Eli Lilly and Company v. Apotex Inc.

Eli Lilly and Company v. Apotex Inc.
Court (s) Database
Federal Court Decisions
Date
2015-01-23
Neutral citation
2014 FC 1254
File numbers
T-1321-97
Notes
A correction was made on March 22, 2017
Reported Decision
Decision Content
Date: 20150123
Docket: T-1321-97
Citation: 2014 FC 1254
Ottawa, Ontario, January 23, 2015
PRESENT: The Honourable Mr. Justice Zinn
BETWEEN:
ELI LILLY AND COMPANY
and ELI LILLY CANADA, INC.
Plaintiffs
and
APOTEX INC.
Defendant
JUDGMENT AND REASONS
(Confidential Reasons Issued December 23, 2014)
TABLE OF CONTENTS
Para
I.
Introduction ……………………………………………………………………..
1
II.
Background ……………………………………..………………………………
5
III.
Damages for Patent Infringement …………..…………………………………..
10
IV.
Non-Infringing Alternative ...…………………………….……………………..
23
1. Causation ……………………………………………………………...
27
2. Accounting of profits ………………………………………………….
36
3. Section 8 ……………………………………………………………….
42
4. US jurisprudence ………………………………………………………
46
5. Canadian jurisprudence ……………………………………………….
51
V.
When Would Apotex Have Entered the Market? ................................................
58
VI.
When Would Apotex Have Been Listed on the Provincial Formularies? ..…….
72
VII.
The Size of the Market ………………………………………………………….
78
1. Data ……………………………………………………………………
80
2. Relevant Period and Market Share ……………………………………
94
VIII.
Royalties ...……………………………………………………………………...
97
IX.
Prejudgment Interest ...………………………………………………………….
104
X.
Costs …………………………………………………………………………….
126
XI.
Summary ………………………………………………………………………..
127
XII.
Addendum
131
I. Introduction [1] In the liability phase of this action it was held that at least one valid claim in each of eight separate patents[1] owned by Eli Lilly and Company [Lilly US], had been infringed by Apotex Inc. [Apotex] by its importation, manufacture, export, sale, and offer for sale of the antibiotic cefaclor in Canada: Eli Lilly and Co v Apotex Inc, 2009 FC 991; aff’d 2010 FCA 240; leave to appeal to SCC refused, [2010] SCCA No 434.
[2] The Lilly Patents and the Shionogi Patents are process patents relating to the making of a key intermediate compound required to make cefaclor.
[3] Apotex had two suppliers of cefaclor: Kyong Bo Chemical Ltd. of South Korea [Kyong Bo] and Lupin Laboratories Ltd. of India [Lupin]. The court found that the infringing Apotex cefaclor was manufactured by Kyong Bo and Lupin and received by Apotex before June 3, 1998, [the Kyong Bo cefaclor and the Lupin 1 cefaclor].
[4] As a consequence of the finding of infringement, Lilly US and Eli Lilly Canada Inc. [Lilly Canada], collectively referred to as “Lilly” were entitled to elect either an accounting of profits or damages. Lilly elected to recover its damages and these Reasons reflect the court’s decision on the damages recoverable by Lilly.
II. Background [5] The dispute between Lilly and Apotex relating to cefaclor has been ongoing since 1993; although the present action is of more recent origin, having commenced in 1997. Each blames the other for the delay in bringing this litigation to a close. As is noted below, it is the court’s view that the responsibility for any delay is shared equally by the parties.
[6] In 1993, Apotex filed a submission with Health Canada seeking a Notice of Compliance [NOC] for cefaclor. Lilly commenced an application under the then recently enacted Patented Medicines (Notice of Compliance) Regulations, SOR/93-133 [PMNOC Regulations] seeking an order prohibiting Apotex from selling its cefaclor product in Canada. That application was dismissed because the patents did not meet the criteria set out in the PMNOC Regulations at that time: Eli Lilly and Co v Apotex Inc, [1995] FCJ No 1185. Notwithstanding the dismissal of the application, Justice Simpson made the following observation at para 9 of her Reasons for Order dated September 12, 1995:
The uncontradicted expert evidence before me discloses that there is no commercially viable means of producing Cefaclor without using at least two of the Intermediates. Canadian Patents 1,097,611 and 1,146,536 contain the claims for those crucial intermediates. Apotex has not suggested that it has developed a non-infringing process. It is, therefore, reasonable to infer that Apotex plans to infringe the Patents by copying Lilly's production methodology if it is not prohibited from manufacturing the Intermediates by a prohibition order made in this application. In that event, it will be open to Lilly to seek remedies for infringement at common law. [emphasis added]
[7] On January 17, 1997, Apotex obtained its NOC for its Apo-cefaclor and soon began selling it in Canada. Lilly then instituted this action for infringement.
