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

Apotex Inc. v. Merck & Co., Inc. et al. (21 October 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 (Regulations), Justice Hughes of the Federal Court has decided that generic pharmaceutical companies are not entitled to disgorgement of the innovator company's profits made during the period of the Section 6 PMNOC proceedings in the event the innovator company's application for a prohibition order is dismissed.1

Justice Hughes also determined that the Federal Court has jurisdiction to hear and determine actions instituted under Section 8, that Section 8 is properly enabled, and that the federal Parliament had the constitutional authority to pass Section 8.

Finally, Justice Hughes decided that the plaintiff in the case at bar could recover its damages or lost profits for the period it was kept off the market as well as those which extended beyond that 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The Regulations were originally enacted in 1993 and replaced a compulsory licence scheme for the sale of patented medicines in Canada.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. The innovator company may then bring an application under Section 6 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 If the innovator's application is withdrawn, discontinued or dismissed, the generic company may bring an action under Section 8 to recover its losses.

The Action

In this action, Apotex claimed recovery against Merck for the delay in launching Apo-alendronate due to the proceeding commenced by Merck on May 29, 2003. That proceeding was dismissed by the Federal Court on May 27, 2005, and the Minister immediately issued a Notice of Compliance to Apotex.

The Issues

The following issues were raised for preliminary determination: whether the Federal Court lacked jurisdiction to hear an action pursuant to Section 8; whether Section 8 was ultra vires Section 55.2(4) of the Patent Act; whether Section 8 was outside the scope of Parliament's power to make laws in relation to patents of invention and discovery, and was an intrusion into the exclusive jurisdiction of the provinces under Section 92(13) of the Constitution Act; whether Apotex was entitled to an election as between the damages it had allegedly suffered and the profits made by Merck; the period of time in respect of which Apotex could claim recovery; and whether Apotex was entitled to recover for damages that continued after the period expired.

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, and the Federal Courts Act. Justice Hughes held that the Regulations are, in their pith and substance, regulations dealing with patents.

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. This action was commenced prior to the 2006 amendments to the Regulations. Those amendments included a change to Section 8 to remove the right of a generic company to elect "profits." The issue remained regarding what "profits" were referred to in the section prior to the amendment. Justice Hughes decided that what is provided for is an Order compensating a generic company for loss for the period it was kept off the market, something different from a claim for damages or an account of profits by an innovator for an act of infringement. Justice Hughes held that the reasonable interpretation of the 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 permitted Apotex to continue with its claim for damages for lost sales and lost permanent market share due to the delay in launch "provided that the marketplace did not rectify itself or Apotex could not have remedied the marketplace disadvantage before May 26, 2005."

This is the Federal Court's first Section 8 damages case, some 15 years after the institution of these Regulations. Typically, the issue of Section 8 damages has been resolved between the parties by agreement. While this decision clarifies the law and should enable lawyers to better advise their clients as to the likely extent of damages should a Section 8 case proceed to trial, this is by no means the last word on this issue. Both parties have appealed the decision, and so pharmaceutical litigants now await the Federal Court of Appeal's decision.


1 This decision was decided under the old version of Section 8 of the Regulations. The Regulations were amended in October 2006 to expressly disallow an award of the innovator's profits.

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