Merck & Co., Inc. v. Apotex Inc.

Merck & Co., Inc. v. Apotex Inc.
Court (s) Database
Federal Court Decisions
Date
2013-07-16
Neutral citation
2013 FC 751
File numbers
T-1272-97
Notes
Reported Decision
Decision Content
Date: 20130716
Docket: T-1272-97
Citation: 2013 FC 751
BETWEEN:
MERCK & CO., INC. AND
MERCK CANADA INC.
Plaintiffs
(Defendants by
Counterclaim)
and
APOTEX INC. AND
APOTEX FERMENTATION INC.
Defendants
(Plaintiffs by
Counterclaim)
PUBLIC REASONS FOR JUDGMENT
(Confidential Reasons for Judgment released July 5, 2013)
SNIDER J.
I. Introduction
[1] In an action commenced on June 12, 1997, the Plaintiffs sought a declaration that Canadian Patent No. 1,161,380 ('380 Patent) was valid and infringed by the Defendants. On November 14, 2003, the action was bifurcated, meaning that the appropriate damages or accounting of profits would only be determined after the liability phase (Order of Prothonotary Aronovitch dated November 14, 2003, as amended on November 20, 2003). The liability trial commenced on February 1, 2010 before me and concluded on May 21, 2010. In Merck & Co v Apotex Inc, 2010 FC 1265, 91 CPR (4th) 1 [Liability Reasons] aff’d 2011 FCA 363, 102 CPR (4th) 321, I found that the '380 Patent was valid and had been infringed by the Defendants and that the Plaintiffs were entitled to their damages rather than to an accounting of profits (Liability Reasons, above at para 624). The damages phase of this matter began on April 8, 2013 and concluded on May 3, 2013. During this phase of the proceedings, I heard evidence from four fact witnesses and one expert witness, followed by three days of final argument. These Reasons for Judgment deal with the quantum of damages to be paid to the Plaintiffs.
[2] In brief and for the reasons that follow, I have concluded that the Plaintiffs are entitled to a total damages award of $119,054,327, plus pre-judgment and post-judgment interest, comprised of:
• $62,925,126 as lost profits of Merck Canada Inc. (Merck Canada), in respect of Pre-Expiry Replacement Sales (defined below);
• $51,290,364 as lost profits of Merck & Co. Inc. (Merck US), in respect of Pre‑Expiry Replacement Sales;
• [Redacted], based on a reasonable royalty calculation, for post-expiry infringing domestic sales; and
• [Redacted], based on a reasonable royalty calculation, for infringing export sales.
[3] In addition, I have made the following determinations:
• Merck should not be awarded its lost profits (if any) or a reasonable royalty in respect of Post-Expiry Ramp-up Sales;
• Merck is not entitled to “lost royalties” that would have been earned by Merck and Company, Incorporated (MACI) on additional sales of MEVACOR tablets;
• Apotex’s argument that its non-infringing alternative should be taken into account in assessing damages is rejected; and
• Pre-judgment interest should be calculated at a rate equal to the 1997 Bank Rate plus 1% and post-judgment interest at a rate of 5%.
[4] In these Reasons, unless otherwise expressed, all monetary figures are expressed as Canadian dollars.
II. Table of Contents
[5] For the convenience of the reader, I am including a Table of Contents. The references for each section are to the beginning paragraph numbers.
