Dockets: A-244-16
A-274-16
Citation:
2018 FCA 33
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CORAM:
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DAWSON J.A.
WEBB J.A.
GLEASON J.A.
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Docket:A-244-16
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BETWEEN:
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TEVA CANADA
LIMITED
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Appellant
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and
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JANSSEN INC. and
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DAIICHI SANKYO
COMPANY, LIMITED
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Respondents
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Docket:A-274-16
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AND BETWEEN:
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TEVA CANADA
LIMITED
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Appellant
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and
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JANSSEN-ORTHO
LLC, JANSSEN PHARMACEUTICALS, INC., OMJ PHARMACEUTICALS, INC. and DAIICHI
SANKYO COMPANY, LIMITED
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Respondents
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REASONS
FOR JUDGMENT
(Confidential Reasons for Judgment Issued January 24, 2018)
DAWSON J.A.
I.
Introduction
[1]
Levofloxacin is an anti-microbial drug belonging
to the class of antibiotics known as respiratory fluoroquinolones. It is
marketed in Canada by Janssen Inc. under the brand name “Levaquin”. Levaquin is
primarily used to treat serious or complicated respiratory tract infections and
some types of urinary tract infections.
[2]
Daiichi Sankyo Company, Limited, a
Japanese-based pharmaceutical company, owns Canadian Patent No. 1,304,080 (080
Patent) which claims levofloxacin. Janssen Inc. (Janssen Canada) is licensed by
Daiichi to sell levofloxacin in Canada.
[3]
The Federal Court found that claim 4 of the 080
Patent was valid and was infringed by Teva Canada Limited when Teva offered for
sale, and sold, products containing levofloxacin in Canada (2006 FC 1234). The
Federal Court restrained Teva from selling and otherwise dealing with products
containing levofloxacin in Canada. The judgment of the Federal Court was
affirmed on appeal (2007 FCA 217), and leave to appeal the decision of this
Court was refused by the Supreme Court of Canada ([2007] S.C.C.A. No. 442).
[4]
Thereafter, following a trial lasting ten days the
Federal Court determined the quantum of the damages caused by Teva’s
infringement. For reasons cited as 2016 FC 593, the Federal Court ordered Teva
to pay damages to Janssen Canada in the amount of $5,498,270.00, inclusive of
prejudgment interest, and to pay damages to Janssen Pharmaceuticals, Inc. (Janssen
US) in the amount of $13,342,949.00, also inclusive of prejudgment interest. As
explained in more detail below, Janssen US was part of the supply chain which
marketed Levaquin in Canada.
[5]
For separate reasons cited as 2016 FC 727, the
Federal Court later ordered Teva to pay costs jointly to Janssen Canada and
Janssen US. These costs were fixed in the amount of $1,000,000.00, inclusive of
all fees, disbursements and taxes, unless within a specified period the Janssen
plaintiffs jointly elected to have their costs assessed. The Janssen plaintiffs
did not make such an election. In these reasons, Janssen Canada and Janssen US
are together referred to as Janssen.
[6]
Teva now appeals from the judgment of the
Federal Court ordering it to pay damages and from the order of the Federal
Court ordering it to pay costs. The appeals were consolidated by order of this
Court. In accordance with the consolidation order, a copy of these reasons
shall be placed on each Court file.
[7]
As will be seen, Teva asserts a number of errors
on the part of the Federal Court. In largest part, the asserted errors
challenge the Federal Court’s appreciation of the evidence. For the reasons
that follow, I have found no error of law or palpable and overriding error of
fact or mixed fact and law on the part of the Federal Court. It follows that I
would dismiss both appeals with costs.
II.
Factual background
[8]
The following brief overview is sufficient to
situate the issues raised on these consolidated appeals.
[9]
At the relevant time there were three
respiratory fluoroquinolones available in the Canadian market: Levaquin
(levofloxacin), Avelox (moxifloxacin) and Tequin (gatifloxacin).
[10]
Sales of levofloxacin and other antibiotics were
described at trial to fall into three trade channels. These channels were direct
sales to hospitals, direct and indirect sales to drug stores and similar
entities, and sales to government and educational entities (reasons, paragraph
85). Of particular relevance to these appeals are sales to hospitals.
[11]
Teva launched its generic version of Levaquin on
November 29, 2004, under the name Novo-levofloxacin. At approximately the same
time concerns began to emerge about the safety of Tequin. Tequin was ultimately
withdrawn from the market in June 2006. On October 17, 2006, the Federal Court
enjoined the sale of Novo-levofloxacin in Canada. Levofloxacin was the only
respiratory fluoroquinolone to be sold in a generic form during the relevant
time frame.
[12]
At trial, Janssen’s expert Dr. Rosenblatt put
forward an economic model (Scenario A) that enabled him to formulate an opinion
on what Janssen’s sales of Levaquin 500 mg and 750 mg tablets would have been
in the hypothetical “but for” world.
[13]
Scenario A was based on a number of assumptions.
The first assumption was that Levaquin competed directly against the two other
respiratory fluoroquinolones (Avelox and Tequin) and did not compete directly
against other antibiotics (such as the macrolides). Another assumption was that
once Tequin was withdrawn from the market in June 2006, Levaquin and Avelox
would be equally preferred by prescribing physicians. Thus, if Janssen had
continued to promote Levaquin during the period of infringement, Levaquin would
have maintained its market share against Avelox by gaining a relative share of
the lost Tequin sales.
[14]
Dr. Rosenblatt put forward an alternative
economic model (Scenario B) which was premised on the assumption that sales of
Levaquin would have remained flat during the relevant period. Thus, the average
level of prescription volumes sold between 2000 and 2004 would have been sold
between 2005 and 2010. This was described by Dr. Rosenblatt to be a very
conservative scenario. In his view, it was not a likely scenario.
[15]
The major assumption common to both scenarios
was that the total number of prescriptions “filled”
in the period from June 23, 2009 to December 31, 2010 in the hypothetical levofloxacin
competitive market did not change from the number of prescriptions that were
actually filled in the real world during the damages period. The “levofloxacin competitive market” refers to the sales
of all units of the following molecules in Canada: 500 mg and 750 mg
levofloxacin (i.e. Levaquin and Novo-levofloxacin), moxifloxacin and
gatifloxacin.
[16]
Teva’s experts did not construct an economic
model to analyze the relevant market. Instead, Teva’s forensic accountant, Mr.
Mak, presented a number of damage scenarios, one of which concluded that as a
result of Teva’s entry into the market Janssen was “ahead
by $4 million” (reasons, paragraph 95). More specifically, in his
Scenario 1 Mr. Mak opined that, with prejudgment interest, Janssen would have
benefitted from Teva’s entry into the market by between ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(after the deduction of monies that Teva had already paid to Janssen Canada)
(expert report of Mr. Mak, Appeal Book, volume 45, tab 72 at page 017041). The
net benefit arose as a result of Mr. Mak’s calculation of expenses not incurred
by Janssen in the “but for” world.
III.
The damages decision of the Federal Court
[17]
After setting out the relevant facts and
describing the evidence adduced at trial, the Federal Court considered the
issue of whether Janssen US had standing to claim damages as a result of Teva’s
infringement of the 080 Patent. This, in turn, required the Court to consider
whether Janssen US was a person “claiming under the
patentee” within the contemplation of subsection 55(1) of the Patent
Act, R.S.C., 1985, c. P-4.
[18]
The Federal Court conducted a lengthy review of
the relevant jurisprudence (reasons, paragraphs 28 to 43) and then reviewed the
relevant evidence (reasons, paragraphs 44 to 58). The Federal Court concluded
that Janssen US had standing because “it has the licence
or permission, by acquiescence, of Daiichi, to be involved in the chain of the
sale of tablets made in Puerto Rico by Janssen Puerto Rico, through Janssen US
to Janssen Canada. It is immaterial whether Janssen US had title, even
momentarily, to the tablets in Canada.” (reasons, paragraph 61).
[19]
The Federal Court then moved to quantify the
damages sustained by reason of the infringement. The Court began by reviewing
the general legal principles, the parties’ positions and the concessions made
by the parties.
[20]
The Court then reviewed the marketplace as it existed
in fact (reasons, paragraphs 75 to 88), the two scenarios posited by Dr.
Rosenblatt and the multiple damages scenarios presented by Teva’s forensic
accountant (reasons, paragraphs 89 to 90). After briefly reviewing the parties’
competing views about the “but for” marketplace,
the Court set out its findings as to what would likely have occurred in the “but for” world (reasons, paragraphs 104 to 106). The
Court’s central finding was that Scenario A “best
represents what would have happened in the “but for” world.” However,
the Court concluded that some of the assumptions that underlay Scenario A
required change. The required changes related to the period in which damages were
to be assessed, the percentage of sales of levofloxacin to hospitals and
whether sales to educational institutes/governments should be included with
hospital sales.
