Date: 20040614
Docket: A-486-03
Citation: 2004 FCA 232
CORAM: LINDEN J.A.
ROTHSTEIN J.A.
MALONE J.A.
BETWEEN:
APOTEX INC.
Appellant
(Defendant/Plaintiff by Counterclaim)
and
ELI LILLY AND COMPANY and
ELI LILLY CANADA INC.
Respondents
(Plaintiffs/Defendants by Counterclaim)
and
SHIONOGI & CO. LTD.
Respondent
(Defendant by Counterclaim)
Heard at Ottawa, Ontario, on May 11, 2004.
Judgment delivered at Ottawa, Ontario, on June 14, 2004.
REASONS FOR JUDGMENT BY: ROTHSTEIN J.A.
CONCURRED IN BY: LINDEN J.A.
MALONE J.A.
Date: 20040614
Docket: A-486-03
Citation: 2004 FCA 232
CORAM: LINDEN J.A.
ROTHSTEIN J.A.
MALONE J.A.
BETWEEN:
APOTEX INC.
Appellant
(Defendant/Plaintiff by Counterclaim)
and
ELI LILLY AND COMPANY and
ELI LILLY CANADA INC.
Respondents
(Plaintiffs/Defendants by Counterclaim)
and
SHIONOGI & CO. LTD.
Respondent
(Defendant by Counterclaim)
REASONS FOR JUDGMENT
ROTHSTEIN J.A.
[1] This is an appeal from a decision of a motions judge of the Federal Court.
FACTS
History of Proceedings
[2] On June 18, 1997, Eli Lilly and Company and Eli Lilly Canada Inc. ("Lilly") commenced an action against Apotex Inc. ("Apotex") for infringement of seven patents which relate to processes that can be used in the making of the antibiotic cefaclor, to intermediates that can be formed using those processes, and to a compound used in the processes. On January 11, 2001, Lilly amended its statement of claim to add an eighth patent which it claimed had been infringed.
[3] By amendments to its Statement of Defence and by Counterclaim made in 2001, Apotex alleged that certain conduct of Lilly violated section 45 of the Competition Act, R.S.C. 1985, c. C-34, thereby entitling Apotex to damages under section 36 of that Act. In 2002, Apotex further amended its Statement of Defence and Counterclaim to add Shionogi & Co. Ltd. ("Shionogi") as a defendant by counterclaim in the proceedings as part of its claim for damages under the Competition Act.
[4] Of the eight patents Lilly claimed were infringed by Apotex, four had been assigned to Lilly by Shionogi in 1995. Apotex says that these assignments constituted an agreement that resulted in an undue lessening of competition contrary to section 45 of the Competition Act.
[5] Subsection 45(1) of the Competition Act makes it unlawful for parties to enter into agreements which lessen competition unduly:
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45. (1) Every one who conspires, combines, agrees or arranges with another person
(a) to limit unduly the facilities for transporting, producing, manufacturing, supplying, storing or dealing in any product,
(b) to prevent, limit or lessen, unduly, the manufacture or production of a product or to enhance unreasonably the price thereof,
(c) to prevent or lessen, unduly, competition in the production, manufacture, purchase, barter, sale, storage, rental, transportation or supply of a product, or in the price of insurance on persons or property, or
(d) to otherwise restrain or injure competition unduly,
is guilty of an indictable offence and liable to imprisonment for a term not exceeding five years or to a fine not exceeding ten million dollars or to both.
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45. (1) Commet un acte criminel et encourt un emprisonnement maximal de cinq ans et une amende maximale de dix millions de dollars, ou l'une de ces peines, quiconque complote, se coalise ou conclut un accord ou arrangement avec une autre personne_:
a) soit pour limiter, indûment, les facilités de transport, de production, de fabrication, de fourniture, d'emmagasinage ou de négoce d'un produit quelconque;
b) soit pour empêcher, limiter ou réduire, indûment, la fabrication ou production d'un produit ou pour en élever déraisonnablement le prix;
c) soit pour empêcher ou réduire, indûment, la concurrence dans la production, la fabrication, l'achat, le troc, la vente, l'entreposage, la location, le transport ou la fourniture d'un produit, ou dans le prix d'assurances sur les personnes ou les biens;
d) soit, de toute autre façon, pour restreindre, indûment, la concurrence ou lui causer un préjudice indu.
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[6] Section 36 of the Competition Act allows a person who has suffered loss or damage as a result of conduct which is contrary to any provision of Part VI of the Act (which includes section 45) to bring a civil action for damages.
The Motions Before the Federal Court
[7] There were three motions before the motions judge. In the first, Lilly sought summary judgment dismissing those paragraphs of Apotex's Statement of Defence and Counterclaim that were based on an anti-competitive agreement between Lilly and Shionogi and dismissing the counterclaim against Shionogi. In the second motion, Shionogi sought summary judgment dismissing the counterclaim against it. The third motion, also brought by Shionogi, was an appeal from an order of Prothonotary Aronovitch in which she had refused to strike the Apotex counterclaim against Shionogi.