I. Introduction ......................................................................................................... [1]
II. Table of Contents.................................................................................................. [5]
III. Background........................................................................................................... [6]
IV. Summary of the Parties’ Positions...................................................................... [10]
V. Issues ................................................................................................................. [17]
VI. Witnesses............................................................................................................. [18]
A. Merck Witnesses..................................................................................... [19]
B. Apotex Witness....................................................................................... [25]
VII. Lost Profits of Merck Canada............................................................................. [26]
A. Apotex’s Submission............................................................................... [32]
B. Merck’s Position...................................................................................... [34]
C. General Principles of Damages............................................................... [41]
D. Damages vs Accounting of Profits......................................................... [45]
E. Causation................................................................................................. [49]
F. Canadian Law on the NIA Defence....................................................... [57]
G. Evolution of the Law According to Apotex........................................... [77]
(1) Monsanto/Schmeiser.................................................................... [77]
(2) Law of the United States on NIA Defence................................ [91]
(3) The Professor Siebrasse Papers................................................... [97]
(4) Section 8 Damages under the PM(NOC) Regulations.............. [106]
H. Policy Reasons Supporting the Rejection of the NIA Defence ........... [112]
I. Conclusion on NIA Defence................................................................. [121]
VIII. MACI Royalty.................................................................................................. [122]
A. The Terms of the MACI Royalty Agreement....................................... [129]
B. The Surrogatum Principle...................................................................... [139]
C. Conclusion on MACI Royalty Issue..................................................... [142]
IX. Calculation of a Reasonable Royalty on Blue Treasure Pre-Expiry Sales......... [143]
A. General Principles.................................................................................. [149]
B. One-time Negotiation............................................................................ [156]
C. Framework for Hypothetical Negotiations........................................... [163]
X. Export Sales...................................................................................................... [176]
XI. Post-Expiry Sales.............................................................................................. [182]
A. Reasonable Royalty for Post-Expiry Replacement Tablets................... [185]
B. Post-Expiry Ramp-Up Lost Profits....................................................... [200]
(1) Lack of Notice.......................................................................... [206]
(2) Inadequacy of the Evidence..................................................... [216]
(3) Conclusion on Post-Expiry Ramp-Up Lost Profits................... [227]
XII. Lost Profits of Merck US.................................................................................. [228]
A. Merck US Assignment to MACI.......................................................... [233]
B. Quimica................................................................................................. [247]
C. Conclusion on the Lost Profits of Merck US........................................ [252]
XIII. Pre-Judgment Interest....................................................................................... [253]
XIV. Post-Judgment Interest..................................................................................... [271]
XV. Costs ............................................................................................................... [272]
A. Scale...................................................................................................... [273]
B. Split or Differentiated Costs Awards................................................... [275]
C. Counsel.................................................................................................. [278]
D. Experts.................................................................................................. [281]
E. Conclusion on Costs.............................................................................. [286]
XVI. Overall Conclusions.......................................................................................... [287]
Appendix A-Estimated Lost Profits from Post-Expiry Ramp-Up Tablets
III. Background
[6] This litigation has a complex context and history. I refer the reader to paragraphs 10 to 16 and 18 to 39 of the Liability Reasons, for a more detailed description of the history. By way of short background, Merck US, one of the Plaintiffs in the action, is the named patentee of the '380 Patent, which patent was issued January 31, 1984 and expired on January 31, 2001. The '380 Patent is a product-by-process patent for the anti-cholesterol drug, lovastatin, when made with a micro-organism known as Aspergillus terreus. Merck Canada, the successor in interest to Merck Frosst Canada Ltd. and the other Plaintiff in this action, sold lovastatin under the trade name MEVACOR in Canada beginning in 1988, under licence from Merck US. Merck Canada purchased bulk lovastatin (API) from Merck US. Collectively, I refer to Merck Canada and Merck US as “Merck” or the “Plaintiffs”.
[7] In March 1997, Apotex Inc., one of the Defendants in this action, began selling its brand of lovastatin tablets in Canada (Apo-lovastatin). The API for Apo-lovastatin was made either by Apotex Fermentation Inc. (AFI), the other Defendant in this action, in Winnipeg, Manitoba, or by Qingyuan Blue Treasure Pharmaceuticals Co. Ltd. (Blue Treasure), in China. In these reasons, I will refer to Apotex Inc. and AFI, collectively, as "Apotex" or the "Defendants".
[8] A highly relevant twist to this action is the capability of AFI to manufacture lovastatin API using a non-infringing process (referred to as AFI-4), a process which uses the micro‑organism Coniothyrium fuckelii rather than Aspergillus terreus. In the liability phase of this action, I found that some – but not all – lovastatin API was made using a process (referred to as AFI-1) which infringed the '380 Patent. Specifically, I concluded (see, Liability Decision, above at para 638) that the following lots of lovastatin infringed the '380 Patent:
1. all Apo-lovastatin product that was produced by AFI from AFI batch CR0157 (CR0157) manufactured in AFI’s facilities in Winnipeg and delivered to Apotex Inc. on December 2, 1996; and
2. all 294 batches of lovastatin produced by Blue Treasure after March 1998 and imported into Canada.