[8] In March, 2001, Apotex launched a counterclaim based on the Competition Act, alleging anti-competitive activity relating to Lilly’s acquisition of the Shionogi Patents, and in November 2002, Apotex further amended its statement of defence and counterclaim to add Shionogi & Co. Ltd. as a party.
[9] The trial on the liability portion of the case came on before Madam Justice Gauthier on April 21, 2008, and lasted 67 days. Apotex disputed the validity of the 8 patents at issue, and also denied infringement. The court issued its Reasons for Judgment and Judgment on October 1, 2009. Madam Justice Gauthier found that the patents were valid and infringed by Apotex as a result of its importation and use of Kyong Bo cefaclor and Lupin 1 cefaclor received before June 3, 1998. The Competition Act counterclaim was dismissed.
III. Damages for Patent Infringement [10] “Infringement of a patent is a statutory tort:” Gerber Garment Technology v Lectra Systems Ltd, [1997] RPC 443 (CA) at 452.
[11] Subsection 55(1) of the Patent Act, RSC c P-4, creates that statutory tort: “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” [emphasis added].
[12] In her Reasons for Judgment at paragraph 652, Justice Gauthier wrote: “Should Lilly elect for damages, it should be clear that they will have to establish what sales were directly lost as a result of Apotex’s infringement” [emphasis added]. Apotex submits that this statement and subsection 55(1) of the Patent Act are not synonymous. It submits that limiting recovery to damages “directly lost” entails, for example, that Lilly US is precluded from any recovery of damages “since no causal connection, and certainly no direct causal connection, exists between lost sales that would have been made by Lilly US and Apotex’s infringement.”
[13] There is no question that when infringement is found, a trial judge has discretion to grant the plaintiff the optional remedy of an accounting of profits: Merck & Co v Apotex Inc, 2006 FCA 323 [Merck & Co (FCA)]. A trial judge has no such discretion with respect to the remedy of damages because Parliament gave the patentee the damages provided for in subsection 55(1) of the Patent Act and only Parliament can alter that right.
[14] When, as here, the patentee is granted the option of an accounting of profits, the plaintiff must elect one of the remedies: either its damages or an accounting of the infringer’s profits. When the plaintiff elects its damages rather than an accounting of the infringer’s profits, the damages to which it is statutorily entitled are precisely those described in subsection 55(1) of the Patent Act; namely, “all damage sustained … by reason of the infringement.” A judge has no jurisdiction to limit a plaintiff’s recovery to any lesser sum. I do not share the view of Apotex that Justice Gauthier was purporting to limit Lilly’s recovery to something less than its entitlement under subsection 55(1) of the Patent Act.
[15] Justice Gauthier’s statement must be read in the context of the trial and her comprehensive reasons. The evidence at trial was that Apotex sold cefaclor that had been manufactured through two different Lupin processes. The first process, Lupin 1 cefaclor, infringed the relevant patents. Lilly failed to prove that the second, Lupin 2 cefaclor, infringed the relevant patents. Justice Gauthier’s use of the word “directly” must be read in that context. Lilly is entitled to recover damages only related to sales lost as a result of either the Kyong Bo or the Lupin 1 infringing processes. It is not entitled to recover anything related to sales lost as a result of the Lupin 2 process which Lilly failed to prove was an infringing process. The trial judge described this as sales “directly lost as a result of Apotex’s infringement,” distinguishing these lost sales from other sales Lilly may have lost to Apotex.
[16] Lilly is entitled to damages as described in subsection 55(1) of the Patent Act – no more and no less.
