Apotex Inc. v. Merck & Co. Inc., 2002 FCA 210

Date: 20020528

Docket: A-120-01

Neutral citation: 2002 FCA 210

CORAM:        STONE J.A.

SHARLOW J.A.

MALONE J.A.

BETWEEN:

                                                                       APOTEX INC.

                                                                                                                                                       Appellant

(Plaintiff)

                                                                                 and

                                                            MERCK & CO., INC. and

                                                    MERCK FROSST CANADA INC.

                                                                                                                                               Respondents

(Defendants)

                                              Heard at Toronto, Ontario, on April 11, 2002.

                                    Judgment delivered at Ottawa, Ontario, on May 28, 2002.

REASONS FOR JUDGMENT BY:                                                                                    MALONE J.A.

CONCURRED IN BY:                                                                                                             STONE J.A.

                                                                                                                                            SHARLOW J.A.

                                                                                                                                            Date: 20020528

                                                                                                                                        Docket: A-120-01

                                                                                                                Neutral citation: 2002 FCA 210

CORAM:        STONE J.A.

SHARLOW J.A.

MALONE J.A.

BETWEEN:

                                                                       APOTEX INC.

                                                                                                                                                       Appellant

(Plaintiff)

                                                                                 and

                                                            MERCK & CO., INC. and

                                                    MERCK FROSST CANADA INC.

                                                                                                                                               Respondents

(Defendants)

                                                        REASONS FOR JUDGMENT

MALONE J.A.

INTRODUCTION

[1]                 This is an appeal from an order of McKeown J. ("the Motions Judge") dated February 2, 2001, granting a motion for summary judgment in favour of Merck and Co., Inc. and Merck Frosst Canada Inc. (collectively, "Merck") and dismissing a cross-motion brought by Apotex Inc. ("Apotex") for similar relief. The Motions Judge based his decision on the doctrine of res judicata, holding that the issues in this action had already been decided in a final judgment by this Court dated April 19, 1995, between these same parties and on substantially the same facts (reported as Apotex Inc. v. Merck & Co., Inc. et al. (1995), 60 C.P.R. (3d) 356, varying 59 C.P.R. (3d) 133 (FCTD), leave to appeal to the SCC denied December 7, 1995). Apotex now challenges the finding of res judicata on various grounds.

GROUNDS OF APPEAL

[2]                 Apotex's grounds of appeal may be grouped under three broad headings:

a.         McKeown J. erred insofar as he held that res judicata applied, since the question to be decided in the present action differs from that decided by MacGuigan J.A. in 1995 in the original action;

b.         Special circumstances in the present action vitiate the application of res judicata and allow a Motions Judge to hear the matter anew. Special circumstances arise here (1) by virtue of the Supreme Court of Canada's decision in Apotex Inc. v. Eli Lilly and Co. et al., [1998] 2 S.C.R. 129, (1998) 80 C.P.R. (3d) 321 ("Eli Lilly"), which Apotex urges has overruled the 1995 decision of MacGuigan J.A., and (2) due to the serious question of statutory interpretation raised by the within proceeding as to the application of section 12 of the Patent Act Amendment Act, 1992, S.C. 1993 c. 2 ("the Amendment Act"), which came into force February 14, 1993; and

c.         McKeown J. erred in his application of the Federal Court Rules, 1998 in granting Merck's motion for summary judgment under Rule 216.

THE FACTS

[3]                 The facts, legislative scheme, and procedural steps underlying this appeal are somewhat complex and must be carefully examined.

[4]                 The subject matter of this action is Canadian Letters Patent No. 1,275,349 ("the ‘349 Patent"), which was issued to Merck on October 16, 1990, and covers claims for the invention of certain compounds known as enalapril and enalapril maleate. Enalapril maleate is a stable salt of enalapril which, once combined with a pharmaceutically inactive carrier into tablets or liquid dosage form, comprises a prescription drug for the treatment of hypertension and congestive heart failure. The ‘349 Patent includes compound claims, pharmaceutical composition claims, and claims to the use of the compounds as anti-hypertensitives.

[5]                 In 1983, Merck obtained a United States patent for its invention of enalapril, and in 1985 was authorized by U.S. authorities to market enalapril maleate under the trade name Vasotec. After receiving a notice of compliance in 1987 from Health and Welfare Canada, Merck began marketing Vasotec in Canada, in four tablet strengths and in injectable liquid form.

[6]                 Apotex first became aware of enalapril maleate in the mid-1980s. Ordinarily, Apotex would have sought a compulsory licence under the Patent Act, R.S.C. 1985, c. P-4 ("the Act"), but was unable to do so until enalapril became the subject of a Canadian patent. Apotex was also aware that amendments to the Act were being discussed that could eliminate the compulsory licensing system and extend the rights of patentees. As a result, Apotex began to purchase enalapril maleate in bulk form from two related Canadian manufacturers, Delmar Chemicals Inc. and Torcan Chemical Ltd. (collectively "Delmar"), which is not a party in this matter. Delmar was granted a compulsory licence on April 24, 1992 under the ‘349 Patent to manufacture, use and sell enalapril maleate, with royalties payable to Merck.