[9] In the end result, Apotex’s infringement was significant. Approximately 60% of Apotex’s sales made between March 1997 and the expiry of the '380 Patent were sales of infringing lovastatin. Viewed on a volume basis, approximately 71% of the total amount of lovastatin API supplied to Apotex Inc. by AFI was infringing material.
IV. Summary of Parties’ Positions
[10] Very helpfully, on the eve of trial, the parties resolved a number of matters which, otherwise, would have required evidence during the trial. The resolved matters were memorialized in the “Streamlining Agreement Re: Certain Facts and Figures” (TX 175 or the Streamlining Agreement) dated March 27, 2013. Some of the key areas of agreement were on the subjects of: (a) the number and timing of sales of infringing and non-infringing Apo-lovastatin; (b) hypothetical profits of Merck US and Merck Canada; (c) the hypothetical MACI Royalty; and (d) the profitability of the AFI-4 process. As required, the specific items of agreement will be referred to in the relevant sections of these reasons.
[11] Merck claims lost profits with respect to three categories of sales:
1. MEVACOR tablets that would have been sold domestically by Merck Canada to replace each and every infringing Apo-lovastatin tablet sold domestically prior to January 31, 2001 (the Pre-Expiry Replacement Tablets or Sales);
2. Lost profits from the sale of lovastatin API that would have been sold by Merck US to Merck Canada to produce the Pre-Expiry Replacement Tablets; and
3. MEVACOR tablets (and related lovastatin API) that would have been sold domestically to replace each and every Apo-lovastatin tablet sold after the '380 Patent expiry during the hypothetical ramp-up period (the Post-Expiry Ramp-up Tablets or Sales).
[12] Merck also claims a royalty in respect of infringing sales that it would not have made, specifically:
1. Infringing Apo-lovastatin tablets sold into the export market prior to and after the '380 Patent expiry (Export Tablets); and
2. Infringing Apo-lovastatin tablets sold domestically after the '380 Patent expired (the Post-Expiry Replacement Tablets).
[13] Merck Canada further requests that its award of lost profits include an amount to reflect an 8.5% royalty payable to MACI. Merck also seeks pre-judgment interest at a rate of at least 5% per annum and its costs.
[14] The total damages claimed by Merck are $156,320,737, plus interest.
[15] In response, Apotex’s position can be summarized as follows:
1. In respect of the Pre-Expiry Replacement Tablets, Merck Canada is entitled to:
a. its lost profits for the CR0157 infringement; and
b. only a reasonable royalty for the Blue Treasure infringing batches, on the basis that Apotex had available to it a non-infringing alternative;
2. Merck US is entitled to a nominal damages award only, since Merck US had assigned all of its rights to damages to MACI;
3. Merck is entitled to neither lost profits nor a reasonable royalty for the Post-Expiry Ramp-Up Tablets;
4. Apotex agrees with the payment of a reasonable royalty on the Export Tablets, but proposes a lower royalty rate than Merck;
5. Merck is not entitled to an additional recovery in respect of the MACI Royalty; and
6. Pre-judgment interest should be calculated at the Bank Rate in the first quarter of 1997.
[16] Apotex argues that the Merck’s total damages should be $9,554,288 (plus a “nominal”, unquantified amount to Merck US), together with pre-judgment interest at a rate of about 3.3% and post-judgment interest at a rate of 5%.
V. Issues
[17] Although the parties reached agreement on some of the underlying facts and relevant evidence from the liability phase was incorporated into this phase, a number of issues have endured.
1. In calculating Merck Canada’s damages, are the Defendants able to raise the defence that they had a non-infringing alternative; that is, from March 1997, Apotex could have used the AFI-4 process to manufacture sufficient quantities of lovastatin to supply the Canadian market and, therefore, Merck Canada is only entitled to a reasonable royalty with respect to the Pre-Expiry Replacement Tablets?
2. If I agree that Apotex is able to raise its non-infringing alternative (NIA) defence and a reasonable royalty only is payable with respect to sales lost by Merck, what should that reasonable royalty be?
3. If I find that Apotex cannot rely on its NIA defence and the Plaintiffs are entitled to an award of lost profits (rather than a reasonable royalty):
a. Is Merck entitled to lost profits for the Post-Expiry Ramp-Up Sales, due to the fact that Apotex did not require a “ramp-up” period to reach its ultimate market share?
b. Using a differential accounting method of lost profits, should Merck Canada’s lost profits be reduced to account for the MACI Royalty?
