Territoriality and Remedies for Transnational Infringement

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

Omeprazole Accounting indirectly raises an interesting and difficult issue respecting the principle of territoriality as applied to monetary remedies in transnational litigation. As I understand the facts,* Apotex manufactured its omeprazole product in Canada and exported some of it for sale in the US. Litigation ensued in both jurisdictions, resulting in determinations that the manufacture in Canada infringed the ‘693 patent, and the sale in the US infringed US Patent 4,786,505 (the US equivalent of the ‘693 patent). In the US litigation, AstraZeneca was awarded reasonable royalty damages in the amount of $76m: AstraZeneca AB v Apotex Corp, 985 F Supp 2d 452 (2013). The question was how to allow for those US damages in assessing the Canadian accounting of Apotex’s profits from the US export sales.

It appears that (unsurprisingly) Apotex’ profits on the US sales exceeded the reasonable royalty damages payable under the US judgment. While the parties agreed that double recovery of the US damages was not allowed, AstraZeneca argued that Apotex should be required to disgorge all of the profits on the US sales, less the US damages. This was evidently on the logic that AstraZeneca had two separate causes of action, and should be allowed to recover on both, so long it is did not get double recovery for the same loss. Apotex, on the other hand, argued that it should not be required to disgorge any US export profits [243]-[235]. This argument was based on res judicata, and more specifically cause of action estoppel [241]: “by opting to claim a recovery in the United States AstraZeneca must now accept that award as full satisfaction of its entitlement from the infringement of the 693 Patent for Apotex’s sales into the United States” [240].

Barnes J rejected Apotex’s argument, saying “the causes of action in the two proceedings arose under different patents, involved distinct acts of infringement and were tried in jurisdictions where different substantive legal principles applied” [244]. He noted in particular that an accounting of profits is not available in the US, and that the temporal scope of the infringing acts is different, as the US patent expired in 2005, before the Canadian patent. “It cannot be the case that, by proceeding first in the United States, AstraZeneca should be taken to have abandoned its claim for ongoing Canadian infringement post-dating the expiry of the United States patent” [245]. I am not an expert on res judicata, but on my understanding of the law, Barnes J’s conclusion seems to me to be correct. Cause of action estoppel requires that the material facts giving rise to both actions are the same: Danyluk 2001 SCC 44, [54]. A key material fact in the US litigation is the sale of omeprazole in the US, which is not relevant to infringement by manufacture in Canada, while a key fact in the Canadian litigation was the manufacture in Canada, which is not relevant to infringement by sale in the US.

With res judicata disposed of, Barnes J’s holding follows from the principle that the infringer should account for the profits caused by the infringement. However, while there can be no recovery without causation, causation is not the only limit on recovery. The other potentially relevant limit is the principle of territoriality. Barnes J did not address this principle, presumably because it was not raised by the parties, but the US Federal Circuit has addressed territoriality in several cases, including Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., 711 F.3d 1348 (Fed.Cir.2013), Carnegie Mellon University v. Marvell Technology Group, Ltd. 807 F.3d 1283 (Fed Cir 2015), and WesternGeco LLC v. ION Geophysical Corp., 791 F.3d 1340 (Fed.Cir.2015). (See here and here for Professor Cotter’s remarks on these cases.)