AstraZeneca Canada Inc. v. Apotex Inc.

AstraZeneca Canada Inc. v. Apotex Inc.
Court (s) Database
Federal Court Decisions
Date
2017-07-26
Neutral citation
2017 FC 726
File numbers
T-1409-04, T-1890-11, T-2300-05
Decision Content
Date: 20170726
Dockets: T-1409-04
T-1890-11
T-2300-05
Citation: 2017 FC 726
Ottawa, Ontario, July 26, 2017
PRESENT: The Honourable Mr. Justice Barnes
Docket: T-1409-04
BETWEEN:
ASTRAZENECA CANADA INC. AND AKTIEBOLAGET HÄSSLE
Plaintiffs
(Defendants by Counterclaim)
and
APOTEX INC.
Defendant
(Plaintiff by Counterclaim)
Docket: T-1890-11
AND BETWEEN:
ASTRAZENECA AB AND AKTIEBOLAGET HÄSSLE
Plaintiffs
(Defendants by Counterclaim)
and
APOTEX INC.
Defendant
(Plaintiff by Counterclaim)
Docket: T-2300-05
AND BETWEEN:
APOTEX INC.
Plaintiff
and
ASTRAZENECA CANADA INC.
Defendant
PUBLIC JUDGMENT AND REASONS
Table of Contents
I. During the Period of Infringement of the 693 Patent, Did Apotex Have an Available Non-Infringing Alternative 4
A. Are the Proposed NIAs Bioequivalent to LOSEC?. 23
B. Could Apotex Have Conducted Human Clinical Trials on its Proposed NIAs to Prove Bioequivalency? 38
C. Are the Proposed NIAs Sufficiently Stable?. 41
D. Would the Proposed NIAs Have Received Regulatory Approval?. 59
E. Would Apotex Have Obtained and Used a Third-Party NIA?. 63
F. Conclusion on the Availability of a NIA.. 79
II. How Should the Court Reconcile the Section 8 Judgment in Favour of Apotex in Court Docket T-2300-05 with the Infringement Judgment in Favour of AstraZeneca in Court Dockets T-1409-04 and T-1890-11. 79
III. With Respect to Apotex’s Profits From the Infringement of the 693 Patent, What Allowance Should be Made for Profits-On-Profits. 92
A. Tax Effects on Profits-on-Profits. 94
IV. With Respect to the Infringement of the 693 Patent, What Allowance is Required Having Regard to the United States District Court Award For the Infringement of the United States 505 Patent And Apotex’s Satisfaction of That Award. 95
V. Disposition. 106
[1] In these bifurcated proceedings, AstraZeneca Canada Inc., Aktiebolaget Hässle and AstraZeneca AB [collectively AstraZeneca] seek an accounting of the profits earned by Apotex Inc. [Apotex] from the infringement of AstraZeneca’s Canadian Letters Patent No 1,292,693 [693 Patent]. In the liability phase of the infringement actions (Court dockets T-1409-04 and T-1890-11), the Court found in favour of AstraZeneca: see AstraZeneca v Apotex, 2015 FC 322, 134 CPR (4th) 1, aff’d in part 2017 FCA 9, [2017] FCJ No 22 (QL). The commercial product covered by the 693 Patent is an omeprazole formulation marketed by AstraZeneca in Canada under the trade name LOSEC. The period of infringement by Apotex runs from September 5, 2003 to December 3, 2008.
[2] In Court docket T-2300-05 Apotex, in turn, seeks an offset for its section 8 damages for being held out of the Canadian market for its generic omeprazole formulation [Apo-Omeprazole] between January 3, 2002 and December 30, 2003 by reason of AstraZeneca’s failed Patented Medicines (Notice of Compliance) [NOC] application concerning its 762 Patent.
[3] All of these references were consolidated by a case management Order dated December 11, 2013 and were tried together at Toronto.
[4] To their considerable credit, the parties have resolved most of their quantification issues and have reduced their agreement to writing [see Exhibit AZ 24]. They have also agreed that their respective accounting experts will adjust their calculations as required by the streamlining agreement and by any other issues resulting from the Court’s Judgment. Any remaining points of disagreement between the accounting experts will be referred to the Court for final resolution.