[17] The century-old decision of the House of Lords in Watson, Laidlaw & Co v Pott, Cassels & Williamson (1914), 31 RPC 104 (HL) [Watson, Laidlaw & Co] contains one of the best discussions of damages for patent infringement. The patent at issue related to improvements in the manufacture of a centrifugal machine. The infringer had sold 252 machines that infringed the patent; however, the infringer alleged that the patentee would not have sold the equivalent number of machines had there been no infringement, and on that basis argued that the profit (damages) of the patentee had to be restricted to the number of machines it would actually have sold, and not the number sold by the infringer.
[18] The House of Lords noted that each infringement, every sale of a patented article, is an actionable wrong that damages the patentee. In so doing, it echoed the observation of Lord Watson in United Horse-Shoe & Nail Company v Stewart & Co (1888), 5 RPC 260 [United Horse-Shoe & Nail] at 267 that “Every sale of goods manufactured without license, by patent machinery, is and must be treated as an illegal transaction in a question with the patentee.”
[19] Lord Shaw observed in Watson, Laidlaw & Co that the fundamental principal of damages is restitution: “The idea is to restore the person who has sustained injury or loss to the condition in which he would have been had he not so sustained it.” Applying that principal to patent infringement, it was noted that there are two possible scenarios, and that they may both exist. In the first scenario, the patentee may establish that the infringer’s trade would have been his and that he is entitled to be put in the position he would have been had it been his trade. In the second scenario, the patentee cannot prove that the infringer’s trade would have been his, but he establishes that his property right (the patent) was breached. The patentee is entitled to a remedy for that breach. It was held that for such breaches he is entitled to a reasonable royalty, a form of rent, to compensate for the unauthorized use of the patentee’s property.
[20] In determining how one restores the patentee who has sustained injury or loss to the condition in which he would have been, had he not sustained it, courts have often said that one must create a but-for world. The but-for world is a legal fiction described by asking: “But for the infringing product being on the market, what would the patentee’s position have been?” The answer to that question responds to the damage calculation in scenario one – the patentee’s profits lost as a consequence of the infringement.
[21] The parties here have a significant difference of opinion as to one specific characteristic of the but-for world. Apotex urges the court to find that if there is a non-infringing alternative [NIA] to the infringing product or process that was available to the infringer in place of the infringing product or process, then, even though the infringer did not employ the NIA in the real world, it must be considered in the but-for world. I shall refer to this as the NIA Defence.
[22] Apotex called a number of experts in an effort to establish that the NIA Defence is available to it. I propose to deal with this issue first because whether the NIA Defence is available to an infringer will inform the discussion of the remaining issues.
IV. Non-Infringing Alternative [23] The NIA Defence to a claim for damages for patent infringement is available in the United States: See for example, Panduit Corp v Stahlin Bros Fibre Works, Inc, 575 F 2d 1152 (6th Cir 1978) [Panduit] and Grain Processing, Corporation v American Maize-Products Company, 185 F 3d 1341 (US App 1999) [Grain Processing]. US courts hold that a patentee may obtain as damages the profits on sales it would have made but for the infringing sales, if it proves: (1) demand for the patented product, (2) the absence of an acceptable non-infringing substitute, (3) its capability to exploit the market, and (4) the amount of profit it would have made. It is the second criterion that constitutes the NIA Defence.
[24] The NIA Defence provides that if the infringer can show that there was an alternative substitute to the patented product that did not infringe the patent, and which was available, then the patentee cannot prove that it would have made the sales made by the infringer because the infringer could have made those sales using the NIA. Absent proof that the patentee would have made the infringing sales in the but-for world, it cannot prove that it suffered a loss of profits on those sales.
