Until now, the standard narrative in Canadian law was that a non-infringing alternative defence was not available to an infringer seeking to limit its exposure to a damages award. However, with the release of the Federal Court of Appeal’s decision in Apotex Inc v Merck & Co Inc, 2015 FCA 171, this is no longer the case. 

In the first instance, the Federal Court found Apotex liable for infringement of Merck’s product-by-process patent for their anti-cholesterol drug, lovastatin, and ordered compensatory damages. Damages were calculated based in part on the Judge rejecting Apotex’ argument that it had available to it non-infringing lovastatin (i.e. lovastatin not produced by the patented process). The issue before the Federal Court of Appeal was whether potential legitimate competition from an infringer was a relevant consideration in the construction of the “but for” world, a tool used to assess the quantum of damages. The question turned on the statutory interpretation of subsection 55(1) of the Patent Act.

Subsection 55(1) of the Act was interpreted as requiring a plaintiff  to show, on a balance of probabilities, that “but for” the defendant’s wrongful conduct, the plaintiff would not have suffered loss – the Court of Appeal indicated that this invoked the principle of causation. Applying this same principle, the Federal Court had accepted that if a market third-party were able to capture certain infringing sales, the plaintiff’s only remedy in respect of those sales would be a reasonable royalty, not damages. However, the Federal Court refused to extend this principle to the infringer.

The Court of Appeal held that not including the non-infringing alternative defence would, at times, over-compensate the patentee; a finding that was not in line with the “heart of the Act”, which requires “perfect compensation”. The Court of Appeal found justification for their position in the Supreme Court’s decision inMonsanto Canada Inc v Schmeiser, as well as American jurisprudence.

Monsanto was a case dealing with an accounting of an infringer’s profits, rather than a damages assessment; however, the Court of Appeal stated that it saw no principled reason why the availability to an infringer of a non-infringing alternative should be considered when calculating profits but not when assessing damages. In the United States, if a non-infringing alternative existed, which a defendant could and would have resorted to “but for” the infringement, which was as good as the patented invention, and which would have replaced all infringing sales, the infringement is then deemed to have caused the plaintiff no damage.

The Court of Appeal also stated that an incentive to infringe would not be created if non-infringing alternatives were considered to limit damages – the availability of other remedies, such as elevated costs, injunctive relief, an accounting of the infringer’s profits, and punitive damages would counterbalance any such incentive.

Turning to the case before it, the Court of Appeal noted that the burden to establish the existence of a non-infringing alternative rested with Apotex. However, based on the evidence adduced at trial, Apotex failed to meet its burden to show that, despite manufacturing capacity, it could and would have sold non-infringing lovastatin. Merck was able to show that all of Apotex’ non-infringing lovastatin had been sold and, therefore, Apotex could not have diverted any non-infringing lovastatin to displace infringing sales. No evidence was adduced to show that Apotex would have restocked their supply of non-infringing lovastatin. Apotex’ belief that Merck’s patent was invalid also supported the conclusion that Apotex would not have pursued a further supply of non-infringing lovastatin.

In conclusion, Apotex’ appeal was dismissed; however, the dismissal came with a change concerning how damages in patent disputes are calculated in Canada.