Date: 20020531
Docket: T-294-96
Neutral citation: 2002 FCT 626
BETWEEN:
APOTEX INC.
Plaintiff
- and -
MERCK & CO., INC. and MERCK
FROSST CANADA & CO.
Defendants
REASONS FOR ORDER
McKEOWN J.
[1] The defendants (plaintiffs by counterclaim) Merck & Co. Inc. and Merck Frosst Canada & Co. ("Merck") have brought a motion to settle the terms of the formal judgment I rendered on February 2, 2001. In that decision I granted summary judgment in favour of the defendant Merck, holding that Apotex had infringed their patent number 1,275,349 (the "349 Patent"). At that time I ordered that, by agreement of the parties, the question of remedy would be dealt with at a subsequent hearing.
[2] Merck seeks a declaration that Apotex has infringed their patent; an order for delivery up or destruction of the infringing enalapril maleate; damages or an accounting of profits, as they may by due enquiry elect, exemplary or punitive damages, pre-judgment and post-judgment interest, and solicitor-client costs. They are also seeking an order for a reference to determine numerous issues of fact, and an order for a schedule for the conduct of pre-hearing steps on the reference.
ISSUES:
[3] The issues in this motion are:
1. Should the factual issues pertaining to this case be determined by a reference, or proceed to a full trial?
2. Is Merck entitled to elect between damages and an accounting of profits?
3. Is this an appropriate case to award punitive and exemplary damages?
4. Should Merck be entitled to unilateral discovery of Apotex prior to its election, and no discovery of Merck at all if it does not elect damages?
5. Is Merck entitled to solicitor-client costs?
FACTS:
[4] In July 1987, notices of compliance were issued by the Commissioner of Patents to Merck Frosst in respect of the subject patent. A non-party in this matter, Delmar, was granted a compulsory licence on April 24, 1992 under the Merck patent to manufacture, use and sell enalapril maleate, with royalties payable to Merck.
[5] In accordance with its licence, Delmar sold 772 kg of enalapril maleate to an unidentified third party on February 3, 1993.
[6] On February 14, 1993, the Patent Act Amendment Act, 1992 ("PAAA") came into force. Section 12(1) of the PAAA extinguished the Delmar compulsory licence.
[7] In May and October of 1994, Apotex purchased two lots of enalapril maleate, totalling 772.9 kg, from the unnamed third party. As noted, the subject enalapril maleate had been sold to this third party by Delmar prior to the extinguishment of Delmar's compulsory licence. Apotex then proceeded to make use of the subject maleate.
[8] There have been previous actions between these two parties involving the pharmaceutical drug enalapril maleate. In March and April of 1994, the parties went to trial before Justice MacKay (Court File T-2408-91). That case involved a 44.9kg quantity of enalapril maleate which was sold by Delmar to a third party in January of 1993 and acquired by Apotex from that third party in March of 1993. The judgment by MacKay J. was rendered on December 14, 1994. The matter was appealed and ruled on by the Federal Court of Appeal on April 19, 1995 (Court File No. A-724-94). On December 7, 1995, Application for Leave to Appeal to the Supreme Court of Canada was refused (File No. 24751).
[9] The present action was commenced by Apotex on February 5, 1996, wherein Apotex sought declarations that its use of the subject enalapril maleate did not infringe Merck's '349 Patent. By amended counterclaim filed on May 27, 1999, Merck sought a declaration that this use did indeed infringe its patent.
February 2, 2001 Decision
[10] In my decision on February 2, 2001, I granted summary judgment in favour of the defendant Merck, on their counterclaim that Apotex infringed their '349 Patent. I based this decision on the doctrine of res judicata or issue estoppel. I found that the case involved identical parties and issues, and almost identical facts to the previous case which had been decided by MacKay J., and then the Federal Court of Appeal. In that case it had been held that the Merck Patent was infringed by Apotex in relation to enalapril maleate purchased by Apotex from an undisclosed foreign customer of Delmar after the compulsory licence held by Delmar was extinguished by statute. I held that the only difference in this case was that the subject enalapril maleate was acquired in May and October 1994, whereas in the previous case it had been acquired in March 1993. This difference was not significant, since they were both acquired after the Delmar compulsory licence was extinguished by statute.
