On 23 July 2021 the Federal Court of Appeal dismissed Apotex's appeal of the Federal Court's reconsideration decision on the quantum of damages owed by Apotex for its infringement of eight Eli Lilly process patents relating to the antibiotic cefaclor.(1)
The initial Federal Court decision, which had awarded Lilly roughly $31 million in damages and $75 million in prejudgment interest, was overturned on appeal (for further details please see "Federal Court of Appeal overturns cefaclor damages decision on pre-judgment interest issue"). The Federal Court of Appeal remitted the decision for reconsideration solely on the quantum of prejudgment interest, requesting clarity on:
- whether Lilly had proven its losses flowing from infringement;
- why Lilly Canada's annual rate of profit on sales was used as the applicable rate of interest; and
- whether it was proper to compound pre-tax dollars rather than after-tax dollars.
On reconsideration, the Federal Court maintained its original award.(2) On the first two questions, the Federal Court held that Lilly had proven its losses and that Lilly Canada's annual rate of profit on sales was the most appropriate rate of interest as it represented the average rate of return for Lilly Canada. With respect to the tax issue, the Federal Court explained that:
- the issue had not been pleaded;
- there was no evidence in the record from either party as to Lilly's tax rate; and
- Lilly had already been exposed to tax liability on the damages that it recovered in this litigation.
In its appeal of the reconsideration decision, Apotex argued that the Federal Court had:
- failed to properly address the issues of causation and mitigation;
- given inadequate weight to the evidence of Apotex's expert;
- erred in the reasoning that supported the award; and
- failed to consider the impact of income tax on the award.
Causation
Apotex argued that Lilly could not prove that Apotex's conduct had caused the claimed loss because during the relevant period, Lilly had excess cash deposited at a bank, earning a lower rate of compound interest. The Federal Court of Appeal rejected Apotex's argument as premised in a specific lost opportunity, whereas Lilly was claiming damages for the "time value" of money. A damages award of compound interest may reflect either.
Mitigation
Apotex argued that the Federal Court ought to have considered whether Lilly had mitigated its damages. The Federal Court of Appeal declined to address this issue, which had not been raised in the redetermination hearing or the notice of appeal.
Weighing of expert evidence
Apotex argued that the Federal Court had given inadequate weight to the evidence of its expert. The Federal Court of Appeal declined to reweigh the evidence, finding that the Federal Court was entitled to prefer the testimony of one witness over another.
Reasoning supporting the award
Apotex identified several alleged gaps in the Federal Court's reasoning. For example, Apotex argued that there was:
no logical connection between the lost profits entering Lilly's 'pool of resources' and being 'spread among' all of Lilly's uses of money.
Broadly, the Federal Court of Appeal found that the awarded rate of compound interest was supported by the evidence before the Federal Court.
Impact of income tax
Finally, Apotex argued that annual tax rates can be estimated from the financial statements on the record and that the Federal Court of Appeal could direct the Federal Court to recompute the interest award accordingly. The Federal Court of Appeal agreed with the Federal Court's conclusion that such an exercise would be based on speculation, given the lack of evidence before either court on the issue.
For further information on this topic please contact Abigail Smith at Smart & Biggar by telephone (+1 416 595 2768) or email ([email protected]). The Smart & Biggar website can be accessed at www.smartbiggar.ca.
Endnotes
(1) Apotex Inc v Eli Lilly and Company, 2021 FCA 149.
(2) For further information please see "Federal Court maintains $100M+ award in cefaclor infringement damages reconsideration decision".