Hypothetical Infringement Cannot Be Set up Against S 8 Claim

Pharmascience Inc v Pfizer Canada ULC 2019 FC 1271 O’Reilly J
            2,255,652 / pregabalin / LYRICA

The recent amendments to the PM(NOC) Regulations converted an NOC proceeding from an application to prohibit the Minister from issuing an NOC into an action for patent infringement. The old regime created some difficult questions as to the relationship between an NOC proceeding and subsequent action between the same parties in respect of the same drug. In particular, a statutory stay on the issuance of an NOC is triggered by NOC proceedings (s 7(1)(d)), and s 8 of the Regulations allows the generic to bring an action to recover damages for sales lost as a result being kept out of the market by the statutory stay. But what if the generic was successful in NOC proceedings, but unsuccessful in a subsequent infringement action in respect of the same drug? The law is now settled that the generic is not barred from bringing a s8 claim, but it is not entitled to recover for sales that it would have made but for the statutory stay if those sales would have been infringing: Apotex v Merck 2011 FCA 364 (here); 2012 FC 620 (here); 2012 FC 559 (here); 2017 FC 726 (here); 2018 FC 181 Locke J (here). The logic is that the generic should not be entitled to recover damages for lost sales which it had no right to make.

This case presents a twist on that issue: what if the patentee never brought a subsequent action? Can that patentee argue as a defence / offset in the s 8 action that the generic’s hypothetical sales would have hypothetically infringed the patent at issue, even though validity and infringement was never established in an infringement action?

Pfizer holds the 652 patent related to the use of pregabalin for treating pain. Pharmascience sought to enter the market with a generic version, and in response Pfizer commenced NOC proceedings under the old Regulations, triggering the statutory stay. Pfizer was unsuccessful in its attempt to obtain an order of prohibition (see 2013 FC 120), and Pharmascience is now seeking damages under s 8 of the NOC Regulations for compensation for the time it was kept off the market [1]. In response, Pfizer alleged that Pharmascience is disentitled to damages because the hypothetical sales of PMS-pregabalin would have hypothetically infringed Pfizer’s patent—even though such infringement had never been established in an infringement action [3].

O’Reilly J pointed out that in all the cases establishing that the generic cannot recover damages for wrongful sales, the wrongfulness of those sales had actually been established in an infringement action:

[17] Pfizer’s authorities suggest to me that infringement is a factor that can and should be taken into account in assessing the quantum of s 8 damages, but only where infringement has been asserted and proved, or is not disputed. Otherwise infringement is not relevant to s 8, even when an infringement action is pending.

He relied on the principle that “the but-for world should reflect, to the extent possible, what happened in the real world,” [23] so that if the patentee did not bring an action in the real world, it must be presumed that it would not have brought an action in the but-for world [21] (citing Apotex v Sanofi [Ramipril (s 8)] 2012 FC 553 (here) var’d 2014 FCA 68 (here)). Consequently, hypothetical infringement cannot be raised to reduce or eliminate the generic’s damages [25].

In my view, O’Reilly J’s holding was correct for the reason he gave. It’s a relief that the new Regulations will render such questions moot.

No Section 8 Recovery for Being Kept out of a Market Which the Generic Had No Right to Enter

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

Until recently amended, the NOC proceedings and infringement actions were separate, and a declaration of invalidity in an NOC proceeding did not have in rem effect. This raised the possibility that the generic might prevail in the NOC proceeding, and lose in the subsequent action. If the generic prevailed in the NOC proceeding, it would be entitled to damages under s 8 for having been kept out of the market by the statutory stay on the issuance of the NOC. But if it lost in the subsequent infringement action, this means the patent is and always was valid, and it seems wrong to award the generic damages for being kept out of a market which it had no right to enter.

Now that the NOC Regulations have been amended to turn the NOC proceedings into an action, this particular problem will no longer arise, but a closely related problem remains. What if the product is covered by two patents, and the generic wins the NOC proceeding/ action in respect of one patent, but loses in respect of the other? Again, the generic will be entitled to s 8 damages for being kept out of a market which it had no right to enter. That problem arose in this case. Both the 2,133,762 patent and the ‘693 patent were listed on the Patent Register against LOSEC. Apotex prevailed in NOC proceedings related to the 2,133,762 patent (2004 FC 313, holding infringement was not established), but then lost in respect of the ‘693 patent, which gave rise to the litigation in this case.

The problem had earlier been addressed in respect of this very patent in the s 8 proceedings arising from the ‘762 patent: 2012 FC 559 Hughes J (here) aff’d 2013 FCA 77 (here) motion for reconsideration dismissed, 2016 FCA 194. AstraZeneca raised the relevance of the then ongoing infringement action in respect of the ‘693 patent, asking for a stay of the s 8 proceedings pending the ‘693 action. Hughes J refused, saying the following [148], in a passage affirmed and quoted on appeal [6]:

A Court hearing the pending infringement action, if it concludes that the patent is valid and has been infringed by Apotex in making the omeprazole drug that is the subject of these proceedings, can at that time craft a remedy that is appropriate, having in mind any compensation awarded in these proceedings.