[11] I also noted that it was determined by Joyal J. in Reasons for Order dated February 14, 1997, that this additional enalapril maleate was made after the trial but prior to the delivery of the reasons for judgement dated December 14, 1994. It was not disclosed to the Trial Court or the Court of Appeal. It was disclosed for the first time in the affidavit of documents of Apotex filed in this proceeding.
Remedy Sought
[12] Merck seeks the following terms of judgment:
(a) a declaration that Apotex has infringed claims 1 to 5 and 8 to 15 of the '349 patent in respect of the enalapril maleate tablets and enalapril containing compounds manufactured subsequent to October 16, 1990 and acquired by Apotex subsequent to the trial of Action No. T-2408-91, held March and April, 1994. ("the enalapril maleate")
(b) an order for the delivery up or destruction under oath or under the supervision of this Court of all remaining enalapril maleate.
(c) damages or an accounting of profits, as Merck may by due enquiry elect following a reference.
(d) exemplary or punitive damages, and the quantum to be awarded to be determined by this Court following a reference.
(e) pre-judgment and post-judgment interest
(f) solicitor-client costs
[13] Merck also seeks an order pursuant to Rules 216 and 153 for a reference to determine factual issues relating to the extent of infringement, quantities of enalapril maleate and dosage form tablets offered for sale or sold, an accounting of profits or damages, pre-judgment and post-judgment interest, and the quantum of punitive or exemplary damages.
[14] Merck also seeks an order for a schedule for the conduct of pre-hearing steps on the reference. This detailed schedule is set out in their Notice of Motion. It includes the discovery of Apotex prior to Merck electing damages or accounting of profits, and no discovery of Merck unless damages are elected.
ANALYSIS:
[15] The main issue in this motion is whether the factual issues in this case ought to be determined by a reference, or proceed to a full trial. Apotex takes the position that the issues must proceed to a full trial. Counsel argued that we must look at the stage we are at in the litigation process. This motion is for substantive relief in an action, relief which is ordinarily given after a trial by a trial judgment, and by a trial judge.
[16] Apotex further argued that on a summary judgment motion all the court is permitted to do is to determine whether or not there is a genuine issue for trial. If material is presented that may go either way, or if inferences have to be drawn to decide the question, it is not the function of the motions judge to step into the shoes of the trial judge and start drawing those inferences. Apotex goes on to cite several cases of the Ontario Court of Appeal that discuss the scope of the summary judgment rule.
[17] In the case of Aguoni v. Galion Solid Waster Material Inc., (1998), 38 O.R. (3d) 161 (C.A.), a claim had been brought under the Family Law Act, and the central issue was a limitations issue and the discoverability rule. Borins J. found that the motions judge had exceeded his proper role on summary judgement. He stated at page 171:
As I have discussed, in considering the application of the discoverability rule in Section 2(8) of the FLA, the motions judge made a number of findings of fact which informed his conclusions that the discoverability rule did not apply and the limitation period should not be extended. In my view, in doing so, he exceeded the proper role of a motions judge hearing a motion for summary judgment. There was, in my view, a genuine issue for trial on the facts regarding the applicability of the discoverability role and of Section 2(8). In resolving these issues, the motions judge performed functions reserved for the trier of fact, the trial judge or jury.
Then at pages 173 - 174 he states:
In ruling on a motion for summary judgment, the Court will never assess credibility, weigh the evidence or find the facts. Instead, the Court's role is narrowly limited to assessing the threshold issue of whether a genuine issue exists as to material facts requiring a trial. Evaluating credibility, weighing evidence and drawing factual inferences are all functions reserved for the trier of fact. In this appeal, the factual issues relating to the application of the discovery rule as they relate to Section 61(4) and 2(8) of the FLA and the factual issues relating to the exercise of discretion under section 2(8) are genuine issues which require resolution at trial.
...
As I read these observations, it must be clear to the motions judge where the motion is brought by the Defendant, as in this appeal, that it is proper to deprive the Plaintiffs of their right to a trial. Summary judgment, valuable as it is for striking through sham claims and defences which stand in the way to a direct approach to the truth of a case, was not intended to, nor can it, deprive a litigant of his or her right to a trial unless there is a clear demonstration that no genuine issue exists material to the claim or defence which is within the traditional province of a trial judge to resolve.
[18] In Dawson v. Rexcraft Storage and Warehouse Inc. (1998) 164 D.L.R. (4th) 257 (Ont. C.A.) Borins J.A. cites with approval at page 270 a passage from the American case of Jones v. Clinton and Ferguson, 990 F. Supp. 657 (1998) (U.S. Dist. Ct., E. Dist. Ar.):
The inferences to be drawn from the underlying facts must be viewed in the light most favourable to the party opposing the motion.
