Merck & Co. Inc. v. Nu Pharm Inc., 2001 FCT 790

Date: 20010713

Docket: T-753-99

                                                                                           Neutral Citation: 2001 FCT 790

BETWEEN:

                                                 MERCK & CO., INC., and

                                         MERCK FROSST CANADA & CO.

                                                                                                                                 Plaintiffs

                                                                    -and-

                                   NU-PHARM INC., BERNARD SHERMAN

                                                  and RICHARD BENYAK

                                                                                                                             Defendants

AND BETWEEN:

                                                         NU-PHARM INC.

                                                                                                       Plaintiff by Counterclaim

                                                                                                                            (Defendant)

                                                                    -and-

                                                  MERCK & CO., INC. and

                                         MERCK FROSST CANADA & CO.

                                                                                                 Defendants by Counterclaim

                                                                                                                               (Plaintiffs)

                                                                    -and-

                         APOTEX PHARMACEUTICALS HOLDINGS INC. and

                                                            APOTEX INC.

                                                                                                          Proposed Third Parties

                                      REASONS FOR ORDER AND ORDER

ARONOVITCH P.

[1]                This is a motion for an order granting leave to the plaintiffs, Merck & Co. Inc. and Merck Frosst Canada & Co. ("Merck"), to commence a third party claim against Apotex Inc. and Apotex Pharmaceuticals Holdings Inc. ("Apotex") pursuant to Rule 194 of the Federal Court Rules, 1998.

[2]                The application was initially brought pursuant to Rule 194(b). At the hearing, the plaintiffs were granted leave to add Rule 194(a) as a ground for the motion. In addition, pursuant to a direction of the Court, the parties provided further submissions as to the application of this latter ground. Beyond the present case this application provides the first opportunity for the Court to consider Rule 194 since it was added to the Federal Court Rules in 1998.

BACKGROUND

[3]                The main proceeding involves an action for patent infringement against Nu-Pharm Inc. ("Nu-Pharm"), its president and director, Richard Benyak ("Benyak"), and the Chief Executive Officer of Apotex and Apotex Pharmaceuticals, Bernard Sherman ("Sherman").

[4]                Here are the facts as alleged in the claim.    Merck is the owner of Canadian Letters Patent No. 1,275,349 (the "'349 Patent") and has exclusive right in Canada, to make and sell a compound known as enalapril and its salt enalapril maleate. Enalapril maleate tablets are sold by Merck in under the trademark Vasotek for use in the treatment of hypertension and congestive heart failure.

[5]                Apotex manufactured and sold a generic form of enalapril maleate tablets under the brand name Apo-Enalapril. In 1991, the plaintiffs brought an action in this Court against Apotex for infringement of the '349 Patent based on Apotex's manufacture and sale of Apo-Enalapril.    In December 1994, MacKay, J. upheld the validity of the patent, found that Apotex had infringed certain claims of the patent by its manufacture and sale of Apo-Enalapril and enjoined Apotex from further infringing the patent, and, inter alia, from using and selling Apo-Enalapril (see: Merck & Co. v. Apotex Inc., (1994) 88 F.T.R.260), (hereafter "the MacKay judgment").

[6]                In sum, the defendants are alleged to have deliberately and wilfully used Nu-Pharm, a privately held corporation, originally established by Sherman, as a vehicle to circumvent and violate the injunction by allegedly manipulating the regulatory process to, in effect, reintroduce the infringing Apo-Enalapril into the market as Nu-Pharm's product under the new name Nu-Enalapril.

[7]                Accordingly, Merck seeks the following relief in the main action:

           (a)        a declaration that Nu-Pharm has infringed Patent ‘349;

           (b)        a declaration that all the defendants have knowingly and willfully engaged in activities that infringe Patent ‘349 and are contrary to the injunction;

           (c)        a declaration that the defendants, Bernard Sherman and Richard Benyak, are personally liable for the activities of Nu-Pharm that infringe the patent and contravene the injunction;

           (d)        injunctive relief against all the defendants restraining further infringement of Patent ‘349;

           (e)        delivery or destruction of all enalapril and enalapril maleate possessed by or under the defendants' control in infringing Patent ‘349;

           (f)         damages or an accounting of profits received by the defendants from infringing activities; and

           (g)        exemplary or punitive damages for the defendants' knowing and willful breach of the injunction and patent infringement.