[25] Apotex concedes that Canadian jurisprudence, following that in the United Kingdom, is that “the existence of a non-infringing alternative is not relevant to an assessment of damages”: Merck & Co v Apotex Inc, 2013 FC 751 [Lovastatin FC] at para 57. Nonetheless, Apotex submits that “there is good reason not to follow the jurisprudence in this country” in this regard. It submits the following five arguments in support of this proposition:
1. That the jurisprudence in Canada as to the non-availability of the NIA Defence “cannot be reconciled with the principles of causation that both the Supreme Court and other courts have enunciated;”
2. That when the patentee elects an accounting of profits, Canadian jurisprudence recognizes that the infringer’s profit is the difference between what it earned from the infringing product and what it would have earned from a NIA product (see for example Monsanto Canada Inc v Rivett, 2010 FCA 207; [2012] FCR 473 [Rivett]) and there is no principled basis not to consider a NIA when the patentee elects to recover its damages;
3. That Canadian courts consider the wrong-doer’s alternative behaviour when assessing damages under section 8 of the PMNOC Regulations in the but-for world (see for example Sanofi-Aventis v Teva, 2012 FC 552, varied but not on this point 2014 FCA 67), and there is no reason why that alternative behaviour ought not be considered in a reference on damages for infringement;
4. That the US decisions, although not binding, are instructive; and
5. That Lovastatin FC is not binding on this court and its finding regarding the availability of the NIA Defence in Canada ought to be reconsidered because of the first submission above, because the decision is currently under appeal, and because “serious legal challenges to the reasoning of the decision have been raised by at least one academic commentator:” See Cotter, Thomas F., “Canadian Court Rejects the Argument that Noninfringing Alternatives Are Relevant to Lost Profits,” Comparative Patent Remedies, dated July 18, 2013.
[26] Notwithstanding the submissions of counsel for Apotex, and the opinions of its expert witnesses who spoke from the viewpoint of economics and accounting, I reject that the NIA Defence is available to an infringer in Canada in an action for damages for patent infringement.
1. Causation [27] Apotex says that “unless causation is proven with respect to each loss claimed, there is no principled reason to order the defendant to ‘make good’ the alleged loss.” Causation, it says, relying on Clements v Clements, 2012 SCC 32 [Clements] at para 8, is proved using the “but for” test. The facts in Clements, an action in tort for negligence, were as follows.
[28] Mr. Clements was driving a motorcycle. His wife sat behind him as his passenger. The bike was some 100 pounds overloaded and was being driven in a 100 km/hr zone. Mr. Clements accelerated to 120 km/hr to pass a truck. Unknown to him, there was a nail in the bike’s rear tire. As the bike passed the truck, the nail dislodged, the rear tire deflated, the bike began to wobble, Mr. Clements lost control, and the bike crashed. Mrs. Clements suffered traumatic brain injury and sued Mr. Clements, claiming that the injury was caused by his negligence. There was no dispute that Mr. Clements was negligent in driving an over-loaded bike too fast. The question for the court was whether, but for his negligence, the injury to Mrs. Clements would have been sustained.
[29] In reversing the finding of the Court of Appeal and ordering a new trial, the Supreme Court of Canada observed at para 8, that causation is proved using the “but for” test:
The test for showing causation is the “but for” test. The plaintiff must show on a balance of probabilities that “but for” the defendant's negligent act, the injury would not have occurred. Inherent in the phrase “but for” is the requirement that the defendant's negligence was necessary to bring about the injury - in other words that the injury would not have occurred without the defendant's negligence. This is a factual inquiry. If the plaintiff does not establish this on a balance of probabilities, having regard to all the evidence, her action against the defendant fails.
[30] Based on this authority, Apotex says that Lilly must prove that its infringing sales caused it to lose sales. It says that Lilly cannot show that it would have made all or any of the infringing sales made by Apotex, because Apotex could have manufactured and sold cefaclor without infringing the patents. In that world, the sales would have remained sales made by Apotex, not by Lilly. Therefore, it says, there is no causal connection between the loss of sales and the infringement of the patents.
[31] The fallacy in Apotex’s submission is that causal connection must be determined based on an examination of the facts as they existed at the relevant time – not on those that could have existed. Just as it was no defence for Mr. Clements to say that the nail could have fallen out of the tire before he increased speed and when he was riding a properly loaded bike, and therefore there is no causal connection between his negligence and his wife’s injury, it is no defence for Apotex to say that it could have manufactured and sold non-infringing cefaclor and therefore there is no causal connection between its sale of the infringing product and Lilly’s lost sales.