[19] Borins J.A. goes on to state at page 272:
In applying a test which focuses on whether the entire record could lead a rational trier of fact to find for the non-moving party what the Court is saying is that there is no evidence on which the Plaintiff's claim or the Defendant's defence can succeed. In a sense, the Courts have come to equate genuine issue for trial with genuine need for trial. However, at the end of the day, it is clear that the Courts accord significant deference to the trial process as the final arbiter of the dispute which has brought the parties to litigation. If there's a genuine issue with respect to material facts, then no matter how weak or how strong may appear the claim or the defence which has been attacked by the moving party, the case must be sent to trial. It is not for the motions judge to resolve the issue. As I have stated, the purpose of Rule 20 is not to deny the parties due process. It is not intended to deprive Plaintiffs and Defendants of their day in Court absent demonstrated compliance with its requirements. Under the Rules of Civil Procedure the plenary trial remains the mode for the resolution of disputes. Rules 20 does not represent Court reform or the reform of the adversary system in disguise. Together with rule 21.01(b) its purpose is to weed out cases at the pretrial stage when it can be demonstrated clearly that a trial is unnecessary.
[20] In Transamerica Occidental Life Insurance Company et al. v. Toronto-Dominion Bank (1999) 44 O.R. (3d) 97 (C.A.), the Court stated at page 110:
A motions judge on a Rule 20 summary judgment motion should not resolve issues of credibility, draw inferences from conflicting evidence or from evidence that is not in conflict where more than one inference is reasonably available.
[21] The latest relevant Ontario case is Kilpatrick v. Peterborough Civic Hospital (1999) 44 O.R. (3d) 321 (C.A.). Borins J.A. in that case stated at page 323:
As well, the motions judge placed substantial weight on the conduct of the hospital in discharging the Plaintiff without cause or notice. He characterized it as unreasoned and cavalier and said it ought not be countenanced by this Court. Later he said, 'To discharge a highly successful and totally satisfactory chief executive officer without the expression of any explanation or excuse or cause in my view, leaves it open to the Court to consider that the conduct of the Defendant is virtually tantamount to that of a capricious whim.'
[22] In this case the parties had consented to proper notice when they went to the motions judge. The Court of Appeal nevertheless went on to state at pages 324 and 326:
Laudable as the motive of counsel was, it is my view that the motions judge was put in a situation where it was inevitable that he would exceed his proper role on a Rule 20 motion. As my analysis of his reasons has disclosed, he did so by evaluating credibility, weighing evidence and drawing factual inferences. In doing so, he acted as a trial judge and conducted a paper trial. He did what this Court has criticized on a number of occasions, the most recent being TransAmerica.
...
I am not unsympathetic to the desire of counsel to resolve the notice issue without the delay and expense of a trial. Unfortunately, as this requires the Court to resolve factual issues, Rule 20 is not the appropriate vehicle to employ. The reasonableness of notice in the context of a wrongful dismissal action involves a finding of fact based on the circumstances of each case...
In my view, to extend Rule 20 to the circumstances of this appeal on the ground that the motions judge was in as good a position as the trial judge to resolve the notice issue would be to read into the Rule a meaning unintended by the Civil Rules Committee.
[23] In this case, Apotex alleges that there are factual issues in dispute necessitating proceeding to a full trial. With respect to punitive damages, for example, this requires a finding of intent and knowledge and bad faith on the part of Apotex. Apotex argues that it is inappropriate to make such a finding on a motion for summary judgment. Apotex also alleges two kinds of delay committed by Merck, the facts on both of which are in dispute: one in the prosecution of its patent, and secondly in the prosecution of the counterclaim.
[24] In my view, although counsel for Apotex aptly demonstrates the narrow scope of summary judgment motions as set out by the Ontario Court of Appeal, I do not believe this jurisprudence requires me to order a full trial on remedies in this case. Most importantly, the Federal Court Rule on summary judgment is broader than the Ontario Rule. See Bourque, Pierre & Fils Ltée. v. Canada (January 20, 1999), T-1-95 (F.C.T.D.). MacKay J. reviews the rule at paragraphs 23 and 24:
[23] Under Rule 215 the respondent to a motion for summary judgment has the evidentiary responsibility to set out facts, by affidavit, to show there is a genuine issue for trial. Rule 216 then sets out the authority and responsibility of the Court in dealing with a motion for summary judgment, as follows:
| 216. (1) Where on a motion for summary judgment the Court is satisfied that there is no genuine issue for trial with respect to a claim or defence, the Court shall grant summary judgment accordingly.
