Canada: Federal Court Of Canada Rejects NIAs, And Strikes S. 8 Damages In LOSEC (Omeprazole) Patent Infringement Damages Decision

In AstraZeneca v Apotex, 2017 FC 726, the Federal Court issued its damages decision concerning Apotex's infringement of a patent pertaining to AstraZeneca's LOSEC (omeprazole) drug. This decision offers insight in the factual hurdles a generic must overcome to establish an ex post facto non-infringing alternative (NIA), and confirms that s. 8 damages are not available during a period in which a generic would be infringing a patent, as there is no compensable loss.

After succeeding in the liability phase of the action (2015 FC 322; aff'd in part 2017 FCA 9), AstraZeneca elected an accounting of the profits earned by Apotex during the period of infringement (September 5, 2003 to December 3, 2008). The parties resolved most of the quantification issues, leaving the Court with the following matters for determination.

Apotex did not have an available NIA

Apotex failed to meet its burden to establish that an NIA existed during the period of infringement. At trial, Apotex proposed NIAs that were unknown and never made before or during the infringing period. Justice Barnes agreed with Apotex that the infringer's failure to produce a viable NIA in the real world is not a threshold bar to the availability of a NIA defence. Given the hypothetical nature of Apotex's alleged NIAs, Justice Barnes considered the following question:

"Could the infringer have made the product had it attempted to do so at the relevant time and would the infringer have sold the product on some reasonable financial basis in substitution for the infringing product?"

Apotex suffered serious problems of proof in attempting to establish its ex post facto NIAs, in part based on facts of what occurred in the "real world". In this case, Apotex's "self-created NIAs" were made in non-commercial batches for the purpose of the litigation, and without full stability, bioequivalence, or clinical study data. Based on Apotex's incomplete data, the Court found that Apotex failed to establish that its proposed NIA formulations could have obtained the required regulatory approvals. The Court also rejected Apotex's alternative argument that it could have sourced NIAs from two third-party manufacturers. The Court accepted that while the NIAs were theoretically available, Apotex's evidence was insufficient to establish that Apotex could and would have obtained them. Indeed, the fact that Apotex argued that it would have pursued internal formulation alternatives undercut its alternative position that it would have sought an alternative from a third party.

Finally, the Court also inferred that it was doubtful Apotex would have ever pursued its NIAs, given Apotex's continued sale of Apo-omeprazole in the real world despite being held liable for infringing a related US patent prior to the relevant time period.

Apotex Not Entitled to s. 8 Damages

When Apotex first sought market entry for Apo-Omeprazole, it succeeded in an NOC case against AstraZeneca, triggering a claim for s. 8 damages. However, AstraZeneca subsequently prevailed in the follow-on infringement action in respect of the 693 Patent, a different patent than was at issue in the NOC case. The 693 patent was extant during Apotex's alleged s. 8 period of loss.

The issue for the Court was whether Apotex was entitled to s. 8 damages in light of the Court's finding that it infringed the 693 Patent.

Justice Barnes reasoned that Apotex is not entitled to s. 8 damages, because its claim to s. 8 losses are offset by the costs of the corresponding infringement of the 693 Patent – if Apotex had entered the market during the s. 8 liability period, it would have been required to disgorge any profits to AstraZeneca.

Profits-On-Profits Awarded

The Court awarded additional damages to AstraZeneca to account for the additional profit that Apotex made from the use of its wrongly acquired profits on infringing the LOSEC patent. Given that Apotex co-mingled its sales proceeds from all of its products, it was not possible to trace what exact profits were earned on its sales proceeds from Apo-Omeprazole. As a result, the Court fixed the rate for profits-on-profits at prime compounded annually.

Apotex Disgorges all US Export Profits, less US Judgment

Finally, the parties disputed whether Apotex was required to disgorge its profits made on its infringing export of Apo-Omeprazole for sale in the US.

Prior to the Canadian litigation, Apotex was found to infringe a related patent in the US, for which the US District Court awarded judgment in favor of AstraZeneca. In light of the US judgment, Apotex argued that AstraZeneca was estopped from seeking any further compensation for the US market sales.

The Court disagreed, finding that the causes of action in the Canadian and US proceedings differed, as they arose under separate patents having different expiry dates, involved distinct acts of infringement, and were tried in jurisdictions having different legal principles. Accordingly, the Court ordered Apotex to pay out all of its US export profits, less its portion of the US judgment.

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