[32] I concur with Mr. Creber who said: “I am not aware of any Canadian case that has allowed a tortfeasor, the person who committed the tort, to pretend they could have acted differently whether that be personal injury, whether it be negligence, whether it be patent infringement. … If I drove my car down Elgin Street and I hit somebody, it would be not open to me to argue, ‘I could have gone down Metcalfe Street instead and would have avoided hitting the person’.”
[33] Apotex is correct in saying that Lilly must prove the causal connection between its lost sales and the infringing sales made by Apotex. It must prove on the balance of probabilities that but for the sales of the infringing product, it would have made additional sales; and it must prove the number of those additional sales and the profit that it would have realized on them. I also agree with the submission of Apotex that damages for lost profits have been denied where the causal link between the infringement and the lost sales has not been established. Apotex brought examples to the court’s attention where a patentee was denied recovery of its alleged lost profits on the sales made by the infringer because it was unable to prove that it would have made those sales, but for the infringing product being on the market. I summarize these examples as follows: (1) where the infringed patents are usually licensed by the patentee, the patentee’s loss is limited to the royalty it usually charges: AlliedSignal Inc v Du Pont Canada Inc (1998), 78 CPR (3d) 129 [AlliedSignal] and Meters Ltd v Metropolitan Gas Meters Ltd (1911), 28 RPC 157 (CA); (2) where the infringing sales occur in markets where the patentee does not operate it is limited to recover only a reasonable royalty: United Horse-Shoe & Nail; (3) where the patentee would not have made the infringing sales because it had ineffective distribution or marketing: Hamilton v Featherweight Aluminum (1965), 47 CPR 40 (Ex Ct); (4) where the plaintiff would not have made the infringing sales because of customer dissatisfaction and its refusal to deal with the patentee: AlliedSignal; and (5) where there is a competitive market-place and it is shown that some of the infringing sales would have been made by a third party competitor: Jay-Lor International Inc v Penta Farm Systems Ltd, 2007 FC 358; 59 CPR (4th) 228 [Jay-Lor].
[34] Each example is based on a fact relating to the conduct of the patentee or a third party – not on a hypothetical and most certainly not on hypothetical behaviour of the infringer. It is the fact of the patentee’s usual conduct in licensing its patents, the fact of the markets into which it sells, the fact of the patentee’s distribution and marketing systems, the fact of the willingness of customers to purchase from the patentee, and the fact of the competitors in the real market that prevented the patentee from obtaining full recovery in the above examples.
[35] In short, the causal connection must be examined in the real world. Damages arise if Lilly proves in the real world that, but for Apotex selling infringing product, it would have made some or all of those sales. The causal connection is not examined in the hypothetical world where the infringer engages in different conduct than that in which it actually engaged. Such an approach permits the wrong-doer to escape all responsibility for its conduct. It would permit an infringer who is aware that there are two manufacturing processes, one that infringes and one that does not, to choose the infringing process comforted in the knowledge that the NIA Defence will permit it to escape most if not all of the consequences of its wrongful act. Although damages for patent infringement are not intended to punish infringers, neither are they intended to reward them.
2. Accounting of profits [36] If a plaintiff elects an accounting of profits rather than damages, then the availability of alternatives to the infringing product is considered. Apotex says that there “is no prima facie reason why the availability of alternatives should be used as a basis to reduce the recovery to a patentee in profits cases but not in damages cases.”
[37] There is a fundamental difference between an accounting of profits and an assessment of damages and it underlies why the availability of an alternative may be considered in the former but not in the latter. The former assesses the profit made by the infringer from having used the patent, whereas the latter assesses the profit the patentee would have made but for the infringer’s actions.
[38] In Monsanto Canada Inc v Schmeiser, 2004 SCC 34 [Schmeiser], the patentee elected an accounting of the profits made by the infringer in sowing canola seed containing the patented gene. That invention permitted a farmer to obtain a greater yield by spraying the crop with herbicide to kill weeds but not the patented canola. The Supreme Court noted that there was no evidence that Mr. Schmeiser had sprayed the crop he planted and thus no evidence that he profited from infringing the patent. In short, he obtained the same result he would have obtained if he planted non-patented seeds. Accordingly, there were no profits attributable to the use of the patented seed.