(See similarly 2011 FCA 364 (blogged here).) Since Barnes J is now that very “Court hearing the . . . infringement action,” Barnes J was on firm ground in concluding that:

[214] What I take from the above-noted statements and particularly those of the Federal Court of Appeal is that, as the section 8 reference Judge, I have the discretion to take into account the intervening infringement finding, among other relevant facts, and to craft an appropriate remedy.

The question then is how to properly exercise that discretion. The FCA had dropped some strong hints. In 2013 FCA 77 [7] the Court stated:

It will be for the judge trying the infringement action to ensure that overall, taking both proceedings together, a party is compensated for its provable loss, if any, on proper principles, no more and no less.

The FCA repeated this in denying the motion for reconsideration: 2016 FCA 194, [24]. Similarly, in the Lovastatin decision, 2011 FCA 364 (blogged here) the FCA held:

[37] [S]ubsection 8(5) confers a broad discretion on the court when assessing the amount of compensation that the second person must pay. It provides that the court “shall take into account all matters that it considers relevant to the assessment of the amount,” including any conduct by either party that contributed to the delay in the disposition of the first person’s application for prohibition. In my view, this provision enables the Court to determine in its discretion whether, and to what extent, a second person’s claim for compensation should be reduced, or eliminated.

On the facts of this case, Barnes J notes that :

[217] What I am left with is a situation where, in order to recover its “losses” from being barred from selling Apo-Omeprazole between January 3, 2002 to December 30, 2003 in the face of AstraZeneca’s 762 Patent, Apotex necessarily had to infringe AstraZeneca’s 693 Patent.

In other words, Apotex was seeking damages for having been kept out of a market that it had no right to enter. Unsurprisingly, Barnes J concluded that:

[219] It follows that Apotex is not entitled to recover under section 8 of the NOC Regulations because it suffered no loss by being kept out of the marketplace between January 3, 2002 and December 30, 2003.

I believe this is the first decision to directly so hold, but this conclusion was strongly foreshadowed in the prior decisions, and I don’t doubt that it will be upheld on appeal and followed in the future.

Coordinating S 8 NOC and Infringement Actions

Apotex Inc v Alcon Canada Inc 2016 FC 720 Tabib J

            2,129,287, 2,606,370 / travoprost / TRAVATAN Z

NOC proceedings and infringement actions give rise to independent litigation over infringement and validity of the same patents, with potentially conflicting monetary remedies. This decision by Tabib J on a motion for bifurcation of a s 8 damages action deals with some of the complex procedural issues that arise in attempting to resolve this conflict. While appropriate procedural decisions may help reduce duplicative litigation and avoid inconsistent results, it is hard to avoid the conclusion that the remedial overlap is another illustration that the PM(NOC) Regulations’ well-intentioned attempt to create a simple and streamlined patent linkage system has not been a success.

The patent linkage systems operating in the US and Canada are functionally equivalent to giving an automatic interlocutory injunction to a pharmaceutical patentee threatened by generic entry. In a jurisdiction in which interlocutory injunctions are relatively easy to get, linkage is hardly necessary. So, as I understand it, in the UK a pharmaceutical patentee will normally be able to get an interlocutory injunction against a generic which seeks to launch at risk, and consequently the generic will normally bring a declaratory action to “clear the way.” The effect is that the generic cannot launch before it has been determined that the patents reading on the product are invalid or not infringed. In jurisdictions such as Canada and the US, where interlocutory injunctions are more difficult to obtain, the generic might be able to launch even though its product infringed a valid patent. The patent linkage system addresses this by effectively giving the patentee an automatic interlocutory injunction. In the US, the application for marketing authorization is a deemed infringement, giving rise to a statutory stay which is roughly equivalent to an interlocutory injunction. However, there is no separate hearing to assess the merits of this “injunction,” as there would be in an application for an interlocutory injunction as such. In the Canadian patent linkage system, embodied in the PM(NOC) Regulations, on applying for marketing authorization for a generic drug, the generic is subject to a statutory stay – the automatic interlocutory injunction – while validity and infringement are assessed in an NOC proceeding. The NOC proceeding is intended to be summary in nature, like the hearing in which a true interlocutory injunction application would be decided. And if the patentee is unsuccessful in the proceeding, under s 8 it must compensate the generic which has been wrongly kept out of the market during the period of the stay, just as a party who is granted an interlocutory injunction must normally give an undertaking in damages to compensate the defendant which has been prevented from exercising its legitimate rights. And just as with a traditional interlocutory injunction application, a subsequent infringement action can proceed to a potentially different result on the basis of a more complete record. The Canadian system is therefore intended to statutorily mimic a true interlocutory injunction application more closely than the US linkage system.

However, one feature distinguishes the Canadian linkage system from both a true interlocutory injunction application and the US-style linkage system, namely that the NOC proceeding and any subsequent infringement action are independent proceedings. This means that inconsistent results are possible, in principle and in practice. In the both the US and the UK, a patentee may be liable for foregone profits incurred by a successful generic which was kept off the market by the stay / interlocutory injunction, but in both systems the generic is entitled to compensation only if it prevails in the ultimate infringement action. Thus there can never be a conflict in which the generic is entitled to compensation for having been kept off the market by a stay based on a patent which was valid and infringed. In contrast, in Canada the generic may win the NOC proceeding, and so be entitled to compensation under s 8, and yet lose the infringement action, so that it would be entitled to 8 compensation under s 8 of the NOC Regulations for having been kept out of a market which, under the Patent Act, it had no right to enter.

