Canada: Federal Court Of Appeal Updates The Law Of Section 8 Damages

Last Updated: March 24 2014
Article by Christopher C. Van Barr and Kiernan A. Murphy

Most Read Contributor in Canada, October 2018

On March 14, 2014, the Federal Court of Appeal issued its highly anticipated decisions1 concerning claims by Teva and Apotex for damages pursuant to section 8 of the Patented Medicines (Notice of Compliance) Regulations.  These claims followed prohibition proceedings involving Apotex and Teva related to generic versions of ramipril, marketed by Sanofi as ALTACE®.

Section 8 damages are calculated by considering the generic manufacturer's loss in a hypothetical world where it starts selling without the delay occasioned by the Regulations.  In a trilogy of trial judgments issued in May 2012,2 the trial judge provided guidance for the hypothetical world calculation and addressed Sanofi's challenges to the validity of section 8.

The Court of Appeal grappled with the unique facts presented by the appeals and ultimately dismissed all but one appeal.  The successful appeal varied one trial judgment to exclude a generic competitor from Apotex's hypothetical market and thus increase Apotex's claim. The appellate decisions are summarized below.  Among the Court's more notable findings are the following:

  • both generic claimants and generic competitors are subject to the Regulations in the hypothetical world, except for the sole purpose of determining the start date of the period of liability.  Majority and dissenting reasons on this issue recognized that this approach could serve to inflate each generic claimant's hypothetical market share thus providing a potential windfall to the generics beyond the loss they suffered during the period of liability;
  • as they are subject to the Regulations, generic claimants will send Notices of Allegation to address patents listed against the drugs they seek to copy thus providing notice to innovators of their impending market entry.  In reaching this conclusion, the Court of Appeal has largely done away with the notion that the innovator would be taken by surprise by a generic launch in the usual circumstances;
  • generic claimants will be subject to a reduction in revenues for "ramp-up" in the hypothetical world.  Such ramp-up cannot be discounted on the basis that the generic also suffered a ramp-up in the real world; and
  • section 8 maypermit generic claimants to be compensated for sales directed to indications for which they did not seek approval notwithstanding patents which the generics did not address.  The Court noted that such sales may be precluded where the facts so justify.

The Apotex Liability Appeal: Apotex Inc v Sanofi-Aventis et al, 2014 FCA 68

In the Apotex Liability Appeal, the Federal Court of Appeal was divided.  A lengthy dissent (from Justice Mainville) was issued along with the majority's reasons (penned by Justice Sharlow, with Justice Pelletier concurring).

Key findings of the majority include:

  • The NOC Regulations generally apply to both the generic claimant and generic competition in the hypothetical world:  The majority rejected the argument that Apotex and competing generics would enter the hypothetical world free of the constraints of the Regulations.  Rather, the majority held that the Regulations are to be disregarded only for the specific purpose of determining the start date of the liability period. Thus, in contrast to prior Federal Court decisions, the Regulationsexist for all generics including the generic claimant in the hypothetical world.  In the circumstances of multiple section 8 claims (such as the case before the Court), the majority recognized the possibility that deciding each such claims separately could result in distinct and inconsistent hypothetical world calculations. 

The dissent emphasized that such an approach inherently leads to windfalls to generic claimants and favoured a methodology which strives to fairly compensate them in line with principles of compensatory damages.  Contrary to the majority, the dissent expressly held that, upon the deemed issuance of a NOC in the hypothetical world, other generic manufacturers should be assumed to be in a position to receive a NOC subject only to the delays and timelines set out in the Food and Drug Regulations

  • Generic claimants serve NOAs in the hypothetical world and give notice of their hypothetical market entry:  The majority expressly held that, in the hypothetical world, Apotex would have been obliged to address the patents listed on the Patent Register against ALTACE® and to serve Notices of Allegation. Thus, even in the hypothetical world, Sanofi would have had notice that Apotex wished to come to market.  Nonetheless, the majority did not disturb the trial judge's finding that Sanofi would not have launched an authorized generic until after Apotex's hypothetical market entry.  On the facts of the case, the majority found that the launch would not have occurred until Sanofi lost its first prohibition proceeding.

As a result, the majority has largely done away with the notion of a "surprise launch" relied on by the trial judge, and referred to in subsequent jurisprudence, except possibly in unique factual circumstances where a generic could have entered the market prior to serving its NOA.  Consequently, notice of generic launch should be included in the calculation of any authorized generic, or other generic, entry in the hypothetical world.

  • Competing generics generally act in the hypothetical world as they did in the real world: The majority, overturning the trial judge, held that Teva would not have competed with Apotex in the hypothetical world. The majority found that Teva (and another generic competitor) would have sought summary dismissal, as they did in the real world, as soon as they considered they had a fair chance of success.  However, the majority concluded that Teva would have only sought summary dismissal after Apotex's period of liability. Consequently, as the sole generic, Apotex's damages claim was held to be larger than that found by the trial judge. 