[39] In Rivett, the defendants admitted to have infringed Monsanto’s invention by planting soybeans containing the patented gene, but unlike Schmeiser, they sprayed their crop with herbicide. Therefore, they obtained the benefit of the patent. Again, Monsanto elected an accounting of the profits made by the defendants in having used its invention. As in Schmeiser, the task was to assess the profit made by the infringer from its use of the invention. That profit was held to be the difference in the profit the farmer would have realized had he planted a non-patented seed and that which he realized having planted the patented seed. This formula discloses that portion of the infringer’s profit that is causally related to the invention – the ability to spray the crop with herbicide without damaging it.
[40] The NIA is considered when one accounts for an infringer’s profit because one must identify what profit is directly attributable to the use of the invention. Where it is proven that the infringer would not have made any profit unless it used the invention, then all of the profit will be disgorged: see for example Reading & Bates Construction Co v Baker Energy Resources Corp, [1995] 1 FC 483 where the patent comprised the whole of what was sold and the infringer’s contract for pipeline installation required that particular method. On the other hand, if it is shown that there is another product or method that the infringer could have used, then the profit made as a consequence of the use of the invention is the difference between the two and only that difference needs to be disgorged. Rivett was such a case. At trial, notwithstanding evidence that conventional seed was in limited supply, it was held that “[i]f one uses a comparator only if it is actually physically available for use, but not when its exists but is physically unavailable, the fact that the resulting crop has a value apart form the invention will be ignored:” Monsanto Canada Inc v Rivett, 2009 FC 317 at para 62. The reason being that the court must identify the profit made that is directly attributable to the improper use of the patent.
[41] When one is assessing the damage sustained (lost profit) by the patentee because of the infringement, it is irrelevant whether that loss could have been avoided altogether had the infringer done otherwise - because it was not avoided. Rather, the damage resulted precisely because of the infringement. To do as suggested by Apotex shifts the focus from the consequences to the patentee to those of the infringer. The damage suffered by the patentee is every sale lost in the real world as a result of the defendant’s infringing activity. It is not, as Apotex would suggest, and as stated by its expert Dr. Aidan Hollis, limited by the value of the patent, i.e. the value the patent otherwise brings to a product producible by some alternative non-infringing method. What Lilly lost in the present case was not some such difference but its entire profit on each lost sale.
3. Section 8 [42] Apotex submits that there is no reason why, if alternative behaviour by the wrong-doer is considered in the computation of damages under section 8 of the PMNOC Regulations, such conduct should not be considered in the computation of infringement damages.
[43] This submission was also made by Apotex in Lovastatin FC, and it was rejected by Justice Snider at paras 107 – 112. I too reject it.
[44] As was noted by Justice Snider, the but-for world of section 8 is found within a specialized and comprehensive regulatory scheme distinct from damage assessments under section 55 of the Patent Act. In any event, the probable conduct of the “wrong-doer” patentee had the NOC been permitted to issue to the generic, is based on evidence of what it has done in the past. If it has most frequently licensed an authorized generic in the past when a NOC was granted to a generic, then it is probable it would have done so had the Minister not been prevented from issuing a NOC to the plaintiff generic. An argument by the patentee that it would have granted a license to an authorized generic in the absence of any evidence that it had done so previously will be met with extreme scientism.
[45] In my view, there is a material difference in principle between determining what a patentee would have done had a NOC been permitted to issue (the section 8 PMNOC Regulations situation) and determining what the patentee would have done but for the action of the infringer (the section 55 Patent Act situation). I do not accept the submission of Apotex that in the section 55 situation one must consider that the infringer was at liberty to act in a non-infringing manner. That asks the wrong question. It asks: “But for the infringement, what could the infringer have done?” The proper question to ask is: “But for the infringement, what would the patentee have done?” It is only the latter question that discloses the damage sustained by the patentee by reason of the infringement.
4. US jurisprudence [46] Apotex submits that while not binding, the US jurisprudence is “instructive.” I do not share that view.
[47] There is a significant and material difference between Canadian and US legislation defining the patentee’s recoverable damages.