This potential for conflict has begun to be addressed substantively. As Tabib J states “[t]he law as it stands is to the effect that hypothetical infringement is not a complete defence to a section 8 claim, but that it is a significant factor to be considered in assessing compensation, and that it can indeed reduce damages to zero” (citing 2012 FC 620, blogged here; and see also 2012 FC 559 aff’d 2013 FCA 77 blogged here and here), though as she notes the law “may continue to evolve” [11]. 

This decision by Tabib J on Apotex’s motion for bifurcation wrestles with the problem of how to deal with this issue procedurally. Alcon held two patents related to travoprost, the ‘287 and ‘370 patents. Alcon lost both NOC proceedings, and, after Apotex launched, Alcon commenced an infringement action based on the ‘370 patent only. At the same time, Apotex brought an action for s 8 damages, which Alcon sought to defend by alleging infringement of both the ‘370 patent and the ‘287 patent, as well as the ‘172 patent, which was not listed on the Patent Register and so was not at issue in the NOC proceedings [2], [3]. Apotex now seeks to bifurcate the s 8 action to have validity and infringement of the ‘287 and ‘172 patents determined separately. The parties agreed that validity of and infringement regardng the ‘370 patent were already effectively bifurcated as they will be determined in the infringement action and those findings would be binding in the s 8 action [6]. In some ways the bifurcation decision was quite easy. On the facts, Tabib J found that the issue proposed to be bifurcated were quite distinct, so bifurcation would not lead to wasteful duplication [10]. On the other hand, if bifurcation were refused, duplicative litigation of quantification between the infringement and liability phases might result [12]. Copnsequently, Tabib J granted the motion to bifurcate.

Two interesting points were raised. First, Alcon was apparently concerned that Apotex’s motion for bifurcation was a prelude to a move to consolidate the bifurcated infringement issues relating to the ‘287 and ‘172 patents with the infringement trial of the ‘370 patent, thus delaying the trial and Alcon’s hoped for injunction [7].While Tabib J gave some credence to this concern [7], in the end she considered that in this case bifurcation does not entail joinder, and so Alcon would not be disadvantaged in this manner [10]. The concern nonetheless illustrates the complex procedural considerations that arise because of the separate nature of these proceedings.

Secondly and more fundamentally, Tabib J suggested that if Alcon’s related infringement action was not already bifurcated, the best way forward might have been to consolidate both actions, without bifurcation [12]. This would solve the problem of the separate actions in the most straightforward way possible. However, as this case illustrates, consolidation is not always appropriate. And while consolidation might in some cases be possible, given the vagaries of timing of two independent actions, it is too much hope that this would be routine. It seems, therefore, that parallel s 8 and infringement actions will be coordinated only by ad hoc motions such as this one, with varying degrees of success in avoiding wasteful duplication. The procedural complexity created by our patent linkage system seems destined to endure so long as the system remains in its current form.

How High a Bar for Overruling Prior FCA Decisions?

Eli Lilly Canada Inc. v. Apotex Inc. / olanzapine (NOC) No.2 2013 FCA 282 Evans JA: Stratas, Webb JJA aff’g 2010 FC 952 Gauthier J

 Under the “no reach back” rule established in Apotex v Syntex / naproxen (NOC) 2010 FCA 155 aff’g 2009 FC 494 and re-affirmed in Pfizer Canada Inc. v Ratiopharm / amlodipine besylate (NOC) 2011 FCA 215 (blogged here) the Court will not reach back and retroactively set aside an order of prohibition obtained in an NOC proceeding solely because the patent has been held invalid in a subsequent action. The consequence is that the generic will not be entitled to damages under s 8 of the NOC Regulations, which is triggered by success in the NOC proceeding itself, even though it will have been held off the market by an invalid patent. (See here for my posts on related cases).

In this proceeding, Apotex asked the FCA to reconsider this rule. The FCA declined, on the basis of stare decisis:

[8] Because this Court is normally bound by its own decisions, Apotex can only succeed in this appeal if it satisfies us that Syntex and Ratiopharm should not be followed because they are "manifestly wrong" within the narrow meaning of Miller v. Canada (Attorney General), 2002 FCA 370 at paras. 8, 10, and 22 (Miller). They were not per incuriam, nor subsequently overruled or seriously attenuated by decisions of the Supreme Court of Canada.

It is interesting to contrast the “manifestly wrong” standard applied by the FCA in overruling its own decisions, with the standard set out by the SCC in Canada v. Craig, 2012 SCC 43 [24]-[28] for overruling the SCC’s own decisions. The SCC does not provide a rule, but rather (unsurprisingly, from the SCC) engages in “a balancing exercise between the two important values of correctness and certainty,” [27], giving “careful and respectful consideration” [26] to the earlier decision. This appears to be a significantly lower standard than “manifestly wrong.” That impression is confirmed by the result in Craig, which the SCC overruled a prior decision on the basis that it was wrong (though there was no suggestion that it was manifestly wrong), and there had been significant judicial and academic criticism of the prior decision.

