Compensation Period in S 8 Action Cannot Begin Prior to Date of Statutory Stay

Teva Canada Ltd v Sanofi-Aventis Canada Inc / ramipril (s 8) 2012 FC 552 Snider J

I believe that the companion cases of Teva / ramipril (s 8) and Apotex / ramipril (s 8) 2012 FC 553 are the first s 8 cases to go all the way to the assessment of damages. Snider J's decisions establish a number of important points concerning the start date for the compensable period, the nature of the “but for” scenario which forms the basis for assessing damages, and the nature of the recoverable damages. Overall, Snider J’s approach can be summed up in one sentence: “I am being asked to assess damages as though no prohibition application had been brought.” [183]. That is, Snider J assessed s 8 damages on the basis of the generally applicable principle of “but for” causation, which requires a comparison between the actual state of affairs and the court’s best assessment of what would have happened in the hypothetical world had the “wrong” not occurred. The “wrong” in this context is the statutory stay triggered by the prohibition application; it is not Teva having been kept out of the market by the operation of the NOC Regulations as a whole. (I put “wrong” in quotations as there is no legal wrong in Sanofi having brought the prohibition application; I use the term to emphasize the parallel with the ordinary principles of but for causation of damages in tort law.) From that causal trigger, Snider J constructed the hypothetical world almost entirely as a matter of determining what would in fact have happened, without regard to various arguments that particular consequences should be ignored for policy purposes. The qualification to that strictly factual approach to constructing the “but for” scenario is that Snider J applied the rule, established in Merck Frosst Canada Ltd v Apotex Inc / alendronate (NOC) 2009 FCA 187, that losses caused by the stay, but incurred outside the compensable period, are not recoverable as a matter of law.

This post deals with the question of the start date of the compensable period (referred to by Snider J as the "Relevant Period) in Teva / ramipril (s 8). The parties agreed that the end date for the compensation period is 27 April 2007, when the application was dismissed. The NOC Regulations s 8(1)(b) do not allow for any discretion in this respect. But the parties disputed the appropriate start date. Section 8(1)(a) of the NOC Regulations provides that the start date for the compensation period is presumptively the date “on which a notice of compliance would have been issued in the absence of these Regulations,” unless the court concludes that another date is more appropriate.

Teva’s predecessor, Novopharm, filed an ANDS for Novo-ramipril in 2001, and received a DIN in 2003. It was then placed on “patent hold” in October of 2003, which is to say it was informed by Health Canada that an NOC would not issue until it had addressed the patents on the patent list. Teva did not file a Notice of Allegation until September 2005 [33], because its business strategy respecting ramipril was to wait until another generic litigated to gain market entry, and then piggy back off those efforts [73]-[74]. Sanofi timely responded with a Notice of Application on October 31, 2005, triggering the statutory stay. Sanofi’s application for an order of prohibition was dismissed on 27 April 2007, [33] and Teva consequently brought this s 8 action. (Note that Sanofi was also unsuccessful in the subsequent infringement action, so this case does not raise the difficult problem of assessing compensation under s 8 when the patent is ultimately determined to be valid.)

Teva claimed it was entitled to compensation for the period starting when it was placed on patent hold in October 2003,* arguing that the period of compensation must be the period during which it had been kept out of the market because of the operation of the NOC Regulations [45]. Snider J rejected this and held that the compensation period cannot begin prior to the date of the statutory stay [6], [61]. In other words, the generic is entitled to be compensated for losses caused by it being kept out of the market because of the statutory stay, not for losses caused by it being kept out of the market because of the operation of the Regulations as a whole.

In coming to this conclusion, Snider J relied on the ordinary grammatical reading of s 8(1)(a) [49], on the scheme of the Regulations as a whole [52], on the Alendronate decision, in which the FCA held at [71] that the purpose of s 8 is to allow a generic to recover losses “arising from the automatic stay,” and on the RIAS to the various versions of the Regulations [54]-[55].

I do not find the textual point persuasive. Section 8(1)(a) provides that the presumptive starting date is “the date, as certified by the Minister, on which a notice of compliance would have been issued in the absence of these Regulations.” Snider J interpreted “these Regulations” to refer to s 6, and not to the Regulations as a whole [51]. This does not strike me as an ordinary grammatical reading. Note that in this case the parties agreed that the certified date was October 14, 2003 [39], that is, the date of the patent hold. Also, s 8(1)(a)(ii) allows an apparently broad discretion to choose another date; it refers to a date “other than” the certified date, not a date “later than” the certified date. The Alendronate FCA decision is relatively weak authority on this point, as the question at issue was the jurisdiction of the Federal Court to hear s 8 actions, and the FCA may not have turned its mind to the significance of this statement for the compensatory period. The RIAS statements, as I read them, are not entirely specific as to what period is meant when referring to “that” delay.

Two other points strike me as more persuasive. The reason that the statutory stay was not triggered until Teva has been on patent hold for two years is that Teva chose not to serve a notice of allegation. As Snider J noted “any loss suffered by a second person prior to the service of a notice of allegation is unforeseeable, because, at that time, the first person has no knowledge of a second person's confidential drug submission . . . It would [] be fundamentally unfair to hold Sanofi liable for any loss Teva suffered when Sanofi had no ability to control its liability” [59]. Put another way, the fact that Teva was kept off for roughly four years instead of the 24 months of the statutory stay, is that Teva chose not to try to enter for two years after regulatory approval; the additional delay was caused by its own decision, not by the NOC Regulations. A response to this might be that the innovator makes its choice to invoke the NOC regime when it lists a patent in the first place, and it could control its liability by not listing. However, Snider J’s interpretation is buttressed by her observation that under the statutory scheme a prohibition action under s 6, which triggers a statutory stay, is a prerequisite for recovery under s 8 [51]. This implies that the “wrong” which causes the loss is the application for a prohibition order, not the listing of a patent on the register.

Snider J’s holding that the compensable period cannot begin prior to the statutory stay, is significant as a matter of law, but it was not determinative on the facts. Section 8(1) clearly gives the court a broad discretion to choose an appropriate start date on the facts. In this case, Teva had been put on patent hold because of Sanofi’s ‘457 patent relating to the use of ramipril for the treatment of cardiac insufficiency [11]. Teva never challenged this patent with a notice of allegation; the s 8 proceedings that culminated in this decision were directed at a number of other patents listed against ramipril [33]. Snider J held that on the facts, Teva made a business decision not to enter the market until the ‘457 patent expired, or some other generic successfully challenged it [74]. Consequently, even if Sanofi had not sought a prohibition order in response to Teva’s notice of allegation regarding the other patents, Teva would most probably have waited until the expiry of the ‘457 patent before launching. Further, other generics did challenge the ‘457 patent, and failed [68]. If Teva were allowed recovery for this period, it would in effect be permitted to recover for having been kept out of the market, even though it could not have obtained an NOC prior to the expiry of the ‘457 patent. This strikes me as a good example of why s 8(1)(a)(ii) gives a discretion to adjust the compensation start date to something other than the certified date. In this case Snider J stated that she would have held the expiry of the ‘457 patent to be the appropriate date even if she had held that the Regulations permit the period of liability to commence prior to the imposition of the statutory stay [76].

*Correction: Teva argued that the start date for compensation should have been the date it received its DIN, which was three months before the patent hold date. This correction does not affect the rest of analysis.