Date: 20120523
Docket: T-1169-01
Citation:
2012 FC 620
Ottawa, Ontario, May 23, 2012
PRESENT: The Honourable Madam
Justice Snider
BETWEEN:
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APOTEX INC.
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Plaintiff
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and
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MERCK & CO.,
INC.,
MERCK FROSST CANADA
LTD. AND MERCK FROSST CANADA & CO.
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Defendants
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AND BETWEEN:
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MERCK & CO.,
INC. AND
MERK FROSST CANADA
& CO.
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Plaintiffs by
Counterclaim
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and
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APOTEX INC. AND HER
MAJESTY THE QUEEN IN RIGHT OF CANADA AS REPRESENTED BY THE ATTORNEY GENERAL
OF CANADA
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Defendants by Counterclaim
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REASONS
FOR JUDGMENT AND JUDGMENT
I. Introduction
[1]
Apotex Inc. (Apotex), the Plaintiff in this action, seeks
compensation from Merck & Co., Inc., Merck Frosst Canada Ltd. and Merck
Frosst Canada & Co. (collectively Merck) pursuant to s. 8 of the Patented
Medicines (Notice of Compliance) Regulations, SOR/93-133 (PM (NOC)
Regulations or Regulations). Apotex’s claim relates to alleged
losses incurred in the period that it was prevented from selling a generic
version of the drug lovastatin because of the statutory stay imposed as a
result of Merck’s actions under s. 6(1) of the Regulations.
[2]
In Apotex Inc v Merck & Co, 2010 FC 1264, 381
FTR 148 (the Trial Decision), I held that the 1993 version of the PM
(NOC) Regulations applied to Apotex’s claim for damages under s. 8 of the Regulations.
On the basis of this conclusion, I found that Apotex was not entitled to any
compensation under s. 8 of the Regulations. The Court of Appeal, in Apotex
Inc v Merck & Co, 2011 FCA 364 at para 8, [2011] FCJ No 1865 (the Appeal
Decision), told me that I was wrong, set aside the decision and remitted
the matter to me “to determine the legal and factual issues necessary to
quantify Merck’s liability to Apotex under section 8 of the 1998 Regulations”.
Thus, my task is to determine whether, under the 1998 version of s. 8 of the Regulations,
Apotex is entitled to compensation and, if so, for what period. The amount of
compensation, if any, is to be determined in a subsequent phase of the trial.
The text of s. 8 of the 1998 version of the PM (NOC) Regulations is set
out in Appendix A to these Reasons.
II. Issues
[3]
As the Court of Appeal explained in Apotex Inc v Merck
& Co, 2011 FCA 329 at para 75, 425 NR 279, the assessment of s. 8
damages requires consideration of the following hypothetical question: What
would have happened if Merck had not brought an application for prohibition? Put
differently, I must determine what actions Apotex would have hypothetically
taken in this “but for” world.
[4]
For purposes of framing the issues for this
re-consideration, I turn to the helpful directions provided by the Court of
Appeal in the Appeal Decision, above at paragraphs 39 to 41:
[39] The conclusions that I have reached above leave many
issues of law and fact to be decided before the amount of Apotex’ compensation
can be quantified, including: the basis on which loss should be determined; the
extent to which the ex turpi causa principle should be applied on these
facts, if at all; and the starting date of the period during which the loss
must have occurred under paragraph 8(1)(a).
[40] These issues were not considered by the Judge because
of the basis on which she disposed of Apotex’ claim for compensation. In my
view, it would not be appropriate for this Court to decide any of them in the
first instance: they raised contested factual issues, involved difficult
questions of law, and were not the subject of full argument in the appeal to
this Court.
[41] Accordingly, I would return the matter to the Judge on
the basis that: the 1998 version of section 8 applies; Merck is liable under
subsection 8(1); and an ex turpi causa defence is capable of being
raised under subsection 8(5) so as to reduce or eliminate the amount of loss
otherwise recoverable. All other issues of fact and law relevant to the
quantification of Merck’s liability to Apotex are to be decided by the Judge.
[5]
In its judgment, the Court of Appeal explicitly directed
that I consider the following two issues:
1.
What is the period for which Merck is liable to Apotex for
compensation under s. 8 of the Regulations (the Relevant Period)?
2.
To what extent, if any, should the defence of ex turpi
causa be applied to the facts before me to reduce compensation otherwise
payable under s. 8 of the Regulations?
III. Background
[6]
The background to this action is as follows:
1.