[5] The parties have left with the Court the following matters for determination:
(a) During the period of infringement of the 693 Patent, did Apotex have an available non-infringing alternative [NIA];
(b) How should the Court reconcile the section 8 Judgment in favour of Apotex in Court docket T-2300-05 with the infringement Judgment in favour of AstraZeneca in Court dockets T-1409-04 and T-1890-11;
(c) With respect to Apotex’s profits from the infringement of the 693 Patent, what allowance should be made for profits-on-profits; and
(d) With respect to the infringement of the 693 Patent, what allowance is required having regard to the United States District Court award for the infringement of the United States Patent No 4,786,505 [505 Patent] and Apotex’s satisfaction of that award.
[6] The matter of costs is to be left pending further submissions from the parties.
I. During the Period of Infringement of the 693 Patent, Did Apotex Have an Available Non-Infringing Alternative [7] It is now well established in Canadian law that a NIA defence is available to a patent infringer to potentially reduce an innovator’s claim to damages or to the recovery of the infringer’s profits.
[8] The onus rests on Apotex to prove that a NIA was available and at what cost. This point was made in Reading & Bates Construction Co v Baker Energy Resources Corp (1992), 44 CPR (3d) 93 at pp 106-107, 56 FTR 22 (FCTD), aff’d (1994) 58 CPR (3d) 359, 175 NR 225 (FCA), where Justice Barry Strayer held:
I also agree with the learned referee’s conclusions of law that the onus is on the defendant to prove that an alternative non-infringing method existed and the costs of using that method. Although the defendant cited several cases to the contrary, these were cases from the Circuit Courts of the United States, one of which was over 100 years old and none of which were less than about 50 years old. On the other hand, I believe that such Canadian jurisprudence as exists is consistent with the burden being on the defendant to prove the alternative and its cost. It has been held in this court, for example, that in accounting for profits the burden is on the defendant to prove his costs, and thus establish the net profits from his sales: [citations removed]. Consistently with this fundamental principle, it is equally incumbent upon the defendant to prove his real net profits from using the infringing method by establishing on a balance of probabilities what his costs would have been had he used the most likely non-infringing alternative method. Therefore, the learned referee was right in law in imposing that burden on the defendant in this case.
Also see Apotex Inc v Merck & Co, 2015 FCA 171 at para 74, 387 DLR (4th) 552 [Lovastatin FCA], and Pfizer v Teva, 2016 FCA 161 at paras 53-66, 400 DLR (4th) 723, where the Court said: “[m]ere possibilities short of probabilities do not suffice” [para 56].
[9] The NIA defence was initially received in Canada with some hesitation perhaps because of the qualified language used in Monsanto Canada Inc v Schmeiser, 2004 SCC 34, [2004] 1 SCR 902. More recently, however, the Federal Court of Appeal has fully endorsed the defence, at least in conceptual terms: see Lovastatin FCA and Apotex Inc v ADIR, 2017 FCA 23, [2017] FCJ No 110 (QL) [Perindopril FCA]. But, as with any legal principle, the real challenge lies in its application to the evidence. This case is no different.
[10] Lovastatin FCA, above, contains a useful discussion of the theory behind the NIA defence and the method of applying it. At its root is the need for a causal link between the infringement and the claimed recovery. Behind the application of the NIA idea is said to lie “robust common sense” about what would and could have happened “but for” the infringement. The following passages from the decision are particularly instructive:
[48] The difficulty with the Judge’s approach is that if damages for lost profits are calculated never having regard to an available non-infringing alternative, the patentee will sometimes be better off than it would have been in the absence of infringement. This is so for the following reason. Where a defendant can make and sell a non-infringing alternative, the patent does not confer a complete monopoly on the patent holder. Instead, the patent confers a share of market power upon the patentee. In this circumstance, where, instead of using a non-infringing alternative, a defendant infringes, it is a question of fact whether, “but for” the infringement, the defendant would not have competed with it. The defendant’s lawful competition in the “but for” world may have deprived the patentee of some sales.
[49] Put another way, in cases where, in the “but for” world, the infringer could and would have made and sold a non-infringing alternative, these sales may well reduce the patent owner’s sales. Awarding the patentee full damages for lost profits in every case will, therefore, sometimes over-compensate the patentee.
[50] Perfect compensation requires consideration of: (i) what, if any, non-infringing product the defendant or any other competitors could and would have sold “but for” the infringement; and, (ii) the extent lawful competition would have reduced the patentee’s sales.