Defence and Counterclaim

[8]                In its statement of defence and counterclaim, Nu-Pharm denies infringement and pleads that the relevant claims of Patent ‘349 are invalid. Both Benyak and Sherman deny liability and adopt Nu-Pharm's plea that Patent ‘349's claims are invalid.

Merck's Reply and Defence to Counterclaim

[9]                In its Reply and Defence to Nu-Pharm's Counterclaim, Merck asserts that the validity issue was found to be res judicata in other Court proceedings. It pleads that, by virtue of the relationship between the defendants and between the defendants and Apotex, the issues of patent infringement and validity are also res judicata against the defendants.

[10]            Merck alleges that Sherman controls a group of corporations, including Nu-Pharm and Apotex, that are interrelated with respect to ownership, management, employees, and financing. Sherman is thus alleged to be the directing mind and will of Nu-Pharm. He and his group are alleged to have consistently endeavoured to circumvent the MacKay judgment of 1994. In support of this, Merck cites a number of the Court's decisions, including:

           -           A decision made in January of 1996 by the Court of Appeal to dismiss a motion by Apotex to vary the terms of the permanent injunction. The Court affirmed the injunction's broad scope.

           -           A refusal by Justice MacKay in January of 1997 to grant Apotex's motion to vary the permanent injunction, and raise challenges to the validity of Claims 1, 8 and 11 of Patent ‘349 on essentially the same grounds as were then being advanced by another member of Sherman's group, ACIC, in T-308-95. Justice MacKay found the question of validity to be res judicata as against Apotex.

           -           A decision by Muldoon J. on April 28, 1999 (T-2869-96) to strike, on the ground of res judicata, a statement of claim by which Apotex and another Sherman group member, Signa, attacked Patent ‘349's validity.

           -           A decision by Lemieux J. on November 5, 1999 (T-294-96) to strike, again on the ground of res judicata, a paragraph in Apotex's Reply and Defence to Counterclaim which attacked Patent 349 's validity.

           -           The Court of Appeal's decision on December 13, 1999, to dismiss Apotex's appeal of the permanent injunction.

           -           A finding by MacKay J. on March 7, 2000, that both Apotex and Sherman acted in contempt of the permanent injunction.

[11]            At the hearing of this motion, Merck added a recent decision of McKeown J., made February 2, 2000 (T-294-96) not raised in Merck's reply, in which McKeown J. dismissed another attempt by Apotex to challenge the ‘349 Patent on grounds of res judicata.

[12]            Merck alleges by virtue of these decisions and the relationship between Nu-Pharm and Apotex, Nu-Pharm, Sherman and Benyak, the plaintiffs in the counterclaim are estopped from relitigating the issue of invalidity and infringement, and their attempt to do so is an abuse of process.

The Proposed Third Party Claim

[13]            I now turn to the subject matter of the within motion, namely, the proposed third party claim against Apotex. For purposes of its proposed third party claim, Merck relies on the facts pleaded in the main action and in its defence to counterclaim. Merck essentially alleges that if Apotex is not bound by a determination in Merck's favour in the main action and counterclaim, it will undoubtedly re-introduce another Apo-Enalapril, and challenge Patent ‘349's validity, through a different corporate privy.

[14]            It is Merck's contention that Apotex and its other privies, ought to be bound, by the determination of issues raised in its Reply and Defence to Counterclaim, namely, agency, privity, estoppel, res judicata and abuse of process. This is necessary to ensure that if Merck's action succeeds Apotex is prevented from reproducing the same scheme with a different vehicle or "Next-Pharm".

