Urszula Wojtyra October 2 2017 AstraZeneca succeeds in omeprazole patent infringement profits case Smart & Biggar | Intellectual Property - Canada Urszula Wojtyra Intellectual Property IntroductionNo viable non-infringing alternativeReconciling judgmentsProfits on profitsDamagesIntroductionThe 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 sought an account of Apotex's profits after the Federal Court found that the omeprazole formulation patent was valid and had been infringed during the liability phase (for further information please see "AstraZeneca's LOSEC patent held valid and infringed by Apotex"). The parties had 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.No viable non-infringing alternativeApotex failed to prove on a balance of probabilities that it could and would have sold a non-infringing alternative at any time during the infringement (between 2003 and 2008). Apotex's non-infringing alternative defence was based on a number of formulations that it designed for the purpose of the quantification trial (in-house non-infringing alternatives) and, in the alternative, products from third-party foreign suppliers (third-party non-infringing alternatives).The Federal Court held that an infringer's failure to produce a viable non-infringing alternative formulation during the time of infringement is not a threshold bar for the non-infringing alternative defence, and rejected AstraZeneca's argument that a non-infringing alternative must be perceived by, or foreseeable to, the infringer at the time of the infringement. Instead, the question should be whether the infringer could have made the product had it attempted to do so at the relevant time, and would it have sold the product on a reasonable financial basis in substitution for the infringing product?The Federal Court also held that where there is brazen infringement, it may be inferred that no viable substitute was available – if it were, the rational choice would always be the non-infringing alternative. However, the suggestion that the development and commercial exploitation of the asserted non-infringing alternatives would have been simple and cost and time-effective was belied by the facts relating to Apotex's development of the infringing formulation.In determining whether the non-infringing alternatives were available to Apotex and were true non-infringing substitutes, the court assessed whether the in-house non-infringing alternatives:would be bioequivalent to LOSEC;were sufficiently stable; andwould have obtained regulatory approval.While the Federal Court found that 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 non-infringing alternatives, including incomplete and inconclusive data. As such, no asserted non-infringing alternatives were proven to be approvable or commercially viable.The Federal Court found that the third-party non-infringing alternatives would have been pursued only after Apotex had failed to produce and commercialise any in-house formulation. The court accepted that, in theory, non-infringing alternatives were potentially available from Kudco and Estevé. These formulations were previously held not to have infringed the US counterpart patent. While potentially available, Apotex failed to establish that it could have obtained a supply agreement from Estevé or Kudco on a balance of probabilities. However, if a probabilistic approach were applicable (which the Federal Court did not accept), he would have fixed the possibility at 15% for a Kudco supply for the Canadian market only, at a royalty rate of 35% on Apotex's net sales.Reconciling judgmentsBefore the 2015 infringement judgment, Apotex obtained a Section 8 judgment against AstraZeneca. The infringement and Section 8 quantification references were consolidated for hearing before the same judge. The question therefore arose as to how to reconcile the Section 8 and infringement judgments. The Federal Court held that since Apotex would have had to infringe the formulation patent had it launched in the Section 8 period, its claim to Section 8 losses was offset by the profits that it would have been required to disgorge to AstraZeneca. Apotex was therefore not entitled to recover pursuant to Section 8 because it had suffered no loss.Profits on profits While both parties agreed that a profits on profits allowance was appropriate, they disagreed as to the appropriate rate and whether it should be compounded. The Federal Court held that profits on profits should be calculated at prime and compounded annually. He cited evidence of Apotex's cost of borrowing from third-party lenders and its use of profits to successfully build its business and existing jurisprudence, including ADIR v Apotex Inc (2015 FC 721 (reversed in part 2017 FCA 23)). While there was evidence that a deduction or income tax would be warranted where interest was compounded, no such deduction was granted as Apotex had declined to produce its tax returns.DamagesApotex paid damages to AstraZeneca pursuant to a US judgment relating to 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 recover none of Apotex's profits from its export sales to the United States. AstraZeneca submitted that as long as the US damages award was deducted from Apotex's profits, any form of double recovery would be eliminated.The Federal Court agreed with AstraZeneca, reasoning that concurrent patent infringement actions are permissible in more than one jurisdiction and can be necessary to ensure complete recovery across jurisdictions. As a result, there are no concerns of forum shopping, finality or multiplicity of proceedings. Therefore, none of the estoppel or abuse of process principles apply, provided that there is no double recovery for the same loss.The final quantum of Apotex's profits remains to be determined. Apotex has appealed.For further information on this topic please contact Urszula Wojtyra at Smart & Biggar/Fetherstonhaugh by telephone (+1 416 593 5514) or email ([email protected]). The Smart & Biggar/Fetherstonhaugh website can be accessed at www.smart-biggar.ca.