…
[73] When considering the effect of legitimate competition from a defendant marketing a non-infringing alternative, a court is required to consider at least the following questions of fact:
i) Is the alleged non-infringing alternative a true substitute and thus a real alternative?
ii) Is the alleged non-infringing alternative a true alternative in the sense of being economically viable?
iii) At the time of infringement, does the infringer have a sufficient supply of the non-infringing alternative to replace the non-infringing sales? Another way of framing this inquiry is could the infringer have sold the non-infringing alternative?
iv) Would the infringer actually have sold the non-infringing alternative?
[74] As a matter of principle, the burden lies on the defendant to establish the factual relevance of a non-infringing alternative on a balance of probabilities. Indeed, Apotex acknowledged in oral argument that it bears the persuasive burden, on a balance of probabilities, to prove that it would have used the non-infringing alternative. This is consistent with jurisprudence such as Rainbow Industrial Caterers Ltd. v. Canadian National Railway Co., [1991] 3 S.C.R. 3, 84 D.L.R. (4th) 291.
[Emphasis in original.]
…
[89] While this is dispositive of the appeal on this issue, I also find that Apotex failed to establish that it would have replaced its infringing sales. I reach this conclusion on the following basis.
[90] First, as Apotex conceded in oral argument:
• The real world informs our construction of the “but for” world.
• Conduct in the real world is “very important” to what would have happened in the “but for” world.
• Findings of fact from the liability decision are relevant to constructing the “but for” world.
• “Brazen” infringement in the real world makes it very difficult to prove that the defendant would have deployed the non-infringing alternative in the “but for” world.
[91] In the liability phase, the Judge found, at paragraph 309 of her reasons (reported at 2010 FC 1265), that if Blue Treasure had been using the non-infringing process to ferment lovastatin, it would have lost significant amounts of money for each kilogram of product it shipped to AFI. However, Apotex knew that once Blue Treasure began to use the allegedly non-infringing process it became profitable. The inference to be drawn is that Apotex knew Blue Treasure was in fact using the infringing process; yet Apotex used that bulk product to prepare and sell its lovastatin tablets.
[92] In this circumstance it is relevant to note that from January 1, 1997 to January 1, 2001 Apotex believed Merck’s patent was invalid.
[93] Apotex’ evidence falls far short of demonstrating that it would have sold the non-infringing product when one considers: the scale of Apotex’ infringement; its likely knowledge that Blue Treasure was supplying it with infringing lovastatin; its belief the Merck patent was invalid; its failure to call a witness from AFI to support its contention that, had it known the product was infringing, it would have resurrected operations at AFI in Winnipeg; and the fact the Judge found that the testimony of Apotex’ only fact witness was, albeit not on this point, unsubstantiated and self-serving.
[11] The NIA defence was more recently endorsed in Perindopril FCA, above. There Apotex advanced the defence based on the asserted availability of the patent-protected product from certain foreign sources for sale into non-infringing markets. The Court expressly rejected the idea that a NIA could not take the exact form of the patented product. Such an approach, it said, would inappropriately extend the territorial reach of the Canadian patent into non-infringing jurisdictions. The Court was also unperturbed by the fact that, at the beginning of the infringing period, none of the identified foreign third-party suppliers of Perindopril had the compound at hand. The question posed was whether, in the hypothetical world, Apotex could and would have obtained sufficient quantities of non-infringing product and that it could and would have used that product [see para 41]. The Court discussed this point in the following way:
[42] As this Court later explained in Pfizer Canada Inc. v. Teva Canada Limited, 2016 FCA 161, 483 N.R. 275, (Effexor) at paragraph 50, both the “could have” and “would have” requirements are important. To prove “could have”, the defendant must demonstrate that it was possible for it to secure non-infringing product. To prove “would have”, the defendant must demonstrate “that events would transpire in such a way as to put them in that position” (Effexor, paragraph 50). The importance of the “would have” requirement is that by requiring a defendant to show that it would have used a non-infringing alternative, the defendant shows that the value of the patented invention is not such that reliance on alternatives is unlikely or fanciful. Put another way, notwithstanding the availability of a non-infringing alternative, the defendant must show that there are no impediments to its use.