(2) Where on a motion for summary judgment the Court is satisfied that the only genuine issue is
(a) the amount to which the moving party is entitled, the Court may order a trial of that issue or grant summary judgment with a reference under rule 153 to determine the amount; or
(b) a question of law, the Court may determine the question and grant summary judgment accordingly.
(3) Where on a motion for summary judgment the Court decides that there is a genuine issue with respect to a claim or defence, the Court may nevertheless grant summary judgment in favour of any party, either on an issue or generally, if the Court is able on the whole of the evidence to find the facts necessary to decide the questions of fact and law.
(4) Where a motion for summary judgment is dismissed in whole or in part, the Court may order the action, or the issues in the action not disposed of by summary judgment, to proceed to trial in the usual way or order that the action be conducted as a specially managed proceeding.
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216. (1) Lorsque, par suite d'une requête en jugement sommaire, la Cour est convaincue qu'il n'existe pas de véritable question litigieuse quant à une déclaration ou à une défense, elle rend un jugement sommaire en conséquence.
(2) Lorsque, par suite d'une requête en jugement sommaire, la Cour est convaincue que la seule véritable question litigieuse est :
a) le montant auquel le requérant a droit, elle peut ordonner l'instruction de la question ou rendre un jugement sommaire assorti d'un renvoi pour détermination du montant conformément à la règle 153;
b) un point de droit, elle peut statuer sur celui-ci et rendre un jugement sommaire en conséquence.
(3) Lorsque, par suite d'une requête en jugement sommaire, la Cour conclut qu'il existe une véritable question litigieuse à l'égard d'une déclaration ou d'une défense, elle peut néanmoinsrendre un jugement sommaire en faveur d'une partie, soit sur une question particulière, soit de façon générale, si elle parvient à partir de l'ensemble de la preuve à dégager les faits nécessaires pour trancher les questions de fait et de droit.
(4) Lorsque la requête en jugement sommaire est rejetée en tout ou en partie, la Cour peut ordonner que l'action ou les questions litigieuses qui ne sont pas tranchées par le jugement sommaire soient instruites de la manière habituelle ou elle peut ordonner la tenue d'une instance à gestion spéciale.
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[24] The principles applicable in considering a motion for summary judgment are set out in the decision of Madam Justice Tremblay-Lamer in Granville Shipping Co. v. Pegasus Lines Ltd. Key among these is that, absent any issue of credibility, under the Court's Rule 216(3) the Court is to consider and to determine facts necessary to decide questions of fact and law if that can be done on the whole of the evidence presented. This responsibility distinguishes the role of the Federal Court judge in dealing with a motion for summary judgment from the role of his or her counterpart in considering a similar motion under Rule 20 of the Ontario Rules of Civil Procedure. The latter role is dealt with by Mr. Justice Borins J.A. in Dawson et al. v. Rexcraft Storage and Warehouse Inc., a decision dated August 13, 1998 upon which the plaintiff relied in further written submissions following trial. That case is helpful in considering the approach of a motions judge in a summary judgment application, but the responsibility under the Ontario Rule, as I understand it, does not extend to determine "if the Court is able on the whole of the evidence to find the facts necessary to decide the questions of fact and law".
Thus, under Rule 20 in Ontario the Court cannot make any findings of fact that may have been in issue between the parties. It can only decide questions of law. The Federal Court Rule 216 is much broader.
[25] Furthermore, the case law cited by Apotex can be distinguished from the case before me. All of those cases related to the test for summary judgment on the issue of liability. In this case, however, the test has already been met on liability. Merck has already been granted their motion for summary judgment. The only question to be decided presently is that of remedy.
[26] The reference in this case is governed not only by the summary judgment rules of the Federal Court, but also by the rules relating to references. These rules specifically set out a procedure for the ordering of a reference after a summary judgment order. The relevant rules provide:
153(1) The Court may, for the purpose of making an inquiry and report, refer any question of fact in a proceeding to a judge or other person designated by the Chief Justice.
