Non-Infringing Alternative Defence Denied in Omeprazole Infringement Profit Case

Non-Infringing Alternative Defence Denied in Omeprazole Infringement Profit Case

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Apotex Inc v AstraZeneca Canada Inc, 2017 FC 726

The Federal Court (“FC”) revisits the non-infringing alternative (“NIA”) defence in its decision concerning the remedy sought by AstraZeneca Canada Inc., Aktiebolaget Hässle and AstraZeneca AB (collectively, “AstraZeneca”) for Apotex Inc.’s (“Apotex”) infringement of the omeprazole formulation patent.

The FC held that Apotex did not satisfy the factual burden required to establish a hypothetically viable non-infringing substitute during the period of infringement, which could reduce the infringement profits owed to AstraZeneca. [254] In addition, Apotex’s recovery from a previous judgment based on Section 8 of the PM(NOC) Regulations (the “Section 8 Judgment”) was held at nil when reconciled with the infringement judgment. [254] The FC also held that the profits-on-profits allowance should be calculated at prime rate, compounded annually, and that Apotex owed AstraZeneca its profits from its export sales minus the damages already paid for in a foreign jurisdiction. [254]

Background

Canadian Patent No. 1,292,693 (“the ‘693 Patent”), entitled “Pharmaceutical Preparation Containing Omeprazole,” is a formulation patent marketed under the brand LOSEC (2015 FC 322, affirmed in 2017 FCA 9). After a finding in favour of AstraZeneca in the liability phase of the infringement actions concerning the ‘693 Patent, AstraZeneca had elected an accounting of profits instead of damages for the infringement period of 2003-2008. [1] In the US, Apotex had previously paid damages to AstraZeneca to account for its export sales for the infringement of the corresponding United States Patent No. 4,786,505 (“the ‘505 Patent”). [234]

Interestingly, Apotex succeeded in a Notice of Compliance (“NOC”) proceeding against AstraZeneca regarding the related Canadian Patent No. 2,133,762 (“the ‘762 Patent”), also covering LOSEC (2012 FC 559). [2] The Section 8 Judgment accordingly entitled Apotex to damages for being held out of the Canadian market for its generic formulation of omeprazole between 2002-2003. [2]

Issues

In this case, four issues were before the FC, as follows:

  1. Did Apotex have an available NIA during the infringement period of the ‘693 Patent;
  2. How should the Section 8 Judgment in favour of Apotex be reconciled with the infringement judgment in favour of AstraZeneca;
  3. What allowance should be made for profits-on-profits; and
  4. With respect to the infringement of the ‘693 Patent, what allowance is required having regard to the United States District Court award for the infringement of the US ‘505 Patent and Apotex’s satisfaction of that award. [5]

No Viable NIA Established

The underlying rationale of the NIA defence is that the inventor should only be entitled to the portion of the profits attributable to the invention. Therefore, if a non-infringing substitute is available during the period of infringement, then the profit owed would be reduced.

The FC clarified that the infringer’s failure to produce a viable NIA formulation in the real world is not a threshold bar to the use of the NIA defence. [18] Rather, the question should be “Could the infringer have made the product had it attempted to do so at the relevant time and would the infringer have sold the product on some reasonable financial basis in substitution for the infringing product?” [18] To establish a NIA defence, Apotex therefore had to prove on a balance of probabilities that it could and would have sold a NIA during the infringement period between 2003-2008. [11] Apotex argued that it had various viable formulations designed in-house, and in the alternative, NIAs were available from third-party foreign suppliers. [195] Both arguments were rejected by the FC. [196]

