eli Lilly 2021 ONSC 1588 (here) scheduled for February [22]. In the meantime, Diamond J’s decision in this motion for summary judgment followed Schabas J in dismissing Apotex’s claims, on the basis that the NOC regime provides a complete code governing recovery in respect of the statutory stay provisions of the NOC regime.

Under the patent linkage system established by the PM(NOC) Regulations, a patent that is ultimately held to be invalid can keep competitors off the market for two years by operation of the statutory stay pursuant to s 7(1)(d). If the generic prevails, s 8 provides a remedy in the form of damages for the losses suffered from having been kept off the market by the statutory stay. But if the generic is unsuccessful in the NOC proceeding, it cannot claim s 8 damages, even if the patent is subsequently held invalid in an infringement action: 2013 FCA 282 (here). In an attempt to get around this and other limitations on s 8 recovery, a number of actions have been brought in provincial superior courts (mostly by Apotex), pleading a variety of causes of action other than s 8. So far these attempts have been largely unsuccessful, with the courts generally expressing the view that s 8 provides a “complete code” in respect of recovery pursuant to the statutory stay: see Low v Pfizer 2015 BCCA 506 [46]–[72], and see here, here and here. The most recent decision is that of Schabas J in Apotex v Eli Lilly / Zyprexa 2021 ONSC 1588, relating to olanzapine / ZYPREXA (see here), with an appeal to the ONCA scheduled for February 2022 [22].

The principle that the legislature intended s 8 to be a complete code governing the relationship between generic and innovators implies that the generic cannot recover under any cause of action other than s 8, even if the generic otherwise had a good claim under the alternative cause of action. This is apparent both in Schabas J’s decision, in which he held that the claims were not tenable even before considering the specific causes of action [122], as well as in Low v Pfizer, in which the BCCA [67] addressed the specific causes of action in the alternative, assuming that s 8 was not a complete code. Thus, while some causes of action have survived a motion to strike, they are doomed to fail if the complete code argument is accepted by the ONCA.

In this decision Diamond J came to the same conclusion as Schabas J, in a case related to sildenafil / VIAGRA. (The scheduled trial had been adjourned in light of Schabas J’s decision to allow the matter to be decided by a motion for summary judgment: see 2021 ONSC 1860.)

Diamond J relied on principles of comity, which indicate he should follow the decision of Schabas J unless it was clearly wrong: [15]–[26]. But comity did not play a pivotal role: Diamond J concluded that Schabas J’s decision was not clearly wrong, and “on the contrary, I agree with it” [28]. While Diamond J agreed generally with Schabas J’s analysis, he seemed to place particular emphasis on the point that all of Pfizer’s acts were legally permissible pursuit of the interest under the Patent Act and related legislation: eg “It is the provisions of the Patent Regime itself that precluded Apotex from competing with Pfizer through the development and sale of generic drugs, and not by reason of any alleged wrongful act or omission on the part of Pfizer” [30], and “There is no evidence in the record before me that Pfizer took any steps other than employing the regular legal process set out in the Patent Regime to its conclusion” [36].

Diamond J expressly noted that his conclusion that the patent regime is a complete code was sufficient to dispose of the matter even without the need to consider the merits of the specific causes of action that had been pleaded by Apotex [41]. He nonetheless briefly addressed the two additional common law causes of action advanced by Apotex which had not been raised in Schabas J’s Zyprexa decision, namely unjust enrichment and nuisance.

With respect to unjust enrichment, Diamond J noted that “[t]here is no causal connection between Pfizer’s alleged enrichment and Apotex’s alleged deprivation, as there was no ‘transfer of wealth’ from Apotex to Pfizer,” and more importantly, the patent regime provides a juristic reason for the enrichment [43]. With respect to nuisance, Diamond J stated that “There is nothing alleged to have been done on the part of Pfizer that substantially interferes with Apotex’s use and enjoyment of its property. The right to manufacture generic drugs is not a land right” [45].

PM(NOC) Statutory Stay Damages Regime is a Complete Code

Apotex Inc v Eli Lilly Canada Inc 2021 ONSC 1588 Schabas J

            2,041,113 / olanzapine / ZYPREXA

Under the patent linkage system established by the PM(NOC) Regulations, a patent that is ultimately held to be invalid can keep competitors off the market for two years by operation of the statutory stay pursuant to s 7(1)(d). If the generic prevails, s 8 provides a remedy in the form of damages for the losses suffered from having been kept off the market by the statutory stay. There are limitations to the s 8 remedy which are now clearly established. First, if the generic prevails in the s 8 proceeding, s 8 entitles it only to its own damages, and not disgorgement of the patentee’s profits: 2011 FCA 358 (here); 2013 ONCA 555 (here). Second, if the generic is unsuccessful in the NOC proceeding, it cannot claim s 8 damages, even if the patent is subsequently held invalid in an infringement action: 2013 FCA 282 (here). A number of actions have been brought in provincial superior courts pleading a variety of causes of action (other than s 8), seeking a way around both of these limits. So far, none of these attempts to avoid the limits on s 8 recovery have been successful, though some causes of action have survived a motion to strike. Other causes of action have been struck, or class certification refused on substantive grounds: see here for a summary as of Aug 2016, and here and here for discussion of two decisions since then. (I think that is a complete list, though I won’t make any promises.)

In this case, Apotex sought to avoid the second limit on s 8 damages. Lilly had prevailed in NOC proceedings against Apotex ( 2007 FC 455 affd 2008 FCA 44), but 113 patent was subsequently declared invalid in separate proceedings (2011 FC 1288 affd 2012 FCA 232): [10]–[23]. (As Schabas J noted [23], the 113 patent was invalidated on the basis of the promise doctrine—see here—which was subsequently abolished by the SCC in AstraZeneca 2017 SCC 36, so it appears that the 113 patent would be valid under current law. Nothing turned on this point.) Apotex had attempted to claim s 8 damages in Federal Court proceedings, and it was that litigation, culminating in 2013 FCA 282, that established that s 8 recovery is not permitted in those circumstances.

In this action, Apotex sought to recover damages for having been kept off the market on the basis of three causes of action: breach of the Ontario Statute of Monopolies; s 7(a) of the Trademarks Act; and common law conspiracy in restraint of trade [34]–[36].