[7]                 Pursuant to its licence, Delmar did manufacture and sell bulk enalapril maleate. By invoice dated January 29, 1993, and identified as no. 100559, Delmar sold a quantity of bulk enalapril totalling 44.9 kilograms ("the 44.9 kgs") to an unidentified foreign customer. Delmar's compulsory licence was "extinguished" upon the coming into force of section 12 of the Amendment Act on February 14, 1993. That section reads as follows:

[8]                 On March 10, 1993, Apotex purchased the 44.9 kgs from the aforesaid unidentified foreign customer and proceeded to formulate its generic version of the substance, Apo-Enalapril, into tablet form for the Canadian market on September 2, 1993. Apotex's version was similar in size, shape, colour and concentration of enalapril maleate to the corresponding tablets of Vasotec. In May and October of 1994, Apotex purchased a further 772.9 kg of bulk enalapril maleate from the same unidentified foreign customer of Delmar.

[9]                 On September 20, 1991, Merck brought an action against Apotex in the Trial Division before MacKay J. (action T-2408-91, reported as 59 C.P.R. (3d) 133), alleging infringement of their exclusive rights under the ‘349 Patent. Apotex sought a declaration by counter-claim that certain claims in the ‘349 Patent were invalid. The evidence at trial included evidence of the March 1993 purchase of the 44.9 kgs but, of course, there was no evidence of the two 1994 purchases, which occurred after the trial was over.

[10]            Since most of the enalapril maleate in Apotex's possession was manufactured before the issuance of the ‘349 Patent, Apotex relied on section 56 of the Act so as to enable it to use the purchased product without being liable to Merck.Under section 56, certain rights are provided to a person who, before the patent application becomes open to inspection by the public, has acquired the invention for which a patent is afterwards obtained. Prior to 1987, the relevant date for the purchase, construction or acquisition of the invention was the date "on which the patent was issued." However, on the facts of this case, the change in wording makes no difference; Merck's patent did not become open to inspection by the public until it was issued. Section 56 read as follows:

[11]            On December 14, 1994 MacKay J. granted judgment in favour of Merck, and dismissed Apotex's counterclaim. The relevant portions of MacKay J.'s reasons as they relate to the 44.9 kgs read as follows at page 164 C.P.R.:

I agree with [Apotex] that s. 12(2) of the Patent Act Amendment Act, 1992 precludes any claim for infringement in respect of any act done before the licence was terminated if done in accord with the terms of the licence and the former legislation for compulsory licences. Neither of those sources, in my view, created any right in [Apotex] to infringe [Merck's] interests under its patent, which were exclusive interests subject only to the compulsory licence to Delmar.

...It seems to me clearly implicit that Delmar could contract, under its licence, for production of the final dosage form. The producer of that product, acting under contract for Delmar and not on its own account, in my opinion, does not infringe [Merck's] patent claims by producing the final dosage form from bulk product it held only on consignment, and at a time when Delmar's licence was in effect under the law as it was until February, 1993.

On the other hand, Apotex has no right, derived from or under the compulsory licence to Delmar, to produce tablets for use as an antihypertensive from the 44.9 kg of bulk enalapril maleate purchased in March, 1993, after the licence to Delmar was terminated by statute. That result is not based on extinguishment of any rights Delmar may have had, under the licence, in accord with the statutory amendment which terminated its licence effective February 14, 1993. Rather, it is based on the lack of any right in the defendant to use the invention after the grant of the patent. It had not acquired this lot of enalapril maleate before the grant of Merck's patent and so has no claim to immunity by reason of s. 56 of the Act.

  

[12]            In essence, MacKay J., after hearing submissions on both section 12 and section 56, chose to base his decision on the lack of any right in the defendant to use the invention after the grant of the patent. As such, section 56 could not be said to apply, since Apotex had acquired the 44.9 kgs subsequent to the issuance of the ‘349 patent. He expressly added the caveat that his conclusion was not based on extinguishment of any rights Delmar may have had under its licence.

[13]            Apotex appealed to this Court, which issued reasons for judgment on April 19, 1995 (reported as 60 C.P.R. (3d) 356, varying 59 C.P.R. (3d) 133). MacGuigan J.A. for this Court reversed MacKay J. in part. He held that section 56 did apply to hold Apotex harmless from an infringement action for those lots of enalapril maleate that it acquired prior to the issuance of the ‘349 Patent. Any lots acquired after issuance of the ‘349 Patent, however, were held not to be protected by section 56. Apotex had argued that since it had purchased the 44.9 kgs from the unidentified foreign customer, which had purchased the same lot from Delmar during the operation of Delmar's compulsory licence, use of the 44.9 kgs could not be held to infringe the ‘349 Patent. MacGuigan J.A. disagreed and held that Apotex's legal rights relative to the 44.9 kgs were extinguished with Delmar's licence; as such, any use by Apotex following that extinguishment would be subject to potential actions for infringement of Merck's patent. At page 376 C.P.R. he wrote as follows:

Again, I am in agreement with the conclusion of the learned trial judge, though I should prefer to rest my conclusion on the extinguishment of Delmar's rights and so of any right in the appellant, rather than on a return to s. 56, which I am not at all certain is in play on this point.