[12] AstraZeneca contends that the jurisprudence does not support a NIA that is not perceived by the infringer to be non-infringing at the point of the infringement. It also posits that a NIA must be “foreseeable” to the infringer at the relevant time. Anything short of this is said to be speculative.
[13] In support of the “knowledge” requirement, AstraZeneca relies on the trial decision in Wellcome Foundation Ltd v Apotex Inc (1998), 82 CPR (3d) 466 at paras 32-33, 151 FTR 250 (FCTD) [Wellcome FC], aff’d [2001] 2 FCR 618, 11 CPR (4th) 218 (CA). AstraZeneca cites to Lovastatin FCA, above, at paras 93-95 on the issue of foreseeability.
[14] I do not read these decisions as broadly as AstraZeneca suggests. In Wellcome FC, above, Justice MacKay did focus on whether Apotex had actual knowledge that its proposed NIA was non-infringing, but he also considered whether “it could have known” [para 33]. Knowing whether or not a proposed NIA would infringe is, of course, a factor in determining whether the infringer “would have” employed it in place of the infringing product. But this falls well short of making prior knowledge of non-infringement an absolute pre-requisite to the assertion of a NIA.
[15] I also place little significance on the stray reference to “foreseeability” in Lovastatin FCA, above. In the context of its use I take that reference to mean only that the concept of a viable NIA would have been available to the infringer based on what was known in the art at the time. If foreseeability meant that the infringer must have the asserted NIA in mind at the time of the infringement, it could potentially punish those who had no idea their product was infringing while rewarding those who had an appreciation of the risk and courted it, but nevertheless had a back-up, work-around solution available.
[16] In its Closing Argument on NIA at para 56, AstraZeneca cites two United States authorities (Grain Processing Corp v American Maize-Products Co, 185 F 3d 1341 (Fed Cir 1999) [Grain Processing], and Micro-Chemical Inc v Lextion Inc, 318 F 3d 1119 (Fed Cir 2003) [Micro-Chemicals]) for the idea that a NIA requiring the infringer to “invent around the patented technology” is not considered to be “available” to the infringer. I do not agree with this interpretation and in oral argument counsel retreated somewhat from the above proposition. Neither Micro-Chemical, above, nor Grain Processing, above, stand for the idea that the availability of a NIA is necessarily contingent on the amount of inventive effort required to make it. The time and effort of coming up with a non-infringing solution is certainly relevant to whether the infringer would have pursued it, but they are not absolute barriers to the defence. That this was all Judge Rader for the Court was saying in Micro-Chemical is clearly evident from his statement at p 1123 that high costs and the complexity of the exercise “to design or invent around the patented technology to develop an alleged substitute weighs [sic] against a finding of availability”. The Court in Grain Processing makes the same point.
[17] The American authorities cited by the parties also do not, on my reading, support an argument for exclusion of a NIA that is not “on the market” at the time of infringement. In Grain Processing, above, the Court was only concerned with the hypothetical availability of a NIA “including but not limited to products on the market” [p 1349]. Where the substitute was not on the market at the relevant time, the Court observed that an inference of unavailability could be drawn but not that it must be drawn. The Court went on to say at p 1353 that “the trial court must proceed with caution in assessing proof of the availability of substitutes not actually sold during the period of infringement”. In that case, however, the trial court had found that the asserted substitute could have been made by a process that was known in the art. That finding was upheld on appeal. I can see nothing in the Micro-Chemical decision that detracts from the above view.
[18] There is, of course, a difference between cases like Perindopril FCA and this one. In Perindopril FCA the NIA was known to exist at the time of infringement. The NIAs Apotex proposes in this case were unknown and never made by anyone before or during the infringing period let alone approved for use in Canada, the United States or elsewhere. Notwithstanding this distinction, I accept Apotex’s point that in the hypothetical, but for pharmaceutical world the infringer’s failure to produce a viable NIA formulation in the real world is not a threshold bar to the use of the NIA defence. In this context, the question is: Could the infringer have made the product had it attempted to do so at the relevant time and would the infringer have sold the product on some reasonable financial basis in substitution for the infringing product?