As of all relevant dates, Merck held the rights to Canadian
Patent No. 1,161,380 (the '380 Patent), a patent for the making of lovastatin
by a particular process, referred to as AFI-1, using the Aspergillus terreus
micro-organism as the basis of fermentation.
2.
In 1993, Apotex applied to the Minister of Health (the
Minister) for a Notice of Compliance (NOC) pursuant to the relevant provisions
of the PM (NOC) Regulations, alleging that it would not infringe the '380 Patent, as
it would use an organism described as Aspergillus flavipes or Aspergillus
obscurus rather than the patented AFI-1 process to produce lovastatin.
3.
On June 1, 1993, Merck commenced an application for
prohibition, arguing that Apotex’s allegation of non-infringement was not
justified, thereby triggering the statutory stay provided for in the Regulations.
4.
In a decision rendered March 26, 1997, Justice Rothstein
(then a judge with the Federal Court, Trial Division) refused to extend the time
period or issue a prohibition order (Merck Frosst Canada Inc v Canada
(Minister of National Health and Welfare) (1997), 128 FTR 210, 72 CPR (3d)
453 (FCTD) [Merck FCTD 1997]).
5.
The Minister issued the NOC for lovastatin to Apotex on
March 27, 1997.
6.
In a judgment, delivered April 21, 1999, the Federal Court
of Appeal dismissed the appeal of Merck FCTD 1997, on the basis that the
question was moot (Merck Frosst Canada Inc v Canada (Minister of National
Health and Welfare) (1999), 240 NR 195, [1999] FCJ No 555,(FCA), leave to
appeal to SCC refused, [1999] SCCA No 313.
[7]
In sum, Apotex was kept off the market, by operation of the
PM (NOC) Regulations, until March 27, 1997, when the NOC issued.
However, of considerable significance, no determination was ever made under the
PM (NOC) Regulations as to whether Apotex’s allegations were justified.
[8]
Faced with Apotex’s entry into the lovastatin market, Merck
commenced a patent infringement action (Court File No. T-1272-97) against
Apotex and Apotex Fermentation Inc. (AFI), an affiliate of Apotex, for
infringement of its '380 Patent. Apotex and AFI counterclaimed on the
basis that the '380 Patent was invalid and, in any event, not infringed. In addition,
Apotex commenced this action against Merck for compensation pursuant to s. 8 of
the Regulations (Court File No. T-1169-01).
[9]
Thirteen long years later, both Merck’s claims in Court
File No. T-1272-97 and Apotex’s claim for s. 8 compensation came to trial. In Merck
& Co v Apotex Inc, 2010 FC 1265, 381 FTR 162, aff’d 2011 FCA 363, [2011]
FCJ No 1866 (the Infringement Decision), I held that the '380 Patent was
valid and that some of the lovastatin tablets sold by Apotex after it came to
market had been made by the infringing AFI-1 process. I also found that Merck
had not proved that all of Apotex’s lovastatin was infringing. Some of the
product was made by another process – the AFI-4 process patented by Apotex and
which used the Conitherium fuckelii organism. This process did not
infringe the '380 Patent. The Trial Decision, referred to above, was the
result of Apotex’s s. 8 claim.
IV. Relevant Period
[10]
I turn to the first issue of establishing the beginning and
end dates of the Relevant Period.
[11]
As set out in s. 8(1) of the Regulations, a first
person (Merck) is liable to a second person (Apotex) for any loss suffered
during the period that, in most circumstances, commences on the date, as
certified by the Minister, on which an NOC would have issued in the absence of
the Regulations and which ends on the date of the withdrawal, the
discontinuance, the dismissal or the reversal of the prohibition proceedings.
In Apotex Inc v Merck & Co,
2008 FC 1185 at paras 106-116, [2009] 3 FCR 234,
Justice Roger Hughes explained that s. 8(1)(a) gives the Court discretion to
select a more appropriate date for the beginning of the liability period,
although the presumptive period begins on the “patent hold” date, meaning the
date on which an NOC would have issued, but for the proceedings under the Regulations.
[12]
In this case, there is no dispute that the Relevant Period
ended on March 26, 1997 with the decision in Merck FCTD 1997.
[13]
The parties, however, disagree on the applicable
commencement date. Apotex asserts that the appropriate date is April 30, 1996,
the date on which it submits that the Minister would have issued an NOC to
Apotex except for the Regulations. Merck submits that there is no proof
of any date “certified by the Minister” on which Apotex would have received an
NOC for the non-infringing AFI-4 process. In the alternative, Merck argues that
the appropriate date is when Apotex was notified that the Minister had “no
objection” to Apotex’s Notice of Change switching to the AFI-4 process;
specifically, that date was February 27, 1997.