Triple Re-Litigation of Factual Issues

Apotex Inc vPfizer Canada Inc / azithromycin (NOC) 2013 FC 493 O'Reilly J
             ZITHROMAX / azithromycin / 1,314,876

O’Reilly J’s decision, which I will call Azithromycin AD (No 2), relates to a claim by Apotex for damages under s 8 of the PM(NOC) Regulations, consequent on Snider J’s dismissal of Pfizer’s application for an order of prohibition in the s 6 proceeding, Pfizer Canada Inc v Apotex Inc, 2003 FC 1428 (Azithromycin AD (No 1)). The key issue is whether a prior factual finding of non-infringement in the s 6 proceeding can be re-litigated in the s 8 proceeding. The answer is yes (although on the facts O’Reilly J arrived at the same conclusion as had Snider J, namely that the patent was not infringed). This means that the same factual issues may be litigated three times: once in the s 6 application, again in the s 8 action, and again in the infringement action. "Seemingly redundant litigation" is already said to be a problem with our version of the patent linkage regime: 2012 FC 767 [69]-[70]. This decision, if it stands, will add to the problem.

Affirmed that Award under NOC Section 8 to Be Considered in Damages in Subsequent Infringement Action

AstraZeneca Canada Inc v Apotex / omeprazole (NOC) 2013 FCA 77 Sharlow JA: Blais CJ, Stratas JA aff’g 2012 FC 559 Hughes J (blogged here)
            LOSEC / omeprazole / 2,133,762, 1,292,693

AstraZeneca was unsuccessful in NOC proceedings against Apotex in respect of omeprazole, in which it sought an order of prohibition based on the ‘762 patent: 2004 FC 313. In this action, Apotex has now sought compensation under s 8 of NOC Regulations. But at the same time, AstraZeneca has brought an infringement action against Apotex, on the basis of the ‘693 patent, which is also related to omeprazole, with the action set down to be heard in April 2014 [FC 28]. The concurrence of the s 8 and infringement actions raises two questions. Substantively, if AstraZeneca is successful in the infringement action, how will this affect Apotex’s entitlement to s 8 compensation? Apotex's position is that the alleged infringement of the '693 patent is not relevant to Apotex's s 8 claim [FC 141]. AstraZeneca's position’s is that if it is successful in the infringement action, this operates as a defence to the s 8 claim; the claim is for sales that are lost as a result of the statutory stay, but if Apotex had made those sales, it would be liable in damages to AstraZeneca for infringement of the ‘693 patent, so there really are no losses as a result of the statutory stay [FC 140]. Put another way, Apotex is not entitled to damages for loss of a market that it had no right to enter. Consequently, AstraZeneca sought a delay of the s 8 proceeding pending the outcome of the infringement action. Hughes J had initially ordered that if AstraZeneca’s defence was determined to be viable in law, he would reserve judgment in the s 8 matter under final disposition of the infringement action [FC 28].

The decision under appeal dealt with this question of whether AstraZeneca’s defence is viable in law [FC 140 - 50]. As discussed in my post on that decision, Hughes J held that the infringement action could potentially serve as a basis for a defence in the s 8 proceeding on the basis of ex turpi causa. However, procedurally, he changed his mind and refused to reserve judgment in the s 8 proceeding. Instead, any such defence will be dealt with in the infringement action:

[148] This solution accords with what may properly be done in the present situation. A Court hearing the pending infringement action, if it concludes that the patent is valid and has been infringed by Apotex in making the omeprazole drug that is the subject of these proceedings, can at that time craft a remedy that is appropriate, having in mind any compensation awarded in these proceedings. It would be unconscionable for the present proceedings to come to a halt or for this Court to refuse to award compensation simply because another action on another patent was pending. To do so would be simply to encourage such actions to be brought. The best way to deal with the matter is as I have set out above.

Hughes J’s judgment on this point has now been affirmed by the FCA in brief reasons from the bench, quoting and agreeing with this paragraph [7-8].

Resolution on Section 8 Claims re Valid Patents

Apotex Inc v. Merck & Co., Inc. / lovastatin (NOC) 2012 FC 620 Snider J on remand from 2011 FCA 364 (blogged here)

What happens if a generic is successful in NOC proceedings, but unsuccessful in a subsequent infringement action? Can the generic claim s 8 damages for being kept out of the market by the statutory stay, on the principle that the NOC proceedings and the infringement proceedings are independent? Or is the generic barred from claiming s 8 damages, on the principle that it would have been infringing a valid patent by entering the market? We appear to finally have resolution on this question as Snider J’s lovastatin decision and Hughes J’s omeprazole decision, blogged here, give consistent answers to this question.

Award under NOC Section 8 to Be Considered in Damages in Subsequent Infringement Action

Apotex Inc v AstraZeneca Canada Inc / omeprazole (NOC) 2012 FC 559 Hughes J

The automatic stay available to the patentee under s 7(1) of the NOC Regulations is analogous to an automatic interlocutory injunction, and s 8 damages available to the generic are analogous to damages on the undertaking normally required of an applicant who obtains such an injunction: 2008 FC 1185 [54]. One important difference is that while an interlocutory injunction is brought as part of the infringement action, NOC proceedings and an infringement action are entirely separate. This gives rise to a problem of coordinating remedies if the final decision is inconsistent with the “interlocutory” stage. It is now well-established that if the generic is unsuccessful in the NOC proceedings, it cannot claim damages under s 8 if the patent is subsequently held to be invalid (Apotex v Syntex / naproxen (NOC) 2010 FCA 155). This is even though a defendant would have been able to recover such losses on the undertaking if the NOC system did not exist, and an interlocutory injunction, rather than an automatic stay, had been granted to patentee.