[21]
Of relevance to these appeals are the Court’s
findings related to the period in which damages were assessed and the
percentage of sales to hospitals. With respect to the damage period, the Court
found that losses due to prescription (retail) sales would terminate
approximately two months after the patent expired (August 31, 2009), and that
losses due to sales to hospitals would terminate approximately one year after
the patent expired (June 30, 2010) (reasons, paragraph 112). The Court rejected
Teva’s assertion that there should be a one month time lag at the beginning of
the period in which damages were calculated (reasons, paragraphs 113 to 115).
[22]
With respect to hospital sales, the Court
allowed Janssen’s claim for damages as a result of having to suppress its selling
price to hospitals by |||||||| when Teva entered the marketplace, and found that
Janssen could not raise the prices after Teva was later forced to withdraw from
the market (reasons, paragraphs 116 to 118). The Court also found that the
percentage of indirect sales to hospitals was ||||||||. Janssen’s expert had
calculated a figure of ||||||||||||, while Teva’s expert calculated a figure of ||||||||||
(reasons, paragraphs 125 to 131).
[23]
Finally, after reviewing the relevant legal
principles and the evidence as to what Janssen actually did during the relevant
period, the Court rejected Teva’s claim that Janssen had failed to mitigate the
damages it incurred.
[24]
In order to implement into the damages award the
changes the Court made to some of the assumptions underlying Scenario A, the
Court sent a copy of its draft reasons to counsel for each of the parties and
asked that they, working with their experts, prepare an agreed set of figures
that resulted from the Court’s changes. Counsel did so and those figures are
reflected in the judgment of the Federal Court. Unfortunately, it does not
appear that the calculations used to calculate the agreed figures form part of
the record. Had this Court found it necessary to intervene in the damage award
this absence could have negatively affected this Court’s ability to vary findings
that related to counsel’s calculations. We simply do not know how various
amounts were calculated.
IV.
The costs decision of the Federal Court
[25]
In response to the Court’s request that the
parties provide submissions on costs, Janssen submitted a draft bill of costs
which, including fees, disbursements and taxes, totalled $1,458,751.00. Teva
took issue with virtually every item in the draft bill of costs and requested
that costs be assessed. Teva also asked that the Court give directions to the
assessment officer.
[26]
In response, the Federal Court noted that an
assessment of costs would be difficult and tedious in view of the many
challenges raised by Teva. The Court envisioned that excessive resources of the
Court, and the parties, would be spent pursuing the many issues that would have
to be considered on an assessment (reasons, paragraph 5).
[27]
In the result, the Court ordered that costs fixed
as a lump sum be paid to Janssen in the amount of $1,000,000.00. The Court
considered this to be “the most reasonable amount in
the circumstances.” However, the Court gave Janssen the option, to be
exercised within 20 days from the date of the order, to have the costs assessed
by an assessment officer having regard to the directions given by the Court
(reasons, paragraphs 6 to 7). As explained above, Janssen did not elect to have
its costs assessed.
V.
The issues
[28]
As adverted to above, the appellant raises a
number of issues on these appeals, many of which raise a number of sub-issues.
I would restate the issues to be decided to be:
i.
Did the Federal Court err in finding that
Scenario A best represented what would have happened in the “but for” world?
ii.
Did the Federal Court err in finding that Janssen
had taken appropriate steps to mitigate its loss?
iii.
Did the Federal Court err in its quantification
of lost sales to hospitals in the “but for”
world?
iv.
Did the Federal Court err by finding that Janssen
US was a person claiming under the patentee in Canada?
v.
If the Federal Court did not err in finding that
Janssen US was a person claiming under the patentee in Canada, did the Federal
Court err by:
a.
awarding permanent lost market share damages to
Janssen US;
b.
failing to apply a one-month delay or lag to the
commencement of Janssen US’s damages; and,
c.
failing to deduct a royalty payment that was
contractually required.
vi.
Did the Federal Court err by awarding an
excessive amount for costs?
VI.
The standard of review
[29]
The standard of review applicable to the issues
raised in this case are as described by the Supreme Court in Housen v.
Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235. The standard of review to be
applied to questions of law is correctness. Findings of fact and inferences of
fact are to be reviewed on the basis of palpable and overriding error. Findings
of mixed fact and law are to be reviewed on the same deferential standard unless
an extricable legal error can be demonstrated, in which event such error is
reviewed on the correctness standard.
[30]
Where required, the standard of review will be
discussed in greater detail in the context of the analysis of each issue
asserted by the appellant.
VII.
Consideration of the issues
A.
Did the Federal Court err in finding that
Scenario A best represented what would have happened in the “but for”
world?
[31]
As I understand Teva’s submission on this issue,
it alleges two broad errors on the part of the Federal Court. First, Teva
alleges that the Court erred in principle by stating that it was to, in effect,
mete out rough justice by application of a “broad axe”.
Second, the Federal Court is said to have erred by finding Scenario A to best
represent what would have likely happened in the hypothetical “but for” world in circumstances where the factual
assumptions that underpinned Scenario A either were not supported by any
evidence or were rejected by the Federal Court.
1.
The asserted error of principle
[32]
I begin my analysis with Teva’s asserted error
of principle. Teva’s complaint arises from paragraphs 69 to 71 of the Court’s
reasons which discuss the general approach to quantifying damages. There, the
Federal Court quotes with approval Lord Shaw’s comment in Watson, Laidlaw &
Co. Ltd. v. Pott, Cassels, and Williamson (1914), 31 R.P.C. 104, at pages
117 to 118, to the effect that:
… In the case of damages in general, there
is one principle which does underlie the assessment. It is what may be called
that of restoration. The idea is to restore the person who has sustained injury
and loss to the condition in which he would have been had he not so sustained
it. In the cases of financial loss, injury to trade, and the like,
caused either by breach of contract or by tort, the loss is capable of
correct appreciation in stated figures. In a second class, of cases,
restoration being in point of fact difficult, as in the case of loss of
reputation, or impossible, as in the case of loss of life, faculty, or limb,
the task of restoration under the name of compensation calls into play
inference, conjecture, and the like. This is necessarily accompanied by those
deficiencies which attach to the conversion into money of certain elements
which are very real, which go to make up the happiness and usefulness of life,
but which were never so converted or measured. The restoration by way of
compensation is therefore accomplished to a large extent by the exercise of a
sound imagination and the practice of the broad axe. It is in such cases,
my Lords, whether the result has been attained by the verdict of a jury or the
finding of a single Judge, that the greatest weight attaches to the decision of
the Court of first instance.
(underlining added)
[33]
The admonition to apply sound imagination and
brandish a broad axe is said to be contrary to the decision of this Court in Apotex
Inc. v. Merck & Co., Inc., 2015 FCA 171, [2016] 2 F.C.R. 202
(Lovastatin) where, at paragraph 42, the Court noted that because “over-compensation of an inventor chills potential
competition” “perfect compensation” is
required.
[34]
In my view, Teva takes this Court’s comments in
Lovastatin out of context. The Court’s comment about “perfect
compensation” was made in the context of discussing the purpose of an
award of damages for patent infringement — compensation. The Court noted that
the concept of compensation rejects both under-compensation and over-compensation.
In the circumstances then before the Court, this required consideration of
both: (i) what, if any, non-infringing product the defendant or any other
competitors could and would have sold “but for”
the infringement; and, (ii) the extent lawful competition would have reduced
the patentee’s sales.
[35]
The Court then went on to note at paragraph 55
the hypothetical and theoretical nature of the exercise of quantifying damages
for patent infringement:
… a patentee claiming damages is required to
reconstruct the market to project economic results that did not occur. This
is a hypothetical enterprise. To “prevent the hypothetical from lapsing into
pure speculation” courts require sound economic proof of the nature of the
market and the likely outcomes with infringement factored out of the economic
picture. Within this framework, patentees are permitted to present market
reconstruction theories showing all of the ways in which they would have been
better off in the “but for” world. A fair and accurate reconstruction of the
“but for” world must also take into account relevant, alternative actions an
infringer foreseeably could and would have undertaken had he not infringed.
(underlining added)
[36]
The “but for”
world is of necessity a hypothetical and theoretical construct. It is not a
world where, in the words of Lord Shaw, “the loss is
capable of correct appreciation in stated figures.” It follows that the
Federal Court did not err in principle by quoting Lord Shaw or by referring in
its reasons to a “broad axe”. On a fair reading
of its reasons, the Federal Court did not proceed on the basis that what was
required was “rough justice”. The Court looked
to economic proof of the nature of the levofloxacin market and the likely
outcomes in that market when Teva’s infringement was factored out.
2.
The asserted factual errors
[37]
I now turn to the three factual assumptions that
underpinned Scenario A that Teva asserts were unproven or rejected by the
Federal Court. They are that:
a.
Levaquin competed directly against the other two
respiratory fluoroquinolones, and did not compete directly against other
antibiotics.
b.
The competitive market was highly promotion
sensitive.
c.
