Laboratoires Servier et al. v. Apotex Inc. et al., 2015 FC 721

• Judge: Gagné, J.
• Court: Federal Court (Canada)
• Case Date: June 08, 2015
• Jurisdiction: Canada (Federal)
• Citations: 2015 FC 721;(2015), 482 F.T.R. 276 (FC)

Lab. Servier v. Apotex Inc. (2015), 482 F.T.R. 276 (FC)

MLB headnote and full text

Temp. Cite: [2015] F.T.R. TBEd. JL.036

ADIR and Servier Canada Inc. (plaintiffs) v. Apotex Inc. and Apotex Pharmachem Inc. (defendants)

(T-1548-06; 2015 FC 721)

Indexed As: Laboratoires Servier et al. v. Apotex Inc. et al.

Federal Court

Gagné, J.

June 18, 2015.

Summary:

ADIR and its corporate affiliates, including its licensee Servier Canada (the plaintiffs) manufactured, distributed and sold the drug COVERSYL, used primarily in the treatment of hypertension and cardiac insufficiency. The active ingredient was perindopril, a compound covered by ADIR's Canadian Patent No. 1,341,196 ('196 Patent). The plaintiffs commenced an action, claiming that the defendants "Pharmachem" and "Apotex" infringed the '196 Patent by the manufacture of all perindopril products in Canada and by the sale of the 8 mg tablets in Canada.

The Federal Court, in a decision reported at (2008), 332 F.T.R. 193, granted the plaintiffs' claim. The plaintiffs were entitled to elect between an accounting of the defendants' profits and their damages sustained by reason of the infringing activities. Apotex appealed the finding that the '196 Patent was valid.

The Federal Court of Appeal, in a decision reported at (2009), 392 N.R. 96, dismissed the appeal. Leave to appeal to the Supreme Court of Canada was denied. The plaintiffs elected an accounting of the defendants' profits. The remedy phase proceeded.

The Federal Court held that: (i) the defendants were not allowed to deduct the amounts paid on account of the indemnity provided to their affiliates. Although the Court agreed with the defendants that apportionment would have been appropriate in the circumstances, the evidence adduced did not support the defendants' position; (ii) the defendants were only allowed to deduct their stipulated incremental costs; (iii) the defendants' non-infringing alternatives defence was rejected; and (iv) Apotex was to apply a prime rate and Pharmachem was to apply a prime plus 0.5% interest rate, to return on profits earned before November 2011, and a prime plus 1% interest rate thereafter. In the result, Apotex was ordered to pay $56 million, plus any further amounts of return on profits compounded from December 1, 2014, at a rate of prime. Pharmachem was ordered to pay $5,172,000, plus any further amounts of return on profits compounded from December 1, 2014, at a rate of prime plus 1%. The Court dismissed the defendants' motion for an order staying the operation and effect of the judgment. The Court also dismissed the defendants' motion that redactions be made relating to information about Apotex which was non-public.

Evidence - Topic 3007

Documentary evidence - Confidentiality orders - General - The defendants were found to have infringed the plaintiffs' patent - The plaintiffs elected an accounting of the defendants' profits by reason of the infringing activities - Following the release of the confidential judgment and reasons to the parties, the defendants proposed significant redactions to information about the defendant Apotex which was non-public: (i) its ownership and organizational structure; (ii) some financial information; and (iii) intercompany agreements - The Federal Court redacted only the information that was inessential to the full understanding of the Court's reasons - The defendants had not proven risk or prejudice - The defendants only provided global, rather than specific reasons - The protective order issued at the beginning of the proceedings, did not bind the Court while disposing of the case on the merits - "[T]he Court has to weigh the interests at stake and assess whether to displace the general rule for openness and publicity of Court proceedings and judgments." - The defendants did not identify an important commercial interest at stake nor the serious risk to be prevented - Most of the information which the defendants wished to redact was necessary to fully understand the Court's reasons - See paragraphs 170 to 178.