This decision of Hughes J is an important development in addressing the converse problem: is the generic entitled to s 8 damages even if the patent is later held to be valid and infringed by the same generic in an infringement action? If an interlocutory injunction is granted, the defendant is entitled to damages on the undertaking only if it is subsequently successful in the action itself. The separation of the NOC proceeding from the infringement action implies that in contrast, a patentee will be liable to a generic which is successful in the NOC proceedings, even if the patent is subsequently held to be valid and infringed. The difficulty with this result is that the generic would be entitled to damages for having been kept out of a market which it had no right to enter, as a holding in an NOC proceeding does not have in rem effect.

The “No Reach Back” Shoe is on the Other Foot – Sort of

Apotex Inc. v. Merck Frosst Canada Ltd. / lovastatin (NOC) 2011 FCA 364 Evans JA: Gauthier, Stratas JJA rev’g 2010 FC 1264 Snider J

This decision of the FCA is an important development, though not a final answer, in the debate over whether a generic which has succeeded in an NOC proceeding can get section 8 damages even if the patent is subsequently determined to be valid and infringed in an infringement action.

An initial question in this appeal was whether Apotex’s claim for compensation is governed by the 1993 NOC Regulations, or the 1998 Regulations. Under the transitional provisions, this turns on whether Merck’s application for prohibition was “pending” on the transitional date of March 11, 1998. On the transitional date the Federal Court had already dismissed Merck’s application for prohibition, and Merck had filed an appeal from this decision, but the appeal (which was ultimately dismissed for mootness) had not yet been decided. Snider J held that the 1993 Regulations applied. The FCA reversed Snider J on this point, essentially because she did not have the benefit of the FCA decision in Merck / norflaxin 2011 FCA 329 (blogged here). In an interesting point of statutory interpretation, the FCA held that an interpretation favouring the 1998 Regulations was to be preferred, as they were intended to, and did, clarify the 1993 Regulations [28]. In the result, the FCA stipulated a broad understanding of “pending.” The question is not whether the action is moot, but whether FCA still has jurisdiction to hear an appeal. The holding that the 1998 Regulations applies makes the Court’s conclusion on the substantive issue that much more important.

The question as to whether Apotex was entitled to section 8 damages arose because the stay expired without the application for the order of prohibition ever having been heard on the merits. Apotex argued that Merck had not been successful in the NOC proceedings. Merck, on the other hand, argued that it wasn’t unsuccessful, either. Snider J, interpreting the 1993 Regulations (blogged here), held that entitlement was triggered only when the Minister issued the NOC after expiry of the relevant patents; because the patent had not expired, Apotex was not entitled to damages. The FCA, interpreting the new Regulations, held that the only requirements for triggering section 8 are that the patentee’s application for prohibition is dismissed [34], and that the generic has suffered a loss by being kept out of the market as a result of the stay [35]. As both conditions were satisfied, Apotex was entitled to section 8 damages – with a major caveat.

On a broader level, the argument in favour of allowing the generic to claim damages in a case in which the patent was held invalid in the NOC proceedings, but valid in a subsequent infringement action, is the “no reach back” rule enunciated in Syntex / naproxen (NOC) 2010 FCA 155, which has since been affirmed a number of times (eg here and here). This principle says that NOC proceedings and an infringement action are independent. To be entitled to section 8 damages, the generic must succeed in the NOC proceeding itself; if it loses in the NOC proceeding, but subsequently prevails in the infringement action, the generic cannot reach back and apply the declaration of invalidity from the infringement action to gain entitlement to section 8 damages. Conversely, it would seem to follow that if the generic is successful in the NOC proceedings, but subsequently loses the infringement action, the patentee cannot reach back and apply the declaration of validity in the infringement action to deny the generic section 8 damages. While this result seemed to follow, it had not been tested, until now. Consistently with the no reach back rule, the FCA in this case held that Apotex could claim section 8 damages.

The difficulty with this logic, as Merck pointed out [33], is that the generic would be entitled to damages for having been kept out of a market which it had no right to enter. A holding in NOC proceedings that the patentee did not show the allegation of invalidity to be unjustified is not an in rem declaration of invalidity. If the patent is subsequently held to be valid in litigation, then it was always valid, including during the period when the generic entered the market after the NOC proceedings. This means that the generic had no right to enter the market, which we know with hindsight was protected by a valid patent; it is simply that the procedural mechanism of the NOC proceedings did not immediately vindicate the patentee’s right. In this case, Merck characterized this as a matter of ex turpi causa.

This leads to the major caveat on the generic’s entitlement to damages. The FCA reconciled these two conflicting principles by applying the no reach back rule in the liability question, and the ex turpi causa point in the damages phase. Apotex is entitled to section 8 damages, under the no reach back rule, but the quantum of damages might be reduced “or eliminated” [37] at the damages calculation as a result of ex turpi causa:

[38] The Court’s broad discretion under subsection 8(5) allows it, when considering arguments based on ex turpi causa, to have regard to the factual situation in its entirety, including its nuances. In the present case, one such nuance is that not all the tablets sold by Apotex were found in the infringement action to contain lovastatin made by the infringing process. A court is likely to find it easier to apply the ex turpi causa principle through an exercise of judicial discretion than through the definition of liability. Discretion enables the court to assess the appropriate amount of compensation payable (including nil) in a manner that properly takes account of all the relevant facts.

