Canada has a system, similar to the Hatch-Waxman proceedings in the United States, for linking generic drug approval to preliminary clearance of patent hurdles. These proceedings are colloquially known as NOC Proceedings, and are brought pursuant to the Patented Medicines (Notice of Compliance) Regulations (the Regulations ). There are a few main differences between the systems: 1) The proceedings are not full actions, and thus have no discovery; 2) the findings made are not in rem determinations of infringement and/or validity, and are not binding on any subsequent action to determine infringement or validity of the patent; 3) the innovator has no right of appeal if the generic company is successful and obtains its market approval; and 4) the innovator can be liable to any generic company it kept off the market, for damages suffered by that company while the proceeding was pending.
It is this last difference, where there has been a recent fundamental shift in the law. Until recently, the Federal Courts in Canada had made a number of findings that prevented generic companies from gaining a windfall through the operation of the regulations that govern these proceedings. Generic companies had been limited to their damages, rather than being able to claim the profits of the innovators. The time period was limited to that in the regulations, and there was no ability for the generic companies to claim twice for the ramp-up period. Damages were owed, but they were based on the damages suffered by the generic company while it was being kept off the market. This approach is in keeping with the purpose of the Regulations.
However, two recent decisions from the Federal Court of Appeal have changed that.1 These decisions relate to the drug ramipril. NOC Proceedings were brought against a number of generic companies, and ultimately, the majority were unsuccessful. Thus, Sanofi brought patent infringement proceedings against both Apotex and Teva when they came to market. Counterclaims of invalidity and for damages pursuant to section 8 of the Regulations were brought. The patent was held to be invalid, and Sanofi was held to be liable for damages to both Apotex and Teva, pursuant to s. 8.
The quantum of damages owed to each generic company was previously thought to be determined by how much of the generic market each company would take up. However, in previous cases, there had only been one generic company claiming s. 8 damages; thus, determining the size of the hypothetical generic market in the NOC world had been relatively simple. Arguments were mostly about the timing and extent of market penetration. Nevertheless, this was generally governed by what had happened in the real world. However, in the ramipril cases, two generic companies had brought suits for damages. The innovator argued that the overall market in the hypothetical NOC world should be the same hypothetical NOC as between the two companies, with the dispute being over how much to pay to each from within that overall market. The Federal Court of Appeal disagreed.
The Court held that each claim for s. 8 damages must be determined on its own merits based on the evidence presented. Furthermore, it held that the behavior of competing generic drug manufacturers must be determined on the basis that the Regulations exist. As a result, the hypothetical world constructed for each generic market is not the same. This can result in a potential windfall for each generic company as it is possible for each generic company to prove to the Court that in the hypothetical NOC world it would have obtained a share of the market bigger than it holds in reality.
It is thus possible for the innovator to be forced to pay damages that exceed the real world market share of a generic company. Depending upon how many generic companies claim damages, it is possible that the total payout made by an innovator could be several multiples of real world damages of any one generic company. As a result, innovators now need to consider this new reality when determining whether to bring a proceeding pursuant to the Regulations.
Originally published in LifeSigns - Life Sciences Legal Trends in Canada
Footnote
1 Apotex v. Sanofi-Aventis, 2014 FCA 68 and
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