[48] Under 35 U.S.C. section 284, “the court shall award the claimant damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer” [emphasis added]. Justice Rader in Grain Processing, citing Supreme Court jurisprudence, says that this “statutory measure of ‘damages’ is ‘the difference between [the patent owner’s] pecuniary condition after the infringement, and what his condition would have been if the infringement had not occurred’” and this “requires a reconstruction of the market, as it would have developed absent the infringing product, to determine what the patentee ‘would … have made’.” This determination, he says, requires an examination of what the patentee likely would have done and also what the infringer, absent the infringing product, would likely have done:
[A] fair and accurate reconstruction of the “but for” market also must take into account, where relevant, alternative actions the infringer foreseeably would have undertaken had he not infringed. Without the infringing product, a rational would-be infringer is likely to offer an acceptable noninfringing alternative if available, to compete with the patent owner rather than leave the market all together. The competitor in the “but for” marketplace is hardly likely to surrender its complete market share when faced with a patent, if it can compete is some other lawful manner.
[49] Section 55 of the Patent Act does not direct the court to assess “damages adequate to compensate” for the infringement; rather it requires the court to assess “all damages sustained by the patentee … by reason of the infringement.” An assessment of the “adequacy” of an award of damages may well involve a consideration of factors that are not at play when one is focused on assessing what damages were actually caused by the infringer’s actions.
[50] US courts have determined that under the former assessment, an appropriate consideration going to the adequacy of the award is a consideration of other options available to the infringer. However, for the reasons previously expressed, it is clear that alternative courses of action an infringer could have taken, but did not, have absolutely no bearing on the damages actually suffered because of the action it did take. For these reasons, the US jurisprudence has no value to a Canadian court when undertaking assessments of patent damages following an infringement.
5. Canadian jurisprudence [51] I agree that I am not bound by the decision in Lovastatin FC. However, the principle of comity does apply to judges of this court. Conclusions of law of a Federal Court judge should not be departed from, unless one is convinced that the departure is necessary and cogent reasons can be articulated for so doing: Apotex Inc v Allergan Inc, 2012 FCA 308.
[52] I reject the three reasons offered by Apotex as support for its request that I refuse to follow Lovastatin FC. They do not convince me that Justice Snider was in error. To the contrary, and for the reasons previously expressed, I share her view on the inapplicability of the NIA defence.
[53] The first reason offered by Apotex, the causal submission, has been previously examined and rejected. The second reason, that Apotex has appealed Lovastatin FC, is irrelevant. The principle of comity applies until such time, if ever, that the previous Federal Court decision is reversed on the relevant point.
[54] Lastly, I do not consider the views of Professor Cotter to be a “serious legal challenge” to the reasoning in Lovastatin FC, nor do I find the short 2 page article on his blog to be persuasive or helpful in the Canadian debate Apotex wishes to advance.
[55] Professor Cotter’s disagreement with this court’s judgment in Lovastatin FC on the use of a NIA is one he acknowledges is based on “economic logic” as the following passage illustrates:
My own view, as expressed repeatedly in my book, is that United Horse-Shoe and its progeny are fundamentally wrong as a matter of economic logic. If, but for the infringement, the defendant would have resorted to a noninfringing alternative that would have enabled it to make all the sales it made using an infringing product, the patentee quite literally has suffered no lost profit attributable to the infringement. Put another way, the patentee's profit on sales of its patented products in the hypothetical world of no-infringement would have been no different than its profit on actual sales in the real world of infringement. Awarding the patentee lost profits premised on its having captured all of the defendant's infringing sales thus results in overcompensation. The correct remedy to restore the patentee to the position it would have occupied but-for the infringement is a reasonable royalty calculated on the basis of what the parties would have agreed to in arms-length negotiations prior to the infringement (e.g., some portion of the defendant's expected cost savings from using the infringing process as opposed to the next-best available noninfringing alternative). [emphasis added]
[56] If the court were in a position to ignore relevant statutory provisions enacted by Parliament and apply economic logic, then perhaps he and not I would be the decision-maker in this case. However, this is a court of law – not of economics. From the standpoint of economics it may make sense to consider that “but for the infringement, the defendant would have resorted to a noninfringing alternative;” however, it is not appropriate when assessing damages under section 55 of the Patent Act for all of the reasons previously expressed. The position Professor Cotter favours would require an amendment to the Patent Act by the Parliament of Canada. It is not within this court’s jurisdiction to sacrifice laws Parliament has enacted written on the altar of economic logic.
