Canada: Generic Windfall In Section 8 Damages Claims Upheld By The Supreme Court Of Canada

Canada has had, since 1993, a system linking generic drug approval to preliminary clearance of certain patent hurdles. Proceedings brought pursuant to this system are generally referred to as "NOC Proceedings". In return for this linkage system, the Canadian Government enacted a provision in the Patented Medicines (Notice of Compliance) Regulations (the NOC Regulations), whereby the innovator can be held liable in damages to any generic company it kept off the market while a proceeding determining whether the generic had preliminarily cleared those patent hurdles was pending. As this provision is found in section 8 of the Regulations, these proceedings are commonly known as "Section 8 Proceedings".

The damages under this provision have been likened to damages owed if an interlocutory injunction is granted but the case is not proven. However, a "hypothetical world" must be created by the Court to try to recreate the scenario that would have occured if a generic company, who was successful in a NOC Proceeding, had entered the market at an earlier time. As a result of the legal uncertainty surrounding the conditions of this hypothetical world, recent Court decisions have resulted in a windfall to generic companies when these damages are calculated in the face of multiple NOC Proceedings against multiple different generic companies.

In 2014, the Federal Court of Appeal heard two appeals relating to section 8 damages claims.1 Both were split decisions. The drug at issue was ramipril. The main dispute between the members of the Court centered around how to determine the date that potential competitors would enter the market in the hypothetical world. This date, as it related to generic companies other than the claimant, would impact the quantum of damages owed to the claimant, as the hypothetical date of market entry for these other generic companies determines the size of the hypothetical market captured by the claimant.

The innovator argued that the overall market in the hypothetical world should be the same as it is in the real world, and that the dispute should be over how much of that market should be apportioned to each different generic claimant. However, the majority of the Court disagreed, holding that in each separate claim for section 8 damages, the evidence presented should determine the claim. Furthermore, while calculation of damages requires that the NOC Regulations be suspended for the purposes of the generic claimant, the Court of Appeal held that the NOC Regulations are not suspended for the purposes of considering when any other generic company may have hypothetically entered the market.

Thus, when multiple generic companies claim section 8 damages, the size of the generic market can be determined for each of them independently, and without any real-world knowledge of when each company actually entered the market after the conclusion of their respective NOC Proceedings. As a result, the quantum of damages required to be paid out by the innovator in such situations could be larger than the actual generic market. Since that money is being paid to the generic claimants, they would necessarily be obtaining a windfall in that the sum awarded that will be greater than what they earned in the same real-world time period. This is contrary to the purpose of damages, which are meant to compensate for loss, not provide a windfall.

In the Apotex case, the Supreme Court of Canada granted Sanofi-Aventis leave to appeal. This gave innovators hope that the Supreme Court would sort out the jurisprudence and overturn the generic windfall that had been granted by these decisions. However, on April 21, 2015, the Supreme Court heard the case, and dismissed Sanofi-Aventis' appeal from the bench.2 No substantive reasons were issued; merely a statement that the appeal was dismissed substantially for the reasons of the majority of the Court of Appeal. It was a unanimous decision.

Since the Federal Court in these cases had earlier dismissed a motion to consolidate or hear the section 8 claims from different Since the Court in these cases had earlier dismissed a motion to consolidate or hear the section 8 claims from different generic companies together, holding only that they should be heard consecutively by the same judge,3 it remains to be seen if the decisions of the Court of Appeal and the Supreme Court will affect the outcome of further such motions. This result is also particularly concerning given that an innovator seldom has a right of appeal in NOC Proceedings, and furthermore, there is a rise of jurisprudence holding that it is an abuse of process for an innovator to maintain a proceeding against a second generic company once an allegation that the patent at issue is invalid has been found justified. Without any right to appeal, or have individual cases determined, it seems unfair to then further require the innovator to pay out more than it would have otherwise lost had it not started NOC Proceedings in the first place.

Footnotes

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

2 Sanofi-Aventis v. Apotex, Case No. 35886, dated April 21, 2015.

3 Sanofi-Aventis v. Novopharm, 2009 FC 1285.

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