216(2) Where on a motion for summary judgment the Court is satisfied that the only genuine issue is
(a) the amount to which the moving party is entitled, the Court may order a trial of that issue or grant summary judgment with a reference under rule 153 to determine the amount;
[27] The Ontario jurisprudence is not applicable to an order for a reference under these provisions.
[28] I also note that there are policy reasons supporting this conclusion. The policy behind the doctrine of res judicata is to provide for finality to litigation, and to prevent unnecessary expense, delay, and abuse of the court's process. This policy would be frustrated if a party could bring an action on essentially the same facts as a previous action, obtain judgment on liability, and yet still be required to submit to the expense and delay of a trial to determine remedies.
[29] The general interpretation provision of the rules also supports my view. Rule 3 provides: 3. These Rules shall be interpreted and applied so as to secure the just, most expeditious and least expensive determination of every proceeding on its merits.
[30] In this case the parties have already spent years litigating this case, and additional years litigating the prior infringement of Apotex. Requiring the parties to now submit to the further delays and expense of a full trial is in my view, contrary to the letter and spirit of Rule 3. The issue of liability has already been determined. The only issues remaining are issues of fact which can be determined most efficiently on a reference.
[31] I also note that even if the Ontario jurisprudence is applicable, there is no genuine issue for trial. Merck seeks punitive damages, which can be awarded where there has been a deliberate disregard of an interlocutory injunction. In my view the facts related to this issue, as discussed more fully below, are entirely clear and the evidence is not conflicting. Apotex is a sophisticated party and was aware of the permanent injunction against them issued in 1994. This injunction was breached. Apotex acquired the additional enalapril maleate prior to the delivery of Reasons for Judgment in the prior action, but did not disclose this acquisition at trial or to the Court of Appeal. This evidence cannot be disputed, and in my view is more than sufficient to find a deliberate and flagrant breach of the injunction warranting an award of punitive damages. Furthermore, Merck has always sought to bring the additional quantities within the actions in T-2408-91 when it learned of their existence.
[32] The issue of delay by Merck was also cited by Apotex. With respect to the delay in patent prosecution, this issue was addressed by MacKay J. in a judgment in T-2408-91:
In the case at bar the defendant made reference, both at trial and again when this matter was heard, that the time-period which elapsed from the plaintiffs application for a patent in December, 1979, until issue of the patent in October, 1990, was unusually long, and by inference the plaintiffs were thereby advantaged, but there was no evidence that period was the result of any action or influence of the plaintiffs.
[33] This court can adopt this finding since it was based on the identical parties and facts. To argue that this court must now hear evidence and rule on this identical issue again would, in my view, be an abuse of the court's time and resources.
[34] With respect to the delay in counterclaim, I again do not see how it could be said there is a genuine issue for trial. It is clear from the evidence that Merck was originally seeking to have the additional enalapril maleate added to the action in T-2408-91. It is also clear that Apotex did not object to Merck adding its counterclaim in 1998. MacKay J. noted in Merck & Co. Inc. v. Apotex (1998) 84 C.P.R. 3d 172 (F.C.T.D.) at p. 183:
Apotex I note undertakes through counsel not to object to Merck amending its defence in 294-96 to either counterclaim for damages or an accounting for infringement by Apotex arising from the use of enalapril maleate acquired after trial. Apotex urges that is the appropriate form for trial of the issues rather than now reopening the patent trial in a manner not really contemplated by Rule 1733. Without commenting on that assessment of the Rule, the position of Apotex does underline that the issues Merck seeks to have tried, if not triable in this, the patent action, can be tried within Apotex's action for declaratory relief.
[35] I shall now deal with the issue of whether or not Merck is entitled to elect between damages and an accounting of profits.
[36] Merck requests that it be entitled to elect between damages or an accounting of profits following further disclosure and discovery from Apotex. The jurisdiction to afford either relief is found expressly in the Patent Act (ss. 55, 57), and it is relief ordinarily awarded unless there be circumstances that would warrant withholding it from a requesting plaintiff who is successful at trial. Merck also argues that in the decision of MacKay J. in T-2408-91, affirmed by the Court of Appeal, the Court held that Merck was entitled to elect its form of relief as between damages and profits following examination for discovery and production of documents, and that the facts relevant to this entitlement have not changed.
[37] Apotex argues that the grant of the remedy of an accounting of profits is entirely discretionary, and that in this case Merck is disentitled from equitable relief due to delay, alleged dishonesty in disclosures, and the invalidity of the patent.