Schabas J dismissed the action on a motion for summary judgment, holding that none of these causes of action raised a genuine issue for trial. There were two preliminary points: whether the matter should be dealt with by way of summary judgment (yes), and whether the limitations period had run (no), which I won’t address, as the former is not patent specific and the latter is only relevant to the old NOC proceedings.

Schabas J’s holding rested primarily on two general points.

First, the PM(NOC) Regulations are a “complete code” which comprehensively sets out the remedies available to the parties. The underlying NOC proceedings in this case were standard NOC proceedings of the kind that would have been directly within the contemplation of the legislature. To provide additional remedies which are not found in the Regulations, in circumstances that undoubtedly were contemplated by the drafters, would upset policy choices and balancing of interests arrived at by Parliament: [110] and generally [97]–[110], [114]. As Schabas J pointed out, this reasoning has been accepted in all of the highest authorities to consider the question in this context.

In my view this logic is sound. Since I’m an academic, I have to quibble a tiny bit. Schabas J stated a few times, including at the very outset of his analysis, that “patent law is ‘wholly statutory’” [97], [110]. Yes, that is quoting the SCC in Sanofi 2008 SCC 61, which in turn quoted Lord Walker’s decision in Synthon [2005] UKHL 59, but Apotex nonetheless is right to say that this is an “overstatement” [98]. For example, all of the law of utility, including the doctrine of sound prediction and its enhanced disclosure requirement (if that exists), and the prohibition of post-filing evidence, rests on a single word in the Act; the obviousness requirement was not in the code at all until 1993, despite having been part of the law for a century before that. The Supreme Court in Sanofi used this phrase to indicate two somewhat narrower points: first, that there is no common law right to a patent; and second, that specific statutory provisions will always prevail over judicially developed doctrines. Both of these points are unassailable, and neither rests on the notion that the Act is a complete code in a strong sense. Lord Walker’s statement in Synthon [57] is particularly curious:

The law of patents is wholly statutory, and has a surprisingly long history. It has been wholly statutory since the Statute of Monopolies 1623, an important landmark in constitutional history because of its effect in curbing the royal prerogative.

As Lord Walker states explicitly, the Statute of Monopolies did nothing but curb the royal prerogative. Even after the Statute of Monopolies, the basis for the grant in English law rested on the exercise of the royal prerogative and not on the statute: in principle, this was true in the UK until the Patents Act 1977. The Crown could, and occasionally did, refuse to grant patents for general policy reasons, such as protection of tax revenue, which had not even the slenderest basis in the Statute of Monopolies. Thus the very basis of the grant was not statutory. Moreover, the Statute of Monopolies itself is and was at the time generally considered to be a reflection of the common law. Indeed, Dr Fox has gone so far as to say that the Statute of Monopolies “was not by any means enacted as a patent statute having as its primary purpose the establishment of a system whereby letters patent might be obtained for meritorious inventions. It was enacted as the result of a long and turbulent agitation against the abuse of monopolies of all kinds as well as other grievances which are set out in the preamble to the Act”: Fox, “Abuse of Monopoly”(1945) 23 Can Bar Rev 353, 371. Consequently, Lord Walker’s statement that patent law “has been wholly statutory since the Statute of Monopolies 1623" is a bit of a stretch.

With that said, Schabas J’s decision does not rest on the view that the entirety of patent law is statutory. It rests on the much narrower ground that the balance of interests struck in the PM(NOC) Regulations, and the remedies provisions in particular, are a complete code for addressing the harm done by the statutory stay. That is the main point made by the authorities quoted and relied on by Schabas J. This narrower point is entirely compelling. The PM(NOC) Regulations were high profile enactments which were heavily lobbied. They reflect a political compromise between the interests of the generics and the innovators, and more broadly “a compromise between the interests of the public in encouraging research and development of new patentable drugs and in encouraging generics to market drugs at lower prices” [106]. I won’t multiply references on this point, as it is made in all of the decisions quoted by Schabas J, noting eg the “highly regulated” nature of this field [109].

I’ll add one point that wasn’t mentioned in the decision. It is widely recognized that the statutory stay "is tantamount to an interlocutory injunction": Bayer AG v Apotex (1993) 51 CPR(3d) 329 [13]. While the 1993 RIAS is not explicit, it appears that the NOC proceedings under the original regulations were broadly modeled on an interlocutory injunction application (in contrast to the deemed infringement approach under the US Hatch-Waxman system and under the new NOC proceedings). So, in addition to the stay, the proceeding was summary in nature, and the fact that the outcome had no in rem effect is also similar to an interlocutory injunction application. A defendant may also suffer loss from being enjoined by an interlocutory injunction if it turns out that the injunction was ‘wrongly’ (with the benefit of hindsight) granted, and it is very well-established that the party subject to an interlocutory injunction has no common law right to damages for its loss. This is because the loss is due to an order of the court, not the action of the plaintiff. The defendant will only be compensated if an undertaking is given, as is normally required. Section 8 damages play the role of damages on the undertaking; and to the extent that the proceedings were indeed modeled on an interlocutory injunction, the parallel implies that the background assumption is that there would be no recovery other than that provided for by s 8, just as there is no recovery for the harm caused by an interlocutory injunction apart from that provided for by the undertaking.

The second general point made by Schabas J is that Lilly cannot be made liable for exercising its statutory rights [113]–[118]. The direct cause of the loss to Apotex is the statutory stay. The stay is indirectly caused by Lilly listing the 113 patent, and then responding to Apotex’s NOA. While Lilly was not required to list the 113 patent, it was entitled to do so: “such acts ‘were the opposite of unauthorized’ and were acts that Lilly ‘was at liberty to commit’” [118], quoting Harris 2010 ONCA 872 [50] affg 2010 ONSC 2326 [94]. This is true “even if Lilly was motivated by an improper motive” (on which there is no evidence) [111].