[15]            In argument, Merck again cites previous decisions of this Court that address the issue of Patent ‘349's validity and res judicata. It also cites two decisions not mentioned in its Reply and Defence to Counterclaim: a decision made by Denault J. on September 11, 1995 (T-308-95) to strike a claim by ACIC (Canada) Inc., a company that has been acquired by Apotex, that challenged the permanent injunction; and the decision of McKeown J. in T-294-96 mentioned above.

[16]            Merck seeks the following relief in the proposed third party claim,

           (a)        a declaration that the third parties and Nu-Pharm are or were at all material times agents or alter egos of one another, and that the acts of one are the acts of the other;

           (b)        a declaration that res judicata applies to the third parties and any person or entity with which they have a privity relationship or with which they have had a privity relationship at any time after 1991 in relation to the matters in issue or which could have been raised in the proceedings giving rise to the MacKay judgment;

           (c)        a declaration that the counterclaim is an abuse of process by the third parties and their privies;

           (d)        a declaration that the third parties and the privies are estopped, in the counterclaim or in any other proceeding from making allegations to challenge the validity of Justice MacKay's finding of infringement;

           (e)        an order that the third parties shall not, either by themselves or through any of their privies, challenge the validity of Justice MacKay's infringement finding;

ANALYSIS

[17]            This motion requires the Court to determine the scope of paragraphs (a) and (b) of Rule 194 and decide whether Merck's application falls within that scope.

[18]            Rule194 states:

194. With leave of the Court, a defendant may commence a third party claim against a co-defendant, or against another person who is not a defendant to the action, who the defendant claims

(a) is or may be liable to the defendant for relief, other than that referred to in rule 193, relating to the subject-matter of the action; or

(b) should be bound by the determination of an issue between the plaintiff and the defendant.

194. Un défendeur peut, avec l'autorisation de la Cour, mettre en cause une personne -- qu'elle soit

ou non un codéfendeur dans l'action -- dont il prétend :

a) soit qu'elle lui est ou peut lui être redevable d'une réparation, autre que celle visée à la règle 193, liée à l'objet de l'action;

b) soit qu'elle devrait être liée par la décision sur toute question en litige entre lui et le demandeur.

[19]            I shall open a parentheses here to address the fact that, in the present instance, Merck the plaintiff in the main action is the defendant by counterclaim. While not usual, it is undoubted that Merck, as defendant by counterclaim, has standing to bring the third party claim. Rules 190 and 189 make clear that a counterclaim is an independently subsisting claim. Rule 170 provides that in the context of an action the rules that apply to plaintiffs and defendants apply with such modifications as are necessary to parties bringing or defending counterclaims and third party claims.

[20]            As mentioned, Rule 194 was introduced in 1998 and has not yet been judicially considered. It is clear, however, that application of the rule is substantially broader than its predecessor, Rule 1726, under which, the availability of third party claims was restricted to claims for contribution or indemnity or other relief over. A similar expanded scope was granted under Rule 29.01 of the Ontario Rules of Civil Procedure, the effect of which was described in Holmstead and Watson Ontario Civil Procedure, vol. 3, looseleaf (Toronto: Carswell, 1984) at 29-7, as follows:

The significance of this change should not be underestimated. It changes the very nature of the third party claim. No longer is it limited to situations to obtain "a flow through of recovery" to [Defendant] from the third party because of the judgment that the Plaintiff may have obtained against the Defendant. Instead, it is now a general joinder device by which a Defendant may engraft under the main action any "related claim" he or she may have against non-parties [...]

[21]            Rule 29.01 of the Ontario Rules of Civil Procedure bears close resemblance to Rule 194 and provides:

29.01(a) A defendant may commence a third party claim against any person who is not a party to the action and who is or may be liable to the defendant for all or part of the plaintiff's claim;

(b) A defendant may commence a third party claim against any person who is not a party to the action and who is or may be liable to the defendant for and independent claim for damages or other relief arising out of,

       (ii) a transaction or occurrence or series of transactions or occurrences involved in the main actions, or

       (iii) a related transaction or occurrence or series of transactions or occurrences; or

(c) A defendant may commence a third party claim against any person who is not a party to the action and who should be bound by the determination of an issue arising between the plaintiff and the defendant. [emphasis added]

[22]            I shall have reference to the jurisprudence surrounding Rule 29.01 as guidance in the application of Rule 194.

