Canada: Pharma In Brief - Canada: Merck Awarded Substantial Damages For Infringement Of Lovastatin Patent

Case: Merck and Co., Inc. et al. v. Apotex Inc. et al.
Drug: Lovastatin (MEVACOR)
Nature of case: Damages Reference.
Successful party: Merck and Co Inc and Merck Canada Inc.
Date of decision: July 5, 2013 (confidential reasons) July 16, 2013 (public reasons)


The Federal Court held that Merck and Co., Inc. ("Merck US") and Merck Canada Inc. ("Merck Canada") (collectively "Merck") are entitled to $119,054,327 in damages plus pre and post judgment interest arising from Apotex Inc.'s ("Apotex") infringement of Canadian Patent No 1,161,380 (the "'380 Patent") with respect to the anti-cholesterol drug MEVACOR (lovastatin).

Apotex had argued that Merck was only entitled to approximately $9,554,288 in damages.

Merck's total damages award was composed of: 1) Merck's lost profits for lost sales made prior to the expiry of the patent; 2) a reasonable royalty for infringing domestic sales made after the expiry of the patent; and 3) a reasonable royalty for infringing export sales made by Apotex (that Merck admitted it would not have made).  In addition, Merck was awarded pre-judgment and post-judgment interest on the damages award and its legal costs.

In calculating Merck's damages, Justice Snider held that: 1) Apotex's "non-infringing alternative" ("NIA") defence does not exist in Canadian law; 2) Merck is not entitled to damages for royalties in relation to an agreement with Merck and Company Incorporated ("MACI"); 3) Merck is not entitled to damages for post-expiry 'ramp up sales'; 4) pre-judgment interest to be calculated at a rate equal to the 1997 Bank Rate plus 1%; and 5) post-judgment interest at a rate of 5%. In addition, Justice Snider discussed the calculation of a reasonable royalty rate in respect of a number of sales that would not have been made by Merck but for the infringement of the '380 Patent.

The decision on the liability phase of the trial had previously determined that the '380 Patent was valid and infringed, and that Merck was entitled to damages rather than an accounting of profits (2010 FC 1265, aff'd 2011 FCA 363).

Non-Infringing Alternative

Apotex argued that Merck Canada was only entitled to a reasonable royalty on the majority of its lost sales made prior to the '380 Patent expiry because of the availability of an NIA process to produce lovastatin tablets. During the period of infringement, Apotex used a NIA process for 40% of its sales of Apo-lovastatin and used a process that was held to have infringed the '380 Patent for the remainder. Merck only claimed damages in respect of lovastatin produced using the infringing process. Apotex argued that Merck Canada could not show its damages were sustained by reason of infringement.

Justice Snider found that a NIA defence does not exist as a matter of Canadian law and is therefore not relevant to an assessment of damages. The Court rejected Apotex's arguments that a NIA damages defence was previously accepted in Canada in Monsanto v. Schmeiser ([2004] 1 S.C.R. 902).  Snider J. further declined to adopt principles from U.S. authorities on the NIA defence.


A) Reasonable Royalty  

Justice Snider confirmed that Merck was entitled to a reasonable royalty for sales made by Apotex that Merck would not have made.  The parties accepted that Merck was only entitled to a reasonable royalty in respect of 1) the post expiry infringing sales of Apotex; and 2) the export sales of Apotex.

Pre Expiry Infringing Sales

While Apotex did not succeed in asserting the NIA defence, Justice Snider set out the principles governing what a reasonable royalty would be in the event she is wrong. Snider J. held that Merck would only be entitled to a reasonable royalty for pre-expiry domestic sales where Apotex could have competed without infringing the patent.

Justice Snider largely accepted the evidence of Merck's expert that the appropriate rate would be determined by considering a "hypothetical one-time negotiation" to cover all future infringing use. This methodology was premised on a lump-sum, up-front licence payment rather than a percentage of anticipated profits as applied by the Courts in Jay-Lor v. Penta Farm System Ltd (2007 FC 358) and AlliedSignal Inc v. DuPont Canada Inc (78 CPR (3d) 129).

Justice Snider held that in order to determine the relevant rate, one must find the middle point between the maximum royalty that Apotex would be willing to pay (the "MWP amount") and the lowest royalty that Merck would be willing to accept (the "MWA amount").  Justice Snider held that if the numbers fall such that there is no bargaining range, the rate would be based on Merck's MWA amount, as Apotex's expert did not present a contrasting methodology.

Export Sales

Merck conceded that it would not have made the export sales of Apotex. As such, Justice Snider held that the reasonable royalty rate for these sales should be calculated with reference to the total expected cost savings achieved by Apotex in using the infringing process versus the non-infringing process.

Post Expiry Sales

Justice Snider held that there is nothing in the Patent Act that limits damages to those sustained during the life of the patent and held that Merck was entitled to a reasonable royalty on all infringing material sold post expiry. In calculating the rate, Justice Snider endorsed the evidence of Merck's expert that the royalty fall within the mid-range of the difference between Apotex's cost of using the infringing process and the costs of using the non-infringing process.

B) MACI Agreement

Merck was unsuccessful in its claim to recover royalties in respect of an agreement involving MACI.

Post Expiry Ramp Up

Merck argued that it was entitled to approximately $28,000,000 in lost profits for replacement sales during the hypothetical 'ramp-up' or 'springboarding' period when the generic had not yet fully captured the market. While Justice Snider held that s. 55 of the Patent Act did not preclude Merck from claiming such profits, she refused to make such a finding on the facts before her. Specifically, Justice Snider noted that Apotex was not given sufficient notice of this argument and found that there was an inadequate evidentiary record to support such a claim.

Lost Profits of Merck US

Apotex argued that Merck US was only entitled to "nominal damages". Justice Snider rejected this argument and concluded that Merck US, as the named patentee, was entitled to damages for the sale of lovastatin API (active pharmaceutical ingredient) to Merck Canada.

In the liability phase of the trial, Justice Snider had previously concluded that Merck US had standing as a party to the action. In the damages reference, Justice Snider rejected Apotex's argument that the MACI licence conferred all rights to recover damages to MACI. Justice Snider emphasized that the right of a patentee to recover any damages sustained by reason of infringement is a fundamental right and held that Merck US was entitled to its lost profits.

Pre-Judgment Interest

At the liability phase of trial, Justice Snider concluded that Merck was entitled to pre-judgment interest. Apotex submitted that pre-judgement interest should be calculated at approximately 3.3% applying a Bank of Canada rate for short term advances in the first quarter of 1997 (the "1997 Bank of Canada Rate"). Merck held that the rate should be based on either: Merck's long-term borrowing rate (6%), Merck's weighted average cost of capital ("WACC") rate (11%) or Apotex's borrowing rate (redacted).

Justice Snider noted that the Courts have awarded the Bank of Canada rate in several recent cases. Justice Snider rejected Merck's internally generated WACC rate as having little relevance to the assessment of pre-judgement interest.  In exercising her discretion, Justice Snider considered: Merck's cost of borrowing during the relevant period and the conduct of the parties, and concluded that the appropriate pre-judgement interest rate was the 1997 Bank Rate plus 1%, not compounded.

Apotex Appeal Filed

Apotex has already filed an appeal of this decision with the Federal Court of Appeal.

Link to decision:

Merck and Co., Inc. et al. v. Apotex Inc. et al, 2013 FC 751

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