[14]            Some confusion as to what MacGuigan J.A. actually decided arose from a clerical error in the formal judgment issued by this Court on April 19, 1995. The formal judgment originally read that Apotex had purchased the 44.9 kgs directly from Delmar, which was in clear conflict with the facts as described in MacGuigan J.A.'s reasons. As a result, on May 16, 1995, the formal judgment was amended to indicate that Apotex had purchased the 44.9 kgs from Delmar's foreign customer. On July 6, 1995, Merck executed the infringement order and seized the infringing lots.

[15]            The facta before this Court in 1995 indicate that section 12 was not raised, at least in written argument. Apotex now asserts that section 12 was not argued orally, and Merck does not dispute the point. Accordingly, I will proceed on the basis that section 12 was not argued before this Court. Apotex then sought leave to appeal to the Supreme Court of Canada. In its application for leave to appeal, Apotex argued at paragraph 33 that this Court had erred in its interpretation of section 12 and that it had considered the matter without written or oral submissions. Leave to appeal to the Supreme Court was denied on December 7, 1995.

[16]            By judgment dated March 7, 2000, reported as [2000] F.C.J. No. 297, MacKay J. found the appellant and several of its officers in contempt on the basis that they had knowingly continued to sell Apo-Enalapril in contravention of his injunction prohibiting such actions. These contempt proceedings are presently under appeal.

[17]            On February 5, 1996, Apotex filed the present action, T-294-96, seeking relief as against Merck in the form of a declaration that the manufacture and sale of enalapril tablets from the bulk enalapril purchased in May and October of 1994 did not infringe the ‘349 patent. By amended counterclaim filed on May 27, 1999, Merck sought a declaration that this use did indeed infringe its patent. Apotex's affidavit of documents included invoices for enalapril maleate dated May 26 and October 10, 1994. Apotex's allegations of the ‘349 patent's invalidity were struck from its statement of claim by an order of Lemieux J. dated November 5, 1999 ([1999] F.C.J. No. 1706) on the basis of issue estoppel. In his view, the validity of the patent had conclusively been determined between the parties by MacKay J, and on appeal to this Court in 1995.

[18]            During the discovery process in the present action, Merck learned for the first time that Apotex had purchased a further 772.9 kg supply of bulk enalapril maleate in May and October of 1994 from the same undisclosed foreign purchaser ("the 772.9 kgs"). This purchase by Apotex occurred after the trial and prior to MacKay J.'s judgment. Accordingly, as stated above, with respect only to the 44.9 kgs, MacKay J.'s decision dealt expressly with the 44.9 kgs that Apotex purchased in March of 1993, but not with the 772.9 kgs.

[19]            The current motions for summary judgment before McKeown J. were heard on October 30, 2000. In the Motions Judge's view, the matter was disposed of by the operation of the doctrine of res judicata or issue estoppel, which applies to every point in issue which the parties, exercising reasonable diligence, might have brought forward at the original trial. He relied on Rocois Construction v. Quebec Ready Mix Inc., [1990] 2 S.C.R. 440, where the Supreme Court stated that res judicata implies identity of parties, identity of object, and identity of cause.

[20]            McKeown J. indicated that the only difference between the 1991 and 1996 actions is that in the former, the 44.9 kgs was acquired by Apotex in March of 1993, while the 772.9 kgs involved in the latter action was acquired by Apotex in May and October of 1994. In his view, "[n]othing turns on this factual difference between the two cases, as in both cases the subject enalapril maleate was acquired after the Delmar compulsory licence was extinguished by statute on February 14, 1993." In essence, the legal facts were the same, while the specifics differed.

[21]            Apotex argued that the decision of the Supreme Court of Canada in Eli Lilly, supra, changed the law to the degree that res judicata should not bar its case. Essentially, Apotex argued that the Eli Lilly decision altered the law insofar as a purchaser's rights would henceforth exist in rem. Accordingly, because the 772.9 kgs at issue in this action had been sold to the unnamed foreign customer prior to the extinguishment of Delmar's compulsory licence, such extinguishment therefore had no effect on Apotex's rights to use the enalapril maleate. The Motions Judge did not accept this argument, choosing to distinguish Eli Lilly, holding that the decision involved different facts. There, the question arose from the termination of a licence by a patentee rather than the extinguishment of a compulsory licence by statute, as is the case here.

[22]            The proper interpretation of section 12 was argued extensively before McKeown J. However, he chose not to render a decision on the substantive content of that section. He noted that the primary task before him was not to re-try a case that has already come before the Court. Instead, he defined his task to be the determination of whether or not the case before him was res judicata by virtue of the operation of issue estoppel.

[23]            The Motions Judge concluded that as a result of the judgments of the Trial Division and Court of Appeal in T-2408-91 and A-724-94, respectively, there was no genuine issue to be tried in respect of the claim for declaratory relief by Apotex in its Statement of Claim and Apotex had no defence to the Merck claim for infringement of the ‘349 Patent.

ANALYSIS

The Law of Issue Estoppel

[24]            The relevant principles behind the doctrine of res judicata were established in two leading Supreme Court of Canada decisions: [1975] 2 S.C.R. 248">Angle v. M.N.R., [1975] 2 S.C.R. 248 and [1976] 2 S.C.R. 621">Doering v. Town of Grandview, [1976] 2 S.C.R. 621. In [1975] 2 S.C.R. 248">Angle, supra, at 254 Dickson J. noted that res judicata essentially encompasses two forms of estoppel, being "cause of action estoppel" and "issue estoppel," both based on similar policies. First, there should be an end to litigation, and second, an individual should not be sued twice for the same cause of action.

