Canada: FCA Confirms That Non-Infringing Alternative Must Be Legal And Objectively Economically Viable

The Federal Court of Appeal ("FCA") confirmed that in assessing the availability of a non-infringing alternative ("NIA") defence, the NIA must be legal and cannot infringe any patent, and its economic viability must be considered objectively. The FCA upheld an award for damages for patent infringement by the Federal Court ("FC") but remitted the issue of prejudgment interest back for redetermination.

Background

This case arises from a dispute between Apotex Inc. ("Apotex") and Eli Lilly and Company and Eli Lilly Canada Inc. (together, "Lilly") regarding eight of Lilly's process patents in respect of the drug cefaclor (the "Lilly Patents"). The infringement action was bifurcated into a liability phase and a quantification phase.

During the liability phase, two of three of Apotex's manufacturing processes were found to infringe the Lilly Patents. The third process (referred to as the "Lupin 2 process") was found not to have infringed. It was the product made using the Lupin 2 process that Apotex raised as an NIA in the quantification phase of the action, and the FCA's focus on appeal.

An NIA must be objectively economically viable

The FC found in the quantification phase that an NIA defence is not available in law in a patent infringement action. This decision predates the FCA's cases confirming the availability of NIAs in patent damages cases in AstraZeneca Canada Inc et al v Apotex Inc, 2017 FC 726 and Les Laboratoires Servier et al v Apotex Inc et al2018 FC 346 , which we previously wrote about here and here. Accordingly, the FC erred on this issue; however, this error was immaterial as the FCA found that Apotex's NIA defence was not available on the facts of the case.

In assessing Apotex's NIA, the FCA confirmed that, in addition to proving that the infringer could and would have used the NIA, the NIA had to be economically viable. This economic viability has to be measured objectively.

In this case, the evidence showed that the Lupin 2 process increased Apotex's costs by at least 40%. As a result, Apotex lost more than $5 million on the sale of its products using this process. At the damages trial, a majority of the experts agreed that unless there were other valid economic reasons to market the product, a rational generic drug manufacturer entering an exclusive market would not view the Lupin 2 process as commercially viable. The FCA was not persuaded by Apotex's suggestion that it would use the NIA even if it meant losing money on sales since the purpose of an NIA is to quantify the true value of the patent. Accordingly, assessing the viability of the NIA only from the infringer's subjective perspectives could artificially reduce a patent damages award.

An NIA must not infringe any patent

The FCA also found that an NIA defence was not available to Apotex because it failed to show that its NIA was otherwise lawful.

Although the Lupin 2 process was found not to have infringed any of the Lilly Patents in issue in the liability phase, another patent that was in force during the damages period was raised at the quantification phase of the action (the "646 Patent"). Once Lilly had put the issue of infringement of the 646 Patent into play, it was Apotex's burden to show that its NIA would not have infringed the 646 Patent. The FCA found that, on its face, the Lupin 2 process infringed the 646 Patent.

Regardless, the FCA also found that Apotex could not and would not have entered the market with an NIA.

Interest as damages

The only basis on which the FCA remitted the matter back for redetermination was on the issue of prejudgment interest. The FC awarded Lilly compound interest at the quantification stage. It suggested that there ought to be a presumption of compound interest to reflect commercial realities. It also found that Lilly did not have to prove what use it would have made of the money it would have made had the patent not been infringed.

The FCA disagreed and found that, although compound interest is available, there is no general presumption regarding compound interest, and interest as a head of damages must be proved in the same way as any other form of loss or damage. Despite this, the FCA seemed to suggest that it would be open to the FC to award compound interest on the evidence that it already had before it.

Link to decision:

Apotex Inc. v. Eli Lilly and Company and Eli Lilly Canada Inc., 2018 FCA 217


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