Date: 20100805
Docket:
T-1407-09
Citation: 2010FC807
Ottawa, Ontario, Thursday, this 5th day of August
2010
PRESENT: MADAM PROTHONOTARY MIREILLE TABIB
BETWEEN:
APOTEX INC.
Plaintiff/
Defendant by Counterclaim
- and -
H. LUNDBECK A/S
Defendant/
Plaintiff by Counterclaim
REASONS FOR ORDER AND ORDER
[1]
The principal issue before the Court on this
motion is whether a counterclaim in the nature of a quia timet action on
infringement, which would admittedly be improper and subject to be struck if
brought as an independent action, can nevertheless be saved and allowed to
proceed when brought in response to an action seeking a declaration of
non-infringement.
[2]
If the counterclaim is not struck, the second
issue is whether the Plaintiff-by-Counterclaim should, in the circumstances of
this case, post security for costs, and if so, in what amount.
Pleadings
and Procedural History:
[3]
The Defendant and Plaintiff-by-Counterclaim, H.
Lundbeck A/S (“Lundbeck”), is the owner of Canadian Patent no. 1,339,452, which
covers the antidepressant escitalopram. Wishing to sell its generic version of
escitalopram in Canada, the
Plaintiff, Apotex, Inc. (“Apotex”), filed an application for a notice of
compliance (“NOC”) pursuant to the Patented Medicine (Notice of Compliance)
Regulations SOR/93-133 (the “Regulations”). The ensuing application
for a prohibition order brought by Lundbeck and its Canadian subsidiary was
granted on March 9, 2009, and this Court issued an Order prohibiting the
Minister of Health from issuing an NOC to Apotex in respect of its escitalopram
product until after the expiration of the ‘452 patent. It is to be noted that
the absence of an NOC effectively prevents Apotex from selling the drug in
Canada, but not to manufacture, import or use the drug in Canada. The Judgement granting the
prohibition order has been appealed and the appeal is scheduled to be heard on
September 14, 2010.
[4]
Notwithstanding the appeal, Apotex filed the
present action on August 21, 2009, seeking not only a declaration that each of
the claims of the ‘452 Patent is invalid and void pursuant to section 60(1) of
the Patent Act, but also a declaration pursuant to section 60(2) of the Patent
Act that its making, using or selling of escitalopram in Canada will not
infringe the ‘452 Patent. While specific invalidity allegations are made in
respect of each claim of the patent, specific non-infringement allegations are
only made in respect of claims 2, 4, 5 (as it depends on claim 4) and 6 to 11
of the patent. There are no allegations of non-infringement specific to claims
1, 3 and 5 (as it depends on claim 3).
[5]
In response to this Statement of Claim, Lundbeck
filed a Statement of Defence and Counterclaim, by which it denies all Apotex’s
allegations and further, by counterclaim, seeks the following principal remedies:
(a)
“A declaration that the 452 patent has been
infringed by Apotex.
(b)
An interim, an interlocutory and a permanent
injunction restraining Apotex, its directors, officers, employees, agents, and
all those acting in privity with or under the control of Apotex, from:
(i)
Manufacturing, using, selling or offering for sale the Apotex product in Canada.
(ii)
Manufacturing, using, selling or offering for sale escitalopram in Canada.
(iii)
Manufacturing, using, selling or offering for sale the (-) enantiomer of the
intermediate diol in Canada.
(iv) Using the
processes described in claims 7 to 11.
(v)
Manufacturing, selling or offering for sale a product made according to those
processes.
(vi) Otherwise
infringing the 452 patent.
(c)
An order directing the delivery up to Apotex, or
destruction upon oath, of any and all Apotex product covered by one or more
claims of the 452 patent, and any and all advertising, marketing and
promotional materials related thereto.