[57] For all of these reasons I reject completely the submission of Apotex that it is entitled to the benefit of the NIA Defence.
V. When Would Apotex Have Entered the Market? [58] Apotex applied for its NOC in June 1995 and it issued on January 17, 1997. Soon thereafter Apotex began to import and market the infringing cefaclor. However, in the real world, Apotex ceased to import the infringing bulk cefaclor after June 3, 1998. Thereafter it began to import Lupin 2 which Lilly failed to prove infringed its patents.
[59] Apotex submits that in assessing Lilly’s damages, the court must do so on the basis that from and after June 3, 1998, Apotex would have had a legal generic cefaclor in the Canadian market, as a consequence of which, sales of Lilly’s cefaclor would have decreased substantially.
[60] Lilly submits that Apotex has failed to establish that it would have come to market with legal cefaclor prior to the expiry of the infringed patents and accordingly, it says that it would have had exclusive market share until the expiration of all of the relevant the patents on July 26, 2000.
[61] One argument Lilly advances in support of its submission relates to whether there was a non-infringing process available to Apotex prior to July 26, 2000. It argues that Justice Gauthier found only that Lilly had failed to prove that the Lupin 2 material infringed, but not that it was a non-infringing process. I prefer the submission of Apotex that “a party that has successfully opposed an allegation of infringement in respect of a particular material in the liability phase is not required to lead additional evidence in the reference phase” to prove that such material is non-infringing. “To require same would undermine the civil burden of a balance of probabilities, twice vex a party, and render the liability phase judicially wasteful.”
[62] However, the burden remains on Apotex to prove on the balance of probabilities that it would have come to market with non-infringing cefaclor prior to the expiration of the patents. For the reasons that follow, I find that Apotex has failed to prove that had the infringing material not been available to it, it would have entered the market with a non-infringing material.
[63] Apotex submits that proof of what it would have done in the but-for world is established by what it did in the real world. In the real world, when it determined that the process being used infringed the patents, it sought out a non-infringing process and continued selling in the market-place. While true, I agree with Lilly that there is a fundamental difference between considerations and actions one takes to enter the market and considerations and actions one takes to remain in the market.
[64] Here, Apotex had been in the cefaclor market since January 1997 when it stopped importing the infringing material 18 months later in June 1998. It had built a customer base and obtained formulary listing of its product – all of which would have been put on hold for two years until patent expiry if it did not find another manufacturing process. In short, it had an incentive to find a non-infringing alternative to maintain its place in the market.
[65] On the other hand, one must ask if there is persuasive evidence that but for using the infringing process in 1998, Apotex would have sought out a non-infringing process?
[66] While not conclusive, it is of note that only three years earlier, Justice Simpson found that “there is no commercially viable means of producing Cefaclor without using at least two of the Intermediates. Canadian Patents 1,097,611 and 1,146,536 contain the claims for those crucial intermediates.”
[67] More germane is that in the liability judgment, Justice Gauthier found that “there is no evidence that Apotex was even genuinely concerned with obtaining lawful supply with respect to bulk cefaclor” [emphasis added]. The recitation of the evidence of Dr. Sherman in this regard at paras 827-834 evidences the determination of Apotex to enter the cefaclor market but only, it appears, with infringing material. In the face of that finding, it would require uncontradicted and explicit evidence for the court on the reference to conclude that Apotex would have sought out a legal alternative in order to enter the market prior to the expiration of the patents.
[68] While I accept that Apotex evidenced a desire to enter the cefaclor market, I find no persuasive evidence that it had any desire to enter the market, as opposed to remaining in it, through legal means. Apotex offered evidence that it does not conduct a profitability analysis on its individual products before marketing them, so entering the market with a legal cefaclor product could not have been motivated by any direct financial incentive. Other th