Miscellaneous Issues in Cefaclor Damages

Apotex Inc v Eli Lilly and Co 2018 FCA 217 Gauthier JA: Gleason, Laskin JJA aff’g 2014 FC 1254 Zinn J
            1,133,007 – 1,146,536 – 1,133,468 – 1,150,725 [Lilly Patents]
            1,095,026 – 1,132,547 – 1,136,132 – 1,144,924 [Shionogi Patents]

There are a couple of miscellaneous points arising out of Cefaclor Damages FCA that I’d like to address.

Grain Processing
In her remarks on general principles, Gauthier JA noted that

[48] [I]t is important to understand that our Court did not simply import an American law concept in a wholesale fashion. The Court in Lovastatin may indeed have referred to American authorities in order to better ground the concept. But one must be careful not to construe references to American jurisprudence lending support for the NIA defence as a blind incorporation of, or strict adherence to, the reasoning adopted by American courts.

This is all fair enough in the abstract, but a bit obscure; the FCA seems to be implying that there is some particular aspect of American law which is not good law in Canada, but without specifying exactly what.

I wonder if the remark might have been aimed at Grain Processing 85 F3d 1341 (Fed Cir 1999), in which the Fed Cir allowed the infringer to rely on an NIA which was not in existence at the relevant time. Grain Processing was relied on by Apotex both in Lovastatin FCA and in this case. Gauthier JA pointed out that Grain Processing, can be distinguished on the facts, because in that case the NIA was a process that increased the cost by only 2.3%, while in this case the increased costs were raised by at least 40%. I agree; and there is another related distinction. In Grain Processing, the only reason the infringer did not develop the infringing process earlier was that it did not know it was infringing. The infringer knew of the patent, and was trying to design around it, and thought it had succeeded, but there was a technical dispute over exactly how the “dextrose equivalent value” specified by the claim was to be measured (using the “Schoorl test” or the “Lane-Eynon test”). The infringer guessed wrong. But the point remains that once the true construction of the claim had been determined, the infringer had no difficulty designing around the claim and developing a substantially equivalent non-infringing process. That is why the Fed Cir in Grain Processing ultimately held that the infringer would have used the non-infringing process from the outset; it was very clear on the facts that it could have developed the NIA much earlier and would have done so had it known that the process it was using was infringing. This is very far from facts in this case, in which it was difficult to design around the patent and the resulting process was not economically competitive [44e, n]. Again, I’m not sure that Gauthier JA’s general remark was actually aimed at Grain Processing, and I do agree with Gauthier JA that we cannot assume that US law on this issue is correct in every respect. But Grain Processing itself is entirely sound, given its unusual facts, and because of those unusual facts it provides a particularly striking example of the NIA defence; but it is only equally unusual facts that will generate the same kind of result.

Convoyed Sales and Remoteness
On a different issue, Apotex also argued that it is an error of law “to award damages for sales displaced by non-infringing products because such sales are beyond the scope of the Patent Act [and] are too remote” [112]. Gauthier JA re-affirmed that the well-established law that damages for lost sales of so-called convoyed goods are indeed recoverable [114], [122], and on the facts the sales at issue were not too remote [127]. But Gauthier JA did appear to acknowledge that in some circumstances convoyed sales might be too remote for damages to be recoverable, even though the lost sales were caused by infringement [123]-24]. That is, causation is not necessarily the only limitation on recovery in patent damages. Gauthier JA did warn that remoteness is not usually an issue, and it should be raised as soon as possible or it may be considered to have been waived [123].