Apotex Inc v Takeda Canada Inc, 2013 FC 1237
The Federal Court issued on December 11, 2013 its most recent decision in the evolving landscape of pharmaceutical damages claims under the Patented Medicines (Notice of Compliance) Regulations.
In Apotex Inc v Takeda Canada Inc, 2013 FC 1237 (the “Decision”), the Court refused to reduce Apotex’s profits due to its market entry ramp-up despite prior jurisprudence concluding otherwise. In reaching this conclusion, the Court departed from the strict hypothetical world analysis applied in the jurisprudence to assess a generic’s losses.
The Court also held that, in this hypothetical world, the successful generic challenger is not subject to the NOC Regulations while potential competitors are, conversely, subject thereto. The result was that Apotex benefitted both ways.
The Court also disagreed that specific non-infringement assertions in Apotex’s Notice of Allegation rose to the level of an undertaking and, as such, declined to reduce or reject Apotex’s damage award.
The Court did not quantify Apotex’s loss, preferring to provide guidance on the primary issues in dispute.
The impact of this Decision on future pharmaceutical damages claims is unclear given that the Court both relied on, and departed from, Federal Court decisions presently under appeal.
No Ramp-up in a Hypothetical World
While previous cases, such as Apo-ramipril, have held that the hypothetical world ought to reflect the market entry ramp-up experienced by the generic manufacturer this Court concluded that it was a proper exercise of its discretion to disregard it.
Ramp-up, as described by the Court, is the initial period during which the generic drug is made or acquired, orders are received from customers, and the drug is shipped to those customers. It is the period before the generic product achieves steady-state sales. Apotex experienced ramp-up in the real world after receiving its marketing approval, and this ramp-up had been reflected in the calculations of its loss in the hypothetical world.
However, the Court held that accounting for Apotex’s ramp-up in the hypothetical world constituted “double counting for the same circumstance; a disadvantage to Apotex and an advantage to Takeda.”
Referring to prior cases addressing this ramp-up, the Court held that they had focused on the second ramp-up consequences, not the “economic loss of not being able to ameliorate ramp-up which occurs inside the Relevant Period.” The Court equated the stay mandated by section 8 of the NOC Regulations to an injunction and held that section 8 is a reflection of the normal rules in civil litigation governing interlocutory injunctions. The Court then found that “[t]he intent under the [NOC] Regulations as under injunction law is to return the enjoined party to the position it would be in if the injunction/stay had not been granted ...”
Departing from prior case law, the Court held that the “hypothetical world exercise is not mandated by law; it is a useful tool in trying to arrive at proper compensation. It is not a formula nor is it to be rigidly applied.” Accordingly, the Court held that “whether a matter is double counted is relevant to assessing compensation. The purpose of section 8 is to provide proper compensation.”
Who is Subject to the NOC Regulations in the Hypothetical World
The parties disputed whether, which, and when generic competitors would have entered the market in Apotex’s hypothetical world. Key to this determination was (1) whether Apotex was subject to the NOC Regulations (and, as such, whether Takeda would have received notice of Apotex’s market entry/Notice of Allegation); and (2) whether other generics were subject to the NOC Regulations.
On the first issue, the Court held that, “in the hypothetical world, Apotex acts without the obligations and limitations of the [NOC] Regulations”. The Court explained that, underlying the conclusion in Apo-ramipril that notice would not have been given in the hypothetical world, “is the premise that notice is part of a scheme of inter-related benefits that accrue to the first person under the [NOC] Regulations; the other benefits being the right to file a prohibition application and the 24-month stay.”
Despite being currently subject to appeal, the Court nonetheless followed Apo-ramipril and concluded that Apotex would not have given notice of its NOA. Indeed, the Court even disregarded prior NOAs Apotex provided to Takeda, which were withdrawn and thus not successful. As such, the Court held that, “Takeda would not have had warning of Apotex’s intent to enter the market on the basis of these NOAs.”
In contrast, the Court held that other generics attempting to enter the hypothetical market aresubject to the NOC Regulations. Takeda could thus not claim that all other generics, for purposes of the hypothetical world analysis, would have entered the market and diminished Apotex’s market share. The Court acknowledged that this view of the hypothetical world could result in multiple recoveries against Takeda which exceed the total of real losses but suggested that this problem could be alleviated by judicial discretion.
