Canada: Federal Court Decision In First Section 8 Damages Case Under The PMNOC Regulations: Section 8 Remedy Found Not To Include Innovator´s Profits

Last Updated: October 29 2008
Article by Glynnis Burt, Steven Mason and William H. Richardson

Most Read Contributor in Canada, September 2018

Apotex Inc. v. Merck & Co., Inc. et al. (October 21, 2008), Ottawa, T-1144-05 (Fed. Ct.)

In the first trial decision in an action brought pursuant to Section 8 of the Patented Medicines (Notice of Compliance) Regulations (the Regulations), Justice Hughes of the Federal Court has determined that the Federal Court has jurisdiction to hear and determine actions instituted under Section 8 of the Regulations, that Section 8 is properly enabled, and that the federal Parliament has the constitutional authority to pass Section 8. Of particular significance to innovator pharmaceutical companies will be the Federal Court's further determination that under sub-section 8(4) of the Regulations, generic pharmaceutical companies are not entitled to disgorgement of the profits made by the innovator company during the period of the Section 6 PMNOC proceedings in the event the application is withdrawn, discontinued or dismissed. Justice Hughes also decided that the generic company could recover its damages or lost profits for the period it was kept off the market, and that it could also claim recovery of damages that occurred during the same period and extended beyond this period for loss of permanent market share if the damages could not have been or were not rectified in the same period.

Background of the PMNOC Regulations

The Regulations were originally enacted in 1993 and replaced a compulsory license scheme for the sale of patented medicines in Canada. Under the Regulations, a generic pharmaceutical company may apply for a notice of compliance by comparing its product to an innovator product but must give notice to the innovator that its product will not infringe the innovator product, or that the patent is invalid, among other things (Section 5). The innovator company may then bring an application under Section 6 of the Regulations to prevent the issuance of a notice of compliance to the generic, thereby instituting an automatic 24-month stay. If the innovator's application is withdrawn, discontinued or dismissed, the generic company may bring an action under Section 8 of the Regulations to recover its losses.

This case deals only with the version of Section 8 of the Regulations in the form in which that section stood prior to amendments made to the Regulations in October 2006. Sub-section 8(4) of that version provided that in any proceeding brought claiming relief for such loss, "[t]he court may make such order for relief by way of damages or profits as the circumstances require in respect of any loss referred to in sub-section (1) [emphasis added]." The current version of Section 8 expressly limits the relief to "any order for relief by way of damages that the circumstances may require."

The Action

In this action, Apotex claimed recovery against Merck under Section 8 for the delay in launching Apo-alendronate due to the Section 6 proceeding commenced by Merck on May 29, 2003. That proceeding was dismissed by the Federal Court on May 27, 2005. The Minister immediately issued a Notice of Compliance to Apotex permitting it to sell its generic version of alendronate in Canada.

The decision by Justice Hughes was issued following a trial on the merits in which the parties submitted an agreement as to facts and document pertaining to preliminary issues for determination. The case was decided solely on the agreement as to facts and documents.

Although Merck & Co., Inc. was a named defendant in the case, shortly before trial an Order was issued on consent discontinuing the action against that entity. The action proceeded as against two Canadian Merck entities only.

The Issues

Merck raised the following issues for preliminary determination:

  1. Does the Federal Court lack jurisdiction to hear an action pursuant to Section 8 of the Regulations?
  2. Is Section 8 of the Regulations ultra vires Section 55.2(4) of the Patent Act, R.S.C. 1985, c. P-4, as amended; and
  3. Is Section 8 outside the scope of Parliament's power to make laws in relation to patents of invention and discovery, and an unlawful intrusion into the exclusive jurisdiction of the provinces pursuant to Section 92(13) of the Constitution Act, 1867, R.S.C. 1985, App. II, No. 5?

Apotex raised the following issues for preliminary determination:

  1. Is Apotex entitled to an election as between the damages it has suffered, if any, and the profits made by Merck, if any?
  2. What is the period of time in respect of which Apotex may claim recovery?
  3. Is Apotex entitled to recover for damages that continue after the period expires?

The Decision

Justice Hughes found that the Federal Court has jurisdiction to hear an action pursuant to Section 8, that Section 8 is enabled by Section 55.2(4), and that Section 8 meets all the criteria required for valid federal legislation, all with reference to specific provisions of the Regulations, the Patent Act, the Federal Courts Act, and the Regulations. Justice Hughes held that the Regulations are, in their pith and substance, regulations dealing with patents, and that the Regulations must be read as a whole.

Significantly, Justice Hughes dismissed Apotex's submission that it was entitled to elect between Apotex's damages or Merck's profits during the relevant period. Apotex argued that it should be entitled to such an election on the basis, among other things, that sub-section 8(4) provides for "relief by way of damages or profits." Justice Hughes reasoned from the context of the whole of the section that what is provided for is an Order compensating a generic company for loss. Justice Hughes held a generic company may not claim damages or an account of profits for infringement. If it has been kept off the market for a period of time, it may claim compensation for loss. Compensation in these circumstances takes the form of "damages or profits," and Justice Hughes held that the reasonable interpretation of those words in Section 8 is that the generic may seek, as a measure of its damages in the alternative, "the profits that it would have made if it had been able to market its product at an earlier time."

Justice Hughes further held that the period for which Apotex was to be compensated should not be reduced due to delay in Apotex serving its Notice of Application, but permitted Apotex to claim for damages for lost sales and lost permanent market share due to its delay in launch, during which period two other generic manufacturers entered the market — "provided that the marketplace did not rectify itself or Apotex could not have remedied the marketplace disadvantage before May 26, 2005." Justice Hughes made clear that these are matters of quantification to be left to the later trial.

This decision will undoubtedly be the subject of appellate review and with a series of cases nearing trial, we expect to see further developments on this important issue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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