[14]
Apotex initially filed a New Drug Submission (NDS) for
approval of Apo-lovastatin made by use of a micro-organism referred to as Aspergillus
flavipes on December 21, 1994. Label drafts were submitted to Health Canada and apparently approved on April 30, 1996. On May 25,
1996, Apotex’s NDS was placed on “patent hold”, meaning that an NOC for Apo‑lovastatin
manufactured with Aspergillus flavipes would not issue until resolution
of the prohibition proceedings or the expiry of the relevant patents (including
the '380
Patent)
[15]
Merck is correct that there is no Ministerial
“certification” of May 25, 1996 as contemplated by s. 8(1)(a). However, I am
satisfied that, but for the Regulations, Apotex would have received its
NOC for Apo-lovastatin no later than May 25, 1996.
[16]
Apotex submits that April 30, 1996 is the more appropriate
date for the commencement of the Relevant Period. I agree with Apotex that its
labels for Apo-lovastatin were approved on April 30, 1996. In spite of the
testimony of Mr. Hems that NOCs normally follow label approval within a matter
of days, I am not persuaded that this date is more appropriate than the “patent
hold” date. There can be no doubt whatsoever that the application would have
been approved on May 25, 1996, the date of the “patent hold” letter from Health
Canada.
[17]
In my view, the appropriate date, even though not certified
by the Minister, would be the “patent hold” date of May 25, 1996.
[18]
Merck’s most serious argument on the appropriate
commencement date relies on its view that Apotex’s Apo-lovastatin would have
infringed the '380 Patent until February 27, 1997. As discussed below, this is an
argument that is more appropriately considered in the context of judicial
discretion under s. 8(5) of the Regulations.
[19]
I conclude that the Relevant Period should begin on May 25,
1996 and end on March 26, 1997.
V. Defence of ex
turpi causa
[20]
Merck submits that Apotex should be precluded from claiming
compensation on the basis that it has been shown to have infringed the '380 Patent. This, Merck submits, should be a factor to reduce or eliminate Apotex’s
compensation otherwise payable.
[21]
In the Appeal Decision, above at paragraph 41, the Court
of Appeal described this as an ex turpi causa argument that was “capable
of being raised” under s. 8(5) of the PM (NOC) Regulations. I observe that
the court did not go so far as to say that such a defence would succeed – only
that it could be argued.
[22]
Subsection 8(5) of the PM (NOC) Regulations provides
that:
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In assessing the amount of compensation the court shall
take into account all matters that it considers relevant to the assessment of
the amount, including any conduct of the first or second person which
contributed to delay the disposition of the application under subsection
6(1).
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Pour déterminer le montant de l’indemnité à accorder, le
tribunal tient compte des facteurs qu’il juge pertinents à cette fin, y
compris, le cas échéant, la conduite de la première personne ou de la seconde
personne qui a contribué à retarder le règlement de la demande visée au
paragraphe 6(1).
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[23]
In the Appeal Decision, above at paragraph 37, the
Court of Appeal held that s. 8(5) “confers a broad discretion on the court when
assessing the amount of compensation”. Justice Evans explained that “this
provision enables the Court to determine in its discretion whether, and to what
extent, a second person’s claim for compensation should be reduced, or
eliminated”. As noted by Justice Evans, at paragraph 38:
The Court’s broad
discretion under subsection 8(5) allows [the trial judge], when considering
arguments based on ex turpi causa, to have regard to the factual
situation in its entirety, including its nuances. In the present case, one such
nuance is that not all the tablets sold by Apotex were found in the
infringement action to contain lovastatin made by the infringing process. A court is likely to
find it easier to apply the ex turpi causa principle through an exercise
of judicial discretion than through the definition of liability. Discretion
enables the court to assess the appropriate amount of compensation payable (including
nil) in a manner that properly takes account of all the relevant facts.
[24]
My determination in the Infringement Decision was
that some – but not all – of the lovastatin made by Apotex was made by the
infringing AFI-1 process. I also concluded that much of the lovastatin produced
and sold by Apotex was made by the non-infringing AFI-4 process. All of the
infringing lovastatin was sold after March 26, 1997; that is, after the
issuance of the NOC. The question is this: During the Relevant Period (before the
issuance of the NOC) would it have been more likely than not that Apotex would
have made Apo-lovastatin by the infringing AFI-1 process?