[25]            These two estoppels, while identical in policy, have separate applications. Cause of action estoppel precludes a person from bringing an action against another where the cause of action was the subject of a final decision of a court of competent jurisdiction. Issue estoppel is wider, and applies to separate causes of action. It is said to arise when the same question has been decided, the judicial decision which is said to create the estoppel is final, and the parties to the judicial decision or their privies are the same persons as the parties to the proceedings in which the estoppel is raised (see Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2), [1967] 1 A.C. 853., at p. 93, cited by Dickson J. in [1975] 2 S.C.R. 248">Angle supra, at 254).

[26]            Issue estoppel applies to preclude re-litigation of an issue which has been conclusively and finally decided in previous litigation between the same parties or their privies ([1975] 2 S.C.R. 248">Angle and [1976] 2 S.C.R. 621">Doering, supra). It applies not only to issues decided finally and conclusively, but also to arguments that could have been raised by a party in exercise of reasonable diligence (Fidelitas Shipping Co. v. V/O Exportchleb, [1966] 1 Q.B. 630 (C.A.); Apotex Inc. v. Merck & Co. et al. (1999), 5 C.P.R. (4th) 363). Issue estoppel applies where an issue has been decided in one action between the parties, and renders that decision conclusive in a later action between the same parties, notwithstanding that the cause of action may be different (Hoystead v. Commissioner of Taxation, [1926] A.C. 155 (P.C.); Minott v. O'Shanter Development Co. (1999), 42 O.R. (3d) 321 (Ont. C.A.)). The second cause of action, however, must involve issues of fact or law which were decided as a fundamental step in the logic of the prior decision. Issue estoppel does not arise if the question arose collaterally or incidentally in the earlier proceedings. The test for such an inquiry is whether the determination on which it is sought to found the estoppel is so fundamental to the substantive decision that the latter cannot stand without the former ([1975] 2 S.C.R. 248">Angle, supra; R. v. Duhamel (1982), 33 A.R. 271 (C.A.), aff'd [1984] 2 S.C.R. 555">[1984] 2 S.C.R. 555).

[27]            In the words of Moir J.A. in Duhamel, supra, adopted by Lamer C.J. on appeal, "this contemplates that the prior decision could not have been obtained without the point in issue being resolved in favour of the party urging the estoppel" (Duhamel, supra, at 278 (C.A.)). In essence, this statement is merely an affirmation of the principles articulated by Dickson J. in [1975] 2 S.C.R. 248">Angle in 1974. This does not necessarily imply, however, that the issue must have been the main point or ratio decidendi of the first decision, but rather that resolution of the issue is an essential element of the logic or reasoning behind it (Iron v. Saskatchewan (Minister of Environment and Public Safety), [1993] 6 W.W.R. 1 at 11 (Sask. C.A.)). The decision which is said to give rise to the estoppel need not be a decision which determines the entire subject matter of the litigation. The test for issue estoppel is a substantive issue test where the decision affects substantive rights of the parties with respect to a matter bearing on the merits of the cause of action (see Lange, The Doctrine of Res Judicata in Canada (Toronto: Butterworths, 2000) at 78).

[28]            It is also clear from the Supreme Court of Canada's judgments in [1951] S.C.R. 346">Maynard v. Maynard, [1951] S.C.R. 346, and [1976] 2 S.C.R. 621">Doering, supra, that issue estoppel operates to preclude a party from litigating new issues which could have been raised, but were not, at the earlier hearing. The judgment of the Judicial Committee of the Privy Council in Hoystead v. Commissioner of Taxation, supra, at 165 is cited with approval in [1975] 2 S.C.R. 248">Angle, [1976] 2 S.C.R. 621">Doering, and [1951] S.C.R. 346">Maynard, supra:

Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the Court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle.

It follows that a party will not be permitted to return to Court to litigate that which could have been raised in the earlier litigation before the Court.

[29]            Finality in litigation is the paramount policy concern; a party should not be vexed twice for resolution of an issue already decided conclusively. A litigant should have only "one bite at the cherry" (2001 SCC 44">Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] S.C.J. No. 46 at paras. 18-19; Hoystead, supra). However, special circumstances may operate to restrict the application of the issue estoppel rule, and allow a party to re-litigate what would, absent those special circumstances, be estopped. Dealing with the matter of special circumstances, Ritchie J. in [1976] 2 S.C.R. 621">Doering, supra wrote as follows at p. 304:

It will be noted, however, that the Lord Chancellor did not question the rule in Henderson v. Henderson; but found that in the case before him there were exceptional circumstances which he described as follows:

I do not think it necessary to express an opinion as to whether the alleged estoppel would have succeeded if the appellants had appeared in and contested the first action. But the judgment in that action limited in form to a single bond was pronounced in default of appearance by the defendants. In my view not all estoppels are "odious"; but the adjective might well be applicable if a defendant, particularly if he is sued for a small sum in a country distant from his own, is held to be estopped not merely in respect of the actual judgment obtained against him, but from defending himself against a claim for a much larger sum on the ground that one of the issues in the first action (issues which he never saw, though they were doubtless filed) had decided as a matter of inference his only defence in the second action.