Rule 194(a)

[23]            I shall begin with Apotex's objection to the claim. The essence of Apotex's submissions with respect to the application of Rule 194 (a), is that Merck's third party claim should be dismissed because it fails to disclose an independent cause of action. In particular, Apotex claims that the relief sought in claims (d) and (e) of the proposed third party claim has already been granted by this Court in the context of other proceedings between Merck and Apotex and may be presumed to attach to any privy of Apotex.    The relief sought, in these paragraphs is a declaration that the third party and their privies are estopped in the counterclaim or otherwise from challenging the validity of the patent as confirmed by MacKay J., plus an order that the third parties are not to challenge it, themselves, or through their privies. Apotex says these remedies are not available as being too speculative. Moreover, the claims are said to be based on the speculative or hypothetical allegation that Apotex would attempt to repeat the same corporate scheme in the future and, therefore, are non-justiciable.

[24]            In my view, the wording of Rule 194(a) implies a two step test. First, a third party claim may be commenced where the proposed third party "is or may be liable to the defendant for relief, other than that referred to in Rule 193." Rule 193 essentially applies to claims for contribution or indemnity against co-defendants or non-parties. Second, the relief claimed must relate to the "subject-matter of the action".

[25]            As the allegation of Apotex is essentially that the relief sought in paragraphs (d) and (e) cannot be granted as being too speculative, the first step requires the Court to consider whether the claim discloses a cause of action against the proposed third party. In part, I take this to be mandated by the words "is or may be liable". It is noteworthy also that the requirement of a cause of action has been confirmed and in McNaughton v. Barker (1988), 28 C.P.C. (2nd) 49 ("McNaughton") and in the context of Rule 29.01, in Brampton Hydro-Electric Commission v. B.C. Polygrinders Ltd. (1993), 12 O.R. (3d) 625 at 633-634 (Gen. Div). It is also an appropriate consideration in light of the legislative goal, underlying such rules, of avoiding a multiplicity of proceedings (see: McNaughton). There is evidently no economy or use in allowing a claim to be advanced which is manifestly unfounded.

[26]            In that connection, I agree that the appropriate standard is the one applicable on a motion to strike. Thus, the third party claim should be read generously and will be denied only where it is plain and obvious that it cannot succeed . In this examination the Court is not to be deterred by the tenuousness or novelty of an argument and ought only to strike where the failure of the claim is beyond doubt. (see: Hunt v. Carey Can Inc. [1990] 2 S.C.R., 959; Operation Dismantle Inc. v. The Queen, [1985] 1 S.C.R. 441 [1980] 2 S.C.R. 735">Attorney General of Canada v. Inuit Tapirisat of Canada, [1980] 2 S.C.R. 735).

[27]            Counsel for Nu-Pharm correctly points out that strike motions and third party claims differ with respect to the onus of proof. For strike motions, the onus is on the party seeking to bar the claim, whereas under Rule 194 the onus lies on the party seeking leave to make a third party claim. Moreover, Rule 194 mandates that leave be granted from the Court whereas in provincial jurisdictions third party claims may be commenced as of right. In Nu-Pharm's submission, these differences point to a "clear and unmistakable" legislative intention that a different (presumably more onerous) test should apply in this context.

[28]            Be it under a strike motion or a third party claim application, the question at issue is ultimately the same: Is it actionable? Is there a justiciable issue? In my view, the operative difference is one of form not of substance. Whereas the moving party in a strike motion has the burden of showing that the claim has no crumb of a cause of action, the moving party in a third party claim must provide sufficient grounds for the motions judge to conclude that such a crumb exists.

[29]            To begin, there is no doubt, as Merck asserts, that this Court may grant declaratory relief simpliciter in all proceedings by virtue of Rule 64 of the Federal Court Rules.