(d)
Damages for patent infringement, or an
accounting of profits made by Apotex by reason of its infringement of the 452
patent, whichever Lundbeck may elect, in an amount to be determined by this
Court. […]”
[6]
Although paragraph 192 of the Statement of
Defence and Counterclaim specifically alleges that Apotex “has or had
manufactured for it and imported or had imported for it escitalopram or
pharmaceutical compositions containing escitalopram in commercial quantities”,
the very generality of the allegation and lack of particulars provided show –
and it was readily admitted by counsel for Lundbeck at the hearing before me – that
Lundbeck currently has knowledge of no material facts which would show that
Apotex has actually begun infringing activities. As a result, Lundbeck conceded
at the hearing that paragraph 192 of its Statement of Defence and Counterclaim
and those paragraphs seeking damages, an accounting of profits, delivery up or
destruction of product (sub-paragraphs 186(c) and (d)) should be struck. The
Court further noted that the declaration sought, at paragraph 186(a), is to the
effect that the ‘452 Patent has been infringed by Apotex, even though
the remaining allegations of the counterclaim clearly cover acts of
infringement in the future. Counsel for Lundbeck indicated that the declaratory
relief sought should have read “that the ‘452 Patent has and will be infringed”
and that should the counterclaim be allowed to stand, the relevant paragraph
should be amended to read “will be infringed” only.
[7]
As for the material facts showing that Apotex
intends to manufacture, use, import or sell escitalopram in Canada, Lundbeck
relies solely on the fact that Apotex has expressed that wish in the pleadings
themselves and on the steps that Apotex has taken to further that wish, in
filing an Abbreviated New Drug Submission with the Minister, serving a notice
of allegation, defending the resulting application for a prohibition order,
appealing same, and instituting the present action. The allegations of the
counterclaim are consistent with this.
Motion to
strike:
[8]
It has consistently been held by this Court that
the actions of a “second person” in pursuing the mechanism set out in the Regulations
do not, by themselves, justify the bringing of a quia timet proceeding
by the patent owner (see, inter alia, Connaught Laboratories Ltd. v.
Smithkline Beecham Pharma Inc. (1998) 86 C.P.R. (3d) 36, AstraZeneca
Canada Inc. v. Novopharm Ltd. 2009 FC 1209, upheld at 2010 FCA 11 and Pfizer
Research and Development Co. N.V./S.A. et al. v. Lilly ICOS LLC et al. (2003)
C.P.R. (4th) 86). Lundbeck recognizes this, and even concedes that,
had its counterclaim been filed as an independent action, in the absence of
Apotex’s action for a declaration of non-infringement, it should be struck in
accordance with these authorities.
[9]
Lundbeck however argues that the circumstances
herein are materially different from the circumstances in the above-mentioned
cases in the crucial fact that Apotex, in its action, specifically seeks a
declaration to the effect that its proposed escitalopram product will not
infringe the ‘452 Patent. I agree.
[10]
The decision in Connaught Laboratories, supra,
sets out three criteria to be met for a valid quia timet proceeding,
including that the apprehended activity be “imminent”. While these jurisprudential
criteria have been consistently accepted and applied, to both patent actions
and counterclaims, I cannot think that circumstances like those that exist here
were within the contemplation of the Court when the criteria were enunciated.
Indeed, in Connaught Laboratories and in all but three of the cases
brought to my attention by Apotex, the pleading at issue was the principal
action. In the three cases where the criteria were applied to strike
counterclaims, the counterclaim was brought in response to a simple impeachment
action, where no declaration of non-infringement was sought (See Pfizer,
supra, Glaxosmithkline Biologicals S.A. v. Novartis Vaccines and
Diagnostics, Inc. 2007 FC 883 and Faulding (Canada) Inc. v. Pharmacia
S.P.A. (1998) 82 C.P.R. (3d) 435).
[11]
Further, a review of the authorities indicate
that the fundamental concern in regulating the use of quia timet
proceedings is preventing abuses of process and ensuring that judicial
resources are not wasted in determining matters that will have no practical
effect. In the field of injunctions for patent infringement, the concept of
abuse of process looms particularly large. Most of the quia timet
proceedings struck by this Court have foundered primarily on the inability of
the claimant to provide sufficient particulars as to what exactly the Defendant
proposed to do, and the claimant’s obvious intent to rely on the discovery
process to make up for its lack of knowledge. A pleading which fails to set out
sufficient material facts and relies on discovery to provide the needed
particulars is an abuse of process. This was, in fact, the first reason given
by Justice Rothstein for striking the proceedings in Merck and Co. v. Apotex
Inc. (1997), 72 C.P.R. (3d) 515, at p. 516. See also AstraZeneca Canada
Inc. v. Novopharm Ltd. (supra) at par. 16 to 18, Glaxosmithkline,
(supra) and Faulding, (supra).
