The Federal Court has issued its Public Judgment and Reasons concerning the financial compensation to be paid to AstraZeneca as a result of Apotex’s infringement of the omeprazole formulation patent (AstraZeneca’s LOSEC) in AstraZeneca v Apotex Inc, 2017 FC 726.
AstraZeneca elected an accounting of Apotex’s profits after Justice Barnes found the omeprazole formulation patent valid and infringed during the liability phase (reported here). The parties had substantially settled many of the quantification issues relating to Apotex’s profits, leaving four issues for the Court to decide following a 28-day trial – all of which were decided in AstraZeneca’s favour.
AstraZeneca was successfully represented by a trial team from Smart & Biggar, including Nancy Pei, Mark Biernacki, J. Sheldon Hamilton, Urszula Wojtyra, Abigail Smith, Paul Jorgenson and Brandon Heard.
1. Apotex did not have a viable Non-Infringing Alternative
Apotex failed to prove on a balance of probabilities that it could and would have sold a non-infringing alternative (NIA) at any time during infringement (spanning 2003-2008). Apotex’s NIA defence was based on a number of formulations it designed for the purpose of the quantification trial (“in-house NIAs”), and in the alternative, product from third party foreign suppliers (“third-party NIAs”).
Justice Barnes held that an infringer’s failure to produce a viable NIA formulation in the real world is not a threshold bar to the NIA defence, and rejected AstraZeneca’s argument that a NIA must be perceived by, or foreseeable to, the infringer at the time of infringement. Rather, the question to be answered is: could the infringer have made the product had it attempted to do so at the relevant time and would the infringer have sold the product on some reasonable financial basis in substitution for the infringing product?
Justice Barnes also held that where there is brazen infringement, an inference may arise that no viable substitute was available – if it were otherwise, the rational choice would always be to employ the NIA and not the infringing product. Here, the suggestion that the development and commercial exploitation of the asserted NIAs would have been simple, cost-effective and speedy was belied by the historical facts relating to Apotex’s development of the infringing formulation.
In determining whether the NIAs were available to Apotex and were true non-infringing substitutes, the Court assessed whether the in-house NIAs would be bioequivalent to LOSEC, had sufficient stability, and would have obtained RxIP - Regulatory approval. While Justice Barnes found the in-house formulations were not infringing and, with one exception, Apotex could have made them on a commercial scale, he found that there were “serious problems of proof” regarding Apotex’s in-house NIAs, including incomplete/inconclusive data. As such, not one of the asserted NIAs was shown to be approvable or commercially viable.
Regarding the third-party NIAs, Justice Barnes found that these would only have been pursued after Apotex had tried and failed to produce and commercialize any in-house formulation. The Court accepted that, in theory, NIAs were potentially available from Kudco and Estevé. These formulations were held non-infringing in US litigation of the US counterpart patent. While potentially available, Apotex failed to establish that Apotex would have been able to obtain a supply agreement from Estevé or Kudco on a balance of probabilities. However, if a probabilistic approach were applicable (which Justice Barnes did not accept), Justice Barnes would have fixed the possibility for a Kudco supply for the Canadian market only, at 15% at a royalty rate of 35% on Apotex’s net sales.
2. Reconciling the s. 8 Judgment with the infringement Judgment
Prior to the 2015 infringement judgment, Apotex obtained a section 8 Judgment against AstraZeneca (previously reported). The infringement and section 8 quantification references were consolidated for hearing before the same Judge. The question therefore arose as to how the section 8 and infringement Judgments should be reconciled. Justice Barnes held that since Apotex necessarily had to infringe the formulation patent had it launched in the section 8 period, its claim to section 8 losses is offset by the profits it would have been required to disgorge to AstraZeneca. Therefore, Apotex was not entitled to recover pursuant to section 8 because it suffered no loss.
3. Profits on profits should be calculated at prime rate, compounded annually
While both parties agreed that a profits on profits allowance was appropriate, they disagreed as to the appropriate rate and whether it ought to be compounded. Justice Barnes held that profits on profits should be calculated at prime, compounded annually, citing evidence regarding Apotex’s cost of borrowing from third-party lenders and Apotex’s use of its profits to successfully build its business and existing jurisprudence, including the decision in ADIR v Apotex Inc, 2015 FC 721, rev’d in part 2017 FCA 23. While there was evidence that a deduction or income tax would normally be warranted when interest is compounded, no such deduction was allowed as Apotex had declined to produce its tax returns.
4. US damages paid by Apotex is a deduction from Apotex’s profits
Apotex had paid damages to AstraZeneca in satisfaction of a US judgment stemming from Apotex’s infringement of the US omeprazole formulation patent. Relying on cause of action estoppel (including the doctrine of election), issue estoppel and abuse of process, Apotex argued that AstraZeneca should not recover any of Apotex’s profits from its export sales to the US. AstraZeneca submitted that provided the US damages award is deducted from Apotex’s profits, any form of double recovery would be eliminated.
Justice Barnes agreed with AstraZeneca, reasoning that concurrent patent infringement actions are permissible in more than one jurisdiction and even necessary to ensure complete recovery across jurisdictions. As a result, there are no concerns of forum shopping, finality and multiplicity of proceedings. Therefore, none of the estoppel or abuse of process principles apply, so long as there is no double recovery for the same loss.
The final quantum of Apotex’s profits remains to be determined. Apotex may appeal as of right.
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