[30]            Among the declarations sought against the proposed third parties (paragraph (c) of the prayer for relief), is that the counterclaim in this action constitutes an abuse of process by the third parties and their privies. While it is important to treat the doctrines of abuse of process and res judicata as distinct (see Kaloti v. Canada (Minister of Citizenship and Immigration) (C.A.), [2000] 3 F.C. 390 (F.C.A.), it is clear that a claim of abuse of process can be established using an allegation of res judicata as a factual basis. (see: Levi Strauss & Co. v. Roadrunner Apparel Inc., [1997] F.C.J. No. 1432 at paras. 11, 13 (C.A.)):

[31]            Turning specifically to the relief sought in Claims (d) and (e) of the third party claim, the relief resembles a prohibitory order or permanent injunction. Indeed, as I have indicated, no declaratory order is specifically sought in claim (e) which seeks a prohibitory order. I hesitate to follow Nu-Pharm's suggestion that Merck is essentially seeking an "anti-suit injunction", as that term would appear to refer to a form of relief that applies specifically to inter-jurisdictional matters (see: A.V. Dicey and J. H. C. Morris, The Conflict of Laws, 11^th ed. ( London: Stevens and Sons, 1987), vol. 1 at 391; Amchem Products Inc. v. British Columbia (Workers' Compensation Board), [1993] 1 S.C.R. 897). However, I would agree that the relief sought by Merck is akin to injunctive relief in that it seeks to prevent the third parties from challenging the ‘349 Patent in future proceedings through a declaration that the third parties and their privies are estopped from doing so.

[32]            I am cognizant of judicial reticence to answer hypothetical questions on the basis that they disclose no reasonable cause of action. Questions brought before a court for adjudication must be based on factual allegations that are susceptible to proof (see: Operation Dismantle, supra, at 459 per Dickson J. (as he then was)); In Operation Dismantle, this issue arose where a public interest litigant sought an injunction to prevent the testing of cruise missiles by the United States in Canadian territory. The applicant alleged that the Canadian government's decision to allow the testing violated its rights under s.7 of the Charter of Rights and Freedoms on the basis that it "increased the threat of nuclear war". At 459, Dickson J. determined that, as such, the alleged Charter violation was insufficiently linked to triable facts.

[33]            The circumstances of the present case are different. As I view the pleadings, Merck is alleging abuse of process and res judicata based on Apotex's and the defendant's current and past conduct. The allegation is based on triable facts, namely, those related to privity and res judicata. Thus I do not believe that Merck is attempting to base its cause of action on hypothetical, future events. Rather, claims (d) and (e) simply seek what amounts to an injunction as a form of relief to prevent further abuses. This is not unlike a permanent injunction that is granted with the intention of preventing future patent infringements. Indeed, this is the effect of the 1994 injunction issued against Apotex by MacKay J. Thus it is the relief sought in this instance, not the allegations made, that relate to future events. Moreover, in the circumstances of the pattern of litigation between the parties, I would allow the trial judge to determine whether the declaration and order sought (paragraphs (d) and (e)), ought to be denied as being too remote or speculative. I conclude that it is neither plain and obvious, nor a question appropriate for determination at this juncture.

[34]            It is left to be determined whether the relief claimed relates to the "subject-matter of the action". A preliminary question is whether "subject-matter of the action" applies to the underlying action, the counterclaim or both. For purposes of this dispute, I understand "the action" referred to in Rule194(a) to mean the totality of material facts pleaded and relief sought by the parties to date, and certainly to the counterclaim and defence thereto.

[35]            I am satisfied that there is a sufficient nexus between the counterclaim, defence to the counterclaim and the third party claim to allow the motion. In my view, the lynchpin is the issue of privity.    It arises in the main action and again in relation to Merck's res judicata and abuse of process defences to the counterclaim. Indeed the extension of the findings of res judicata and abuse of process to Apotex's privies or to Apotex acting through its privies is a live issue. I do not accept that any such finding against Apotex should be presumed to capture Apotex's privies.