[19] I think this is the point being made by Justice Eleanor R Dawson for the Court in Perindropril FCA, above, when she said at para 62 “the fact that an event does not take place in the real world does not necessarily mean that the event could not and would not have taken place in the hypothetical world”. Added to this is the recognition in Perindropril FCA that the availability of a NIA is not to be foreclosed simply because it was not immediately available to the infringer, i.e. on the eve of first infringement. The Court is still obliged “to consider whether at some later point in time a supplier would and could have provided” a replacement product [see para 67]. This lends support to Apotex’s view that a viable NIA need not exist at the exact time of infringement.
[20] All of this is not to say that the post-infringement development of a NIA does not present problems of proof for the infringer asserting the defence. Indeed, as explained below, serious problems of proof are manifest in this case.
[21] One of the difficulties with an ex post facto NIA solution was recently discussed in Bell Airbus Helicopters SAS v Bell Helicopter Texteron Canada Limitée, 2017 FC 170 at para 295, 144 CPR (4th) 281 [Airbus]. There Justice Luc Martineau explained that the Court must be very wary of hindsight bias when it considers the claimed ease with which an after-the-fact NIA could be developed, tested, scaled-up and approved for use. In a case where the use of a product carries considerable infringement risk, one is left to wonder why the supposedly simple, non-infringing, equal cost version was never attempted. The “could have and would have” evidentiary concerns are also magnified when the proposed hypothetical NIA(s) were never, at any time, submitted to the relevant regulator for assessment and approval.
[22] I do not, however, think that Justice Martineau’s decision in Airbus, above, stands for the proposition that ex post facto NIAs of the sort proposed in this case must be excluded from consideration as a matter of law. Justice Martineau simply expressed reservations about the dangers of relying on a NIA that was either unknown during the period of infringement or had been previously discarded. He was appropriately concerned about the reliability of this type of look-back evidence and the risk of hindsight bias [see para 295].
[23] I have similar concerns to those expressed by Justice Martineau about the NIA evidence presented by Apotex in this case concerning its recently developed in-house NIA formulations.
[24] It is one thing to rely upon a NIA that is known and available for use during the period of infringing activity. It is quite another thing to propose a NIA made long after an infringement has taken place. When a pharmaceutical NIA has been created and has obtained regulatory approval, one is not left to wonder whether it “could” have been available for use (assuming a capacity to obtain it in commercial amounts). In this case, however, Apotex’s self-created NIAs were made in non-commercial batches, without full stability, bioequivalency or clinical studies, and without obtaining the required regulatory approvals for commercial use. Indeed, Apotex had no intention of ever developing these formulations for commercial exploitation. Many questions, therefore, remain about whether and, if so, when any of the formulations could have been used successfully during the period of infringement.
[25] Apotex attempts to explain away the evident weaknesses in its testing evidence with the argument that AstraZeneca and its experts misconceived Apotex’s NIA burden. Apotex puts the issue in the following way, at para 113 of its Closing Submissions:
…The issue before the Court is whether one or more of the NIA formulations could meet regulatory requirements had Apotex manufactured them at a commercial scale and made the requisite regulatory filings, not whether the data generated is sufficient to meet regulatory standards.
• Were Apotex to have done what Astra requires of it, millions of capsules would have had to be manufactured and studied over the period of a year. Moreover, hundreds of humans would have needlessly been subjected to clinical studies.
[26] The difficulty with the above idea is that, without ever acquiring the data necessary to satisfy regulatory requirements for its proposed NIAs, Apotex cannot directly establish that any of them would have obtained that approval. Incomplete or inconclusive data is weak data. The fact that Apotex began its stability testing too late to get it finished before trial and did not conduct clinical bioequivalency research at all does not make its case for NIA viability any stronger. The same can be said of the experimental short-cuts and less-than-optimum testing protocols employed by Apotex in the generation of its stability data. While these approaches may be entirely appropriate for the purpose of making in-house formulation choices to advance product development, they have diminished probative value where the question is whether a particular formulation would have been sufficiently viable to obtain regulatory approval on a balance of probabilities.
[27] It is also of some significance that Apotex unsuccessfully asserted a NIA defence in the damages-assessment phase of the United States litigation. Apotex argued there that it could have made adjustments to the infringing formulation, adopted an existing non-infringing formulation or used a microtablet formulation. These arguments were wholly rejected by the United States District Court for the Southern District of New York [District Court] in AstraZeneca AB v Apotex Corp, 985 F Supp 2d 452 (2013). The Court characterized Apotex’s proposed formulation adjustments in the following way, at p 499:
As for Apotex's proposals for tinkering with the ingredients in its pellets, it is pure speculation whether any of its various proposals would create a stable, bioequivalent product that was non-infringing. Apotex has never asked one of its many experts to try to create the revised formulation, much less to create and test it. See SynQor, Inc. v. Artesyn Techs., Inc., 709 F.3d 1365, 1382 (Fed.Cir.2013) (where an alleged substitute is not on the market, “the accused infringer has the burden to overcome the inference that the substitute was not ‘available’”) (citation omitted).