[30]            The jurisprudence is unclear as to what factors will, in principle, constitute special circumstances. Recent jurisprudence from the Supreme Court of Canada, however, has affirmed that a discretion is vested in the Court as to the application of issue estoppel. This discretion is restricted where the estoppel arises from a final decision of a competent Court (2001 SCC 44">Danyluk, supra, at paragraph 62; [1983] 1 S.C.R. 72">General Motors of Canada Ltd. v. Naken, [1983] 1 S.C.R. 72 at 10). In determining whether justice will be done between the parties, the Court must as a final and most important factor, stand back and, taking into account the entirety of the circumstances, consider whether application of issue estoppel in the particular case would work an injustice (2001 SCC 44">Danyluk, supra, at paragraph 80). It follows that any special circumstances which would give rise to an injustice would, at the least, make the Court reluctant to apply the estoppel.

Does issue estoppel apply in the present appeal?

[31]            In my analysis, the present case is not one where cause of action estoppel could be said to apply. The factual underpinnings in this case, the use of the 772.9 kgs, is not identical to that decided in the 1991 action, which arose from Apotex's use of the 44.9 kgs. As such, there cannot be an identity of actions between the 44.9 and 772.9 kgs. Accordingly, the question, in my analysis, is whether McKeown J. erred in applying the doctrine of res judicata in its issue estoppel form.

[32]            The facts of both cases are materially identical and may be summarized as follows: Some time prior to February 14, 1993, Delmar, under the compulsory licence it held, manufactured and sold a quantity of bulk enalapril maleate to an unnamed foreign purchaser. On that date, Delmar's compulsory licence was extinguished by section 12 of the Amendment Act. Some time after the extinguishment of Delmar's compulsory licence, Apotex purchased the quantity of bulk enalapril maleate from the unnamed foreign purchaser. This statement of the facts applies equally to the 44.9 kgs as it does to the 772.9 kgs.

[33]            In my analysis, it follows that the question, or issue, is the same as that finally decided by MacGuigan J.A. in 1995. The question in the 1995 decision was the extent to which Apotex had infringed the ‘349 Patent in its use of enalapril maleate and the same central issue arises in the present case regarding the 772.9 kgs. MacGuigan J.A. ruled that Apotex's use of the 44.9 kgs was not protected by virtue of Delmar's now-extinguished licence rights, and his decision prescribes the result in the present case. The issue of the extent of infringement arising from Apotex's use of the 44.9 kgs was not collateral, but was instead an integral element of the Court's determination of the extent of Apotex's infringement of the ‘349 Patent. The decision was final, and the parties are the same. Based on the identity of issues and material facts, I can only conclude that the same question has been raised in both proceedings. Prima facie, issue estoppel applies. McKeown J. committed no error in this regard.

Special Circumstances

[34]            Apotex asserts that under special circumstances, the application of issue estoppel is to be relaxed. In its view, this case discloses two such circumstances. First, Apotex argues that the Supreme Court of Canada has changed the law in Eli Lilly, supra, and essentially overruled the 1995 decision of MacGuigan J.A.; as such, issue estoppel must be relaxed in order to do justice between the parties. Second, Apotex urges that section 12 of the Amendment Act has never been interpreted judicially, and should be so treated in the present case. As such, Apotex submits that McKeown J. erred in applying the issue estoppel rule, since this circumstance works an injustice on the parties.

Subsequent Change in the Law

[35]            With regard to Apotex's first argument, that special circumstances arise from a change in the jurisprudence, I note that neither this Court nor the Supreme Court of Canada has stated that a change in the law is sufficient to justify relaxing the application of issue estoppel. Other courts, however, including the British Columbia, Nova Scotia and Ontario Courts of Appeal, have done so. Most explicit was the Ontario Court of Appeal in Minott v. O'Shanter Development Co., supra, where Laskin J.A. wrote as follows at 340:

Issue estoppel is a rule of public policy and, as a rule of public policy, it seeks to balance the public interest in the finality of litigation with the private interest in achieving justice between litigants. Sometimes these two interests will be in conflict, or at least there will be tension between them. Judicial discretion is required to achieve practical justice without undermining the principles on which issue estoppel is founded. Issue estoppel should be applied flexibly where an unyielding application of it would be unfair to a party who is precluded from relitigating an issue.

That the courts have always exercised this discretion is apparent from the authorities. For example, courts have refused to apply issue estoppel in "special circumstances", which include a change in the law or the availability of further relevant material. If the decision of a court on a point of law in an earlier proceeding is shown to be wrong by a later judicial decision, issue estoppel will not prevent relitigating that issue in subsequent proceedings. It would be unfair to do otherwise.

As support for this proposition, Laskin J.A. relied on the decision of the House of Lords in Arnold v. National Westminster Bank, PLC, [1991] 2 A.C. 93 at 110-11.

[36]            It follows from this decision that where a subsequent, binding decision renders a previous decision clearly wrong, it would be unfair not to allow a party to re-litigate the matter. For present purposes, I will assume without deciding that Apotex is correct, and a change in the law could constitute a special circumstance in the context of this case.

