Canada: Generic Ordered To Pay $1.7 Million In Accounting Of Profits

Last Updated: April 24 2013
Article by Tushar Tangri

On March 12, 2013, the Federal Court released its decision in Apotex Inc. v. H. Lundbeck A/S, 2013 FC 192. The Court  dismissed Apotex's action to impeach Lundbeck's Canadian Patent No. 1,339,452 and declared the patent valid and infringed by Apotex. Among other things, the Court addressed the equitable remedy of accounting of profits in circumstances of patent infringement.  As decisions granting an accounting of an infringer's profits are rare, this article focuses on the Court's findings with respect to the accounting of profits remedy.

By way of background, Apotex brought an action seeking to impeach Lundbeck's Canadian Patent No. 1,339,452 (the "'452 Patent"). The '452 Patent claimed a compound known as "(+)-Citalopram" along with methods to make this compound.  (+)-Citalopram is used in the treatment of clinical depression and is branded in Canada as Cipralex®.  Apotex alleged that the '452 Patent was invalid based on the grounds of: inutility; insufficient disclosure; anticipation; and obviousness.  In response, Lundbeck alleged that the claims of the '452 Patent were valid and infringed by Apotex.

Apotex admitted that if the '452 Patent was found to be valid, in whole or in part, it had infringed.  After considering the expert evidence, Justice Harrington concluded that each of the claims of the '452 Patent were valid.  Therefore, the only issue that remained was what remedy Lundbeck ought to be granted for Apotex's patent infringement.  Lundbeck had sought an accounting of Apotex's profits rather than compensatory damages.  Lundbeck also sought punitive damages.  While Justice Harrington saw no reason to award punitive damages to Lundbeck on the facts of this case, he did exercise his discretion in awarding Lundbeck the equitable remedy of an accounting of profits.  In so doing, he distinguished this case from the earlier Supreme Court of Canada case of Monsanto Canada Inc. v. Schmeiser ("Monsanto").

The Monsanto case involved a claim of patent infringement by Monsanto Inc. against Mr. Percy Schmeiser, a farmer based in Saskatchewan, Canada.  The patent in issue in Monsanto related to genetically engineered genes and cells which, when inserted into plant seeds, increased their tolerance to herbicides containing glyphosate.  Testing had revealed that 95-98% of Mr. Schmeiser's 1,000 acres of canola crop contained the patented gene and cell at issue, despite Mr. Schmeiser never having purchased these seeds nor ever obtaining a license from Monsanto to plant them.   The Supreme Court found the subject matter of Monsanto's invention to be patentable, and held that Mr. Schmeiser had infringed the patent by saving and cultivating canola seeds containing the patented gene and cell. 

In terms of remedies in Monsanto, the Supreme Court held that Monsanto was precluded from seeking its damages in light of its election to seek an accounting of Mr. Schmeiser's profits.  Moreover, Monsanto was only entitled to those profits Mr. Schmeiser realized that were attributable to the patented gene and cell in issue.  In this regard, the Supreme Court held that Mr. Schmeiser's profits from the sale of the infringing canola crop would have been no different had he planted and harvested ordinary canola.  To put it another way, it was held that Mr. Schmeiser had realized no additional profits as a result of his unlicensed use of the invention, and, as such, Monsanto was not entitled to any monetary award for patent infringement. 

In contrast, the Federal Court's recent decision in this case dealt with Lundbeck's entitlement to Apotex's profits from foreign sales of (+)-Citalopram, which were the subject of Lundbeck's '452 Patent.  Justice Harrington held that Lundbeck was entitled to all of Apotex's profits realized from these sales.  In so doing, he distinguished the case before him from Monsanto.  Justice Harrington noted that, in Monsanto, it was held that Mr. Schmeiser realized no profits from the use of the patent at issue in that case since he would have realized the same profits without using the patented invention.  In contrast, Justice Harrington found that "[t]his case is quite different" because all of the profits realized by Apotex were a direct result of the infringement of the '452 Patent.  This can be explained by the fact that the only active ingredient in Apotex's product was  (+)-Citalopram, which was claimed in the '452 Patent.  As such, Apotex would not have realized any profits from its foreign sales but for its infringement of the '452 Patent.  Therefore, Apotex had to forfeit these profits to Lundbeck. 

In determining the monetary amount of the award to Lundbeck, Justice Harrington considered the revenues and reasonable expenses Apotex incurred as a result of its foreign sales of (+)-Citalopram.  Both Lundbeck and Apotex put forward expert evidence from chartered accountants to assist the Court in this regard; however, the Court affirmed that any analysis of the jurisprudence regarding such a remedy was for the Court to make and not accountants. 

While much of the information relating to the calculation of Apotex's revenues is confidential and has been redacted from the public version of the Apotex decision, Justice Harrington did provide guidance regarding allowable expenses that should be deductible in an accounting of profits calculation.  In this regard, the Court allowed expenses for packaging material and "direct labour, set/clean-up labour, direct overhead and direct quality assurance", but refused to allow expenses for Apotex's "indirect overhead, indirect quality assurance, fixed overhead, depreciation and rent" because they were "too remote to be referable to the manufacture of (+)-Citalopram".

Additionally, Justice Harrington allowed increased expenses for one of the Apotex entities manufacturing (+)-Citalopram, Apotex Pharmachem, because it was the first time this entity had manufactured the compound.  Justice Harrington held that "[t]he cost of the first item off the assembly line is always more expensive than if the set-up cost had been spread out over a much greater production". 

The Court awarded Lundbeck over $1.7 million on account of Apotex's profits.  The Court also granted an injunction prohibiting the Defendants from "making, selling, distributing, advertising, exposing for sale, offering for sale, stockpiling or possessing for the purposes of the foregoing or importing into Canada (+)-Citalopram prior to the expiration of patent 1,339,452 on 9 September 2014."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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