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - The defendants were found to have infringed the plaintiffs' patent by manufacturing and selling perindopril, a compound covered by the patent - From the agreed amount of $43,326,000 in total export sales, the plaintiffs disputed the defendant Apotex's right to segregate and deduct $22,024,374 from its export sales to its foreign affiliates Apotex UK and GenRx - The plaintiffs argued that apportionment was not applicable as the whole of the perindopril sold by Apotex infringed the patent; Apotex would have received no revenue but for the infringement - The Federal Court agreed with the defendants, "as a matter of principle", that the provision of foreign litigation services and of an indemnity for liability under foreign patents did not constitute an infringement of the patent - If part of the price paid by Apotex UK and GenRx was proven to have been paid on account of those services, "then the revenues should be apportioned or segregated accordingly, in order to respect the simple 'common sense view of causation' or 'differential profit' (in this case gross revenues) approach" - However, the defendants had not provided sufficient evidence proving that part of the price paid was indeed on account of non-infringing services and indemnity - See paragraphs 16 to 67.

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - In this accounting of profits case, the defendants argued that a portion of their revenues attributable to the sale of the infringing product should be disaggregated, and that there were non-infringing alternatives available to them, thereby warranting the "differential profit" approach - The Federal Court stated that "the need to apportion the infringer's revenues or profits or to apply the 'differential profit' approach depends on the specific facts of each case and requires an analysis of all the evidence. The notion of apportionment is, in my view, little more than a restatement of the principle that only those profits that are causally attributable to the invention should be disgorged. As this is a question of fact, one can imagine situations where a portion of the profits is not necessarily attributable to non-infringing features of the product sold, but to non-infringing services sold with the product or rendered on the occasion of the sale of the product." - See paragraph 30.

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - The defendants were found to have infringed the plaintiffs' patent by manufacturing and selling perindopril, a compound covered by the patent - The parties disagreed as to the costs that could be deducted from the defendants' revenues; specifically, costs incurred by the defendants, but not directly attributable to perindopril: indirect overhead, indirect quality assurance, fixed overhead, depreciation, rent, freight related salary and benefits - The defendants argued that the "full absorption" cost accounting, which included a portion of the fixed costs, should be used - The plaintiffs contended that the "incremental costs" approach should be applied - The Federal Court held that the defendants were only allowed to deduct their stipulated incremental costs - The disputed costs were fixed in nature, i.e., did not vary with the level of activity or output - "Possibly, and exceptionally, a portion of fixed costs may be deducted, for example when it can be shown that they directly contribute to the production of the infringing product, or that some specific set of facts could, one day, justify the use of the full absorption cost in an accounting of profits. However, the facts of this case do not warrant this Court to depart from its jurisprudence" - See paragraphs 68 to 78.

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - The parties held different views about the significance and impact of the "Schmeiser" decision (Monsanto Canada Inc. et al. v. Schmeiser et al. (2004) (S.C.C.)) on the remedy of accounting of profits - The defendants argued that there were non-infringing alternatives (NIAs) available to them, thereby warranting the "differential profit" approach which, in their view, Schmeiser preferred over the "actual profit" approach - As a result, the defendants submitted that the profits to be disgorged were substantially reduced, even to zero - The Federal Court reviewed the pre-and past-Schmeiser case law, and concluded that "the Supreme Court did not make new law in Schmeiser, nor did it suggest that in an accounting of profits, courts are bound to always consider NIA products, options or scenarios, as fanciful as they may be. ... [T]he 'Preferential profit' approach is preferred over the actual profit approach when the latter would lead courts to order the infringer to disgorge its profits from its sales, whether or not the invention was only a portion or component of the good sold or used and whether or not the infringer's profits were only partly attributable to the infringement." - See paragraph 118.

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - The defendants were found to have infringed the plaintiffs' "196 Patent" by manufacturing and selling perindopril, a compound covered by the patent - The plaintiffs elected an accounting of profits - Causation underscored the defendants' arguments; namely (1) that a portion of their revenues should be segregated, as part of the sale price was paid on account of indemnity and legal services offered to affiliates; and that (2) there were non-infringing alternatives (NIAs) available to them, thereby warranting the "differential profit" approach - The Federal Court rejected both arguments - "Tracing causation is a factual endeavour. In some cases, it could almost be as complex as the invention, and it will require factual or expert evidence. In other cases, as the one before me, there is no need for a very sophisticated analysis of the causal relationship between the infringement and the infringer's profits as the defendants merely sold perindopril, the compound covered by the 196 Patent." - The arguments distorted the decision in Monsanto Canada Inc. et al. v. Schmeiser et al. (2004) (S.C.C.) and the common sense view of causation - Even if the affiliates had demonstrated that they could have manufactured the required quantity of their product, the Court was not convinced that it would have resulted in profits actually remitted to the defendants - See paragraphs 119 to 142.