This reminds me broadly of the US Noerr–Pennington doctrine, which is to the effect that it is not actionable under the antitrust laws to petition government to enact anticompetitive legislation, even if the intent is to eliminate competition: Noerr 365 US 127 (1961); Pennington 381 US 657, 670 (1965). The parallels are not exact, as Noerr and Pennington themselves are about petitioning government in the antitrust context specifically. But there is a broad parallel in the idea that petitioning the government in respect of legislation cannot be actionable in a democracy (Noerr 137–38), and similary taking advantage of one’s rights under legislation should not be actionable. The lower federal courts in the US have consequently expanded that immunity far beyond the antitrust context to a wide variety of claims: see Gugliuzza, Patent Trolls and Preemption, (2015) 101 Va L Rev 1579, 1611–12. Moreover, the Court noted in Pennington 671 that “it is clear under Noerr that Phillips could not collect any damages under the Sherman Act for any injury which it suffered from the action of the Secretary of Labor. The conduct of the union and the operators did not violate the Act, the action taken to set a minimum wage for government purchases of coal was the act of a public official who is not claimed to be a co-conspirator, and the jury should have been instructed, as UMW requested, to exclude any damages which Phillips may have suffered as a result of the Secretary’s Walsh-Healey determinations.” That is, if the direct cause of the injury is the operation of the legislation, the injured party cannot claim damages against the legislator, and any improper motive in petitioning for the legislation is vitiated by the intervention of the legislator itself. The principle applies not only to petitioning a legislative body, but also petitioning a court for relief, unless the litigation is a “sham”: see Professional Real Estate Inventors v Columbia Pictures 508 US 49, 56–58 (1993). More broadly, in the United States under Noerr-Pennington and related doctrines, a patentee is generally immune from civil liability for harm arising from assertions of infringement so long as the assertions are not (1) objectively baseless and (2) made with subjective ill intent: see Gugliuzza, Patent Trolls and Preemption, 1616–28. While there is room for debate about whether the precise contours of the US rule are sound as applied in the patent context (see Gugliuzza, arguing that threats made in bad faith should not be immune from liability), that is not relevant here as there is no question of objective baselessness or ill intent on the facts at hand. (Indeed, as noted above, the patent at issue would probably be valid under existing law.)

I’m not sure how much this parallel adds, but in any event, I do find the basic point made by Schabas J and Harris—that it cannot be actionable to take advantage of one’s statutory rights—to be entirely convincing.

It seems to me that these points are independent, and either would be sufficient to dispose of Apotex’s claim. The policy balance struck by the legislature happens to be triggered by the pharma innovator listing its patent; but even if there were some other trigger, the policy balance still shouldn’t be upset. Conversely, if listing is authorized under the Act, it shouldn’t give rise to liability, even if there weren’t a comprehensive balance backing it up. But that’s an issue for another day, as here the two principles did work in tandem.

So at this point there is a strong argument for dismissing Apotex’s action—and I haven’t even discussed the actual causes of action themselves, except in passing at the outset. Schabas J’s decision proceeded similarly: he apparently held that the claims were not tenable even before considering the specific causes of action [122], though he did go on to consider the specific causes of action, and concluded that none of them could be supported on the evidence or the law. While this approach is a bit unorthodox, it strikes me as sound. At the very least, the general principles establish that the claims should be dismissed unless examination of the specific causes of action shows some good reason to the contrary.

The first cause of action was for breach of s 4 of the Ontario Statute of Monopolies, which provides (in part),

If any person shall be . . . grieved . . . by [any] letters patents . . . tending as aforesaid, . . . the same person shall have his remedy . . . against him by whom he shall be so . . . grieved . . . and every such person . . . shall recover three times so much as the damages which he sustained by . . . occasion of being so . . . grieved

This is essentially identical to s 4 of the original English Statute of Monopolies (barring some transitional language in the original statute). As I understand it, there was some controversy as to whether various Imperial statutes affecting property and civil rights became part of the law of Canada ex proprio vigore. To resolve the uncertainty, “An Act respecting the Imperial Statutes relating to property and civil rights” SO 1902 c 13, was enacted, confirming that certain listed Acts were part of the law of Ontario. The Ontario Statute of Monopolies was made part of the RSO 1897 under the authority of that Act: see Fox, “Abuse of Monopoly” (1945) 23 Can Bar Rev 353, 363–64. The Ontario Statute of Monopolies has never been judicially considered until this recent spate of proceedings. Section 4 of the original English statute appears to have been judicially considered exactly once in the 400 years since it was enacted, in Peck v Hindes (1898) 15 RPC 113 (QB) (see 117 indicating that it was the first time the provision had been considered).

There are serious questions as to the validity of the Ontario Statute of Monopolies, which Schabas J found it unnecessary to address in light of his conclusion that the provision, even if validly enacted, did not support Apotex’s claim in the circumstances [127]–[130]. I’ll note that Dr Fox was firmly of the view that it was intra vires: see “Abuse of Monopoly” at 370–72

Apotex’s argument, as I understand it, is that Apotex was “grieved” by the 113 patent, by virtue of having been kept off the market. Section 6 of the Statute of Monopolies (s 5 of the Ontario Statute) provides that s 4 does not apply to any letters patents granted to the true and first inventor of for new manufactures; but this exception, so the argument goes, should be interpreted as only applying to valid letters patent, so that patents that granted but which are ultimately held to be invalid are subject to s 4. This is a purely textual interpretation of s 4, and it must be said that a purely textual parsing of an obscure 400 year old statute is a very slender ground for disrupting the legislative balance struck by the NOC Regulations.

The historical intent of s 4 is obscure. In Peck v Hindes, counsel argued at 124–25 that s 4 was aimed at extrajudicial enforcement of patent rights; that was not accepted (or rejected) by the court, and even if correct, that theory of s 4 would not support a cause of action on the present facts. Mathew J in Peck v Hindes concluded at 127 that s 4 did not apply at all to letters patent for invention. The famous s 6 of the original Act (s 5 of the Ontario Statute, as s 5 of the original Statute was transitional), the foundation of the law of patents, provides an exception for letters patent for invention in the following terms: “any declaration before mentioned” —including s 4—”shall not extend to any letters patents. . . made. . .of the sole working or making of any manner of new manufactures.” The Court in Peck v Hindes observed that “Section 6 does not say anything about valid Letters Patent. It says, Letters Patent for new inventions” (127). Schabas J agreed with this holding [135].

