ADIR v Apotex Inc, 2015 FC 721

After Apotex was found to have infringed ADIR’s Canadian Patent No. 1,341,195 (“the ‘196 patent”) by selling perindopril, the Federal Court revisited what the Monsanto Canada Inc v Schmeiser [2004 SCC 34] decision had to say about determining an infringer’s profit, particularly with respect to the issue of causation and whether the Court should consider non-infringing alternatives when computing profit.

Deducting Consideration for Legal Risk is Rejected

First, Apotex argued that a portion of its profits obtained from selling perindopril to Apotex UK should be segregated from the award because part of the amounts transferred were paid in consideration of the risk of infringement litigation in the UK and Australia. [26] The Court agreed in principle that segregating this additional consideration would be consistent with the “differential profit” approach in Schmeiser, [30] but the evidence did not support Apotex’s plea. It was true that Apotex agreed to indemnify Apotex UK for all legal expenses, [37] but other provisions in the price transfer agreement between the two entities indicated that the agreement was predicated on Apotex’s desire to bring home a larger portion of Apotex UK’s profits. [59] The Court could not find that the additional price paid to Apotex was in consideration of legal indemnification and services. [67]

Deducting Fixed Overhead Costs is Rejected

Second, Apotex argued that a portion of the entire organization’s fixed indirect overhead costs should be included as a cost, [71] whereas ADIR maintained that only the incremental costs directly attributable to producing perindopril and any increase in fixed costs should be taken into account. [72]

The Court acknowledged that in some cases a portion of the fixed costs may be deducted. [73] However, in this case, where Apotex did not need to expand its plants, purchase new machinery, or acquire additional labour, Apotex’s fixed overhead costs are too remote to be related to the production of perindopril. Those costs would have been incurred whether Apotex produced perindopril or not. [75, 77]

Courts May Consider Non-Infringing Alternatives, but not “What One Would Have Done Had One Complied with the Law”

Third, Apotex argued that its profits should be reduced to only the amount over and above what it would have made had they produced perindopril by a non-infringing alternative (NIA) means. This was Apotex’s “differential profit approach” that it argued was supported by the Schmeiser case, which Apotex argued more precisely captures the actual profit gained by the infringing activity. [84]

The Court reviewed the case law both before and after Schmeiser and concluded that Schmeiser did not make new law. [118] It did not suggest that courts must always consider non-infringing alternatives. Rather, Schmeiser only reiterated the principle that “the inventor is only entitled to that portion of the infringer’s profit which is causally attributable to the invention”. A “differential approach” is preferred where the “actual profit approach” would “lead courts to order the infringer to disgorge its profits from its sales, whether or not the invention was only a portion or component of the good sold or used and whether or not the infringer’s profits were only partly attributable to the infringement.” [118, emphasis added]  Such a consideration was appropriate in Schmeiser where the infringement that took place involved an improvement of a soy bean, so Monsanto’s profits could be compared to what they would have been had it sold conventional, unimproved, soybeans.

However, if a non-infringing alternative is to be considered, it “cannot be what one would have done had one complied with the law”. [120] For example, the non-infringing alternative should not be, for example, the infringer’s profits if the infringer had simply taken a license instead of infringing. To make such a consideration would be to provide the infringer with “a perfect shelter against the consequences of any future patent infringement in Canada”. [121] The comparison should be with “the next best product that is not the patented product itself”. [120, quoting Rivett FC at para 56, emphasis added]

Return on Profits

In quantifying the parties’ return on profits, the Court used the conventional method of assuming that the profits were invested at the prime lending rate plus an appropriate offset. [143-155]

Commentary

The most impactful lesson from this case is also the most nuanced: courts can consider non-infringing alternatives, as was done in Schmeiser, but not where the non-infringing alternative is what the infringer would have done had they complied with the law.

In Schmeiser, the infringed product was a genetically modified soybean, so the Court could compare Monsanto’s profits to what they would have been had Monsanto simply sold conventional soybeans. This consideration more precisely captured the difference in profit Monsanto obtained by exploiting the difference taught by the infringed patent.

In this case, however, the ‘196 patent was on perindopril itself, so there was no next best product that was not the patented product itself to compare to. The only available comparator was Apotex obtaining its perindopril API from a non-infringing jurisdiction. Comparing to that non-infringing alternative would merely serve to provide an incentive for future infringement.