The Court did not decide whether Apotex was actually entitled to substantial damages on the facts, holding that this was a matter to be returned to the trial judge, including the crucial question of “the extent to which the ex turpi causa principle should be applied on these facts, if at all.” While the FCA is no doubt right to say that this is a matter which turns on issues of law and fact which should be determined by a trial judge, it also raises a crucial issue of principle on which the FCA has provided no guidance. The result is that this decision is an important step in the resolution of this question, but it is very far from being the final word.

One More Time: No Reach-back under Section 8 of the NOC Regulations

Apotex Inc. v. Warner-Lambert Company LLC / quinapril 2012 FC 202 Lemieux J

The patentee was successful in NOC proceedings relating to two patents. Apotex then brought an impeachment action in respect of the same patents. One of the patents has now expired, and the patentee sought to have the action dismissed in respect of that patent on the ground of mootness. Apotex argued that the action was not moot, and even if it was, the court should exercise its discretion to hear the action because it would affect Apotex’s right to damages under s 8 of the NOC Regulations, and a possible future action under the Ontario Monopolies Act.

Applying very well established FCA jurisprudence, Lemieux J held that the action was moot, and the court should not exercise its discretion to hear it. Entitlement to s 8 damages requires success in the s 8 action itself. Success in a subsequent infringement or impeachment action is irrelevant: “The jurisprudence established by the FCA is clear that in the circumstances of this case there is no reach-back under section 8 of the NOC Regulations” [50].

Lemieux J’s analysis did not address the argument that the action should be heard because it would impact on a possible future action under the Ontario Monopolies Act. Presumably he accepted the patentee’s submission that this basis was too speculative to justify hearing an otherwise moot appeal, as there have been no reported cases under that Act [10].

Apotex also argued that the action should be heard in respect of the expired patent, as the action would proceed in respect of the related unexpired patent. Lemieux J pointed out that new evidence would have to be heard, as the invalidity of the expired patent had not been considered in the NOC proceedings (only non-infringement had been argued), and in any event there was no point to adding any complexity to the trial in respect of an issue which would have no practical effect on the parties rights [52].

Hints on Validity as a Defence to a Section 8 Action

Apotex Inc v Shire Canada Inc / modafinil (NOC) 2011 FC 1159 Near J aff’g 2011 FC 436 Tabib Pr

This motion raises, albeit tangentially, the important question of whether infringement is available as a defence to an action for section 8 damages under the PM(NOC) Regulations. By way of background, Cephalon is the owner of the patent in question and Shire is a licensee. Both were parties to NOC proceedings, 2008 FC 538, in which Apotex prevailed. Cephalon has since commenced an infringement action against Apotex (T-609-09), but Shire is not a party to that action [5]. Apotex is now seeking section 8 damages from Shire, and this motion arises from those proceedings. Shire had previously tried to raise infringement as a defence, but had wanted to base the defence entirely on the outcome of the Cephalon action, without bringing any independent evidence in the section 8 damages proceeding. This amendment was not permitted (2010 FC 828 affm’d 2010 FC 1001), on the basis that the Shire had not pleaded any material facts on which the court could make any direct determination. 

Shire then sought to amend its Statement of Defence to plead infringement as a defence and counterclaim. Prothonotary Tabib refused to allow this amendment on the basis that the amendment had not been sought in a timely matter. She therefore made no comment as to whether such a defence would be permitted substantively (see my post on that decision). In this decision, Near J, reviewing the matter de novo as raising a question vital to the final issue [16], has affirmed the decision of Tabib Pr, again primarily on the basis that Shire should have brought forward the issue of infringement earlier [24]. However, Near J also hinted at the substantive point, stating “the infringement aspect is not necessarily the ‘true substance’ of section 8 proceedings directed at damages of Apotex being kept off the market. Any potential basis for infringement could be pursued by way of a separate action or by Shire joining the Cephalon proceedings already in progress without delaying a section 8 resolution” [21]. This suggests that even if Shire had pleaded infringement as a defence in a timely manner, the pleading might have been struck. However, Near J also remarked that “Shire should have brought the issue of infringement forward in its initial pleadings” [24], suggesting that this defence would have been permitted if pursued in a timely manner.

Is a Material Misstatement under Section 53 Fraud for the Purposes of Rule 399?