The only scholarship I have been able to find that considers the effect of s 4 is series of articles by Dr Fox, primarily “Abuse of Monopoly”(1945) 23 Can Bar Rev 353; and see also “Patents in Relation to Monopoly” (1946) 12 Can J Econ Pol Sci 328; Fox, “Patents in Relation to Monopoly: A Rejoinder” (1947) 13 Can J Econ Pol Sci 68-80. Fox argues that s 4 was intended to address unjustified threats of legal proceedings, similar in spirit to the UK Intellectual Property (Unjustified Threats) Act 2017, and which are normally dealt with in current Canadian law under s 7(a) of the Trademarks Act: see here and here. While Dr Fox’s theory was not considered by Schabas J, Fox’s conclusions are entirely consistent with his reasons. Fox agreed with the holding in Peck v Hindes, saying that it is authority for the proposition that “an action for infringement of a patent, whether valid or invalid, does not give rise to the action contemplated by sec. 4” (370, my emphasis); and similarly, on the authority of Peck v Hindes, "a person could not be penalized for bringing action in a court of law to support his letters patent even though he were unsuccessful” (369). Fox goes on to argue that “nevertheless he could be and would be penalized if he endeavoured to use his patent as a club held in terrorem over the heads of his competitors, and by so doing grieved, disturbed or disquieted those persons, by methods other than bringing the matter for hearing and determination before a court of law” (369). Whether Fox is right as to the intent and effect of s 4 is a question that we need not resolve here; it is enough to say that on Fox’s view, s 4 would clearly not allow recovery for damages in the circumstances of this case.

It is also worth noting that Fox explicitly agreed with Schabas J’s second general point: “No person can be penalized, other than by costs, for bringing an action to support what he considers to be a legal right” (372). This observation illustrates that s 4 is not in tension with the general principles set out by Schabas J; on the contrary, it can, and should, be interpreted harmoniously with that basic principle.

The next cause of action raised by Apotex is based on s 7(a) of the Trademarks Act, which is breached when one makes “a false or misleading statement tending to discredit the business, goods or services of a competitor.” Apotex argued that the false statement by Lilly lay in listing the 113 patent on the Patent Register, which entailed a representation that the '113 Patent was valid and enforceable [139]. Schabas J noted that “there is nothing untrue or false in any material respect, let alone disparaging or discrediting of Apotex, in the Form IV. At the time it was completed, Lilly did have the 113 Patent for Olanzapine. That is essentially all that was stated” [141].

Apotex’s final cause of action is common law conspiracy, which alleged a conspiracy to fix monopolistic prices. This was premised entirely on Lilly applying for a patent and listing on the register, which Lilly was perfectly entitled to do. There was no suggestion of improper conduct, other than obtaining a patent that was ultimately held to be invalid; this cannot constitute a conspiracy.

Finally, I note that Schabas J did not hold that use of the litigation process can never give rise to civil liability, but rather that any such liability must be based on a “stand alone cause of action” or a claim “totally independent of the regulatory regime”: [115], adopting the language of Apotex v Eli Lilly 2015 ONCA 305 [53] and 2013 ONSC 5937 [8]. Schabas J did not elaborate, as there was no allegation capable of supporting any independent ground, but in my view, groundless threats of infringement, that were the concern of authors such as Dr Fox and Prof Gugliuzza, would certainly fall into that category. There is therefore not the slightest conflict between Schabas J’s holding and the FC decisions, mentioned above, dealing with unjustified threats under s 7(a) of the Trademarks Act.

PS — Various similar actions are also before the courts at various stages of case management. In a case management decision in one such matter, Apotex Inc v Pfizer Ireland Pharmaceuticals 2021 ONSC 1860 Myers J adjourned a trial set for September in light of Schabas J’s decision in this case, and instead ordered that the matter be decided by way of a motion for summary judgement.

Alternatives to s 8 Damages

Apotex Inc v Pfizer Ireland Pharmaceuticals et al 2016 ONSC 4966 Lederman J

Under our patent linkage system, a patent that is ultimately held to be invalid can keep competitors off the market until the conclusion of the NOC proceedings. Section 8 of the NOC Regs provides a remedy in the form of damages to the generic that has wrongly been kept off the market. However, there are limitations to this remedy. Both the FCA and the ONCA have held that if the generic is successful in the s 8 proceeding, s 8 entitles it only to its own damages, and not disgorgement of the patentee’s profits: Apotex v Eli Lilly Canada 2011 FCA 358 (here); Apotex v Abbott Laboratories 2013 ONCA 555 JJA (here). The FCA has also held that if the generic is unsuccessful in the NOC proceeding, it cannot claim s 8 damages, even if the patent is subsequently held invalid in an infringement action: see Eli Lilly Canada v Apotex 2013 FCA 282 (blogged here). Undeterred, in a series of actions Apotex has sought a way around these limitations by pleading a bewildering variety of causes of action. None has so far proceeded beyond the pleading / certification stage. I haven’t blogged all of them and this decision presents an opportunity to try to summarize the holdings, though so many causes of action have been raised that I can’t guarantee that I have caught them all.

This decision itself is also noteworthy in a few respects. Most importantly, Lederman J refused to strike the claim for unjust enrichment [36]. In so doing, he declined to follow the BCCA decision in Low v Pfizer 2015 BCCA 506. As discusssed here, Low held that the claim for unjust enrichment had no prospect of success because there was a juristic reason for the infringement. Lederman J noted that Low was not binding on him [30], and he consequently held that jurisprudence is inconclusive [33]. He also distinguished Apotex v Eli Lilly 2015 ONCA 305 (here) on the basis that in that case Apotex had been seeking disgorgement of all of the patentee’s profits, whereas in this case, Apotex “claims only that portion of Pfizer’s revenues that represent the revenues Apotex was deprived of because of the delay in obtaining its Notice of Compliance” [35]. That is, in this case Apotex is in effect seeking its own damages in the guise of an unjust enrichment claim.

Lederman J also allowed a claim for damages in nuisance [39]. I believe this is the first time Apotex has advanced a nuisance claim.

A third point of interest is that Lederman J also struck Apotex’s claim for damages under s 8 [18]. This is not too surprising, as he was simply following [14] the FCA holding in Eli Lilly Canada v Apotex 2013 FCA 282 n this point but given his view of the BCCA decision in Low, it was not a foregone conclusion that he would accept the FCA’s reasoning.

Apotex also pleaded treble damages under the English and Ontario Statutes of Monopolies [1]. Pfizer did not seek to have this struck, in light of the prior jurisprudence allowing such a claim to stand. Lederman J also allowed the claim under s 7(a) of the Trade-marks Act to stand, in light of prior decisions [28]. He rejected the claim based on Ashby v. White, on the view that “The principle borrowed from that case – ‘no right without a remedy’ – is simply a phrase, a principle or a maxim. By itself, it does not disclose a cause of action and should be struck” [40].

