Apotex Inc v Allergan, Inc, 2016 FCA 155

In this decision, the Federal Court of Appeal (“FC”) overturned [4] the decision of the Federal Court (“FC”) in Allergan, Inc v Apotex Inc, 2015 FC 367. [3] Allergan, Inc. (“Allergan”) had previously brought an action against Apotex Inc. (“Apotex”) for infringement of its patent, Canadian Patent No. 1,340,316 (“the ‘316 Patent”). [1, 5] The parties later discussed settlement, following which Allergan concluded that a settlement had been reached, while Apotex disagreed. [2] The issue went to the FC, which held that the parties had settled the litigation, and issued an order enforcing the terms of the settlement. [3]

Apotex appealed that the FC had erred in principle by finding that there was a settlement agreement. [4] Finding that a settlement had not in fact been reached, the FCA set aside the FC’s order and granted Apotex its appeal and costs. [4]

Background

Allergan brought the action to the FC alleging that Apotex had infringed the ‘316 Patent, entitled “8-Alkoxyquinolonecarboxylic Acid Salts Thereof Excellent in The Selective Toxicity and Process of Preparing the Same,” by manufacturing, selling and exporting products containing gatifloxacin. [5]

Settlement conferences spanned from 2012 to 2014 [6] and, based upon some of the evidence of initial exchanges, the FC found that a settlement had been reached. [8] Despite the fact that negotiations had fallen apart after the initial exchanges, Allergan was eventually able to successfully bring a motion at the FC to show that a settlement agreement had been reached. [10]

Analysis

The FCA began its analysis by considering the requirements the FC had set out for the formation of settlement agreements. [17] These were found to be:

1. For there to be a binding contract, there must be an offer and acceptance wherein the terms of the offer are matched by the terms of the acceptance;
2. The acceptance must be unequivocal;
3. There can be an offer and acceptance so as to create a binding contract even where the parties contemplate the execution of a more formal document; and
4. Negotiations as to the more formal document do not necessarily mean that an offer or acceptance has been repudiated. [17]

Next, the FCA laid out its own five requirements for a settlement agreement to have been reached. [20] These were:

1. It must be on the evidence, objectively viewed, the parties had a mutual intention to create legal relations. [21]
2. Like all other agreements, a settlement agreement must satisfy the requirement that there be consideration flowing in return for a promise. In settlement agreements, this is almost certainly never a problem, as by definition, settlements are compromises, so there will be consideration flowing both ways. [25]
3. As an objective matter, the terms of the agreement must be sufficiently certain. [26]
4. An agreement does not arise until there is matching offer and acceptance on all terms essential to the agreement. [30]
5. Any other requirements that might arise. As an example, legislation can create special requirements for certain types of contracts, such as the need for an agreement for a sale of land to be evidenced in writing: [40]

The FC had suggested that a subjective standard, as opposed to an objective standard, must be adopted for assessing if the requirements of an agreement are met. [44] The FCA disagreed with this suggestion, asserting that all of the precedent in this area of the law spoke to there being objective evaluations of the evidence. [45]

Appeal Allowed

Applying the objective view approach to the facts of the case, the FCA did not feel it was possible to find that the parties had reached a settlement agreement, [55] and that the FC had made an error in doing so. [60]

The two pieces of evidence the FCA relied on were (a) that the scope of restrictions to be placed upon Apotex were debated but never agreed to, [68] and (b) that the initial exchanges never alluded to an offer and acceptance of Apotex’s scope of restrictions. [71]

Satisfied with the evidence, the FCA allowed the appeal, setting aside the order from the FC and awarding Apotex its costs. [98]

The FCA’s Final Observations

The FCA made two interesting points in this decision after analyzing the main issue of the settlement agreement. Firstly, Allergan had moved to dismiss the appeal for mootness on the ground that the ‘316 Patent had expired, but Apotex opposed this motion. [89] An order had been issued to dismiss the motion, [90] but the FCA did not view that appeal as being moot, as the matter could have had practical implications for the parties, such as Apotex being bound by the terms on pain of future damages if breached. [91] The FCA also believed that determining this appeal was in the public interest. [92]

Secondly, the FCA noted that Allergan had sought an order enforcing the parties’ alleged agreement in its motion, for which the FC had not only declared that a settlement had been reached, but had set out what it considered to be the exact terms of the agreement and ordered Apotex to comply with them. [94] This effectively turned the alleged settlement agreement into a court order, making Apotex not only liable to a contractual claim if in breach, but also in contempt of court. [95] The FCA concluded however that the over-extensive nature of the FC’s order does not matter as much as the order being set aside because the parties did not reach a settlement agreement. [97]

Commentary

While there was an IP dispute at the heart of this decision, on its surface it dealt more with the mechanics of when an agreement is reached. The most important takeaway from this decision is the FCA’s holding that an objective standard must be used to assess whether an agreement has been reached.  The objective approach is better suited to situations such as these because it is facts that are more important rather than how parties may have felt. One party may easily have felt that an agreement had been reached, while another did not, and it is only by looking at the evidence with a neutral perspective can courts shed light on the actualities. Agreements may also arise in many other IP scenarios, such as licensing or transfers, where some parties may feel they have been transferred or licensed IP, while in reality they have not. It would therefore always be appropriate for courts to base their conclusions on the facts, rather than on the thoughts or feelings of the parties.