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - The defendants were found to have infringed the plaintiffs' patent by manufacturing and selling perindopril, a compound covered by the patent - The parties disputed the quantification of the return on profits made by the defendants - The Federal Court stated that "[t]he objective of an accounting of profits is to restore the wrongdoer in the position it would have been in, had there been no infringement. Therefore, an accounting of profits must include the indirect profits or return made by the infringer on the profits earned from the sale of the infringing product. This is to prevent the unjust enrichment of the infringer who 'retains and thus is deemed to benefit from, the profits gained from his misappropriation' ... . In the determination of that return on profits, a plaintiff is 'only entitled to the profits actually made, not those which might have been made had the infringer [...] pursued a different line of business policy' ... [I]n this case, the defendants cannot trace what they did with the profits earned from the sales of perindopril because all of their profits are mingled together and used in the business' day-to-day operations. In similar circumstances, courts have considered that the infringer is deemed to have reinvested those profits: 'Interest at the current rate is then charged on the amount of profit retained' ... . To date, Canadian courts have used the prime lending rate plus 1 or 2 % as proxy for a return on profits" - See paragraphs 143 to 147.

Patents of Invention - Topic 3834

Infringement actions - Damages - Interest - Prejudgment (return on profits) - The defendants were found to have infringed the plaintiffs' patent by manufacturing and selling perindopril, a compound covered by the patent - The plaintiffs elected an accounting of profits - The defendant Apotex argued that the proceeds from the sales of perindopril only served to reduce its intercompany loan and, as a result, its return on profits should be limited - The Federal Court rejected the argument - The argument did not take into account the multitude of choices offered to companies of the same size of the defendants in conducting their business, and the fact that among all of those choices, paying back a low bearing interest loan or a loan bearing no interest might not be a number one priority - The revenues from the sales of perindopril were used by the defendants for their day-to-day operations and various capital requirements - Considering the defendants were operating in a highly profitable environment, a benchmark of prime, as suggested by the plaintiffs, was fair and equitable - There was no reason why there should be a different treatment between the period when the intercompany loan bore interest at prime minus 0.25% and the period when it bore no interest - See paragraphs 148 to 152.

Patents of Invention - Topic 3834

Infringement actions - Damages - Interest - Prejudgment (return on profits) - The defendants were found to have infringed the plaintiffs' patent by manufacturing and selling perindopril, a compound covered by the patent - The plaintiffs elected an accounting of profits - The defendant Pharmachem benefitted from an intercompany loan that bore interest at prime plus 0.5% - It also had two banks loans: for the period in dispute, the operating loan bore interest at prime plus 0.5%; the non-revolving loan bore interest at prime plus 1% - The defendants submitted that the prime plus 0.5% interest should be applied throughout - The Federal Court agreed with the plaintiffs that it was likely that, as of November 2011, the defendants would have preferred to pay back the higher interest loan - The defendants could have adduced evidence verifying if the non-revolving loan could be paid back before term, but had not done so - It was fair and equitable to apply, before November 2011, the prime plus 0.5% interest rate, and to apply the prime plus 1% interest thereafter - See paragraphs 153 to 155.

Practice - Topic 5854

Judgments and orders - Enforcement of judgments - Stay of - The defendants were found to have infringed the plaintiffs' patent - Parallel proceedings were still pending in the UK between the plaintiffs' affiliates and the defendant Apotex - Those proceedings were stayed pending the outcome of this case - The defendants moved for an order staying the operation and effect of this "accounting of profits" judgment until the final determination and quantification by the UK Courts - The defendants argued that it would be unfair for the judgment to have immediate effect - The Federal Court dismissed the motion - The defendants failed to bring clear and convincing evidence that enforcement of the judgment would cause them irreparable harm - That failure was determinative of the motion - The defendants confused the plaintiffs with the plaintiffs' UK affiliates - In addition, their argument was speculative - It was for the UK High Court of Justice to case manage the UK proceedings, not for the Federal Court - See paragraphs 157 to 169.

Cases Noticed:

Monsanto Canada Inc. et al. v. Schmeiser et al. (2004), 320 N.R. 201; 2004 SCC 34, consd. [paras. 3, 103].