[36]            Apotex points out that Merck did not see fit to bring an action against Apotex when it initially brought its action against Nu-Pharm nearly two years ago. It wonders why, after such a lengthy passage of time, Merck now finds it necessary to seek the relief in its third party claim. If Merck did not have a claim against Apotex then, it does not have such a claim now. It is submitted that Merck's delay in making the third party claim is a factor that militates against granting the present motion.

[37]            Merck's response is that its third party claim arises from Nu-Pharm's counterclaim of patent invalidity, not the initial infringement action. It matters not that Merck may have foreseen that such a counterclaim would be made. As I understand the requirements for granting leave under Rule 194(a), the third party claim need only disclose a subsisting cause of action and have a sufficient nexus to the subject matter of the action.

[38]            In sum, I find that there are sufficient grounds for granting the motion under paragraph (a) of Rule 194. While I need not do so, I will in addition consider Merck's application under paragraph (b).

Rule 194(b)

[39]            Paragraph (b) of Rule 194 allows for third party claims where the proposed third party "should be bound by the determination of an issue between the plaintiff and the defendant".

[40]            The proposed third party takes the position that Apotex is not a necessary party to this dispute. Relying on jurisprudence relating to Rule 29.01 of the Ontario Rules of Civil Procedure, it takes the position that Rule 29.01(c) (and Rule 194(b) by analogy) only applies where the party presence is necessary and there is some useful purpose to be served by issuance of the third party claim.

[41]            It is submitted that no useful purpose is served here because there is nothing in the relief sought against Apotex that has not already been asserted by Merck in its defence of the Nu-Pharm counterclaim. The only issue raised by Merck's plea of res judicata is the factual issue of whether Nu-Pharm is a privy of Apotex. Apotex views the Court's prior decisions of res judicata as obviating the need for a third party claim in this action. Determinations of res judicata have already been made against the proposed third parties and thus no useful purpose would be served by adding them here. Apotex claims the third parties' presence is unnecessary for determining that issue. Nor would Merck be prejudiced by their absence as it can still fully assert their defence to the counterclaim. Counsel for Apotex maintains that Apotex is no more necessary now that it was when the action was commenced. Apotex's presence would be superfluous and would add unnecessary delay and cost.    

[42]            Apotex refers the Court to the following words of Greer J. in Brampton, supra, at 633-634, who was considering an appeal of a motion made under Rule 29.01 of the Ontario Rules of Civil Procedure:

I am the view that Master Donkin did not err in his findings and conclusions. He was correct in holding that the proposed third party claims does [sic] not disclose any cause of action against the third party. Brampton Hydro can raise the issue by way of defence to Poly Grinder's counterclaim. The making of a declaration would have really no effect. No future claim could be made by Brampton Hydro against National Utility. Brampton Hydro's success or failure as the defendant to the counterclaim does not depend on National Utility's presence in the action.

National Utility is not a necessary party to these proceedings and there is no reason why it should be bound by any findings made. [...]

[Emphasis added]

[43]            The proposed third party also cites Maggio v. Lopes et al. (1985), 51 O.R. (2d) 441 (Master); aff'd (1985), 52 O.R. (2d) 694 (Div. Ct.). At 446-47 it was held:

In the present case, one must ask what is the "issue" that arises between the plaintiff and the defendant that the third party "should be bound by"? If there is one, then the third party claim is authorized by the rule. If there is no such issue, then the third party claim is not authorized by the rule, is irregular, and ought to be struck out.

The issues that could arise between the plaintiff and the defendants are the issues of liability, namely, whether the defendant driver was negligent [...]; and the issue of damages. There is no good reason why the third party needs to be bound by the determination of any issue of liability arising between the plaintiff and the defendant.

[Emphasis added]

[44]            The court in Brampton found that 29.01(c) applies only where the addition of the third party is necessary to the defendant's defence to the counterclaim. The broad wording of 194(b) does not bear this interpretation. It merely states that the third party "should be bound" by the determination of "an issue" between the plaintiff and the defendant". Nor do I wish to narrowly confine the provision by reference to necessity by analogy to the provisions of Rule 104(1) which states:

[45]            It is notable that Rule 104 explicitly addresses the Court's discretion to make an order on its own motion for joinder or relief against joinder. The requirement of necessity found in paragraph (b) circumscribes that discretion, since it may even be exercised against a plaintiff's wishes who would ordinarily choose the party it wishes to sue. (see: Elecnor S.A. v. "Soren Toubro" (The), [1996] 3 F.C. 422 (Proth.)).