[38] In my view, Merck is entitled to an accounting of profits here, and is entitled to elect after further disclosure and discovery of Apotex. There is no specific Order to the contrary in this Court. Like any equitable remedy, accounting of profits is entirely within the discretion of the court. As stated by Rouleau J. in J.M. Voith Gmbh v. Beloit Corp (1993), 47 C.P.R. (3d) 448 (F.C.T.D.) at page 472:
However, neither do I agree with the plaintiff's submission that its election for an accounting of profits is binding on this court and in some ways strips this court of its discretion as to whether the remedy should be awarded. The court is never bound to grant an equitable remedy; that is a matter which remains entirely within its own discretion.
However, it is normally awarded unless there are circumstances warranting otherwise. In this case, as argued below, there are no such circumstances. Further, this is the exact order that was made in the previous decision in T-2408-91, and I do not see that there is any significant difference in this case warranting otherwise.
[39] In my view, Merck has not by its conduct disentitled itself to equitable relief. I agree with Merck that the delay in prosecution argument is not only irrelevant, but has already been determined to be unsubstantiated by this court in the 1995 decision of MacKay J. in T-2408-91. I also fail to see the relevance of the alleged misrepresentation of its Vasotec tablet. Further, in my opinion Merck did not unnecessarily delay adding its counterclaim, since it was attempting to deal with that issue in T-2408-91, and moreover, Apotex agreed not to object to adding it to this proceeding. Accordingly any delay has been satisfactorily explained.
[40] I also do not understand how Apotex can attempt to rely on the invalidity of the patent in this case. This Court has clearly already held that the patent is valid, and Apotex cannot now attempt to relitigate this issue as one going to remedies.
[41] I will now turn to the issue of punitive damages. Merck seeks punitive or exemplary damages against Apotex for the knowing and wilful breach of the permanent injunction of this Court. Punitive damages may be awarded in a patent infringement case where the plaintiff claims damages or an account of profits, relying on the case of Lubrizol Corp. v. Imperial Oil Ltd. (1996) 67 C.P.R. (3d) 1 (FCA). They have been awarded in patent cases where the defendant deliberately, flagrantly and callously disregards an interlocutory injunction and the evidence clearly discloses that Apotex knew about the injunction, knowingly breached the injunction, and concealed from the Court and from Merck the post-trial acquisitions of enalapril. Further, at no time did Apotex seek judicial direction as to the appropriateness of its conduct.
[42] Merck also makes clear that while entitlement to punitive damages would be determined at this hearing, the issue of quantum would be dealt with following an assessment of damages or profits on the reference. The Court would then be in a position to assess the quantum of additional punitive damages needed, if any, in the circumstances of the case.
[43] Apotex argues that such an award would be premature, since it cannot be made until after general damages have been fully assessed. Further, punitive damages are awarded only in extraordinary circumstances, and infringement per se cannot justify them, nor can mere disapproval on the part of the Court concerning the actions of the defendant. They must also serve a rational purpose, and must not be awarded to a defendant who acts in good faith.
[44] In this case, Apotex submits that it acted in good faith, and that it had a legitimate basis for believing that its inventory was free from infringement. It further submits that a complete factual record is needed before such award would be made, and there is no such complete record in this case. I do not agree that the record supports either of these submissions. The record is to the contrary.
[45] In my view, it would be appropriate in this case to hold that Merck is entitled to punitive damages, with the assessment of quantum, if any, to be determined on the reference subsequent to the determination of general damages or accounting of profits to be awarded to Merck in compensation for the infringement of its patent rights.
[46] In Lubrizol, supra, the court held that the trial judge erred in assessing exemplary damages before the assessment of general damages. At page 20 Stone and Linden J.J.A. stated:
There remains outstanding, however, a claim for general damages, which has not yet been quantified. This claim awaits assessment on the reference. The conclusion follows inexorably from this that the court cannot decide whether exemplary damages are required until after it decides whether the general damages were insufficient for punishment and deterrent purposes. In other words, the court must first assess the general damages. Only after that is done can the court determine whether they are sufficient to deter the appellant or whether an additional award by way of punitive damages is required to effectively deter the appellant and others from similar outrageous conduct if such conduct should be found.
In my view, this principle would not be infringed were the court to determine at this stage that Apotex's conduct is deserving of punishment such that an award of punitive damages may be required. Then, at the reference, after other damages are assessed, it could be determined if these would be sufficient to punish, or if an additional award is needed.