To summarize (at least partially) the cases to date:

No prospect of success
            Disgorgement under s 8

Apotex v Eli Lilly Canada 2011 FCA 358 (blogged here); Apotex v Abbott Laboratories 2013 ONCA 555 (here) aff’g 2013 ONSC 356

Damages under s 8 if patent held valid in NOC proceeding

Eli Lilly Canada v Apotex 2013 FCA 282 (blogged here); Apotex v Pfizer Ireland 2016 ONSC 4966

            Unlawful interference with economic relations
                        Low v Pfizer 2015 BCCA 506 (here)

Waiver of tort

                        Low v Pfizer 2015 BCCA 506 (here)

            The “principle” in Ashby v White

Apotex v Pfizer Ireland 2016 ONSC 4966

Allowed to stand

Damages under the Trade-marks Act s 7(a)

Apotex v Pfizer Ireland 2016 ONSC 4966

Apotex v Eli Lilly 2012 ONSC 3808 leave to appeal refused 2013 ONSC 1135 (here)

Apotex v Schering 2016 ONSC 3407

Treble damages under the English and Ontario Statutes of Monopolies:

Apotex Inc. v. Eli Lilly, 2015 ONSC 5396; Apotex Inc v Schering Corp 2016 ONSC 3407

            Damages in nuisance

Apotex v Pfizer Ireland 2016 ONSC 4966

            Conspiracy
                        Apotex v Pfizer Ireland 2016 ONSC 4966

Unjust enrichment
            No cause of action in unjust enrichment

Low v Pfizer 2015 BCCA 506 (here) contra Apotex v Pfizer 2016 ONSC 4966

            No disgorgement of patent’s entire profits
                        Apotex v Eli Lilly 2015 ONCA 305 (here)
            Disgorgement of profits corresponding to generic’s damages

Apotex v Pfizer Ireland 2016 ONSC 4966 contra Low v Pfizer 2015 BCCA 506

Complete Code Bars Class Action for Recovery of Profits from to Invalid Patent

Low v Pfizer Canada Inc, 2015 BCCA 506 Garson JA: Bennett, Savage JJA rev’g 2014 BCSC 1469 Smith J (blogged here).
            2,163,446 / VIAGRA / sildenafil

In Low v Pfizer, the BCCA refused to certify a class action seeking disgorgement of the excess profits earned by Pfizer on sales of Viagra during the period when Pfizer’s market position was protected by a patent which was ultimately held to be invalid. The BCCA decision was based on three points: (1) the plaintiff was essentially seeking to create a tort of breach of statute, contrary to Saskatchewan Wheat Pool [1983] 1 SCR 205; (2) the patent regulatory regime is in any event complete code; (3) and the claims in unjust enrichment and unlawful interference with economic relations would fail on their own merits independently of the complete code argument. From a policy perspective, the BCCA was concerned about “tortifying” regulatory law and upsetting the complex balance of patent incentives that have been established by the legislature.

Disgorgement of Patentee’s Profits Fails Second Branch of Unjust Enrichment Test

Apotex Inc v Eli Lilly & Co, 2015 ONCA 305 Feldman JA: Doherty, Blair JJA aff’g 2013 ONSC 5937 Grace J: Law, Sachs JJ

When a patentee brings an application for an order of prohibition pursuant to the NOC Regulations a statutory stay is automatically triggered keeping the generic off the market for 24 months or until the application is resolved in the generic's favour. If the generic prevails, it is entitled, under s 8, to damages equal to the profits it lost from having been kept off the market by the statutory stay. Since the patentee's price is normally higher than the generic's, the profits made by the patentee from sales that would have been made by the generic but for the stay are normally greater than the generic’s damages. Apotex has now failed, once again, to obtain not just its damages, but a disgorgement of the profits made by the patentee.

In its decision on this motion to strike Apotex' claim for unjust enrichment, the ONCA has provided a helpful review of the prior attempts by Apotex, both in the Federal Courts and Ontario courts, to obtain a disgorgement [22]-[31]. Apotex was previously unsuccessful on the basis that s 8 is a complete code which contemplates damages as the sole remedy [35] (and see here, discussing the previous ONCA decision, and here discussing the leading FCA decision).

In this case Apotex argued that these precedents do not govern when the patent holder obtains and lists its patent through misrepresentation: that is, it argued that even if mere invocation of the NOC Regulations cannot trigger disgorgement, knowingly triggering the Regulations by misrepretation may trigger such a remedy. This invited a debate as to the limits of the "complete code" argument, which was the basis on which Apotex' claim was struck by the Divisional Court. But the ONCA, of its own initiative [40], took a different tack. Instead of holding that the unjust enrichment claim was barred because allowing it would be inconsistent with the statutory regime, the ONCA held that Apotex' claim could not stand purely as a matter of the law of unjust enrichment [39], [41] (my emphasis):

there is a fundamental flaw in Apotex’s claim for unjust enrichment that makes this doctrine unavailable to Apotex, irrespective of the nature of Lilly’s conduct that may be proved at a trial. The flaw is in the second requirement for a claim of unjust enrichment: a corresponding deprivation.

Put simply, Apotex was never deprived of the portion of Lilly’s revenues represented by its monopolistic profits because Apotex would never have earned those profits.

It is true that the patentee, Lilly in this case, benefitted at Apotex’ expense to some degree – the profits lost by Apotex were gained by Lilly – but Apotex is already entitled to recover that loss under s 8. In the unjust enrichment claim Apotex is seeking Lilly’s excess profits above the damages which are already payable to Apotex, and “the portion of the windfall that is not compensable under s. 8 of the PMNOC regulations, the monopolistic profit, was not in any way transferred from Apotex or lost by Apotex” [53].

This brings us to Apotex’ policy argument, which is that [16]:

In the absence of a disgorgement of [the patentee’s profits], every patentee would have an incentive to use the PMNOC Regulations in all cases to unjustly delay entry of every generic product at the expense of the Generic, in the knowledge that the revenues made by it would exceed the damages for which it will be liable for the delay caused to the Generic.

There are two answers to this. One is the “complete code” argument. The appropriate incentive is a complex matter which has been addressed by the legislature in the NOC Regulations as a whole. There are a number of difficult policy decisions related to the incentives to use the regulations. For example,  under the US Hatch-Waxman Act, the first generic to successfully challenge the patent gets a 180 day exclusivity over other generics as an added incentive to file applications. This incentive feature is missing from Canadian law. Whether this is right or wrong, it is a decision that has been made by the legislature, and so should be changed, if necessary, by the same body.