[12]
In the present case, there can be no suggestion
of abuse of process or of the counterclaim being improperly used to launch a
fishing expedition on discovery. In seeking a declaration of non-infringement,
Apotex is itself proposing to put before the Court for determination of whether
or not it infringes the ‘452 Patent a precise and definite product and
formulation and the specific manner in which it is to be manufactured, as it
must do if the Court is not to be asked to rule in a vacuum or on hypothetical
facts (see Lammli v. Cousins 2002 FCT 437). It is that very same
formulation, product and process which Lundbeck seeks to be declared infringing
and enjoined. It surely cannot be said to be improper or abusive for Lundbeck
to seek from the Court, on the very same factual matrix as has been put in
issue by Apotex, the conclusions, declarations and remedies opposite to what
Apotex is seeking, or for it to benefit to that end from the discovery on these
facts which Apotex has itself invited.
[13]
It is of further particular concern that Apotex’s action does not
seek a declaration of non-infringement in respect of three of the patent’s
claims. This could lead to a situation where any or all of these three claims
are found to be valid, but without any determination as to whether they will be
infringed by Apotex’s proposed product or process. Lundbeck’s counterclaim
addresses that gap. To prevent Lundbeck’s counterclaim from proceeding and
finally resolving all issues between the parties on Apotex’s proposed
activities would lead to a situation where, having engaged the Court’s process
and expended the Court’s and the parties’ resources to scrutinize Apotex’s proposed
product in light of the patent’s claims, Apotex could come to market only for a
new infringement action being launched, on the same patent, product and
process, in order to resolve the infringement issues on these outstanding three
claims. Surely, such waste of the Court’s process cannot be the intended result
of the application of the principles governing quia timet proceedings.
[14]
I am therefore satisfied that it is at least arguable that the
criteria set out in Connaught Laboratories should be applied with more
flexibility where a quia timet proceeding is brought in response to an
action for a declaration of non-infringement. That is enough to dismiss
Apotex’s motion to strike.
Security for Costs
[15]
Having determined that Lundbeck’s counterclaim
should not be struck, I now turn to that part of Apotex’s motion seeking
security for costs.
[16]
It is common ground between parties that
Lundbeck is not ordinarily resident in Canada and that the provisions of Rule 416(1)(a) apply to plaintiffs by
counterclaim, such that Apotex is prima facie entitled to an order that
Lundbeck provide security for its costs. Lundbeck, however, argues that the
amount of security requested by Apotex is excessive and that in any event,
because of Lundbeck’s considerable assets, Apotex is at no real risk of
recovering any award of costs made in its favour, such that the Court should
exercise its discretion to dispense it from the requirement of posting
security.
[17]
Lundbeck has adduced evidence showing that it
does have very substantial assets as well as revenues of several million
dollars annually. The evidence, however, falls short of showing that any of
these assets are located in Canada, apart from Lundbeck’s shareholding in Lundbeck Canada Inc., an
apparent license agreement with Lundbeck Canada to distribute escitalopram (see paragraph 4 of the statement of
claim, as admitted) and the Canadian patent which is the subject of these
proceedings. Nor does the evidence provide a value for any of these Canadian
assets.
[18]
As it applies to foreign residents, the
requirement to post security for costs ensures that a defendant impleaded in
Canada can enforce in Canada
any award of costs made in its favour, and is not put upon to institute foreign
proceedings in order to recover its due. As such, the case law has generally
required that the foreign plaintiff show sufficient assets in Canada to satisfy a likely award of costs
in order to be dispensed with the requirement of posting security. (K-Tel
International Limited v. Benoît, (1995) 92 F.T.R. 157, Structural
Instrumentation, Inc. v. Balance Electronique de Camion R.T. Inc., (1993)
68 F.T.R. 133). A plaintiff’s foreign assets will not, of themselves, justify
exempting a foreign plaintiff from providing security for costs. Lundbeck’s
reliance on the case of Pembina County Water Resource District et al. v.