4. In a calculation of Merck US’s lost profits:
a. Is Merck US entitled to anything other than nominal damages because of its assignment of certain rights in the '380 Patent to MACI?
b. If Merck US is entitled to recover its lost profits for sale of API to Merck Canada, should those damages be reduced in view of sales of API that would have been made to Merck Canada by Merck Sharpe & Dohme Quimica (Quimica) and, if so, at what level?
5. Since Merck agrees that they would not have captured export sales of lovastatin during the infringement and post-expiry sales made with infringing, stockpiled API, what “reasonable royalty” would be applicable to those infringing sales made by Apotex?
6. At what level should Merck be awarded pre-judgment interest and post-judgment interest?
7. What principles should apply to any award of costs?
VI. Witnesses
[18] As mentioned above, only four fact witnesses and one expert witness testified at the trial.
A. Merck Witnesses
[19] Merck presented the following three witnesses.
[20] Mr. Kirk Duguid is presently the Vice President of Finance for Merck Canada (2T112‑113). In November-December of 1996, Mr. Duguid was Director of Financial Planning and Analysis, responsible for financial planning and assisting with sales forecasts (2T113-114). Mr. Duguid testified about Merck’s long-range marketing plan for MEVACOR in 1996. He also reviewed invoices relating to purchases of API by Merck Canada from Merck US and Quimica. Lastly, Mr. Duguid described the payment of royalties to MACI.
[21] Mr. Barry O’Sullivan is an Executive Director with the Corporate Tax Department of Merck US (2T212-213). He is responsible for worldwide physical and financial supply chain planning, inter-company licensing, funding of research and development, international inter-company transfer pricing and coordination of tax planning in Canada and Mexico. Mr. O’Sullivan testified about the physical supply chain for MEVACOR API and discussed the MACI Royalty.
[22] Mr. Joseph Promo is the assistant treasurer responsible for international treasury services for non‑US subsidiaries of Merck US (3T443-444). Mr. Promo testified about Merck’s weighted average cost of capital (WACC) and the use of WACC to decide whether a transaction is beneficial for the company. Mr. Promo also discussed Merck’s long-term debt.
[23] Merck also presented one expert, Dr. Christine S. Meyer. Dr. Meyer was qualified as an expert to opine on “economic issues related to the determination of a reasonable royalty as a result of a hypothetical royalty negotiation” (2T238-241). The Court also accepted that this expertise includes applicable bargaining theory (2T241-243).
[24] Dr. Meyer explained economic principles relating to a hypothetical royalty negotiation, including potential costs and benefits to both Merck and Apotex. She set the hypothetical negotiation in November 1996, assuming that the patent was valid and infringed and that the parties provide each other with accurate information.
B. Apotex Witness
[25] Apotex presented only one fact witness (and no experts) to the Court. Specifically, Dr. Bernard Sherman was presented as a fact witness. Dr. Sherman is the Chairman of Apotex (5T506-507). He testified about the acquisition by Apotex of the company that later became AFI and the decision to outsource lovastatin production to Blue Treasure. Dr. Sherman also discussed his knowledge of infringement by AFI and Blue Treasure and what he would have done had he known about the infringement taking place. He also testified about the NOC proceedings and the AFI-4 process.
VII. Lost Profits of Merck Canada
[26] As I determined at the liability phase of the trial, Merck is limited to a claim of damages under s. 55(1) of the Patent Act, RSC 1985, c P-4 [Patent Act]. Section 55(1) provides that:
55. (1) A person who infringes a patent is liable to the patentee and to all persons claiming under the patentee for all damage sustained by the patentee or by any such person, after the grant of the patent, by reason of the infringement.
55. (1) Quiconque contrefait un brevet est responsable envers le breveté et toute personne se réclamant de celui-ci du dommage que cette contrefaçon leur a fait subir après l’octroi du brevet
I will deal first with the claim of Merck Canada.
[27] Merck Canada claims that the infringement by Apotex led to lost profits that Merck Canada would have earned from the sale of MEVACOR tablets in the amount of $73,303,319. This amount consists of $62,925,126 for the lost profits that Merck Canada would have earned if it had replaced each and every infringing Apo-lovastatin tablet sold domestically prior to January 31, 2001 (the Pre-Expiry Replacement Tablets). Merck Canada also claims that its damages award should include an additional amount of $10,378,193 to reflect the MACI Royalty.
