On July 16, 2013, the Federal Court released its Public Judgment and Reasons for Judgment in Merck & Co. Incand Merck Canada Inc. v. Apotex Inc. et al. [2013] FC 751 (Lovastatin Case) awarding Merck a total of over $180 million dollars in damages and prejudgment interest for Apotex’s infringement of Merck’s lovastatin patent. In addition to the significant damage award, the decision is important for a number of legal and strategic reasons, including:

  • A clear rejection of the non-infringing alternative defence
  • Recognition that a reasonable royalty can be greater than an infringer’s willingness to pay
  • Enhanced recovery of pre-judgment interest

This case dates back to 1993 when Apotex served a Notice of Allegation in which it undertook not to infringe Merck’s lovastatin patent if it obtained a Notice of Compliance (NOC). After obtaining its NOC, Apotex promptly moved its lovastatin production to a remote location in China. At the liability trial, the Federal Court found, contrary to Apotex’s undertaking, that 70% of the lovastatin made or imported by Apotex infringed Merck’s lovastatin patent and ordered a trial to quantify Merck’s damages.

At the damages phase, Apotex argued that Merck should be entitled to only nominal damages because it had an available non-infringing alternative. Although this argument has found traction in the United States,1 it has never been accepted in Canada or the United Kingdom. The Court concluded that the availability of a non-infringing alternative is irrelevant under Canadian law. Importantly, the Court held that the Supreme Court of Canada’s decision in Monsantodid not change the law and noted that the statutory provisions of the United States with respect to damages are very different from that of Canada and the United Kingdom. The Court also held that there are strong policy reasons for rejecting the non-infringing alternative defence and would result in an inadequate compensation for injured plaintiffs "and the infringer escaping responsibility for its infringement."

In the result, the Court found that Merck is entitled to its lost profits arising from Apotex’s infringement. However, the Court made an alternative finding that should Merck be limited to a reasonable royalty, there should be (a) a single negotiation on the eve of infringement; and (b) a framework for a hypothetical negotiation which attempts to establish a bargaining range between a patentee’s willingness to accept and an infringer's willingness to pay. Importantly, the Court held that in circumstances where there is no bargaining range (i.e., where the plaintiff’s minimum willingness to accept exceeds the infringer’s willingness to pay), the royalty flowing from the hypothetical negotiation is set at Merck’s willingness to accept. Thus, an infringer’s net profit does not constitute the ceiling at which a reasonable royalty is capped. As the Court states: "Requiring a royalty equal to the plaintiff’s [minimum willingness to accept] will be the only way if adequately compensating the patentee for the unauthorized use of its technology."

Finally, on the question of prejudgment interest, previous decisions of the Federal Court have generally held that a prejudgment interest award equalling the applicable Bank of Canada rate is appropriate in patent cases.3 Importantly, the Court held that where – as in this case – a party puts forward a more "robust evidentiary record," a higher rate may be appropriate. The Court considered the parties’ own cost of borrowing to be relevant and agreed to exercise its discretion to award prejudgment interest at 1% above the Bank Rate. This is particularly significant given that the prejudgment interest award spans almost 17 years.