[46]            I prefer to take guidance from Maggio, supra, which, in my view, stands for the proposition that the addition of a third party claim would not be superfluous or without useful purpose. I take it that the qualifier "should" connotes a requirement that there be "good reason" to add the proposed third party.

[47]            It is also clear that consideration may be given to the underlying legislative goal of reducing a multiplicity of proceedings. This goal was articulated by McLaughlin J.A. (as she then was) in McNaughton, supra, at 54:

But to avoid a multiplicity of proceedings, the rules permit the claim to be made in the action which has been commenced against the defendant. The object of permitting third party proceedings to be tried with the main action is to provide a single procedure for the resolution of related questions, issues or remedies; in order to avoid multiple actions and inconsistent findings; to provide a mechanism for the third party to defend the plaintiff's claim; and to ensure the third party claim is decided before a defendant is called upon to pay the full amount of the judgment. The avoidance of a multiplicity of proceedings is fundamental to our rules of civil procedure. This has been the case since the reforms effected by the Judicature Acts in the 19^th century. As Cotton L.J. stated in Searle v. Choat (1884) 25 Ch. D. 727: "the whole tenor of the Judicature Acts is to require all proceedings as far as possible to be taken in one action".

[emphasis added]

[48]            This coincides with the guiding principle of the Federal Court Rules, 1998 as articulated at Rule 3 which calls for the Rules to be applied so as to secure the just most expeditious and least expensive determination of proceedings. In my view, the open-textured wording of paragraph (b) should be given a broad and purposive interpretation, informed at the very least by the goal of reducing proceedings and circumscribed by the requirement that granting the motion will serve some purpose in determining the parties' rights and obligations.

[49]            Applying these principles to the present case, it first needs to be asked whether there are one or more issues that arise between Merck and Nu-Pharm that the third parties should be bound by.

[50]            Merck argues that Apotex should be bound by findings of privity and res judicata to prevent it from challenging Patent ‘349 in the future. Apotex submits that no useful purpose would be served by adding it because the issue of res judicata as it relates to Apotex has already been determined by the Court.

[51]            Among the central issues between the plaintiffs and the defendants is the use of a privy to allegedly violate the injunction and circumvent the regulatory system. While the issue of res judicata has been determined with respect to Apotex, the Court has not expressly prevented it from attacking the‘349 Patent indirectly through related corporations. Given Apotex's repeated attempts to challenge Patent ‘349, Merck may well have reason to believe that Apotex would simply repeat the same alleged scheme under a different corporate vehicle, notwithstanding a judgment in favour of Merck in the counterclaim. Merck's would be pyrrhic victory if Apotex could simply challenge Patent ‘349's validity through a new or different privy. Thus, to the extent that adding the third parties may preclude such an outcome, it serves a useful purpose.

[52]            If we accept, as we must, that Merck has a valid claim that it may commence and maintain independently against the third parties, then granting the motion will help reduce a multiplicity of proceedings where, as between Merck and Apotex, help is needed as it pertains to Patent ‘349. Indeed, the underlying action is but one tentacle of a legal battle that, as Justice Muldoon said in Apotex Inc. v. Merck & Co., (1999) 167 F.T.R., 59 at para. 21, "continues to wend its way through the Federal Court with no end in sight". I therefore find that there is good reason for adding the proposed third parties and that they should be bound by the determination of issues raised in the proceedings.