[28] The parties have agreed that the profits that Merck Canada would have earned if it had sold the Pre-Expiry Replacement Tablets, incorporating a deduction for the MACI Royalty, are $62,925,126 (Streamlining Agreement at para 6). Underlying this final figure is an acknowledgment by the Defendants that they will not contest a host of questions with respect to the “but for” world. Settlement has been reached on the following issues: the volume of sales that would have been made by Merck Canada; the capacity of Merck Canada to manufacture the required MEVACOR tablets; and the appropriate accounting treatment of hypothetical gross sales revenues.
[29] There are two points of disagreement:
(a) whether the availability of Apotex’s AFI-4 process (a non-infringing alternative or NIA) results in a finding that Merck Canada is only entitled to a reasonable royalty on the lost sales rather than its lost profits; and
(b) how or whether to account for the MACI Royalty agreed to be in the amount of $10,378,193 (Streamlining Agreement at para 8).
[30] In this section of the Reasons, I will consider only Merck’s claim to $62,925,126 and Apotex’s defence of a non-infringing alternative. The question of Merck’s entitlement to the MACI Royalty amount is dealt with in Section VIII of these Reasons.
[31] In dealing with this issue, I have organized my analysis with regard to the following questions:
1. What are Apotex’s submissions with respect to the NIA defence?
2. What are Merck’s submissions with respect to the NIA defence?
3. What are the general principles of damages?
4. What are the key differences between “damages” and an “accounting of profits”?
5. What was the “causation” of Merck Canada’s losses?
6. What is the state of the law of Canada on the NIA defence? This analysis requires me to examine the law of the United Kingdom upon which, at least thus far, Canadian law appears to be based.
7. Has Canadian law on the NIA defence changed or should it change because:
a. The Supreme Court of Canada, in Monsanto Canada Inc v Schmeiser, 2004 SCC 34, [2004] 1 SCR 902 [Monsanto/Schmeiser], changed the law of damages;
b. Courts in the United States have long recognized consideration of all competition the patentee would have faced but for infringement, including competition from the infringer;
c. Recent legal commentary by Professor Norman Siebrasse has urged the adoption of the NIA defence; or
d. The NIA defence has been accepted by the Federal Court in the context of damages assessed pursuant to s. 8 of the Patented Medicines (Notice of Compliance) Regulations, SOR/93-133 [PM (NOC) Regulations]?
8. Are there policy reasons to reject (or accept) the NIA defence in the context of Merck Canada’s claim for lost profits?
A. Apotex’s Submission
[32] Apotex submits that Merck Canada should not be awarded its lost profits with respect to the Pre-Expiry Replacement Tablets. Rather, Apotex urges the Court to conclude that, except for those tablets that formed part of the infringing batch CR0157, Merck Canada is only entitled to a reasonable royalty because Merck Canada cannot show that its damage was sustained “by reason of the infringement”.
[33] The basis of this argument is that, commencing in March 1997, the “but for” analysis should take into account that Apotex had available to it a non-infringing alternative or NIA in the form of the AFI-4 process. Apotex used the NIA for about 40% of its sales in Canada during the period of infringement. From March 26, 1997 – the date that Apotex received its NOC – Apotex had the regulatory approval, the capacity and the physical capability to produce all of the tablets that it sold in Canada by the non-infringing AFI-4 process. It follows, submits Apotex, that Merck Canada has not demonstrated that its loss was caused by the use of the AFI-1 process by Apotex and is limited to a reasonable royalty on the Pre-Expiry Replacement Sales. This royalty should be assessed as an equal sharing of the difference in the cost of producing tablets with the infringing AFI-1 process and the non-infringing AFI-4 process. Rather than the $62,925,126 of lost profits claimed by Merck Canada, Apotex believes that the appropriate damages award should be (a) lost profits of $521,641 on the CR0157 tablets; and (b) a reasonable royalty of $6,997,270 on the balance of the Pre-Expiry Replacement Tablets.
B. Merck’s Position
[34] Merck asserts that the NIA defence is only available to Apotex if the answers to all of the following questions are in Apotex’s favour (Merck’s Final Written Argument at para 68):
1. Is it more likely than not that the Defendants would have made and sold non‑infringing Apo-lovastatin tablets in place of the infringing tablets?
