Canada: Federal Court Of Appeal Upholds Denial Of Innovator Profits And Refuses To Grant Damages For Future Lost Market Share In First Case Under S. 8 Of The PM(NOC) Regulations

In September 2008, the Federal Court released its first decision interpreting s. 8 of the PM(NOC) Regulations. This decision was split. Merck was successful in limiting Apotex to claiming its damages, rather than Merck's profits. Apotex was successful in arguing that the vires of the provision should be upheld and in arguing that its damages should include market share lost as a result of the Prohibition Proceedings. A full account of this decision can be found in Gowlings Publication: Life Sciences & Law 2009/10 Current Issues.

Both parties appealed this decision and the Appeal was heard in April 2009. The Court of Appeal just released its decision on June 4, 2009.

The Court of Appeal dismissed Apotex' appeal as a whole, with costs. Thus, Apotex is not entitled to claim Merck's lost profits in the damages reference to follow.

The Court of Appeal granted Merck's appeal insofar as it related to the issue of lost future market share. Instead of sending the issue back to the Trial Judge, it issued an order that Apotex' claim for lost permanent market share must be confined to those losses shown to have been incurred during the section 8 period. The remainder of Merck's appeal was dismissed. This means that section 8 is not ultra vires, and that the Federal Court does have jurisdiction to hear the proceeding.

Jurisdictional and Constitutional Issues

The Court of Appeal upheld the vires of section 8, as it is part of the balance in the Patent Act. The Court of Appeal relied on the recent decisions of the Supreme Court in Biolyse and AstraZeneca that discussed this balance. The Court of Appeal then held that the authority to devise remedies to prevent patent infringement comes with the power to ensure those remedies are used for that purpose, and not to perpetuate a monopoly beyond the statutory period. This is particularly the case when the balance sought is effective patent enforcement through the PM(NOC) Regulations and timely market entry of lower-priced generic drugs through the "early working" exception.

The Court of Appeal then expressed that concerns with the automatic stay include that the patentee has an interest in delaying the proceeding and in evergreening their products. Section 8, by imposing damages when the proceeding is withdrawn, discontinued or dismissed, alleviates those concerns. The Court of Appeal also suggested that the first person no longer has exclusive interest in delaying the progress of the proceeding. As a result of section 8, the first person must consider infringement and will consider the strength of its position before initiating a prohibition proceeding. Thus, section 8 helps ensure the use of the PM)NOC) Regulations for the purpose for which they are intended.

Further, the Court of Appeal accepted that it is common ground that section 8 encroaches on the provinces' jurisdiction over property and civil rights. However, the right of action created by section 8 is only available to a limited group of persons in a defined industry. Thus, the extent of the intrusion is minor. The Court of Appeal also found it significant that no Attorneys General of the Provinces or Territories sought to intervene, despite being notified.

The Court of Appeal also comments that as section 8 logically flows from the prohibition proceedings, it would normally be heard by the judge who heard the prohibition application, due to the presence of section 8(5) which provides that the conduct of the parties is to be considered. The only reason section 8 damages are adjudicated in a separate proceeding is that regard had to be had to the right of appeal.

The Court of Appeal upheld the jurisdiction of the Federal Court to hear proceedings pursuant to section 8. Although the right of the Governor-in-Counsel to make regulations cannot confer a jurisdiction that does not exist, the Federal Court has jurisdiction under s. 20(2) of the Federal Courts Act to hear the proceeding, as its relates to a regulatory scheme aimed at the prevention of infringement.

Profits

The Court of Appeal found no error in the Trial Judge's reasons regarding the phrase "damages or profits", found in the provision. The words of the provision must be read in their entire context and in conjunction with the scheme of the PM(NOC) Regulations. The purpose of the enabling statute must also be considered. Thus, the phrase must be read to mean the second person's damages or "lost" profits. Section 8 is meant to provide compensation for the loss resulting from the automatic stay.

Apotex' claim that it should be entitled to all the remedies afforded a patentee ignores the fact that it is not in that position. The generic company escapes charges of patent infringement by demonstrating that the patent is invalid or not infringed for the purposes of the proceeding. thus, it cannot claim an account of profits for infringement. It can only claim compensation for loss. Further, the Court of Appeal rejected the assertion that disgorgement of Merck's profits is necessary to achieve the balance underlying s. 55.2 of the Patent Act.

Lost Future Market Share

Finally, the Court of Appeal overturned Trial Judge's award of future lost market share to Apotex. The Court of Appeal held that the measure of compensation under the Regulations was within the discretion of the Governor-in-Council. The Governor-in-Council focussed on this issue and chose to limit the damages suffered to those suffered during the period. The Governor-in-Council could have extended the measure of losses to those caused during the period regardless of when they were suffered, but it did not do so. This clear intent must be given effect.

Thus, Apotex' claim for lost sales due to allegedly decreased market share must be confined to sales that can be shown to have been lost within the period.

Merck and Apotex will have 60 days from June 4 to seek leave to appeal this decision to the Supreme Court. However, July is not included in the counting of time.

A copy of the Judgment and Reasons for Judgment, respectively, may be found at the following links:

Judgment

Reasons for Judgment

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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