There is a reason that Apotex chose the ingredients that it did for its pellets following six years of research and testing. Those ingredients created a successful product. This is no easy task given the challenges of working with the omeprazole molecule and delivering it sufficiently intact to the part of the body in which it is most effective.
[28] In this case, Apotex belatedly attempted to overcome the problem identified by the District Court by developing a set of alternative formulations. However, Apotex has not adequately explained why it waited until late 2015 to begin its stability testing when it knew or ought to have known as of 2007 from the United States litigation that Apo-Omeprazole infringed AstraZeneca’s formulation patents. Inexplicably, Apotex mounted a purely theoretical NIA posture in the damages-assessment phase of the United States proceeding and by the end of that case, the Court observed at p 449 that it had “largely abandoned its argument that it could have altered the infringing formulation successfully”. The rejection by the District Court of Apotex’s NIA defence was based on a different and presumably weaker evidentiary record than the record before me. Nevertheless, I am left to wonder why Apotex failed to work-up its asserted alternative formulations in this case long before the end of 2015. Its excuse that it thought its formulation was non-infringing is undermined by the 2007 District Court finding of infringement [see AstraZeneca AB v Mylan Labs Inc et al, 490 F Supp 2d 381 (2007)] which was subsequently upheld on appeal in 2008 in AstraZeneca AB v Apotex Corp, 536 F 3d 1361 (Fed Cir). Apotex’s stability testing thus commenced long after it knew or ought to have known that Apo-Omeprazole was infringing.
[29] Apotex’s failure to complete the testing of its alternative formulations and to instead rely on extrapolations from its experts in this case is an unacceptable approach. A recognition of this strategy would potentially reward Apotex for its delay by excluding from consideration finished stability test results – data that may well have established that the alternative formulations would not work. It cannot be to Apotex’s advantage that its delay in the initiation of obvious testing avoids the potential for failed results. What Apotex is asking is that the Court predict a result that it could have but failed to establish. On the evidentiary record before me, I am not prepared to draw the inferences Apotex is seeking.
[30] AstraZeneca relies heavily on the principle that in the assessment of the but for world of NIAs the Court must look at what took place in the real world including the behaviour and state of mind of the infringer. Apotex does not deny this as a point of principle but argues for its reduced significance.
[31] Initially I did have reservations about the idea that the availability of a NIA can be informed, in part, by the willfulness of the infringement. But as I understand the decision of the Federal Court of Appeal in Lovastatin FCA, the idea is no more than this: where an infringer brazenly infringes a valid patent, or substantially courts the risk of doing so, an inference may arise that no viable substitute was available. If it were otherwise the rational choice would always be to employ the NIA and not the infringing product.
[32] It seems to me that what Apotex knew at the time and what it did in response to that knowledge in the real world are important considerations in the assessment of the hypothetical availability of its after-the-fact NIAs. The suggestion today that the development and commercial exploitation of the asserted NIAs would have been simple, cost-effective and speedy is substantially belied by historical fact.
[33] It is worth noting that it took Apotex many years to develop and obtain regulatory approval for Apo-Omeprazole – a product that Dr. Bernard Sherman apparently thought at the time would not infringe the 693 Patent or the United States 505 Patent. This fact belies the argument that any of the NIAs would have enjoyed an easier route to success if they were developed from scratch and without the benefit of the development of Apo-Omeprazole. Indeed, as I found in the liability phase, omeprazole is not an easy molecule to formulate.
[34] Dr. Sherman’s evidence that a work-around NIA solution was a straight forward task is also belied by the experience of producing the now-asserted NIA formulations. Initially Dr. Sherman thought the solution lay in the removal of the alkaline reacting compound [ARC] from the infringing formulation. Indeed, that was Dr. Sherman’s evidence in the United States litigation. However when that approach was adopted for this proceeding, it failed [see Exhibit APO 130, Chow Report #1 at paras 84-85].
