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PATENTS - Remedies - Damages - Compensatory - Royalties

Friday, January 11, 2019 @ 8:33 AM  

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Appeal by Apotex Inc. from a 2014 decision assessing the damages suffered by the respondent as a result of the appellant’s infringement of eight Canadian patents for the processes relating to the making of a key intermediate compound required to make cefaclor, a cephalosporin antibiotic. In January 1997, Apotex obtained its NOC for capsules of cefaclor, and another NOC was issued for the sale of cefaclor in oral suspension form in 1998. The Federal Court found that Lilly’s patents were infringed by Apotex as a result of its importation and use of cefaclor produced in South Korea and India before 1998. The Federal Court ordered Apotex to pay Lilly $31,234,000 in damages, $75,040,649 in prejudgment interest and a royalty of $1,500 per kg for each sale made by Apotex in breach of the patents that Lilly could not have made. The Federal Court rejected Apotex’s expert evidence which was based on the assumption that a non-infringing alternative could have been available to Apotex when the initial infringement occurred and found that Apotex would not have entered the market until April 2000 without the infringement. In determining prejudgment interest, the Federal Court held that Lilly was not required to prove exactly what use it would have made of the profit it lost as a result of Apotex’s actions and concluded that, in today’s world, there was a presumption that Lilly would have generated compound interest on the funds owed to it, and that Apotex also did so in the period during which it withheld the funds. The Federal Court was awarded prejudgment interest compounded annually at Lilly Canada’s historical average annual profit margin on sales from 1997 through 2012.

HELD: Appeal allowed in part. The determination of interest was remitted for reconsideration. While the Federal Court erred when it concluded that the non-infringement alternative defence was not available in Canada, the Federal Court could not but conclude that the defence was unavailable in this case. There was insufficient evidence for the Federal Court to conclude that the Lupin 2 cefaclor was an objectively commercially viable substitute. The Federal Court would thus not have been justified in considering its effects in the context of a non-infringing alternative defence. Even if the Lupin 2 process was lawful and an economically viable substitute, the defence could not have been available in October 1997, the first date put forth by Apotex. The Federal Court did not err in determining when Apotex would have entered the market. The granting of damages for those sales effectively lost by reason of the infringement was fair and proportionate with regard to the wrongful conduct. The royalty rate chosen was high, but there was no non-infringing alternative available at the relevant time, and the premium Apotex appeared to be ready to pay when it ordered Lupin 2 cefaclor in the actual world was equally very high. In determining the interest that Lilly was entitled to as damages, the Federal Court erred by relying on a presumption that relieved Lilly from proving its loss regarding compound interest per se. A loss of interest must be proved in the same way as any other form of loss or damage. The basis on which the Federal Court arrived at this rate, applicable to all damages on the basis of the annual rate of profit on sales of the Canadian plaintiff, was also not readily apparent.

Eli Lilly and Co. v. Apotex Inc., [2018] F.C.J. No. 1199, Federal Court of Appeal, J. Gauthier, M.J.L. Gleason and J.B. Laskin JJ.A., November 23, 2018. Digest No. TLD-January72019009