2. Having breached its undertaking not to infringe, can the Defendants ask to have damages assessed as if they had honoured the undertaking, or is there some consequence – even a grave consequence – associated with the breach that bars the defence?
3. Even if the Defendants would have used AFI-4 in a hypothetical world, and even if grave consequences or breach of undertaking do not prevent the defence from being raised in this case, does the NIA defence exist as a matter [of] law?
4. Even if the law is changed to permit the NIA defence, was Apotex’s non-infringing alternative “available” in fact?
(Emphasis omitted.)
[35] The response to question 3 – the existence of the NIA as a matter of Canadian law – is determinative and, on that basis, Apotex’s argument should be rejected. I do not need to consider the other arguments of Merck.
[36] However, if I had to decide those other questions, in my view, all three would be answered in the affirmative.
[37] The complete response to questions 1 and 4 is that the matter has been settled by the Streamlining Agreement. The agreement clearly states at paragraph 19 that the Defendants had the capacity to manufacture and sell non-infringing lovastatin in sufficient quantities from the time Apotex received its NOC on March 26, 1997 and at all times thereafter. Paragraph 19 of the Streamlining Agreement goes on to state that the agreement “does not affect or limit the Plaintiffs from arguing or leading evidence that uncertainty existed regarding the ability of the Defendants to meet the market demand for lovastatin with non-infringing lovastatin tablets formulated using lovastatin API made using the AFI-4 process at the AFI plant in Winnipeg” and that the Defendants abandoned any argument that they would have had other suppliers. However, in my view, these statements are relevant to the uncertainty of Apotex upon entering into a hypothetical negotiation for a reasonable royalty prior to March 26, 1997 and do not relate to Apotex’s actual capacity once it obtained its NOC on that date.
[38] With respect to question 2, I agree that Apotex breached the undertaking in its initial Notice of Allegation under the PM (NOC) Regulations. Apotex gave an undertaking that it would not infringe the '380 Patent and, at the end of the day, approximately 60% of its sales of Apo-lovastatin during the life of the patent were infringing. I further agree with Merck that, in light of the breach of the undertaking, “grave consequences” may flow. This notion was discussed by the Federal Court of Appeal in Hoffman-La Roche Ltd v Canada (Minister of National Health and Welfare), (1996), 70 CPR (3d) 206 at 213, 205 NR 331 (FCA) [Hoffman-La Roche] in which the Court stated:
I have no doubt, nevertheless, that such an allegation is intended to be accurate. Once a second person's product reaches the market the first person is in a position to test the accuracy of the detailed statement; if it were shown to be inaccurate, the consequences for a second person could well be very grave indeed.
[39] The question, however, is whether this concept, which was clearly intended to apply in the setting of the PM (NOC) Regulations, should be transferred from that highly specialized legislative framework to the construction of a hypothetical “but for” world in the calculation of patent infringement damages. The facts of this case are unique, since an NOC was issued without an evaluation of the merits of an NOC proceeding. I think it dangerous and unhelpful to apply Apotex’s undertaking across the two cases.
[40] The availability of the NIA defence at law is therefore the determinative question.
C. General Principles of Damages
[41] In Jay-Lor International Inc v Penta Farm Systems Ltd, 2007 FC 358 at para 123, 59 CPR (4th) 228 [Jay-Lor], I set out a series of principles which, in my view, applied where an assessment of damages under s. 55(1) of the Patent Act was to be made. I remain of the opinion that these principles are applicable to the determination of Merck’s damages. The more significant of those guiding principles are as follows:
1. An award of damages seeks to compensate the plaintiff for any losses suffered by the plaintiff as a result of the infringement;
2. The profits made by the defendant are irrelevant;
3. Every sale of an infringing product is an illegal transaction for which the plaintiff is entitled to recover damages;
4. In assessing the award, the plaintiff is entitled to the profits on the sales it would have made but for the presence of the infringing product in the market;
5. For those sales made by the defendant that the plaintiff patentee would not have made or cannot persuade the Court it would have made but for the presence of the infringing product, the plaintiff is entitled to a reasonable royalty; and
6. The plaintiff bears the burden of proving: (a) the sales that it would have made but for the presence of the infringing product; and (b) what a reasonable royalty would be.
