Canada, as in other jurisdictions, links drug marketing approval with patent rights. Innovative drug manufacturers may list relevant patents against their drugs. Such listing may then trigger a temporary, but automatic, stay of regulatory approval for other manufacturers’ generic versions of these drugs. A consequence of delaying generic market entry is that innovators are subject to potential liability for the generic’s damages where the statutory stay was unwarranted. In order to quantify these generic damages, the Court will create a “hypothetical world” in which the generic manufacturer was not prevented from entering the market.

Late in 2012, almost 20 years after this linkage scheme was first put in place, the Federal Court issued its first judgement quantifying generic damages. On November 2, 2012, the Federal Court awarded Apotex Inc. $215,529,129 in damages against Sanofi-Aventis in connection with Apotex’s attempts to market a generic version of Sanofi’s drug ALTACE (ramipril). This judgement, which follows the judgment on liability (2012 FC 553, “Sanofi”), along with two other decisions issued in 2012, introduces some measure of predictability into the mechanics of calculating generic damages.

The Federal Court, for example, confirmed in Sanofi that the potential presence of competing generics as well as authorized generics in the hypothetical world may serve to decrease generic damages in appropriate circumstances. The Federal Court also clarified that it falls to the innovator to establish the presence and impact of such generics in the hypothetical world.

With respect to authorized generics, the Federal Court in Sanofi specifically considered and rejected the argument that the relevant regulations (ie. the Patented Medicines (Notice of Compliance) Regulations or “PM(NOC) Regulations”) precluded the presence of an authorized generic in the hypothetical world. Factors the Federal Court considered in determining whether and when the authorized generic would have entered the hypothetical market included (a) the innovator’s real-world actions after genericization, (b) the factors the innovator considered when assessing the desirability of launching an authorized generic, such as the importance of the drug to the innovator, and (c) the steps taken or contemplated by the innovator regarding such a launch prior to the commencement of an application.

Sanofi did, however, introduce some uncertainty regarding the hypothetical world in which authorized generics would operate. Specifically, the Federal Court held that Sanofi would have been “caught off guard” by Apotex’s market entry because Apotex would not have had to provide Sanofi with Notices of Allegations addressing the patents listed against ALTACE in accordance with the PM(NOC) Regulations. Such a conclusion could only be arrived at if the hypothetical world of generic damages existed in the absence of the PM(NOC) Regulations altogether.

On the other hand, in the same decision, the Court considered the impact of competing generics in a hypothetical world which clearly included the operation of the PM(NOC) Regulations. For example, while Teva Limited was in a position to receive regulatory approval well before the relevant period in Sanofi, the Court found that the PM(NOC) Regulations would have continued to prevent Teva from obtaining its approval in the hypothetical world. As such, Sanofi includes an internal contradiction as to whether the hypothetical world includes the PM(NOC) Regulations.

Certainly, the Federal Court of Appeal in Merck Frosst Canada & Co. v Apotex Inc. (2011 FCA 329) appeared to conclude that the operation of the PM(NOC) Regulations should be included. In particular, the Court of Appeal framed the essential question as follows: What would have happened if the generic had not brought an application for prohibition? The question itself assumes the PM(NOC) Regulations exist, but were not triggered. As such, while in specific cases an innovator may indeed be caught off guard, this should not, it is submitted, be an inevitable result in the hypothetical world as the Federal Court may have suggested in Sanofi.

While this ambiguity awaits resolution, prudent innovators may wish to give very early consideration to the question of whether an authorized generic is appropriate in the circumstances. If inclined to launch an authorized generic, an innovator should appropriately document the decision and proposed actions.