[25]
Because the '380 Patent was ultimately held to
be valid, any lovastatin made using the AFI-1 process during the Relevant
Period would have been made by an infringing process. It is important to
remember that, on the unusual facts before me, there was never any
determination of the merits of Merck’s prohibition application. Even without
the Regulations, Apotex could not, as a simple matter of patent law,
have had the right to use the AFI-1 process to produce and sell lovastatin.
Stated differently, in the complete absence of the Regulations, Apotex
would have been infringing the '380 Patent if it were to manufacture and
sell Apo-lovastatin made with the AFI-1 process.
[26]
In my view, Apotex should not be able to recover damages
for the hypothetical sale of any lovastatin that, more probably than not, would
have been produced and sold illegally. Quite simply, the doctrine of ex
turpi causa provides that a plaintiff should not profit from an illegal or
wrongful act (see e.g. Hall v Hebert, [1993] 2 S.C.R. 159, [1993] SCJ No
51). If it can be shown that
Apotex would have likely used the infringing AFI-1 process during the Relevant
Period, Merck’s ex turpi causa defence will succeed and I will exercise
my discretion under s. 8(5) of the Regulations to disallow recovery by
Apotex of those amounts.
[27]
The facts of Apotex’s initial NDS filing are described
above. As noted, absent the Regulations, Apotex would have been approved
in May of 1996 for the manufacture and sale of Apo-lovastatin made from Aspergillus
flavipes. Apotex’s regulatory submissions relied on the use of this
particular organism up to the issuance of the NOC on March 27, 1997. That NOC
included a Product Monograph which specified the originating micro-organism as Aspergillus
flavipes or Aspergillus obscurus.
[28]
As time passed, it became clear that Aspergillus
flavipes and Aspergillus obscurus were, in fact, the same
micro-organism as Aspergillus terreus, the micro-organism used in the
patented AFI-1 process. Thus, the approval that Apotex would have received in
the “but for” or hypothetical world would have been for Apo-lovastatin made
with the infringing AFI-1 process.
[29]
During his cross-examination, Dr. Sherman was very clear
that, absent the Regulations, Apotex would have manufactured and sold
Apo-lovastatin:
[P]rior to the
regulations, we simply would have launched [Apo-lovastatin]. Then if Merck
sued, we would have defended, but we would be on the market getting the
revenues.
[30]
I understand this comment – together with other remarks of
Dr. Sherman – to mean that Apotex would have been prepared to take the
litigation risk of producing and selling potentially infringing Apo-lovastatin.
Critical to all of this is the fact that, at least until late 1995, Apotex did
not believe that its use of Aspergillus flavipes and Aspergillus
obscurus would infringe the '380 Patent. As reflected in the product
monograph issued with its NOC, Apotex continued to claim that it would be
making lovastatin with Aspergillus flavipes and Aspergillus obscurus,
even though it knew, in 1995, that these were the same organism as Aspergillus
terreus. This evidence supports a finding that Apotex would have been
prepared to sell infringing lovastatin throughout the Relevant Period.
[31]
In spite of this evidence, Apotex assures me that it would
have taken the necessary regulatory and operational steps to be ready to put
non-infringing lovastatin on the market as of the commencement of the Relevant
Period. I must accordingly determine whether Apotex would have been able to
produce Apo-lovastatin by a non-infringing process at any point during the
Relevant Period.
[32]
I turn first to the regulatory approvals necessary to
produce non-infringing AFI-4 lovastatin.
[33]
Apotex did not submit a request to the Minister to amend
its NDS to provide for an NOC for Apo-lovastatin manufactured using the
micro-organism Coniothyrium fuckelii until June 27, 1996. On February
27, 1997, Apotex received approval to use the non-infringing AFI-4 process.
[34]
Apotex argues that it could have made this regulatory
submission earlier. In my view, this assertion is purely speculative. For one
thing, the evidence before me shows that Apotex was not aware until late 1995
that Aspergillus flavipes and Aspergillus obscurus were the same
organisms as Aspergillus terreus. In other words, until that
realization, Apotex would have believed that it was using non-infringing
organisms. It follows that, in the “but-for” world, Apotex would not have made
serious efforts to get approval for Apo-lovastatin made by the non-infringing
AFI-4 process until after late 1995. I am not persuaded that the time to
prepare and submit an application for regulatory approval would have been any
different in the “but for” world than it was in the real world. Further, there
is no persuasive evidence before me to demonstrate that Health Canada’s review
of the NDS amendments could have resulted in an approval earlier than February
27, 1997. In my view, it is unlikely that Apotex would have received regulatory
approval for the AFI-4 process until February 1997.