Levofloxacin and moxifloxacin would have been
preferred equally by prescribers during the years 2005 to 2010.
[38]
It is well-settled law that for any weight to be
given to an expert’s opinion, the facts upon which the opinion is based must be
proven (see, for example, R. v. J.-L.J., 2000 SCC 51, [2000] 2 S.C.R.
600, at paragraph 59). In the present case, this required Janssen to prove the
factual assumptions that underlay Scenario A.
[39]
However, for the following reasons I have not
been satisfied that the Federal Court erred by relying on unfounded or rejected
assumptions as Teva asserts.
(a)
Levaquin competed directly against the other two
respiratory fluoroquinolones
[40]
At paragraph 105 of its reasons the Federal
Court found that:
•
Once Tequin disappeared from the market “most doctors would have switched to levofloxacin or
moxifloxacin but some may have switched to other products such as CIPRO or one
of the macrolides”.
•
The relevant comparator market is the respiratory
fluoroquinolone class.
[41]
Teva asserts that the first finding is
incompatible with the second finding because the first finding rejects a major
assumption of Scenario A — that the competitive market for levofloxacin was a “closed, zero-sum market involving only levofloxacin,
gatifloxacin and moxifloxacin” (paragraph 33, Teva’s memorandum of fact
and law).
[42]
I begin my analysis by rejecting the premise of
Teva’s argument. Scenario A is not based on the assumption that doctors who
would have prescribed Tequin would only prescribe Avelox or Levaquin in its
stead, and would not prescribe other alternatives such as Cipro or one of the
macrolides. The only zero-sum aspect to Scenario A is that any increases in
sales Levaquin could obtain in the “but for”
world could only come from the share of actual prescriptions issued in respect
of the other respiratory fluoroquinolones, Avelox or Tequin.
[43]
Scenario A assumes that “but
for” Teva’s infringement Levaquin would have maintained its level of
prescription volume “and would have also captured a
proportion of the growth in AVELOX® prescriptions” after Tequin was
removed from the market (expert report of Dr. Rosenblatt, Appeal Book, volume
13, tab 31, at paragraph 49). Whether other drugs would have captured some of
Tequin’s market share is irrelevant to this assumption. It follows that the two
findings of the Federal Court are not incompatible with one another.
(b)
The competitive market was highly promotion
sensitive
[44]
Dr. Rosenblatt’s opinion was premised on the
assumption that because Levaquin was prescribed as an acute, rather than
chronic, treatment, every prescription was considered a “new” prescribing decision and these decisions were
significantly impacted by the promotional efforts of pharmaceutical sales
representatives (expert report of Dr. Rosenblatt, Appeal Book, volume 13, tab
31, at paragraph 42). Teva points to the Federal Court’s findings, at paragraph
105, that:
•
Visits by sales representatives to physicians
promoting a drug have an effect at the initial launch stage of a product, but a
lesser effect later.
•
Doctors’ prescribing practices are significantly
affected by “what they are familiar with and seems to
work best for their patients.”
Teva argues that
in light of these findings Dr. Rosenblatt’s opinion was based upon an unfounded
assumption. Put another way, prescribing decisions were not significantly
impacted by promotional efforts.
[45]
In my view, Teva’s argument parses Dr. Rosenblatt’s
opinion and its reliance on the role of the promotional efforts of
pharmaceutical sales representatives.
[46]
Virtually all promotion of a branded drug stops
when a generic version of the branded drug enters the market. This is because
pharmacies substitute the generic product for the branded product. Dr.
Rosenblatt’s comment about promotional efforts was given in the context of
explaining how, notwithstanding declining growth in 2004 in the volume of prescriptions
issued for Avelox, Bayer’s continued promotion of its drug Avelox contributed
to increase the sales of Avelox at a time when there was no competitive promotion
from Levaquin or Tequin.
[47]
This does not detract from the assumption in
Scenario A that had Janssen continued its pre-infringement promotion efforts it
would have, at a minimum, maintained Levaquin’s pre-damages market share of the
pre-damages period Avelox and Levaquin market, and would likely have increased
its total prescription volume. As Dr. Rosenblatt had previously noted in his
opinion at paragraph 37, during the time frame between 2000 and 2004, while
Janssen was continuing to promote Levaquin, the number of prescriptions issued
for Levaquin was not materially impacted by the entry of Avelox and Tequin into
the competitive market.
(c)
Levaquin and Avelox would have been preferred
equally by prescribers during the years 2005 to 2010
[48]
Teva argues that the only evidence to support
Dr. Rosenblatt’s assumption that Levaquin and Avelox would have been equally
preferred was that of Dr. Chan. Dr. Chan’s evidence is said to be flawed for a
number of reasons, including the Federal Court’s comment that it would “treat Dr. Chan’s evidence with caution.” (reasons,
paragraph 16). Teva also argues the Court ought to have accepted the evidence
of its expert, Dr. Simor, who the Federal Court found gave his evidence “in a straightforward and candid manner.” (reasons,
paragraph 20).
[49]
I reject these submissions for the following reasons.
[50]
First, in cross-examination Dr. Rosenblatt
testified that he too had come to the independent opinion that Levaquin’s pre-damages
period market share was the appropriate measure to use in calculating loss in
the “but for” world. At the time of infringement
Levaquin had maintained 51.8% of the combined levofloxacin/Avelox market (expert
report of Dr. Rosenblatt, Exhibit 5, Appeal Book, volume 13, tab 31, at
paragraph 56). Thus, it is not correct to say that Dr. Rosenblatt’s opinion
rests solely on the evidence of Dr. Chan.
[51]
Second, it was open to the Federal Court to
prefer the evidence of Janssen’s experts over that of Teva’s experts. Teva has
not shown the Federal Court to have misapprehended the evidence tendered before
it about physician prescribing practices.
[52]
Finally, having heard Dr. Chan’s testimony, the
Federal Court accepted that he was qualified to opine as “a medical doctor with a specialist certification in
respiratory medicine and expertise regarding respiratory tract diseases, antiinfectives,
and prescribing practice including expertise on the Canadian antibiotic
guidelines.” (reasons, paragraph 16). While Dr. Chan’s lengthy answers
and apparent umbrage at having his opinions challenged on cross-examination may
have led the Federal Court to view his evidence with caution, this falls far
short of a finding that any aspect of his evidence was not credible.
B.
Did the Federal Court err in finding that Janssen
had taken appropriate steps to mitigate its loss?
[53]
I begin by setting out the legal principles
that underlie the concept of mitigation and then consider the errors asserted
by Teva.
1.
The concept of mitigation
[54]
The concept of mitigation may be succinctly
expressed: a plaintiff is not entitled to recover compensation for loss that
could have been avoided by taking reasonable action. Pursuant to this concept,
any loss is disallowed when the loss flows from the plaintiff’s inaction, as
opposed to the defendant’s wrong.
[55]
What constitutes reasonable action is in every
case a question of fact, depending on the particular circumstances of the
plaintiff and the case. This said, as is the case with the concept of
remoteness, a finding that a plaintiff ought to have mitigated its loss is not
a simple question of fact because it also involves a legal conclusion.
[56]
The burden of establishing the failure to
mitigate is on the defendant. The defendant must show both that the plaintiff
failed to make reasonable efforts to mitigate and that mitigation was possible
(Southcott Estates Inc. v. Toronto Catholic District School Board, 2012
SCC 51, [2012] 2 S.C.R. 675, at paragraph 24).
[57]
In case of doubt, a plaintiff will generally
receive the benefit of the doubt on the ground that a defendant should not be
overly critical of a plaintiff’s good-faith effort to avoid difficulties caused
by the defendant’s wrongful act (S. M. Waddams, The Law of Damages, looseleaf
(Toronto: ON: Thomson Reuters Canada, 1991) at paragraph 15.140). In Banco
de Portugal v. Waterlow & Sons, Ltd., [1932] A.C. 452 (H.L.), Lord
Macmillan expressed this concept as follows (at page 506):
Where the sufferer from a breach of contract
finds himself in consequence of that breach placed in a position of
embarrassment the measures which he may be driven to adopt in order to
extricate himself ought not to be weighed in nice scales at the instance of the
party whose breach of contract has occasioned the difficulty. It is often
easy after an emergency has passed to criticise the steps which have been taken
to meet it, but such criticism does not come well from those who have
themselves created the emergency. The law is satisfied if the party placed
in a difficult situation by reason of the breach of a duty owed to him has
acted reasonably in the adoption of remedial measures, and he will not be
held disentitled to recover the cost of such measures merely because the party
in breach can suggest that other measures less burdensome to him might have
been taken.
(underlining added)
[58]
This principle applies equally to cases of patent
infringement. A plaintiff’s conduct is not to be weighed against a single
standard of objective reasonability.
2.