The other response is made by the ONCA in this case:

Effectively, Apotex is asking the court to designate it as the de facto beneficiary of the wrongfully-obtained monopolistic profits despite recognizing in its pleadings that it was the public that suffered actual deprivation as a result of the monopolistic pricing. Unlike the plaintiffs in the “profiting from wrong” cases discussed above, Apotex is not positioned as the sole party with a legitimate right to “enforce” or “deter” the underlying wrong. The pecuniary interests of consumers, and potentially other generic companies, are also implicated.

That is, even if it is desirable to require the patentee to disgorge its profits to avoid abuse of the patent-linkage system, it does not follow that the profits should be disgorged to the generic. There is a prima facie argument that the parties actually harmed by the excessive prices, namely the consumers, should be those entitled to the disgorgement.

This argument is entirely distinct from the complete code argument. As the ONCA pointed out, in Low v Pfizer Canada Inc, 2014 BCSC 1469, Smith J allowed an allegation of unjust enrichment to stand in a class action claim on behalf of consumers [33]. Smith J’s holding required a rejection of the “complete code” argument [34], but it is consistent with the ONCA’s holding in this case. Even if it sound policy to require a patentee to disgorge is profits, Low v Pfizer illustrates that it is not necessary, either in theory or in practice, to require those profits to be disgorged to the generic that triggered the s 8 challenge.

Cause of Action for Class Action for Excessive Prices due to Invalid Patent

Low v Pfizer Canada Inc, 2014 BCSC 1469

There is an interesting policy question as to whether a patentee should be somehow held accountable for higher prices charged for a product that is protected by a patent which is ultimately held to be invalid. The basic argument in favour of such liability is that if the patentee can retain the excessive profits made between the time of grant and the time the patent is held invalid, it will have substantially benefited from patent protection without having delivered a new, useful and non-obvious invention which is the quid pro quo for patent exclusivity. Some form of liability for invalid patents will provide an incentive for the patentee to take care to ensure that any patents it does obtain and enforce really are valid. The basic counter-argument, as I see it, is that patent examination already provides substantial protection against the issuance of invalid patents, and liability on top of that protection would create uncertainty that would chill legitimate use of the patent system.

This question is raised in class action proceedings in Low v Pfizer. Pfizer’s patent for Viagra has been held to be invalid: Pfizer v Apotex 2014 FCA 13 (here). This implies that until the patent was invalidated, and Pfizer lowered its prices to match those of the generics, the price of Viagra in Canada was higher than it would have been had the patent never been granted. The plaintiff in Low v Pfizer seeks to certify a class action against Pfizer to recover the loss to the class members due to the higher price and seeking disgorgement of Pfizer’s profits under a waiver of tort theory.

The sole issue in the application was whether the plaintiff’s claim discloses a cause of action for the purposes of s. 4(1)(a) of the BC Class Proceedings Act [3]. The threshold is low [54]; the test is satisfied unless, assuming all facts pleaded to be true, it is “plain and obvious” that the plaintiff’s claim cannot succeed [20].

Three causes of action were pleaded [18]:

i. unlawful interference with economic relations;

ii. waiver of tort; and

iii. unjust enrichment.

Smith J held that the first and third points disclosed a cause of action for the purposes of certification, but that it is plain and obvious that a claim in waiver of tort could not succeed [72].

With respect to unlawful interference with economic relations, the SCC in Bram 2014 SCC 12, [86], held that the defendant’s means are unlawful if “they support a civil action for damages or compensation by the third party, or would do so except for the fact that the third party did not suffer any loss as a result of the defendant's acts” [(quoted at [41]). Smith J held that in this case this requirement was “arguably” [44] satisfied by the patentee’s potential liability to the generic under s 8 of the NOC Regulations.

Smith J pointed out that this tort has an intent element, which may be difficult to establish at trial [52]-[53]. Nor is it entirely clear that this claim will succeed as a matter of law, as there is some question as to whether the statutory cause of action will support this tort. Smith J stated that “the claim now advanced arguably falls precisely into the category of “parasitic” claims referred to in Bram” [44, my emphasis], and similarly he was “not satisfied that the requirement in Bram that there be a ‘civil action’ available to the third party necessarily excludes a purely statutory cause of action” [49, my emphasis]. I take this to mean the point is arguable as a matter of law.

One implication of this analysis is that this cause of action can only be raised against pharmaceutical patentees. An invalid granted patent in any field of technology can result in artificially high prices and exactly the same kind of harm to consumers that is alleged in Low, but because only pharmaceutical patentees are liable under s 8, other patentees do not face the statutory liability to third party that would allow this type of “parasitic” action. Whether or not recovery against patentees for losses caused by invalid patents is desirable from a policy perspective, as a matter of policy and principle, it is troubling that substantively the same complaint could be tortious or not depending on the field of technology. Also, the liability under this cause of action would be limited to period for which NOC liability arises, which is only the period starting when the generic is placed on “patent hold,” and not the entire period for which excessive prices were charged [43]. To the extent that the policy rationale for patentee liability for invalid patents is to ensure that patentees have an incentive not to abuse the patent system, this temporal limitation on recovery, which is a direct consequence of the parasitic nature of the action, is unsound.

Smith J also held that the pleadings disclosed a cause of action in unjust enrichment. This cause of action, if established, would not be confined to pharmaceutical patentees, nor would it be limited to the period during which the generic would have been subject to a statutory stay under the NOC Regulations. Again, even though Smith J held that a cause of action was disclosed for the purposes of certification, it is not clear that this cause of action will be ultimately be sustained as a matter of law. The key issue is whether there was a “juristic reason” for the patentee’s enrichment, and Smith J noted that “The fact that the defendant was operating under statutory rights or authority will usually, but not necessarily, provide a juristic reason” [80]. Whether reliance on the patent system provides an adequate juristic reason will no doubt be a central issue on the merits.

Smith J also noted that “The question of whether Pfizer’s reliance on the patent provides a juristic reason may involve a fact specific inquiry into Pfizer’s knowledge and intention” [84]. This will involve an investigation into the patentee’s good faith and intent [84]-85].