Monsanto Canada Inc. et al. v. Rivett (2009), 343 F.T.R. 203; 2009 FC 317, affd. (2010), 408 N.R. 143; 2010 FCA 207, consd. [paras. 3, 106].

Beloit Canada Ltd. v. Valmet Oy (1994), 78 F.T.R. 86 (T.D.), revd. on other grounds 1995), 184 N.R. 149 (F.C.A.), consd. [paras. 28, 91].

Lubrizol Corp. et al. v. Imperial Oil Ltd. et al. (1994), 84 F.T.R. 197 (T.D.), revd. [1996] 3 F.C. 40; 197 N.R. 241 (F.C.A.), consd. [paras. 28, 92].

Varco Canada Ltd. et al. v. Pason Systems Corp. et al. (2013), 437 F.T.R. 243; 2013 FC 750, consd. [paras. 28, 117].

Teledyne Industries Inc. v. Lido Industrial Products Ltd. (1982), 68 C.P.R.(2d) 204 (F.C.T.D.), consd. [para. 73].

Apotex Inc. v. Lundbeck (H.) A/S, [2013] F.T.R. Uned. 402; 2013 FC 192, consd. [paras. 73, 109].

Reading & Bates Construction Co. v. Baker Energy Resources Co., Baker Marine Co. and Gaz Intercité Quebec Inc., [1995] 1 F.C. 483; 175 N.R. 225 (F.C.A.), consd. [para. 89].

Wellcome Foundation Ltd. et al. v. Apotex Inc. (1998), 151 F.T.R. 250 (T.D.), consd. [para. 93].

Bayer Aktiengesellschaft et al. v. Apotex Inc. (2002), 155 O.A.C. 117 (C.A.), consd. [para. 99].

Merck & Co. et al. v. Apotex Inc. et al. (2013), 437 F.T.R. 1; 2013 FC 751, consd. [para. 111].

Ductmate Industries Inc. v. Exanno Products Ltd. (1987), 12 F.T.R. 37 (T.D.), refd to. [para. 147].

Diversified Products Corp. et al. v. Tye-Sil Corp. (1990), 30 C.P.R.(3d) 324 (F.C.T.D.), affd. on this point (1990), 38 F.T.R. 251; 32 C.P.R.(3d) 385 (T.D.), refd to. [para. 147].

RJR-MacDonald Inc. et Imperial Tobacco Ltd. v. Canada (Procureur général), [1994] 1 S.C.R. 311; 164 N.R. 1, refd to. [para. 163].

Hudson Bay Mining and Smelting Co. v. Dumas et al. (2014), 303 Man.R.(2d) 101; 600 W.A.C. 101; 2014 MBCA 6, refd to. [para. 164].

Turbo Resources Ltd. v. Petro Canada Inc., [1989] 2 F.C. 451; 91 N.R. 341 (F.C.A.), refd to. [para. 164].

Bell Canada v. Rogers Communications Inc. et al., [2009] O.T.C. Uned. I22 (S.C.), refd to. [para. 164].

AbbVie Corp. et al. v. Janssen Inc., [2014] N.R. Uned. 61; 2014 FCA 112, refd to. [para. 164].

Sierra Club of Canada v. Canada (Minister of Finance) et al. (2002), 287 N.R. 203; 2002 SCC 41, refd to. [para. 175].

Canadian Broadcasting Corp. v. New Brunswick (Attorney General), [1996] 3 S.C.R. 480; 203 N.R. 169; 182 N.B.R.(2d) 81; 463 A.P.R. 81, refd to. [para. 176].

Counsel:

Judith Robinson, Joanne Chriqui, Brian John Capogrosso and Remi Weiss, for the plaintiffs;

Harry Radomski, Nando De Luca,, Ben Hackett, Jerry Topolski and Michael Wilson, for the defendants.

Solicitors of Record:

Norton Rose Fulbright Canada LLP, Montreal, Quebec, for the plaintiffs;

Goodmans LLP, Toronto, Ontario, for the defendants.

This matter was heard at Toronto, Ontario, on November 17-21, November 24-28, December 1-5, and December 11-12, 2014, before Gagné, J., of the Federal Court, who delivered confidential judgment and reasons dated June 8, 2015, and the following public judgment and reasons dated June 18, 2015, at Ottawa, Ontario.