[42] Many facts of this case are either undisputed or have been addressed in the Streamlining Agreement. The parties agree that Apotex and Merck Canada were the only sources of lovastatin in Canada during the period in question (March 27, 1997 to January 31, 2001) and Merck Canada had the capacity to satisfy the lovastatin market. Thus, the infringing lovastatin tablets sold by Apotex in Canada, referred to as the Pre-Expiry Replacement Tablets, would have been sold by Merck Canada. Without Apotex’s infringement through use of the AFI-1 process, Merck Canada would have made profits from the sale of such lovastatin tablets and Merck US would have made profits off lost sales of lovastatin API to Merck Canada.
[43] The evidence is clear that Merck does not, as a general practice, license the use of its inventions (2T122-123). Accordingly, both Merck Canada and Merck US would be entitled to their lost profits in respect of the Pre-Expiry Replacement Sales (see, for example, Jay-Lor, above at para 119).
[44] The parties agree on the general approach described above as it applies to the Pre-Expiry Replacement Tablets, but part company with respect to the relevance of Apotex’s non-infringing AFI-4 process.
D. Damages vs Accounting of Profits
[45] Notwithstanding Apotex’s efforts to argue the contrary, an award of damages differs fundamentally from an accounting of profits. Damages are a statutory right embedded in the Patent Act. A wronged patentee is entitled to damages as a matter of right.
[46] The key difference between the two remedies is the focus or starting point of the assessment. A claim for damages focuses on the plaintiff’s loss. What loss did the plaintiff suffer from the unauthorized use of the invention by the defendant? On the other hand, an accounting of profits looks at the benefit or advantage that a defendant derived from the use of the invention. As described in the United States Supreme Court in Mowry v Whitney, 81 US 620 at 651, 20 L Ed 860 (1871), a case involving a claim for an accounting of profits for the infringement of patent for an improved method of manufacturing rail-car wheels:
The question to be determined in this case, is what advantage did the defendant derive from using the complainant’s invention over what he had in using other processes then open to the public and adequate to enable him to obtain an equally beneficial result. The fruits of that advantage are his profits.
[47] An accounting of profits is an equitable remedy only available upon election by a plaintiff and with the discretion of the Court. In Laboratoires Servier v Apotex Inc, 2008 FC 825 at paras 503-504, 67 CPR (4th) 241 [Perindopril], aff’d on other grounds 2009 FCA 222, 75 CPR (4th) 443, I described the difference as follows:
While both damages and accounting of profits are intended to provide compensation to a wronged plaintiff, the fundamental principles underlying the two remedies and the practical considerations are substantially different.
The object of an award of damages is to make good any loss suffered by the plaintiff as a result of the defendant's infringement of the patent. Quantification of the award is based on the losses suffered by the plaintiff; any gains realized by the defendant because of its wrongdoing are not relevant. On the other hand, an accounting of profits is based on the premise that the defendant, by reason of its wrongful conduct, has improperly received profits which belong to the plaintiff. The objective of the award is to restore those actual profits to their rightful owner, the plaintiff, thereby eliminating whatever unjust enrichment has been procured by the defendant. Calculation is based on the profits wrongfully gained by the defendant; any other losses suffered by the plaintiff are irrelevant.
[48] An accounting of profits originated in equity, although the Patent Act now refers to this remedy. As set out in s. 57(1)(b) of the Patent Act, a judge may, on application of the plaintiff, make an order “for and respecting inspection or account”. The fact that the remedy is referred to in the Patent Act does not, as suggested by Apotex, change the remedy into a statutory remedy. It is an equitable remedy and remains so. On this basis, and as explained in further detail below, the extrapolation of principles governing accounting of profits to the statutory remedy of patent infringement damages is often inappropriate.
E. Causation
[49] In the context of an award of damages, a plaintiff may only be compensated for losses which, on a common sense view of causation, are caused by the infringement (see, for example, Canson Enterprises Ltd v Boughton & Co, [1991] 3 SCR 534 at 556, 85 DLR (4th) 129 (McLachlin J, as she then was, quoted with approval in Monsanto/Schmeiser, above at para 101)). The purpose of a compensatory remedy is to place a plaintiff in a position that he or she would have occupied but for the wrongful act. It would be inappropriate to award compensatory damages that place the plaintiff in a better position (Athey v Leonati, [1996] 3 SCR 458 at 472, 140 DLR (4th) 235 [Athey]).