Thus, either of the certified causes of action, if sustained as a matter of law, will lead to a fact specific inquiry into the patentee’s subjective motivation and intent. From a policy perspective, this has two drawbacks. One is that the prices charged under an invalid patent are excessive regardless of the patentee’s intent, and strict liability would provide a strong incentive for patentees to take care that the patents are valid. Another problem is that the fact specific nature of the inquiry means that the litigation will be expensive and protracted. On the other hand, despite these drawbacks, an intent-based approach may be necessary to prevent a chilling effect on legitimate use of the patent system.

This litigation raises a number of very difficult legal and policy problems, from the high level question of whether such liability is sound at all, to the details of how it should be implemented if it is indeed desirable. This will be interesting and important litigation.

ONCA Affirms that Disgorgement of Profits in NOC S 8 Claim Not Available in Ontario

Apotex Inc v Abbott Laboratories Ltd 2013 ONCA 555 Goudge JA: Watt, Pepall JJA aff’g 2013 ONSC 356, 107 CPR(4th) 332 Quigley J

The FCA has held definitively that disgorgement of the patentee’s profits is not available as a remedy in a claim under s 8 of the NOC Regulations: 2011 FCA 358 blogged here. Hoping to circumvent this holding, Apotex turned to the Ontario courts, seeking a disgorgement of the profits made by Abbott while Apotex had been kept out of the market by operation of the NOC Regulations. In brief reasons, the ONCA has now affirmed Quigley J’s lengthy summary judgment decision (blogged here) that this claim must fail, primarily on the basis that the operation of the NOC Regulations constitutes a valid juristic reason for Abbott’s profits [6].

Temporary Stay in Ontario “s 8" Disgorgement Action

Apotex Inc v Schering Corporation / ramipril, 2013 ONSC 1411 Stinson J

Dissatisfied with the ruling that disgorgement of the patentee’s profits is not available as a remedy in a claim under s 8 of the NOC Regulations (2011 FCA 358 blogged here), Apotex has turned to the Ontario courts to seek a disgorgement for the same wrong, that is being kept out of the market as a result of the statutory stay under the NOC Regulations, under a variety of legal theories. In this motion, Stinson J has ordered a temporary stay of Apotex’s action in respect of ramipril pending the outcome of the appeal taken by the defendants to the FCA Snider J's decision in Apotex v Sanofi / ramipril (s 8) 2012 FC 553 (an overview is given here). Stinson J held that while the causes of action were different, and the remedies would not necessarily be the same (certainly not according to Apotex’s submission), there was nonetheless a substantial overlap of the issues so that wasteful duplication of judicial resources was likely if the parallel proceedings were maintained [17]. Moreover, even though the causes of action are different, any amount awarded to Apotex in the s 8 proceeding would likely be relevant to the quantum in the Ontario proceeding, in order to avoid giving Apotex double recovery [14]. On the other hand, the only downside to ordering a stay is a delay in Apotex’s recovery of any damages which it might be awarded in the Ontario action [20]; in particular, the availability of generic ramipril would not be affected. Note that Sanofi is now focusing on having Apotex’s claim struck entirely [1] in light of Quigley J’s recent decision in Apotex v Abbott / lansoprazole 2013 ONSC 356 (blogged here).

Unfair Competition Claim under Trade-marks Act Allowed to Stand

Apotex Inc v Eli Lilly / atomoxetine, 2013 ONSC 1135 Ducharme J refusing leave to appeal re 2012 ONSC 3808

As noted in my previous post, the Ontario Divisional Court granted leave to appeal respecting Macdonald J’s refusal to strike Apotex’s claim for disgorgement of Lilly’s profits. However, in the same decision, the Divisional Court refused to grant leave from Macdonald J’s refusal to strike Apotex’s claim for damages for unfair competition, under ss 7(a) and (d) of the Trade-marks Act. That claim, in effect, was that Lilly had abused the patent system by “by registering on the Patent Register a patent which was ultimately declared invalid and commencing the prohibition proceeding” [18].

The test for leave from a refusal to strike is an onerous one [5], so this says little as to the merits. When the issue is dealt with substantively, it will be interesting to see how Harris v GlaxoSmithKline 2010 ONCA 872 aff’g 2010 ONSC 2326 (blogged here) is dealt with. In that case, Harris was a representative plaintiff in a class action seeking damages on the basis that GSK had abused the NOC system by bringing "objectively baseless” NOC proceedings which had all failed [22-23]. Harris’ claim was based on the tort of abuse of process, conspiracy and waiver of tort. The ONCA affirmed the order of the Perell J striking the claims and dismissing the action. In so holding the ONCA remarked that

[46] GSK submits, correctly in my view, that the appellant "cannot convert the legitimate interest of a patentee in protecting (and monetizing) its intellectual property rights into anti-competitive monopoly practices in order to conjure up the improper predominant purpose required for the tort of conspiracy."

[50] Applying that test to the case at hand, the motion judge stated the following at para. 94 of his reasons:

In the case at bar, GSK's NOC Proceedings were not contrary to law or to statute. GSK's NOC Proceedings were the opposite of unauthorized; they were proceedings that GSK was entitled to bring. In other words, they were acts that GSK was at liberty to commit. The NOC Proceedings are actually a response to NOC's initiated by Apotex and two other generic manufacturers. GSK has a statutory right to show that the generic manufacturer's allegations are "not justified."

This seems to imply a broad rule that registering patents on the Patent Register and bringing NOC proceedings cannot be wrongful. The atomoxetine litigation is distinguishable both on the cause of action and because the plaintiff has a different interest, but this broad principle nonetheless seems applicable. It seems likely that this issue will eventually make its way to the ONCA once again, and it will be interesting to see whether that court holds that the same principle does indeed apply under the Trade-marks Act. If the ONCA were inclined to rethink the Harris decision without expressly reversing it, this might be an opportunity.

