Defendants Are Not Entitled to Elect Accounting of Profits

Defendants Are Not Entitled to Elect Accounting of Profits

Apotex Inc v Bayer Inc, 2018 FCA 32

The Federal Court of Appeal (“FCA”) dismissed Apotex Inc.’s (“Apotex”) appeal challenging the remedial decision, concerned with Canadian Patent No. 2,382,426 (“the ‘426 Patent”) owned by Bayer Pharma Aktiengesellschaft and licenced to Bayer Inc. (collectively “Bayer”). [1]

This case is concerned with statutory interpretation of Subsection 57(1) of the Patent Act, where the FCA held that the provision did not grant a defendant in a patent infringement suit the right to choose an accounting of profits over damages to be paid to the patentee. [32]

The ‘426 Patent & Procedural History

The ‘426 Patent relates to the oral contraceptive tablets containing drospirenone and ethinylestradiol, marketed by Bayer under the names Yasmin and Yaz. [4] Apotex makes generic versions of the products covered by the ‘426 Patent, namely Zamine and Mya. [5]

Apotex received a NOC to market its Zamine and Mya tablets in 2013 and 2014, respectively. [6-7] Subsequently, Bayer brought infringement proceedings against Apotex. [6-7] The FC held that the ‘426 Patent was valid and had been infringed by Apotex, and that Bayer was entitled to elect between damages and an accounting of profits.

The sole issue was whether a defendant has a right to elect an accounting of profits over damages under Subsection 57(1) of the Patent Act, [18] which provides:

“In any action for infringement of a patent, the court, or any judge thereof, may, on the application of the plaintiff or defendant, make such order as the court or judge sees fit, … (b) for and respecting inspection or account[.]” [Emphasis added]

Subsection 57(1) Does Not Confer the Defendant the Right to Elect Remedies

The FCA rejected Apotex’s argument that the Subsection 57(1) grants both a plaintiff and a defendant the right to seek an accounting of profits rather than an award of damages. [32] From the outset, the FCA commented that the idea that the infringer of patent can determine the remedy owed to a patentee was an “astounding proposition.” [33]

While there was no precedent to show that an infringer was allowed to elect the remedy, the FCA nevertheless considered the proposition by interpreting Subsection 57(1). [38-39] A review of the legislative history and the relevant jurisprudence led the FCA to conclude that the word “defendant” in Subsection 57(1) did not give the Court the power to grant an election to a defendant following a finding of infringement. [72]

The FCA observed that an accounting of profits first originated in equity and was available to patentees. [63] Common law courts later gained the power to grant patentees an accounting of profits with the enactment of the British Patent Act of 1852, and the Canadian Parliament adopted this equitable remedy with the enactment of Patent Act in 1869. [64-65] Jurisprudence indicated that the right to elect of an accounting of profits necessarily belongs to a patentee. [67] On application by the patentee, the Court may grant or deny the request, but the Court cannot impose an accounting of profits unless the patentee sought such a remedy. [67] In addition, the FCA clarified that the word “defendant,” at least for the purpose of subsection 57(1), means the infringer and not the patentee. [75]

In short, the FCA concluded that what Apotex truly sought was, in effect, to impose a remedy of an accounting of profits even if Bayer did not want it, [36] but such a remedy was not envisioned in Subsection 57(1) because it was never known to equity. [72]

Commentary

Canadian patent law is wholly statutory and the decisions on statutory interpretation are always insightful, as is the FCA’s review of the legislative history of Subsection 57(1) of the Patent Act on this appeal.

In this case, Apotex sought an opportunity to elect an accounting of profits, in lieu of damages, to be paid to Bayer – presumably because the amount of profits that Apotex made were less than the amount of loss incurred by Bayer. The FCA agreed with the Federal Court that allowing a defendant to elect the remedy “would turn the doctrines of equity and parliamentary sovereignty on their heads.” [68] Indeed, an accounting of profits is an equitable remedy aimed at compensating the aggrieved patentee and should not be used as a method of mitigating liability for the infringer.

accounting