On May 27, 2014, the Federal Court of Appeal upheld the striking of portions of Teva Canada Limited’s Statement of Claim seeking punitive and exemplary damages in an action for generic damages under section 8 of the Patented Medicines (Notice of Compliance) Regulations.[1]  Teva claimed such damages against Pfizer Canada Inc. and related companies following prohibition proceedings involving the drug sildenafil, marketed by Pfizer as VIAGRA®.

This decision helps to further define the scope of generic damages claims. For example, prior jurisprudence limited generic damages claims to their losses suffered during the liability period defined in the Regulations, and rejected claims for disgorgement of innovators’ profits.

In Viagra, the Court of Appeal referred to well-established Supreme Court jurisprudence setting the threshold for the exceptional cases in which punitive damages may be awarded.  The Court acknowledged that punitive damages have been found to be available in all types of cases, including some patent infringement cases.

However, the Court held that the Regulations preclude claims for punitive and exemplary damages because the regulatory scheme is limited to providing compensatory relief. The Court emphasized its earlier decisions holding that the wording of section 8(1) allows compensation for a generic’s losses actually incurred by reason of the operation of the statutory stay, but not for other types of relief, such as disgorgement of profits.

The Court of Appeal notably adopted the reasons of the motions judge who found support for the proposition that the Governor-in-Council intended to exclude punitive damages in the Regulatory Impact Analysis Statement (“RIAS”) discussing changes made in 2006 to section 8.  The RIAS noted that redundant, scandalous, frivolous or vexatious prohibition proceedings or applications based on ineligible patents could be dealt with summarily and with “costs available to the generic manufacturer on a solicitor-and-client basis in particularly egregious circumstances”. The motions judge held that, while costs are not a substitute for punitive damages and serve a different purpose, the RIAS shows that the Governor-in-Council put its mind to a remedy for innovators’ “particularly egregious conduct” in invoking the Regulations and chose costs, not punitive damages, as the appropriate remedy.

The Court of Appeal also held that section 8(5), which permits the Court to “take into account all matters” in assessing the “amount of compensation”, cannot sustain a claim for punitive damages.  The Court reasoned that, by their very nature, punitive damages are not compensatory.  Section 8(5) merely allows the court to adjust damages taking into account any conduct of the parties that contributes to the delay of disposition of the proceeding which is, by its nature, compensatory in nature.