The reasons of the Federal Court
[59]
After correctly reviewing the applicable legal
principles, the Federal Court turned to the evidence of what Janssen actually
did to mitigate its loss. The Court then wrote, at paragraph 146, that:
This is what was actually done. There is no
evidence from Teva as to what ought to have been done. There are only
assertions by Teva’s lawyers in argument as to what ought to have been done and
when. The Court has no evidence from any marketing person from Teva or any
other evidence to suggest that the steps actually taken by Janssen were too
late or inadequate.
[60]
At paragraph 147 the Federal Court concluded
that it could not find that the steps taken by Janssen were insufficient to
mitigate the damages incurred.
(a)
The asserted errors
[61]
Teva now argues that the Federal Court’s
analysis was flawed in that the Federal Court:
a.
Misapprehended the evidence by finding that once
Janssen regained market exclusivity for Levaquin it could not raise prices
charged to hospitals “as it was bound by an existing
contract.” (reasons, paragraph 143).
b.
Erred in law or committed a palpable and
overriding error when it concluded at paragraph 146 that there was “no evidence from Teva” on the issue of mitigation.
c.
Erred in law by referring in its mitigation
analysis to the date that leave to appeal the liability decision to the Supreme
Court of Canada was refused.
[62]
In my view, the Federal Court did not err as
asserted; in substance Teva impermissibly asks this Court to re-weigh the
evidence. I reach this conclusion for the following reasons.
(b)
The prices charged to hospitals
[63]
Teva argues that Janssen did not prove the
existence of any contract that precluded a price hike once Novo-levofloxacin
was removed from the market, and that Janssen’s witness Mr. Stewart admitted
that Janssen could have raised the prices it charged to hospitals once it
regained market exclusivity. Mr. Stewart was a Business Unit Director at
Janssen Canada who testified about Janssen’s marketing strategy and business
decisions in respect of the sale of Levaquin in Canada.
[64]
While the Federal Court’s reference to a
contract was unfortunate, this error was not material to the Court’s analysis —
the Federal Court understood that as a practical matter Janssen would not raise
prices to its customers and that there were business reasons to support this
approach. That the Federal Court understood these matters is reflected in paragraph
117 of its reasons where the Federal Court quoted at length the testimony of
Mr. Stewart on these points:
Q. Did the presence of Novopharm
in the market have an effect on Janssen hospital pricing?
A. Yes, to the extent that,
once you have lost all your opportunity to partner with the hospitals and
specialists, you don't have anything left except a generic strategy. The
only thing you have left to try to leverage to try to hold on to your business
is lower your price and compete on price.
In |||||||||| of ||||||||||, we lowered
our hospital prices another |||| percent
universally across the board so all hospitals had an opportunity to save money because we also had no resources to go out and differentiate
between the hospitals on a pricing standpoint. This was a blanket drop in the
price as a result.
Q. Before Novo-levofloxacin came to
the market, did Janssen intend to lower its hospital prices?
A. There was no plan to implement
that |||| percent reduction across the board
strategy.
…
Q. In the period after Novopharm
left the market, did that have an effect on Janssen’s hospital prices for
LEVAQUIN?
A. There was no change to our
hospital pricing.
Q. How come?
A. You have established
relationships and listings based on the hospital prices that have been offered
for the last two years plus. We are not going to rock that boat and change it
on these customers. It is not the way we operate.
…
Q. Your [sic] told Mr. Wilcox
when he was asking you about the price drops in the hospitals -- pardon me, Mr.
Markwell -- that after you had lowered the hospital prices in 2006 when you
regained the market, you didn’t want to raise them because you didn’t want to
rock the boat, yes?
A. Yes.
Q. By that, you meant you could
alienate customers and they would buy the product from someone else?
A. We were coming into the market
with other hospital antiinfectives that was the future of our antiinfective
franchise at the time. Why would you want to upset the customer by nickel and
diming then [sic] on one when you want to come in later then asking them
to list enough?
(underlining added)
[65]
Teva has not shown any palpable and overriding
error on the part of the Federal Court with respect to Janssen’s ability to
raise the price charged to hospitals for Levaquin.
(c)
Teva’s evidence on mitigation
[66]
Teva complains that the Federal Court failed to
consider evidence relevant to mitigation and erred by stating that there was “no evidence from Teva”. Teva points to the following
evidence on mitigation, which it characterizes to be “ample”
to establish that Janssen failed to mitigate its loss (Teva memorandum of fact
and law, paragraph 55):
•
Dr. Chan’s evidence in cross-examination that
had Janssen started to market Levaquin again in October 2006, it could have
grown its market share (Appeal Book, volume 3, tab 18, page 635, lines 7-14).
•
Dr. Rosenblatt’s evidence on cross-examination
that it would be reasonable for Janssen to promote Levaquin in 2006 when it
regained market exclusivity (Appeal Book, volume 1, tab 15, page 381, line 25 to
page 382, line 6).
•
Dr. Grootendorst’s testimony that if the market
was as sensitive to promotion as suggested by Drs. Chan and Rosenblatt, Janssen
“had every incentive to promote Levaquin upon regaining
exclusivity in October 2006” (expert report, Exhibit 52, Appeal Book,
volume 47, tab 78 at paragraph 164).
[67]
I begin my analysis of Teva’s submission by
observing that Teva takes out of context the Federal Court’s statement that
there was “no evidence from Teva as to what ought to
have been done … only assertions by Teva’s lawyers in argument”. The
Federal Court’s comment was a correct observation that Teva had led no fact or
expert evidence directed to what would constitute reasonable action on the part
of Janssen in the “but for” world. As the
presiding Judge observed during oral argument:
Where is your marketing guy, your guy? You
are looking at stray stuff in cross-examination from people who are outside the
field and you saying ah-ha. Give me something you can sink your teeth into.
(Appeal Book, volume 4, tab 24, page 1525,
lines 15-18)
[68]
This is, in my view, a fair characterization of
Teva’s effort. Given Mr. Stewart’s evidence as to what Janssen did and his
explanation for why Janssen acted as it did, the above evidence falls short of
demonstrating any reviewable error on the part of the Federal Court. Moreover,
the following may be said about the specific evidence Teva relies upon.
[69]
First, a global comment: none of Drs. Chan,
Rosenblatt or Grootendorst were qualified to opine on the reasonableness of
Janssen’s business decisions. This is particularly true of Dr. Chan whose area
of expertise was specialist certification in respiratory medicine and expertise
regarding respiratory tract disease, antiinfectives and prescribing practice.
[70]
Second, Dr. Rosenblatt’s “admission” was significantly qualified. When asked if
it “makes sense” for Janssen to promote Levaquin
in 2006 he responded:
A. It could make sense to promote. It
could make sense to promote right away. That would depend on the overall
strategic decisions that the company is making about where they want to invest
and where they don’t want to invest, etc.
Q. If you want to generate a return
on investment, bring your market back to where you think it should be. It is
reasonable to take the steps of promoting if you believe that promotion is
effective.
A. You would likely begin promotion.
Q. Likewise, if Janssen was on a fast
track to have an injunction issued, they had a case and were on a fast track to
get an injunction to drive Novapharm off the market, it would have made some
sense, been reasonable, to maintain some level of promotion to maintain the
product with the reps before the doctors if they had a reasonable chance of
winning?
A. I can’t say “yes” because you
need to tell me what timeframes you are looking at, how long, what the likelihood
that they would get back on the market, if they would get back on the market in
three months or two years.
(underlining added)
(Appeal Book, volume 1, tab 15, page 381,
line 25 to page 382, line 18)
[71]
Finally, Dr. Grootendorst was qualified as an
expert in health and pharmaceutical economics. His evidence that if the market
was sensitive to promotion Janssen had “every incentive
to promote Levaquin upon regaining exclusivity in October 2006” falls
far short of demonstrating Janssen’s actions were unreasonable in failing to do
so. I agree with the Federal Court’s characterization of Dr. Grootendorst’s
statement:
That is an assumption rebutting an
assumption. I am looking for some meat and potatoes. I am not looking for some
stray crumbs under the table.
(Appeal Book, volume 4, tab 24, page 1526,
lines 15-18)
[72]
Before leaving this issue, Teva endeavored to
impugn Mr. Stewart’s evidence by pointing to his admission on cross-examination
that he was unaware that Janssen had held a Levaquin relaunch meeting in April
2006, and his admission that Janssen could have started to promote Levaquin
shortly after October 2006. In my view, Teva overstates the effect of Mr.
Stewart’s testimony. I reproduce portions of his testimony about Janssen’s
ability to promote Levaquin:
Q. Yes. There are other slides, yes.
Given that a planning meeting, a SWAT analysis, and so forth had been done in
April for relaunching the brand, the brand could have relaunched soon after
October 2006; right?
A. Only if they did something
about it.
Q. You said it would take time a work
up a plan. The plan has already been worked out. All they need to do is assign
detailers; right?