Manitoba et al., 2005 FC 1226 is misplaced. While the plaintiffs’ ability
to pay an award of costs with assets located outside of Canada was considered
in that case, it was considered as one of several factors; further, it is clear
that one of the main factors justifying the Court’s exercise of its discretion
in that case was the plaintiffs’ special status before the Court, as having
brought the action pursuant to the International Boundary Waters Treaty Act,
R.S. 1985, c. I-17.
[19]
That said, Lundbeck’s demonstrated ability to pay an award of
costs – albeit from assets located in numerous other countries – as well as the
fact that it does have some assets in Canada, even if their value is not
established, may still be taken into consideration, along with any other
relevant factor.
[20]
One such relevant factor is the particular nature of Lundbeck’s
counterclaim. As discussed above, the counterclaim cannot succeed as an
independent action. Its validity is predicated on it being a direct response
and counterpoint to Apotex’s action for a declaration of non-infringement,
seeking, on the same facts as advanced by Apotex, the opposite conclusions and
remedies. Even though a counterclaim may, in principle, proceed independently
of the main action, this particular counterclaim is indissociable from the main
action: Should Apotex discontinue or abandon its action for a declaration of
non-infringement, Lundbeck’s counterclaim, as it stands, will necessarily be dismissed.
[21]
It has been held, in Maersk Inc. v. Coldmatic Refrigeration of Canada Ltd., [1994] F.C.J. 265, (1994) 74 F.T.R. 70, that
security for costs are referable to the costs of the plaintiff’s claim and not
to the defendant’s counterclaim. In this instance, security for Apotex’s costs
must thus be referable to its costs of defending Lundbeck’s counterclaim – not
to its costs of pursuing its action. As Apotex is the instigator of the main
action for a declaration of non-infringement, and as Lundbeck’s counterclaim is
dependent upon that action and relies on the same facts, ordering Lundbeck to
post security for Apotex’s full costs of defending the counterclaim would be
tantamount to ordering it to pay security for Apotex’s costs of pursuing its
action. If Apotex’s expected costs of defending the counterclaim can be shown
to exceed its costs of pursuing the action, however, security should be given,
but only for the excess.
[22]
On this motion, Apotex has not attempted to establish or
distinguish what portions of the anticipated costs would be attributable to its
action, and what portions to the counterclaim. Indeed, the draft bill of costs
includes items that can only be referable to the impeachment portion of the
action, such as conducting discovery of the inventors, including all motions,
letters rogatory and motions to compel relating thereto, and searches for prior
art. The draft bill of costs also fails to particularize any of the “disbursements”,
including air travel, hotel expenses and experts’ fees, even though they are
estimated to exceed $200,000. Finally, the draft bill of costs anticipates a
25 day trial, such as to lead one to conclude that it covers a trial on all
issues of the action and counterclaim.
[23]
If there is any indication provided in this draft bill of costs
or anywhere else in the record that the costs of defending the counterclaim
would be even marginally more than the costs of pursuing Apotex’s action, it is
for the steps of preparing and filing a defense to counterclaim, making a motion
for particulars and security for costs (even though no motion for particulars
has been announced) and making a motion for bifurcation (which is no longer
necessary as Lundbeck has conceded that its claim for damages should be
struck). There again, the amounts claimed for these steps are clearly
excessive as they are based on solicitor and client costs, even though no
circumstances have been pleaded or alluded to that might conceivably give rise
to such an award. The costs of preparing a defense to counterclaim and of a
hypothetical motion for particulars, assessed at the middle of Column III of
the Tariff as would be a reasonably likely award, would be but a few thousand
dollars.
[24]
Taking into consideration the presence in Canada of some assets,
however minimal, the substantial worldwide revenues and assets of Lundbeck, the
dependent nature of its counterclaim and the minimal incremental costs to
Apotex of defending Lundbeck’s counterclaim, as opposed to pursuing its own
action, I am satisfied that Lundbeck should be exempted from the requirement to
post security for costs.
Costs
[25]
At the outset of the hearing, the parties agreed that the
appropriate dollar value for this motion was of $1,500.00. Lundbeck having
been substantially successful on both aspects of the motion, it will have its
costs of the motion, fixed at the agreed amount of $1,500.00.
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