THE MOTIONS JUDGE'S DECISION
[8] The motions judge dealt with all three motions together. His approach was to consider as a preliminary question of law whether the Apotex allegations respecting conduct contrary to section 45 of the Competition Act by Lilly and Shionogi disclosed a cause of action. He found that they did not.
[9] Accordingly, he allowed the appeal from the prothonotary and granted both motions for summary judgment. He struck out those paragraphs of Apotex's Statement of Defence and Counterclaim that were based on allegations of an anti-competitive agreement between Lilly and Shionogi and dismissed the counterclaim against Shionogi.
The Molnlycke Decision
[10] In coming to the conclusion that Apotex's pleadings did not disclose a cause of action, the motions judge was of the opinion that the decision of this Court in Molnlycke AB v. Kimberly-Clark of Canada Ltd (1991), 36 C.P.R. (3d) 493 (F.C.A.) was a precedent binding on the Federal Court and was dispositive of the matter.
[11] The motions judge interpreted Molnlycke to hold that the impairment of competition inherent in the exercise of rights specifically provided by the Patent Act, R.S.C. 1985, c. P-4, can never be undue. The relevant portions of Molnlycke are at pages 498 and 499:
Certainly the existence of a patent is apt to limit, lessen, restrain or injure competition - monopolies do - but its issuance and the inherent impairment of competition has been expressly provided for by an Act of Parliament, which has made provision for compulsory licensing in circumstances where it has considered the ordinary incidence of the statutory monopoly to be contrary to public policy. It is the existence of the patent, not the manner in which issue was obtained or how and by whom its monopoly is agreed to be enforced and defended, that impairs competition.
...
Parliament has, in the Patent Act, defined a "due" impairment of competition. In my opinion, as a matter of law, it is not arguable that the impairment of competition inherent in the exercise of rights expressly provided by that Act - the obtaining of a patent or reissue of a patent, its assignment and action by the assignee to enforce its monopoly - can be undue. It follows that undue impairment of competition cannot be inferred from evidence of the exercise of those rights alone.
[12] The learned motions judge was of the view that these statements in Molnlycke were not mere obiter dicta but rather were considered statements of law that there could be no cause of action under the Competition Act by reason of a simple assignment of patent rights. At paragraph 11 of his reasons he stated:
With great respect, I find myself in disagreement with the reasons of which the learned Prothonotary has given for distinguishing or disagreeing with the unanimous decision [Molnlycke] of what, I say with deference, was a very strong bench. First, although it is true that the Court based its decision in part on its view of the facts of the case, it went on, in the passages quoted, to give independent grounds based purely on its view that there could be no cause of action under the Competition Act in a simple assignment of patent rights. That was no mere obiter dictum but a considered statement of the law by a Court whose pronouncements bind both myself and the learned Prothonotary. It is not appropriate for lower courts to invoke the changing character of the law ("neither static nor settled") in order to avoid following binding precedents with which they may disagree. If it is time to revisit Molnlycke, only the Court of Appeal itself or the Supreme Court of Canada may properly do so. I have not been told of any case having that effect.
ANALYSIS
[13] The motions judge was correct to hold that he was bound by Molnlycke. However, it is still necessary to determine whether his interpretation of the scope of the holding in that case was correct.
[14] In the case of Molnlycke, there was a single supplier lawfully entitled to sell the subject of the patent prior to the patent being assigned. The assignment merely transferred the patent to another company. The only effect of the assignment was that a different company could sue the defendant for infringement. There was no change in the number of patent-holders before and after the assignment. The defendant appears to have claimed that an agreement to assign a patent and thereby allow the assignee to enforce the patent monopoly, with nothing more, could itself be an agreement that unduly lessened competition under subsection 45(1).
[15] Molnlycke held that, in order to provide scope for the statutory monopolies granted by the Patent Act to operate, Parliament must have intended that "undue impairment of competition cannot be inferred from evidence of the exercise of [patent] rights alone" [emphasis added]. Where, however, there is evidence of something more than the mere exercise of patent rights that may affect competition in the relevant market, Molnlycke does not purport to completely preclude application of the Competition Act.
[16] Indeed, section 32 of the Competition Act expressly addresses cases in which a patent is used so as to lessen competition unduly. Section 32 provides in part:
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32. (1) In any case where use has been made of the exclusive rights and privileges conferred by one or more patents for invention, ... so as to
...
(d) prevent or lessen, unduly, competition in the production, manufacture, ... or supply of any such article or commodity,
the Federal Court may make one or more of the orders referred to in subsection (2) in the circumstances described in that subsection.
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32. (1) Chaque fois qu'il a été fait usage des droits et privilèges exclusifs conférés par un ou plusieurs brevets d'invention, ... pour_:
...
d) soit empêcher ou réduire indûment la concurrence dans la production, la fabrication, ... ou la fourniture d'un tel article ou d'une telle denrée,
la Cour fédérale peut rendre une ou plusieurs des ordonnances visées au paragraphe (2) dans les circonstances qui y sont décrites.