A. I am trying to find the plan
part. There was an analysis done but no plan built that I can see unless I am
missing something. It seems to be focused on the 750. It looks like, from
the focus on the 750, they were looking at reigniting the promotion of the 750
as discussed earlier to set the stage for the ceftobiprole/doripenem launch and
using the knowledge of through the LEVAQUIN marketplace data to better
understand the market for those two new brands.
…
Q. It would have been possible to
have people who were already detailing physicians to mention that Janssen was
back in the market, that LEVAQUIN samples were on the way?
A. Anything is possible.
Q. It wouldn’t have cost any addition
[sic] resources to do that?
A. We have nothing to back up what
we told them. We have no samples. Nothing is on order. Nothing is coming in
from supply chain. We have no materials.
Q. That could have been arranged for
in April?
A. By April.
Q. Could have been arranged for in
April of 2006 when the strategy meeting was held?
A. We are not going to do anything
to order any supply in a product that is going to get swapped out with a Teva
product by the pharmacists until we won the case.
(underlining added)
(Appeal Book, volume 3, tab 18, two extracts:
page 952, lines 1-17 and page 953, line 23 to page 954, line 13)
[73]
Reading the testimony of Mr. Stewart fairly and
in context, Teva has failed to demonstrate any error in the Federal Court’s
appreciation of the evidence as a whole.
(d)
The Federal Court’s reference to the date the
Supreme Court dismissed the application for leave to appeal from the liability
decision
[74]
Teva argues that it was an error in law for the
Federal Court to refer to the date the leave application was dismissed because
Janssen did not suggest that the Levaquin relaunch was delayed because of the
leave application.
[75]
Teva’s complaint stems from paragraph 142 of the
reasons of the Federal Court. There, in a paragraph introducing the issue of
what steps Janssen actually took to mitigate its loss, the Court recited the
procedural history of the litigation dealing with patent validity and
infringement. That history included the date on which the leave application was
dismissed. Thereafter, the date the leave application was dismissed played no
role in the Court’s mitigation analysis.
[76]
No reviewable error has been shown.
C.
Did the Federal Court err in its quantification
of lost sales to hospitals in the “but for” world?
1.
The reasons of the Federal Court
[77]
In order to situate Teva’s submissions it is
necessary to first review briefly the relevant findings of the Federal Court
about hospital sales.
[78]
As a matter of law if, as a result of actions of
an infringer, a patentee or a person claiming under a patentee must reduce the
sale price of a patented ware, a claim for damages may be advanced for price
suppression (AlliedSignal Inc. v. Du Pont Canada Inc. (1998), 142 F.T.R.
241, 78 C.P.R. (3d) 129, at paragraph 23; aff’d. (1999), 235 N.R. 185, 86
C.P.R. (3d) 324, citing Colonial Fastener Co. v. Lightning Fastener Co.,
[1937] S.C.R. 36 at page 47). As explained above, the Federal Court accepted
Janssen’s evidence that it was required to reduce its prices to hospitals by ||||||||
when Teva entered the market with its infringing product, and could not later
raise its prices after Teva was restrained from selling its infringing product
(reasons, paragraph 117).
[79]
The evidence before the Federal Court showed
that hospitals may acquire drugs directly from a drug company (in this case
Janssen) or indirectly from retailers or wholesalers. The Federal Court found
that hospitals are demanding about the prices they pay; they generally require
drug companies to discount their selling prices. It followed, and the Court
accepted, that the higher the volume of sales made indirectly to hospitals, the
higher Janssen’s profit margin would be; this was so because tablets sold
indirectly were tablets Janssen had sold to retailers or wholesalers at a
higher price (reasons, paragraph 125).
[80]
On the evidence before it the Federal Court found
that the competing experts Drs. Rosenblatt and Grootendorst “agreed that there was no precise way in which to determine
the percentage of indirect sales to hospitals.” Dr. Rosenblatt
calculated a figure of |||||||||||| while Dr. Grootendorst calculated a figure of
||||||||||
(reasons, paragraph 126).
[81]
The Federal Court preferred the opinion of Dr.
Rosenblatt who “explained and justified his selection
of ||||||||||||”
and his view was said to be substantiated by the testimony of Mr. Stewart and by
discovery read-ins (reasons, paragraph 127). By contrast, in cross-examination
Dr. Grootendorst “agreed that he was given this [||||||||||]
figure by Counsel for Teva and that his own calculations, at least for the year
2004, would yield a figure of about ||||||||” (reasons, paragraph
128).
[82]
Faced with counsel for Janssen’s concession in
final argument that “the figure of ||||||||||||
was high estimate” the Federal Court stated that it applied the “broad axe” approach. Noting that the median between ||||||||||||
and ||||||||||
was ||||||||||||,
but further noting that based on Dr. Rosenblatt’s approach a higher figure was
more probable, the Court determined that “an appropriate
figure to use” was |||||||| (reasons, paragraphs 129 to 131).
[83]
Additionally, a patentee or a person claiming
under a patentee is entitled to damages sustained after the patent has expired
in respect of losses caused by the infringer’s activities which occurred while
the patent was in force. Noting that “[p]rescriptions
would have to be filled, contracts complied with, and other existing
obligations incurred during a period of price suppression when the patent was
in force would have to be fulfilled” the Court found that hospital
losses would terminate on June 30, 2010, about a year after the patent expired
on June 23, 2009 (reasons, paragraphs 107 to 112). This conclusion was also
said to result from the application of the “broad axe”
principle because the record did not support the dates proffered by either
Janssen’s or Teva’s respective experts. Unsurprisingly, the date proffered by
Janssen’s expert maximized its loss, while the date proffered by Teva’s expert
minimized the loss.
2.
The asserted errors
[84]
Again, Teva asserts a number of palpable and
overriding errors of fact and errors of law on the part of the Federal Court
when it determined Janssen’s damages in respect to sales of Levaquin to
hospitals. Broadly speaking, errors are alleged with respect to the Federal
Court’s finding that Janssen’s indirect sales to hospitals in the “but for” world were |||||||| of the total sales in the real
world, and with respect to the period in which the Court calculated Janssen’s
loss. More specifically, Teva asserts that the Federal Court:
a.
made a palpable and overriding error of fact in
finding that there was “no precise way” to
determine the percentage of sales made indirectly to hospitals;
b.
made a palpable and overriding error of fact in
finding that the assumptions made by Dr. Rosenblatt to calculate indirect
hospital sales were based on facts presented at trial while at the same time misapprehending
the basis of Dr. Grootendorst’s calculations;
c.
erred in law in applying a “broad axe” to determine Janssen’s indirect sales to
hospitals; and,
d.
erred in selecting the date on which damages
resulting from lost sales to hospitals ceased.
[85]
Again, for the following reasons, Teva has
failed to persuade me that the Federal Court so erred.
(a)
Was there a “precise
way” to determine the percentage of sales made indirectly to hospitals?
[86]
During oral argument of the appeal, counsel for
Teva agreed that neither Dr. Rosenblatt nor Dr. Grootendorst possessed data
that would permit a precise method of determining the percentage of indirect
sales to hospitals. Teva argued, however, that on discovery Janssen’s “fact witness testified that Janssen’s Finance Department did
have records of all of its hospital sales that could be used to determine the
actual quantity of Levaquin sold to hospitals” (Teva’s memorandum of
fact and law, paragraph 67, referencing Exhibit 61). Teva also submitted that
Janssen’s accounting expert, Mr. Cohen, admitted in cross-examination that he
could have looked at all the claims made to Janssen for sales to hospitals in
order to calculate the actual indirect hospital sales made by Janssen, but he did
not do so. It follows, says Teva, that once it was clear that Janssen had
records that could have been used to quantify the sales, the Federal Court
ought to have preferred Dr. Grootendorst’s evidence.
[87]
There are two answers to this submission in my
view.
[88]
The first answer is based on the evidentiary
record. In cross-examination Mr. Cohen was asked whether he made any
independent determination of the percentage of hospital sales that were
indirect. He responded:
A. That is correct. That is
impossible to do. Although, I think Mr. Mak might have taken a shot at it by
doing the calculation he did.
Q. You say it is impossible to
determine the percentage of indirect hospital sales?
A. Yes, because Janssen doesn’t
keep specific records as to what the wholesaler did with the product. That
was the issue, to try and determine the indirect.
(underlining added)
(Appeal Book, volume 2, tab 16, page 482,
line 25 to page 483, line 5)
[89]
This is an unequivocal statement that the
records Teva says were not produced did not exist. Later, in the passages of
his evidence relied upon by Teva, Mr. Cohen spoke of records Janssen did
possess relating to certain credits paid to wholesalers who had sold Levaquin
to hospitals, and then sought a price reduction from Janssen. When asked if
those records could be used to calculate the actual quantity of units sold
indirectly to hospitals Mr. Cohen responded:
A. It may depending on the details
that are there on the credits and if they are complete or not. Yes, if the
information is on the credit slips or however they do it.
