Judgment released July 23, 2015, the Federal Court of Appeal
upheld the Federal Court's award of more than C$180 million in
damages and interest for Apotex's infringement of Merck's
Canadian lovastatin patent. In this decision, the Federal Court of
Appeal reversed the Trial Judge and held that the availability of a
non-infringing alternative ("NIA") is relevant under
Canadian law but held that Apotex could not have and would not have
This litigation between Merck and Apotex dates back to 1997 when
Merck sued Apotex for infringing its patent covering a process for
making the first-approved cholesterol lowering statin, called
lovastatin, which was marketed in Canada and around the world as
In 2010, Merck prevailed at trial (2010 FC 1265). The Trial Judge found that
Apotex had infringed Merck's patent on a massive scale by
selling generic Apo-lovastatin between 1997 and 2001 despite its
undertaking to Merck and Health Canada that it would manufacture
lovastatin using a non-infringing process. Apotex's appeal from
this ruling was dismissed in 2011 (2011 FCA 363). Apotex's application for
leave to appeal to the Supreme Court of Canada was also
The parties then proceeded to a trial on the issue of damages.
Apotex contended that Merck should be limited to a reasonable
royalty because it had a non-infringing process that it had
previously used and could have used to replace the infringing
sales. The Trial Judge rejected this argument and held that such an
argument is irrelevant under Canadian law. The Trial Judge awarded
Merck more than C$180 million, the largest award of damages for
patent infringement in Canadian history.
On appeal, the key dispute was whether a non-infringing
alternative is a relevant factor to be considered in assessing
patent infringement damages. The issue had never been considered by
a Canadian appellate court and had only twice been considered by
Trial Courts. The Court of Appeal did not agree with the trial
Judge that a NIA could not be considered in the assessment of
damages. However, the Court of Appeal held that Apotex had failed
to establish the defence, with the result that Apotex's appeal
was dismissed, albeit for different reasons than set out by the
The Court of Appeal approved the US approach to damages
articulated by the Federal Circuit and by some US academic
commentators in applying basic propositions of causation law in
holding that the availability of an NIA can establish that the
plaintiff's lost sales were not causally related to the
infringement. In so holding, the Court of Appeal disapproved of the
only two Canadian cases directly on point and declined to follow UK
law, under which an NIA is irrelevant to patent damages.
Importantly, the Court of Appeal held that an NIA can only be
invoked if the defendant proves not only that it could have used an
NIA, but also that it would have used an NIA in order to replace
infringing sales. Citing with approval a decision of the Australian
Federal Court, the Court of Appeal held that an NIA must be
available to replace infringing sales at the exact moment they were
Applying this standard, the Court held that because Apotex would
have had to move its manufacturing back to Canada from China and
restart the process there, it would have taken several weeks to
produce non-infringing lovastatin such that it would not have been
able to replace any of the infringing sales at the time each sale
The Court of Appeal also held that Apotex failed to prove that
it would have used the NIA because:
Apotex was likely aware that the Chinese-made bulk lovastatin
was infringing and chose to sell it anyway.
Apotex believed that Merck's patent was invalid.
Apotex called no witness from its Canadian manufacturer (the
manufacturer of the alleged NIA) to support its contention.
Apotex's only fact witness was its CEO, Barry Sherman,
whose evidence (albeit not on this point) was found to be
unsubstantiated and self-serving.
Apotex did not prove that it would have profited by selling an
NIA in light of the value it would have lost by taking the steps
necessary to use the NIA.
Ultimately, the Court of Appeal concluded that since Apotex did
not meet its burden to show it could have and would have replaced
the infringing sales with its NIA, the trial judge correctly
awarded Merck damages for those lost sales. Accordingly,
Apotex's appeal was dismissed.
Merck was represented at trial and on appeal by Andrew Reddon,
Steven Mason and David Tait of McCarthy Tétrault.
The Federal Court dismissed a motion by Apotex seeking particulars from Allergan's pleading relating to the prior art, inventive concept, promised utility and sound prediction of utility of the patents at issue.
Last year we saw the Canadian Courts release trademark decisions that granted a rare interlocutory injunction, issued jailed sentences for failure to comply with injunctive relief, grappled with trademark and internet issues...
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