[50] Merck submits that Merck Canada’s lost profits were caused by Apotex’s infringement of the '380 Patent. Stated differently, Merck asserts that but for the infringement by Apotex, it would have sold all of the Pre-Expiry Replacement Tablets and is entitled to lost profits in respect of each and every tablet.
[51] Apotex asks me to reject this conclusion on the basis of its non-infringing alternative, drawing analogies to jurisprudence in the matters of tort and breach of confidence. In spite of its infringement and in spite of Merck Canada’s demonstrated lost profits, Apotex argues that Merck cannot prove that Merck Canada would have made those sales in the “but for” scenario because Apotex had available to it a different and non-infringing alternative. However, the legal principles highlighted by Apotex are irrelevant to the present circumstances.
[52] First, causation was considered in the Liability Reasons, where I found that Merck’s lost sales were not recoverable where Apotex actually used the non-infringing AFI-4 process. Merck’s losses during the 1996 to 2001 period exceed those claimed, since Merck Canada’s lost sales during that period were due, in part, to the sales by Apotex of non-infringing Apo‑lovastatin tablets; that is, Apo-lovastatin made by the AFI-4 process. Merck Canada does not claim that that it would have made those sales but for the infringement of Apotex. In other words, from a common sense view, these lost profits were not caused by Apotex’s infringement and, therefore, cannot be recovered. The “causation” in issue is limited to the Pre-Expiry Replacement Sales.
[53] Second, principles of causation cannot support the relevance of a non-infringing alternative to an award of damages. The Supreme Court acknowledged in Monsanto/Schmeiser, above at para 101, that all non-punitive remedies are governed by a “common sense view of causation”. However, in its discussion of accounting of profits, the Supreme Court considered the non-infringing alternative to be relevant to the quantification of the award only, after causation has already been proved. Apotex inaccurately conflates causation, which must be proven first, and the subsequent quantification of the remedy.
[54] Third, causation in the context of tort law is directed to the original position of the plaintiff and, therefore, tort law cannot provide support for Apotex’s argument that its own (the Defendants’) hypothetical actions are relevant. Tort law focuses on the existence of a relationship connecting the actions of the defendant to the harm the plaintiff suffered (Clements v Clements, 2012 SCC 32 at paras 6-10, 46, [2012] 2 SCR 181 [Clements]). As such, tort law will not hold a defendant responsible for circumstances that change the plaintiff’s original position in a manner that is completely unconnected to the defendant’s conduct (Athey, above at 472-474; see also, Clements, above at para 40). The actions of Apotex, liable for infringement in this case, are not analogous to factors independent of the wrong that are inherent in Merck’s initial position. Tort law is not concerned with whether the defendant could or would have acted differently in a “but for” world where no wrongful conduct occurred.
[55] Fourth, Cadbury Schweppes Inc v FBI Foods Ltd, [1999] 1 SCR 142, 167 DLR (4th) 577 [Cadbury], relied upon by Apotex, is a case concerning breach of confidence that is inapplicable to the present circumstances. Justice Binnie recognized that remedies for breach of confidence are sui generis, drawing on the flexibility of equitable principles as well as available remedies in many areas of law, including contract, tort, property and trust (Cadbury, above at paras 26-28). Further, Justice Binnie stated that it would be inappropriate to allow the plaintiff to receive patent remedies for breach of confidence, since the requirements for a patent may not be met, public disclosure does not occur and a trade secret can last far beyond the duration of a patent (Cadbury, above at paras 46-48). In particular, the confidential information, relating to juice formulation, was characterized as “nothing very special”, involving no inventive step whatsoever (Cadbury, above at paras 48, 65). Therefore, the unique nature of remedies for breach of confidence, informed by equitable principles and the particular facts of the Cadbury case, preclude application of this case to statutory patent infringement damages.
[56] In sum, I reject Apotex’s arguments regarding causation and conclude that Merck Canada’s lost profits for the Pre-Expiry Replacement Sales were caused by Apotex’s infringement. Based on the record before me, Merck would have sold every one of the Pre‑Expiry Replacement Sales if Apotex had not infringed the '380 Patent. I reach