Recent developments in section 8 jurisprudence
April 17, 2014

by Kyle Ferguson and Tracey Stott

The Federal Court of Appeal recently released several decisions regarding the scope and application of section 8 of the Patented Medicines (Notice of Compliance) Regulations (Regulations). In its simplest terms, section 8 makes an innovator liable to a generic manufacturer for the generic manufacturer’s damages if an application for a prohibition Order is unsuccessful.

In the June 2012 edition of Rx IP Update, we reported on the first decisions quantifying damages under section 8 in proceedings related to ramipril (Sanofi-aventis’ ALTACE): Apotex Inc v Sanofi-aventis Canada Inc et al, 2012 FC 553 (“Apotex”) and Teva Canada Limited v Sanofi-aventis Canada Inc et al, 2012 FC 552 (“Teva”). On March 14, 2014, the Court of Appeal concurrently released the appeal decisions of these matters – the first Court of Appeal decisions addressing quantification of damages under section 8. The Court also released a decision confirming the validity of section 8.

On March 3, 2014, in a separate decision, the Court of Appeal upheld Apotex’s successful section 8 claim in a proceeding regarding azithromycin tablets (Pfizer’s ZITHROMAX).

Ramipril decisions

Liability appeals

The Court of Appeal issued split decisions in both the Apotex and Teva appeals: Justice Sharlow wrote for the majority (Justice Dawson concurring); Justice Mainville dissented in part.

All three judges agreed that Justice Snider made no error regarding the following:

  • the section 8 liability periods (April 26, 2004 to December 12, 2006 in Apotex and December 13, 2005 to April 27, 2007 in Teva);
  • that Apotex and Teva were entitled to compensation for lost sales of their generic version of ramipril associated with the “HOPE indications” (i.e. use of ramipril in the prevention of cardiovascular events and of stroke, diabetes and congestive heart failure);
  • the entry and market share of authorized generic manufacturers in the hypothetical damages period; and
  • rejecting claims by Teva for lost business value, lost indirect profit, lost sales on other products, and in relation to the pricing of the active medicinal ingredient.

In the Apotex appeal, the majority reversed Justice Snider’s conclusion that Teva would have entered the hypothetical market during the section 8 liability period.

The most significant sources of disagreement in the decisions involved (i) the methodology used to construct the hypothetical market and (ii) the “double ramp-up” issue.

Hypothetical market — Regarding the date on which potential competitors would have entered the hypothetical market, Justice Sharlow for the majority rejected the “open season” methodology in which each competitor is assumed to enter the market free of the constraints of the Regulations. She held that steps taken in the real world should be assumed to be taken in the hypothetical world, unless there is evidence to reasonably conclude that different steps would have been taken (other than determining the beginning of the liability period).

As a result of this reasoning the Court of Appeal employed different hypothetical models in each of the Apotex and Teva appeals.

In Apotex, Justice Snider had found that in the hypothetical world Sanofi would have been surprised by the launch of Apotex's generic product because it was assumed that Apotex would not have served any notices of allegation. On appeal, the majority held that Apotex should instead “be treated as having served the same notices of allegation in the hypothetical world as it did in the real world.”

The Court of Appeal similarly reversed Justice Snider’s conclusion that Teva would have entered the hypothetical market during the liability period, concluding that in the hypothetical world Teva and Riva would have behaved as they had in the real world – seeking “summary dismissals as soon as they considered they had a fair chance of success.” In the real world, the last of the prohibition applications relating to allegations of invalidity against Riva and Teva was not dismissed until after December 16, 2006. Justice Sharlow noted: “I see no reason to conclude that either Riva or Teva could or would have achieved that result in the hypothetical world any earlier than they did in the real world.”

In the Teva appeal, the Court upheld Justice Snider’s factual finding that Sanofi would and could have had an authorized generic ready to launch on December 13, 2005, noting that in the real world Sanofi ensured that an authorized generic was in place when Apotex was issued a notice of compliance on December 12, 2006. The Court upheld Justice Snider’s determination that Apotex would have entered the hypothetical market on December 13, 2005.

Justice Mainville, in dissent, would have constructed the hypothetical market “not only with respect to the claimant generic drug manufacturer, but also with respect to any other generic drug manufacturer that is found, on a balance of probabilities, to also be a market participant.” As a result, the Regulations would be disregarded with respect to other potential market participants (thereby reflecting a level regulatory playing field).

Double ramp-up — The majority upheld Justice Snider’s conclusion that any reduction in sales during the actual ramp-up period was a loss occurring after the liability period, and therefore cannot be the basis for a claim for damages under section 8. The Court of Appeal noted that it was not possible to reach a contrary conclusion without implicitly reversing its decision in Alendronate (2009 FCA 187). The dissent would not have denied the double ramp-up claim in this case, arguing that it results in a windfall to Sanofi because the ramp-up period is considered twice.

Federal Court of Appeal decisions: Apotex Inc v Sanofi-Aventis, 2014 FCA 68; Teva Canada Limited v Sanofi-Aventis Canada Inc, 2014 FCA 67.

Validity Appeal

As reported in the June 2012 edition of Rx IP Update, Sanofi also challenged the validity of section 8. Sanofi appealed solely on the question of whether section 8 of the Regulations can validly allow compensation to be paid to a generic drug manufacturer for lost sales attributable to so-called “unapproved” indications, such as the “HOPE indications.”

Justice Mainville, writing for the Court, noted that in the Liability decisions the Court upheld Justice Snider’s finding that the unapproved indications were recoverable, although they may not be so on a different set of facts. He also noted that Sanofi had taken no measures to enforce its HOPE patents, allowing generic sales “without any serious opposition” for HOPE indications – leaving the Court with “no reason to find that the situation would be different in the hypothetical markets involving Teva and Sanofi.”

The Court also rejected Sanofi’s argument that it had no jurisdiction to award such damages. The Court noted that this was a “misguided attempt to transform a factual issue into a question of jurisdiction” and that it was “completely at odds” with the Court of Appeal’s decision in Alendronate confirming the validity of the Regulations.

Federal Court of Appeal decision — Teva Canada Limited v Sanofi-Aventis et al, 2014 FCA 69.

Federal Court decision — Sanofi-Aventis Canada Inc v Teva Canada Limited, 2012 FC 551.

Azithromycin decision

As reported in the June 2013 edition of Rx IP Update, on May 10, 2013 Justice O'Reilly allowed Apotex's claim for relief under section 8 in a proceeding regarding azithromycin tablets (Pfizer's ZITHROMAX). One of the issues at the trial level was whether Apotex would have entered the market with material that infringed Pfizer’s patent. Justice O’Reilly did not accept that Pfizer’s evidence established infringement.

On appeal, Pfizer argued that Justice O’Reilly erred in admitting and relying on the evidence of Apotex’s expert. Pfizer argued that the evidence should not have been admitted and, even if it were found to be admissible, “it was so inherently unreliable that no weight should have been given to it.” The Court disagreed, holding that Apotex’s expert was doing nothing more than interpreting results of recognized tests, Pfizer should have raised the issue at trial, and there was an evidentiary basis to support the Judge’s conclusion regarding infringement.

Federal Court of Appeal decision: Pfizer Canada Inc v Apotex Inc, 2014 FCA 54.

Federal Court decision: Apotex Inc v Pfizer Canada Inc, 2013 FC 493.

The preceding is intended as a timely update on Canadian intellectual property and technology law. The content is informational only and does not constitute legal or professional advice. To obtain such advice, please communicate with our offices directly.

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