[35]
The second aspect of the “but for” world is the operational
capacity to produce non-infringing Apo-lovastatin. Apotex and AFI were both
actively engaged in developing a non-infringing process involving the use of Coniothyrium
fuckelii (the AFI-4 process). The question is whether, during the Relevant
Period, it was more likely than not that Apotex and AFI could have produced
commercial quantities of Apo-lovastatin using the AFI-4 process.
[36]
The evidence before me includes the expert opinion of Dr.
Lasure that Apotex did not have available to it a non-infringing process to
make commercial quantities of Apo-lovastatin prior to March 26, 1997 (Dr. Lasure,
Expert Report Ex. 48 at paras 265, 266 and 275). This opinion was shaken
considerably on cross-examination, during the course of which Dr. Lasure was
reminded of some large-scale production runs by AFI in its Winnipeg facilities between September 23, 1996 and November 19,
1996 (see expert report of Dr. Connors, Ex.101 at paras 82 and 85).
[37]
Apotex submits that it and AFI could have stepped up the
development of the non-infringing AFI-4 process. As described by Dr. Connors in
his expert report (Ex. 101 at paras 107-108):
107. [. . .] AFI
could have “pulled out all the stops” and made the AFI-4 project its top
priority. Management could have re-assigned staff working on AFI-1, hired new
permanent and temporary staff and limited activity on other programs [. . . .]
108. [. . . .]
Commercial production would have begun in August 1995.
[38]
One short-coming of Dr. Connor’s evidence is that it ignores the overall corporate picture of
Apotex and AFI during the Relevant Period. There appears to be no question that
Apotex and AFI could have produced the infringing AFI-1 lovastatin. However,
with respect to non-infringing lovastatin, the evidence is far from clear that
Apotex would have had, more likely than not, the motivation and the resources
to pursue the non-infringing alternative. There was evidence before me that
Apotex was putting significant resources into other drugs, thereby arguably
preventing Apotex and AFI from any more aggressive pursuit of approvals and
production capacity for non-infringing lovastatin.
[39]
In addition, even if I agree that Apotex could have
scaled up its AFI-4 process more quickly, the problem is, however, that,
regardless of Apotex’s motivation, it could not have produced non-infringing
lovastatin until it had approval to do so. And, it did not obtain approval from
Health Canada until February 27, 1997.
[40]
From these facts, I conclude that, in the hypothetical
world, it is more likely than not that any lovastatin produced and sold by
Apotex would have used the Aspergillus flavipes micro‑organism
until the approval of the non-infringing process on February 27, 1997. As
established by the evidence before me, Aspergillus flavipes is really Aspergillus
terreus. It follows that a process using Aspergillus flavipes would
have infringed the '380 Patent. In other words, from the
commencement of the Relevant Period to February 27, 1997, it is more likely
than not that Apotex would have used the infringing AFI-1 process, assuming the
litigation risk of doing so. Pursuant to s. 8(5), I would exercise my
discretion to prohibit Apotex from recovering any compensation during that
period.
[41]
The situation is different for the last month of the
Relevant Period. From February 27, 1997 to the end of the Relevant Period –
March 26, 1997 – Apotex would have had the necessary approval to manufacture
non-infringing Apo-lovastatin.
[42]
The question remains as to whether, in that one month
period, Apotex would have used the infringing AFI-1 process rather than the
AFI-4 process. The overall conclusion that I reached in the Infringement
Decision was that, in the “real world”, some but not all of the
Apo-lovastatin was produced by the infringing process. I have no evidence
beyond speculation, that Apotex would have infringed the '380 Patent during the period of February 27, 1997 to March 26, 1997, once it had the
necessary approval for the AFI-4 process. I would not reduce or eliminate
Apotex’s entitlement to damages during that period.
VI. Conclusion
[43]
Having carefully considered the guidance of the Court of
Appeal in the Appeal Decision and the evidence before me, I conclude as
follows:
1.
the Relevant Period for purposes of s. 8 of the Regulations
is May 25, 1996 to March 26, 1997; and
2.
Apotex’s losses pursuant to s. 8 of the Regulations
should be reduced by any amount claimed for the period between May 25, 1996 and
February 26, 1997.
JUDGMENT
THIS COURT ORDERS AND ADJUDGES that:
1.
the Relevant Period for purposes of s. 8 of the Regulations
is May 25, 1996 to March 26, 1997; and
2.
Apotex’s losses pursuant to s. 8 of the Regulations shall
be reduced by any amount claimed for the period between May 25, 1996 and
February 26, 1997.
“Judith A. Snider”
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