The result of the Court’s finding is that Takeda was deemed to have been “taken by surprise” by Apotex’s market entry such that its own authorized generic would have been delayed in entering the market. Conversely, Takeda could not claim that the NOC Regulations were inapplicable to all generics, including Apotex, such that other generics would have been on the market at the relevant time.
Assertions in NOAs Must be Clear and Unequivocal to Give Rise to Enforceable Undertakings
The Court rejected Takeda’s argument that damages ought to be reduced because Apotex breached an undertaking in its NOA in an underlying prohibition proceeding that it would not market its generic product for “triple therapy” which was covered by the patent at issue.
Specifically, Apotex stated in its NOA: “nor shall our tablets be marketed or promoted to doctors, pharmacists or others to be used in combination with a Helicobacter-inhibiting anti-microbial agent or as part of a medicament package comprising said agent”, and “we allege that said claims shall not be infringed since our tablets shall not be marketed or promoted to doctors, pharmacists or others to be used in any way against a Helicobacter infection…” Takeda argued that the applications judge relied on this undertaking to find that Apotex’s allegation of non-infringement was justified and thus dismiss the prohibition proceeding.
The Court held that, “the case law does not support the proposition that a bare pleading in an NOA constitutes an enforceable undertaking. In my view, there must be more than just the allegation unless it is phrased as an undertaking. Takeda put forward no evidence that representatives of Apotex stated that the company undertook not to market or promote triple therapy.”
In so doing, the Court simultaneously elevated the evidentiary requirement to establish an undertaking, and also weakened the notice function of the NOA by suggesting that statements therein regarding future generic behaviour may not be relied on unless the word “undertaking” is used.
In this case, notwithstanding the above-noted statements in Apotex’s NOA, the Court concluded that Apotex did not actually provide an undertaking.
The Court went on to make a finding on breach if in fact an undertaking was given. In this regard, the Court found that Apotex visibly and openly marketed its product for use in “classic triple therapy”, taking no steps to prevent its generic product from being identified with triple therapy. The Court declined however to comment on how it would exercise its discretion had an undertaking been found.
The Court’s Conclusions on the Remaining Disputed Issues
The Court addressed other disputed issues as follows:
- Burden in pharmaceutical damages proceedings: the Court held that the burden falls to the party pressing the issue. The Court also rejected Apotex’s “percentage approach” to burdens, according to which the Court would apportion probabilities to events and apply corresponding deductions to damages. The Court held that this approach added an unnecessary level of “speculative complexity” and preferred using real world circumstances as a proxy for what would have happened in the hypothetical world.
- Apotex’s share of the generic market: the Court preferred Apotex’s expert evidence, despite some criticism of it, which largely determined this issue.
- Apotex’s lost revenues / pricing: the Court largely ignored the parties’ expert evidence on this issue, preferring fact evidence of provincial employees associated with the Ontario, Quebec and Alberta formularies. The Court ultimately found in the unique situation of this case that, depending on the province, Apotex would have priced its product at 60-75% of the brand’s price while the sole generic on the market, and 50-63% of the brand’s price upon entry of subsequent generics.
- Inventory adjustment: due to a delay in the reporting system, the sales information received from pharmacies did not account for the initial “pipefill” of Apotex product. The Court accepted that remedying this delay required an inventory adjustment (ie. a determination of when steady state sales would be achieved) and preferred Takeda’s expert evidence, which differentiated markets of different sizes.
- Rebates: Based on comparable rebates used for another “at risk” single sourced molecule, the Court accepted a rebate level of 8.9%, which it viewed as neither de minimis nor approaching the rate in a competitive market. In this competitive market, the Court distinguished between purchasers of different sizes and, relying on expert evidence, accepted rebate levels of 44.7% (for pharmacy chains) and 15% (for independent and banner pharmacies).
- Prejudgment interest: the Court held that prejudgement interest began accruing as of the date Apotex’s cause of action arose, ie. the patent hold date, but applied the interest rate as of the quarter before Apotex issued