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Apotex does not rely on section 32 because section 32 is not a provision of Part VI of the Competition Act and therefore cannot give rise to a claim for damages under section 36. However, the express statement in section 32 that the use of patent rights could lessen competition unduly giving rise to a remedy under section 32 indicates that Molnlycke cannot reasonably be interpreted as completely precluding application of the Competition Act whenever patent rights are involved.
[17] In the present case, Apotex does not allege that it is the mere assignment of patent rights or the enforcement of those patent rights by Lilly that gave it a cause of action. Rather, Apotex says that the assignment in this case resulted in one company, Lilly, acquiring patent rights that allow it to control all of the commercially viable processes for making ceflacor where, before the agreement, those processes were controlled by two companies, Shionogi and Lilly. Apotex argues that this consolidation was something more than the mere exercise of patent rights. Therefore, it says, the assignment agreement gave rise to an undue lessening of competition which engaged subsection 45(1) of the Competition Act.
[18] The learned motions judge foreclosed a consideration of this argument because, in his view, Molnlycke precluded a cause of action under the Competition Act in respect of "the simple assignment of patent rights." However, in my opinion, Molnlycke did not preclude the motions judge from considering whether the evidence presented by Apotex of other facts and circumstances beyond the simple assignment from Shionogi to Lilly resulted in an undue lessening of competition which could engage subsection 45(1).
[19] Subsection 45(1) is silent as to whether it applies to agreements involving the exercise of patent rights to lessen competition unduly. The question, therefore, of whether subsection 45(1) can ever apply to an agreement involving the exercise of patent rights when there is evidence of something more than the assignment itself has never been decided. The motions judge was obliged to carry out his own analysis of whether subsection 45(1) could apply and, if so, whether there was sufficient evidence to prove that Lilly and/or Shionogi engaged in conduct that was contrary to section 45. In my respectful opinion, the motion judge's interpretation of Molnlycke was not correct and he erred in law by not carrying out his own analysis in this case.
CONCLUSION
[20] There were three motions before the motions judge: two motions for summary judgment and an appeal of an order of Prothonotary Aronovitch dismissing a motion to strike the counterclaim against Shionogi as disclosing no reasonable cause of action.
[21] With respect to the appeal from the order of Prothonotary Aronovitch, it is not plain and obvious that Apotex has no reasonable cause of action against Shionogi (Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959). Her order dismissing the motion to strike should not have been overturned by the motions judge and the appeal from the motions judge's order should therefore be allowed.
[22] The appeals from the decision of the motions judge on the two motions for summary judgment should be allowed. The motions for summary judgment should be remitted for further consideration by the motions judge. In considering the matter further, he will, at a minimum, have to address (1) whether subsection 45(1) can ever apply to an agreement involving the exercise of patent rights; and (2) if it can, whether the facts of this case are sufficient to prove that Lilly and/or Shionogi engaged in conduct that was contrary to section 45. Finally, even if Apotex can establish that section 45 applies and that Lilly and/or Shionogi's conduct was contrary to section 45, the motions judge will still have to determine if any of the other arguments raised by Lilly and Shionogi, which he did not originally consider, prevent Apotex from recovering damages under section 36 of the Competition Act.
[23] This matter having come before the motions judge on motions for summary judgment, he will have to determine whether he is able to resolve one or more of these issues at the summary judgment stage or whether he should refer the matter, in whole or in part, for trial.
[24] Paragraphs 18 to 22 and 26 of the statement of defence and paragraphs 105 to 112(b) of the counterclaim should be reinstated. The counterclaim against Shionogi should also be reinstated. Apotex should be entitled to its costs in this Court. Costs in the Federal Court should be in the cause.
"Marshall Rothstein"
J.A.
"I agree
A.M. Linden J.A."
"I agree
B. Malone J.A."
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-486-03
STYLE OF CAUSE: APOTEX INC. v. ELI LILLY AND COMPANY ET AL
APPEAL FROM AN ORDER OF THE FEDERAL COURT OF CANADA DATED APRIL 11, 2001, COURT FILE NO. T-1321-97
PLACE OF HEARING: OTTAWA, ONTARIO
DATE OF HEARING: MAY 11, 2004
REASONS FOR JUDGMENT: ROTHSTEIN J.A.
CONCURRED IN BY: LINDEN J.A.
MALONE J.A.
DATE: JUNE 14, 2004
APPEARANCES:
Mr. H.B. Radomski FOR THE APPELLANT
Mr. D.M. Scimger
Mr. Anthony G. Creber FOR ELI LILLY AND COMPANY and
Mr. Patrick Smith ELI LILLY CANADA INC.
Mr. A. David Morrow FOR SHIONOGI & CO. LTD.
Mr. Colin B. Ingram
SOLICITORS OF RECORD:
Goodmans LLP FOR THE APPELLANT
Toronto, Ontario
Gowling Lafleur Henderson LLP FOR ELI LILLY AND COMPANY and
Ottawa, Ontario ELI LILLY CANADA INC.
Smart & Biggar FOR SHIONOGI & CO. LTD.
Ottawa, Ontario
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