The Federal Court of Appeal has affirmed the Federal Court’s decision awarding an accounting of profits to ADIR and Servier Canada Inc. (Servier), concluding that Apotex Inc. and Apotex Pharmachem Inc. (Apotex) would not have used a non-infringing alternative (NIA).
In 2008, the Federal Court found that Servier’s patent for the drug perindopril was valid and infringed by Apotex. Apotex’s liability was affirmed on appeal. A trial on an accounting of profits ensued and Apotex was ordered to remit the aggregate amount of C$61 million plus interest. In a first appeal by Apotex, the Court of Appeal held in 2017 that the Federal Court had erred in the profits determination by finding that the NIA defence was not available to Apotex as a matter of law. The Court of Appeal sent the matter back to the Federal Court for re-determination.
On redetermination, the Federal Court found in 2018 that while Apotex could have obtained non‑infringing perindopril, Apotex had not established that it was more likely than not that it would have done so. No reduction to Apotex’s profits over the infringing period was granted, as we reported.
On this latest appeal, Apotex sought to overturn the re-determination decision on the bases that (i) the Federal Court committed a palpable and overriding error in finding that it was more likely than not that Apotex would have declined to acquire non-infringing perindopril from foreign suppliers and that (ii) the Federal Court did not apply the correct legal test for a NIA in the hypothetical world.
No errors of law
In disposing of Apotex’s appeal, the Court of Appeal provided an overview of the legal principles and jurisprudence applicable to consideration of NIAs as a defence in the assessment of damages and the accounting of profits.
The Court of Appeal rejected Apotex’s argument that the approach to NIAs in an accounting of profits should be distinguished from that in an assessment of damages. As similar principles apply, the Federal Court did not err in applying the “could” and “would” analysis to an accounting of profits. What is important is that the four questions identified in Lovastatin be considered and weighed in determining whether an infringer’s profits should be reduced because of the availability of NIAs:
(i) Is the alleged non-infringing alternative a true substitute and thus a real alternative?
(ii) Is the alleged non-infringing alternative a true alternative in the sense of being economically viable?
(iii) At the time of infringement, does the infringer have a sufficient supply of the non-infringing alternative to replace the non-infringing sales? Another way of framing this inquiry is could the infringer have sold the non-infringing alternative?
(iv) Would the infringer actually have sold the non-infringing alternative?
These four questions are not in silos and there may be overlap. In this context, the economic viability of a NIA may pertain to whether an NIA could have been used (i.e., whether it is a true substitute) and also whether it would have been sold by the defendant.
The Court of Appeal confirmed that a defendant’s subjective preferences and intentions are relevant to the would have component of the test. Evidence demonstrating that a party could have done something is not sufficient. Rather, a party must demonstrate that events would have transpired in such a way as to put them in a position to do something in the hypothetical world. Thus, the Federal Court did not err in taking the evidence of Apotex’s subjective preferences into account.
The Court of Appeal rejected Apotex’s argument that the Federal Court improperly focused on the “brazen” nature of Apotex’s infringement. Nothing in the Court’s reasons suggested that “brazen” infringement is something more than intentional or wilful infringement. Rather, the word is used in its dictionary meaning of “obvious, without any attempt to be hidden”. In this regard, the Federal Court did not err in taking into consideration the brazen nature of Apotex’s conduct.
No errors of fact
The Court of Appeal also rejected Apotex’s argument that the Federal Court had made palpable and overriding errors of fact. The evidence, including the testimony of Dr. Bernard Sherman, supports the Federal Court’s finding that, in the hypothetical world, Apotex would more than likely have done exactly what it ended up doing in the real world: waited for its foreign affiliates to be ready to supply it with non-infringing perindopril.
As Apotex did not demonstrate an error of law or palpable and overriding error by the Federal Court, the appeal was dismissed.
Norton Rose Fulbright Canada LLP represented Servier at all stages of this litigation, which commenced in 2006.