Canada: Recent Developments In Section 8 Jurisprudence

In very general terms, section 8 of the Patented Medicines (Notice of Compliance) Regulations ("Regulations") provides for liability by an innovator to a generic manufacturer for the generic manufacturer's damages if an application for a prohibition Order is unsuccessful. While over 40 section 8 actions have been commenced, only four have been determined on their merits to date: Apotex Inc. v. Merck & Co. Inc. et al., 2008 FC 1185 rev'd in part 2009 FCA 187, leave to appeal to S.C.C. refused [2009] S.C.C.A. No. 347 (alendronate); Apotex Inc. v. Syntex Pharmaceuticals International Ltd. et al., 2009 FC 494 aff'd 2010 FCA 155, leave to appeal to S.C.C. refused [2010] S.C.C.A. No. 312 (naproxen sustained-release); Apotex Inc. v. Merck & Co., Inc. et al., 2010 FC 1264, appeal pending (lovastatin); Apotex Inc. v. Merck & Co., Inc. et al., 2010 FC 287 aff'd 2011 FCA 329 (norfloxacin, see below). Two recent decisions, including the appeal decision in norfloxacin, are summarized in this article.

Teva's section 8 claim initiated by ratiopharm summarily dismissed. On October 17, 2011, Justice Hughes of the Federal Court allowed Teva's motion for summary trial and granted summary judgment, determining that Teva cannot continue a section 8 claim against Wyeth initiated by ratiopharm: Teva Canada Limited v. Wyeth LLC, 2011 FC 1169 ("Wyeth").

The action had been commenced by ratiopharm in 2007, claiming section 8 damages against Wyeth flowing from prohibition proceedings related to the antidepressant venlafaxine (Wyeth's EFFEXOR XR) and Canadian Patent No. 2,199,778 ("the '778 patent"). In 2010, Teva (previously known as Novopharm) acquired an ownership interest in ratiopharm and the companies amalgamated under the name Teva. The amalgamated corporation (Teva) continued the action against Wyeth.

However, in 2005, Novopharm and Wyeth had entered into a licence agreement permitting Novopharm to sell a generic version of venlafaxine under the '778 patent commencing on December 1, 2006. Pursuant to the agreement, Wyeth undertook to take "commercially reasonable efforts" to address infringement of the '778 patent by third parties. In early 2006, Wyeth notified Novopharm that ratiopharm had served a notice of allegation related to venlafaxine and the '778 patent. Novopharm encouraged and expected Wyeth to commence the notice of compliance proceedings against ratiopharm.

Wyeth sought an Order declaring that Teva is not entitled to continue ratiopharm's claim or that any damages suffered by ratiopharm may be offset by the gains realized by Novopharm under the licence.

In determining that Teva is not entitled to maintain the claim initiated by ratiopharm, Justice Hughes considered both the effect of the amalgamation and the equitable doctrine of election.

Regarding the amalgamation, Justice Hughes concluded that the claim by ratiopharm was unaffected but that the amalgamated corporation is also liable for any obligations of the amalgamating corporations (i.e. both ratiopharm and Novopharm). Justice Hughes concluded that Novopharm carried with it into the amalgamated corporation (Teva) the obligation of equitable election so as to make the ratiopharm section 8 claim no longer enforceable by Teva.

The doctrine of election holds that a person is precluded from exercising a right that is inconsistent with another right if that person has consciously and unequivocally exercised the latter. Justice Hughes explained that "[t]o establish an election in equity, it is unnecessary to show that the electing party made a conscious choice between inconsistent rights at the time when the original decision was made; an equitable election does not involve making a choice at all – it involves accepting the consequences of a decision already made." Justice Hughes concluded that Novopharm's actions fit within the criteria of the equitable doctrine of election as (1) it took a deliberate course of action as a licensee, namely the encouragement and expectation that Wyeth would initiate proceedings against ratiopharm, and (2) it accepted that it benefited from the licence. Thus, Justice Hughes determined that Novopharm is precluded by the doctrine from pursuing a claim against Wyeth for initiating proceedings against ratiopharm, which trumps ratiopharm's existing claim. Teva has appealed.

Subsequently, on November 28, 2011, in Sanofi-Aventis Canada Inc. et al. v. Teva Canada Limited (Federal Court File No. T-1161-07), Justice Snider dismissed a motion to amend brought by Sanofi to plead a defence to Teva's section 8 claim regarding ramipril (Sanofi's ALTACE) based on the equitable doctrine of election set out in Wyeth.

Court of Appeal confirms Merck liable under 1998 version of section 8 re: norfloxacin. On November 25, 2011, the Court of Appeal dismissed Merck's appeal from Justice O'Reilly's decision (2010 FC 287) finding Merck liable under section 8 of the Regulations for holding Apotex off the market for norfloxacin (Merck's NOROXIN): Merck Frosst Canada & Co. v. Apotex Inc., 2011 FCA 329.

On appeal, Merck argued that (1) the 1993 rather than the 1998 Regulations apply to Apotex's claim as Merck's application was not "pending" on the coming into force of the 1998 Regulations; (2) the 1998 Regulations are invalid as they cause retroactive or retrospective effects or interfere with vested rights; and (3) Apotex suffered no loss as it would not have had access to an available supply of non-infringing norfloxacin.

The Court concluded that the test for determining whether an application is "pending" for the purpose of the transitional provision is whether the application remains alive either at first instance or on appeal. He agreed with the Trial Judge that Merck's prohibition application was "pending" on the coming into force of the 1998 Regulations as the Supreme Court of Canada was (1) considering the submissions that had been made to it on appeal and (2) had the power not just to grant Merck's appeal but also to dismiss Merck's application.

On Merck's invalidity argument, Justice Stratas concluded that the 1998 Regulations do not have retroactive or retrospective effects and do not interfere with vested rights. Merck argued that when it applied for an Order of prohibition on May 31, 1993, it knew there was a risk of liability but that risk was defined by section 8 of the 1993 Regulations. Justice Stratas determined that the 1998 version was merely "declaratory or clarifying" of the 1993 version, such that it was not retrospective. Further, Justice Stratas determined that Merck had no "vested rights" in the 1993 version on the basis that the 1993 version was so obscure in meaning that when Merck applied for prohibition it acquired a "black box" of potential liability given the fundamental uncertainty of the legal environment.

Finally, Justice Stratas found no error in the Trial Judge's finding that Apotex would have gone to market with norfloxacin as of June 10, 1994. Justice Stratas noted that Apotex's damages had to be assessed on the basis of a hypothetical question: what would have happened had Merck not brought an application for prohibition. He found the Trial Judge's "holistic assessment of the evidence regarding what might have happened in the hypothetical world" supported his conclusions. In particular, he found that there was evidence that Apotex could have obtained a non-infringing supply of norfloxacin from Novopharm.

The preceding is intended as a timely update on Canadian intellectual property and technology law. The content is informational only and does not constitute legal or professional advice. To obtain such advice, please communicate with our offices directly.

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