Pfizer Canada Inc. v Ratiopharm / amlodipine besylate (NOC) 2011 FCA 215 Létourneau JA: Dawson, Stratas JJA

Since I started this blog at the beginning of the year, there have been enough cases on the relationship between section 8 damages and patent validity that I have decided to add a new tag for that topic. The automatic stay available to the patentee under section 7(1) of the PM(NOC) Regulations is analogous to an automatic interlocutory injunction, and section 8 damages available to the generic are analogous to damages on the undertaking normally required of an applicant who obtains such an injunction. The difficulty arises because NOC proceedings and impeachment proceedings are entirely separate. Under the “no reach back” rule established in Apotex v Syntex / naproxen (NOC) 2010 FCA 155, the generic is not entitled to section 8 damages if it is unsuccessful in the NOC proceedings, even if the patent is ultimately held to be invalid in a subsequent infringement action. The generic will therefore have been wrongly excluded from the market under an invalid patent, and yet will have no remedy for the harm suffered as a result. In contrast, if the patentee had obtained an interlocutory injunction in an infringement action, damages on the undertaking would be available to the generic if it ultimately established the patent was invalid. (It would also seem to follow that if the patentee loses in the NOC proceedings, but prevails in the infringement action, the patentee will nonetheless be liable to the generic under section 8, though it would not have been liable on the undertaking on an interlocutory injunction. This point has not yet been established in litigation. For posts discussing the problem, click on the Section 8 and Patent Validity tag.)

The amlodipine besylate litigation exemplifies the issue. In 2006, Pfizer was ultimately successful in obtaining a prohibition order in the NOC proceedings – 2006 FCA 214 rev’g 2006 FC 220 – but the patent was declared invalid in subsequent infringement proceedings: 2010 FCA 204 aff'g 2009 FC 711. Ratiopharm would like section 8 damages, but under the “no reach back” rule, it is not entitled to them. In the motion that was the subject of the most recent decision in 2011 FCA 215, Ratiopharm sought to avoid the “no reach back” rule by applying to have the 2006 prohibition order set aside. Normally the NOC matter would be res judicata, notwithstanding the finding of invalidity in the infringement proceeding, so Ratiopharm applied under Rule 399(1)(a) and (b) of the Federal Court Rules to have the order of prohibition set aside on the basis that (a) the holding of invalidity in the infringement action was “a matter that arose or was discovered subsequent to the making of the order,” or (b) the order had been “obtained by fraud.”

Validity as a Defence to a Section 8 Action

Apotex Inc. v. Shire Canada Inc. / modafinil (NOC) 2011 FC 436 Tabib P

The modafinil litigation raises the question of whether a generic which has succeeded in an NOC proceeding can get section 8 damages even if the patent is subsequently determined to be valid and infringed in an infringement action. Shire is a licencee under the relevant patent and holds an NOC. The patent is owned by Cephalon. Apotex initiated NOC proceedings against Shire and was successful: 2008 FC 538. Apotex then brought an action against Shire for section 8 damages. In the meantime, Cephalon has filed an action for infringement against Apotex. In 2010 Shire sought to amend its statement of defence to add a defence to the effect that if Cephalon is successful in its action against Apotex, then Apotex should not be allowed to recover against Shire under section 8. It is important to note that at that time Shire did not propose to bring any evidence on the issue of validity and infringement; it wished to rely entirely on the outcome of the Cephalon action. This amendment was not permitted (2010 FC 828 affm’d 2010 FC 1001), on the basis that the Shire had not pleaded any material facts on which the court could make any direct determination. If Shire’s defence had been permitted, the outcome of the Shire action would depend entirely on the outcome of the Cephalon action, which is completely independent. In this motion, Shire sought to amend its statement of defence to plead directly that Apotex infringes. Prothonotary Tabib J dismissed this motion on the basis the Shire had not sought this amendment in a timely manner [40]. We therefore do not have any indication on the merits as to whether such a defence would be permitted. However, the modafinil litigation shows that there is no satisfactory answer.

The Court’s holding in 2010 FC 1001, that for procedural reasons Shire cannot be allowed to rely on the outcome of the Cephalon litigation, is entirely reasonable. The parties in the Shire litigation have no control over the Cephalon litigation, which might be prolonged indefinitely. But if Shire had raised the defence in a timely manner, and the amendment sought in this decision had been allowed, this would require an entirely separate determination of the validity of the modafinil patent as part of the section 8 action, in addition to the determination originally made as part of the main NOC proceeding, and also in addition to determination to be made in the Cephalon action. It is surely a waste of resources to have the same patent litigated three times against the same party.

In my discussion of the levoflaxin litigation I suggested that a subsequent finding of validity would not bar a section 8 claim in any event because of the “no reach back” rule articulated in Apotex v Syntex / naproxen (NOC) 2010 FCA 155. Whether that suggestion is correct remains to be seen. If it is, then the generic will be entitled to damages for having been kept out of a market that it had no right to enter, which is not satisfactory. If both the NOC litigation and the subsequent infringement action were between the same parties, as is often the case, then a cure for this might be to allow the patentee to claim reimbursement of the section 8 damages as part of its damages in the infringement action. Apart from any conceptual problems this might raise, the modafinil litigation shows that this is not a general solution, because the here parties are different; payment by Shire under section 8 is not a loss to Cephalon.

If this analysis is right, it is difficult to see how even an amendment to the NOC regulations could help matters. Perhaps there is some creative solution to the problem that is not apparent to me. But for now it looks as though this is another aspect of the problems caused by the separation of the statutory stay under the NOC regulations from the underlying infringement action: see here, here and here, for previous posts on this issue.