[35] It is also noteworthy that none of the first 14 NIA formulations produced by Apotex were pursued in this litigation. This supports an inference that each of them failed. Of those formulations that did go forward to further testing, a number clearly failed to meet the necessary stability or bioequivalency requirements. Of those formulations that Apotex continues to assert, several were developed later in the selection process. All of this undermines Apotex’s argument that numerous viable NIA options would have been immediately obvious to a skilled formulator like Dr. Sherman.
[36] Dr. Sherman’s excuse for not exploring his NIA options during the infringing period was that he had no reason to think Apo-Omeprazole was infringing. This evidence does not stand up to scrutiny. Indeed, as discussed above, it either was or should have been increasingly obvious to Dr. Sherman that Apo-Omeprazole was likely an infringing product. Notwithstanding what Apotex knew or ought to have known, it persisted with its use of Apo-Omeprazole. This continued infringing conduct was unreasonably stubborn or dogmatic, if not wilfully blind to the consequences, and it contradicts Dr. Sherman’s trial testimony that, had he known, Apotex would have immediately searched for other options.
[37] It is also of some significance that despite increasing evidence of infringement Apotex chose not to examine Apo-Omeprazole to determine if it incorporated an infringing subcoat. All of this conduct undermines Dr. Sherman’s evidence that if he had only known Apo-Omeprazole was infringing, he could easily have developed or purchased a NIA. The more sustainable inference is that Apotex was prepared to run with Apo-Omeprazole whatever the likely consequences and it is doubtful it would ever have pursued a NIA option. That is particularly the case for pursuing a third-party NIA. Dr. Sherman made it very clear that such an approach would not have been considered unless and until he had exhausted his in-house options.
[38] In assessing Dr. Sherman’s evidence about what Apotex would have done in the hypothetical world it is necessary to consider what he knew in the real world and what Apotex did or did not do with that knowledge.
[39] At least as early as 2000, Apotex knew that AstraZeneca was asserting an infringement allegation based on an in situ formed subcoat in connection with another generic omeprazole formulation. In AB Hassle et al v Canada et al, 10 CPR (4th) 38, 102 ACWS (3d) 185 (FC), aff’d 2002 FCA 147, 18 CPR (4th) 558, Justice Daniele Tremblay-Lamer made a finding of infringement on that basis.
[40] In 2000, AstraZeneca made the same allegation against Apotex and other generics in the infringement action in the United States. In the first wave of that litigation, concluded in 2002, the District Court found infringement on the part of a different defendant for an in situ formed subcoat. At the conclusion of the second wave of cases in 2007, discussed above, the same finding was made against Apotex.
[41] In 2003, the Federal Court of Appeal construed the 693 Patent claims to cover an in situ formed subcoat and rejected Apotex’s arguments to the contrary: see AB Hassle v Apotex Inc, 2003 FCA 409, 29 CPR (4th) 23.
[42] In 2004, AstraZeneca commenced the first of these proceedings in Canada against Apotex for damages, alleging again that Apo-Omeprazole infringed the 693 Patent on the basis of an in situ formed subcoat.
[43] Notwithstanding the above history, Apotex took no steps to pursue a NIA formulation or even to test whether Apo-Omeprazole capsules contained an infringing subcoat layer.
[44] On March 16, 2015, I rendered a Judgment in these proceedings finding Apo-Omeprazole to be infringing of the 693 patent because it incorporated a sub-coat layer formed in situ.
[45] Having regard to the above background and to the fact that no effort was made by Apotex until late 2015 to develop any NIA formulations nor at any time or to pursue a third-party formulation, considerable caution is warranted.
[46] Apotex had no readily available NIA options at any time during the infringing period and it had no back-up plan to develop or purchase one. Instead it ran with Apo-Omeprazole to the end. Even now Apotex produced late, incomplete and inconclusive stability and bioequivalency data suggesting that it did not, and to this day does not, have a viable in-house NIA option. Notwithstanding these concerns, I will proceed with an assessment of Apotex’s evidence concerning its asserted NIAs to determine whether they were available and true non-infringing substitutes for Apo-Omeprazole.
[47] In that regard I can readily dispose of two issues raised by AstraZeneca:
(a) whether Apotex had the capacity to commercialize one of its asserted NIA formulations (the could-have question); and
(b) whether Apotex has failed to prove that each of its asserted in-house NIAs is non-infringing.
