No Entitlement to s 8 Damages Unless the Generic Prevails on the Merits in the Underlying s 6 Proceeding

Apotex v Eli Lilly 2023 ONSC 1968 Koehnen J

2,209,735 / atomoxetine / Strattera

Under the patent linkage system set out in the PM(NOC) Regulations, a 24-month statutory stay is triggered when a patentee brings proceedings against a generic seeking to obtain an NOC by relying on a comparison between its product and the patentee’s product. Under s 8 of the Regulations, the generic is entitled to damages for having been kept off the market during that 24-month period if the proceeding is “discontinued or dismissed.” This decision holding that Apotex was not entitled to damages under s 8 of the PM(NOC) Regs is interesting for two points. First, it applies the established rule that a generic is not entitled to s 8 damages if the patent is invalidated in separate proceedings to facts which present a slight twist on the prior cases. Second, it is an interesting example of the independent application of the “would” branch of the “could and would” test for assessing damages.

Apotex had filed an ANDS for generic atomoxetine in Feb 2008. At that time, it indicated on Form V that it would not challenge Lilly’s 735 patent, and would instead wait for its expiry before launching. A few months later, Teva began an action to impeach the 735 patent. Shortly thereafter, Apotex served Lilly with an NOA challenging the validity of the 735 patent, and Lilly responded with an application pursuant to s 6 for a prohibition order (this was under the old Regs), thereby triggering the statutory stay. Both the Teva action and the Lilly application were heard before Barnes J. In the Teva action, released first, Barnes J held that the 735 patent was invalid for lack of utility: Novopharm / atomoxetine 2010 FC 915 affd 2011 FCA 220. In the Apotex proceeding, released six weeks later, he held that the Apotex’s allegations of invalidity failed: Apotex / atomoxetine 2010 FC 1065. Different evidence and a different approach to the issue meant that Apotex failed in its utility argument even though Teva had succeeded: 2010 FC 1065 [96]. But because the 735 patent had already been invalidated in the Teva action, Apotex had already received its NOC by the time the Apotex / atomoxetine decision was released. The proceeding was an application for an order of prohibition under the old Regs, and Barnes J therefore dismissed Lilly’s application “on the ground of mootness” [104]; the judgment was that “this application for an order prohibiting the Minister from issuing a NOC is dismissed.” Apotex then sought s 8 damages. Apotex argued that since the Lilly application had been “dismissed,” which is what is required under [then] s 8(1), it was therefore entitled to s 8 damages even though it had not been successful on the merits.

There is obvious merit to Apotex’s submission on the text of s 8(1). The provision says the generic is entitled to damages if “an application made under subsection 6(1) is . . .dismissed by the court hearing the application,” which indeed it was. But Koehnen J pointed out that a purely textual approach to the interpretation of the provision is not sufficient; context and the purpose of the regulation must also be taken into account [28].

Koehnen J pointed out that it is well-established that a generic cannot claim s 8 damages if the patent is invalidated in a subsequent action. This “no reach back” rule was established in cases such as Apotex / Olanzapine 2010 FC 952 and Ratiopharm 2009 FC 1165 and by the FCA in Syntex / naproxen 2010 FCA 155 affg 2009 FC 494 and re-affirmed in Ratiopharm / amlodipine 2011 FCA 215 (see here). The cases illustrated a few variations on the theme. In Syntex / naproxen, the generic seeking s 8 damages had been unsuccessful in the NOC prohibition application, and the same generic was subsequently successful in having the patent declared invalid in a different proceeding. In Apotex / Olanzapine 2010 FC 952 the generic (Apotex) had been unsuccessful in the NOC prohibition application, but the prohibition order was subsequently lifted when the underlying patent was declared invalid in an action involving a different generic (Teva).

This case presented another variation, because the invalidity holding came before the decision in the s 8 action, rather than after. Koehnen J held this was not a good basis for distinguishing the prior authorities. He noted that if Barnes J had released the Apotex decision before the Teva decision, the no reach back rule would clearly have applied to bar Apotex’s s 8 claim. The fact that Barnes J had released the Teva decision first, rather than second, was not sufficient reason to come to a different conclusion: “Results of cases should turn on matters more substantive than the order in which a judge chose to release reasons in related cases” [48].

Koehnen J also noted that “Apotex wants damages not for anything that occurred as a result of its Notice of Allegations or the prohibition proceeding that followed. It wants damages for something that Teva accomplished in a different action even though Teva is not entitled to damages for what it had accomplished” [33]. This seems to be a kind of fairness argument. While the point is reasonable enough, I don’t find it particularly persuasive, as the Regs are primarily motivated by incentives and balancing interests, rather than fairness.

I find the flip side of this point more compelling:

[47] The importance of the second person’s Notice of Allegations cannot be overstated in this analysis. When a second person decides to issue a Notice of Allegations, it chooses what allegations to make. The nature of those allegations inevitably affects the first person’s decision about whether to commence a prohibition application or whether to let the NOC issue and then pursue the second person for breach of patent. The combination of the allegations Apotex made and the prohibition application Lilly commenced led Barnes J. to conclude that the Minister should be prohibited from granting Apotex a NOC until the 735 Patent expired. Once that issue has been decided, Apotex should not get a second chance to raise new and better arguments that might have led to a different outcome.

The innovator cannot make an informed decision of whether to resist a particular generic’s application unless its exposure to s 8 liability turns on the allegations made in that particular NOA.

Koehnen J therefore concluded that Apotex’s right to s 8 damages had not been triggered [62].

Koehnen J went on to address the damages, in case he was reversed on appeal on the entitlement point. His analysis raised an interesting application of the general principle that events in the real world are good evidence of what would have happened in the but for world (see eg Teva v Sanofi-Aventis 2014 FCA 67 [83]). It is also an interesting example of the independent application of the “would” branch of the “could and would” test. On the could branch of the test, Koehnen J found that Apotex could have manufactured product and entered the market early in the s 8 compensation period [91]. However, he held that it would not have done so. Recall that when Apotex originally filed its Form V in the real world, it stated that it would not challenge the 735 patent, but would instead wait for its expiry. Presumably, this is because Apotex was of the view that the likelihood of prevailing was not great enough to offset the cost of the proceeding. Koehnen J noted that in the hypothetical world in which Apotex was not kept off the market by the statutory stay, it would still have been exposed to an infringement action brought by Lilly, and “Apotex’s risk exposure in a patent infringement action was significantly larger than its exposure in a prohibition proceeding” [96]. This implies that “[i]f Apotex preferred to wait for the 735 Patent to expire before incurring the risk of even a prohibition action, it was even more likely to wait for the 735 Patent to expire before incurring the much larger risk of a patent infringement lawsuit” [97]. Koehnen J therefore found that Apotex would not have launched any earlier in the hypothetical world that it would have in the real world [107]. (This analysis raises some interesting issues about what Teva would have been doing in the but for world, which I won’t pursue since the discussion is all strictly obiter.)