On June 4, 2009, in Merck Frosst Canada Inc. v. Apotex, Inc., the Federal Court of Appeal released an important decision limiting the range of damages available in actions under section 8 of the Patented Medicines (Notice of Compliance) Regulations. In particular, the Court of Appeal confirmed that section 8 damages do not include either an accounting of the innovator’s profits or any damages for loss of market share that extends beyond the period for which the generic company’s approval was actually delayed.
The Regulations are intended to provide innovators with protection from early generic entry in light of Canada’s scheme to allow early working of patented drugs by generic pharmaceutical companies (“second persons”) for the purpose of seeking regulatory approval. Under the Regulations, a drug company that files an abbreviated new drug submission (ANDS) with the Minister of Health for approval of a generic version of an innovative drug must serve a notice of allegation for each relevant patent listed by the innovator on the Patent Register. If a generic company makes an allegation of invalidity or non-infringement in respect of any patent, the patentee may apply to the Federal Court for an order prohibiting the Minister of Health from approving the ANDS on the ground that it would result in the infringement of a valid patent. The Regulations provide that the filing of such proceeding automatically stays the Minister’s approval of the ANDS for the duration of the proceeding, up to a period of 24 months.
Triggering an automatic stay is not risk-free for patentees. Section 8 of the Regulations provides that a generic company may bring an action against the patentee to receive compensation for “any loss suffered” by virtue of a delay in receiving its approval. The period of delay is defined to be the period beginning on the date on which the ANDS would have been approved by the Minister “in the absence of these Regulations,” and ending on the date of the withdrawal, discontinuance, dismissal or reversal of the proceeding brought under the Regulations. Subsection 8(4) states that the court may make such order for relief “by way of damages or profits” as the circumstances require.
Apotex’s Section 8 Claim Against Merck Frosst
In Merck Frosst, Apotex brought an action in damages under section 8, following the Federal Court’s dismissal of Merck Frosst’s application for a prohibition order in respect of Apotex’s proposed alendronate drug product. Merck Frosst defended Apotex’s damages action on a variety of grounds, including the argument that Apotex could not claim an accounting of profits or damages for any permanent loss of market share (allegedly caused by the delay attributable to Merck’s failed proceeding).
In October 2008, the Federal Court held that section 8 does not enable second persons to claim an innovator’s profits. They could claim damages for any permanent loss of market share caused during the period set out in section 8, as a result of the innovator’s unsuccessful proceeding under the Regulations. That decision also dismissed several administrative and constitutional arguments as to why section 8 should not be enforced by the federal courts.
The Federal Court of Appeal Limits the Damages Available Under Section 8
The Federal Court of Appeal affirmed the Federal Court’s finding that section 8 does not authorize a generic company to claim an accounting of profits from the innovator for any delay allegedly caused by an unsuccessful proceeding under the Regulations. While disgorgement of profits is a remedy available to a patentee under the Patent Act, the Court of Appeal emphasized that a delayed generic company is not in the same position as a patentee. The Court of Appeal held that the use of the terms “damages or profits” in section 8 should be interpreted to mean “damages or lost profits” because the purpose of this provision is to compensate generics for any delay: “a measure which compels a first person to place the second person in the position in which it would have been, if the operation of the stay had not been triggered, fits well within the contemplated balance” (para. 90). The Court of Appeal also affirmed the Federal Court’s decision on the administrative and constitutional arguments, permitting the section 8 claim to go forward.
The Federal Court of Appeal reversed the Federal Court on the issue whether a second person may claim for any ongoing loss of market share. Relying on the wording of section 8, which defines the specific period of time for which damages are available, the Court of Appeal held that an innovator is not liable for any long-term losses caused by a failed proceeding under the Regulations. Although an innovator may be liable for lost sales during the defined period, Apotex’s market share claim was barred to the extent that its alleged disadvantage (i.e., its late market entry) would result in lost sales after the period defined in section 8.