[53]            Finally, Apotex argues that the wording of paragraph (b) of Rule 194 only allows third party claims where the relief sought is an order binding the third parties to the result in the main action. I do not find the Rule's wording to be so restrictive. The wording simply requires that a third party should be bound by the determination of an issue between the plaintiff and defendant. For practical purposes, this expresses the same requirement found in paragraph (a) that the claim bear a relation to the subject-matter of the main action. It does not a priori preclude alternative forms of relief in the third party claim from that sought in the main action. To refer again to Justice McLaughlin's words, "the object of permitting third party proceedings to be tried with the main action is to provide a single procedure for the resolution of related questions, issues or remedies". For reasons given, I conclude that there is an issue between the parties to the action and good reason why the proposed third party should be bound by the findings such as to grant leave in this motion under paragraph (b).

[54]            In sum, I am satisfied that Merck's application for leave can be granted under either paragraphs (a) or (b) of Rule 194.

DELAY

[55]            To the extent that it is relevant, I do not find that there has been delay or that Nu-Pharm has suffered prejudice sufficient to dismiss the present application.

[56]            I disagree with Nu-Pharm that the delay in bringing this motion can be attributed solely to Merck. It is irrelevant that the claim was brought two years after Merck commenced the original patent infringement action. Rules 196 and 204 provide that third party claims must be issued 30 days after service of the statement of claim:

[57]            For purposes of this motion Merck brings the third party claim under Rule 194 as the defendant to Nu-Pharm's counterclaim. Reference to "statement of claim" in Rule 204 applies in this motion to the counterclaim, served February 2, 2000. Delay should be considered as from 30 days of that date and not the date that Merck's Statement of Claim was issued.

[58]            I accept Merck's submission that on May 21, 2000, it began making attempts to get Nu-Pharm's consent to add Apotex as a party but note that this places Merck's application beyond the thirty (30) days required by the rule.

[59]            I need not review the submissions of the parties regarding the background of their communications dealing with the addition of Apotex as a party, as the critical consideration in the circumstances is whether the defendants are prejudiced by the delay.

[60]            The defendants argue prejudice by reason of further time, expense and the further complication of an already complex proceeding by the addition of Apotex. I agree that there will be some delay, but not great complication given the allegations of fact and the presence of Sherman as a defendant. Moreover, for a variety of reasons, the parties are not yet at the discovery stage. Assuming the parties share a genuine interest in doing so, they are now in a position to advance the litigation quite rapidly.

[61]            Indeed, as with amendments to pleadings, an otherwise valid and subsisting third party claim ought not to be defeated unless the defendants can show prejudice which is not compensable. While no such prejudice has been demonstrated, I will have regard to the issue delay in awarding costs.

ORDER

1)       The motion is granted.

2)       The plaintiffs, defendants by counterclaim, shall serve and file their third party claim no later than fifteen (15) days from the date of this Order.

3)       The costs of the motion, including for the prolongation of the hearing of the motion, and disbursements, are awarded to the proposed third parties and the defendants, in any event of the cause, to be assessed by reference to the high end of Column III of Tariff B.

                                "R. Aronovitch"           

    Prothonotary

                         FEDERAL COURT OF CANADA

                                      TRIAL DIVISION

    NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                  T-753-99

STYLE OF CAUSE:MERCK & CO., INC. AND OTHERS v. NU-PHARM                                                           INC. AND OTHERS

PLACE OF HEARING:                                 OTTAWA

DATE OF HEARING:                                   FEBRUARY 27, 2001

REASONS FOR ORDER AND ORDER OF ARONOVITCH, P.

DATED:                     JULY 13, 2001

APPEARANCES:

MR. FRANK MCLAUGHLIN AND               FOR PLAINTIFFS

MR. ANDREW REDDON

MR. HARRY B. RADOMSKI                                     FOR DEFENDANT

NU-PHARM INC.

MR. CLIFFORD LAX AND                                        FOR PROPOSED THIRD

MR. ROCCO DI PUCCHIO                                        PARTIES

SOLICITORS OF RECORD:

McCARTHY TÉTRAULT                                            FOR PLAINTIFFS

TORONTO, ONTARIO

GOODMANS                                                  FOR DEFENDANT

TORONTO, ONTARIO                                              NU-PHARM INC.

LAX O'SULLIVAN CRONK                                      FOR PROPOSED THIRD

TORONTO, ONTARIO                                              PARTIES