(underlining added)
(Appeal Book, volume 2, tab 16, page 486, lines
4-7)
[90]
This evidence falls far short of establishing
the existence of records that would allow a precise calculation of the totality
of indirect sales.
[91]
This is consistent with Mr. Cohen’s reply expert
report (Exhibit 9) where at paragraph 30(a), he stated “Janssen
Canada, in its undertaking responses, indicated that, “Janssen does not know
how many [of its] sales to hospitals were through wholesalers”.” In
support of this statement Mr. Cohen cited “Janssen
Answers to Undertakings from Day 5 of Examination for Discovery of Mike Park,
Item #634, Question 3163 (T-2175-04). Also refer to Mr. Park’s Examination for
Discovery dated September 16, 2013 (Questions 433-434), September 17, 2013
(Question 640) and October 21, 2014 (Questions 3333-3337).”
[92]
This position is also consistent with Janssen’s
counsel’s statement during discovery that finance officials had advised that
records of the sort Teva alleged did not exist. This exchange is captured in
Teva’s Read-Ins (Exhibit 61, Appeal Book, volume 57, tab 87, page 22522).
[93]
The evidence adduced by Janssen about the lack
of records relating to hospital sales made by others is more cogent than that
relied upon by Teva. In any event, the evidence Teva points to is insufficient
to establish any palpable and overriding error in the Federal Court’s
appreciation of the evidence.
[94]
As to the second answer to Teva’s submission,
this Court has not been pointed to any indication that Teva took issue with
Janssen’s response to undertakings which denied the existence of records of
indirect sales. Nor have we been pointed to any indication that Teva squarely
raised the existence of missing or suppressed records before the trial judge.
It is too late to raise this issue on appeal.
(b)
The experts’ assumptions
[95]
Leaving aside Teva’s submission, rejected above,
that Janssen possessed documents that could be used to calculate the indirect
sales of Levaquin to hospitals, Teva’s complaint with Dr. Rosenblatt’s
methodology is that “he was asked to calculate the
percentage in reverse by assuming a hospital tablet price given to him by Counsel
and using third-party data.” Teva asserts that Dr. Rosenblatt did not
select the third-party data he used, and that he admitted that better
third-party data could have been purchased to calculate indirect sales to
hospitals (Teva’s memorandum of fact and law, paragraph 69).
[96]
Dr. Rosenblatt relied upon data provided by a
division of IMS Health, an organization that provides information about the
sales, utilization and promotion of “virtually all”
pharmaceutical products globally to its main customers. The main customers of
IMS are pharmaceutical companies, both research-based and generic, the finance
and investment community, medical researchers and governments (expert report of
Dr. Rosenblatt, Exhibit 5, at paragraph 6). Teva and Janssen obtained this data
jointly and shared the cost of acquiring the data.
[97]
Reading Dr. Rosenblatt’s cross-examination on
this issue fairly it is not clear that he acknowledged that better IMS data was
actually available — he was told it was not available. Moreover, he testified
as to the steps he took to verify the reasonableness of his methodology and the
results it produced (Appeal Book, volume 1, tab 15, page 386, line 11 to page
387, line 11).
[98]
Given Teva’s participation in obtaining the data
utilized by Dr. Rosenblatt, Dr. Rosenblatt’s evidence as to how he verified the
reliability of his methodology and Teva’s failure to demonstrate that any
additional data was available and that it would have materially impacted Dr.
Rosenblatt’s calculation, no palpable and overriding error has been
demonstrated on the part of the Federal Court in accepting Dr. Rosenblatt’s
evidence.
[99]
Teva complains that the Federal Court also erred
by misapprehending Dr. Grootendorst’s cross-examination so that it concluded,
erroneously, that the percentage of indirect hospital sales applied by Dr.
Grootendorst in his report was provided to him by counsel for Teva.
[100] Dr. Grootendorst’s expert report, Exhibit 52, recites in Table 12
the number of retail and hospital 500 mg units of Levaquin sold by Janssen from
2000 to 2004. Footnote 43 to his report discloses the source of the data.
Footnote 43 states:
I was provided with the data in Tables 12-14
by Aitken Klee LLP [counsel for Teva]. I calculated the percentages shown in
the bottom row.
(Appeal Book, volume 47, tab 78, at page
18018)
[101] On cross-examination Dr. Grootendorst agreed that for his
calculation of hospital sales he used data provided by counsel for Teva (Appeal
Book, volume 3, tab 21, page 1298 lines 4-7).
[102] While the percentage Dr. Grootendorst calculated was his own, that
percentage resulted from Dr. Grootendorst’s application of basic, elementary
school mathematics to data provided by counsel for Teva.
[103] Teva has shown no material flaw in the Federal Court’s understanding
of the evidence.
(c)
The application of the “broad
axe”
[104] Next, Teva complains that the Federal Court failed to follow a
principled approach in assessing damages; a judge is not permitted to simply
average the numbers in competing expert reports as the Federal Court is alleged
by Teva to have done in this case.
[105] Again, Teva has not persuaded me that the Federal Court erred. The
Federal Court concluded that “Dr. Rosenblatt explained
and justified his selection of |||||||||||| in his Report”
(reasons, paragraph 127). However, in closing argument counsel for Janssen
agreed that the figure of |||||||||||| was a “high estimate”.
[106] A court may accept or reject an expert’s opinion as it sees fit (R.
v. Abbey, [1982] 2 S.C.R. 24 at page 43). In the particular circumstances
of this case, Teva has not established any palpable and overriding error of
fact or extricable error of law in the Federal Court’s discount of Dr.
Rosenblatt’s calculation of the percentage of indirect sales to hospitals based
on counsel’s concession.
(d)
The date on which damages on lost sales to
hospitals ceased
[107] As explained above, damages may continue to accrue after the
expiration of a patent if the loss flows from the actions of an infringer
committed while the patent was in force. Teva argues, however, that the Federal
Court erred by selecting June 30, 2010, as the end date for hospital damages.
It argues that once the Court found “no reasonable
basis” to support either Janssen’s claim to damages up to December,
2010, or Teva’s proffered dates based on the expiry of the patent or a few
months thereafter, it was not open to the Court to arbitrarily choose June 30,
2010 as the end date, particularly when this date was based on contracts or
obligations not established in evidence.
[108] Paragraph 110 of the Court’s reasons contains the passage that gives
rise to this argument:
In this case, it would be reasonable to
presume that some time would extend beyond the date that the patent expired. Prescriptions
would have to be filled, contracts complied with, and other existing
obligations incurred during a period of price suppression when the patent was
in force would have to be fulfilled.
[109] The Federal Court, without further analysis, then went on to find that
losses due to prescription (retail) sales would end about two months after the
patent expired, while losses based on sales to hospitals would terminate about
a year after the patent expired.
[110] It is the phrase “existing obligations
incurred during a period of price suppression when the patent was in force
would have to be fulfilled” that is relevant to the end date of hospital
losses.
[111] As set out in detail above at paragraph 72, Mr. Stewart testified,
and the Federal Court accepted, that once Janssen was required to reduce its
prices to hospitals by |||||||| it could not later reverse that price reduction.
This loss, which occurred while the patent was in force, was therefore in
effect a permanent loss that will continue for so long as Janssen sells
Levaquin to hospitals. At the time of the trial, Levaquin remained on hospital
formularies (cross-examination Dr. Simor, Appeal Book, volume 4, tab 23, page
1468, line 1 to page 1469, line 5).
[112] In this circumstance, I see no reviewable error in the Federal Court
effectively cutting off such future loss in the “but
for” world one year following the expiry of the patent.
D.
Did the Federal Court err by finding that Janssen
US was a person claiming under the patentee in Canada?
[113]
As explained above, the Federal Court concluded
that Janssen US was a person claiming under the patentee because it had “the license or permission, by acquiescence, of Daiichi, to
be involved in the chain of the sale of tablets made in Puerto Rico by Janssen
Puerto Rico, through Janssen US to Janssen Canada.” (reasons, paragraph
61).
1.
The asserted errors
[114] Teva asserts that the Federal Court erred:
a.
In law in its interpretation of the jurisprudence
that has considered subsection 55(1) of the Patent Act. Properly
interpreted, this jurisprudence is said to require a claimant to demonstrate
that it acquired rights to engage in what would otherwise amount to infringing
conduct. As Janssen US failed to demonstrate that it had acquired title to, or
ownership of, the tablets sold in Canada it failed to demonstrate that it
engaged in conduct which would amount to infringement. It followed that the
Federal Court erred in finding Janssen US to be a person claiming under the
patentee.
b.
In law and in fact by finding that Janssen US
had the permission of Daiichi to be involved in the Levaquin supply chain. Teva
asserts that to reach this conclusion the Federal Court reversed the burden of
proof. As a matter of fact, Teva asserts that Janssen US failed to demonstrate
that it had a license or permission from Daiichi to exploit the 080 Patent.
[115] For the reasons that follow, Teva has failed to establish any
reviewable error on the part of the Federal Court.