Leave to Appeal Granted re Disgorgement of Profits in Ontario S 8 Claim

Apotex Inc v Eli Lilly / atomoxetine, 2013 ONSC 1135 Ducharme J granting leave to appeal re 2012 ONSC 3808

The FCA has held that disgorgement of the patentee’s profits is not available as a remedy in a claim under s 8 of the NOC Regulations: 2011 FCA 358 blogged here. Apotex has turned to the Ontario courts to seek this remedy in two separate actions. In Apotex v Eli Lilly / atomoxetine 2012 ONSC 3808, MacDonald J dismissed a motion to strike such a claim. Earlier, in Apotex v Takeda and Abbott Labs / lansoprazole 2010 ONSC 6909, Whitaker J also dismissed a motion to strike such a claim (aff’d 2011 ONSC 3988 (Div Ct) blogged here), but then in the decision on the merits, 2013 ONSC 356, Quigley J dismissed Apotex’s claim for disgorgement in a summary judgment (blogged here). In the most recent development, the Divisional Court has granted leave to appeal of Macdonald J’s refusal to strike Apotex’s claim for disgorgement of Lilly’s profits in the atomoxetine case, relying in large part on the conflict between the decisions of Macdonald J and Quigley J. Presumably Apotex is also appealing Quigley J’s decision on the merits in the lansoprazole litigation. One way or the other, the stage is set for a definitive statement from the Ontario courts on this issue.

No Disgorgement of Profits in Federal Court in an Action Based on Section 8

Apotex Inc v Eli Lilly Canada Inc 2011 FCA 358 Noël JA: Dawson, Trudel JJA aff’g Heneghan J (unreported) aff’g 2009 FC 693, Pr. Tabib & Milczynski Pr (unreported)

A generic that is successful in NOC proceedings is entitled to damages under section 8 of the NOC Regulations as compensation for its losses from having been kept out of the market as a consequence of the statutory stay. The question in this motion to strike paragraphs of the statement of claim is whether the generic can also obtain a disgorgement of the excess profits earned by the patentee during that period, in an action where the sole “wrongful” act alleged is invocation by the patentee of the NOC Regulations. The FCA has held unequivocally that “the answer to this question is no” [18]. Consequently, Apotex’s claim “cannot possibly succeed” [23].

Disgorgement of Profits under Section 8 in the Ontario Courts

Apotex Inc. v. Abbott Laboratories, Ltd. / lansoprazole 2010 ONSC 6909, 89 CPR(4th) 141, Whitaker J

Section 8 of the PM(NOC) Regulations provides that if a patentee is unsuccessful in its application for an order of prohibition (as to what is “success” see here), the generic is entitled to compensation for having been kept out of market in consequence of the statutory stay. The generic would obviously prefer that compensation to be measured by the patentee’s profits rather than by its own loss, as the patentee’s profits with market exclusivity will be greater than the profits the generic would have made. However, the FCA has held that an accounting of profits is not available under section: Merck Frosst Canada Ltd v Apotex Inc / alendronate (NOC) 2009 FCA 187 [89] affm’g 2008 FC 1185. This was under an older version of the provision, which provided for “relief by way of damages or profits” (s 8(4)). The same conclusion presumably follows under the current provision, which omits the words “or profits.”

In Apotex v Syntex / naproxen 2005 FC 480 [22], von Finckenstein J said that the NOC Regulations are a “complete code,” which suggests there is no alternative route by which a generic can get disgorgement of the patentee’s profits. However, on appeal the FCA, while repeating that section 8 is “a complete code for the recovery of damages by a second person against a first person,” 2005 FCA 424 [9], at the same time suggested that “while strictly speaking it might be said there is no such tort as negligent breach of a statute, there nevertheless can be a claim in negligence against the Crown and proof of a statutory breach that causes damages may be evidence of such negligence” [10]. This seems to imply that while section 8 is a complete code in respect of losses flowing from the statutory stay as such, if there is some other basis for liability, section 8 may not govern. This leaves open the door to the possibility that a claim for unjust enrichment could allow the generic to claim disgorgement of profits rather than damages. However, it seems to be established that such a claim cannot be made in the Federal Court, as a claim that is not based on the Regulations would not be within the jurisdiction of the court: 2009 FC 693 [8].

In June 2009 Apotex obtained an NOC for apo-lansoprazole, and it commenced an action in the Federal Court for compensation under section 8. Just at that time, the FCA released its the alendronate decision, holding that an accounting is not available under section 8. Apotex discontinued its Federal Court action [28] and decided to try its luck in the Ontario courts, which do of course have jurisdiction over a claim in unjust enrichment. This strategy has cleared the first hurdle. In Apotex Inc. v Abbott Laboratories, Ltd. 2010 ONSC 6909 Abbott moved to strike Apotex’s claim for disgorgement of profits based on unjust enrichment. Whitaker J dismissed the motion, holding that it is not “plain and obvious” that such a claim could not succeed. This seems to me to be the correct conclusion given the stringent test on a motion to strike, but it of course remains to be seen how this claim will fare on the merits.

I suggest that the 2006 amendment of section 8(4) indicates a legislative intent to confine the generic to damages generally – if the legislature intended the generic to be able to recover the patentee’s profits, surely it would have been simplest to allow this to be done under the Regulations themselves, in the Federal Court. However, if the Ontario courts conclude that a successful generic should be entitled to a disgorgement of profits, as a matter of fairness, this argument is unlikely to be conclusive.

The question of whether the successful generic should be entitled to a disgorgement is an interesting one. A prohibition order consequent on PM(NOC) proceeding is analogous to an interlocutory injunction, and section 8 is analogous to the undertaking required of the party who obtains such an injunction: 2008 FC 1185 [54]. Such undertakings do not generally require a disgorgement of profits. I am not aware of any Canadian cases addressing the question of whether it would be appropriate to require an accounting on an undertaking the context of an interlocutory injunction, but the point has been raised in a recent UK patent case. In Wake Forest University Health Sciences v. Smith & Nephew [2009] EWHC 45 (Pat), Lewison J declined to require an undertaking of that form, saying “it is by no means clear to me that it would be just to transfer a profit made by the claimant to the enjoined defendant. If the claimant has made a profit which it would not have made but for the injunction, there may be other people to whom it would be more just that those profits should be returned, either other potential competitors with the defendant or customers who, as things turn out, may have been overcharged” [19]. It will be interesting to see whether the Ontario courts find this reasoning persuasive.

A last general point. While there is an analogy between the NOC proceedings and an interlocutory injunction, one basic distinction is that the PM(NOC) proceedings are entirely separate from any subsequent infringement action. This question of whether section 8 can give rise to a separate cause of action illustrates once again the difficulties arising from a separation of the statutory stay from the underlying cause of action. For illustrations of other problems arising from this same cause, see here and here.

PS - This blog normally comments on recent cases; while this case was released last fall, it has only come to my attention recently, which is why I am commenting on it now.