Separation of NOC Proceedings from Infringement Action Results in Unfairness in Section 8 Damages

Apotex v Janssen-Ortho Inc / levofloxacin (NOC) 2011 FCA 57 (Stratas JA: Sexton, Layden-Stevenson JJA) varying 2010 FC 711 (Hughes J)

In the levoflaxin dispute, Janssen-Ortho faces the possibility of liability for section 8 damages in respect of a patent that has been found valid in both an infringement action and in the course of the NOC proceedings in which the liability may arise. While the particular facts of the levoflaxin dispute are unusual, the root cause of this paradox is the separation of the stay under the PM(NOC) Regulations and the infringement action itself.

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]. One important difference is that in contrast to a motion for an interlocutory injunction, the PM(NOC) proceedings are entirely separate from any subsequent infringement action. This means that entitlement to section 8 damages turns on success in the NOC proceedings, not on the success in the infringement action which typically follows. Compared with a true interlocutory injunction, this is unsatisfactory in two ways. On the one hand, if the patentee obtains the prohibition order but the patent is ultimately held to be invalid, the generic will not be able to recover its lost profits from being wrongly excluded from the market (Apotex v Syntex / naproxen (NOC) 2010 FCA 155 affm’g 2009 FC 494), though it would have been able to recover such losses on the undertaking if the PM(NOC) system did not exist, and an interlocutory injunction had been granted to patentee.1 Conversely, if the patentee loses in the NOC proceedings, but prevails in the infringement action, the patentee will nonetheless be liable to the generic under section 8, though it would not have been liable on the undertaking on an interlocutory injunction. This follows both from the general principle that the NOC proceedings and the infringement action are separate, and also on the face of section 8 itself (see esp. subsection 8(3)).

This second scenario has not yet arisen directly, but the levoflaxin litigation raises the same problem in an exaggerated form. In 2004 FC 1631 the patent in issue was found to be invalid for obviousness in NOC proceedings against Novopharm. In the subsequent infringement action against Novopharm, 2006 FC 1234 affm’d 2007 FCA 217, Hughes J found the patent to be valid and infringed. Apotex then applied for an NOC and in 2008 FC 744 Shore J held the patent to be valid and granted a prohibition order. Here is where things took an unusual twist. In the course his decision, Shore J referred repeatedly to the decision of Hughes J in the Novopharm litigation. In 2009 FCA 212 the FCA decided that Shore J had relied excessively on the decision of Hughes J and remitted the matter back to him with instructions to assess the evidence independently. Shore J, evidently piqued at the FCA’s holding, recused himself: 2010 FCA 643 affm’d 2011 FCA 58. The matter was then heard by Hughes J. However, the day after the FCA decision remitting the matter to Shore J, the patent expired, and the day after that the NOC was granted. In 2010 FC 711 Hughes J held the prohibition proceeding to be moot as the NOC had been granted. However, Hughes J did not “dismiss” the action; instead, he “terminated” it for mootness. In 2011 FCA 57 the FCA varied this by holding that the matter was instead “dismissed.” The significance of the terminological distinction is that section 8 provides that the generic is entitled to damages if the application is “dismissed by the court hearing the application.” It was expressly in order to make it clear that Apotex was not entitled to section 8 damages that Hughes J held that the proceeding was “terminated” [34].

What is "success" in NOC proceedings, for purposes of section 8?

Apotex Inc. v. Merck Frosst Canada Ltd. / lovastatin (NOC) 2010 FC 1264, Snider J

The leading case on compensation under section 8 is Apotex v Syntex / naproxen (NOC) 2010 FCA 155 affm’g 2009 FC 494, in which a prohibition order had been granted, but subsequently set aside after the patent was held to be invalid in separate proceedings. Apotex was denied compensation under section 8. The Court of Appeal held that “Apotex can not ‘reach back and apply the finding of invalidity in the action so as to argue that the ‘671 patent had "expired" within the meaning of section 8' of the 1993 version of the Regulations.” While this was expressly decided on the 1993 Regulations, the broad point seems to be that NOC proceedings and infringement proceedings are separate. Entitlement to section 8 compensation does not depend on the outcome of an infringement action.

If the trigger under section 8 must be success under the NOC proceedings, what counts as “success”? In Apotex Inc. v. Merck Frosst Canada Ltd. / lovastatin (NOC) 2010 FC 1264 the stay expired without the application for the order of prohibition ever having been heard on the merits. Apotex claimed for section 8 compensation, arguing that Merck had not been successful in the NOC proceedings. Merck, on the other hand, argued that it wasn’t unsuccessful, either.

Snider J held that under the 1993 Regulations the question is not whether the innovator succeeds in getting a prohibition order; it is expiry of the relevant patent, for example by a finding that the allegation of invalidity was justified. As the patent had not expired, Apotex could not claim damages.

This specific holding is of limited interest under the 1998 Regulations as it clearly turns on the specific wording and interpretation of the 1993 version. But the facts raise an interesting question. In her decision in the infringement proceedings, released concurrently, Snider J held that the patent was valid and infringed. What if Apotex had won on section 8? If Syntex says you can’t reach back, presumably this applies both ways, so that Merck would have been liable to compensate Apotex under section 8 despite prevailing in the infringement proceeding. Would Merck then be able to recover that section 8 payment as damages in the infringement action? If not, Apotex would retain a sizeable payment for being kept out of a market that it would not have been entitled to enter. It seems inevitable that this problem will arise at some point, as it stems from the basic point made in Syntex that the NOC proceedings, unlike an interlocutory injunction, are separate from the infringement action.