2.
The interpretation of subsection 55(1) of the Patent
Act
[116] Subsection 55(1) of the Patent Act provides:
|
55 (1) A person who infringes a patent is liable to the
patentee and to all persons claiming under the patentee for all damage
sustained by the patentee or by any such person, after the grant of the
patent, by reason of the infringement.
|
55 (1) Quiconque
contrefait un brevet est responsable envers le breveté et toute personne se
réclamant de celui-ci du dommage que cette contrefaçon leur a fait subir
après l’octroi du brevet.
|
|
(underlining
added)
|
(soulignement
ajouté)
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[117] In Armstrong Cork Canada Ltd. v. Domco Industries Ltd.,
[1982] 1 S.C.R. 907, the Supreme Court interpreted the phrase “persons claiming under the patentee” to include both
exclusive and nonexclusive licensees. At page 919 the Court held: “[i]t is the infringement of the patent which gives rise to a
liability. If that infringement causes damage to the patentee or to any person
claiming under him, the infringer must compensate for the damage sustained by
reason of the infringement of the patent. A licensee relying on this subsection
is not claiming against the infringer for infringement of his rights under the
licence, he is claiming for the damage he has sustained in consequence of the
infringement of the patent.”
[118] In Signalisation de Montréal Inc. v. Services de Béton Universels
Ltée, [1993] 1 F.C. 341, 147 N.R. 241 this Court stated that the purpose of
subsection 55(1) is to discourage patent infringement and to provide redress to
those who have a right which may be traced back to the patentee and who suffer
a wrong as a result of the infringement (decision, page 369). A person claiming
under the patentee is (decision, pages 356-357):
… a person who derives his rights to use the
patented invention, at whatever degree, from the patentee …. When a breach of
that right is asserted by a person who can trace his title in a direct line
back to the patentee that person is “claiming under” the patentee. It matters
not by what technical means the acquisition of the right to use may have taken
place. It may be a straightforward assignment or a license. It may, as I have
indicated, be a sale of an article embodying the invention. It may also be a
lease thereof. What matters is that the claimant asserts a right in the
monopoly and that the source of that right may be traced back to the patentee.
(underlining added)
[119] Courts have interpreted the phrase “persons
claiming under the patentee” broadly (see, for example, Apotex Inc.
v. Wellcome Foundation Ltd., [1998] F.C.J. No. 382, 145 F.T.R. 161, at
paragraph 360).
[120] In the present case, at paragraph 43 of its reasons, the Federal
Court concluded that for the Court to find that a party is a “person claiming under the patentee”:
• the
person must be one who, as a user, an assignee, a licensee or lessee has a
title or a right that can be traced back to the patentee (Signalisation);
• it
does not matter whether a licensee is exclusive or non-exclusive (Domco);
• the
licence must be proved but it need not exist in writing (Jay-Lor);
• the
claim must be one in respect of a use in Canada and not elsewhere in the
corporate chain (Servier).
[121] Teva has not shown any error in this articulation of the law.
[122] Teva relies heavily upon the decision of the Federal Court in Laboratoires
Servier, Adir, Oril Industries, Servier Canada Inc. v. Apotex Inc., 2008 FC
825, 67 C.P.R. (4th) 241 to argue that Janssen was required to demonstrate that
it had actual ownership of the tablets in Canada or that it otherwise engaged
in conduct which would amount to infringement in Canada.
[123] In my view, the Federal Court correctly distinguished Servier.
In Servier the Federal Court found, at paragraph 81, that none of the
foreign plaintiffs manufactured, offered for sale or imported any of the
compounds claimed in the patent at issue into Canada. There was, therefore, no
basis for finding that the foreign plaintiffs were affected by the infringement
of the Canadian patent or that they suffered any loss as a result of its
infringement. Instead, each affiliate promoted, marketed and registered the
product in its specific jurisdiction.
[124] In contrast, in the present case the Federal Court found at
paragraph 54 that:
Exhibit P38 shows that Johnson & Johnson
[J&J] is the parent company of Janssen Puerto Rico, Janssen U.S. and Janssen
Canada. It shows that Daiichi supplies levofloxacin to Janssen Puerto Rico who
manufactures finished levofloxacin tablets in Puerto Rico (Gurabo), and ships
them directly to Janssen Canada. However, the paperwork flow showing the
sales transactions is one wherein Janssen Puerto Rico sells these tablets to
Janssen U.S. who then sells them to Janssen Canada. The price at which Janssen
U.S. sells to Janssen Canada is sometimes referred to as the transfer price.
Janssen US’s claim for damages is based on alleged loss of sales to Janssen
Canada at the transfer price less costs such as payments to Janssen Puerto
Rico for the product and other expenses.
(underlining added)
[125] It follows from these findings that once infringing sales of
Novo-levofloxacin supplanted sales of Levaquin by Janssen Canada, that Janssen
US also suffered loss. None of the Servier foreign plaintiffs were
similarly harmed.
[126] Finally, to conclude on this point, I reject Teva’s submission that
Janssen US was required to demonstrate that it engaged in conduct in Canada
that would otherwise amount to infringement.
[127] As explained above, the purpose of subsection 55(1) of the Patent
Act is to provide redress to those who have a right which may be traced
back to a patentee and who suffer damage as a result of infringement of the
patent. A party need only establish that they enjoy rights under a patent in
order to be a person claiming under the patentee.
[128] It follows that Janssen US was not required to demonstrate that it
held title in Canada to the Levaquin tablets it sold to Janssen Canada.
3.
Permission from the patentee Daiichi
[129] I begin my analysis of this issue by rejecting the notion that the
Federal Court erred in law by reversing the burden of proof, so as to require
Teva to prove the lack of a license between Daiichi and Janssen US. At
paragraph 61 of its reasons the Federal Court found that “Janssen US has proven to my satisfaction that it has the
licence or permission, by acquiescence, of Daiichi, to be involved in the chain
of the sale of tablets”. This passage reflects a proper application of
the burden of proof.
[130] I now turn to whether this finding of fact is tainted by any error.
[131] As the Federal Court explained at paragraph 45 of its reasons,
Daiichi entered into a written license agreement with Johnson & Johnson
which permitted Johnson & Johnson to manufacture finished products
containing levofloxacin and to sell such products in Canada. Article 2.3 of the
license agreement (set out in full at paragraph 45 of the decision of the
Federal Court) also granted Johnson & Johnson the right to grant
sublicenses to its subsidiaries. However, Johnson & Johnson was required to
“obtain DAIICHI’s prior written consent on the contents
of such sublicense agreement”. No evidence of Daiichi’s written consent
to the grant of a sublicense to Janssen US was adduced at trial.
[132] Teva therefore argues that the Federal Court erred in concluding
that Daiichi acquiesced in Janssen US’s involvement in the Levaquin supply
chain. It also argues that to reach this erroneous conclusion the Federal Court
erred by accepting an affidavit that was based on hearsay and by drawing an
impermissible inference from the absence of any objection by Daiichi to Janssen
US’s claim for standing.
[133] I will deal first with the last two points: the arguments about
hearsay and an unfounded inference.
[134] With respect to the objection to the affidavit of Mr. Lim, at
paragraph 51 the Federal Court noted that the affidavit was “largely hearsay and of little assistance”. The Court
therefore attached “little weight” to the
affidavit. Evidence of “little assistance” given
“little weight” is not the stuff of palpable and
overriding error. When the reasons of the Federal Court are read fairly,
particularly the evidence referred to by the Court at paragraphs 48 through 50
of its reasons, the Lim affidavit was not material to the Court’s conclusion
that Daiichi acquiesced in Janssen US’s involvement in the sale of Levaquin in
Canada.
[135] As to the alleged inference, the passage Teva complains of is
contained in paragraph 66 of the reasons of the Federal Court. There, the
Federal Court distinguished the facts of this case from the facts of another
case. Daiichi’s lack of objection did not play a part in the Court’s conclusion
that Daiichi knew of, and acquiesced in, Janssen US’s involvement.
[136] What was material to the Court’s analysis was the exchange of emails
quoted at length at paragraphs 48 and 49 of its reasons, and the evidence of
Mr. Smith that, in the words of the Federal Court, employees of the Johnson
& Johnson organization “had frequent meetings and
communications with Daiichi in Japan and the United States, and that Daiichi
was well aware as to how the [Johnson & Johnson] organization was making
and selling levofloxacin finished products through one or more of its related
companies.” (reasons, paragraph 50).
[137] This evidence amply supports the factual finding of the Federal
Court. No palpable and overriding error has been shown.
[138] As I have found that the Federal Court did not err by finding that
Janssen US was a person claiming under the patentee, it is necessary to
consider the three errors asserted in respect of the award of damages to
Janssen US.
E.
Did the Federal Court err in quantifying Janssen US’s damages?
1.