It would seem that the Court did not fully address the impact of its finding that the generic claimant is deemed to be both selling product as well as simultaneously defending a prohibition proceeding.  Presumably, if the complaining generic is deemed to be selling product, then third party generics might also be deemed to act more aggressively in seeking summary dismissal. Also, the innovator would presumably act differently if the complaining generic were deemed to be selling product.

In any event, while the majority's conclusion emphasized the real world outcome of related prohibition proceedings in determining market entry of competing generics, the decision was driven by the unique factual circumstances of the case.

  • Generic claimants' "ramp-up" in the hypothetical world: The majority agreed with the trial judge's rejection of Apotex's argument that its damages should not be reduced since it was already subject to a "ramp-up" in the real world.  The majority held that section 8 limits losses incurred to the defined period of liability.  The majority did not refer to recent Federal Court jurisprudence rejecting the trial judge's approach.  However, that jurisprudence was specifically discussed and endorsed by the dissent, and thus can arguably be considered to have been rejected by the majority.

The Teva Liability Appeal: Teva Canada Limited v Sanofi-Aventis et al, 2014 FCA 67

In the Teva Liability Appeal, the Federal Court of Appeal split again, with Justice Mainville issuing a lengthy dissent against Justice Sharlow's reasons for the majority (with Justice Dawson concurring).  The reasons of the Court diverged on many of the same issues as in the Apotex Liability Appeal.

Of particular interest is the Court of Appeal's finding that Teva would have entered the market one year before it was deemed to enter the market in the Apotex Liability Appeal.  The majority accepted the trial judge's factual finding that Apotex would have entered the hypothetical market in the Teva Liability Appeal at the same time as Teva.  In the result, while in the Apotex Liability Appeal the majority held that Apotex would not have competed with Teva in the hypothetical world, these generics would have competed in the hypothetical world of the Teva Liability Appeal.  The apparent inconsistency may be explained by the unique factual circumstances of these cases. However, it may also be that such inconsistencies are exposed when only select facts in the real world are used to populate the hypothetical world.

The majority also accepted the trial judge's factual finding that Sanofi would have been ready to launch an authorized generic at the beginning of the liability period, one year before it did so in the real world.  Likewise, the majority reiterated its rejection of the double ramp-up argument and noted that it was not possible to reach a contrary conclusion without implicitly reversing prior jurisprudence of the Court of Appeal.

The majority also agreed with the dissent's conclusions regarding the start date of the period of liability, without specifically endorsing the dissent's reasoning.  The dissent concluded that the start date of the period of liability should be presumed to be the date on which the Minister certified that a NOC would have issued, even if such certification predates a statutory stay under the Regulations. This is subject however to the Court's discretion to displace that date in circumstances where another date is more appropriate.  Nonetheless, the dissent ultimately accepted the trial judge's finding that Teva would only have entered the market well after receiving its certification date.  Specifically, the dissent agreed that, on the facts before it, Teva had agreed to await expiry of a patent and would not have launched its generic drug prior to the expiry of that patent.

The Validity Appeal: Teva Canada Limited v Sanofi-Aventis et al, 2014 FCA 69

Sanofi also raised several challenges to the validity, applicability and operability of section 8 of the Regulations, all of which were dismissed by the trial judge.  Sanofi appealed only on the question of whether section 8 can allow compensation to a generic manufacturer for lost sales attributable to indications not approved by Health Canada.  Justice Mainville, for a unanimous Court, dismissed this appeal.

In both the Apotex Liability Appeal and the Teva Liability Appeal, the Court upheld the trial judge's finding that Apotex and Teva would have made sales relating to unapproved indications and that any lost sales in this regard should be taken into account when determining compensation owed under section 8. 

This conclusion was based on the trial judge's finding that, as Sanofi was not enforcing its patents for the unapproved indications in the real world, there was no reason to find that it would do so in the hypothetical world.  The Court of Appeal further rejected the argument that, as a matter of jurisdiction, section 8 cannot allow compensation to be paid for sales for unapproved indications. 

Nonetheless, the Court of Appeal expressly agreed with the trial judge that section 8 damages for lost sales relating to unapproved indications may be precluded if the facts so justify.

Click here for the Federal Court of Appeal's Apotex Liability Appeal, Teva Liability Appeal and Validity Appeal.

Footnotes

1 Teva Canada Limited v Sanofi-Aventis et al, 2014 FCA 67; Apotex Inc v Sanofi-Aventis et al, 2014 FCA 68; Teva Canada Limited v Sanofi-Aventis et al, 2014 FCA 69

2 Sanofi-Aventis et al v Teva Canada Limited, 2012 FC 551; Teva Canada Limited v Sanofi-Aventis et al, 2012 FC 552; Apotex Inc v Sanofi-Aventis et al, 2012 FC 553.

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