Canada: Pharma In Brief - Federal Court Of Appeal Weighs In On Section 8 Damage Quantification

Cases: Apotex Inc. v. Sanofi-Aventis et al, 2014 FCA 68 and Teva Canada Limited v. Sanofi-Aventis Canada Inc. et al., 2014 FCA 67

Drug: ALTACE® (ramipiril)

Nature of cases: Appeal(s) in respect of the quantification of damages under Section 8 of the PM(NOC) Regulations

Date of decision: March 14, 2014

Summary

On March 14, 2014, the Federal Court of Appeal released two decisions with respect to proceedings commenced pursuant to section 8 of the Patented Medicines (Notice of Compliance) Regulations (the "PM(NOC) Regulations) in relation to Sanofi-Aventis' drug ALTACE® (ramipril). The first decision (2014 FCA 69) related to the quantification of damages for Teva Canada Limited ("Teva") under section 8 of the PM(NOC) Regulations (the "Teva Action") while the second decision( 2014 FCA 68) related to the quantification of damages for Apotex Inc. ("Apotex") in its case (the "Apotex Action").

These decisions represent the first time that the Federal Court of Appeal has fully considered issues related to the framework for awarding compensation under section 8 of the PM(NOC) Regulations. With strong dissenting opinions on some of the key issues at stake, some or all of the issues raised in these decisions may well be considered by the Supreme Court of Canada. As such, they represent the current, but possibly not the definitive, state of the law on the method of quantifying damages under section 8 of the PM(NOC) Regulations.

The Federal Court Decision(s) under Appeal

On May 23, 2012, Madam Justice Snider rendered decisions in actions commenced by Teva and Apotex pursuant to section 8 of the PM(NOC) Regulations against Sanofi-Aventis and related companies ("Sanofi"). Teva and Apotex claimed damages resulting from the delayed market entry for their generic ramipril products as a result of unsuccessful prohibition proceedings initiated by Sanofi. For a summary of the Federal Court decisions under Appeal, please see our previous publication.

Justice Snider's "stepped-methodology" for quantifying section 8 damages was not at issue on appeal. Instead, the parties focused on select aspects of the legal framework under which section 8 compensation may be determined.

Section 8 claimants are not entitled to 100% of the generic market

The Court held that in assessing damages under the PM(NOC) Regulations, it must consider the position the generic manufacturer would have occupied if it had not been prevented from receiving its NOC. Apotex and Teva argued that the trial judge erred in holding that they would have faced competition in the hypothetical market from other generics or an authorized generic. The Court flatly rejected the argument that section 8 claimants would not have faced competition from other generic entrants or authorized generics in the hypothetical world. The presence of other generic market entrants is a relevant issue to be taken into consideration.

On the evidence, the Court found no palpable or overriding error in the trial judge's finding in the Teva Action that Sanofi would have been able to launch an authorized generic at the beginning of the Teva liability period. However, in the Apotex Action, the Court found that the trial judge erred in finding that Teva would have entered the hypothetical market during the section 8 liability period.

Generic entry must factor in the operation of the Regulations

The majority of the Court (per Sharlow JA: Dawson JA concurring) held that all generic entrants are subject to the scheme of the PM(NOC) Regulations. As a result, when assessing damages, the behaviour of competing generic drug manufacturers in the hypothetical market must be considered. The majority of the Court held that the legal requirement to deliver notice(s) of allegation pursuant to the PM(NOC) Regulations before manufacturing a generic version of a drug would make a "surprise" generic launch unlikely in the hypothetical world.

Justice Mainville, in dissent, agreed with the majority's rejection of the trial judge's analysis, but differed with respect to the rationale and the appropriate methodology. Mainville J.A. held that the trial judge's methodology would "invariably" lead to windfalls for generic manufacturers pursuing actions under section 8 and would be inconsistent with general principles of compensatory damages. Mainville J.A. held that once a generic drug manufacturer is deemed to have received an NOC in the hypothetical world absent the PM(NOC) Regulations, other generic manufacturers should be presumed to be in a position to receive a NOC subject only to the delays and timelines set out in the Food and Drug Regulations.

Double ramp-up

The majority of the Court held that Apotex and Teva were not entitled to damages for a "double ramp-up" based on the reasoning in Apotex Inc. v. Merck Canada Inc., 2009 FCA 187 ("Alendronate"). In Alendronate, the Court held that to compensate a generic manufacturer for lost sales during the actual ramp-up period would have the effect of recognizing a loss suffered after the section 8 liability period. The majority of the Court acknowledged that rejecting the double ramp-up would represent a windfall for Sanofi, but noted that this was an inevitable consequence of the Governor-in-Council's decision to limit section 8 damages to losses incurred within the defined period.

Mainville J.A., in dissent, agreed with the reasoning of Justice Phelan in Apotex v. Takeda Canada Inc., 2013 FC 1237 and would have exercised his discretion under s. 8(5) to exclude the "ramp up" in the real world so as to avoid double counting in the hypothetical market.

Compensation for unapproved indications

Sanofi argued that Teva should not be entitled to compensation for any losses suffered in respect of unapproved indications (i.e., the HOPE indications). The Court held that the trial judge had the discretion to include these sales in assessing the amount of compensation under subsection 8(5) of the PM(NOC) Regulations, but emphasized that sales related to unauthorized indications may be precluded in other cases, if appropriate.

Lost business value

The Court characterized Teva's claim for "lost business value" as analogous to a claim for "lost future profits" which is precluded based on the reasoning in Alendronate.

Lost indirect profit

The Court held that Apotex and Teva were not entitled to claim damages for lost opportunity to reinvest profits that they would have made during the section 8 liability period. The Court emphasized that that the trial judge made her determination based on the evidence before her and that there was no palpable or overriding error.

In obiter, the Court agreed with the trial judge that, as a matter of law, pre-judgment interest was the accepted method to compensate for such a loss.

Lost sales on other products (bundling)

The Court rejected Teva's claim for lost sales on other products through the practice of 'bundling'. The Court did not comment on whether such losses were compensable under section 8 of the PM(NOC) Regulations.

Link to decision(s)

Apotex Inc. v. Sanofi-Aventis et al, 2014 FCA 68

Teva Canada Limited v. Sanofi-Aventis Canada Inc. et al. 2014 FCA 67

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