The asserted errors
[139]
Teva asserts that the Federal Court erred in
quantifying Janssen US’s damages. The specific errors are said to be:
a.
awarding permanent lost market share damages to
Janssen US;
b.
failing to apply a one-month delay or lag to the
commencement of Janssen US’s damages; and,
c.
failing to deduct a royalty payment that was
contractually required to be paid.
(a)
Lost market share
[140] In its second amended statement of defence Teva pleaded that any
claim brought by Janssen US was statute barred in respect of any infringement
that occurred prior to December 19, 2005. At trial, Janssen US accepted this
(reasons, paragraph 74(2)). Teva argues that because the Federal Court awarded
damages to Janssen US on the basis of Scenario A, Janssen US was awarded the
same permanent lost market share as Janssen Canada. This is said to be in error
because the Federal Court failed to address causation or to find the facts
required to support a causal link between Teva’s presence in the market as of
December 19, 2005 and Janssen US’s permanent loss of market share.
[141] I see no error in the analysis of the Federal Court.
[142] Janssen US’s damages were based upon its lost profits on the lost
sales of Levaquin that, but for Teva’s infringement, would have been necessary
for Janssen US to supply Levaquin to Janssen Canada to fill Janssen Canada’s
lost sales from December 19, 2005 onward (expert report of Mr. Cohen, Exhibit
7, Appeal Book, volume 15, tab 33, at paragraph 31).
[143] It follows that Janssen US’s damages were necessarily caused by Teva’s
infringing sales of Novo-levofloxacin.
(b)
Additional one-month delay
[144] As described above, all of the Levaquin sold in Canada was
manufactured in Puerto Rico and shipped directly to Canada where it was
warehoused before being shipped by Janssen Canada to wholesalers, pharmacies
and hospitals. The experts agreed that in the “but for”
world three months would elapse from the time Janssen Canada ordered Levaquin
to the time it was delivered in Canada. It followed that Janssen US’s damages
began to accrue three months after December 19, 2005.
[145] Teva’s expert opined that an additional time lag beyond the three
months was required in order to account for the shipment of Levaquin from the
warehouse to the wholesaler, pharmacy or hospital.
[146] The Federal Court rejected this argument at paragraphs 114 and 115
of its decision:
Janssen’s expert, Cohen, agrees that there
is a lag when you follow the product, but says that prescription sales are a
good surrogate for ex-factory sales because they match closely (see
Chart 1 on page 11 of his Reply report, Exhibit P9). Even though the same physical
tablet is not being sold immediately from the factory to the patient, the
numbers match well enough that they can be used for economic modeling. Cohen
says there is therefore no need to build this lag into the model even when TRx
data is used.
I am persuaded by Cohen’s analysis for to say otherwise would be to create a one month window in the
middle of Janssen’s exclusivity period where they effectively have no sales. Further,
because the TRx data matches ex-factory sales closely, it is a
reasonable surrogate for the “broad axe” approach.
(underlining added)
[147] Teva now argues that the time lag applies to Janssen US. It asserts
that no party argued that the additional one-month lag would create a “window” in the middle of Janssen’s period of
exclusivity and that Janssen’s expert, Mr. Cohen, agreed that in the real world
a lag occurs between the time Janssen Canada sells Levaquin and a prescription
is filled at a pharmacy. Thus, Teva submits that the Federal Court made a
palpable and overriding error of fact by awarding damages “on the basis of a legal fiction, and a ‘counterfactual’
finding of fact” (Teva’s memorandum of fact and law at paragraph 103).
[148] In his reply expert report (Exhibits 9 and 10) Mr. Cohen explained
why the additional one-month delay proposed by Teva’s expert, Mr. Mak, was unnecessary
and how it shifted certain lost sales volumes to a time prior to Teva’s market
entry. At paragraphs 34, 37 and 38 of his report he wrote (omitting the charts
referred to in these paragraphs):
34. We do not dispute that there is a
delay from the time a unit is sold to the time when it is dispensed as a
prescription. However, this delay does not translate into an overall ‘lag’
as the Mak Report identified. Ex-factory and TRx volumes are typically similar
for participants in established markets and there is usually only a notable
‘lag’ in the TRx of participants when they are entering a market. The Mak
Report’s observations and measurement of TRx lag were based entirely on Teva’s
experience, which is different from the conditions that existed for Janssen and
from the conditions that would have existed in the “but for” world (i.e., Teva
entering the market as compared to Janssen which was already established in the
market at the time).
…
37. While ex-factory sales typically
exceed TRx volumes following the launch of a new product, once a product is
established in the market, ex-factory sales and TRx volumes will often be very
similar with no ascertainable TRx lag, reflecting that respective levels of
sales and prescriptions are more or less in balance with each other. As the
following chart shows, Janssen’s monthly ex-factory and TRx volumes for
LEVAQUIN® were closely comparable in the years prior to infringement and
remained consistent in terms of their respective quantities and erosion
patterns following Teva’s market entry in December 2004: …
38. In contrast, the following
chart shows that if Janssen’s monthly TRx volumes for the same period were
time-shifted by four months, as suggested in the Mak Report, the resulting
distribution shows virtually no correlation to the ex-factory sales pattern:
…
(underlining added)
[149] It was open to the Federal Court to accept this evidence and no
palpable and overriding error has been demonstrated. Teva has not explained why
a different result should pertain to Janssen US.
(c)
Royalty payment
[150] Janssen-Ortho LLC (Janssen Puerto Rico) was a party to a sublicense
with Johnson & Johnson which required Janssen Puerto Rico to pay a royalty
to Johnson & Johnson in respect of all Levaquin produced in Puerto Rico for
sale in Canada. In the real world, Janssen Puerto Rico did not make the royalty
payments until 2010, and then the payments were not made to Johnson &
Johnson. Rather, they were paid to a subsidiary of Johnson & Johnson.
[151] The Federal Court declined to debit royalty payments in the “but for” world until 2010 on the basis that these
royalties were not paid in the real world (reasons, paragraph 132). Teva argues
that the Federal Court erred in law by ignoring the contractual provision that
required Janssen Puerto Rico to pay royalties for Levaquin sales.
[152] In my view, it was open to the Federal Court to infer that conduct
in the real world was probative of conduct which would have occurred in the “but for” world. Teva has failed to demonstrate that
Janssen Puerto Rico would have acted differently in the “but for” world. The Federal Court did not err as
alleged.
F.
Did the Federal Court err by awarding an
excessive amount for costs?
[153] Teva does not assert any error in the Federal Court’s decision to
award costs on a lump sum basis. Nor does it submit that the $1 million lump
sum award is in and of itself excessive. Instead, Teva asserts that the award
is excessive when compared to the amount an assessment officer would have
awarded had the Janssen plaintiffs elected to have their costs assessed.
[154] The Federal Court possesses “full
discretionary power over the amount and allocation of costs” (Rule
400(1) of the Federal Courts Rules).
[155] The Supreme Court has affirmed that “costs
awards are quintessentially discretionary” and that they should only be
set aside if the court below “has made an error in
principle or if the costs award is plainly wrong” (Sun Indalex
Finance, LLC v. United Steelworkers, 2013 SCC 6, [2013] 1 S.C.R. 271, at
paragraph 247).
[156] Teva has not pointed to any authority to support the premise of its
argument that a lump sum award must necessarily correspond to the amount an
assessment officer would assess. To the contrary, in Apotex Inc. v. Merck
& Co., 2005 FCA 23, [2005] F.C.J. No. 65, this Court held that an
amount awarded as a lump sum would not necessarily correspond with an amount
assessed by an assessment officer.
[157] The Federal Court’s award of costs followed a trial that lasted ten
days. The trial raised a number of issues, many of which were complex issues.
The trial resulted in judgments totaling in excess of $18.8 million. Teva has
failed to demonstrate any error in principle or that the award is plainly
wrong.
VIII.
Conclusion and costs
[158] For the above reasons I have found all of the issues raised by Teva
to be without merit. It follows that I would dismiss each appeal with one set
of costs.
[159] As for the quantum of the costs, if not agreed I would direct that
the costs be assessed at the top of Column IV of the table to Tariff B. While
Rule 407 provides that unless otherwise ordered, costs are to be assessed in
accordance with Column III, this award reflects the number of issues, some of
dubious merit, that Teva chose to put in play and keep in play after receiving
Janssen’s responding memorandum of fact and law. The award also reflects the
fact that Teva succeeded on none of the many issues and sub-issues it required
Janssen to respond to.
[160] Finally, these reasons are being released on a confidential basis to
allow the parties to make submissions as to what confidential information must
be redacted from the reasons before they are released publicly. Counsel’s
attention is particularly drawn to paragraphs 22, 64, 78, 80, 81, 82, 84, 105,
and 111. Such submissions should be served and filed within seven days of the
date of these reasons.
“Eleanor R. Dawson”
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“I agree.
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Wyman W. Webb
J.A.”
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“I agree.
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Mary J. L.
Gleason J.A.”
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