[47] The general principles regarding the awarding of punitive damages has been summarized in Lubrizol at page 18:
Third, punitive or exemplary damages, unlike general and aggravated damages, are not compensatory; their aim is "to punish" a defendant and to express "outrage at the egregious conduct of the defendant". They are akin to a civil fine which is meant to "act as a deterrent to the defendant and to others from acting in this manner". Exemplary damages may be awarded only "where the combined award of general and aggravated damages would be insufficient to achieve the goal of punishment and deterrence". In addition, it is necessary for such an award to "serve a rational purpose", that is, "was the misconduct of the defendant so outrageous that punitive damages were rationally required to act as deterrence?"
... McIntyre J. has listed the adjectives describing the type of conduct that would warrant punitive damages as "harsh, vindictive, reprehensible and malicious"; in other words, the conduct must be so "extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment": see Vorvis v. Insurance Corp. of British Columbia (1989), 58 D.L.R. (4th) 193 at 208. Cory felt that the conduct has to be so "malicious, oppressive and high-handed that it offends the court's sense of decency": see Hill, supra at 185. Another common word used to identify the state of mind of the wrongdoer is "callousness"
In my view, although there has not been a full trial in this case, in light of the material before me, this court does have a complete factual record on which it could make a finding of entitlement to punitive damages. The evidence indicates that Apotex clearly had knowledge of the permanent injunction issued by the Court on December 22, 1994, as amended by the Court of Appeal on April 19, 1995 and May 16, 1995. Further, the evidence clearly indicates that this injunction was breached, as I found in the February 2, 2001 decision. Further, Apotex acquired the additional enalapril maleate after the trial but prior to the delivery of the Reasons for Judgment in the T-2408-91 action, but failed to disclose it to either to the Trial judge or to the Court of Appeal. Apotex also denied these acquisitions on a motion for disclosure brought in T-2408-91 in 1995. Evidence of these acquisitions was not disclosed until Apotex filed its amended affidavit of documents in September 1996.
[48] I cannot accept Apotex's argument that it acted in good faith in the legitimate belief that it was not infringing the patent. Given that the facts and issues in this case are virtually identical to the T-2408-91 decision, it does not seem possible that a legally sophisticated party such as Apotex would have thought it was not infringing the patent. Further, even if it believed that the law had changed so as to make their activities non-infringing, it was obliged to seek directions from the court on this issue. As stated at trial in Lubrizol Corp. v. Imperial Oil Ltd. (1995) 58 C.P.R.(3d) 167 (F.C.T.D.) at pages 173 and 174 by Cullen J.A.
Did Imperial really have a non-offending product solely because they thought anything under 1.5 succination ratio did not violate the patent? They took that risk, when guidance from the court was available, and must face the consequences. Imperial Oil can hardly be surprised because Reed J. took great pains to point out, as paraphrased by Lubrizol (p. 83 of transcript):
In defying the injunction Imperial accomplished exactly what Madame Justice Reed was concerned to deter, namely, it continued in the market place with Shell as a customer and thereby bought time to switch Shell to 12819. As a result, among other things, Lubrizol lost the opportunity to obtain Shell's additive business and was denied ... the advantage he was entitled to reap from having a patented product which met the new standards. This caused Lubrizol irreparable harm.
The law is clear: "where a party continues conduct after it has been enjoined from such conduct, exemplary damages are appropriate" (p. 86 of transcript). In the case at bar, exemplary damages are appropriate and will be ordered to the extent that it "reflects the indignation of the Court" (Pro Arts, Inc. v. Campus Crafts Holdings Ltd. (1980), 50 C.P.R. (2d) 230, 110 D.L.R. (3d) 366, 10 B.L.R. 1 (Ont. H.C.J.)
Quite correctly, we are dealing with an allegation of callous disregard of the injunction and, for reasons stated earlier, I now find callous disregard. No attempt was made to confirm that a product in which the succination ratio was lower than 1.25 did not infringe the injunction. The defendant pressed on with sales of a product that had been enjoined. It was not right to assume the product did not infringe when that fact could have been decided by the court.
In my view, Apotex's conduct similarly demonstrated a callous disregard for the injunction warranting punitive damages. Further, there is a rational purpose that punitive damages would serve in this case, to deter Apotex and others from breach such court orders in future.