[37]            Apotex argues that Eli Lilly changes the law with respect to the rights inherent in patented material purchased from a licenced vendor. It is said that the Supreme Court of Canada embraced the dissenting reasons of Pratte J.A., and may consequently be interpreted as holding that use rights exist in rem, and are not consequently affected by extinguishment of the compulsory licence under which the goods were sold. In the interests of clarity, I will set out in full the relevant portions of the Supreme Court's decision. At paras 99-101, Iacobucci J. writes as follows:

In the Federal Court of Appeal, Pratte J.A., with whom the majority agreed on this point, disposed of this argument in the following concise and useful passage, at p. 343 with which I agree:

If a patentee makes a patented article, he has, in addition to his monopoly, the ownership of that article. And the ownership of a thing involves, as everybody knows, "the right to possess and use the thing, the right to its produce and accession, and the right to destroy, encumber or alienate it" . . . If the patentee sells the patented article that he made, he transfers the ownership of that article to the purchaser. This means that, henceforth, the patentee no longer has any right with respect to the article which now belongs to the purchaser who, as the new owner, has the exclusive right to possess, use, enjoy, destroy or alienate it. It follows that, by selling the patented article that he made, the patentee impliedly renounces, with respect to that article, to [sic] his exclusive right under the patent of using and selling the invention. After the sale, therefore, the purchaser may do what he likes with the patented article without fear of infringing his vendor's patent.

The same principles obviously apply when a patented article is sold by a licensee who, under his licence, is authorized to sell without restrictions. It follows that, if Apotex were to purchase bulk Nizatidine manufactured or imported by Novopharm under its licence, Apotex could, without infringing Lilly's patents, make capsules from that substance or use it in any other possible way.

Perhaps the principles underlying this well-founded statement of the law merit some brief elaboration at this stage. As I have already noted in connection with the distinction between a sublicence and an ordinary agreement of purchase and sale of a patented or licensed article, the sale of a patented article is presumed [page364] to give the purchaser the right "to use or sell or deal with the goods as the purchaser pleases": see Badische Anilin und Soda Fabrik v. Isler, supra. Unless otherwise stipulated in the licence to sell a patented article, the licensee is thus able to pass to purchasers the right to use or resell the article without fear of infringing the patent. Further, any limitation imposed upon a licensee which is intended to affect the rights of subsequent purchasers must be clearly and unambiguously expressed; restrictive conditions imposed by a patentee on a purchaser or licensee do not run with the goods unless they are brought to the attention of the purchaser at the time of their acquisition: see National Phonograph Co. of Australia, Ltd. v. Menck, [1911] A.C. 336 (P.C.).

Therefore, it is clear that, in the absence of express conditions to the contrary, a purchaser of a licensed article is entitled to deal with the article as he sees fit, so long as such dealings do not infringe the rights conferred by the patent.

[emphasis added]

[38]            And further at paragraphs 106-107:

Any doubt as to this conclusion of non-infringement must, in my view, be eliminated by an examination of Novopharm's compulsory licence, which specifically contemplates the sale of the licensed material in bulk form by providing a formula for calculating royalties on product thus sold. As I see it, because there is no other practical use for bulk medicine, this must also be taken to contemplate and implicitly permit the reformulation of the product by the purchaser into final dosage form. This conclusion is only reinforced, in my view, by the fact that the contemplated royalty rates are based on the amounts received by subsequent purchasers in consideration of the sale of final dosage forms to the retail trade. Had the Commissioner of Patents intended to restrain such use of the medication, he would have provided for this expressly, or, at least, would not have specifically delineated the procedure that is to compensate the patentee for such use.

Therefore, Eli Lilly is incorrect to assert that the reformulation proposed by Apotex would either have to be carried out pursuant to a sublicence granted by Novopharm, which would justify the termination of Novopharm's compulsory licence and, therefore, the sublicence, or would be entirely unauthorized and infringe Eli Lilly's patents. The better view, as I have stated, is that the right to reformulate is premised on the inherent right of an owner of property to deal with that property as he or she sees fit. In the absence of some express term in the compulsory licence, prohibiting purchasers of bulk nizatidine from Novopharm from reformulating it into final-dosage form, the weight of the case law supports the view that Apotex, having validly acquired the bulk medicine, would be free to reformulate it for resale without fear of infringing any right under Eli Lilly's patents.

[emphasis added]