Although Justice Barnes found that the asserted in-house NIAs would not have infringed on the ‘693 Patent, [47-53] Apotex failed to establish that it would have sold a commercially viable NIA because its case to suffered serious problems of proof. [20] The FC disagreed with Apotex’s contention that the development of the asserted NIAs would have been simple, cost-effective and speedy [32] because of the fact that it took many years for Apotex to develop the infringing product in the first place. [33] Apotex failed to show that any of the NIA formulations would have been stable enough to be commercially viable. [100-143] The FC was of the view that Apotex started its stability testing long after it knew or ought to have known that its omeprazole product was infringing, [28] and was unsatisfied with the approach of using expert opinion evidence to predict stability in lieu of experiment data. [29] Justice Barnes also found there to be insufficient data to establish bioequivalence, [91] and rejected Apotex’s argument that it would have been a routine and simple exercise to obtain regulatory approval by piggy-backing its NIAs on the approval of its omeprazole, the infringing product. [144-152] The FC also commented that “where an infringer brazenly infringes a valid patent, or substantially courts the risk of doing so, an inference may arise that no viable substitute was available.” [31]

As for third-party NIAs, the FC identified two foreign sources, Kudco and Estevé, potentially available to Apotex, but found both to be unconvincing. [154] While there was no issue of infringement, [158, 172] it would have been unlikely for Mylan to have waived its exclusive rights in favour of a generic competitor, [167] and it was also inconceivable that Kudco, as a leader in the generic market for omeprazole, would have arranged with Apotex to further divide the United States market. [193] In addition, the FC found it unlikely that Apotex could have been able to obtain a third-party NIA during the infringement period by noting that, at best, Apotex would have pursued a third-party option after it had tried and failed to produce and commercialize its own formulation, which would have been well into the infringing period while further Canadian regulatory approval would be required. [153]

Apotex Disentitled to Recover Under Section 8

Before the infringement decision was issued, Apotex had succeeded in an NOC proceeding against AstraZeneca, invalidating the ‘762 Patent, which resulted in a claim for a Section 8 remedy. To reconcile the Section 8 Judgment with the infringement decision concerning the same drug, Justice Barnes exercised his discretion to hold Apotex’s Section 8 recovery at nil as Apotex suffered no loss from being barred from selling omeprazole between 2002-2003. [214-219] The reason was that had Apotex entered the market with its generic omeprazole during the Section 8 liability period, it would have necessarily infringed the ‘693 Patent and had to disgorge its profits to AstraZeneca. [217] It is rare for Section 8 recovery to be denied under the PM(NOC) Regulations, but this case stands as an example of it.

Profits-on-Profits and Foreign Damages Deduction

The FC decided for AstraZeneca’s entitlement to profits-on-profits to be calculated at prime rate and compounded annually, consistent with similar cases; [229] the FC rejected Apotex’s proposition to calculate the allowance at bank rate with simple interest. [220]

Lastly, Apotex had previously paid AstraZeneca damages in accordance with the United States District Court judgment for the infringement of the US omeprazole formulation patent. [234] With respect to Apotex’s export sales to the US, Apotex submitted that AstraZeneca is not entitled to any export profits, whereas AstraZeneca argued that the US export profits are owed, though the portion already paid for as a result of the US judgment should be subtracted from it. [234] The FC agreed with AstraZeneca’s approach that there was no concern for double recovery, and accordingly rejected Apotex’s arguments of estoppel and abuse of process. [251] The FC explained that patent infringement actions in multiple jurisdictions is warranted to ensure complete recovery across jurisdictions. [252]

Commentary

The NIA defence can be used to reduce the amount that an infringer must disgorge in patent infringement claims. Having become increasingly accepted where an accounting of profits is selected (reported Here), and having recently gained traction at the Federal Court of Appeal in the damages context (reported Here), the NIA defence is now an actively developing area in Canadian patent litigation.

In this case, the FC clarified that the lack of a viable non-infringing substitute in the real world is not a threshold bar to a NIA defence. However, a successful defendant would have to overcome a significant factual hurdle to establish the hypothetical availability of an after-the-fact NIA. Nonetheless, one can expect the NIA defence to continue to be raised in the future.