[48] While I accept that there would be manufacturing challenges for Apotex during scale-up to commercial NIA production, I believe that, with the exception of NIA formulation MR8620E1, these could be overcome by a successful and sophisticated producer like Apotex. Enteric coatings have been commercially used for many years and Apotex had considerable experience in successfully applying them to its formulations. Dr. Davies identified a number of production obstacles that Apotex may not have fully resolved in its small-scale batches. However, I am left with the impression that Apotex could and would have resolved most of these issues without the inordinate expenditure of time or money and without compromising the dissolution profile of the enteric coatings used in the NIA formulations.
[49] I exclude from this finding formulation MR8620E1. That formulation was designed to avoid an in situ subcoat by reducing the water content of the MACP enteric coating dispersion. This change reduced the potential for a reaction at the enteric coating/core interface.
[50] I am not satisfied that MR8620E1 could have been commercially developed because, as Dr. Davies explained, it failed to meet the MACP manufacturer’s specification for solids content and this repeatedly caused nozzle blockages [see Exhibit AZ 137 at paras 136-37]. In the absence of persuasive evidence proving that this production problem could be overcome at commercial production levels, I am not convinced that it would have worked. Indeed, if it was as obvious a work-around as Apotex now suggests, one is left to wonder why it was not attempted until well into Apotex’s NIA development and why larger scale enteric coated batches were either not attempted or were left undocumented.
[51] I am also satisfied on the evidence provided by the Apotex witnesses that it had ample in-house capacity to produce the remaining NIA formulations, sufficient to match its infringing sales.
[52] AstraZeneca contends that Apotex has failed to prove that its proposed NIAs would not infringe the 693 Patent. Although AstraZeneca has stipulated that Apotex’s proposed NIAs produced at batch scale do not infringe [see Exhibit APO 69], it does not concede the same point for any of the NIAs if produced at a commercial scale. I do not accept this argument because it lacks direct evidentiary support.
[53] If the NIAs are non-infringing at batch scale, one would expect them to remain non-infringing on commercial scale-up. That expectation might be rebuttable with cogent evidence that a production scale-up would be likely to give rise to an infringing characteristic (e.g. an in situ subcoat layer). No evidence directly on point was before me and I find that the asserted NIA formulations at commercial scale would not infringe the 693 Patent.
A. Are the Proposed NIAs Bioequivalent to LOSEC? [54] Dr. Mario González is an expert in pharmacokinetics, clinical pharmacology and biopharmaceutics [including the development and application of in vitro–in vivo correlations and relationship in predicting bioequivalence of formulations]. He provided expert opinion evidence on behalf of Apotex as to whether, in the absence of in vivo data, one could reasonably predict that any of the asserted NIAs would be likely to be bioequivalent to LOSEC and, if so, how the prediction could be made.
[55] After advising Apotex that, in certain circumstances, such predictions could be made, Apotex gave Dr. González its pharmacokinetic/statistical clinical data comparing the bioequivalency of Apo-Omeprazole and LOSEC along with its in vitro dissolution data and testing protocol. From that information Dr. González was asked to provide an opinion “as to whether any of the [NIAs] would be expected to be bioequivalent to Losec”.
[56] Dr. González’s first report [see Exhibit APO 41] acknowledges that assessing bioequivalency for regulatory purposes between two pharmaceutical compounds is carried out with randomized, cross-over human clinical testing where blood plasma concentrations are measured over time and compared. Acceptable clinical studies would require at least 12 human subjects but more typically between 18 to 24 subjects “to gain meaningful data”. The tested population needs to be large enough such that the data are not unduly thrown-off by intra- and inter-subject variability. Health Canada will accept two formulations as bioequivalent if the comparative data meet minimum statistical standards [see para 32].
[57] Dr. González’s first report states, at para 33:
where it is undesirable or impractical to conduct a comparative bioavailability study to determine whether two formulations are bioequivalent, it is, in certain circumstances, possible to use alternative methods, such as an in vitro/in vivo correlation (“IVIVC”) or an in vitro/in vivo relationship (“IVIVR”), to provide a reasonable prediction that two formulations will be bioequivalent.
[58] In this case an IVIVC could not be carried out and Dr. González was limited to using