[39]            In my analysis, Apotex's argument that the Supreme Court of Canada embraced Pratte J.A.'s reasons in their entirety is erroneous. It is true that Iacobucci J. clearly accepted Pratte J.A.'s general statement of the law. However, Iacobucci J.'s reasons disclose only that the sale of licenced material by a licencee to an unlicenced purchaser passes the right to do with the material as the purchaser sees fit without fear of infringement, subject at all times to explicit restrictions in the licence itself. It seems clear from the extracts above that Iacobucci J. tied the rights of the unlicenced purchaser to the licence itself; the unlicenced purchaser, given adequate notice, would be bound by the restrictions imposed by the licence. Further, Iacobucci J. noted the royalty scheme created under the compulsory licence before him bolstered the conclusion that certain rights had passed with the material to the unlicenced purchaser. Nor does Iacobucci J. address how the consequences of the statutory extinguishment of the licence affects the licencee or any unlicenced purchaser. Such an occurrence is simply not contemplated by the facts of that case. On this basis alone, Eli Lilly is readily distinguishable. In any event, Eli Lilly, supra, did not, in my view, change the law from that which had been enunciated by the earlier case law that was relied upon by Iacobucci J.: Betts v. Willmott (1871), L.R. 6 Ch. 245; Badish Anlin und Soda Fabrik v. Isler, [1906] 1 Ch. 605 at 610; Gillette v. Rae (1909), 1 O.W.N. 448 (H.C.J.); and National Photograph Co. Australia, Ltd. v. Menck, [1911] A.C. 336 (P.C.). It was thus open to the appellant to rely upon the principles of these decisions in arguing the 1995 appeal before this Court, which it did not do.

[40]            Nor, in my view, can Iacobucci J. be taken as adopting, in full, Pratte J.A.'s reasons. He adopted, at paragraph 99, the "concise and useful passage" cited above. In fact, in his conclusion, Iacobucci J. wrote that:

I am in agreement with Pratte J.A. and the majority of the Federal Court of Appeal, and conclude that the reformulation of the bulk nizatidine into final-dosage form would not infringe Eli Lilly's patent. Accordingly, I conclude that Eli Lilly has failed in its various efforts to establish that Apotex's NOA was not justified and that a prohibition order should thus be issued. [emphasis added]

In my view, this statement demonstrates clearly that Iacobucci J. did not adopt Pratte J.A.'s reasons insofar as they may be interpreted to provide for continuing protection for unlicenced purchasers upon extinguishment of the compulsory licence.

[41]            I should also note that Iacobucci J. cited the 1995 decision of MacGuigan J.A. with approval, and at no point suggested an error with regard to the 44.9 kg allotment. In light of this fact, I conclude that Eli Lilly does not operate to overrule the 1995 decision of MacGuigan J.A.. No special circumstances can be said to apply. As such, there is no need to discuss whether it was within McKeown J,'s discretion to relax the rules of issue estoppel on this basis.

Section 12 of the Amendment Act

[42]            Section 12 of the Amendment Act was in force at the time of the 1991 trial. The operation of section 12, insofar as it extinguished Delmar's compulsory licence, was raised at trial by Merck in its statement of claim, but was not dealt with by MacKay J. Section 12 was, in fact, interpreted by MacGuigan J.A. in his decision when he held that all the rights in the 44.9 kgs, including those of Apotex, were extinguished with Delmar's licence; an event which occurred on the coming into force of section 12 (see paragraph [12] herein). Apotex now asserts that an injustice has arisen from the fact that it had not pleaded nor argued section 12 in either oral or written argument before the 1995 panel of this Court; a special circumstance that defeats the operation of issue estoppel.

[43]            In my analysis, there is no question that issue estoppel should prima facie apply with respect to Apotex's section 12 argument in this case. The parties are identical, and the issue has been conclusively decided in a judgment of this Court which must be deemed to be final, given that leave to appeal to the Supreme Court was denied. The only remaining question, then, is whether, given the jurisprudence summarized above, the circumstances of that decision affect the analysis so as to avoid the operation of issue estoppel. In the end, the Court must decide whether McKeown J. erred in refusing to exercise his discretion to relax the issue estoppel rules, an inquiry made by standing back and taking into account the entire circumstances of the case.

[44]            Apotex urges that the recent Supreme Court of Canada decision in 2001 SCC 44">Danyluk, supra, sets out new rules under which a motions judge must exercise his or her discretion in the application of issue estoppel. 2001 SCC 44">Danyluk was decided approximately five months after McKeown J. granted Merck's motion for summary judgment. The 2001 SCC 44">Danyluk decision deals with the application of issue estoppel arising from the final decision of an administrative tribunal. Binnie J. canvassed the law of issue estoppel, noting, as the Supreme Court has done in [1975] 2 S.C.R. 248">Angle and Doerning,supra, that finality in the litigation process is strongly favoured as a matter of policy.

[45]            The main thrust of Justice Binnie's reasons is that the application of issue estoppel is discretionary, and should not be applied strictly where doing so would work an injustice on the parties. In his view, issue estoppel should be applied less rigidly where it arises from the decision of an administrative tribunal; in the 2001 SCC 44">Danyluk case, the administrative tribunal had clearly failed to meet the requirements of procedural fairness. To use Binnie J.'s words at paragraph 1, "[a] judicial doctrine developed to serve the ends of justice should not be applied mechanically to work an injustice." He concluded that the court below had not properly considered any factors relevant to the exercise of discretion, and noted at paragraph 80 that,

[a]s a final and most important factor, the Court should stand back and, taking into account the entirety of the circumstances, consider whether application of issue estoppel in the particular case would work an injustice.

[46]            However, Binnie J. also distinguished administrative decisions, which would receive a more relaxed application of the issue estoppel rule, from final judicial decisions. At paragraph 62, he agreed with Estey J. in [1983] 1 S.C.R. 72">General Motors of Canada Ltd. v. Naken, [1983] 1 S.C.R. 72 at 101, that in the context of court proceedings "such a discretion must be very limited in application". It follows that the decision to relax the rules of issue estoppel will not be made lightly with regard to a final judicial decision, such as that rendered by MacGuigan J.A. in this case.