[49] On the issue of discovery, Merck is seeking to have the right to production of documents and examination for discovery of Apotex prior to deciding whether to elect damages or accounting of profits. They further seek a direction that Apotex not be able to discover Merck unless Merck elects damages. Merck argues that the information relevant to an accounting of profits inquiry is wholly within Apotex's knowledge and possession, and further, that the onus of proving profits and their subsequent use is on Apotex. Thus, to avoid cost and delay, Merck should not be discovered unless damages are sought.
[50] Apotex argues that the right to mutual discovery granted by the Rules is expressed in clear and mandatory language. Further, this right is not qualified or contingent upon the wishes of an adverse party. Apotex relies on the case of Gainers Inc. v. Robin Hood Multifoods Inc. (1996), 111 F.T.R. 118 (T.D.) where MacKay J. stated at pages 125 - 126 .
In my view, the Plaintiff may not circumvent the Court's involvement by pleading in the alternative, damages or an accounting of Defendant's profits, as the Plaintiff may elect after examination of the Defendant with a view to making an election only after termination of liability of the Defendant. Thus, where relief is so pleaded in the alternative, both the claim for general damages and the claim for an accounting of profits are issues before the Court, until the Plaintiff makes an election, or until both matters are ordered to be dealt with.
...
In the case before the Court, the alternatives of damages or an accounting of the Defendant's profits are issues raised by the Plaintiff's Statement of Claim. So too is the claim for exemplary damages. There can be no doubt, and it is not dispute, that the Court may order production of all relevant documents concerning the issues between the parties.
...
In my opinion, the Defendant is entitled to an order for a further and better Affidavit of Documents, and production of documents, relevant to the Plaintiff's claim for damages.
Apotex also argues that the order of steps requested by Merck, unilateral discovery followed by election, then pleadings, is improper. It relies on the case of Beloit Canada Ltee. v. Valmet Oy (1987), 16 C.P.R. (3d) 92 (F.C.A.) as holding that even where the court has made a determination that a Plaintiff is entitled to an election as between damages and profits and even where a reference has been ordered, the plaintiff must first make its election prior to taking any other steps in the proceeding.
[51] Merck argues that the Beloit case has been limited in Wellcome Foundation Ltd. v. Apotex Inc. (1992), 40 C.P.R. (3d) 361 to cases where the court has previously ordered that ".. plaintiffs are entitled to damages or an accounting of profits, as they may elect, and a reference shall be had for the determination thereof following such election unless the parties can otherwise agree." No such order is in place in this proceeding. Further, Merck argues that Wellcome was granted discovery of Apotex in that case prior to making its election on the basis that Wellcome did not have enough information to make an informed election.
[52] In my view, the procedure proposed by Merck is proper, and it ought not be required to submit to discovery unless it elects damages. In deciding this issue, regard again ought to be had for Rule 3 and considerations of time and efficiency. Unless Merck elects damages, any information relevant to the remedy of accounting of profits would be wholly within Apotex's knowledge and possession. I fail to see how Merck could have information relevant to this issue, and thus it would cause unnecessary expense and delay were they to be discovered. The Gainers case can be distinguished, as it was decided under the old rules. The new rule 230 provides that:
230 On motion, the Court may relieve a party from production for inspection of any document, having regard to
(a) the issues in the case and the order in which they are likely to be resolved; and
(b) whether it would be unduly onerous to require the person to produce the document.
In my view, having regard to the fact that Merck may elect accounting of profits, it makes little sense in this case to require Merck to be discovered prior to its election.
[53] I also agree that the court ought to follow the Wellcome decision and allow Merck to make its election subsequent to discovery of Apotex since, like in that case, it has insufficient information to make such a decision.
[54] Merck also argued that it is entitled to solicitor-client costs in this case. However, the issue of costs was already decided in my decision of February 2, 2001 decision. Merck shall be entitled to their costs of this motion on the Tariff B, Column III scale.
"W.P. McKeown"
JUDGE
OTTAWA, ONTARIO
May 31, 2002
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-294-96
STYLE OF CAUSE: APOTEX INC.
-and-
MERCK & CO., INC. and MERCK FROSST CANADA
& CO.
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: November 22, 2001
APPEARANCES:
Goodmans LLP FOR THE PLAINTIFF
Gowlings Lafleur Henderson LLP FOR THE DEFENDANT
SOLICITORS OF RECORD:
Mr. Harry Radomski
FOR THE PLAINTIFF
Mr. G. A. Macklin
FOR THE DEFENDANT
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