[47]            The test on an appellate review of a motions judge's discretion is whether he gave sufficient weight to all the relevant circumstances: Reza v. Canada, [1994] 2 S.C.R. 394 at 404-5. In this case, the Motions Judge granted a motion for summary judgment, where the test is whether or not there is a genuine issue for trial (Rule 216(1) of the Federal Court Rules, 1998.) Following 2001 SCC 44">Danyluk, McKeown J. must be said to have erred if his exercise of discretion fails to do justice between the parties.

[48]            McKeown J. recognized that a discretion was vested in him when he wrote at paragraph 27:

I also note that I am not convinced by the Plaintiff's argument that there are special circumstances inherent to this case which warrant the Court's exercise of its discretion to circumvent the normal workings of the doctrine of res judicata.

In my view, the Motions Judge did not err in failing to relax the rules of issue estoppel in this case. Apotex's actions suggest to me that this is not the clearest of cases which would justify relaxation of the issue estoppel rule. As such, given that all these factors were before McKeown J., I cannot conclude he erred in weighing the factors as he did. He gave sufficient weight to all relevant circumstances, and no palpable or overriding error is apparent on the record. In my analysis, neither the exercise of discretion by the Motions Judge nor his decision work an injustice between the parties. As Estey J. wrote in [1983] 1 S.C.R. 72">Naken, supra, at 101:

The operation of the defence of res judicata has a long history in our courts... It is true that there is a discretion in the courts where the defence of res judicata is raised, but such a discretion must be very limited in application. ... The fact that harsh results follow the application of the doctrine has not deterred its application by the courts. Vide Cox v. Robert Simpson Co. Ltd. (1973), 1 O.R. (2d) 333 (Ont. C.A.).

McKeown J.'s Application of Rule 216

[49]            Lastly, Apotex argued that McKeown J. erred in his interpretation and application of summary judgment rule 216 of the Federal Court Rules, 1998, based principally on authorities dealing with the summary judgment rules of provincial superior courts. It must be noted that the Federal Court Rules, 1998, insofar as they provide for summary judgment where there is no genuine issue for trial, are unique. The Federal Court Rules, 1998 empower a motions judge to make findings of fact or law necessary to dispose of the motion, provided the relevant evidence is available on the record, and does not involve a "serious" question of fact or law which turns on the drawing of inferences. In essence, where a trial would add detail, but not significant additional evidence, it is better for the motions judge to determine the question of law or fact in issue (see Pawar v. Canada, [1999] 1 F.C. 158 (TD), affirmed (1999), 247 N.R. 271 (FCA), leave to appeal to SCC denied (2000), 257 N.R. 398; Warner-Lambert v. Concord Confections Inc., 2001 FCT 139; Wetzel v. Canada, [2000] F.C.J. No. 155 (T.D.).

[50]            Apotex urges that the issues it raises under its special circumstances argument are best left for trial, and not for a motions judge. In my analysis, however, McKeown J. was in as good a position as a trial judge to interpret the Eli Lilly decision and determine whether it raised an issue for trial. He concluded, correctly, that no such issue was raised. In the circumstances of this case, a trial would have added detail, but not significant additional evidence. With regard to Apotex's section 12 argument, it was within McKeown J.'s discretion to decide whether the application of issue estoppel would result in an injustice. He held that it did not. In my analysis, McKeown J. correctly canvassed the law of res judicata, and properly weighed the evidence before him. He conducted an analysis of the various rules and authorities regarding issue estoppel and undertook a careful review of the similarities between the present case and the 1991 action. He considered Apotex's arguments regarding special circumstances, and ultimately concluded that there was no genuine issue for trial. As it is not for this Court to re-weigh the evidence in the absence of a legal or palpable or overriding factual error, his exercise of discretion should remain undisturbed.

[51]            I would dismiss the appeal with costs.

                                                                                               "B. Malone"             

                                                                                                              J.A.                  

"I agree

A.J. Stone

J.A."

"I agree

K. Sharlow

J.A."             

                          FEDERAL COURT OF APPEAL

    NAMES OF COUNSEL AND SOLICITORS OF RECORD

  

DOCKET:                                                                       A-120-01

  

STYLE OF CAUSE:                                                     APOTEX INC. and MERCK & CO., INC. and MERCK FROSST CANADA INC.

  

PLACE OF HEARING:                                                Toronto, Ontario

  

DATE OF HEARING:                                                  April 11, 2002

  

REASONS FOR JUDGMENT BY:                         MALONE J.A.

  

CONCURRED IN BY:                                                 STONE J.A.

SHARLOW J.A.

  

DATED:                                                                           May 28, 2002

  

APPEARANCES:

Mr. H. B. Radomski                                                          for the Appellant

Mr. Nando DeLuca

Mr. G. Alexander Macklin, Q.C.                                     for the Respondents

Ms. Constance To

  

SOLICITORS OF RECORD:

Goodmans LLP                                                                 for the Appellant

Toronto, Ontario

Gowling Lafleur Henderson LLP                                      for the Respondents

Ottawa, Ontario